Australian Competition and Consumer Commission v Pacific National Pty Limited & Ors

[2020] HCATrans 213

[2020] HCATrans 213

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M60 of 2020

B e t w e e n -

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

and

PACIFIC NATIONAL PTY LIMITED ACN 098 060 550

First Respondent

HV RAIL PTY LTD
ABN 26 615 302 111

Second Respondent

QUEENSLAND LH CO PTY LTD
ACN 620 979 768

Third Respondent

QUEENSLAND PUD CO PTY LTD
ACN 620 981 606

Fourth Respondent

AURIZON HOLDINGS LIMITED
ACN 146 335 622

Fifth Respondent

AURIZON OPERATIONS LTD
ACN 124 649 967

Sixth Respondent

AURIZON TERMINAL PTY LTD
ACN 145 991 555

Seventh Respondent

AURIZON PROPERTY PTY LTD
ACN 145 991 724

Eighth Respondent

Application for special leave to appeal

GAGELER J
KEANE J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 8 DECEMBER 2020, AT 10.30 AM

Copyright in the High Court of Australia

_____________________

GAGELER J:   I will note the appearances. 

MR J.T. GLEESON, SC appears with MR C.J. TRAN and MS M.F. CARISTO for the applicant.  (instructed by DLA Piper)

MR N.C. HUTLEY, SC appears with MS R.C.A. HIGGINS, SC and MR B.K. LIM for the first to fourth respondents.  (instructed by Clayton Utz)

MR C.A. MOORE, SC appears with MR A.N. D’ARVILLE, MR D.J. ROCHE and MS D.M. FORRESTER for the fifth to eighth respondents.  (instructed by Ashurst)

GAGELER J:   Mr Gleeson.

MR GLEESON: May it please the Court. Could I invite the Court to go to volume 2 at pages 768 and 769 where section 50 is set out. We observe at the outset that section 50 plays a unique role within Part IV of the Competition and Consumer Act. Every other provision of Part IV is behavioural. Only section 50 protects the structure of the market.

Your Honours, subsection (3) identifies, as you know, nine mandatory factors which are non‑exhaustive, and critical to this case was the second factor, the height of the barriers to the entry to the market.  On the findings of the primary judge, every other factor in subsection (3) was either in favour of a substantial lessening of competition or was neutral or irrelevant. 

Your Honours, we propound the application on the basis that six primary findings of fact were made at first instance and survived in the Full Court.  Can I itemise them?  The first is the markets exhibit high concentration.  Second is they exhibit high barriers to entry.  The third, which is the correlative, is that the barriers to entry currently are not so high as to exclude the possibility of new entry, the essential reason being that the new entrant at present knows that it can secure non‑discriminatory access to the ART which is an essential input if one is to compete in the market. 

In volume 1 you will see the diagram at page 157 which illustrates that the current main line from Melbourne, Sydney through to Brisbane comes up through Acacia Ridge into Brisbane.  The proposed inland rail is shown to the left.  It is, on the findings, to be completed about 2028 and there is a likelihood that sometime then or perhaps earlier it may lead to rival terminals.  But until that occurs, for any new entrant, it is an essential input that they be able to acquire non‑discriminatory access to the ART.

GAGELER J:   So this is a highly unusual market, is it not, where you have a 10‑year time horizon or eight years from now and it is something like a three to five‑year lead time to get into the market, is it not?

MR GLEESON:   I beg to suggest not unusual in this sense, your Honour.  In a market which displays heavy concentration and high barriers to entry, if one asks about new entry by definition it is normally going to be difficult, costly and time consuming to get into the market.  That just follows.  So, the fact that it will take the new entrant three to five years to get in now is the very feature you would expect to see in markets of this character.  That was one factor that has been used against us in the Full Court.  There are only three really.  The second is that in terms of the rating of the possibility of new entry, the ACCC did not get higher than possibility.

GAGELER J:   Is that correct?

MR GLEESON:   That is correct on the findings.  Again, we would say, not surprising in a market exhibiting heavy concentration, high barriers to entry, that you will not be able to necessarily identify now who the new entrant is. 

EDELMAN J:   It is effectively a finding of very high unlikelihood or impossibility of immediate entry but possibility of entry within – or the beginning of a process of entry within six months, a year, two years, with your three to five‑year time horizon.

MR GLEESON:   Yes, and a critical matter to the evaluation of the primary judge, which we submit is correct.  In the current market the monopolist knows – the very fact your Honour Justice Edelman put to me – it knows that if it increases price or reduces quality it risks triggering that process of new entry and it risks triggering it today, in the next three months, the next six months. 

The completion of that entry will take a longer period – three to five years.  The completion will be difficult.  The completion will be costly.  But if one asks at the moment in this market what keeps Pacific National honest, what is there to constrain its competitive behaviour, there are only two features in the present market.  The first is that SCT is the only other actual competitor in the market.  It has a market share in the small digits.  

GAGELER J:   [REDACTED]

MR GLEESON:   Yes, it is low, it is low – different product – cannot compete.  So, in terms of actual competitive constraint in the market, there is very little from SCT.  What else is constraining Pacific National today?  The only thing constraining it is the knowledge that if I push my power too far, I may trigger that new entrant.  That constrains Pacific National – whether it knows the name of the new entrant, whether it rates it as low or a bit above low or a bit less than low.  The second it engages in that act of raising price or reducing quality it risks triggering that new entrant.  

EDELMAN J:   Suppose Pacific National were to raise prices to such an extent that it was to achieve super profits or abnormal super profits, what evidence was there from either of the economists that suggested that that possibility might become a likelihood of entry?

MR GLEESON:   Your Honours, the strongest the evidence went is at paragraph 1297 in volume 1, which was Dr Williams, and he approached it from this angle, that:

if the impugned conduct further deters entry when some entry is possible, it may well be the case that the markets will need to wait a long time before another potential entrant is willing to accept the risks associated with entry.

I read paragraph 1298 also.  So the approach of Dr Williams was to say if PN raises price or reduces quality tomorrow, and it may trigger that new entry, that is the situation in the markets as they currently stand.  Once the acquisition occurs, what changes?  The second it occurs, we now know that a new entrant will not be able to get access to the ART on non‑discriminatory terms, that is the finding, and what will that do to the new entrant, and then in turn what will that do to PN.  That is the essence of Justice Beach’s analysis. 

What it will do to the new entrant is very simple.  At the moment, entry into this market is difficult.  But after the acquisition entry into this market is close to impossible.  Why would I enter and struggle to face PN, who has the ability and the incentive to discriminate in the access to the terminal, why would I even bother?  So the new entrant, after the acquisition, engages in this calculus, his Honour found, better to defer any decision for new entry until down the track when rival terminals may be available, which will not have that claw attached to them. 

To come back to your Honour Justice Gageler’s question, that is where the timeframe plays out in this way.  In the current world, which also is the counterfactual world - this is not one of those cases where the counterfactual is a fanciful, different world, the current world will be the world but for the acquisition.

The constraint exists today through that threat of new entry.  In the factual world, the moment this acquisition goes through, the potential new entrant says no point even bothering trying to enter until I know that the inland rail has come, and I have a terminal I can get access to.  On his Honour’s findings, that is likely to be seven to 10 years before one of those alternative terminals comes along.  So one way of looking at what the primary judge did was to say the effect of the acquisition is to postpone the threat of new entry for five to 10 years.

GAGELER J:   Mr Gleeson, if those paragraphs in the primary judge’s judgment that refer to the evidence of Dr Williams are your case at its highest, how do you deal with the very next paragraph which is an extract from Dr Williams’ evidence stating his conclusion where he says the increase – where he links the barriers to entry to Qube and says, by reference to Qube, it is “not speculative”.

MR GLEESON:   Qube was an illustration.  The ACCC failed on Qube.  It gets no benefit out of Qube.  What was left as the core of Dr Williams was the economic theory at 1297 and 1298 – that sound theory. 

GAGELER J:   It is a sound theory, but it has to link with reality. 

MR GLEESON:   The link with reality, your Honour, if I could just complete the link.  What was critical to the primary judge was this.  There are two perspectives here:  what will the acquisition do to the thinking of the new entrant, and the finding is, the reality is the new entrant will say it is too hard to try now because I cannot get non‑discriminatory access.  Better to wait five or 10 years when I get access to a terminal that does not have a claw around it. 

What does Pacific National think, which is the correlative of that, and what Pacific National thinks, which is what Justice Beach found in those critical paragraphs 1005, 1418, 1612, that is our case, and you will not see them emerge again in the Full Court’s critical reasoning - Pacific National says, the second I get my hand on the terminal the pressure is off.  The only person I have to worry about is SCT and they are just a minor mosquito.  What I then am is Pacific National – the second it gets this acquisition is I am a near monopolist with effectively little to no constraint on my behaviour. 

Now, the question in terms of substantial - which is a question of meaningful or significant, it cannot be just theoretical or minor - is it a substantial lessening of competition which section 50 is concerned about for the near monopolist to be able to say the second‑last constraint on my behaviour which exists today and would otherwise exist for five to 10 years will be gone tomorrow the second I engage in this acquisition. If it is – and that is our case – section 50 has some real teeth in markets like this which exhibit high concentration, high barriers to entry. If it does not have that work to do, it is very difficult to see how section 50 will do its job ‑ ‑ ‑

EDELMAN J:  It depends, does it not, on how high the barriers to entry are?  If the barriers to entry are already extremely high, maybe because of the barriers themselves and also because of the time horizon, then increasing them slightly further might not have any substantial effect.

MR GLEESON:   No doubt, your Honours, and that is why we submit that Re Tooth is so instructive, even though it is an authorisation case, because the way Re Tooth put it really has a healthy dose of realism and scepticism about it.  When the monopolist, Mr Hutley’s client, comes to court and says do not be worried about lessening of competition because I already have such walls of protection encased around me that it cannot matter that you remove the second‑last constraint on my behaviour, that needs to be scrutinised with the greatest of care.

This is not just the raising of a minor barrier.  This is the proof that we go from a situation where the upstream asset, the monopoly asset, currently is effectively going to be precluded to the new entrance.  After this it will be precluded by reason of the acquisition in contrast to the current position. 

So, when Re Tooth framed it this way, yes it was a case about very long‑term beer ties but when it framed it this way the monopolist who runs Mr Hutley’s argument really ought to be showing the Court that the current barriers to entry are so high that entry is impossible or close to impossible.  That is the type of burden in law they should be taking on.  Now, in the present case, they did not get those findings from either court.

KEANE J:   Well, you speak of Qube as an illustration of the thesis, but Dr Williams used it as more than that.  He used it as evidence of a real possibility that rendered his thesis not speculative.  But apart from Qube there is just the absence of evidence of someone who was big enough and expert enough interested in the possibility of pursuing the opportunity.  I mean Linfox, Genesee & Wyoming, one looks at the market of the evidence of the actual people who are actually in the market who know the market, their behaviour is very important and none of them seem to be interested.

MR GLEESON:   Your Honour, those matters are not irrelevant.  They are relevant within the exercise.  The prism we suggest they need to be viewed through is, given that high market concentration, given those high barriers to entry, given the threat of new entry being as I say the second‑last real constraint in the market, how much more is needed than what the ACCC identified to recognise that as being a real constraint in the current market. 

Justice Beach, who looked at the vast body of evidence, was satisfied in those three key paragraphs that that threat of new entry, even without being able to put Linfox or someone else on it, would and could operate as a real discipline today.  That discipline is lost post the acquisition. 

If you go to the critical findings of the Full Court where the ACCC lost, which are in volume 2 between paragraphs 263 to 268 - they are the only paragraphs that matter - you will not see any analysis of that disciplining factor and the loss of it.  Indeed, if you look at paragraph 263, the first part of the paragraph identifies the counterfactual and has the three matters - “mere possibility”, will take five years, terminals may come along shortly thereafter.  So that is the identification of the present world and the counterfactual.  If you then ask what has the court done with the factual world, the world with the acquisition, it is really the next two sentences:

if the acquisition were to proceed, the deterrent effect . . . is based on –

and what it is based upon is merely a recitation of what has been identified in the counterfactual.  Then, the conclusion is drawn, no real difference either way.

What has evaporated, with respect, from paragraph 263 are the two matters that were critical to the primary judge that that new entrant, whoever it may be, will push back any plans for entry until the inland rail comes along and conversely Pacific National will say the second‑last constraint on me has gone.

GAGELER J:   Are they not really just saying the future with is mere possibility and the future without is mere possibility?

MR GLEESON:   I think it is more than that, your Honours.  What has happened is that a close analysis on the future with and without requires, we submit, attention to the real-world constraints faced by the monopolist and how they differ between the two worlds.  Discipline, in effect, has disappeared from that paragraph.  The other one I would mention is 268, at line 40, when it says:

In all of the circumstances . . . not be likely to have the effect of substantially lessening competition –

Again, the two critical evaluative matters have dropped out of that paragraph.  Your Honours, if ground 1 had good prospects of leave, then we would need to succeed on either ground 2 or ground 3 in order for the application to have overall success.  May it please the Court.

GAGELER J:   Thank you.  Mr Hutley.  You can take your mask off, Mr Hutley.

MR HUTLEY:   Of course, yes, I was becoming so comfortable.  Your Honours, the Full Court and the trial judge agreed in relation to the relevant principles to be applied with the primary judge – your Honours will see that at paragraph - 1274 through 1279, volume 1, page 293 and in the Full Court at paragraph 246, volume 2, paragraph 663.  The primary judge’s error in this regard was identified by the Full Court in two spots, firstly, at paragraph 159 in the Full Court – which your Honours will find at paragraph 631 where, thirdly:

because the assessment in the absence of the Undertaking was hypothetical, his Honour did not elaborate on his ultimate finding. Fourth, his Honour’s assessment that, in the absence of the Undertaking, the acquisition would have contravened s 50 was “on balance, and not without some hesitation”.

That is paragraph 1612 which I will come to.  Their Honours then turned to that at paragraph 257 at page 666 and observed on the error of the trial judge in relation to the true question which he, in effect, dealt with as a hypothetical because of his attitude to the undertaking.  So, it is wrong to say that the trial judge addressed the full question and there is a difference of opinion.  The trial judge, as the Full Court found, addressed a different question and that paragraph is not challenged by our learned friends.

EDELMAN J:   Mr Hutley, did the Full Court ever overturn the trial judge’s finding that there was a real chance or a realistic possibility of entry?

MR HUTLEY:   They say his Honour did not find that.  They said his Honour found – if that is what 257 is – there was a possibility of a real chance because the trial judge expressed his view in the negative – and your Honour has to go to 1612 of the trial judge’s judgment which is the critical finding.  It is at page 346, I think is the right one – yes, 346, of volume 1.  Although Qube was not likely to enter the latter, I could not rule out the realistic commercial chance of it.

EDELMAN J:   What about 1418 at page 319?  That seems to be expressed in the positive.

MR HUTLEY:   In my respectful submission, that is not a finding of a real chance of entry.  However:

I am inclined to accept Dr Williams’ evidence that raising barriers will more likely preserve . . . and act less as a discipline –

et cetera, because the threat is less.  That is not finding, in our respectful submission, that is exactly what his Honour does not find.  His Honour thus ends up expressing it in the negative ‑ ‑ ‑ 

EDELMAN J:   But is he not answering the earlier question in the previous sentence:

The question is whether realistically there are other potential entrants who may or would be likely to enter in the relevant timeframe absent the barrier or increased barrier to entry created by the acquisition.

Then he concludes, at the end of the paragraph, that:

With an undertaking and the ART acquisition I do not consider that there is likely to be any substantial lessening ‑ ‑ ‑

MR HUTLEY:   Your Honour has to say it is somewhere in the interstices of that rather than expressly, and he comes to state it, and the Full Court found the statement was expressed and deliberately expressed in the negative of not being able to rule out, because his Honour, in effect, had passed over the inquiry in detail because of his attitude to the undertaking.  That is why ‑ ‑ ‑ 

KEANE J:   It is hard not to read his Honour there as putting it as high as he possibly can.

MR HUTLEY:   Quite, and that is all his Honour needed to do in the circumstance where his Honour populated the factual with the undertaking.  That is what led – so our learned friend’s reliance upon a positive finding at the trial and a disagreement is wrong, and that is why, when you get past 257 in the Full Court, that is page 666 in volume 2, our learned friends, on the appeal, realise the difficulty they confronted, and therefore sought, through 258 and 259, to develop the real chance case which, as the Full Court observed, relying on evidence which the trial judge either had not had regard to or had not accepted, for example, they relied on Mr Morton, as you will see at 259(b), some observations of his.

The Full Court, therefore, went through in detail dealing with the case advanced for the real chance hypothesis of entry.  That is not shifting the issue to say, as our learned friends would have it, because the Full Court made clear the ultimate issue is one of a real chance of substantially lessening competition.  In different cases there will be different emphases on critical facts depending upon a consideration of the matrix of the entirety of the circumstance.

This case, for reasons associated, as we know, with the fact that there had been a reliance on Qube, there was a “barriers to entry” case, no reference was made, not one, to all the other participants in the auction which had taken place for Aurizon’s business, [REDACTED], no one had showed any real interest other than Qube. 

There had been one bidder, Oaktree, but Oaktree was so, as it were, non‑credible, that their bid for the interstate intermodal business was not even taken to the board.  So what one had, and you will see that in the findings, is a real‑time measure of real players in the marketplace and no one other than Qube had shown any real interest.

EDELMAN J:   But does not your case really need to be not that no one had interest, but that interest or possibility is so unlikely that increasing barriers further is not going to make any substantial difference?

MR HUTLEY:   Well, that is the finding of fact of the Full Court.

EDELMAN J:   Where did they find that it is so unlikely that increasing barriers would make no ‑ ‑ ‑ 

MR HUTLEY:   At 263, we submit - I will take your Honours through - if you start at 262 it is:

In the present case, however, the likelihood and timing of new entry was central.

We say that was wholly appropriate.

The postulated competitive harm turned on whether Pacific National’s ownership of the ART would deter new entry by reason of its ability to discriminate . . . The primary judge found that Pacific National’s ability to deter entry would cease on the construction . . . The ACCC’s case on new entry was focussed on Qube, but Qube’s . . . The ACCC did not adduce evidence concerning the likelihood of entry by any other company.  As a result, the evidence at trial only supported a finding that new entry was possible (in the sense of a mere possibility).

EDELMAN J:   That is in effect saying that there is a possibility, not that it is so unlikely as nearly to be impossible.

MR HUTLEY:   One goes on, your Honour:

Respectfully, we consider that the primary judge erred in concluding . . . That is because, assuming the acquisition does not proceed:  the prospect of new entry does not rise higher than a mere possibility and can rightly be regarded as speculative; even if entry were to occur, it would be unlikely to occur in the next 5 years; and, even if it were to occur, an alternative terminal is likely to be built as early as 5 years hence but at least in the ensuing few years.  Accordingly, if the acquisition were to proceed, the deterrent effect of the acquisition on new entry, arising from Pacific National’s ability to discriminate . . . is based on the speculative prospect of new entry within that window of opportunity.

That is it.  Then they go on to say ‑ ‑ ‑

EDELMAN J:   Is that not the case with every monopolist or near monopolist?  Unless you can show someone who is immediately prepared to enter, it will always be the case that the monopolist will be considering speculation or speculating as to the possibility of future entrance.

MR HUTLEY:   Your Honour, it all depends on the circumstances of the case.  When one shreds down to a window which in the real world was a window probably which had closed because the likelihood was that there would be a new terminal within three to five years, the window would certainly close within – would close at seven to eight years out.  There has to be an evaluative judgment and the evaluative judgment of the Full Court is in the real world and one is talking about a real‑world constraint.  In those circumstances there was no constraint upon my client differing in the factual and the counterfactual.

EDELMAN J:   But when you say likelihood of a new terminal in three to five years, you mean eight to 10 years?

MR HUTLEY:   No, the likelihood was – I will give your Honours the finding.  I will just get the finding.  In fact, I think it went as high as probably.  Yes, paragraph 167 in the Full Court’s reasons at page 635, your Honour.  So that is why this is an intensely factual analysis about the real constraints upon my client.  It is not that there was a clear window; there was likely no window. 

There was a possibility of a window of about two to three years if one assumed somebody totally unidentified on that day decided to enter, because it is five years from your decision to enter before you can enter because your Honours have seen all things that you need to do, build, and even that was speculative because, as your Honours would appreciate, Qube – and this is at 669, paragraph 260 – Qube had a plan for three to five years if it acquired a multimodal business. 

If it did not acquire that, the chief executive was…..saying it is really in effect an aspiration, and that was an organisation which was acutely well‑positioned to do this.  It ran ART equivalence throughout the country.  It was a large player in the field, and it could only say, “If we don’t own a multimodal business it is a mere question of aspiration beyond five years”.  That was the real evidence that was before his Honour.

That was evidence coming from the ACCC’s witnesses, Mr Nacey and Mr James, and it was that complex, as it were, analysis which underlies the assessment of the Full Court between 260 and 268.  There are background facts about that such as the time for entry is at paragraph 179, particularly if your Honours go to that, your Honours will see the large undertakings that have to take place.  That is page 638. 

So that is the context in which the evaluative judgment of the Full Court was made and, with respect, there is no question of principle here.  This whole debate is a question of evaluation of a question of fact and it really comes down to whether having regard to the extraordinarily small and vanishing opportunity for someone to enter ‑to develop a plan, develop the scale and enter in a window which would inevitably close in 2028, that was the finding.  It is not that it might.  The finding is unchallenged that it would close. 

GAGELER J:   You say on a proper analysis there is not even a difference between the primary judge and the plurality? 

MR HUTLEY:   Right, they just had – the primary judge approached it in a now accepted erroneous way.  Now, that is really what one is down to.  That is, and – the only threat, restraint which was proved that bore upon my client was Qube and Qube is not a threat.  In our respectful submission the Full Court’s judgment, the result is inevitable because one would really have to say that there was a real threat because some unidentified – and it has to be very large organisation – who has not come forward to an option because they cannot attribute it to those individuals because they knew about them and they did not identify them, would, as his Honour was delivering judgment, had decided to move forward with this large undertaking to get in to the possible and be deterred by that possible window at about somewhere between two and three years before the 2028 period.

That is what it was and the Full Court made, in our respectful submission, the only possible evaluative judgment.  It is that would not operate as any constraint upon my client’s behaviour - the threat of entry would not and in that circumstance making the overall evaluative judgment – was there likely to be a significant lessening of competition – they came to, and we say the inexorable conclusion, that there was not.  That is why the comparison with Tooth, Re Tooth, is actually - in effect makes our case. 

There the Tribunal was not dealing with substantial lessening of competition.  They were dealing with lessening of competition but set that aside for a moment.  What they said is, to take up your Honour Justice Edelman’s point, a near monopolist to take my learned friend’s point, or a monopolist, who is facing a possibility over an indefinite future will think, you could conclude, there is a real likelihood of entry because history changes so much, industries are dynamic so much.

It was the very point of distinction in this case because there was no room for, as it were, the marketplace to evolve or competitors to develop different strategies that there was not likely to be in this case.  That is why it is just this peculiar window case with which we are dealing.  Unless I can be of further assistance, that is how we put it.

GAGELER J:   Thank you, Mr Hutley.  Mr Moore, do you wish to add something?

MS MOORE:   May it please the Court. The applicant was unsuccessful in the court below because of unfavourable factual findings operating on well‑established legal principles and we submit that no error has been demonstrated. In the operation of section 50 – bearing upon the acquisition of shares or assets – what renders the conduct prescribed – what marks the permissible out from the impermissible is that the acquisition is, at least, likely to have the effect of substantially lessening competition. The section is not concerned with speculative or unlikely effects nor is it concerned with insubstantial impacts.

That is important because otherwise there would be an excessive freezing effect on trade or commerce and the disposition of assets or shares – no, Mr Moore, you cannot sell that warehouse because there is a speculative possibility – no one we can identify; no one suggesting it is even remotely likely – but there is just a speculative possibility that we cannot completely rule out that somebody might want to enter the market one day and might want to use that warehouse. 

EDELMAN J:   But you do not dispute that if there had not been a 10‑year window here that we are necessarily in the realm of speculation when you are thinking of how monopolists will behave in the long term. 

MR MOORE:   That is a very different case.  My learned friend, Mr Gleeson, talks about structural adjustments and changes.  This is not a structural change case because of the very matter that your Honour Justice Edelman has just raised that we are dealing with a narrow time window and other terminals are going to be built in the reasonably near future.  So, we are not talking about some permanent structural change.  It is not a Re Tooth Case where you can say – as the Tribunal did in Re Tooth – that, at some point in the next 50 years, surely somebody might arise and, therefore, one deals with, in effect, hypotheticals in that very acute way.

EDELMAN J:   But the point is, it is not a prohibition against speculation.  Your case is that the speculation is such that there is almost no room for any result in this case.

MR MOORE:  It was the factual combination of the extremely low likelihood combined with the either narrow or, in fact, potentially non‑existent window that meant that there was no substantial lessening of competition and no likelihood of substantial lessening of competition.  That was simply an evaluative conclusion of fact reached by the Full Court, having analysed those two constituent aspects bearing upon it. 

The applicant’s case, of course, was focused on the impact of raising barriers to new entrants – and that was a temporary period – and the applicant, of course, accepts that there must be some possibility of entry if there is to be deterrents and impact.  But the statement by my learned friend of his third fact – the barriers are not so high as to preclude the possibility of entry – we do say overstates the true factual situation in the first case.  Of course, his Honour the trial judge, having said what he said in paragraph 1612 – there was a cross‑appeal as well in this case and that required the Full Court to review all of the evidence and they did so.

One sees that in paragraphs 258 and 259 which my learned friend, Mr Hutley, has taken the Court to which is the Court’s consideration of the matters that the ACCC was referring to.  Can I go to paragraph 260 of the Full Court’s decision on page 669 of the court book, where the Full Court noted:

We accept the respondents’ submission that the detailed evidence given by senior employees of Qube, Mr James –

who was the managing director:

and Mr Nacey –

who was the general manager of commercial:

adduced by the ACCC establishes the commercial difficulties associated with entering the interstate rail linehaul market and the likely timeframe for new entry.

So, these were the Qube witnesses who put up positive evidence as to what you needed in order to enter the market and I just want to go to one aspect of that evidence.  The affidavit of Mr Nacey is in the application book behind tab 7.

GAGELER J:   You should not assume we have tabs.  Do you have a ‑ ‑ ‑

MR MOORE:   Sorry, it is page 527 of the court book.  This evidence was filed, and it is relevant – this evidence was filed at a time, filed in September 2018, at a time when Aurizon still owned and operated the Queensland intermodal business.  That was one of the businesses that used the ART and the ACCC had obtained an interlocutory injunction in August 2018 restraining Aurizon from closing that business and the background is referred to by the majority in the Full Court at paragraphs 39 to 41.  I do not need to take the Court to it. 

The evidence was adduced for the purpose of demonstrating why the Queensland intermodal business was significant and, as Mr Nacey explained, that is something that he thought was important for the entry into a relevant market by somebody in the position of Qube.  At paragraph 72, Nacey referred to the fact that he thought it would be a logical step for Qube to, in effect, enter the market.  In 73 he gives them confidential evidence which I will not read out, but the Court sees what he says there about what happened in the past. 

Then, at paragraph 83, again it is said to be confidential, but the Court will see the reference there to the “only means”.  At paragraph 93 and following he sets out in some detail the modelling that Qube had done in relation to the potential entry into this market.  Then at 109 he records that:

Aurizon’s exit from Interstate Intermodal –

Aurizon closed down their Interstate Intermodal business:

eroded significant value that Qube, as a potential purchaser, saw in Aurizon Intermodal as reflected in the modelling. 

But then in 110 he says following that exit various things had been lost, the synergies and so on had been dissipated, but there was one opportunity left and that is what is referred to in paragraph 112:

If Qube successfully acquired the Acacia Ridge terminal and Queensland Intermodal, I would support a proposition for Qube to use the Queensland intrastate business as the basis for commencing Domestic Intermodal services –

in other words, into the market.  So here is evidence from the person who it was common ground was best placed to enter the market saying here is the last chance, the one way that I might be able to enter the market.  But of course that opportunity in turn was removed because the Queensland Intermodal business was sold to Linfox who did not plan to enter the Interstate Intermodal business.  The Queensland Intermodal business was therefore unavailable to be used as a basis for entering into the relevant market.

GAGELER J:   Did the evidence of Dr Williams engage with this level of detail?

MR MOORE:   His evidence was, as the Court has observed, predicated on Qube being a possibility.  He did not engage in this level of detail and of course his evidence did not account for, for example, what happened in the course of the trial, including the cross‑examination of Mr James, the Managing Director of Qube.

EDELMAN J:   What was the foundation of his conclusion that entry was a possibility?

MR MOORE:   Dr Williams’ foundation?

EDELMAN J:   What was the evidentiary foundation for that?

MR MOORE:   It was an evidentiary position at the time that Mr James was saying, “Well, notwithstanding all of these setbacks, there was still a possibility that we could enter the market”.  But that was before his cross‑examination, and that is referred to in the Full Court’s decision most conveniently at paragraph 260 where I started this…..exercise.  The finding of the primary judge is set out there in the quote in paragraph 260 and what he found is that:

the prospect and timing of [Qube] commencing supply of those services would be uncertain to say the least.  Qube estimated that even with the benefit of customer contracts from QIB it would take at least 3 to 5 years to commence . . .   Without those contracts it would take longer, with 3 to 5 years simply a target.

Then there is a reference to Mr James’ affidavit evidence which is to the effect that:

whether entry occurs at all appears to depend on whether Qube can somehow find additional volumes, acquire a freight forwarding business . . . In cross‑examination, he accepted that Qube may need to acquire an established intermodal rail business, an even less likely prospect.

With respect to his Honour the trial judge, an even less likely prospect is literally correct in the sense that zero is less than any positive number, but there was no real likelihood at all because there was no remaining intermodal rail business to be acquired. 

So here was the evidence of the most likely prospect to enter this market, accepting in cross‑examination that one really needed to have an existing business, consistent with the evidence given by his commercial manager, Mr Nacey, and given that all of those opportunities had disappeared, it was really only a sense of a possibility that somebody could come along in the sense that one could not logically rule it out, sort of “you never know your luck in a big city” approach, not that it was in any sense

commercially realistic, plausible or any other phrase which might cohere with the statutory language of “likely to substantially lessen competition”.

So, for those reasons, the Full Court’s analysis, or the analysis of the majority, I should say, in paragraph 263 is well‑based on the factual material that was before them and is a correct analysis, with respect, that discloses no error.

Now, his Honour Justice Perram did not even permit the possibility of this alternative entrant, because his Honour observed at paragraphs 406 to 407 that the ACCC had tied their case at trial to Qube and to no other person, and for those reasons, his Honour was not entertaining the possibility of new entrants that may, in effect, not have raised their heads above the parapet, particularly in the course of the bidding process that had occurred at that time.  So for those reasons, their Honours’ conclusion at 263, we say, is well‑founded.

Now, we point out that grounds 2 and 3 are entirely moot unless the applicant wins on ground 1.  They are, however, themselves, a further hurdle that the applicant must overcome to succeed, and we say for those reasons this is not an appropriate vehicle for special leave.

GAGELER J:   Thank you, Mr Moore.  Mr Gleeson, is there anything in reply?

MR GLEESON:  Your Honours will observe, in the presentation by the respondents, you have not heard them grapple with two key matters which were central to the primary judge, have not heard a word to respond to the proposition that in the reasonable perception of the potential new entrant, entry into this market after the acquisition is not on.  The potential new entrant will say, better to wait until the if and the when of the inland rail, seven to 10 years, at least then I know I will get access to an essential input.  That just has not been addressed.  The second ‑ ‑ ‑ 

EDELMAN J:   Can I – on that, can I just ask you about two paragraphs to which the respondents took us.  One is the reference at paragraph 260 of the Full Court’s reasons to the finding by the primary judge that the three to five-year time horizon for entry required:

the benefit of customer contracts from the QIB –

and the other is at paragraph 167 of the Full Court, where the Full Court said that, again referring back to the evidence, that the new terminal might:

be completed in as little as 3 to 5 years.

MR GLEESON:  Let me deal with when the terminal was completed.  At paragraph 196 of the Full Court, the respondents conceded our ground in the notice of contention that the relevant timeframe is:

10 years until the completion of the Inland Rail Project (in 2028) –

The critical paragraph that is based on is 1304 of the primary judge, where his Honour said unlikely to be built in:

the next 3 to 5 years, and likely not for 7 to 10 years.

So the competitive terminal, not before five years, likely not seven to 10 years, not the two to three years that Mr Hutley propounded.  In terms of your Honour’s question of what do we know about the case for new entry, you will see in the Full Court an identification of the barriers to entry at paragraphs 173 to 174, and that explains why it is difficult, it is costly, and it will take you a number of years to do. 

But none of that, those findings, which have survived, support Mr Hutley’s proposition - and this was the second point I wanted to come to.  Mr Hutley says my client is under no constraint under the next five to 10 years, except for Qube, and Qube has been dismissed, but the case of the monopolist is, apart from SCT, forget them, we are effectively completely unconstrained in our market.  That involves the proposition that the barriers to entry are so high that raising them further could not matter.

To return to your Honour Justice Gageler’s question, did the Full Court simply approach it the same way as the primary judge, we would submit the answer is no.  Can I go back to the three key paragraphs - 1005 of the primary judge.  His Honour, at the foot of page 234 was alert to the possibility that if there was likely to be no new entry then the barrier’s case may be “problematic”:

But having said that, I cannot rule out a real chance of new entry into the relevant markets of either Qube or another entity in, say, 5 years. 

Then the next sentence is critical:

such potentiality could discipline PN’s behaviour now and in the short to medium term in terms of its pricing of Rail Services. 

That is the critical finding you have not heard a word from, in particular from Mr Hutley, that the finding against him is that his client now, and into the three to five years, does face discipline because of this threat of new entry even if it does not know precisely who the person is. 

GAGELER J:   I think that you have said in‑chief that the highest the evidence went in supporting that conclusion was the evidence of Dr Williams that you took us to.  Is that right?

MR GLEESON:   He provided the economic evidence in terms of the basic facts of proving what is in the market and what would be involved in new entry.  That involved primary fact and I have taken you to paragraphs 173 to 174, which show you that.  If you are entering a highly concentrated market with high barriers to entry, you are going to need a lot of capital, a good business plan and plenty of reserves, when the incumbent monopolist engages in the inevitable backlash.  But what is not present in this case are findings that the barriers are so high that entry is impossible.  Your Honours, that is why there is harm from this merger being allowed to proceed.  For five to 10 years this market loses a prospect of competition which it currently exhibits.. May it please the Court. 

GAGELER J:   Thank you, Mr Gleeson.  We will adjourn momentarily to consider the course we will take. 

AT 11.25 SHORT ADJOURNMENT

UPON RESUMING AT 11.28 AM:

GAGELER J:   In our view there are insufficient prospects of success on ground 1 to warrant the grant of special leave to appeal.  The case is therefore an inappropriate vehicle to explore the issues of principle raised by grounds 2 and 3.  The application for special leave to appeal is dismissed with costs. 

The Court will now adjourn.

AT 11.29AM THE MATTER WAS ADJOURNED