FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v NSW Ports Operations Hold Co Pty Ltd [2023] FCAFC 16

ORDERS

THE COURT ORDERS THAT:

1.    The appeal and cross-appeal be dismissed.

2.    Within 14 days, the parties provide the Full Court with proposed short minutes of order concerning costs.

3.    Until further order, the Full Court’s reasons for judgment in this matter not be disclosed to or published by any person save to the parties, their legal representatives, and Court staff.

4.    Within 7 days, the parties provide the Full Court with a list identifying any paragraphs or parts thereof of the Full Court’s reasons for judgment which are said to contain confidential information and that ought not be published in an unredacted form, including the reasons why a confidentiality claim is made and whether any proposed redactions are agreed or not agreed; noting that for the convenience of the parties only and without indicating any view as to confidentiality, the Full Court has highlighted in yellow parts of the judgment which were redacted by the primary judge for reasons of asserted confidentiality.

5.    The matter be stood over to a date to be fixed for any argument as to confidentiality orders or costs and the making of orders in respect of the same.

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

REASONS FOR JUDGMENT

ALLSOP CJ:

Introduction

1    In 2013, the State of New South Wales privatised Port Botany and Port Kembla. It did so by entering into various agreements with companies being NSW Ports Operations Hold Co Pty Ltd (Hold Co), Port Botany Operations Pty Ltd (Botany Operator) and Port Kembla Operations Pty Ltd (Kembla Operator), which represented the interests of a consortium of infrastructure investors being Global Infrastructure Partners (GIP) and Industry Funds Management (IFM), which had formed the NSW Ports Consortium.

2    In three relevant contracts known as Port Commitment Deeds (or PCDs) there was a provision (clause 3) under which the State agreed to compensate the Botany Operator or Kembla Operator if container traffic at the Port of Newcastle exceeded a specified cap and reduced container traffic at Port Botany or Port Kembla.

3    In 2018, the Australian Competition and Consumer Commission (ACCC) commenced proceedings against Hold Co, Botany Operator and Kembla Operator as first, second and third respondents (but not the State of New South Wales) claiming the compensation provisions in the PCDs had the purpose and had or were likely to have the effect of substantially lessening competition in the market for the supply of port services for container cargo in New South Wales in contravention of s 45(2)(a)(ii) of the Competition and Consumer Act 2010 (Cth) (the Act), in the form that the legislation then took. The relief sought was a declaration to the above effect, an injunction restraining the enforcing of, or giving effect to, the provisions and an order for penalties.

4    The three respondents to the ACCC’s application (Hold Co, Botany Operator and Kembla Operator, to which I will refer collectively as NSW Ports) brought a cross-claim against the companies by then operating, and interested in the operation of, the now privatised Port of Newcastle: Port of Newcastle Operations Pty Ltd (the first cross-respondent), Port of Newcastle Investments (Property) Pty Ltd (the second cross-respondent) and Port of Newcastle Investments Pty Ltd (the third cross-respondent). I will refer to these companies, as did the primary judge, as PON. PON is owned as to 50% by, first, Gardior Pty Ltd as trustee for The Infrastructure Fund (TIF), which is managed by Macquarie Infrastructure and Real Assets (MIRA); and, secondly, China Merchant Port Holdings Co Ltd (CM Ports).

5    The State was made the fourth cross-respondent to the cross-claim of NSW Ports.

6    In order to make sense of the application and cross-claim and the issues thrown up by them, a familiarity with the background facts is necessary.

7    After a 27 day hearing in October and December 2020 and the delivery of submissions in March and April 2021, on 29 June 2021 the primary judge dismissed the application and, consequentially, the cross-claim, delivering a judgment of 1,634 paragraphs over 480 pages: [2021] FCA 720 (J).

8    The appeal brought by the ACCC does not challenge the findings of fact made by the primary judge. Rather, the proper inferences from them and the proper characterisation of them, and of their significance, are challenged.

9    NSW Ports relies on a cross-appeal and PON on a Notice of Contention. They are complex and contingently interlocking and only become relevant if the appeal were to be allowed. Given my view that for the reasons that follow the appeal should be dismissed, the matters in them do not arise.

10    If I may say at the outset, the comprehensive, ordered and thorough judgment delivered with remarkable despatch and clarity by the learned primary judge has made the task of the parties and of the bench on appeal lighter than the subject matter might otherwise have demanded. Nevertheless, it is helpful to set out the relevant essential facts with the inestimable advantage of her Honour’s reasons to which reference can be made by the reader of these reasons without the need for detailed repetition.

Index:

The reasons

The reasons: The factual background

The industry and participants, container terminals and ports

11    The place of shipping container ports in the global and Australian commercial supply chain and relevant aspects of world shipping were described by her Honour at J[14]–[29].

12    Ports handling the import and export (in particular in Australia, import) of cargo by container carriage are a vital part of the economy. The transport, storage and logistic infrastructure for the operation of such a port require vast capital investment by government and private parties, including commercial owners or operators of such facilities: roads, railway lines, intermodal transport and storage facilities, and port infrastructure.

13    The importance of ports, including container terminals, and the efficient movement of goods to the economic well-being of the State was recognised by Transport for NSW in the 2012–2017 Transport for NSW Corporate Plan as quoted by the primary judge at J[76]:

The efficient movement of goods is an essential driver of economic prosperity and quality of life in our metropolitan and regional communities. The NSW freight and logistics industry contributes more than $50 billion to our Gross State Product. NSW roads, rail network, intermodal terminals and ports are some of the most important pieces of infrastructure to enable domestic and international freight movements and support economic development.

14    No port could possibly operate without vast public and private capital infrastructure investment; nor could a port be developed or operate without approvals from both the relevant State and the Commonwealth departments and agencies: see J[30].

15    Supply chain costs are divided between blue water costs of shipping port to port, quayside costs (wharfage, and handling and stevedoring charges) of movement of cargo from ship to land transport, and landside costs of delivery from port to a distribution centre. The largest component is landside costs. The wharfage charges payable to the port are charged on a per container basis: J[27]–[28].

16    There are, and were at all relevant times, three major ports in New South Wales that handle and handled cargo whether bulk, general or container: Port Botany, Port Kembla and the Port of Newcastle. They were described at J[36]–[48]. No other ports in New South Wales are suitable for a container terminal: J[49].

17    Other Australian container ports are Brisbane, Melbourne, Adelaide and Fremantle: J[50]. Shipping services along the east coast typically call at Brisbane, Botany and Melbourne. They are not substitutes for each other due to high landside costs: J[51].

18    If a container terminal were developed at Newcastle a ship would not call at both Botany and Newcastle. It would call in at only one port in New South Wales in the course of an east coast trip that included Brisbane and Melbourne: J[52].

19    By far the most important container port in New South Wales is, and has always been, Port Botany. After the phasing out of the handling of general cargo at Port Jackson with the development of containerisation of cargo in the 1970s and 1980s, Port Botany became the State’s primary container port.

Transactions and events

20    In 2001, the Broken Hill Proprietary Company Limited (BHP) the owner of the site of the former steelworks at Mayfield at the Port of Newcastle, obtained development consent to build a container terminal at the Mayfield site capable of handling 350,000 containers of a standard twenty foot length (referred to as TEUs or Twenty-foot Equivalent Units) per annum. This development involved associated road, rail and wharf infrastructure and dredging: J[53].

21    In October 2003, the New South Wales Labor government announced a NSW Ports Growth Plan. The plan envisaged that Port Botany be developed to its full capacity. After Port Botany reached its full capacity it was proposed that the State would acquire BHP’s site at Mayfield for development as a container terminal. The Growth Plan was envisaged as providing for strategic direction to allow both private and public planning for the growth of container trade through ports in New South Wales. At this time the sequence of such growth of container trade was to be Port Botany and then Port of Newcastle: J[54].

22    In 2007, the State acquired the Mayfield site and transferred it to a State owned corporation, the Newcastle Ports Corporation (NPC), which operated the existing Port of Newcastle under the Ports and Maritime Administration Act 1995 (NSW) (PAMA Act). By this time, the New South Wales Government had decided that the next major container port in New South Wales after the exhaustion of capacity at Port Botany would be Newcastle, which was envisioned then to be within 10 years: J[57]–[60].

23    By 2009, NPC had begun work for the development of a container terminal, seeking expressions of interest for developing the port including a container terminal. In 2010, NPC selected its preferred developer, Newcastle Stevedores Consortium (NSC), described at J[63]. Also in 2010, NPC published a container terminal analysis envisaging the development of the Newcastle container terminal after Botany’s exhaustion at 3.2 million TEUs per annum: J[61]–[64]).

24    It is important to appreciate two things at this point. First, there had never been any suggestion that it was intended that any container terminal at Newcastle would be developed before Port Botany exhausted its capacity. As her Honour found, and as will be discussed, the public and private infrastructure costs of a container port were such as to require the staged or sequenced development of container port capacity.

25    Secondly, Botany’s limit of 3.2 million TEUs per annum imposed in 2005, even with the development of a third terminal, was influenced by community concerns about traffic pressures resulting from the port development and was a development limitation condition. The natural capacity of Port Botany and its infrastructure was much greater.

26    In 2010, the political decisions that had been made by the then Labor Government were that the Port of Newcastle was the next container port in sequence after the exhaustion of capacity at Port Botany.

27    The need to develop such critical and valuable infrastructure as ports to drive supply chain efficiency was not limited to the New South Wales Government. In 2011, the Commonwealth Government published its National Ports Strategy: J[65].

28    March 2011 saw a change of Government in New South Wales with a Liberal/National Coalition replacing Labor.

29    Shortly thereafter, there was a change of emphasis and momentum in the strategic direction of the new Government concerning port development. Whilst in June 2011, the Treasury approved NPC beginning commercial negotiations with NSC for the development of the Mayfield site, including a container terminal, in September 2011 the Government announced that it would privatise Port Botany by way of a 99 year lease: J[67]–[68].

30    By November 2011, NPC and NSC had agreed upon terms for the development of the Mayfield site. On 18 November 2011, however, the Treasurer informed NPC that permission to contract with NSC would have to await the outcome of a “scoping study” into the intended long term lease of Port Botany and “the State’s longer term port infrastructure need and the roles of Newcastle and Port Kembla”: J[71], emphasis added. The State also informed NSC of its intention to pause NSC’s development proposal for Newcastle until the scoping and strategy study for Botany was completed: J[74] and [77].

31    In December 2011, Morgan Stanley was engaged as a consultant to prepare the scoping and strategy study: J[72]. At about the same time, two State agencies, Transport for NSW and Infrastructure NSW commenced a review of ports policy for New South Wales. The Treasury also established a Port Botany project advisory group, which included Infrastructure NSW and the Department of Planning and Infrastructure.

32    By March 2012, Transport for NSW expressed doubts about the economics of transporting containers to Sydney from Newcastle given most were destined for delivery within 40 kilometres of Sydney. The view was developing that the logistic economics favoured Port Kembla over Newcastle: J[78].

33    After the announcement of the proposal to privatise Port Botany, the NSW Ports Consortium was formed to bid for the lease of Port Botany. From early in its considerations, the NSW Ports Consortium received advice that a key consideration for the negotiations of any long term lease of Port Botany was “competing terminals”. This advice, to which the primary judge first referred at J[73] and [79], was based on possible competition between Port Botany and the Port of Newcastle or Port Kembla. The preliminary advice saw the risk as mitigated by (see J[73]):

[o]btaining a guarantee from the NSW Government that it will not allow the development of a second container terminal (… considered to be highly unlikely) or [o]btaining a first right of refusal in relation to the acquisition of any container terminal operations at Newcastle Port or Port Kembla.

34    By March 2012 the concern of at least one bidder with the question of another container terminal at Newcastle had been communicated to Morgan Stanley who was preparing the scoping study: J[80]. This concern was, of course, critical to any valuation of Port Botany. This was especially if, as was the case at the time, the other port (whether Newcastle or Kembla) was owned and run by the State (the announced privatisation at this point being only that of Port Botany).

35    In early April 2012, Morgan Stanley gave Treasury an indicative valuation. Five important points were made. First, the existing 3.2 million TEU cap on operations at Botany should be removed. Secondly, the concern as to the possible development of a container terminal at Newcastle was a possible loss of value to the State in achievable price of a very large sum of money in lowered, more conservative bids, being estimated at a significant, material amount of money the sum of which is confidential and need not be specified for the purposes of this judgment. Thirdly, because of this, it was recommended that the State not support the container terminal element of the Newcastle port proposal which was the result of the negotiations between NPC and NSC. Fourthly, Morgan Stanley advised that Port Kembla should be the next container port in sequence after Port Botany for three reasons: it served the same hinterland as Botany; both ports would service the Moorebank intermodal terminal; and Port Kembla was the next logical container terminal after Botany. Fifthly, Morgan Stanley advised the State to seek combined bids for Botany and Kembla, and that the Port of Newcastle transaction be staged after the transaction for the other two ports: see J[81]–[85].

36    These views were accepted by the Treasury transaction team (which included Infrastructure NSW, the Department of Planning and Infrastructure and Morgan Stanley) and were passed on to the Treasurer on 12 April 2012: J[86]–[87].

37    The terms of the advice of Treasury to the Treasurer were set out relevantly in full by the primary judge at J[86]–[89]. That advice highlighted a number of important contextual considerations against which the commercial and competition considerations in the matter are to be judged. First, an early development of a container terminal at Newcastle would undermine both the rationale to remove the cap at Botany and the combining of Botany and Kembla as a package to enable the container port sequence of Botany and Kembla. Secondly, an early development of Newcastle would have no relationship with the development of the intermodal terminal at Moorebank which would service Botany and Kembla. Thirdly, and consequentially, early development of a container terminal at Newcastle would require additional transport infrastructure from Sydney to Newcastle. Fourthly, shipping lines favoured Kembla over Newcastle when Botany exhausted it capacity. Fifthly, 20-year strategic plans of Infrastructure NSW and Transport for NSW did not support a container port at Newcastle.

38    Central to the advice of Treasury was the removal of the cap at Botany in order to fulfil the potential of the highly valuable assets there. For instance, the development of the third container terminal was estimated to have required $1 billion of State investment by the time of its coming into operation in 2013. It was essential to allow these assets and this capital investment to achieve their full capacity and produce their full value for the State. Without the removal of the cap it was feared that bids would be discounted by a significant, material percentage, which is confidential and need not be specified for the purposes of this judgment.

39    The advice based on the economics, logistics and investment criteria expressed in terms of the long term interests of the State was that Botany should be allowed to reach and exhaust its full capacity potential without any cap, with Port Kembla as the next container port in sequence as part of a combined transaction, with a Newcastle privatisation transaction immediately after the Botany and Kembla transaction. Plainly that advice concerning the Newcastle transaction occurring immediately after a packaged Botany and Kembla transaction was premised on the privatisation of the Port of Newcastle not including any approval for a container terminal.

40    By early May 2012, the Treasurer also received advice in a letter from the NSW Ports Consortium. The letter (see J[90]) was plain: the obtaining of the greatest possible proceeds for Port Botany would be achieved by bundling Botany and Kembla. This would allow the acquirer to manage and co-ordinate the future port and trade demands for New South Wales. If this packaging of Botany and Kembla was not possible it was stated that bidders would want as much certainty as possible about potentially competing ports. The letter stated:

The container market serviced by Port Botany is the same as that which could be serviced by container terminals in either Newcastle or Kembla.

The creation of additional container terminal capacity at either Newcastle or Kembla, prior to Port Botany reaching its maximum potential capacity, will have the negative consequences of bringing forward the investment required by the Government in both road and rail infrastructure which is required to cater for the same level of container imports and exports into and out of Sydney.

We therefore suggest that until such time as Port Botany is approaching its maximum physical container capacity, it will be more efficient for the NSW economy and the Government’s budget for container exports and imports to be serviced at the existing facilities at Port Botany.

The risk of substitution from a second container terminal in NSW before it is economically warranted is also very material for potential bidders. We believe potential Transaction proceeds for Port Botany will be optimised, and the risk of substitution best addressed, by including Port Kembla with Port Botany under the Transaction. This will ensure that the acquirer will be better able to manage and co-ordinate an integrated solution and response to NSW’s future trade demands.

Should the inclusion of Port Kembla in the Transaction not be feasible, we would expect bidders will require as much certainty as possible around the prerequisites and timing for development of potential competing container ports. We would expect that this would include a requirement for a clear undertaking from the NSW Government not to approve, or subsidise, the development of container terminal capacity in Newcastle or Port Kembla until such time as Botany is unable to service the demand.

(Original emphasis.)

41    In May 2012, Morgan Stanley submitted its scoping study, which was summarised by the primary judge at J[92]–[95]. The first recommendation (of the highest materiality) was the removal of the cap of 3.2 million TEUs per annum to allow Botany to reach its potential of 6–8 million TEUs per annum. The costs of construction of a new container port with associated infrastructure with latent unused capacity at Botany of up to 5 million TEUs per annum could not be justified. This would likely extend Botany’s capacity from about 2018 to 2030.

42    The second recommendation (of medium-high materiality) related to the possible development of a competing container terminal at Newcastle. The recommendation was to deny approval to a container terminal in the Newcastle proposal (see J[92(3)]):

[w]ere the NPC container development to proceed in the short term, it would have a material financial impact on the Port Botany Transaction, reinforce the inefficiencies in capping Port Botany below its full utilisation, and impose higher landside transport costs onto the economy. It would also be on the same timeframe as the Commonwealth’s recently announced intermodal development at Moorebank, but would not have any real relationship to that facility (unlike Port Botany or Port Kembla).

…

a container terminal at Newcastle is likely to confuse bidders as to the long-term State policy for container facilities in NSW, and likely lead to a lower Transaction Value to the State as bidders discount future growth at Port Botany, and factor in the risk of competing with the State-owned Newcastle Port Corporation.

Recommendation: Consistent with our preliminary recommendation to the Treasurer in the Interim Report, the Project Team recommends that the State denies the concept approval for dedicated container facilities at the Port of Newcastle (i.e., only that part of the Mayfield proposal that relates to containers) as such an action would deliver the overall best policy and financial outcome for the State.

43    The report noted that bidder perceptions regarding competing with a State-sponsored container terminal would lead to conservative assumptions in the bids.

44    The report recommended that if there were to be a second container terminal outside Botany, it should be Kembla.

45    During 2012, Transport for NSW with the assistance of consultants, considered the future needs of the State for container ports. Current road, rail and quayside network capacity were seen as insufficient for forecast volumes in 2031. Port Kembla was seen as the most cost effective location for expansion of container handling facilities, though further research was necessary for that decision to be made. The report entitled “Options for Container Ports in NSW” including the supporting consultant’s report was expressed to be a “guiding principles” document which set out some fundamental considerations about the choice of the next container port as between Kembla and Newcastle, which was recommended to be Kembla. The primary judge recorded those at J[99]. They included the significantly higher project investment costs for Newcastle to develop as the next container terminal to Kembla: $12.1 billion compared to $4.1 billion under one cost allocation method or $6.1 billion compared to $4.1 billion under another; and the higher cost of moving each container from Newcastle to the Moorebank intermodal terminal by road or rail than from Port Kembla.

46    On 27 July 2012, the Treasurer and the Minister for Roads and Ports announced that Botany and Kembla would be privatised together and that Kembla would be developed after Botany for the State’s long term container capacity: J[100].

47    Shortly thereafter, the Treasurer wrote to NPC indicating its support for the development of a multi-use cargo facility at Mayfield, but excluding the proposed container terminal. The reasons given reflected the advice that had been received by the Treasurer: J[102].

48    The view of the Government was made known to NSC: J[104]–[105].

49    NPC was authorised to continue negotiations with NSC only on the basis of the port handling existing container traffic plus “organic growth” without the proposed container terminal: J[106]. In October 2012, the State wrote to NPC making clear that there was no opposition to a container terminal at Newcastle, after full utilisation of Botany and Kembla: J[111].

50    In October 2012, Infrastructure NSW published its “State Infrastructure Strategy 2012–2032”, which included detailed reasons for preferring the development of Kembla before Newcastle as the next container terminal: see J[107]. The document indicated that Botany would nearly quadruple its container throughput by 2031, reaching over 7 million TEUs per annum.

51    Also in October 2012, the New South Wales Parliament passed the Ports Assets (Authorised Transactions) Act 2012 (NSW) (PAAT Act), relevant aspects of which are set out at J[108] and J[110], including: the authorisation to lease (but not sell) land, up to 99 years; the requirement to place proceeds into a statutory fund; the authorisation to the Treasurer to exercise all necessary or convenient functions for the authorised transaction; the provision that an authorised transaction is to be effected as directed by the Treasurer in any manner considered appropriate by the Treasurer; and the removal of Botany’s 3.2 million TEU cap.

52    In November 2012 a Draft NSW Freight and Ports Strategy was developed and provided to bidders: J[112]–[113]. It identified Kembla as the next container terminal after Botany.

53    In December 2012, the NSW Long Term Transport Master Plan was published by the Government.

54    By that time, there were four final bidders for the Port Botany and Port Kembla leases, including NSW Ports Consortium: J[116].

55    In December 2012, Morgan Stanley, on behalf of the Treasurer informed all four bidders of the State’s attitude to variations to the Bid Version Transaction Documents (making clear that the State preferred no changes), as follows (see J[117]):

Any mark-ups you make to the Bid Version Transaction Documents should reflect the minimum changes that you require to undertake the Transactions based on the cash consideration outlined by you in Section 4.3 above.

The mark-ups you make to each of the Bid Version Transaction Documents will form part of the State’s Preferred Bidder evaluation considerations. NSW Treasury reiterates that the Bid Version Transaction Documents together with the Day 1 Transaction Documents represent the State’s preferred position with regard to the risk allocation regime, terms and other elements of the Transactions.

The selection of the Preferred Bidder will be based to a significant degree on any proposed changes to the Bid Version Transaction Documents. In particular, any changes to the liability and risk allocation regime set out in the Bid Version Transaction Documents will be viewed unfavourably.

56    In February and March 2013 one bidder raised the question of risk of change of Government policy as to the second container terminal, from Kembla to Newcastle, including the risk of the State competing by operating a container terminal in Newcastle. This was discussed within Treasury as were the ongoing talks with NPC. Foremost in the discussion was the potential impact on the bids of a significant, material amount of money the sum of which is confidential and need not be specified for the purposes of this judgment: J[120]–[123]. In early-mid March 2013, Morgan Stanley advised Treasury on the transaction: J[124]–[130]. The essence of Morgan Stanley’s advice was that whilst Government policy was clear, it had changed in the past and that the issue should be dealt with if the likely significant affectation of value of a significant, material amount of money the sum of which is confidential and need not be specified for the purposes of this judgment was to be avoided. Morgan Stanley described the issue as a “new strawman”. The options put forward (see J[125] and [129]–[130]) included some compensation of Botany and Kembla lessees if Newcastle container volumes “exceeded 200,000 TEUs … within the first 50 years” (J[127]) or exceeded a reasonable projection of “organic growth” (J[129]).

57    As the primary judge made clear at J[120] and J[955] the issue of the need for the compensation provisions arose when a bidder raised the question of the possible change of Government policy about the second port, after Port Botany. The bidder did not suggest any prospect of the State changing its policy of exhausting Botany’s capacity before the second container terminal was established.

58    By early March 2013, it was recognised by Morgan Stanley that the issue of compensation by the State would be dealt with in any privatisation of Newcastle: that is by some form of reimbursement provision: J[128].

59    In mid-March 2013, the Treasurer was briefed by the Steering Committee and he accepted their recommendations: J[131]–[134]. These were: to disclose the status of negotiations regarding Newcastle, but reiterate Government policy regarding Kembla after Botany in preference to Newcastle; to provide a regime to mitigate any impacts of State-sanctioned development in Newcastle “inconsistent with the current policy which Bidders are ‘buying’ today” and to draft contractual provisions for compensation for impacts of any change in policy. Given the debate on the appeal about this document, it is appropriate to set out the recommendations in full from J[132]. It was said in argument by the ACCC that there was no better example, than this document, of the impugned purpose of substantially lessening competition. The recommendations were in the following terms:

•    Must disclose current status of Newcastle and reiterate Government policy (draft Transaction Memo attached). This will make it clear that the State has the ability to call for container developments at Newcastle under the proposed lease

•    Provide regime to Bidders to mitigate impacts of State-sanctioned Newcastle developments that are inconsistent with current policy which Bidders are “buying” today

•    Refer over for preliminary drafting of a “Port Development Sequencing Agreement” which essentially provides contractual support for current Government policy as understood by the Transaction Team, and compensation for impacts of a change in policy

•    The risk for the State in this approach is that (i) it subsequently changes its policies and supports container developments at Newcastle, after having transacted leases at Botany and Kembla on a different basis and (ii) it then has to compensate Botany/Kembla Lessees for this change. (We note that Government could require a Newcastle developer to make a financial contribution to mitigate the costs to Government of such compensation).

60    The briefing document set out “key concepts” in the “Port Development Sequencing Agreement”. Under “Outline/Recitals/Acknowledgments” there appeared three points, as follows:

- The current policies of the State are to develop Botany to the fullest extent for containers, then Kembla, and only then develop dedicated container capacity at Newcastle

- Private sector investors are investing in Botany and Kembla under this policy framework

- Private sector investors in ports are seeking certainty as regards the application of State port development policies, and the prospect of competing with state-owned port developments in relation to container developments

61    Though in one sense it is plain from these facts, one matter deserves mention at this point. The aim of these “mitigation” or “compensation” provisions was to ensure the maximum bid price on the current policy framework. If a price were bid on such a hypothesis, any change of Government policy that changed that hypothesis would transform the bid price into a commercial over-payment, after-the-fact. Such overpayment was to be offset by compensation provisions providing for the financial effects of the change of policy. Looked at that way, the provision can be seen as providing for financial risk consequent upon hypothesised future change of Government policy: as a form of insurance or price adjustment for the successful bidder.

62    Whilst one (and those in the position of the bidders) could never be certain about future political and economic policy, two things were and are clear: first, at the least from the then current Government position the advice and economics of the sequencing of a container terminal at Kembla after Botany and Newcastle after Kembla were clear and demonstrable; and, secondly, and despite this first point, the magnitude of the investment recognised by the bid required a very conservative approach by the bidders if there were no financial compensation in the arrangements should Government policy change, even if, as was the case with IFM, the bidders saw the strength of the economic considerations underpinning the sequencing in current Government policy: J[135]–[136].

63    Importantly, in mid-March 2013, Morgan Stanley modelled possible compensation payable based on NSC’s Newcastle proposal and estimated a present value of $44.5 million to be payable by the State to the operatives of Botany and Kembla: J[137]. This, of course, was to be compared to the anticipated (or feared) loss of up to a significant, material amount of money the sum of which is confidential and need not be specified for the purposes of this judgment in the bid values. The asymmetrical nature of these values was emphasised by NSW Ports in its submissions as revealing the true character of the compensation provisions. In its submissions, in particular on likely effects, the ACCC sought to ascribe a different meaning to the use of the word “asymmetry” by the primary judge.

64    The draft PCDs were made available to bidders on 15 March 2013. A covering memorandum expressed Government policy of full development of Botany and Kembla and stated (J[139]):

Government recognises that the potential NPC development intersects with the Transactions. Accordingly and in support of the policy position the Government is providing Bidders with a codified regime (including a compensation formula) if container volumes at the Port of Newcastle exceed an organic growth path prior to Port Botany/Port Kembla being fully developed for containers. Bidders should have regard to the draft Port Commitment Deed which is being placed in the data room on 15 March 2013.

65    In mid-April 2013, the NSW Ports Consortium was announced as the successful bidder for Port Botany and Port Kembla. On 31 May 2013, the Port Botany and Port Kembla PCDs were executed. The relevant extracts of the compensation provisions in the Port Botany PCD and Port Kembla PCD are in schedule 1 to the primary judgment. The primary judge summarised them at J[146]. Neither of the State Owned Corporations (Sydney Ports Corporation (SPC), Port Kembla Port Corporation (PKPC)) that had been involved in the operation of Port Botany and Port Kembla was a party to the PCDs or had any role in their preparation.

66    On 18 June 2013, the Government announced the intended privatisation of the Port of Newcastle, subject to completion of a scoping study: J[148]. Morgan Stanley was retained to prepare the study. The negotiations between NPC and NSC were ongoing.

67    In July 2013, Morgan Stanley advised the Treasurer as to Newcastle: J[150]–[155]. Morgan Stanley advised that negotiations only be permitted to proceed without a container terminal (at berths 5 & 6). This was “Stage 1”, which, however, had within it possible effects on Botany and Kembla and exposure under the compensation provisions since NSC’s forecasts for Stage 1 were up to 200,000 TEUs per annum (the compensation provisions contained a threshold of 30,000 TEUs per annum plus material growth). It was recommended that there be a “satisfactory mechanism to ensure any compensation liability under the [PCD] is passed back to NSC”.

68    On 26 July 2013, the Treasurer, having accepted this advice, informed NSC by letter that the Government would not support NSC’s proposal, but would agree to a revised proposal of Stage 1 only: J[157].

69    On 6 August 2013 at a meeting between Treasury, NPC and NSC, NSC was told of the proposed reimbursement of State liability to the operator of Port Botany and Port Kembla: J[159].

70    By mid-September 2013, negotiations between NPC and NSC were complete. NSC became known as the Mayfield Development Corporation (NSC/MDC).

71    In October 2013, NSC/MDC objected to acceptance of any liability of the State under the PCDs and proposed an alternative which was unacceptable to the Treasurer and he issued a direction under the PAAT Act for negotiations with NSC/MDC to cease: J[164]–[166].

72    In November 2013, the final NSW Freight and Ports Strategy was published and reiterated what had appeared in the draft (see [52] above), especially about sequencing of certain ports: see J[167]–[173].

73    Also in November 2013, having received Morgan Stanley’s final scoping study for the privatisation of the Port of Newcastle, the State announced the proposal to privatise the port by long term lease. Expressions of interest were invited: J[175]. It needs to be appreciated that the throughput of cargo (as to 95%) and revenue (as to 70%) of the port was and was derived from the export of coal. It was forecast that coal exports would increase up to 2043. Newcastle is the largest coal exporting port in the world. In contrast it handled only 15,000 TEUs per annum. It did not have a dedicated container terminal: J[175]. Containers were handled by geared vessels: J[190].

74    The information memorandum to potential bidders for the Port of Newcastle privatisation made clear the sequencing of container ports with Port Kembla after Port Botany, and identified the development of a container terminal at Newcastle in 30 to 40 years, after 2040. Though it stressed the development opportunity thereafter with the available land. The information memorandum disclosed the compensation provisions in the PCDs. It dealt with their required reimbursement as follows J[179]:

The financial obligations of the State under this arrangement will be passed to the Newcastle Port Lessee under the Port Commitment Deed (“PCD”). The Acquirer is not prevented from developing container facilities at the Port; however, the Acquirer will be required to compensate the State for any costs under the Botany/Kembla Port Commitment Deed that result from container developments at the Port of Newcastle. Based on current forecasts, container volumes are not expected to trigger any liability under the PCD for the Port Lessee/Acquirer, and the State sees the risk of costs arising under the PCD as being within the control of the Acquirer.

Notwithstanding the PCD, the Acquirer may choose to further develop container trade at the Port and seek to attract container volumes above the PCD Threshold. The Acquirer will need to determine commercially whether the incremental value of revenues derived from land rental and port charges from all container movements sufficiently offsets any PCD payments prior to the end of the arrangements.

Thus, the proposal was not to prevent any development, but to cast the burden of the compensation provisions upon the acquirer.

75    To interpose: The ACCC made no case that the reimbursement provision envisaged by the information memorandum or the privatisation of the Port of Newcastle was, of itself, contrary to the Act as having the purpose or the effect of substantially lessening competition.

76    In April 2014, the State agreed to lease the Port of Newcastle to a consortium which became PON for $1.75 billion. On 30 May 2014, the Newcastle PCD was executed. Clause 3 was a reimbursement provision summarised by the primary judge at J[188] and set out in the schedule to the primary judgment.

77    Later in 2014, PON’s development plan said there were no plans for a container terminal: J[190].

78    It is appropriate to interpose here by way of emphasis that PON acquired its rights to the Port of Newcastle and paid the relevant consideration on the clear understanding, and in the context, of the explicit explanation of the Government’s policy as to sequencing container ports in New South Wales and of the existence of the compensation and reimbursement provisions.

79    In March and May 2016, PON received two unsolicited proposals to develop a container terminal on the Mayfield site: from Anglo Ports and DP World Australia (the latter the operator of one terminal at Port Botany). They were considered by PON’s board which entered a memorandum of understanding with DP World Australia to undertake a due diligence and feasibility analysis to develop a container terminal. The memorandum expired. The primary judge recorded the following at J[193]:

DP World Australia maintained that the PCDs made the project unviable for it and was unwilling to take on any obligation under the Newcastle PCD. DP World Australia’s CEO said subsequently that a container terminal at Newcastle would be attractive but for the PCDs, and that it was hard to see “it working with that handbrake”.

80    By 2018 the State policy for the sequencing of container ports was renewed. The NSW Freight and Ports Plan 2018–2023 was relevantly summarised by the primary judge at J[194], and highlighted the importance of efficiently developing freight capacity in the State and the large cost of necessary infrastructure. In relation to an asserted issue as to the need for containerised freight at the Port of Newcastle, the Plan stated:

The Plan recognises the interest of the Port of Newcastle in diversifying and expanding the port’s trade base. An initiative has been included in the Plan to support the Port of Newcastle as the commercial operator of the port, to explore other trade opportunities as they deliver their masterplan, such as examining landside capacity constraints that may need to be addressed beyond the timeframe of this Plan.

The NSW Government policy position is that Port Kembla has been identified as the location for the development of a future container terminal to augment capacity of Port Botany when required. Current arrangements do not prohibit the development of a container terminal at the Port of Newcastle but rather allow for the growth of container volumes through Newcastle that service the region.

81    By 2018, the ACCC had begun to investigate the privatisation of Port Botany and Kembla and in particular the compensation provisions.

82    At J[200] the primary judge described the substantial Commonwealth and State infrastructure investment to facilitate the efficient use of Port Botany and Port Kembla. The financial, social and economic scale of such investment and activity necessitates setting out these matters:

(1)    the development of the Port Botany Rail Line Duplication project, supported by $400 million from the Commonwealth government. This project involves a dedicated freight only rail track from Port Botany to near Marrickville. This project was added to the Infrastructure Australia priority list and was made on the assumption that containers moving through Port Botany were expected to increase by 4.5 million TEUs over the coming decades. The project was designed to provide the capacity to meet forecast rail demand generated by the Moorebank Intermodal Terminal, Enfield Intermodal Terminal, St Marys Intermodal Terminal and future terminals;

(2)    the Sydney Gateway Project, which had a project value of $2.4 billion. This project involved various road connections and upgrades to provide a high capacity connection from Sydney Airport and Port Botany to the WestConnex. The purpose of the project included to reduce congestion on existing roads to Port Botany and to support the efficient distribution of freight between Port Botany and logistic centres in western Sydney;

(3)    the reservation of land for the western Sydney Freight Line. This is a future transport link that will provide a dedicated freight link between Port Botany and the Western Parkland City;

(4)    the rezoning of land for the Mamre Road precinct in western Sydney to protect it for use as a future intermodal terminal. This precinct will have an area of 999 hectares. This terminal will have dedicated access to Port Botany via the western Sydney Freight Line and is anticipated to have a cost of $2.6 billion;

(5)    the Moorebank Intermodal terminal, which is a 241 hectare precinct on Commonwealth land, and which is designed to deal with up to 1.05 million TEU of international containerised freight per year. The terminal is designed to deal directly with freight from Port Botany. It is the largest intermodal logistics precinct in Australia. There has also been private sector investment in the precinct, including the development of distribution centres by Woolworths across 26 hectares at a cost of $700-$780 million to Woolworths and $420-$460 million to Qube;

(6)    the St Marys Intermodal Freight Hub, which it is anticipated will deal with up to five 600m trains per day from Port Botany and with an annual throughput of 301,000 TEU;

(7)    the M1 Princess Motorway Improvements for Picton Road to Bulli Tops. The objectives of these improvements include to “increase the reliability of access into and out of Port Kembla, including for general freight, larger restricted access vehicles and high performance freight vehicles”; and

(8)    the M1 Princess Motorway Mount Ousley Interchange. This involves road upgrades on the M1 motorway. The objectives of the proposal include to “provide for the growing freight task including supporting the expanding port at Port Kembla”. This proposal was expressly developed in the context of the State’s policy that Port Kembla would become the State’s second container port.

PON’s business case

83    As a separate part of the basic or background facts at J[205]–[255] the primary judge dealt with PON’s business case for a container terminal at Newcastle. The subject was of some significance to the primary judge in her views on the lack of realistic foundation of the effects case. That discussion began with the fact that since October 2016 PON was in contact with the ACCC about the compensation and reimbursement provisions (upon the basis of the knowledge of the existence of which it had successfully bid for the Port of Newcastle). The ACCC encouraged PON to develop that business case: see J[205]. It is unnecessary to consider the propriety of the circumstances there discussed by the primary judge.

84    Against this background of the interest of the ACCC, CM Ports, one of the two equal investors in PON, was keen in 2018 to develop a container terminal. Consultants were engaged and a preliminary business case was presented to the PON board in February 2019. The primary judge described the steps taken at J[214]–[231].

85    After considering the preliminary business case, the board of PON approved the preparation of a “Detailed Business Case” at a cost of about $3.4 million: J[232]. PON continued the project for a container terminal, which work involved assisting the ACCC to present its case against NSW Ports: see J[233]–[238].

86    In November 2019, PON board approved a budget for further work on the project estimated by the primary judge to be about $7.74 million: J[239]. Part of the project was working (with the ACCC) to resolve favourably the compensation and reimbursement issues.

87    In February 2020, the PON board considered a so-called “PCD Resolution Strategy” which identified political involvement to facilitate the elimination of the reimbursement provision to accelerate a project for a “multi-purpose deep-water terminal project”: J[240]. In April 2020, the PON board received a recommendation to approve a budget of $3.8 million to develop a business case for a multi-purpose deep-water terminal to support the ACCC’s case against NSW Ports: J[242]. In April 2020 PON wrote to the Prime Minister seeking Commonwealth funding assistance and legislative assistance to over-ride the reimbursement provision: J[244].

88    Thereafter McKinsey & Co was engaged to develop an “investment grade” business case, including financial analysis: J[245]. At least six other consultants’ reports were commissioned: J[246]. At J[247]–[255] the primary judge set out aspects of these reports. No “investment grade” business case was ever produced in discovery or tendered. A market analysis by shipping consultants was to the effect that whilstsoever Port Botany had capacity Newcastle would need a subsidy: J[247]. The McKinsey report of August 2020 showed Newcastle to be uncompetitive on landside road costs to Western Sydney, but possibly competitive in rail, which depended on the development of rail and intermodal networks for Newcastle (which necessarily requires considerable investment, whether public or private or both): J[249].

89    Thus, after four years of analysis, after the incentive of a case to be begun (and later begun) by the ACCC, after the use of political pressure and the expenditure of millions of dollars on consultants’ reports, no “investment grade” business case was or apparently could be developed or propounded for a container terminal at Newcastle while Port Botany had capacity.

The reasons: Consideration of the factual background

90    In section 2.7 of the reasons (J[256]–[286]) the primary judge dealt with the ACCC’s ten key contentions from these background facts. Evidence of witnesses was relevant to one of these contentions. It is helpful to examine these ten key contentions, before completing a discussion of the background facts, because her Honour’s clear exposition and conclusions assist later analysis.

91    The first contention was that:

[T]he State’s policy, from around 2003 to 2012 was that the Port of Newcastle would be the next location at which a container terminal would be developed after Port Botany.

92    In response, the primary judge put the short contention into its proper context, finding at J[258]–[261]:

[258] The State policy from 2003 to 2012 was that after Port Botany reached its full capacity as a container terminal, the next container terminal to be developed would be at Port of Newcastle.

[259] This policy, insofar as it identified Port of Newcastle as the next container terminal to be developed after Port Botany reached full capacity, was under question from late 2011 when the State announced it would privatise Port Botany and Transport for NSW and Infrastructure NSW commenced a review of ports policy for NSW. From March 2012 it was apparent that there were serious issues of concern within the State and its advisers about the Port of Newcastle being the next container terminal to be developed after Port Botany reached full capacity. On 27 July 2012 the Treasurer and Minister for Roads and Ports announced that the State would seek to develop Port Kembla as the logical next long term tranche of container capacity after Port Botany. This policy decision was reflected in the State Infrastructure Strategy 2012-2032 published by Infrastructure NSW in October 2012. It was also reflected in the State’s draft NSW Freight and Ports Strategy published in November 2012. This draft also identified that the expectation was that Port Botany might approach its natural capacity between 2030 and 2040, after which new port infrastructure at Port Botany or Port Kembla might be needed.

[260] This policy was also reflected in the NSW Long Term Transport Master Plan was [sic] published in December 2012. The policy remained unchanged in the final NSW Freight and Ports Strategy published in November 2013. It remains unchanged to date. The State has implemented a number of significant infrastructure decisions subsequently reflecting this policy.

[261] Accordingly, at the time the compensation provisions were made on 31 May 2013 the policy of the State was that: (a) Port Botany would be developed to full capacity first, (b) it was anticipated that Port Botany may approach its natural capacity between 2030 and 2040, after which new port infrastructure at Port Botany and Port Kembla may be required, (c) after Port Botany and Port Kembla had reached their full capacity, the next container terminal in NSW would be developed at the Port of Newcastle.

93    The second contention was that:

[I]n at least the period from 2010 to 2013, a private sector consortium was interested in developing a container terminal at the Port of Newcastle.

94    The response of the primary judge to this is found at J[263]–[264] and demonstrates the oversimplified nature of the contention:

[263] NSC/MDC was selected by NPC as the preferred developer of a container terminal at the Port of Newcastle by May 2010. NPC was permitted to negotiate with NSC/MDC in June 2011 on the basis that it could not bind the State and that State approval to any commercial deal would be required. By October 2011 NPC and NSC/MDC agreed a term sheet and draft contracts for the proposed development. When NSC/MDC sought approval to enter into the agreements the State informed it that development of a container terminal at the Port of Newcastle would be considered in the context of an overarching strategy for port infrastructure in NSW. As a result, the State would not agree to the development of a container terminal at Port of Newcastle. It would agree only to the development of a multi-use cargo facility. NPC was permitted to negotiate with NSC/MDC on this basis only. By that time, in July 2013, the State was also contemplating the privatisation of the Port of Newcastle. Negotiations between NPC and NSC/MDC continued on the limited basis approved by the State. By November 2013 the Treasurer had directed NPC to cease negotiations altogether.

[264] The NSC/MDC proposal for a container terminal at the Port of Newcastle never moved beyond a concept phase. Even in concept, the proposed container terminal was phase 2 of the proposed development with no timing commitment. It may be inferred that NSC/MDC did not have funding in place for the development. The advisers to the State also considered that there was no commercial justification for the inclusion of phase 2 in the development proposal. NSC/MDC said that it was ready to develop a container terminal “at a time decided by the government in the future” which it acknowledged may not be for 20 years. In other words, NSC/MDC did not propose to develop a container terminal contrary to the State policy that Port Botany’s capacity should be used first.

95    The third contention was that:

[T]here was a link between the change in the State’s policy with respect to Newcastle being the location for NSW’s next container terminal, and the work done for the State by Treasury and Morgan Stanley, regarding the Port Botany privatisation, in late 2011 and 2012.

96    The contention was over-simplified and as such lacked clarity. The primary judge, discerning, however, its intended meaning, disagreed, finding at J[266]–[267]:

[266] If by this, the ACCC means that the State changed its policy because it proposed to privatise Port Botany, I disagree. The State decided to privatise Port Botany first, it may be inferred, because such a privatisation was the policy of the NSW Liberal/National Coalition government elected in March 2011 and, secondly, because Port Botany is NSW’s only dedicated container terminal and the State policy was always that Port Botany would be developed to its full capacity before any other container terminal would be developed. At the same time as the privatisation of Port Botany, the State was reviewing its port development strategy through the work of Transport for NSW and Infrastructure NSW. The interim outcomes of that review informed with the conclusions reached by the Treasury and Morgan Stanley, that Port Botany should be developed to capacity as a container terminal, then Port Kembla, and only then the Port of Newcastle. The conclusions reached by the Treasury and Morgan Stanley did not drive the conclusions reached by Transport for NSW and Infrastructure NSW. Rather, the Treasury and Morgan Stanley considered the interim conclusions and recommendations of Transport for NSW and Infrastructure NSW which informed their own conclusions.

[267] Accordingly, the privatisation of Port Botany did not cause the State’s change of policy. It coincided with the State’s change of policy but the change of policy was not driven by the fact of the privatisation of Port Botany. The change in the State policy was an outcome only of the consideration of efficient and cost-effective infrastructure development for NSW.

97    The fourth contention was that:

[T]he State was told in 2012 and early 2013 that the Port of Newcastle could compete with Botany and that bidders for Botany and Kembla would consider that risk of competition to be material.

98    This misrepresented what in fact occurred. The primary judge made the following findings at J[269]:

It is correct that the State was told that if a container terminal was developed at the Port of Newcastle it would compete with Port Botany. It is apparent from the course of the communications as a whole that by “compete” what was meant was that if a container terminal was developed at the Port of Newcastle it would divert some container trade away from Port Botany and that, despite the State policy to the contrary, this perceived risk had a not immaterial value to the Port Botany privatisation because bidders would make conservative assumptions about the perceived risk.

99    As will be discussed, and as was found, there was a huge difference between the likelihood or feasibility (or lack thereof) of a container port operating at Newcastle whilst there was capacity at Port Botany, and the perception of risk of change in Government policy as to sequencing of ports in New South Wales.

100    The fifth contention was that:

[B]efore the privatisation of Port Botany in 2013, the State was told that bidders for Port Botany and Port Kembla would want protection from that risk of potential competition from Newcastle.

101    This contention was over simplistic and included two propositions similar in apparent expression, but importantly different in meaning. The bidders were paying for a monopoly, one that was the product of circumstance, geography and the huge necessary infrastructure for a container port and the overwhelming public interest in the rational deployment of public (and private) funds for investment for such infrastructure. The protection that was wanted was not against competition but assuming competition (because of a change of Government policy) against the financial effects of competition: of a competitive, as opposed to a sequenced monopolistic, market. The bidder, having paid for a monopoly, and if changed Government policy was to impair or affect the monopoly, was to have the benefit of a provision that provided for financial mitigation – whether characterised as compensation or price adjustment or insurance – to ensure that there was no basis not to bid at the highest level to win the asset and thereby provide the State with the most funds to deploy otherwise for the benefit of the State.

102    The primary judge found (correctly and reflecting the essence of the above) at J[271]:

Subject to the observation above in relation to the fourth point, it is correct that the State’s focus was to protect bidders from the financial effects of the perceived risk that the State policy might change in the future, as a result of which a container terminal may be developed while Port Botany has capacity or while a container terminal at Port Kembla has capacity.

103    The sixth contention was that:

[T]he Compensation Provisions were directed to providing that protection, and the Treasurer himself signed off on the Compensation Provisions on that basis in March 2013.

104    Subject to the proper understanding of the fifth contention, her Honour accepted this: J[273].

105    The seventh contention was that:

[T]he State contemplated the effects of the Compensation Provisions, including the State withholding approval for a container development at the Port of Newcastle and/or requiring investors in a privatised the Port of Newcastle to reimburse or indemnify the State for its liability under the Compensation Provisions.

106    This too was not accurate, the primary judge finding at J[275]–[278]:

[275] The State did not contemplate that withholding approval for a container development at the Port of Newcastle would be an effect of the compensation provisions. Rather, it contemplated that it had four options which included doing nothing, allowing the development of a container terminal at the Port of Newcastle and providing comfort to bidders, blocking the development of a container terminal at the Port of Newcastle, and blocking the development of a container terminal at the Port of Newcastle and providing comfort to bidders anyway.

[276] In this regard, it is also necessary to recall that the development of a container terminal at the Port of Newcastle meant the NSC/MDC development proposal as described above, which NPC had been pursuing (with the State’s approval until 2012) from a time when that pursuit was consistent with the policy of the State, at least to the extent of the next container terminal, after Port Botany had reached capacity, being at the Port of Newcastle.

[277] It is also necessary to recall that the State’s policy at the time was that Port Botany be developed to full capacity first, then Port Kembla, and only then Port of Newcastle. For this reason the advisers to the State considered the risk of development of a container terminal at Port of Newcastle contrary to the State policy to be a “straw man” that, nevertheless, had to be dealt with given its potential impact on the value bidders would attribute to Port Botany and Port Kembla.

[278] The State did contemplate that if the compensation provisions were included as part of the privatisation of Port Botany and Port Kembla, the State could offset any potential liability under those provisions in the transactions effecting the privatisation of the Port of Newcastle.

107    The eighth and ninth contentions which were accepted by the primary judge were that:

[T]he Treasurer himself contemplated a reimbursement obligation as a consequence of the Compensation Provisions before he executed the Port Botany and Port Kembla PCDs containing the Compensation Provisions on behalf of the State.

…

[T]he Reimbursement Provision was in fact imposed as a consequence of the Compensation Provisions.

108    The tenth contention was that:

[S]ince becoming the owner of Port Botany and Port Kembla, the NSW Ports Respondents have held the view that a Newcastle Terminal would compete with Port Botany if the Botany and Kembla PCDs were not in place, and have been concerned about that prospect.

109    This was not accepted by the primary judge, who found the following at J[284]–[286]:

[284] As discussed below, this submission needs to be unpicked. On the evidence, NSW Ports considers that the compensation provisions provide it with financial protection if the State policy changes and a container terminal is developed at the Port of Newcastle and diverts containers away from Port Botany before Port Botany reaches capacity.

[285] On the evidence, the reimbursement provisions are irrelevant to NSW Ports other than to the extent that they argue that, if anything has an anti-competitive effect, it is the reimbursement provisions alone and not the compensation provisions.

[286] NSW Ports also does not accept that there is a credible threat of entry by a container terminal at the Port of Newcastle in the reasonably foreseeable future and has not done so since the State policy changed, the cap on Port Botany was removed, and Port Kembla was privatised with Port Botany.

The reasons: The evidence of NSW Ports’ witnesses

110    Before dealing with the ultimate findings of the primary judge on the question of the purpose, effect, or likely effect of the compensation provisions it is helpful to examine the findings of the primary judge on the evidence given. This is so because of the emphasis placed on these findings by the ACCC and because it is necessary to help explain why the case of the ACCC (as to both purpose and effect) was based on an asserted proposition which was not made out. This proposition was adverted to in the discussion of the ACCC’s fifth proposition (see [100]–[102] above).

111    Mr Julio Garcia was a director of NSW Ports and the head of infrastructure for the North American region for IFM. His evidence was accepted. The primary judge recounted his evidence at J[553]:

(1)    early in 2012, he considered that a potential container terminal at Newcastle could be a competitive threat to Port Botany;

(2)    substitution by a container terminal at the Port of Newcastle was a perceived material risk for bidders in the Port Botany privatisation process;

(3)    while this became less of a concern during the privatisation process, he continues to hold the view that there is potential for competition for Port Botany from a container terminal at the Port of Newcastle at some time in the future;

(4)    the compensation provisions were directed at ameliorating the risk of competition from the Port of Newcastle if it were developed with a container terminal in the future (noting that by this stage in the privatisation process Mr Garcia did not consider the compensation provisions to be important but accepted they were favourable to bidders); and

(5)    NSW Ports agreed to the compensation provisions so as to enjoy the potential protection they gave from competition by a future container terminal at the Port of Newcastle (noting that Mr Garcia stressed that the provisions gave financial protection to NSW Ports if container volumes at the Port of Newcastle exceeded a certain threshold).

112    Mr Ari Droga was also a director of NSW Ports and a partner of the Australian business of GIP. His evidence was accepted. The primary judge recounted his evidence at J[554]:

(1)    before the PCDs were executed, Mr Droga was conscious of the risk that a competing container terminal could be developed at the Port of Newcastle at some time in the future (noting, however that he considered the risk had been substantially ameliorated by the State announcing its port policy sequencing policy in July 2012 and including Port Kembla with Port Botany into the proposed privatisation. By the time these events had occurred, NSW Ports was comfortable with the risk profile presented by the Port of Newcastle);

(2)    if the Port of Newcastle was to be developed with a container terminal ahead of time it may then provide a competitive force to or could potentially compete with Port Botany;

(3)    under certain conditions being satisfied, specifically that a fully functioning container terminal was developed at the Port of Newcastle, it could compete with Port Botany for some of the addressable market being serviced by Port Botany or in certain areas currently or in the future;

(4)    if a container terminal was developed at the Port of Newcastle, it would not be good for Port Botany. It would be fair to describe that as in the top handful of long-term strategic risks for Port Botany (a risk which had become the subject of more focus as a result of this proceeding); and

(5)    the compensation provisions provided NSW Ports with protection if the State changed its mind about its port sequencing policy. NSW Ports was happy to receive that protection. It could provide economic compensation in the event that competitive capacity was developed and exercised over time at Newcastle. He appreciated at the time the compensation provisions were made that their effect was to provide compensation “in the event that there was proof that the terms of the indemnity were activated and within that involved a substitution of a box that otherwise would have gone to Botany going to Newcastle”. He accepted that competition would very likely be a reason for that substitution.

113    Ms Marika Calfas, the CEO of NSW Ports, gave evidence which was relevantly set out at length at J[555]–[557]. I will deal with Ms Calfas’ evidence to the extent necessary in dealing with the ACCC’s submissions.

The reasons: The purpose of the compensation provisions

114    After setting out the relevant principles governing “substantially lessening competition” and “purpose” at J[894]–[914], about which no complaint was made on appeal, the primary judge dealt with purpose at J[926]–[980].

115    The complaints made about the approach of the primary judge as to purpose were not as to any errors in findings of primary facts, but rather were as to the proper characterisation of the facts as found.

116    The primary judge found (at J[927], [928], [930] and [937]):

(1)    that the State’s motive was profit maximisation: to sell to a bidder at a price to reflect the monopoly being sold. The State’s purpose was to ensure that bidders did not discount their bids because of any risk of establishment of a container port at Newcastle (before Botany and Kembla reached capacity) to ensure the State received full value for the sale of an existing monopoly by indemnifying the bidder for the risk that the monopoly might be reduced: J[927].

(2)    that NSW Ports’ motive was also profit maximisation: it did not want the profitability of the existing monopoly for which it was paying reduced by a competing container terminal at Newcastle. NSW Ports’ purpose was to ensure that it retained what it paid for – the full extent of the existing monopoly: J[928].

(3)    that it was not the purpose of either the State or NSW Ports to prevent or hinder the establishment and operation of a container terminal at Newcastle: J[930].

(4)    that the ACCC’s and PON’s submission should be rejected that the purpose of the compensation provisions was:

(a)    to prevent or hinder the development of a container terminal at Newcastle; or

(b)    to make Port Botany or Port Kembla immune from competition from the Port of Newcastle; or

(c)    to enable NSW Ports to act without any constraint from competition that Newcastle might provide: J[937].

117    The primary judge’s consideration of purpose involved the rejection of two confusions within the ACCC’s case. First (as discussed at J[931]) purpose was not to be confused with effect. That it might be possible (though it was later rejected) that the provision may hinder or prevent a container port being developed at Newcastle, that was not its purpose. Its purpose was financial: for the State to obtain the highest bid; for NSW Ports to have a financial adjustment should the underlying assumption of the bid price be changed. This first confusion revealed the second confusion: A purpose to protect or indemnify against the financial effect of competition, if it occurred, was not the same as a purpose to prevent or hinder the establishment and operation of a container port at Newcastle and thereby to substantially lessen competition.

118    The policy of the State, reached after considerable consideration, was to sequence the development of container ports in New South Wales: Botany, Kembla, then Newcastle. The first two were to be privatised as a package. Given the recency of an earlier Government’s placement of Newcastle as second in the sequencing of container ports, the possibility of a change of Government policy could not be ruled out. This possibility was seen to have the capacity to depress the bids for hugely valuable State assets that would, subject to any price regulation, involve the purchase of a sequenced monopoly. If competition did eventuate from Newcastle, contrary to existing Government policy and contrary to the underlying assumption of the transaction, more would have been paid for the asset than it was worth. The compensation provisions addressed and ameliorated that future possibility of overpayment by an entitlement to compensation. It can also be characterised as a price adjustment or insurance mechanism. Its purpose was to remove a financial risk should competition be introduced, in order to obtain full value in the bid.

119    At J[933], the primary judge found:

The text and context of the compensation provisions shows that the substantial purposes of the State and NSW Ports were as described above: for the State, to ensure that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle and, for NSW Ports, to ensure that it would retain what it would pay for – the full extent of the existing monopoly of Port Botany in respect of container port services in NSW. These purposes are the two sides of the same coin. Neither involve the purpose of preventing or hindering the development or operation of a container terminal at the Port of Newcastle.

120    The consideration of the matter elaborated by the primary judge at J[934]–[980] supports the conclusions her Honour drew.

121    At J[934], the primary judge rejected the notion that NSW Ports would have relied on the compensation provisions not to compete with a port at Newcastle. The primary judge found at J[934]:

…The idea that NSW Ports considered that it could “give less and charge more” (QCMA at 517) because of the compensation provisions is far-fetched. NSW Ports would still have an incentive to maximise its profits. To do that, it would need to ensure that it maintained or enhanced the price-quality package that customers and ships would receive in using Port Botany. If it did not, the risks are obvious.

122    At J[935]–[936], the primary judge took from the compensation provisions themselves that the parties never intended that NSW Ports would not do everything it reasonably could to prevent container volumes being diverted from Botany or Kembla to Newcastle.

123    At J[937], the primary judge rejected the submissions of the ACCC and PON that the purpose of the compensation provisions was threefold, being to:

…(a) prevent or hinder the development of a container terminal at the Port of Newcastle, (b) make Port Botany and/or Port Kembla immune from competition (by the threat of or actual entry into the market for Container Port Services) from the Port of Newcastle, or (c) enable NSW Ports to act without any constraint from competition that the Port of Newcastle would otherwise provide.

124    At J[938], the primary judge set out the essence of the submission of PON (that was repeated on appeal), which, her Honour said, conflated purpose and effect:

Under normal circumstances, the successful bidder faced with threatened or actual loss of its customers to a new entrant or potential new entrant would engage in rivalrous behaviour to limit those losses. That is the competitive pressure brought to bear by the new entrant or potential entrant. The inoculation of one market participant from the economic effects of the substitution will inevitably reduce the competitive pressure on that market participant, because it will no longer face the same incentive to engage in the competitive conduct to protect its revenue from the risk that its customers would substitute suppliers. It reduces and distorts the ordinary commercial incentives to engage in rivalrous behaviour.

…

This distortion of incentives would apply well before entry in fact occurred. The mere possibility of entry, under normal commercial circumstances, would act as a significant competitive constraint: see … [QCMA] at … [512] per Woodward J. The significant reduction in the incentive to act in a competitive manner to discourage potential new entry is a substantial lessening of competition.

…

A purpose to enable the incumbent to behave in a manner substantially less constrained by the threat or reality of new entry is a purpose of reducing competition in a manner that is meaningful to the competitive process.

125    The primary judge drew the distinction between purpose and effect with clarity, stating at J[939] that there may be proscribed effect without proscribed purpose, and proscribed purpose without proscribed effect. The relevant purpose of the State and NSW Ports was then set out in J[939], as follows:

…The subjective understanding of the compensation provisions by the State and NSW Ports is clear – they did not intend that NSW Ports would be inoculated against the threat of entry into the market for Container Port Services by the Port of Newcastle. They intended that if that threat materialised NSW Ports would be compensated for the loss of containers over and above a specified natural growth rate of container volumes at the Port of Newcastle if it had continued without a container terminal. This intention is specifically identified in advice from the Treasury transaction team to NSC, “Mayfield Development Negotiation Parameters”, about disclosure of the compensation provisions to bidders for the Port of Newcastle. The advice in August 2013 was that:

The State requires that the financial obligations under this arrangement [the compensation provisions] be mirrored by the developer of any container capacity at Newcastle. Ultimately these arrangements do not prevent container volume growth at Newcastle, but the costs of doing so will need to be borne by the container developer (i.e. by making payments to the State).

126    As will be seen, the ACCC and PON submitted that there is embedded error in these conclusions, and that a proper appreciation of competition principles requires the recognition that the purpose as found by her Honour should be characterised as a purpose to (substantially) lessen competition.

127    From J[941]–[947], the primary judge summarised the development of State policy about ports from 2003. From 2003 the policy (for both Labor and Liberal/National governments) was that container ports would be developed in sequence, with Newcastle not being developed until after Botany had reached capacity (albeit with a cap): J[941]. The changes of policy in 2012 were only as to sequence: Kembla was to be second; and that the cap on Botany would be removed. The decision to change policy was preceded by, and based on, detailed economic considerations: J[946]–[947]. Against this background, the primary judge rejected the ACCC’s submission that the policy (that is the policy change) was a consequence of a desire to protect the successful bidder from competition from Newcastle: J[948]–[956]. There was no appeal against this conclusion. The documentary record is overwhelmingly in support of the finding.

128    At J[959], the primary judge referred to the “asymmetric” risk: the risk of a container terminal at Newcastle was perceived as low by both the State and NSW Ports, at the time of privatisation, but it could produce a disproportionate discount to the bids because of the potential to reduce profitability of the long lease of Botany and Kembla. At J[960], the primary judge summarised the nature of that asymmetry and the nature of the risk being addressed – the risk of a change of Government policy that could not be seen as trivial or so remote as to be described as irrational or irrelevant:

This is why Mr Garcia agreed that he perceived the risk to bidders for Port Botany and Port Kembla to be material in 2012. The evolution of the State policy and NSW Ports’ own due diligence throughout 2012, as well as the inclusion of Port Kembla in the privatisation, explains why he became “less and less” concerned about this risk. A risk may be material, even if it is very unlikely to eventuate, because of the magnitude of the consequences if the risk does eventuate. If a sufficiently functional container terminal was operating at the Port of Newcastle, it may be able to take a significant share of container volumes from Port Botany. The magnitude of the potential harm to Port Botany was thus high. Even a small risk of that occurring would have been, and was, highly relevant to NSW Ports. The State appreciated this because it realised that the asymmetry of the risk might well cause a significant loss of value to the asset it was selling. This is why the State accepted that it had to disclose the risk and do something to ameliorate it. This does not necessarily mean that NSW Ports or the State, at the time the compensation provisions were made, considered the likelihood of the risk occurring to be high, probable, or even real. What the State must have accepted, however, was that the risk was not so trivial or so remote that bidders could be relied upon to dismiss it as irrational and irrelevant to their bid price. In this regard, it is relevant to note that the risk being addressed was the risk of a change of the State policy in the future. It was not the risk that a container terminal might be developed at the Port of Newcastle contrary to the State policy; that possibility was never contemplated.

129    At J[961]–[962], the primary judge clearly explained the proper understanding of “protection from competition” in the evidence of Mr Garcia and Mr Droga as “financial protection from the loss resulting from competition, not the prevention or hindering of competition”: J[962].

130    From J[963] the primary judge dealt with (but did not accept) a submission of the State and NSW Ports that the purpose of the compensation provisions was to codify the State’s policy as it existed from July 2012. The ACCC (not the State or NSW Ports) grounds an aspect of its appeal on this rejection (see ground 7 below). The primary judge recognised the self-defeating nature of the submission made by the State and NSW Ports at J[963]–[964] as follows:

[963] The submission of NSW Ports and the State that the purpose of the compensation provisions was to codify the State’s policy as it existed from July 2012 onwards is problematic. As PON submitted, it is clear that the purpose of the State policy was (and is) to prevent the development of a container terminal at the Port of Newcastle until container capacity is used at Port Botany and Port Kembla. If the compensation provisions codified the State policy then their purpose would be to prevent the development of a container terminal at the Port of Newcastle for three or more decades. The submissions, accordingly, are in fact contrary to the interests of NSW Ports and the State in this case. If the substantial purpose of the State and/or NSW Ports had been to prevent or hinder entry of the Port of Newcastle into the market for Container Port Services in NSW then, depending on the likelihood of entry into the market by PON, that may involve the proscribed purpose. It would not matter that no container terminal exists at the Port of Newcastle. As s 4G of the CCA makes clear, if competition is prevented or hindered, it is lessened.

[964] However, I do not accept that in making the impugned provisions NSW Ports or the State had the purpose of preventing or hindering the development of a container terminal at the Port of Newcastle. The “codified regime” referred to in the bid documents issued in March 2013 is the regime established by the compensation provisions. The compensation provisions are engaged only if a container terminal is in fact established and operating at the Port of Newcastle within the 50 year term of the Port Botany and Port Kembla PCDs and if Port Botany and Port Kembla have not reached Full Capacity. That is, the compensation provisions do not codify the State’s policy to prevent a container terminal at the Port of Newcastle until Port Botany (and Port Kembla) have reached capacity, but rather assume the State policy has changed to enable the development of a container terminal at the Port of Newcastle while Port Botany (or Port Kembla) has not reached Full Capacity. The fact that a Morgan Stanley representative inaccurately described the compensation provisions as “documenting” the State policy does not mean that this represents the purpose of either the State or NSW Ports in including the compensation provisions in the PCDs.

131    The primary judge restated clearly the purpose and the factors that supported it at J[965]–[966] and J[968]–[971]:

[965] Consider the circumstances from the perspective of the State. In effect, it was selling an existing monopoly of Port Botany for Container Port Services that extended over a large part of NSW. The State wanted to get full value for that monopoly. It could only get full value by giving financial protection to bidders from the risk of the monopoly being reduced by a container terminal being developed at the Port of Newcastle because the risk that the State policy might change could never be eliminated. It knew that it could get indemnified for liability as a result of providing that financial protection by requiring an indemnity as part of the privatisation of the Port of Newcastle.

[966] From the State’s perspective, with the impugned provisions: (a) the successful bidder for Port Botany would have paid full value for the existing monopoly, (b) any future successful bidder for the Port of Newcastle would not have paid anything for the existing monopoly, and (c) if the future successful bidder for the Port of Newcastle wanted a part of the existing monopoly it, rather than the State, should pay for it.

…

[968] There is also evidence that PON appreciated these facts at all times. On 16 April 2020 PON assessed the success fee which it should pay to its employees if the reimbursement provisions were set aside should reflect the “low probability ascribed to container terminal operations [at the Port of Newcastle] buy [sic] bidders in 2014”. This reinforces my view that PON did not pay the State for any right to construct a container terminal while Port Botany has capacity or before a container terminal is constructed at Port Kembla.

[969] From this perspective, as at May 2013, the compensation provisions (and contemplated reimbursement provisions) were not intended to prevent or hinder a container terminal at the Port of Newcastle. They were intended to allocate financial costs and benefits appropriately if the State policy changed in the future and a container terminal was permitted to be constructed at the Port of Newcastle before Port Botany and Port Kembla had reached Full Capacity. After all, from the perspective of the State and NSW Ports, NSW Ports paid for what it received and PON paid for what it received. The question which would arise for the State is, why should PON now get more than it received for nothing? I note that this posited perspective of the State is reflected in evidence that the current Treasurer of NSW said to Mr Carmody at a meeting about PON’s plans in November 2018 that “PON knew what it bought, including the PCD”. This question, however, concerns the likely effect of the impugned provisions discussed below.

[970] There is no suggestion at all in the detailed documentary record that the State (or NSW Ports) considered that the compensation provisions would prevent or hinder a container terminal at the Port of Newcastle. This is telling given the detailed documentary record.

[971] The purpose which the State identified in its submissions – to maximise the amount that it received on privatisation of Port Botany and Port Kembla – does confuse purpose and motive, but that does not assist this aspect of the case of the ACCC and PON. As noted, the State’s motive was profit maximisation. The end or purpose sought to be achieved by the State was to ensure bidders did not discount their bids because of the risk of a container terminal at the Port of Newcastle taking container volumes away from Port Botany. The end or purpose sought to be achieved by NSW Ports as the successful bidder was to ensure that it retained the value of the rights it was acquiring if the risk of a container terminal at the Port of Newcastle taking container volumes away from Port Botany eventuated.

132    The position of PON referred to at J[968] and its reimbursement obligations lies at the heart of the proper characterisation and understanding of the compensation provisions. The State policy was in place. Any privatisation of the three ports was to take place in the framework of that policy. Future policy change that introduced container terminal competition could not be eliminated as a future possibility. The successful bidder for Botany and Kembla was expected to bid and pay for a monopoly; the successful bidder for Newcastle was expected to bid and pay for a port subject to a State policy against supporting and building infrastructure for a container port at Newcastle until Botany and Kembla were exhausted in capacity. A price adjustment was provided for if policy did change: amelioration for NSW Ports from the higher price it paid, and funding of that amelioration by PON given the price it paid was premised on not having a container terminal before exhaustion of Botany and Kembla capacity.

133    At J[969], the primary judge exposed with clarity the underlying considerations as to her Honour’s findings as to purpose. As will be seen, the ACCC and PON criticised the paragraph as disclosing a distinction without a difference. The error, it was submitted, flowed from too little or no weight being given to underlying principles of competition: see the discussion of those submissions at paragraphs [157]–[159], [168] and [172] below. However, for the reasons given at [186]–[208] below, no error is discernible.

134    At J[976], the primary judge addressed a further elision or confusion within the submissions of the ACCC between the two different considerations: the perception of risk of Government policy changing that could never be eliminated; and the reality of the chance or possibility. As her Honour later found the former was real in the perception of bidders potentially capable of a large affectation of bids; the latter was wholly unrealistic in fact. At J[976]–[977], in rejecting one way of putting the matter pressed by the State that the compensation provisions were a “sidewind”, the primary judge said the following:

[976] I also consider that the submission of NSW Ports and the State that the State “cannot have had a subjective purpose of suppressing competition that it did not consider would exist in the future” fails to recognise that the issue was one of risk. The State appreciated that bidders would perceive a risk that the State policy might change and that as a result a container terminal might be established at the Port of Newcastle. The State appreciated that its policy could not eliminate that perceived risk because governments can change and governments can change their minds. The compensation provisions do not answer the question whether there was a real chance or a real possibility of the risk eventuating in the foreseeable future because the risk, as I have said, was asymmetrical – provided the risk of a change in the State policy was not so trivial that bidders would dismiss it as irrational (which was plainly not the case) it had to be addressed.

[977] The same conclusion applies to the State’s submissions that the compensation provisions “ought properly be described as arising through a sidewind, in response to the concern raised by bidders (and the advice that the transaction team gave about the need to manage equivalent concerns among other bidders)” and that bidders might hold a “false perception” of the risk of a competing container terminal at the Port of Newcastle and “irrationally devalue the price that the State would receive as part of the privatisation for no good reason”. The compensation provisions were not a sidewind. One or other bidder was bound to raise the issue at some time because of the nature of the risk. The perception of risk was not false because an asymmetrical risk is always relevant. Further, the devaluing of a bid to reflect the risk would not have been irrational, given the asymmetrical nature of the risk. The State considered the issue a “straw man” because it assessed the risk to be exceedingly small, but it also knew that the risk existed and the perception of it could not be eliminated. The State thus was not dealing with a “red herring”. The issue was real, even if the State and NSW Ports considered that the risk itself was not.

135    This clarity of the importance of the provisions did not, however, convert the purpose of them to be the hindrance of competition or as being part of, or support for, the policy of the State to sequence the development of container terminals Botany, Kembla then Newcastle. As explained in J[978]:

The State submitted that the key issue is that from the State’s perspective its policy settled that a container terminal would not be established at the Port of Newcastle until capacity at Port Botany and Port Kembla had been used; the consequence is that no additional step of resolving the policy and securing its implementation through the device of the compensation provisions was required or understood to be an outcome achieved through those provisions. I agree, but still consider that the compensation provisions did something the State’s policy could not do. They enabled the State to obtain full value for the existing monopoly it was selling.

136    At J[979] the primary judge expressed agreement with the following submissions of the State and can be taken as findings:

(1)    the question for the bidders would be whether they were purchasing a market covering a large part of New South Wales, or whether they were purchasing a market covering only the southern half of New South Wales;

(2)    the protection obtained by the compensation provisions was “financial” or “economic” in the event of diversion of containers from Port Botany to the Port of Newcastle, rather than protection against such diversion occurring;

(3)    a purpose of financial protection is not necessarily the same as a purpose of protection from competitive constraint, even if the financial protection might have the effect of operating as a competitive constraint;

(4)    the decision-making processes of the State are formal and involve the recording in detail each step in the privatisation process and the thoughts of the participants as they went through it. Despite that record, the ACCC and PON have been unable to point to any document in which either of the contractual parties, or any of the responsible individuals, expressed their desire to use the compensation provisions as a means to prevent or hinder competition with or from the Port of Newcastle;

(5)    the absence of any expression of a purpose to prevent or hinder competition between Port Botany and the Port of Newcastle amongst the vast array of material recording the State’s decision making is demonstrative of the fact that no such purpose existed; and

(6)    the PCDs addressed the perception of sovereign risk by creating a scheme for financial compensation that was wholly reactive to events that might transpire.

The reasons: The effect or likely effect of the impugned provisions

137    Before turning to the effects case of the ACCC, it is appropriate to say something of the relevant market. There was considerable debate about a number of features of the relevant market. These were dealt with by the primary judge in section 5 of the judgment, between J[446] and J[893]. No appeal is brought against her Honour’s conclusions as to the nature of the market. Her Honour found that the appropriate approach was to consider the potential operation of a container terminal at Newcastle as within the existing market for container port services in New South Wales. In doing so, the primary judge rejected the proposition that if a container terminal was operating in Newcastle there would be two separate monopolistic markets in New South Wales one serviced by Botany and one by Newcastle.

138    One issue, however, relevant to the market remained central to this appeal. It was as described by the primary judge at J[472], as follows:

At the risk of over-simplification, a key dispute between the parties about the market issue may be summarised as follows. The parties all accepted that the relevant potential effect of the impugned provisions related to the likelihood a [sic] container terminal being established and profitably operating at the Port of Newcastle. The ACCC and PON contended that without the impugned provisions there was and is a real chance and real possibility that a container terminal would be established and profitably operate at the Port of Newcastle. NSW Ports and the State contended that without the impugned provisions there was and is no real chance or real possibility that a container terminal would be established and profitably operate at the Port of Newcastle.

139    The primary judge dealt with the effects case at J[981]–[1633]. That treatment involved a comprehensive and detailed examination of all relevant considerations and the evidence led by the parties. It would be a work of supererogation to seek to summarise the contents of sections 8.1–8.7.10 of the primary judgment at J[981]–[1581]. To the extent necessary such will be addressed in dealing with ACCC’s and PON’s arguments on appeal. For present introductory and explanatory purposes, it is helpful to discuss the key conclusions and further issues addressed by the primary judge at sub-sections 8.7.11 and 8.7.12 at J[1582]–[1633]. Only one finding therein (at J[1599]) was subject to challenge in the Amended Notice of Appeal and the Further Amended Notice of Appeal (see ground 10.1).

The question of the Port Kembla PCD

140    It will be necessary to resolve a question as to the breadth of the appeal by the ACCC and the complaint by NSW Ports that a case not run below was being propounded on appeal. The complaint arises from the findings of the primary judge concerning Port Kembla. At J[480]–[482] and J[484]–[490], the primary judge said:

[480] It follows that the only hypothetical container terminal at the Port of Newcastle which is relevant to the operation of the impugned provisions is one which is capable of handling diverted container volumes from Port Botany (or Port Kembla), and is operating before Port Botany (or Port Kembla) has reached Full Capacity as defined in the Port Botany and Port Kembla PCDs.

[481] The focus of the evidence and submissions in this case, however, was the relationship between a (hypothetical) container terminal at the Port of Newcastle and the actual container terminals at Port Botany while Port Botany has capacity. None of the submissions or expert evidence focused on the relationship between a (hypothetical) container terminal at the Port of Newcastle and a (hypothetical) container terminal at Port Kembla. That potential dynamic thus remains in the realm of speculation. The assumption underlying the expert evidence was that Port Botany has continuing capacity, but that its capacity was finite and would be reached sooner (according to the ACCC and PON) or later (according to NSW Ports and the State).

[482] There is insufficient evidence enabling rational inferences to be drawn and conclusions reached about the relationship between a (hypothetical) container terminal at the Port of Newcastle and a (hypothetical) container terminal at Port Kembla assuming Port Botany has reached Full Capacity. This latter assumption would be necessary if that relationship were to be analysed, because NSW Ports holds the long-term lease over both Port Botany and Port Kembla. NSW Ports, it is also clear on the evidence, would not develop a container terminal at Port Kembla while Port Botany has capacity.

…

[484] The point is that the PCDs cannot operate in respect of Port Kembla unless a container terminal has been constructed and is operating at Port Kembla. This appears from: (a) aspects of the definition of Full Capacity in cl 3.1, in particular cl 3.1(h) and (i), (b) cl 3.3(d) which refers to the number of containers imported or exported by Port Kembla in the Relevant Support Period, (c) cl 3.3(e) which refers to the number of containers imported or exported by Port Kembla in the Previous Support Period, and (d) cl 3.4 which calculates the NSupport which will necessarily be zero if Port Kembla does not have a container terminal.

[485] This means that the only potentially relevant hypotheses are the operation of a container terminal at the Port of Newcastle: (a) while Port Botany has capacity, or (b) while Port Kembla has capacity, which necessarily means after a container terminal is constructed and operating at Port Kembla. That is, the compensation provisions (and thus the reimbursement provisions) would not operate at all if Port Botany has reached Full Capacity and Port Kembla has no container terminal.

[486] Assume Port Botany has reached or will soon reach Full Capacity. The choice for the NSW government would be between implementing the State policy, for the next container terminal to be developed at Port Kembla, or to change the State policy and support the next container terminal being developed at the Port of Newcastle. One thing is clear – it is that the NSW government would not support the development of container terminals at both ports. The impugned provisions cannot be relevant to this future choice by the State. The impugned provisions cannot operate because Port Botany will be at Full Capacity before the next container terminal is operating and there will be no container terminal at Port Kembla.

[487] As a result, it cannot be said that the impugned provisions make it any less likely that the NSW government will change the State policy to enable a container terminal to be constructed at the Port of Newcastle after Port Botany has reached Full Capacity but before any container terminal is constructed at Port Kembla. The impugned provisions simply do not speak to the making of that choice in those circumstances. Other circumstances will be relevant to that choice, including the State policy, but not the impugned provisions.

[488] In theory, it is possible that within the term of the impugned provisions a container terminal might be constructed and operating at Port Kembla, Port Kembla might not be at Full Capacity, and PON might wish to construct a container terminal at the Port of Newcastle. The problem for the ACCC and PON is that this theoretical possibility is completely in the realm of speculation. No evidence addresses this possibility.

[489] These considerations lead to the conclusion that the only hypothesis relevant to the potential operation of the impugned provisions, and in any event the only one which has a proper evidentiary foundation enabling the drawing of rational inferences and conclusions, is the operation of a container terminal at the Port of Newcastle while Port Botany has capacity. The evidence adduced only permits an assessment of whether there is a real chance or real possibility of a substantial lessening of competition by the making or giving effect to the impugned provisions within the context of this hypotheses [sic].

[490] For these reasons, when I refer to a container terminal at the Port of Newcastle below, I mean a container terminal at the Port of Newcastle while Port Botany has capacity.

(Emphasis in original.)

141    For these reasons, at J[1580]–[1581], the primary judge accepted the submission of NSW Ports that the ACCC had failed to prove a case in relation to the Kembla PCD:

[1580] NSW Ports made this submission:

The ACCC has sued in relation to two distinct contracts: the Botany PCD and the Kembla PCD. It has failed to prove any case in relation to the Kembla PCD. Whether Port Kembla would supply container port services in the same market as Port of Newcastle is wholly unexplored in the evidence. Further, there is no evidence that the Kembla PCD has any effect or likely effect on the prospect of entry by PON and the inference is that it has no effect or likely effect. Given the ACCC’s reliance on the effect of the clause to infer the purpose of the clause, the purpose case in relation to the Kembla PCD is also incomplete. On no view should relief be granted in respect of the Kembla PCD.

(Original emphasis).

[1581] For the reasons already given, I agree. There is insufficient evidence to establish that the Port Kembla PCD has affected or might affect any real chance or real possibility involving the development of a container terminal at the Port of Newcastle. It follows that this aspect of the ACCC’s case must fail.

142    There was no appeal against the conclusion by the primary judge that the only relevant hypothesis about a container terminal at the Port of Newcastle was its operation while Port Botany had capacity or against the dismissal of the case in respect of the Port Kembla PCD.

143    The importance of this to the appeal lies in the proper appreciation of the relevant aspect of Government policy to the likely effects case. Central to the likely effects case, is the existence of some reasonable possibility of there being a fully functional operating container terminal in Newcastle. This in turn depended upon the likely prospect of a future change of Government policy. But what aspect of policy? The policy that was changed by the recently elected Liberal/ National Government was the sequencing of port development after Port Botany reached full capacity: Before 2012-2013, Newcastle had been favoured as next; from 2012-2013 Kembla was to be next, with Newcastle third. But the case that might be built on that aspect of the policy suffered the (unappealed) fate found at J[1580]–[1581]. The only relevant hypothesis described by the primary judge at J[489] required a change of policy that had been the consistent policy of all Governments (Labor or Liberal/National) that there be no new container terminal until capacity at Port Botany was exhausted, albeit until 2013, there was a cap on Botany of 3.2 million TEUs per annum: see the finding about policy between 2003 and 2012 at J[941], J[1003(1)], J[1586] and J[1589]. As her Honour found in the key conclusions discussed below, there was no real chance of any change in that policy: see J[1586]–[1589] discussed at [145(5)-(9)] below.

144    It is not the change of policy to sequence Kembla before Newcastle that is critical to the effects case. It is the possibility of the change of long held policy not to permit the development of a second container terminal in the State before Botany reaches full capacity. The contemporaneous documents and evidence must be examined in that light. Two aspects of Government policy can be seen as possibly contemporaneously relevant to the actors involved: a change to the sequencing after Botany reaches capacity, and any change to the policy of not having competing capacity with Port Botany.

Key conclusions

145    The first body of key conclusions were premised on the relevant time for assessment being May 2013 or May 2014 without reference to any information brought into existence after these dates. The key conclusions on that hypothesis were as follows, taken from the reasons of her Honour’s findings at the paragraphs identified, and sometimes paraphrased:

(1)    No private operator of the Port of Newcastle, acting rationally, could have satisfied itself that in the reasonably foreseeable future a container terminal at the Port of Newcastle would be viable for so long as Port Botany had capacity. No private operator of the Port of Newcastle, acting rationally, could have satisfied itself that it could mount an apparently sound case to the NSW Government to change the State policy so as to enable a container terminal to be developed at the Port of Newcastle while Port Botany has capacity. This is the position without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1582].

(2)    The Port of Newcastle was not privatised on the basis that it could accommodate a container terminal while Port Botany had capacity (or before a container terminal is developed at Port Kembla). It was privatised on the basis that a container terminal would not be required (or, by implication, permitted by the State) at Newcastle until Port Botany and Port Kembla had reached capacity which may be after 40 years. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1583].

(3)    PON knew what the State’s policy was before it acquired its interest in the Port of Newcastle. PON did not pay for its rights at the Port of Newcastle on any assumption other than the State policy: see J[1584].

(4)    PON’s board and shareholders would not commit to constructing a container terminal at the Port of Newcastle while Port Botany had capacity unless they were able to be satisfied that the terminal would be viable. Nor would any financier provide funding to construct a container terminal at the Port of Newcastle while Port Botany had capacity unless they were able to be satisfied that the terminal would be viable. The mere chance or possibility of future viability would not be sufficient. The decision-makers would want a demonstrably sound case for future viability. There was no such case either existing or reasonably foreseeable as at May 2013 or May 2014. There was no such case at the time of the hearing. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1585].

(5)    There has never been a State policy to the effect that any new container terminal may be developed before Port Botany’s capacity is exhausted. This fact has always reflected the vast public and private investment in and around Port Botany which is uniquely well placed to benefit from the population concentration in and around Sydney. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1586].

(6)    The notion that having adopted its new policy in July 2012, and having partly implemented that policy by removing the cap on Port Botany and privatising Port Kembla with Port Botany, there was a real chance that the NSW Government would change the State policy to enable a container terminal to be developed at the Port of Newcastle while Port Botany had capacity was fanciful. As at May 2013 and May 2014 there was no chance at all of that occurring in the reasonably foreseeable future, at least not without a change in the New South Wales Government: see J[1587].

(7)    Relying on a potential change in the New South Wales Government, without any supporting evidence (psephological or otherwise), is inherently speculative. What PON had as at May 2013 and May 2014 was a mere hope that the New South Wales Government might change in future and a mere hope that a New South Wales Government might change the State policy. Such hopes do not involve a real chance or real possibility of the relevant circumstance occurring – a change of the State policy to enable a container terminal to be developed at the Port of Newcastle while Port Botany had capacity. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1587]. This last group of findings at (7) can be seen to be caught up in the challenge in grounds 8.1 and 8.2 to the finding at J[1003], (set out at [265] below) in the light of J[976] (set out at [134] above).

(8)    Irrespective of the New South Wales Government of the day, the potential benefits from a container terminal at the Port of Newcastle (economic and employment opportunities for the Hunter region) which might be weighed against an evaluation of the system-wide costs of the overall New South Wales container freight task, depend on the container terminal being viable. As at May 2013 and May 2014, the clear weight of the evidence was that the viability of a container terminal at the Port of Newcastle while Port Botany has capacity was highly questionable. That remains the weight of the evidence today. In these circumstances also, it could not be said that there was a real chance or real possibility of a change in the State policy to facilitate the development of a container terminal at the Port of Newcastle while Port Botany has capacity. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1588].

(9)    To the contrary, there has never been any chance at all of the New South Wales Government permitting or supporting the development of a container terminal at the Port of Newcastle before Port Botany approaches its capacity. Such a chance as at May 2013/May 2014 was fanciful, far-fetched, infinitesimal or trivial and not a real chance or real possibility. Barring the possibility of a change in the New South Wales Government at the next election, which in the context of this case cannot rise above mere speculation, this remains the position today. And as noted, even if there is a change in the New South Wales Government, there would be many complex issues which would have to be weighed by the NSW Government before the State policy might be changed. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1589].

(10)    By reference to real and not theoretical or speculative chances and possibilities and with the cap on Botany removed meaning that the earliest expectation of Port Botany reaching capacity was 2030, in May 2013/May 2014, PON could not demonstrate that the posited economic and employment opportunities for the Hunter region would be realised by a container terminal at the Port of Newcastle while Port Botany had capacity, because it could not demonstrate the viability of the container terminal on a reasonable basis, irrespective of the impugned provisions. PON remains in that position today. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1590].

146    The primary judge then made key conclusions, premised on the relevant time for assessment being May 2013 or May 2014, but with reference to the information brought into existence after those dates or as at the date of the hearing, as follows taken from her Honour’s findings at J[1591]–[1611], again sometimes paraphrased:

(1)    Assuming the impugned provisions do not exist (or the compensation provisions alone do not exist), the overwhelming weight of the evidence is also clear and to the same effect as discussed above for May 2013/May 2014. While PON now may perceive a greater need to diversify than in May 2013/May 2014, it is now also the case that Port Botany’s perceived capacity has increased (in the sense that Port Botany will be able to deal with all of New South Wale’s container handling needs for longer than previously believed), and public and private infrastructure investments have continued to be made on the basis of the State policy. In addition, PON had spent three years actively trying to formulate its business case, without that case coming to fruition in the form of an optimal plan to put to its board, its shareholders or the New South Wales Government. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1591].

(2)    PON has not managed to bring information into existence which demonstrates the viability of the container terminal on a reasonable basis. To the contrary, the subsequent information, on analysis, reinforces the apparent soundness of the view the State reached in 2012 and 2013 that it would not be in the public interest for a container terminal to be developed at the Port of Newcastle while Port Botany has capacity because its viability is highly doubtful. On this basis also, the current prospect of PON in fact in the reasonably foreseeable future developing a container terminal at the Port of Newcastle while Port Botany has capacity is fanciful, far-fetched, infinitesimal or trivial. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1592].

(3)    The primary judge described the following as “telling”: PON has done what any rational commercial entity would do. It has investigated and developed options to see if it can persuade its board, its shareholders and the New South Wales Government that a container terminal at the Port of Newcastle while Port Botany has capacity should proceed. But in nearly seven years since May 2014, PON has not formulated a definitive or cogent proposal capable of being put to its own board, its shareholders or the New South Wales Government on the assumption (as all PON’s investigations have been) that the compensation provisions do not exist. It is not the impugned provisions which have had this result. It is the reality of the location of the Port of Newcastle relative to the population centre of New South Wales and existing supply chains to and from that population centre compared to the location of Port Botany. This reality also underlies the content of the State policy: see J[1593].

(4)    This reality and the State policy has also resulted in further substantial public (New South Wales and Commonwealth) and private investment in the existing supply chains servicing the Sydney region. It is apparent that this enormous investment since 2013 has taken place to support the maximisation of Port Botany’s capacity and the facilitation of Port Kembla’s efficient transport linkage to the Sydney metropolitan areas. In other words, over the past seven or so years, the New South Wales and Commonwealth Governments, as well as the private sector, have focused investments into supporting Port Botany as New South Wales’ existing container port and Port Kembla as its next container port as provided for by the State policy. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist): see J[1594].

(5)    PON would have to grapple not only with all of the above issues, but also the public interest in maximising the value from investments already made and providing consistency and predictability in government decision-making. While, in theory, any government policy can change at any time, the relevant questions to be dealt with were not mere theoretical possibilities; the relevant enquiry was the dealing with real chances and real possibilities. With so much already invested in maximising the capacity and efficiency of Port Botany (and Port Kembla’s capacity to rely on those existing supply chains), whilst it is not impossible for the State policy to change, such a change could never be said to be a real chance or real possibility in the current circumstances: see J[1595].

(6)    At J[1596] the primary judge drew the conclusion from these findings and agreed with the submission of NSW Ports as follows:

If the court is not satisfied that there is a real chance that there would be developed at the Port of Newcastle, before Port Botany and Port Kembla reach their respective capacity, a container terminal capable of exerting any constraint on Port Botany or Port Kembla, it follows that the allegation that the PCDs substantially lessened competition cannot be made out. That is, if the Court is not satisfied that there is a “real chance” that a container terminal could be built at Newcastle, in a world without the PCD, the question whether the PCDs have had or could have the effect of substantially lessening competition does not arise, and the ACCC’s claim must fail.

(7)    At J[1597] the primary judge further agreed with the submission of NSW Ports about the onus of proof:

It is not for NSW Ports to negate the possibility that a viable container terminal at PON could be built at some point over a 50 year period. A positive finding that there is a real chance of entry by a Newcastle container terminal is an integer of the ACCC’s case. A negative finding that entry by a PON terminal cannot be ruled out is not necessary for NSW Ports to defeat the ACCC’s claim.

(Original emphasis).

(8)    Her Honour said that on the evidence she was unable to be reasonably satisfied that, without the impugned provisions (or without the compensation provisions alone), as at May 2013 or May 2014 there was a real chance that a container terminal would be developed at the Port of Newcastle while Port Botany has capacity. On the evidence, such a possibility was in the realm of mere speculation. The same conclusion applies to the circumstances considered prospectively from today: see J[1598].

(9)    In dealing with a submission of the ACCC (made also on appeal) that the matter and the evidence had to be looked at in the context of the decades long time horizon of the PCDs the primary judge agreed with NSW Ports that this approach, if adopted, would be incorrect. Her Honour dealt with it as a matter of logic and a matter of evidence. As a matter of logic, a speculative possibility looking forward from May 2013/May 2014 or from today’s date does not become more probable by the prospective passage of 50 years. As a matter of evidence, there was nothing in the evidence that the considerations that make the construction of a container terminal at the Port of Newcastle while Port Botany has capacity (or before Port Kembla is developed with a container terminal) a mere speculative possibility are amenable to change. On the evidence, the population centre of New South Wales will remain Sydney and its surrounds, particularly western Sydney. And the Port of Newcastle will remain where it is: see J[1599].

(10)    The primary judge then agreed with a submission of NSW Ports that s 45 of the Act accommodates uncertainty. The provision provides four kinds of contraventions – “a purpose of making and a likely effect of making; and a purpose of giving effect to and a likely effect of giving effect to”. Her Honour said that she was dealing at this point with the likely effect of making and the likely effect of giving effect to the impugned provisions. Her Honour’s conclusions about the likely effect of making the impugned provisions are determinative. Her Honour’s conclusions about the likely effect of giving effect to the impugned provisions were necessarily based on circumstances as they have existed and as they currently exist. If there is a material change of circumstances over the term of the PCDs, then, her Honour said, it was possible that likely effect of giving effect to the impugned provisions itself may change. But that too is currently mere speculation: see J[1600].

(11)    Her Honour concluded that the likely effects (in the sense of a real chance or real possibility) of the making of the impugned provisions as at May 2013/May 2014 have not impinged in any way upon the potential construction of a container terminal at the Port of Newcastle. Further, the likely effect (in the sense of a real chance or real possibility) of giving effect to the impugned provisions in the future, in the circumstances disclosed by the evidence, would also not impinge in any way upon the potential construction of a container terminal at the Port of Newcastle. That potential was and is no more than mere speculation. That is, there was (as at May 2013/May 2014) and is (currently) no credible threat of entry by the Port of Newcastle into the market for Container Port Services in New South Wales: see J[1601].

(12)    From these findings, the primary judge concluded: that neither the compensation provisions nor the reimbursement provisions (whether considered together or in isolation from one another) either as made or as provisions which may be given effect in the future, have a likely effect (in the sense of a real chance or real possibility) of substantially lessening competition. They do not do so because, on the evidence, as at May 2013/May 2014 and as at the date of the hearing there was and is no real chance or real possibility of any of numerous contingencies being satisfied, including:

(a)    PON persuading the State to change the State policy;

(b)    the New South Wales Government otherwise deciding to change the State policy and/or support a container terminal at the Port of Newcastle while Port Botany has capacity;

(c)    PON’s board or shareholders trying to construct a container terminal contrary to the State policy;

(d)    PON obtaining the necessary planning approvals from the State to construct a container terminal contrary to the State policy;

(e)    PON’s board or shareholders being satisfied that a container terminal contrary to the State policy and without the support of the New South Wales Government would be viable;

(f)    PON persuading any financier that either a container terminal should be constructed contrary to the State policy and without the support of the New South Wales Government or that such a container terminal would be viable; or

(g)    PON persuading the New South Wales Government that a container terminal contrary to the State policy would be viable and/or in the public interest.

(See J[1602].)

(13)    These contingencies remain the same with and without the compensation provisions and the reimbursement provisions (whether considered together or in isolation from one another). In particular, the State policy had nothing to do with the impugned provisions and the impugned provisions are irrelevant to any consideration of changing the State policy in the future. There was and is no real chance of the New South Wales Government changing the State policy to enable the development of a container terminal at the Port of Newcastle while Port Botany has capacity. To the extent that there might be a chance of the New South Wales Government changing the State policy to enable the development of a container terminal at the Port of Newcastle after Port Botany has reached its capacity (which was and remains a mere speculative chance on the basis that the New South Wales Government might change or might change its mind in the future, and not a real chance), it is clear that there is no real chance that the New South Wales Government would permit the development of two new container terminals. The impugned provisions would be irrelevant to any such assessment by the New South Wales Government of the location of the next container terminal because the provisions are not engaged if Port Botany has reached full capacity and Port Kembla has no container terminal: see J[1603].

(14)    Without there being any real chance or real possibility of satisfaction of these numerous contingencies (which there was and is not), the notion of competition between the Port of Newcastle and Port Botany in the market for Container Port Services in New South Wales remains a mere intellectual exercise, unconnected to reality: see J[1604].

(15)    The primary judge also concluded that even if she were still incorrect about a number of these contingencies she would have reached the same conclusions. In particular, her Honour said that if she had concluded that PON did not require planning approvals for a container terminal at the Port of Newcastle and/or that PON, its board and shareholders and financiers would be willing to and could construct a container terminal without the support of the New South Wales Government and/or a consequential change in the State policy, the fact remains that the evidence does not support an inference that there was as at May 2013/May 2014 or is a real chance of PON, its board and shareholders and financiers being able to satisfy themselves that a container terminal at the Port of Newcastle while Port Botany has capacity would be viable: see J[1605].

(16)    It follows that, contrary to the submissions of the ACCC and PON, neither of the impugned provisions had any impact on the incentives of the State or a private operator or PON to develop a container terminal at the Port of Newcastle as at May 2013/May 2014 or today’s date. As such, they also had and have no impact on the incentives of NSW Ports. The only effect of the compensation provisions which her Honour accepted was that they made the imposition of the reimbursement provisions highly likely. However, and for the reasons given, the reimbursement provisions had no impact on any real chance or real possibility of development of a container terminal at the Port of Newcastle as at May 2013/May 2014 or today’s date: see J[1606].

(17)    Contrary to the ACCC’s submissions, it is not the case that “[w]hile PON (like its predecessors) perceives there to be a meaningful commercial opportunity to develop a container terminal at the Port of Newcastle, the effect of the compensation provisions is to impose a material obstacle to such a development”. The compensation provisions did not lock in “a substantial financial disincentive to the State building or approving the development of a container terminal” at the Port of Newcastle. The compensation provisions did not and do not create an anti-competitive incentive for any person because there was and is no real chance, without the compensation provisions, of a container terminal being constructed at the Port of Newcastle while Port Botany has capacity. NSW Ports is doing what any rational monopolist would do in advocating against the development of a container terminal at the Port of Newcastle (in response to the advocacy of PON in favour of that development), but this does not mean that NSW Ports considers that there is a credible threat of entry. Nor, for the reasons given, does it mean PON considers that it will or could develop a container terminal at the Port of Newcastle while Port Botany has capacity. As such, the compensation provisions had and have no likely effect on competition by way of any disincentive, “softening” or otherwise: see J[1608].

(18)    Further, informed industry participants do not, as the ACCC suggested, regard as “obvious the proposition that, if it developed a container terminal, the Port of Newcastle, would compete with Port Botany for some meaningful volume of cargo”. They only regard that as likely if there is a sufficiently functional container terminal at the Port of Newcastle, an assumption which depends on numerous contingencies none of which have been satisfied and none of which involve a real chance of being satisfied in the reasonably foreseeable future: see J[1609].

(19)    On analysis, there are no materially different incentives and outcomes for the State, any public authority, any proposed private operator of the Port of Newcastle, PON, or NSW Ports with and without either of the compensation provisions or the reimbursement provisions. Perceptions of PON or otherwise to that effect are unrealistic and based on numerous unjustifiable assumptions to suggest that, without either of the compensation provisions or the reimbursement provisions, there would have been or would be a real chance or real possibility of a container terminal being developed at the Port of Newcastle while Port Botany has capacity, when the evidence does not support the existence at any time of any such real chance or real possibility: see J[1610].

(20)    Contrary to PON’s submissions, the fact that the current views of the PON representatives are genuinely held does not mean that they are likely to be acted upon given the nature and number of the contingencies which must be satisfied before PON could or would act on those views (even assuming in PON’s favour that those views will continue to be held once the McKinsey & Co investment grade business case is finalised). Nor does the evidence support the conclusion that “the support (including financial support) thus far provided by PON’s shareholders, informed by their board nominees, makes it likely that a container terminal will be developed at the Port of Newcastle, in the absence of the impugned PCD provisions”. The only real chance or real possibility at this time and into the reasonably foreseeable future is that PON will exhaust its investigations of the prospect of a viable container terminal at the Port of Newcastle while Port Botany has capacity and will also advocate for the Port of Newcastle to take precedence over Port Kembla for a container terminal development once Port Botany has reached capacity: see J[1611].

147    The primary judge then dealt with some further issues that reflected the weakness of the case theories of ACCC and PON. After referring (at J[1613]) to Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 1381; (2000) ATPR 41-783 and the importance of credible threat of entry as the source of competitive forces in a natural monopoly market, her Honour made the following points:

(1)    One problem with the case theory of the ACCC and PON is that, leaving everything else aside, it does not confront the reality that NSW Ports, as the incumbent, is in a position to resist entry by the Port of Newcastle and PON would have to be willing to incur heavy costs and losses if it wished to enter the market while Port Botany has capacity. This is so irrespective of the impugned provisions. NSW Ports is also not making monopoly profits (for reasons her Honour discussed). Even these circumstances alone indicate that, irrespective of the impugned provisions, there is no credible threat of actual entry into the market by PON: see J[1614].

(2)    The primary judge agreed with the State’s submission that Mr Patrick Smith’s evidence to the effect that that entry itself “is a substantial act of competition”, and that “the very act of entry in that market is one of the most significant competitive acts that that market will ever have experienced” (which assumes a credible threat of entry) involves a fallacy that mere entry necessarily means that competitive processes will be affected in a meaningful and relevant way. This, the State submitted, explained why Mr Jason Ockerby’s evidence considered not just the prospect of entry into the market by the Port of Newcastle, but the effect of that entry on Port Botany’s market power. Her Honour so agreed based on the evidence. The primary judge said that the problem in the present case is that the same evidence which requires the conclusion that a container terminal at the Port of Newcastle while Port Botany has capacity would not be viable is the evidence relevant to the question of the impact of the impugned provisions on competitive processes between Port Botany and the Port of Newcastle. On that evidence, the container terminal at the Port of Newcastle could not operate profitably and thus its capacity to continue operating would be in serious doubt: see J[1615] and [1616].

148    At [1617]–[1632] the primary judge undertook an examination of the potential rivalry of Newcastle and Botany making assumptions contrary to her findings and dealing with aspects of the evidence of Mr Ockerby, Mr Smith and Dr Christopher Pleatsikas, with which it is unnecessary at this point to deal.

149    The above findings on purpose and effect were a sufficient basis for the orders dismissing the application. However, the primary judge only came to these issues should she be wrong on the question of Crown immunity. In section 3 of her Honour’s reasons (at J[287]–J[423]) the primary judge dealt with Crown immunity. The State, of course, was not sued by the ACCC, only NSW Ports. But NSW Ports sought protection under so-called derivative Crown immunity. For this to succeed, there were two matters to be demonstrated by NSW Ports: first, that the State was not bound by Part IV of the Act because it was not relevantly carrying on a business for the purpose of s 2B of the Act; and, secondly, NSW Ports was entitled to the derivative benefit of that immunity of the State (through non-application of the Act to it) because to subject NSW Ports to s 45 would be to affect the State in such a way as to adversely affect some interest in the State in a manner and to a degree identified in the authorities. The primary judge answered both questions in favour of NSW Ports. I will deal with the primary judge’s reasoning in relation to Crown immunity, direct and derivative, in dealing with the grounds of appeal concerning those matters.

The structure of these reasons

150    The four key sections of the primary judge’s reasons and, necessarily, the four key sections of these reasons were and are:

(1)    Whether the State was entitled to Crown immunity in relation to the impugned conduct. This is not related to any asserted liability of the State of New South Wales. The State was not sued by the ACCC. NSW Ports, however, claims the benefit of the immunity of the State in what is referred to as derivative Crown immunity. A necessary pre-condition for successfully invoking derivative Crown immunity by NSW Ports is that Crown immunity is and would be available to the State, if sued.

(2)    If yes to (1), whether NSW Ports is entitled to the benefit of Crown immunity by reference to derivative Crown immunity.

(3)    If no to (1) or (2), whether the compensation provisions had the purpose of substantially lessening competition.

(4)    If no to (1) or (2) and irrespective of the answer to (3), whether the compensation provisions had the likely effect of substantially lessening competition.

151    I have come to the view that the ACCC’s appeal in relation to issues in sections (3) and (4) above should be dismissed. Logically, those matters need not be reached if NSW Ports is not amenable to complaint about the compensation provisions because of its immunity from the operations of the Act. Notwithstanding this logical progression, given my views on purpose and likely effects, I will deal with those matters before Crown immunity and derivative Crown immunity.

152    Thereafter, I deal with sections (1) and (2) and have concluded that the ACCC’s appeal should be dismissed in regard to those matters also.

The appeal on purpose

153    Grounds 4 to 7 of the Further Amended Notice of Appeal were as follows:

4.     The primary judge erred in concluding that it was not a substantial purpose of the Compensation Provisions to prevent or hinder the establishment and operation of a container terminal at the Port of Newcastle (J[930], [935]-[937], [939], [940], [969], [973]).

5.    In circumstances where the primary judge found that:

5.1    a substantial purpose of the State in including the Compensation Provisions in the Port Botany and Port Kembla Port Commitment Deeds was to ensure that the State could get full value for the sale of the existing monopoly of Port Botany by agreeing to indemnify the successful bidder for the risk that the extent of the existing monopoly might be reduced because of a container terminal at the Port of Newcastle (J[927], [933], [957], [965], [971]); and

5.2    a substantial purpose of NSW Ports in agreeing to the inclusion of the Compensation Provisions was to ensure that NSW Ports retained the full extent of the existing monopoly of Port Botany in respect of container port services in NSW (J[928], [933], [957]);

the primary judge erred in concluding that the Compensation Provisions did not have the purpose of substantially lessening competition (J[927]-[930], [933], [937], [939], [957], [961]-[962], [971]-[973], [979]-[980]).

6.    In circumstances where the primary judge found that, at the time the Compensation Provisions were made, the State intended to make the successful bidder for the Port of Newcastle liable for any payments required under the Compensation Provisions (J[278]-[280], [940], [1099]), and that the imposition of such an obligation on the successful bidder for the Port of Newcastle was an obvious and highly probable consequence of the Compensation Provisions that reflected commercial common sense (J[1011], [1013], [1049]), the primary judge:

6.1    erred in analysing the State’s purpose as to the ends sought to be achieved by the Compensation Provisions without regard to the State’s intention to impose any payment obligation arising under those provisions on the successful bidder for the Port of Newcastle (J[927], [932], [971]); and

6.2     should have found that, in assessing the State’s purpose in including the Compensation Provisions, the ends sought to be achieved by the State included the imposition of any payment obligation arising under the Compensation Provisions on the successful bidder for the Port of Newcastle.

7.    In circumstances where:

7.1    each of NSW Ports and the State contended below that a substantial, subjective purpose of the State in including the Compensation Provisions was to “codify” the State’s policy (J[963]);

7.2    there was contemporaneous documentary evidence consistent with the proposition that the subjective purpose of the State in including the Compensation Provisions was to “codify” the State’s policy;

7.3    the State called no witnesses to give evidence as to its subjective purpose in including the Compensation Provisions; and

7.4    the primary judge found that the relevant State policy was to prevent the development of a container terminal at the Port of Newcastle until container capacity is used at Port Botany and Port Kembla (J[963]);

the primary judge erred in:

7.5    finding that the subjective purpose of the State in including the Compensation Provisions was not to codify the State policy of preventing the development of a container terminal at the Port of Newcastle (J[964]); and

7.6    concluding that the Compensation Provisions did not have the purpose of substantially lessening competition.

154    In essence, grounds 4 and 5 were to the effect that the purpose found by the primary judge was a proscribed purpose; and grounds 6 and 7 were to the effect that the competition provisions, intended as they were to be passed on in the reimbursement provisions, were intended to raise and were for the purpose of raising barriers to entry and thereby to substantially lessen competition.

The ACCC’s submissions on purpose

Grounds 4 and 5: compensation provisions

155    Grounds 4 and 5 focused upon the compensation provisions. The ACCC accepted that the compensation provisions were motivated by the State’s desire to maximise the proceeds of the sale of its monopoly asset but, on the ACCC’s submission, this did not prevent the object of preserving the full value and extent of the monopoly from constituting a contravention of the Act. The ACCC stressed in oral argument that when assessing the purpose of the compensation provisions the focus is upon the substance of what the parties sought to achieve, rather than upon the manner in which they described their intentions. Commercial actors do not necessarily consider economic concepts precisely in the language of the Act (see ACCC v Liquorland (Australia) Pty Ltd [2006] FCA 826 at [826]–[827]) and it is not necessary to show that the parties explicitly expressed their desire to use the compensation provisions as a means to prevent or hinder competition from an operator such as PON.

156    Although the ACCC’s argument as to purpose did not depend on the compensation provisions being linked to the reimbursement provisions, the ACCC submitted that the compensation provisions should be viewed in the context of the reimbursement provisions. The ACCC contended that the primary judge made a finding that the reimbursement provisions were an intended consequence of the compensation provisions at the time the compensation provisions were made in 2013. That being so, the ACCC submitted that the compensation provisions were the means by which the State promised to protect NSW Ports, a monopolist, private owner of ports, from the effects of competition from a potential new entrant, that is, PON, with that protection to be funded by the would-be new entrant.

157    The error said to arise from the primary judge’s reasoning on the compensation provisions was that the distinction drawn by her Honour between a purpose of preserving the full value of an asset in the context of the sale by the State of an existing container port monopoly and a purpose of substantially lessening competition in the market for container port services was illusory. Part of the value of the existing container port monopoly was the absence of constraint it faced from competition from the Port of Newcastle. Competition from a container port terminal at the Port of Newcastle would necessarily decrease NSW Ports’ margins and profitability. Based on the primary judge’s finding at J[573] that NSW Ports would do “everything in its power to retain or capture containers from the Port of Newcastle”, the ACCC submitted that even a credible threat of entry into the relevant market would contribute to efficiency and therefore competition in that market, citing Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2012] HCA 36; 246 CLR 379 at 419 [100].

158    As such, the ACCC submitted that the State’s and NSW Ports’ purpose of preserving the full value and extent of the existing container port monopoly required it to remove the threat of entry into the container port market by the Port of Newcastle. This was a purpose of ensuring that NSW Ports need not engage in ordinary competitor behaviour, and therefore a purpose of substantially lessening competition.

159    The ACCC acknowledged that the compensation provisions sought to protect against the sovereign risk of a change in State policy as to the development of a container port terminal at the Port of Newcastle before Port Botany reached full capacity. But the ACCC submitted that the primary judge drew a false dichotomy between that risk and a risk of competition, which were said to be two sides of the same coin. The very reason there was value to NSW Ports in having the protection of the compensation provisions was the risk of competition from the Port of Newcastle. The purpose of the financial protection from sovereign risk was to protect against the risk of competition. Making financial or economic adjustments to protect NSW Ports from competition or compensate for competition necessarily affects, and was intended to affect, the incentives and competitive dynamics in the market.

160    As to the primary judge’s finding that the State and NSW Ports considered the prospect of a competing container terminal to be, respectively, “exceedingly small” (J[977]) and “low” (J[959]), this was said to be irrelevant for two reasons. First, the fact that a purpose is conditional on an event occurring does not change the outcome sought to be achieved: it is still a purpose of lessening competition as long as the parties (or one of them) believe that the event giving rise to future competition could occur: Seven Network Ltd v News Ltd [2009] FCAFC 166; 182 FCR 160 at 364 [900]. The ACCC submitted that the notion of competition in the Act “includes not only actual competition but also potential competition”, citing Rural Press Ltd v ACCC [2002] FCAFC 213; 118 FCR 236 at 274 [129]. A purpose of substantially limiting actual or potential competition is therefore proscribed by s 45 of the Act.

161    Secondly, when considering the effect of potential entry on an incumbent, it is necessary to have regard not only to the likelihood of entry, but also its significance to the incumbent’s business if it eventuates. The combination of those considerations determines the materiality of the threat and the magnitude of its constraint on the incumbent’s behaviour. At J[960], the primary judge accepted that the “magnitude of the potential harm to Port Botany” was “high” and even “a small risk of [entry] occurring would have been, and was, highly relevant to NSW Ports”. Thus, the State considered that bidders would want protection from the risk and expected them to reduce their bid by up to a significant, material amount of money the sum of which is confidential and need not be specified for the purposes of this judgment if no protection was provided: J[126]. The respondents’ contention that State policy concerning the sequencing of container port development meant that the development of a container terminal at the Port of Newcastle was merely “theoretical” and therefore that the parties to the compensation provisions could not have had an anticompetitive purpose is therefore inapposite: the risk of such a development was plainly a material risk (see J[976]).

162    The ACCC also cavilled with the primary judge’s characterisation of its submissions at trial as supporting the proposition that the purpose of the compensation provisions was to make NSW Ports free from all constraints, so it could “sit back, relax and watch the money roll in”: J[934]. The ACCC submitted that it accepted that NSW Ports was always likely to face some degree of constraint, including from other Australian container port terminals and the threat of price regulation. It was the additional and meaningful constraint of the development, or threat of development, of a container terminal at the Port of Newcastle that the compensation provisions sought to remove.

163    Finally, the ACCC submitted that the distinction drawn by the primary judge between NSW Ports having a purpose of obtaining “financial protection” from competition from the Port of Newcastle and substantially lessening competition was artificial. On any commercially realistic view, the compensation provisions were directed to ensuring that NSW Ports need never engage in ordinary competitive behaviour vis-à-vis the Port of Newcastle. This conclusion is not contradicted by the existence of clause 3.3 of the compensation provisions because this clause does not, contrary to the primary judge’s finding, mean that NSW Ports was required to exercise its best efforts to compete just as it would in a world without the benefit of the compensation provisions. The ACCC further developed this contention about the construction of clause 3.3 in the context of its submissions on the likely effect of the compensation provisions, to which I will turn shortly.

Grounds 6 and 7: reimbursement provisions and codification of State policy

164    In respect of grounds 6 and 7, the ACCC adopted the submissions of PON. In short, the ACCC submitted that the primary judge should have found that, by the compensation provisions, the State intended to raise barriers to entry and thereby substantially lessen competition. At the time the compensation provisions were made, the State intended to enter the reimbursement provisions in order to transfer its potential liability under the compensation provisions to the successful bidder for the Port of Newcastle, a would-be competitor of NSW Ports: J[278]–[280], [940]. The reimbursement provisions substantially increased the cost of developing a container terminal at the Port of Newcastle and raised barriers to entry into the New South Wales market for container port services. Hence, the primary judge should have found that the compensation provisions in light of the reimbursement provisions had a purpose of substantially hindering development of a container terminal at the Port of Newcastle, and therefore of substantially lessening competition. It is sufficient that only one party to the agreement containing the compensation provisions had this purpose for it to constitute a purpose of substantially lessening competition.

165    The conclusion that the compensation provisions viewed together with the reimbursement provisions had a proscribed purpose is reinforced by the fact that NSW Ports and the State accepted that a substantial, subjective purpose of the State in including the compensation provisions was to “codify” the existing State policy in relation to the sequencing of container port capacity in New South Wales. If accepted, this submission effectively amounted to an admission by NSW Ports and the State that they had a purpose of preventing development of a container terminal at the Port of Newcastle, which is a purpose of substantially lessening competition: J[963]. That admission was supported by the weight of evidence and the primary judge erred in disregarding it.

166    The ACCC rejected NSW Ports’ contention that the ACCC’s arguments with respect to the reimbursement provisions departed from the case the ACCC ran below. The ACCC submitted that the link between the purpose and likely effect of the compensation provisions on the one hand and the reimbursement provisions on the other was squarely within the ACCC’s case.

PON’s submissions on purpose

Ground 5: compensation provisions

167    PON addressed ground 5 separately. PON submitted that the primary judge ought to have found that the compensation provisions had the purpose of substantially lessening competition because the State could only “get full value” for the existing monopoly and NSW Ports could only retain “the full extent of” the existing monopoly if NSW Ports was protected against the economic consequences to it of competition from the Port of Newcastle. The purpose found by the primary judge necessarily entailed a purpose of protecting NSW Ports against the economic consequences of competition: J[965].

168    If a container terminal were established at the Port of Newcastle this “could significantly reduce the profitability of Port Botany” (J[959]) and may result in a significant share of container volumes being diverted to Newcastle, which was “highly relevant to NSW Ports”. Accordingly, the State “accepted that it had to disclose the risk and do something to ameliorate it”: J[960]. The distinction the primary judge drew between protection from competition and financial protection from the loss resulting from competition (see J[962]) was said to be “a distinction without difference.” An intention to ensure that NSW Ports is no worse off financially if a competitor enters the market is a purpose of substantially lessening competition. This was achieved, it was submitted, by the form of the compensation provisions: the payment being the weighted average of the lost wharfage fees. Such fees were the only charge NSW Ports was permitted to levy. Thus it was all of its revenue. The purpose of the provisions was to protect NSW Ports against injury from the competition that would ensue from any change in Government policy, by ensuring that it received the revenue lost by that competition. Such a purpose was submitted to be necessarily characterised as a purpose of (substantially) lessening competition. The intention and purpose was to preserve the same economic result for NSW Ports as would occur if PON never entered the market. Thus, in point of law, the purpose was proscribed as one which enabled NSW Ports to act without the constraint of competition that Newcastle would otherwise provide.

169    It was submitted that it is precisely the threat of being worse off financially that drives competition in the market. The very existence of a threat of entry would ordinarily contribute to the efficiency of the market for container port services: see Pilbara Infrastructure at [100]. If, when the compensation provisions were made, the threat of the Port of Newcastle entering the market was not meaningful or relevant to the competitive process, the State would not have considered that NSW Ports would materially discount its bid or perceived a need for the State to promise to compensate NSW Ports if that threat eventuated.

170    PON also submitted that there is no evidence that the State or NSW Ports understood that payment under the compensation provisions was conditional upon NSW Ports proving it had done everything it reasonably could to compete with the Port of Newcastle. Nor do the terms, read objectively, convey that requirement. The obligation in clause 6 to use “reasonable endeavours” cannot be read as an obligation to behave as if the compensation provisions in the same contract did not exist: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 659 [41]; Transfield v Arlo International [1980] HCA 15; 144 CLR 83 at 101.

Grounds 4, 6 and 7: reimbursement provisions and codification of State policy

171    PON submitted that when the compensation provisions are properly analysed in light of the reimbursement provisions (the creation of such provisions being intended at the time the compensation provisions were made), the State’s purpose included the imposition of a barrier to entry. An intention to “allocate” financial costs “appropriately” is a finding of purpose: J[969]. Where conduct is, as here, part of a wider strategy, the purpose of that strategy can be relevant to determining the purpose of the provision: ACCC v Cascade Coal Pty Ltd [2019] FCAFC 154; 374 ALR 90 at 120 [167]; News Limited v South Sydney District Rugby League Football Club [2003] HCA 45; 215 CLR 563 at 638 [216].

172    PON did not deny that the State had the purpose found by the primary judge of ensuring that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle: J[927], [933], [957], [971], [973]. Rather, PON contended that a contractual provision may be included for multiple purposes and all that is necessary is that a proscribed purpose be a “substantial purpose”, citing Seven Network v News Ltd at [854]; Cascade Coal at [169]. The compensation provisions had a substantial purpose of preventing or hindering the establishment of a container terminal at the Port of Newcastle because, through those provisions, the State promised to compensate NSW Ports if a competitor entered the market. The corollary of that promise was an intention that a new owner of the Port of Newcastle be required to pay that compensation, as a price for entering the container port services market and challenging Port Botany’s monopoly. To plan to impose a financial cost on a new entrant to the market was to intend to impose a barrier to entry. It was, therefore, a purpose of substantially lessening competition: ACCC v Liquorland at [807]; Australian Wool Innovation v Newkirk [2005] FCA 290; ATPR 42-053 at [34]. Thus, the distinction made by the primary judge (for example at J[969]) between an intention (a purpose) to prevent or hinder a container terminal at Newcastle and an intention (a purpose) to allocate financial costs and benefits appropriately if State policy changed in the future was one without a difference.

173    As to ground 7, PON submitted that the State had an admitted purpose of codifying State policy. The relevant State policy was “to prevent the development of a container terminal at the Port of Newcastle until container capacity is used at Port Botany and Port Kembla”: J[261], [963]. The primary judge accepted that if the compensation provisions “codified the State policy then their purpose would be to prevent the development of a container terminal at the Port of Newcastle” and further said, “depending on the likelihood of entry into the market by PON, that may involve the proscribed purpose”: J[963]. PON submitted that the primary judge’s latter caveat was in error because it confused the purpose of the compensation provisions with their likely effect: Seven Network Ltd v News Ltd at [894], [897]; Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529 at [249]. The correct question is whether the admitted subjective purpose of codifying the relevant State policy was one of substantially lessening competition. That question, according to PON, must be answered in the affirmative given the primary judge’s finding that, at the time the compensation provisions were agreed, there was a low but material risk of a container terminal being established at Newcastle that may be able to take a significant share of container volumes from Port Botany: J[269], [959]-[960], [972]. Therefore, the primary judge ought to have accepted the State’s admitted purpose and found that it was a proscribed purpose.

NSW Ports’ submissions on purpose

Grounds 4 and 5: compensation provisions

174    NSW Ports contended that the ACCC failed to address ground 4 as its submissions went only to ground 5. In relation to ground 5, NSW Ports submitted that the State’s purpose in entering into the compensation provisions was “to ensure that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle”: J[927]. The means by which this purpose was achieved was to indemnify the successful bidder against the risk that the size of the existing monopoly might be reduced because of a container terminal at PON: [927]. NSW Ports’ purpose was “to ensure that it retained what it would pay for – the full extent of the existing monopoly of Port Botany in respect of container port services in NSW”: J[928]. NSW Ports submitted that the “full extent of the existing monopoly” means the full value of, not the full trade within, that monopoly: J[930], [932], [933], [939], [957], [961], [962], [973]. The relevant purpose is the end subjectively sought to be achieved, and the ends of the State and NSW Ports, as found, are consistent with no lessening of competition.

175    Contrary to the ACCC’s submissions, it cannot be said that a seller’s purpose of ensuring undiscounted bids, or a buyer’s purpose of retaining full value of an asset paid for, or even a purpose of receiving financial compensation in the event of a future reduction in the value of the asset, is necessarily a purpose of substantially lessening competition. The assessment of purpose must depend on the facts and context. The State proposed the compensation provisions to ensure that bidders did not discount their bids on account of sovereign risk about port sequencing policy: J[960]. NSW Ports submitted that the ACCC failed to identify “a single piece of oral or documentary evidence” to support its case that the true, subjective purpose of the compensation provisions was a proscribed purpose of substantially lessening competition.

176    NSW Ports submitted that, in any event, the ACCC’s argument that the parties to the compensation provisions sought to relieve NSW Ports from a meaningful competitive constraint cannot succeed. A purpose of allowing NSW Ports to behave otherwise than competitively is inconsistent with the objective effect of the compensation provision: ordinary competitive behaviour is “assumed and required”: J[1111] (see also J[934], [1105]–[1129]). Nor is there any evidence that the parties to the compensation provision subjectively understood this to be an effect of the provisions: J[931]–[937], J[979(4), (5)].

177    Further, NSW Ports submitted that the ACCC overlooked the fact that the compensation provisions are directed to circumstances in which volumes of containers are diverted from Botany to Newcastle on account, not of ordinary competitive processes, but of a change of State policy.

Grounds 6 and 7: reimbursement provisions and codification of State policy

178    NSW Ports submitted that, at trial, the ACCC did not contend that the State, through the compensation provisions when combined with the reimbursement provisions, intended to raise barriers to entry at Newcastle and therefore had a proscribed purpose. In any event, NSW Ports submitted that it is “inconceivable” that the State would set out to raise barriers to entry when the State itself controlled and controls, through policy and planning settings, whether and when entry at Newcastle can occur.

179    The ACCC’s case on this point was characterised as strained. The purpose of a provision is a substantial purpose for which the provision was included in the contract, which directs attention to the subjective ends of the parties. It is difficult to maintain that the State’s foresight of an end sought to be achieved in the future in a different contract with a different counterparty is a substantial purpose for including a provision in the first contract. As Callinan J said in News Ltd v South Sydney 215 CLR 563 at [216], a provision that may help to achieve, or is even designed to accommodate, some “foreseeable happening” does not necessarily have the occurrence of the happening as its purpose.

180    Moreover, nothing in the documentary record suggests that the compensation provisions would prevent or hinder a container terminal at the Port of Newcastle: J[970]. The State deliberately did not adopt “non-compete type restrictions” (J[115]) and contemplated that change of policy was a precondition to the development of a container terminal at Newcastle prior to Port Botany reaching capacity: J[989]. There has never been any chance at all of the State supporting such a change in policy: J[1589]. NSW Ports submitted that the impugned provisions themselves do not inhibit the prospect of a change of policy to allow for a terminal at Newcastle and do not apply any rational disincentive to the construction of such a terminal in the event that State policy does change: J[1139].

181    NSW Ports submitted that even if the State were found to have a proscribed purpose, if the State was not carrying on business then the State’s purpose cannot be attributed to the impugned provision because to do so would involve application of the Act to the State contrary to s 2B. NSW Ports also submitted that that the State’s unilateral purpose is in any event insufficient for the purpose of claiming relief against NSW Ports: J[914].

182    In relation to the purported codification of State policy, NSW Ports submitted that it never intended to submit that the State included the compensation provision to document or codify its policy in the sense that the provision enacted the policy or inhibited the policy’s revision. In any event, the primary judge correctly rejected this proposition. The compensation provision “reflected the current policy settings but did not hinder them from being changed.” The provision “gave bidders compensation, in certain circumstances, if policy changed.” The State’s capacity to change its policy with respect to the sequencing of container terminals was uninhibited: J[1095].

The State’s submissions on purpose

Grounds 4 and 5: compensation provisions

183    The State submitted that the “crux of the inquiry” as to purpose is assessing the subjective purpose for which the State and NSW Ports acted. In other words, the focus is on the end sought to be achieved by the inclusion of the compensation provision in the contract (see News Ltd v South Sydney 215 CLR 563 at [18] (Gleeson CJ), [63] (Gummow J)). The State submitted that the contemporaneous evidence supports the primary judge’s findings that the State’s purpose was to ensure that bidders for the ports did not discount their bids because of the perception of risk of the establishment of a container terminal at Newcastle arising from a change in policy (J[927]) and that NSW Ports’ purpose was to ensure that it retained the value of the asset that it paid for (J[928]). Neither party sought to prevent or hinder the Port of Newcastle from entering the relevant market nor did either seek to alleviate the need for NSW Ports to compete with the Port of Newcastle: J[930]. The relevant perceived risk was a risk of radical change in Government policy, not the risk of competition, as there was no existing threat of entry absent a change in policy. As entry could not occur without Government support, it is artificial in these circumstances to compare the situation facing bidders for the Port Botany assets with commercial players facing the threat of a new entrant into their market

Grounds 6 and 7: reimbursement provisions and codification of State policy

184    The State submitted that the ACCC’s position that a purpose of the compensation provisions, in light of the reimbursement provisions, was to substantially lessen competition is not supported by contemporaneous evidence. Although the State had in contemplation the possibility that its liability under the compensation provisions could be passed on if the Port of Newcastle assets were later privatised, it does not follow that this was one of the substantial purposes of the compensation provisions. The reimbursement provisions, like the compensation provisions, reflected the notion that a potential purchaser of port assets should receive what it paid for – in the context of the Port of Newcastle, a port where, because of State policy, there was no realistic prospect of the development of a container terminal before the capacity of Port Botany and Port Kembla was exhausted: J[968]–[969], [993]–[995], [1582]–[1584]. If that position changed, the operator of the Port of Newcastle would be required to make a payment that reflected the increased value of the asset it had received. The reimbursement provisions were not a mechanism to hinder or prevent the development of a container terminal.

185    The State also submitted that it did not contend that the PCDs served to “codify” State policy in the sense of putting it in place and giving it effect. From the State’s perspective, the State’s policy with respect to the sequencing of container ports was already settled. There was accordingly nothing in the nature of an “admission” by the State that the purpose of the compensation provisions was to prevent the development of a container terminal at the Port of Newcastle.

Purpose: consideration and disposition

186    For the reasons that follow, I do not consider that the primary judge’s reasoning or conclusions disclose any error.

187    Her Honour’s expression of guiding legal principles at J[894]–[914] as to substantially lessening competition and purpose were not challenged. It is unnecessary to repeat what her Honour there said. The following is consistent with it.

188    It is the subjective purpose or purposes of the State and NSW Ports that is the issue. In considering those matters, the distinction between purpose and effects is, as Gleeson CJ said in News Ltd v South Sydney at 573 [18], significant. The enquiry to be undertaken, as a factual enquiry in the context of the making of the agreement, is as to the end sought to be accomplished by the inclusion of the provision. The enquiry as to the effect or likely effect of the provision is another, and entirely distinct, factual enquiry, to which competition principles, market behaviour, the likely behaviour of market participants and the economic structure of and forces within the market and of commerce will be relevant.

189    As the primary judge said, and as is manifest from the different character of the relevant enquiries, there may be a proscribed purpose in including a term in a contract, but no proven proscribed effect, and vice versa. How manifestly or obviously a term may be likely to have an effect in lessening competition may be a relevant factor in the drawing of inferences as to what the actual subjective purpose or purposes of the parties was or were: that is, the end or ends sought to be accomplished by the term. The purpose of the term may be clear from the words used. But, ultimately, it is a factual enquiry about the subjective purpose of the parties.

190    The case of the ACCC at trial, and its and PON’s submissions on appeal was and were that the purpose of the compensation provisions, whether examined alone or recognising that the reimbursement provision would be included in any privatisation of the Port of Newcastle, was as set out at [116(4)(a)–(c)] above. That case and those arguments sought to infuse the primary judge’s clear findings of the subjective purposes of the State and NSW Ports with conceptions and considerations relevant to the effect or likely effect of the provisions.

191    The State did not call any witnesses. NSW Ports did. They included the decision makers, Mr Garcia and Mr Droga. At no point in their cross-examination was any proposition put to either of them that he had as a purpose, as an end to be accomplished by the term, to prevent or hinder the development of a container terminal at Newcastle, to make Botany or Kembla immune from competition from Newcastle, or to enable NSW Ports to act without or with reduced constraint from competition that Newcastle might provide. The cross-examination was and was only to the effect that the purpose was to protect against the financial consequences of competition. This purpose was put in cross-examination as a purpose of protecting against competition, but the acceptance of the witnesses to such of what was put to them, was that the inclusion of the provisions gave them financial protection from the consequences of any competition that any future change of Government policy might bring about, and thereby retain the value of what had been paid for. To propound the purpose case further with them required cross-examination about what the ACCC and PON said was a distinction without a difference: that protection against the financial effects of competition was in their own minds no different to protection against competition itself.

192    The purpose found, and the State’s purpose: to ensure that bidders did not discount their bids because of the risk of a future change of Government policy, were not put in terms directed to any end or purpose of preventing or hindering competition. Competition between the parties was the hypothesis or assumption of the operations of the provisions.

193    Whether or not the provisions would be likely to have an effect on any competition is a different question. In the context of purpose, it was not put to either Mr Garcia or Mr Droga that his purpose or the end he intended to be achieved by the term was to lessen competition because that must have been the effect of the provisions.

194    What is, and was, sought to be done was to re-characterise a plain finding of fact as to purpose by pointing to considerations of the nature of the competitive process and considerations of barriers to entry (both relevant to effect or likely effect) and then asserting that a purpose (of the State) of ensuring that bidders did not discount their bids because of sovereign risk as to future Government policy change or a purpose (of NSW Ports) to receive financial protection if future Government policy changed to ensure it retained the value of what it paid for, and was in point of fact, another and differently expressed, subjective purpose or purposes, being those set out at [116(3)and(4)(a)-(c)] above. The subjective purposes of the State and NSW Ports found by the primary judge were founded in the context of the real word. They are not abstract propositions to be decontextualized from the circumstances in which they arose, and then coloured and given characterisation by economic theory or competition principles. It is not the case that a subjective purpose to ensure bidders do not crimp or qualify their bids or to ensure the retention of the value of that for which payment was made, is necessarily to be characterised as a subjective purpose of preventing or hindering or constraining competition because the operation of such provisions could, in some circumstances, act as a constraint on the competitive process or could, in some circumstances, act as a barrier to entry.

195    The circumstances out of which these provisions arose and from which the contractual and commercial purpose is manifest, were lucidly and thoroughly described by the primary judge. I have sought to summarise them above, especially at [11]–[82].

196    The operation of container port facilities in New South Wales is of immense importance to the economic well-being of the State. It is a subject of policy consideration for any State Government, and also for the Commonwealth Government. No container terminal could be set up or could operate in Newcastle or Kembla without State Government approval and without the provision by the State of transport and logistic infrastructure, requiring huge sums of public and private investment.

197    There had never been any policy by any Government of New South Wales that any new container terminal would be developed before Port Botany’s capacity was exhausted or was approaching that state: see the key conclusions at J[1586] and J[1589] at [145(5)–(9)] above. That would have required the development of competing and duplicative transport and logistic infrastructure. It had always been the policy of Government that container ports would be developed in sequence, with Port Botany first. Prior to the change of Government in 2011, the publicly understood policy of the New South Wales Government was to develop the Port of Newcastle after Port Botany had exhausted its capped capacity of 3.2 million TEUs per annum. From March 2012, that policy was re-assessed. The re-assessment was one that was undertaken in great detail. It was integral to the effectuation of the privatisation of Port Botany. By April 2012, the considerations and thinking of Morgan Stanley, Infrastructure NSW and the Department of Planning and Infrastructure formed the basis and content of the advice of Treasury to the Treasurer: see [3736]–[41] above.

198    The policy that remained unchanged was to exhaust Port Botany before the development of the second container terminal. What changed was the decision to remove the cap on, and quadruple, Botany’s capacity, and to sequence Kembla after Botany instead of Newcastle.

199    In the privatisation process, the State was making available highly valuable land and assets, developed with surrounding infrastructure at great public cost, which was an effective monopoly of infrastructure vital for the well-being of the State. It was of singular importance to the State to obtain the highest bids possible to be able to maximise the prices in the interests of the economy and the people of New South Wales. The compensation provisions were necessary to maximise bids. There were powerful and indeed, as time went on, overwhelming reasons why it was extremely unlikely that a future Government would change policy to sequence Newcastle as an operating container terminal before the capacities of Botany and Kembla were exhausted. Nevertheless, how a future Government would act could not be controlled.

200    There was no evidence and no rational basis for any conclusion that a purpose of the compensation provisions was to hinder any change of policy by a future Government. The State Government was in full control of the means to prevent a container terminal from being developed where it did not want it; or to promote one where it did want it. If it changed its policy to allow Newcastle to develop a container terminal, the modelled costs of the compensation provisions (see [63] above) were hardly likely to be material to the finances of the State. Further, taken together, the compensation provisions and the reimbursement provision, alleviated or removed any consideration as to State liability that might be seen as an inhibition on the State changing its policy.

201    Whilst there had never been any suggestion in the past of a policy of any Government to have two container terminals operating with unused capacity, the bundling of the privatisation of Botany and Kembla as a package permitted, to some degree, the winning bidder, as operator of the two ports, to manage that issue. Thus, as the ACCC pointed out, the compensation provisions provided in the pre-conditions for operation (in (a)) that “at least one of Port Botany nor [sic] Port Kembla was not at full capacity”. Having privatised both Botany and Kembla to the one bidder, any hypothesised change in Government policy that brought a fully operational container terminal to Newcastle might be such as to see Botany or Kembla with less than full capacity.

202    I reject the argument of the ACCC and PON that the proper construction of the compensation provisions, in particular clauses 3.3(a) and 6(d) somehow is indicative of anticipated less than full competitive conduct by NSW Ports if it faced a competitor. It is unhelpful merely to point to different possible wording such as “best efforts” or “best endeavours” in another commercial context such as agency or distribution arrangements (cf Transfield v Arlo International (1980) 144 CLR 83 at 101, Hospital Products v United States Surgical Corps [1984] HCA 64; 156 CLR 41 at 91–92 and Electricity Generation v Woodside 251 CLR 659 [41]). The context here is a provision for payment by the State to the successful bidder who has paid for an effective monopoly, but a future change in policy of the State brought about a competitive operating container terminal. The hypothesis for the need for the clause and for its possible future engagement was effective competition. It is entirely consistent with the State being required to pay NSW Ports in such circumstances that NSW Ports behave competitively in that new hypothesised environment. That is plainly consistent with “reasonable endeavours”: that is to act in its own interests. Nothing from the construction of the provisions bespeaks an intention or assumption that NSW Ports can feel less constrained than it otherwise might to behave competitively.

203    Indeed, it would be inconsistent with clauses 3(d) and 6(d) to behave less than competitively, because it would be unreasonable to expect payment from the State when the purpose was to provide for the financial effects of a movement from an anticipated monopoly environment to a competitive environment. The premise was competition. Reasonable endeavours in this context includes proper and vigorous competition.

204    The purposes of the compensation provisions and indeed the reimbursement provision are best assessed or evaluated (as the primary judge did) from the landscape of the real word circumstances. The State was disposing of valuable monopoly assets. It wanted the best price in the interests of the economy and people of New South Wales. Bidding would produce the best price only if there was a provision which provided for future compensation should an unlikely change of Government policy lead to a competing container terminal. In commercial conception, it could be seen as a price adjustment clause or as an insurance clause, should the underlying commercial assumption of the transaction be radically varied. On that varied assumption, the subject property and assets were worth less than that which had been paid.

205    Likewise, the successful bidder for the Port of Newcastle (PON) knew that it was paying for the world’s largest coal terminal and a general cargo terminal with limited capacity to deal with containers, and being subject to an economically rational Government policy not to permit a competing terminal in Newcastle with duplicative transport and logistic infrastructure, until both Botany and Kembla were at full capacity. It paid for the assets on that basis and knowingly so. It would have been a far more valuable (and so, far more expensive) transaction had the bidder been favoured by Government policy, which permitted and supported transport and logistic infrastructure for the development of a full container terminal at Newcastle to compete with Botany and Kembla still with unused capacity. The price paid for the successful bid by PON must have been significantly less than would have been the case on the hypothesis of permission for competitive container terminals.

206    Thus, from the hypothesised future change of Government policy, one bidder has paid too much for what it acquired, the other has paid too little. There is an adjustment of payment intended by reference to a consideration related to the hypothesised change. The subjective purposes found by the primary judge are rational and entirely consistent with the commercial and Government policy context. It is, or they are, a purpose or purposes inconsistent with a purpose of lessening competition. Competition is the hypothesis upon which the provisions work.

207    If the arrangements and if the compensation provisions affect competition, that is something to be assessed by reference to the effects or likely effects of the provisions.

208    For these reasons, which substantially reflect her Honour’s reasons on purpose, grounds 4, 5 and 6 should be rejected.

209    Ground 7 can be dealt with shortly. The primary judge at J[963]–[964] (see [130] above) took a submission of NSW Ports that the purpose of the compensation provisions was to codify State policy was one to underpin or help bring about current policy or to prevent any change of policy. So understood, her Honour was plainly correct to say that such a submission would have been self-defeating for NSW Ports. There was, however, an ambiguity in the submission: the provisions reflected Government policy settings, but did not inhibit their change. I do not consider that such submission which in a sense, was self-evident, took the matter any further. The provisions reflected current policy settings. They did not however prevent any change of policy. Rather, they compensated for an overpayment in circumstances of later change of policy. The capacity to change policy remained: J[1095] and, if anything, the impugned provisions facilitated that: J[1099] (such findings being unchallenged).

210    PON accepted that there was no admission in the light of the submission on appeal by the State and NSW Ports that the construction of the submissions in the way made by the primary judge was not intended or was an error by her Honour. There was no admission.

The appeal on effects

211    The Amended Notice of Appeal contained four grounds of appeal on the issue of competitive effect: grounds 8–10. A new ground 11 was sought to be introduced by a proposed Further Amended Notice of Appeal, which was exhibit JM-5 to the Affidavit of Ms Jody Marshall. Leave was granted on 14 December 2021 to file and serve the Further Amended Notice of Appeal.

212    At the hearing of the appeal, ground 10.2 was abandoned and ground 10.1 was pressed only in so far as the ACCC contended that the primary judge erred in concluding that the 50-year term of the PCDs was not relevant to the assessment of the likely effect of the compensation provisions (for the reasons advanced in respect of ground 9 and ground 11 in the Further Amended Notice of Appeal).

213    Ground 8 was said also to be pressed, but only as to the point that it was not incumbent on the ACCC to establish that a future change in State policy was anything more than a non-trivial possibility (as the primary judge found at J[976]) to make out its case that the compensation provisions had a proscribed likely effect (for the reasons advanced in respect of ground 9 and in ground 11 in the Further Amended Notice of Appeal).

214    Grounds 8–10 of the Amended Notice of Appeal together with the new ground 11 from the Further Amended Notice of Appeal can be set out and re-expressed as follows:

8. The primary judge:

8.1 erred in:

8.1.1. placing weight on the fact that the prospect of a future change in State policy was unknowable or “speculative” at the time the Compensation Provisions were made (J[1003]), notwithstanding the primary judge’s earlier finding that such a change in policy was a realistic possibility at that time (J[976]); and

8.1.2. reasoning that, because any possible future change in State Government and State policy was uncertain or unknowable at the time the Compensation Provisions were made, that was a matter that tended against the conclusion that the likely effect of the Compensation Provisions was substantially to lessen competition; and

8.2. should have found that, at the time the Compensation Provisions were made, there was a meaningful prospect that State policy would change in the future to favour the development of a container terminal at the Port of Newcastle (consistently with the primary judge’s finding at (J[976]).

Grounds 8.1 and 8.2 are pressed, however, only as to the point that it was not incumbent on the ACCC to establish that a future change in State policy was anything more than a non-trivial possibility (as the primary judge found at J[976]) to make out its case that the Compensation Provisions had a proscribed likely effect (for the reasons advanced in respect of grounds 9 and 11).

9. The primary judge:

9.1. erred in finding that the cost impost of the Compensation Provisions and the reimbursement provision in the Port of Newcastle Port Commitment Deed (Reimbursement Provision) would not deter, dissuade or act as a disincentive to the successful bidder for the Port of Newcastle developing a container terminal at that port because that bidder would have taken the operation of those provisions into account in the price paid to the State to acquire the long term lease over the Port of Newcastle (J[1138]-[1139]); and

9.2. should have found that the Compensation Provisions and Reimbursement Provision would be likely to have the effect of substantially lessening competition in circumstances where the Compensation Provisions and Reimbursement Provision:

9.2.1 raised barriers to entry by:

9.2.1.1. creating an additional cost burden, or the significant risk of an additional cost burden, on the operator of the Port of Newcastle in developing a container terminal at the Port of Newcastle and a commensurate revenue advantage to the operator of Port Botany and/or Port Kembla; and/or

9.2.1.2. deterring, dissuading or preventing the operator of the Port of Newcastle from incurring some or all of the substantial costs of developing the detailed design and business plans necessary to develop a container terminal at the Port of Newcastle; and/or

9.2.1.3. deterring, dissuading or preventing the operator of the Port of Newcastle from developing a container terminal in the future at a time when Port Botany was at or nearing capacity or Port Kembla was not at full capacity;

9.2.2. thereby hindered or prevented the development of a container terminal at the Port of Newcastle.

10. The primary judge:

10.1. erred in concluding that the development of a container terminal at the Port of Newcastle was only a “speculative possibility” as at May 2013 only insofar as her Honour erred in concluding that the 50 year term of the Port Commitment Deeds was not relevant to the assessment of the likely effect of the Compensation Provisions for the reasons advanced in respect of grounds 9 and 11(J[1599]):

and

10.2. should have found that:

10.2.1. there was a meaningful possibility at May 2013 that, at some time over the next 50 years, a container terminal would be developed at the Port of Newcastle in the future without the Compensation Provisions;

10.2.2. that possibility could not be dismissed as far-fetched or fanciful as at May 2013, including because of the 50 year time horizon;

10.2.3. the Compensation Provisions hinder or prevent that possibility from coming to pass by increasing the barriers to the development of such a terminal; and

10.2.4. in those circumstances, the Compensation Provisions would be likely to have the effect of substantially lessening competition.

11. The primary judge:

11.1. erred in finding that the Compensation Provisions did not change the competitive incentives of NSW Ports relating to Port Botany/Port Kembla in response to a threatened or actual container terminal at the Port of Newcastle: J[1105]-[1129]; and

11.2. should have found that:

11.2.1. in the counterfactual, there would be, and would be perceived to be, a threat of entry from a container terminal at the Port of Newcastle that would be sufficiently material, given its consequences for NSW Ports if it were realised, to act a meaningful competitive constraint on NSW Ports; and

11.2.2. in the factual, the Compensation Provisions were likely to substantially reduce that threat (or perceived threat) and the competitive constraint that it imposed;

and, as a consequence, the Compensation Provisions were likely to have the effect of substantially lessening competition in the market for container port services.

The ACCC’s and PON’s submissions on likely effect

215    The ACCC’s submissions on likely effect were adopted by PON.

216    The ACCC submitted that in determining whether the compensation provisions were likely to have the effect of substantially lessening competition, it was necessary to consider their likely effect on the behaviour of NSW Ports: J[1038] and [1039]. This was necessary because if there was a threat of development of a container terminal at the Port of Newcastle in the counterfactual, that threat of entry would likely impose a substantial constraint upon the behaviour of NSW Ports. If the compensation provisions materially reduced that threat, or the effect of the new entry on NSW Ports’ business, the constraint on NSW Ports would also be substantially reduced and the compensation provisions would thus have the likely effect of substantially lessening competition.

217    The ACCC submitted that the primary judge’s reasoning on the issue of the likely effect of the compensation provisions involved two errors. The first error was said to be an overly reductive view of the question driving the inquiry. The primary judge should not have reduced the question of likely effect to whether the development of a container terminal at the Port of Newcastle was, as a matter of objective fact, likely to occur and result in competition between NSW Ports and the Port of Newcastle. The perception of a risk of entry by the Port of Newcastle, which was not a trivial or irrational risk, was a relevant matter. Further, the primary judge should not have conducted the inquiry with the benefit of hindsight as such an approach ignores the dynamics of competition, which occurs in reality in the context of imperfect knowledge and uncertainty. The primary judge thus failed to address the central question of whether the threat of entry of the Port of Newcastle was sufficiently credible and significant, based on the information then available, to make it competitively meaningful. The duration of the compensation provisions – 50 years – was also relevant in this respect as a contingent event is more likely over a longer than a shorter time period.

218    The primary judge should have found that NSW Ports was likely to perceive that there was a meaningful threat of entry, which in turn would likely have imposed a substantial constraint upon the behaviour of NSW Ports. Commercial behaviour in a counterfactual is based not only on the likelihood of an event but also on its impact were it to occur. NSW Ports considered that State policy concerning the sequencing of container port development could change at any time. Although it considered the prospect of development of a container terminal at the Port of Newcastle to be low, the magnitude of potential harm to it from such a development was high, which made it highly relevant: J[960]. The significance of the risk ensured that NSW Ports would do whatever it could to ensure that a container terminal would not be developed at the Port of Newcastle.

219    The second error was said to be the primary judge’s finding that the compensation provisions require NSW Ports to do everything it reasonably can to minimise any loss of containers to the Port of Newcastle (J[1106]) and, as a result, do not remove or affect NSW Ports’ incentive to reduce prices, improve quality or otherwise innovate (J[1116]). The ACCC submitted that this finding was erroneous because clause 3.3(d) of the compensation provisions does not in fact impose this requirement on NSW Ports. Clause 3.3(d) provides that the relevant port manager must demonstrate to the reasonable satisfaction of the State a reasonable and material causal connection and correlation between the amount of containers the Port of Newcastle gained over a specified rate of annual increase and the amount of containers lost by Port Botany or Port Kembla, as relevant. A failure by NSW Ports to do everything it reasonably can to minimise the loss of volume to the Port of Newcastle need not and would not be the only cause of loss of volume. Another cause would always be the establishment and operation of a container terminal at the Port of Newcastle. Clause 3.3(d) contemplates that there may be multiple causes of a loss of volume and requires only one such cause – “a” causal connection – to be shown.

220    Moreover, a requirement that NSW Ports do everything it reasonably can to minimise loss of container volume to the Port of Newcastle would be practically unworkable and makes no commercial sense, rendering it unlikely that the parties intended for clause 3.3(d) to be construed in that way. The formula used for calculating the compensation to be paid to NSW Ports suggests that the true purpose of clause 3.3(d) is simply to ensure that NSW Ports only receives compensation for volumes it actually loses to the Port of Newcastle as opposed to other ports. Clause 6(d) provides that NSW Ports must use “reasonable endeavours” to minimise any loss of revenue that may be the subject of a claim by it under the PCDs. The primary judge found that this required NSW Ports to do all it reasonably can to minimise its claims under the PCDs and act as if it did not have the benefit of the compensation provisions: J[1110], [1111]. However, it is unlikely that a reasonable business person would understand the term “reasonable endeavours” as imposing that obligation on NSW Ports. Such an obligation would require NSW Ports to take steps that would necessarily decrease its margins and profitability and deny it the benefits of its monopoly thereby defeating the commercial object of the PCDs, which was to preserve the full value and extent of the existing container port monopoly: J[927], [928]. Given that commercial object, “reasonable endeavours” in this context means engaging in the behaviour that NSW Ports would have engaged in had there been no container terminal at the Port of Newcastle and no threat of one being developed. This construction is consistent with and supported by the quantum of the compensation that NSW Ports is to receive under the compensation provisions.

221    In addition, the compensation provisions were likely to raise barriers to entry. It was obvious that the State would transfer its potential liability to the successful bidder for the Port of Newcastle by way of the reimbursement provisions (J[1011]-[1013]) and that the potential liability was substantial. The primary judge’s reasoning that the acquirer of the Port of Newcastle would have lowered its bid to offset the cost of payments required by the reimbursement provision overlooks the fact that the purchase price for the port would have been a sunk cost. In reality, a later decision to invest in a container terminal at the Port of Newcastle would be wholly uninfluenced by the amounts originally paid by the acquirer and would focus instead on the anticipated future cash flows of the venture, and such cash flows would be directly impacted by the reimbursement provisions. Accordingly, the compensation provisions substantially reduced the prospect of entry occurring and therefore the constraint of potential entry on NSW Ports was also substantially reduced.

222    The ACCC therefore concluded that giving a monopolist the comfort that it will remain a monopolist and not face entry by potential competitors of which it is aware “necessarily interferes with the competitive process” and reduces the monopolist’s incentives to innovate, “the likely effect of which is to substantially lessen competition.”

NSW Ports’ and the State’s submissions on likely effect

223    NSW Ports’ submissions on likely effect were adopted by the State.

224    NSW Ports accepted that the appeal should be determined on the basis that “likely” means “real chance”: J[922]. NSW Ports submitted that the ACCC’s arguments with respect to likely effect went only to grounds 9 and 11 of the Further Amended Notice of Appeal and NSW Ports’ submissions accordingly focused on those grounds.

225    NSW Ports submitted that a case based on the effect of the compensation provision on NSW Ports’ perceptions of a credible threat of entry is outside the case pleaded and run at trial. The Amended Statement of Claim described a case based only on an objective prospect of entry and that was the case dealt with by the primary judge, as demonstrated by the debate concerning the significance of the discredited Port of Newcastle preliminary business case and the parties’ treatment of post-May 2013 evidence as temporally relevant: see J[1032] and [1226]–[1236]. As such, an effects case based on perceptions ought not be permitted to be run on appeal.

226    Even if that case were permitted to be run, it could not succeed. Entry must be viable, and the threat of entry must be credible, in order to constitute a cognisable constraint, the relaxation of which could constitute a substantial lessening of competition. There was objectively no credible threat of entry by a private operator at Newcastle and thus any perception on NSW Ports’ part of a threat of entry by PON “would not have been reasonable.” The evidence cannot support a finding that NSW Ports perceived, or was likely in the counterfactual to perceive, PON as a threat. The relevant risk to NSW Ports was the risk of a change of State policy in the future, not the risk that a container terminal might be developed at Newcastle contrary to State policy (J[960]) and there is no evidence to show that NSW Ports perceived any real chance that the State would permit Newcastle to be developed before Botany reached capacity. That is consistent with the unchallenged fact that there is no real chance of that policy changing.

227    Moreover, even if NSW Ports had perceived a risk of entry at Newcastle, the compensation provisions did not have the effect of relieving any such constraint. Clauses 3 and 6(d) of the compensation provisions independently operate to deny compensation to NSW Ports for volumes that are lost to Newcastle where NSW Ports fails to engage in ordinary competitive behaviour to retain volumes. In particular, per clause 3.3(d), in order to demonstrate that the cause of the loss of containers to a new entrant at Newcastle was the fact of entry, NSW Ports would have to satisfy the State that it was entry rather than any lapse or default on NSW Ports’ part that prompted the diversion. NSW Ports could only satisfy the State by engaging in the fullest ordinary competitive behaviour, as though the compensation entitlement did not exist. Therefore, compensation would only be paid for volumes lost to Newcastle because there is a terminal at Newcastle, not because of NSW Ports’ indifference. Contrary to the ACCC’s preferred construction, NSW Ports’ preferred construction of the relevant clauses was said to be a more commercial, businesslike construction which preserves the validity of the contract. Finally, NSW Ports submitted that the reimbursement provision could not have heightened barriers to entry because there was no real commercial chance of entry in any event. A container terminal at Newcastle while Botany has capacity is “a mere mirage”: J[1561]. The ACCC, with the cooperation of PON, did not prove that viability and even if such viability could be shown, the State would then have to be persuaded to change its policy. The prospect of such change is “fanciful, far-fetched, infinitesimal or trivial and not a real chance or possibility”: J[941]–[943], [1003], [1586]–[1589], [1595], [1603]. Absent any challenge to these findings of the primary judge, any identified error in the primary judge’s conclusion that the impugned provisions did not raise any additional barrier to entry would be “inconsequential” since a nominally “additional” barrier to entry could not substantially lessen competition.

Likely effect: consideration and disposition

228    In addition to the question of the Port Kembla PCD discussed at [140]–[144] above, NSW Ports also submitted that the ACCC was running a new case on appeal that NSW Ports subjectively perceived that there was a meaningful threat of entry by PON in circumstances where the only case run below was one of objective likelihood of such a threat of entry.

229    Before turning to whether the new ground 11 is a new case being run on appeal, the question of the Port Kembla PCD should be finalised. It is clear that there was no ground of appeal challenging the primary judge’s findings as to the Port Kembla PCD at J[1580]–[1581] or to her Honour’s approach as to the only hypothesis relevant to the potential operation of the impugned provisions being the operation of a container terminal at Newcastle while Port Botany has capacity: J[478]–[490]. The ACCC in its reply submissions said that the Notice of Appeal defines the compensation provisions as the relevant provisions in both the Botany and Kembla PCDs and so every ground of appeal was directed to both. That comment, however, does not either identify a ground of appeal against any of J[487]–[490] or J[1580]–[1581]; nor does it assist in understanding the scope of the appeal, or why the primary judge was wrong on the evidence led before her to confine the judicial task to the only hypothesis effectively placed before her Honour.

230    The support clause in the Port Kembla PCD (Clause 3.3) has a condition (a) as follows:

3.3 Support

Subject to clause 3.8, if all of the conditions in paragraphs (a) to (e) are satisfied in respect of a Support Period (Relevant Support Period):

a)    The Kembla Port Manager demonstrates to the reasonable satisfaction of the State that at least one of Port Kembla nor Port Botany was not at Full Capacity during the whole of the Relevant Support Period;

231    The form of cl 3.3(a) was the same in the Port Botany PCD, save that the person that has to demonstrate the relevant matters is the “Botany Port Manager”. Both clauses say: “… at least one of [Port Botany nor (sic) Port Kembla] was not at Full Capacity…”

232    However, the case as run and as decided, posited, as the only relevant hypothesis, that Botany was not at full capacity.

233    This is how this appeal should therefore be approached.

234    Turning to the case on ground 11, the ACCC submitted that the case as there described was run and that the first error made by the primary judge was that her Honour failed to address it as a central question in the case: “namely whether the threat of entry was sufficiently credible and significant, based on the information then available, to make it competitively meaningful” (see the ACCC’s written submissions dated 10 December 2021 at [61]). This error was compounded, it was submitted, by the failure to recognise that the 50-year duration of the compensation provisions was relevant to the prospect of new entry.

235    It is therefore necessary to examine the record of the proceeding below.

The claim as pleaded in the Amended Statement of Claim (ASC)

236    The case made in the ASC (filed two weeks before the trial) was said by NSW Ports to be restricted to a “case based only on an objective prospect of entry”: NSW Ports’ written submissions dated 3 February 2022 at [61].

237    The ASC was divided into five parts: Part I: paras 1–5 on parties; Part II: paras 6–48 on primary factual allegations; Part III: paras 49–56 on substantially lessening competition in the relevant market; Part IV: paras 57–58 on contraventions; and Part V: para 59 on relief.

238    Relevantly, Part II, primary factual allegations, included ports in New South Wales used for containerised cargo: paras 6–13; services provided in relation to handling of containerised cargo: paras 14–15; facilities used to provide container services (where the notion of a container terminal having specialised infrastructure and equipment purpose-built for loading and unloading container ships was dealt with): paras 16–19; potential to develop a container terminal at Newcastle: paras 20–23; privatisation of Port Botany and Port Kembla: paras 24–35; privatisation of the Port of Newcastle: paras 36–46; and development of a new container terminal: paras 47–48.

239    Relevantly, Part III, substantially lessening competition in the relevant market, contained the following sections: the relevant market: paras 49–52; the likely effect of the compensation provisions: paras 53–55; and the purpose of the competition provisions: para 56.

240    NSW Ports’ submission that the ACCC’s case was based only upon an objective prospect of entry relied on a proper understanding of the pleaded case at paras 47–48 (under the heading “Development of a new Container Terminal”); paragraph 52 (under the heading “Relevant market”); and paragraphs 53–55 (under the heading “Likely effect of the Compensation Provisions”). These paragraphs including their particulars were as follows:

PART II: PRIMARY FACTUAL ALLEGATIONS

Development of a new Container Terminal

47. If the Compensation Provisions remain in place and are legally enforceable, PON

Operations will likely not develop a Container Terminal at the Port of Newcastle.

Particulars

If the Compensation Provisions remain in place and are legally enforceable, the liability of PON Operations to make payments under the Reimbursement Provision will likely make it uneconomical for PON Operations to develop a Container Terminal at the Port of Newcastle.

48. If the Compensation Provisions were not in place, or were found not to be legally

enforceable, it is likely that PON Operations would:

48.1. continue to pursue plans to develop a Container Terminal at the Port of

Newcastle;

48.2. develop a Container Terminal at the Port of Newcastle; and/or