Charlick Trading Pty Ltd v Australian National Railways Commission
[1999] FCA 452
•14 APRIL 1999
FEDERAL COURT OF AUSTRALIA
Charlick Trading Pty Ltd v Australian National Railways Commission [1999] FCA 452
TRADE PRACTICES - conduct of Australian National Rail Commission under National Rail Corporation Agreement Act - whether reduction in rates applicable to rail corridors in Australia was conduct proscribed by s 46(1) of the Trade Practices Act 1974 (Cth) - whether entity with substantial market power had taken advantage of that power for the purpose of eliminating or substantially damaging a competitor - purpose not alleged to be sole purpose - purpose to be subjective purpose - relevant market - what motivated price reductions - whether setting price below average variable operating costs implied proscribed purpose - circumstances in which inference could be drawn that a proscribed purpose existed.
EVIDENCE – failure to call witness – appropriate party to call witness – inference to be drawn from failure to call.
Australian National Railways Commission Act 1983 (Cth)
Federal Court of Australia Act 1976 (Cth) s 50
National Rail Corporation Agreement Act 1992 (Cth) Sch 1 – cll 5(3), 5(4), 5(5), 5(1)(f)
Trade Practices Act 1974 (Cth) s 4F(b) and s 46ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 applied
Eastern Express v General Newspapers (1992) 35 FCR 43 applied
Queensland Wire Industries Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167 CLR 177 applied
Jones v Dunkel (1958-1959) 101 CLR 298 considered
Spence v Demasi (1988) 48 SASR 536 consideredCHARLICK TRADING PTY LTD v AUSTRALIAN NATIONAL RAILWAYS COMMISSION and NATIONAL RAIL CORPORATION LIMITED
SG 78 OF 1996
MANSFIELD J
ADELAIDE
14 APRIL 1999
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SG 78 OF 1996
BETWEEN:
CHARLICK TRADING PTY LTD
ApplicantAND:
AUSTRALIAN NATIONAL RAILWAYS COMMISSION
First RespondentNATIONAL RAIL CORPORATION LIMITED
Second RespondentJUDGE:
MANSFIELD J
DATE OF ORDER:
14 APRIL 1999
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1. The application is dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SG 78 OF 1996
BETWEEN:
CHARLICK TRADING PTY LTD
ApplicantAND:
AUSTRALIAN NATIONAL RAILWAYS COMMISSION
First RespondentNATIONAL RAIL CORPORATION LIMITED
Second Respondent
JUDGE:
MANSFIELD J
DATE:
14 APRIL 1999
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
During the course of the hearing of this matter, certain issues between the parties resolved. The claim by Charlick Trading Pty Ltd (“Charlick”) against Australian National Railways Commission (“AN”) was settled in terms of a Deed of Settlement dated 18 November 1997, and Charlick discontinued its claims against AN. AN also discontinued its cross-claim against Charlick, and against National Rail Corporation Limited (“NRC”).
The remaining claims are by Charlick against NRC. Again, the scope of that claim and its foundation has now been limited to one aspect. It now turns on the sole issue as to whether NRC contravened s 46 of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”), in reducing, with effect from 1 May 1996, the rates it charged for the movement of international shipping containers on the Adelaide-Melbourne rail corridor.
The provisions of s 46 which are particularly relevant to the application are:
“(1)A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a)eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b)preventing the entry of a person into that or any other market; or
(c)deterring or preventing a person from engaging in competitive conduct in that or any other market.
…
(3)In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:
(a)competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
(b)persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
(4)In this section:
(a)a reference to power is a reference to market power;
(b)a reference to a market is a reference to a market for goods or services; and
(c)a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
…
(7)Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.”
It is accepted by each of Charlick and NRC that, for the purposes of considering the application, it may be necessary to address in turn the following questions:
1. What is the market?
2. Whether NRC has “a substantial degree of power” in the market,
3. Whether NRC has taken advantage of that power,
4.Whether NRC’s purpose or one of NRC’s purposes in that conduct was a purpose proscribed by s 46(1),
5. If so, what loss has been suffered by Charlick as a result?
The claim is for a declaration that NRC contravened s 46 by:-
·reducing, with effect from 1 May 1996, by up to 13 per cent the rates payable by retail customers using its super freighter service and/or
·reducing, with effect from 1 May 1996, the retail rates payable by users of its super freighter service to levels at which the revenue derived from the rates is insufficient to cover the variable cost of operating the super freighter service
and for damages. In other respects the claim is no longer pursued, largely in light of the resolution of issues between Charlick and AN, which included a mutual agreement to terminate the Intermodal Services Agreement (“the ISA”) dated 29 June 1993 between AN and Charlick.
It is obvious that to address the five issues which the parties have identified, it is necessary to make findings and to understand the background leading up to the conduct of which Charlick complains. It is somewhat complex, but largely not in issue.
Background
The background to this action stems from the common experience of and concern at the extent to which Australia’s interstate rail freight operations were operating at significant losses. A task force was established to investigate and to provide recommendations on the matter. It provided the National Rail Freight Initiative Task Force Report (“the report”) on 21 March 1991. Its findings included that Australia’s interstate rail freight operations during the financial year 1989/1990 suffered an estimated combined loss of $377,000,000. Its recommendations included the creation of a body then described as the National Rail Freight Corporation to operate interstate rail freight services. NRC was established to fulfil that recommendation. NRC was incorporated under the Corporations Law by registration on 19 September 1991.
The report recognised that the progressive adoption of responsibility by NRC for interstate rail freight services would not instantly resolve the loss making difficulties. It contemplated an establishment phase (1992-1996) during which NRC would receive financial assistance from its shareholders, as it progressively assumed responsibility for and took over the five loss making interstate rail freight businesses then existing. Ultimately, NRC was to be responsible for interstate rail freight services across Australia, and to operate on a commercial basis, in competition with any private interstate rail freight service providers.
On 30 July 1991, the Commonwealth and the States of New South Wales, Victoria, Queensland and Western Australia entered into an agreement about the establishment of NRC (“the NRC agreement”). South Australia later joined. By the National Rail Corporation Agreement Act 1992 (Cth), and reciprocal legislation, (“the NRC Agreement Act”) the Commonwealth and those States approved the NRC agreement and agreed to implement it. The NRC Agreement Act specifically provided that NRC is not to be an instrumentality or agency of the Crown. It empowered the Minister to direct in writing that specified Commonwealth rail freight assets (defined to mean certain assets of the Commonwealth, of AN, and of any other authority of the Commonwealth) that were required or authorised to be transferred to or acquired by NRC be transferred or acquired under the Agreement and be vested in NRC. Vesting of such assets could only occur with NRC’s written approval, but subject to that, a direction of its own force operated to vest in NRC the specified Commonwealth rail freights assets. The rights and liabilities of the Commonwealth relating to those assets then became rights and liabilities of NRC. The Minister was also empowered to direct in writing that NRC be substituted for a specified eligible party as a party to Commonwealth rail freight agreements.
The NRC Agreement was a schedule to that Act. Its recitals included objects as follows:
“ATo achieve micro-economic reform in the Australian rail industry, the Commonwealth, State and Territory Governments have agreed that a company should be established for the purpose of conducting, among other things, rail freight operations in Australia on a commercial basis in accordance with principles compatible with those set out in the Heads of Government Agreement on the National Rail Freight Corporation dated 31 October 1990.
B These principles are:
(a) that the Company will:
(i)operate on a strictly commercial basis with a financially viable corporate plan, and be subject to the Trade Practices Act 1974 (Commonwealth);
(ii)have access (by ownership or other appropriate arrangements) to the assets, including track infrastructure, necessary to achieve commercial viability;
…
(v)provide access on a commercial basis to the NRC network and to terminal facilities for private and public sector operators;
…
CThe Company will be established and operated in accordance with the terms and conditions set out in this Agreement and its Memorandum and Articles of Association to give effect to the principles referred to in Recital B(a).”
Pursuant to cl 5(4) of the NRC Agreement, the Commonwealth and the States agreed to cause their respective rail authorities to permit NRC to assume performance of the functions relating to interstate rail freight, either in whole or in part, and in accordance with a detailed plan which NRC was required to prepare pursuant to its Articles of Association. Clause 5(5) of the NRC Agreement involved the agreement of the Commonwealth and the States to cause their respective rail authorities to transfer ownership to, or lease to, NRC any assets owned or controlled by them and used in connection with interstate rail freight.
It was proposed that the acquisition of the assets used in, and of the access to and control of the facilities and tracks for, interstate freight rail services and the assumption of the interstate freight rail functions would be completed within three years of NRC’s commencement. This term, called the Transition Period, ran to 31 January 1996. The definition provisions provided that the “date of commencement of operations” meant 31 January 1992 or a later agreed date. That date was ultimately agreed to be 1 February 1993. The definition provisions defined “Establishment Period” as a five year period commencing on the date of commencement of operations, so that that period ran to 31 January 1998.
Part V of the NRC Agreement Act dealt with the establishment and operation of NRC. It provided that the Commonwealth and the States would, as shareholders in NRC, procure NRC, inter alia, to commence and conduct national interstate rail freight operations, to conduct all marketing, and to determine pricing for interstate rail freight carried out by NRC, and to:
“take over progressively from the rail authorities of the Commonwealth and the States, in whole or in part, functions of the type listed in Schedule 2 and the management of the associated assets pursuant to the provisions of this Agreement and the agreements entered into pursuant to subclauses 5(3), 5(4) and 5(5); …” (cl 5(1)(f))
Prior to and during the Transition Period, at the request of NRC, the Commonwealth and the States were obliged to cause their respective rail authorities to enter into contracts with NRC for the provision of rail services to NRC relating to interstate freight: cl 5(3). There were provisions dealing with pricing for those services during the Transition Period. Clause 5(3)(a) provided that the price for services performed under such contracts was to be agreed on the basis that for a period of no longer than twelve months from the date of commencement of operations (1 February 1993), the prices would be set having regard to NRC being able to meet its costs incurred in performing the functions assumed by it in whole or in part during that period, provided those costs were reasonable and having regard to the revenue that the rail authority would have received under the Railways of Australia Agreement had that agreement still applied. After that time, the contract price was to be agreed on the basis that NRC had achieved Best Practice Industrial Agreements (a defined term) and was implementing its approved capital investment program, so that the contract price was to reduce progressively to “NRC Standard Costs”. The term “NRC Standard Costs” was defined to mean the costs:
“… that [NRC] projects, with the objective of achieving as a minimum, the potential cost efficiencies identified by the National Rail Freight Initiative Task Force in Attachment 1 of its Report of 21 March 1991, that the Company would achieve by the end of the Transition Period, if the Company were from the date of commencement of operations to:
(a)assume the management and operations of all the interstate rail freight functions set out in Schedule 2 from all rail authorities;
(b) have in place Best Practice Industrial Agreements; and
(c)undertake a capital works program in accordance with the Corporate Plan.”
The “Corporate Plan” was defined to mean the corporate plan prepared in accordance with the Articles of Association of NRC. The Articles of Association of NRC were also a schedule to the NRC Agreement Act.
Initially, following NRC commencing operations, the various State rail authorities and AN continued to provide all services for interstate rail freight, including terminals, terminal operations, locomotives, wagons and crews.
On 11 May 1993, AN and NRC entered into an agreement entitled the Assumption of Functions Agreement. Under that agreement, inter alia, NRC was to assume the interstate rail freight functions previously provided by AN in relation to the Gillman Facility by 11 September 1993. It was under that agreement that NRC took over certain functions concerning the “Gillman Facility” (as described below), including marketing and invoicing for Adelaide to Melbourne international shipping container freight. It was also under that agreement that NRC took over the management and operations of the South Dynon Terminal, the Islington Terminal and the operation of rail services on the Adelaide-Melbourne corridor.
On 11 May 1993, AN and NRC also entered into an agreement entitled the Rail Freight Services Agreement. Under that agreement, NRC assumed responsibility for all interstate rail freight consigned by customers of AN (including Charlick) from 11 May 1993.
Thereafter NRC had the role and responsibility of scheduling trains and providing wagons for the transport of interstate rail freight from and to the Gillman Facility and the transport of that freight. It also invoiced Charlick directly for freight using the Intermodal Service from Melbourne to the Gillman Facility. AN continued for a time to invoice Charlick for freight transported on the Intermodal Service from the Gillman Facility to Melbourne. From 19 November 1996, NRC also commenced to invoice Charlick for freight transported on the Intermodal Service from the Gillman Facility to Melbourne.
At material times, pursuant to its statutory functions under the Australian National Railways Commission Act 1983 (Cth), AN provided railway freight and passenger transport services. It operated a railway transport business in South Australia, including the ownership of tracks and sidings, rolling stock, locomotives, and depots. The depots it operated included a freight terminal at Islington (“the Islington Terminal”). It provided a rail service to transport international shipping containers (and where necessary, domestic freight containers) between the Islington Terminal and the various rail sidings in the Port Adelaide area (“the Direct Rail Service”). The Direct Rail Service involved those shipping containers being transported to or from the Islington Terminal through those rail sidings, and required considerable shunting, marshalling and the breaking up of rail loads to accommodate their handling.
At material times, Charlick operated a business under the name Charlick Intermodal Services. That business conducted a freight container terminal at Grand Trunkway, Gillman (“the Gillman Facility”), and transported international shipping containers between the Gillman Facility and the South Dynon Rail Terminal in Melbourne (“the South Dynon Terminal”) and to port railway sidings in Melbourne in conjunction with AN under the terms of an agreement between them dated 29 June 1993 and called the Intermodal Services Agreement (“the ISA”). Charlick also operated the business of a freight forwarder and as a provider of a road freight transport service for international shipping containers between Adelaide and Melbourne (“the Linertrains Service”) under the name “Linertrains S.A.”
The origins of the ISA were in approximately October 1990. Discussions then commenced, and continued over some considerable time, between AN and Charlick. It was, in general terms, contemplated that AN would cease providing the Direct Rail Service, and that as an alternative means of providing for the interstate land shipment of international shipping containers, Charlick would be granted a lease by AN over the land on which the Gillman Facility came to be situated. Charlick was then to develop and operate the Gillman Facility, including the loading and unloading of containers (and other freight), and AN was to provide sufficient wagon capacity and trains to transport that freight between the Gillman Facility and the South Dynon Terminal and to other railway sidings in Melbourne. That service was called “the Intermodal Service”. There would be no need to move the freight involved to the Islington Terminal, or to engage in the expensive activities of shunting, marshalling and reconstituting train loads for transport.
Before the ISA was signed, but in anticipation of it, possession of certain land owned by AN was assumed by Charlick and Charlick erected on that land at a cost of some $3 million what was called in the evidence Stage 1 of the Gillman Facility. Stage 1 of the Gillman Facility was completed by June 1992. AN formally leased to Charlick the land on which Stage 1 of the Gillman Facility was established. Between June 1995 and May 1996, Charlick expended a further sum in the order of $2.9 million to establish and operate what was called Stage 2 of the Gillman Facility. On 7 August 1996, AN formally leased to Charlick the land on which Stage 2 of the Gillman Facility was erected.
Although the ISA was not signed until 29 June 1993, its terms reflected an agreement in principle negotiated earlier between Charlick and AN. It was upon the basis of that agreement in principle that the Intermodal Service commenced from the Gillman Facility on 9 November 1992.
By that time, AN’s business included operating what it called its ‘Superfreighter Service’ from the Islington Terminal to the South Dynon Terminal and to certain private sidings including some which served certain of the docks in the Port of Melbourne.
The ISA formally confirmed that AN leased to Charlick the land on which Stage 1 of the Gillman Facility was established, and that Charlick would operate the Gillman Facility. Charlick’s income from so doing was derived from its charges to customers using the Intermodal Service, and its expenses included its operating expenses and the rates AN charged for providing the trains and rolling stock into and out of the Gillman Facility to transport freight to and from Melbourne. During its term, AN agreed not to operate a service in competition with the Intermodal Service except upon certain terms. The ISA was expressed to be for a period of ten years from the defined commencement date, namely 1 August 1993, with Charlick having options to extend it for two further five year periods, so that its maximum term was twenty years. As between Charlick and AN, it was acknowledged that on the basis of Charlick’s anticipated operation of the Gillman Facility, it would take some twelve years of operations to recoup its capital expenditure.
Obviously, the rates to be charged by AN to Charlick for the line haulage services between the Gillman Facility and Melbourne, in both directions, were critical to the successful operation by Charlick of the Gillman Facility. Clause 5.2.3 of the ISA obliged AN to charge Charlick for line haul services in accordance with “Operating Terms”, as contained within Sch 2 to the ISA. The Operating Terms specified AN’s charges at the commencement date to be $627 per wagon from Adelaide to Melbourne, $375 per loaded “TEU”, and $200 per empty “TEU” (the rates prescribed are a little more complex, but it is not necessary to describe them in full). A “TEU” refers to a “twenty foot equivalent” unit, the length of the standard container. There were generally able to be loaded three TEU’s on each wagon. AN’s rates could be varied from time to time. Clause 1 of Sch 2 then provided:
“In setting its charges to Charlick and to Customers (as the case may be) AN will have regard to the comparative costs to AN associated with the provision of the Islington Service and Direct Rail Service [those two terms are defined], and the comparative market prices of those services and any similar service”.
The Operating Terms also provided for the invoicing processes to be used by AN to Charlick, for the level and timing of train services to provide the line haulage for the Intermodal Service (trains were to leave Melbourne each weekday at 5.00 pm and to arrive at the Gillman Facility for unloading at 6.00 am on the next but one succeeding day except for the Friday train which was to be available at the Gillman Facility on the following Monday. Trains were to leave the Gillman Facility at 7.00 pm each weekday with equivalent arrival time for unloading in Melbourne). They also recorded the existing AN charges for the Islington Service and Direct Rail Service, which (by way of example) for Adelaide to Melbourne haulage ranged between $902 and $945 per wagon depending on the rating of the end terminal.
In August 1993, Charlick sought and procured from AN a reduction in the rates charged by AN under the ISA. The new rates (again, simplified for the purposes of illustration) were $510 per wagon from the Gillman Facility to Melbourne, $307 per loaded TEU, and $200 per empty TEU from Melbourne to the Gillman Facility. As was, on the evidence, common at the time, AN fixed those shipping rates by reference to “what the ‘market’ would bear”, rather than by any analysis of the cost to AN of providing the Intermodal Service.
Once the Intermodal Service commenced in November 1992, AN invoiced Charlick apparently in accordance with the (still to be signed) ISA. That arrangement changed after 30 April 1993. AN then invoiced Charlick for line haul services provided from the Gillman Facility to Melbourne, and NRC invoiced Charlick for line haul services from the Melbourne to the Gillman Facility. That arose because, on 2 May 1993, NRC took over the management of the South Dynon Terminal from the Public Transport Corporation of Victoria (“PTC”), and on 3 May 1993 it took over responsibility for the operation of rail services on the Adelaide-Melbourne corridor.
From 1993, NRC progressively assumed control over the assets used in, and the operation of, interstate rail services pursuant to the NRC Agreement. So far as has been identified as of particular relevance to this action, those steps included it taking over the management and operation of the Islington Terminal on 31 May 1993, and on 8 November 1993, assuming responsibility for wagon management in relation to the Intermodal Service. At material times up to 8 May 1993, AN operated the Superfreighter Service (referred to above) as an overnight freight train each way between the Islington Terminal and the South Dynon Terminal (“the Superfreighter Service”). It principally provided transport of domestic freight, including domestic containers, but also transported international shipping containers. It was, at least in part, because of that service and the competition it provided to the Intermodal Service, that Charlick made representations to AN which led to AN reducing its rates under the ISA in August 1993. After 8 May 1993, the Superfreighter Service was conducted by NRC.
NRC could have, but elected not to, adopt the ISA. It formally advised Charlick of that decision on 7 August 1995. It is not contended that NRC is bound by its terms. The claim by Charlick against AN based upon the alleged breach of the ISA has (as noted above) been resolved. One term of the Deed of Settlement between Charlick and AN of 18 November 1997, is that the ISA was terminated by mutual consent.
Although I do not think that, in the result, the dealings between Charlick and AN leading up to the ISA play a particular part in the resolution of the present issues, I find that Charlick did enter into possession of the site upon which the Gillman Facility was established, without formal approval of AN and without any lease from AN. Charlick actually started operating from the Gillman Facility before any lease or the ISA was signed. The execution of the ISA was, understandably, subject to the Trade Practices Commission imprimatur, and to some extent, dealings and discussions with the Trade Practices Commission caused some months’ delay between final agreement between Charlick and AN and the execution of the ISA. Despite NRC’s requests, it was not provided with a copy of the proposed ISA whilst those discussions with the Trade Practices Commission were taking place. It first received the ISA as signed only on 14 July 1993. There were no circumstances by reason of which Charlick or AN were given to expect that NRC would, in the exercise of its powers under the NRC Agreement, take over or adopt the ISA.
The conduct complained of
Again, there is no real dispute that NRC engaged in the conduct of which Charlick complains.
On 2 April 1996, NRC announced rate reductions effective from 1 May 1996 on all rail corridors throughout Australia. Those rate reductions applied to both domestic freight, including containers, and to international shipping containers. Those rate reductions had the effect of reducing the rates NRC then charged for the Superfreighter Service by up to 13 per cent in respect of the Adelaide to Melbourne corridor, and by up to 10 per cent in respect of the Melbourne to Adelaide corridor. The rates announced meant that the rates to be charged for shipping containers on the Superfreighter Service from 1 May 1996 were less than those then being charged by Charlick for the Intermodal Service. They were also less than those then being charged by AN and NRC to Charlick for the line haul service constituting the Intermodal Service, that is the rates as fixed by AN from 22 August 1993 (which were not then reduced).
Charlick responded to that price reduction announcement by reducing the rates it charged to its customers for the Intermodal Service. The consequence of so doing was to make its day-to-day operations marginally profitable or unprofitable. It did not operate so as to procure any real return on the capital invested in the Gillman Facility. Charlick in April and May 1996 sought a reduction in the rates being charged by AN and by NRC for the Intermodal Service. It did not obtain any rate reduction.
The conduct of which Charlick complains is now limited to the price reduction effective from 1 May 1996.
It had earlier complained also that the Intermodal Service was not maintained.
On 25 July 1996, NRC informed Charlick that it intended to cease to provide to AN the train service called the MAZ/AM2 as a separate service. That was the service which supported the Intermodal Service. NRC proposed to embed the MAZ/AM2 service with the “MA5/AM5” service (the Superfreighter Service) so as to operate a single train service, effectively by adding to the Superfreighter Service train the wagons necessary to accommodate the Intermodal Service. NRC indicated that it would provide Charlick with the opportunity of securing wagons on or with the Superfreighter Service for that purpose, but on a “take or pay obligation” basis (ie, a minimum number of wagons, whether required on the particular day or not) and at different and considerably higher rates than those notified by AN to commence on 2 September 1996. That complaint was not pursued in final submissions.
Charlick’s complaint is focussed ultimately on NRC’s conduct in reducing, with effect from 1 May 1996, the rates it charged for the movement of international shipping containers (including on the Superfreighter Service) on the Adelaide-Melbourne rail corridor.
It is critical to Charlick’s case that a substantial purpose of NRC in applying those price reductions was a purpose proscribed by s 46 of the Act. In that regard, it contends that NRC’s purpose was, or included,
·to eliminate or substantially damage Charlick in the “International Container Land Market” contrary to s 46(1)(a), or
·to deter or prevent Charlick from engaging in competitive conduct in the “International Container Land Market”, contrary to s 46(1)(c).
Charlick seeks to support that finding as to that purpose by inference from the price reduction itself, the circumstances in which it occurred, and from a course of conduct of NRC in relation to the Intermodal Service.
Section 4F(b) of the Trade Practices Act makes it clear that the purpose alleged need not be NRC’s sole purpose for the price reduction. Charlick’s claim will have been made out if the purpose asserted is found to have existed, and to have been a substantial purpose for that price reduction.
Charlick’s contention acknowledges that the purpose identified must be an actual or subjective purpose of NRC (ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 474-475. That question of fact must be determined in the light of the whole of the evidence, including in the present circumstances, the assessment made of the witnesses called by NRC. Of course, it would be erroneous to fail to measure and weigh that evidence against objective evidence about the surrounding circumstances, the events leading up to the price reduction, and general human experience: Eastern Express v General Newspapers (1992) 35 FCR 43 at 71.
The Market and Market Power
As the High Court stressed in Queensland Wire Industries Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167 CLR 177 at 187, the purpose of identifying the relevant market is to discover the degree of the market power of the entity.
Charlick asserts that the relevant market is either the market for the carriage of international shipping containers by rail or road between Adelaide and Melbourne (its preferred submission), or alternatively and more narrowly the market for the carriage of international shipping containers by rail only between Adelaide and Melbourne. NRC submits that the market is not limited to international shipping containers, but includes both international shipping containers and domestic containers. It also contends that the market is not confined to the land based transport of containers, but includes container movement by sea, nor is it confined to the Adelaide-Melbourne corridor. It points out that there is no real physical difference between the types of containers, or their functions, and that there was no real dispute on the evidence that there is effectively total ‘supply side’ substitutability. All suppliers of services in transport of containers could readily carry either domestic and international shipping containers. The real evidentiary dispute was as to the extent of differential demand for those services, and its economic and legal significance.
Charlick then contends that NRC has a substantial degree of power in the market for the transport of international shipping containers by road or rail between Adelaide and Melbourne. That degree of power is said to arise by reason of its market share, the existence of barriers to entry by others into that market, its access to financial resources by reason of its entitlements under cl 5(4)(b) of the NRC Agreement, and the absence of countervailing power in its shipping customers or by reason of NRC’s role as a provider of line haul services to Charlick and to its retail customers. Again, NRC disputes that contention, and points to the evidence of the entry of Patrick Stevedores Holdings Pty Ltd (“Patrick”) into the market by operating a train since April 1997 between the East Swanson Dock in Melbourne and the Gillman Facility, of the entry of a louvre van service by Twentieth Superpace Nominees Pty Ltd under the name Specialized Container Transport (“SCT”) between Melbourne and Perth and between Adelaide and Perth since July 1997, and of the operation by TNT Australia Pty Ltd (“TNT”) since June 1996 of a freight train service on the Melbourne-Adelaide-Perth corridor.
I have reached the judgment that NRC, in introducing the price reductions for the transport of shipping containers effective from 1 May 1996, did not have the purpose of eliminating or substantially damaging Charlick at all, and did not have the purpose of deterring or preventing Charlick from engaging in competitive conduct in any market. It is not necessary, in the light of that conclusion, to resolve the issue between the parties as to the identification of the relevant market. Nor is it necessary, for the same reason, to determine the extent to which NRC had power in any market, either that alleged by Charlick or any more extended product or geographic market.
It is also a consequence of that conclusion that it is not necessary, nor is it possible, to address the question whether NRC took advantage of its alleged market power by introducing the price reductions announced to take effect from 1 May 1996. It should be noted, however, that NRC also strongly contests that issue. Its response is partly because the supply of interstate container transport services is not rationally limited to international shipping containers, as distinct from domestic containers. In the absence of an allegation of NRC having a relevant degree of market power in relation to the interstate transport of containers generally, the maintenance of uniform rates for container transport would not be an exercise of power in the market alleged. NRC points out that it applied uniform rates to the transport of domestic containers and international shipping containers on its Superfreighter Service prior to 1 May 1996.
NRC’s purpose in relation to the price reduction
From the latter part of 1995, NRC conducted a detailed pricing review of its rates for interstate freight. The significant majority of that freight was for the carriage of domestic containers, and it is clear that domestic containers were the focus of that review.
NRC’s review was in accordance with its strategic plan, and its objectives, including the need to rationalise what it regarded as a confusing and inconsistent pricing structure for the carriage of domestic containers. It perceived that pricing structure, which it had inherited by its various acquisitions, to have developed in response to market-driven or sales-driven considerations rather than to have been based on the cost of providing those services. Charlick submits that NRC was also influenced by the fact that the market for interstate rail freight was opening up to competitors, including Patrick, SCT and TNT.
Charlick contends, and I find, that in that price review process, little attention was paid to the interstate rail transport of international shipping containers until about 13 March 1996. The circumstances underlying the price structure review, and the price reductions, were not expressly concerning international shipping containers. It was, as the evidence shows, only between 13 March 1996 and 2 April 1996 that NRC specifically addressed whether those proposed price reductions should apply to interstate rail transport of international shipping containers.
I do not accept, however, that the rationale for the NRC review, or the price reductions it resulted in, were exclusively related to the movement of domestic containers, rather than containers generally, including international shipping containers. The issue is, in my judgment, an important one. My observations about the evidence will explain why I so regard it.
As noted in the background above, the basis upon which NRC was to be paid or compensated by its shareholders for the services it provided under the Shareholders Agreement varied from time to time.
During the early part of the Transition Period, it collected revenue for its provision of interstate rail freight services and deducted from that revenue its reasonable costs of providing those parts of the functions which it had assumed. That process did not involve any focus upon what should have been the true cost of individual interstate rail functions or corridors. From 1 February 1994 to 31 January 1996, that is the balance of the Transition Period, NRC paid to its shareholders their respective proportions of its gross revenue to reflect the functions still provided by the various state rail authorities and by AN. It received or retained its actual costs from that total revenue. During the remainder of an Establishment Period (1 February 1996 to 31 January 1998) NRC was invoiced by those state rail authorities in respect of the functions they were still performing, but on a commercial basis, and NRC received and retained the revenue it earned. Clause 5(4)(b) of the NRC Agreement provided further that, to the extent that NRC’s costs during that period exceeded its “Standard Costs” as defined, it was compensated to that extent by its shareholders. Effectively, NRC was to break even during that period whilst it was given time to address the profitability of business which it acquired and which were unprofitable.
The Articles of NRC required it to prepare a corporate plan for submission to its shareholders (the Commonwealth and the States), and for their approval. NRC duly presented to, and obtained the approval of, its shareholders to Corporate Plans dated 10 July 1992, 12 May 1993, 27 June 1994, 21 July 1995 and 18 August 1997.
The Corporate Plan dated 10 July 1992 recognised that revenue from interstate rail freight was not meeting even the operating costs of the services provided. NRC contemplated an improvement in revenue and a reduction in costs to provide together a turnaround of $321 million just to break even. It proposed a dramatic and sustained reduction in its costs structures.
I accept that NRC witnesses who gave evidence were endeavouring to be truthful. Except where I have addressed a particular piece of evidence, or evidence directed to a particular topic from more than one witness, I have based my findings below upon the evidence of Vincent John Graham (“Graham”), Simon Charles Hanscomb (“Hanscomb”), Richard Andrew Galbraith (“Galbraith”), Garis Laurie Alexander (“Alexander”) and Thomas Patrick Chamberlain (“Chamberlain”).
Charlick in its final submissions did not directly attack the credibility of any of those witnesses, except in limited respects. The critical attack was upon Hanscomb’s claim that essentially he was responsible for the decision to implement the price reductions announced to commence on 1 May 1996, including that they should apply to international shipping containers.
I find that Hanscomb was requested by NRC’s General Manager to head a new organisational group to include the “Business Development Group” (“the BDG”) in about November 1994. The BDG’s responsibilities included the review of the pricing strategy or strategies then in place in NRC (effectively inherited from AN and the various state railway authorities). Hanscomb formally became General Manager of the BDG on 1 February 1995. In my judgment, Hanscomb as leader of the BDG team, was responsible for that critical decision. I accept his evidence to that effect. He impressed me as a straightforward and honest witness. He had an impressive mastery of the issues which the BDG was addressing during 1995 and 1996. I considered he was a somewhat ‘driven’ person within his area of responsibility, with a fixed and committed focus on identifying the correct technical basis for the development of the pricing policy. It was under his leadership that the “way through” to NRC fulfilling its objectives by the development of the concept of “future economic costs” took place. That search for technical excellence in that work did not admit of perverting correct decisions (as he deemed them) to respond to the sort of purpose which Charlick alleges.
I formed a similar conclusion about those working under him who gave evidence, namely Galbraith, Alexander, and Chamberlain. They were each honest and uncomplicated in their presentation, and shared an apparently uncompromising attitude to the proper use of primary data to achieve a commercially sound basis for a pricing policy consistent with NRC’s long term obligations and objectives. The consistency of their evidence generally, including that the pricing policy for international shipping container transport was not prompted in any way by specific consideration of the Intermodal Service or of Charlick’s position, confirmed by impression as to the reliability of their evidence.
In late 1974, the pricing structure or structures for interstate container shipment by rail were contained within various schedules developed over time, largely by local business marketing officers responding to market or competition pricing, and without regard to the cost of providing the particular services. Those schedules had within them, or operating in tandem with them, a series of discount rate arrangements by reference to volume, wagon usage, round trips and in some instances tailored for particular customers. I accept that the existing pricing structures were of considerable concern to the BDG, and that the BDG during 1995 set about the process of pricing reform. I also accept that the BDG saw pricing reform as critical to the long term viability of NRC in a potentially increasing market for the land transport of freight. It is not necessary to find with the precision the “market” to which the BDG was referencing its views, but as a matter of fact, the BDG did have regard to road line haul services as part of the competition which NRC faced, and would face, particularly on the shorter rail corridors such as the Adelaide-Melbourne corridor.
The precise progress of the BDG’s considerations do not need to be specifically addressed in these reasons. Again, I accept generally the evidence of Hanscomb and those working in his team, including Galbraith, Alexander, and Chamberlain about their increasing awareness of what they regarded as shortcomings in the existing pricing structures and about their evolving approaches to a pricing restructure and their reasons for it. In the period February 1995 to the end of 1995, they did not specifically give consideration to the Intermodal Service or indeed to pricing structures for international shipping containers. The transport of international shipping containers was only a small part of NRC’s overall container transport business. Nor did they in any way give consideration to excluding international shipping containers from their deliberations. I also accept that the task confronting the BDG of identifying in a coherent and systematic way what was paid for the movement of any particular container was a complex one, albeit a necessary one to provide a foundation for a new pricing policy. I find that only by about October 1995 was that task well progressed, in the sense of there being able to be presented for further decision making a computer model known as the Revenue Yield Model to produce reports to identify such costs.
I also accept that, early in its considerations, the BDG recognised the NRC’s costs in providing services were critical to determine a future pricing policy. As noted earlier, NRC had acquired a series of rail transport businesses operating collectively at substantial losses. NRC was addressing costs savings as part of its responsibilities and in accordance with its corporate plans. For its purposes, the BDG had to develop an understanding and appreciation of NRC’s costs in providing services, and their likely future levels, to formulate a future pricing policy sensibly. It had information available to it about costs actually being incurred during 1995, although not of such quality as to necessarily indicate costs per individual container movement. It also had information available to it as to NRC’s budgeted costs, that is the costs which it anticipated incurring in the current and next financial reporting periods. Those costs related to part of the final year of the Transition Period and to part of the Establishment Period defined under the NRC Agreement. The basis upon which the Commonwealth and the States were to contribute to those costs was dealt with in the NRC Agreement. As the members of the BDG deposed, those costs were reflective of the particular point in time along the line of cost restructuring. They did not represent a reliable basis for longer term assessment of NRC’s future costs.
I find, as those witnesses said, that the BDG therefore developed the concept of “future efficient costs” as the relevant measure of cost for its deliberations. The term “future efficient costs” was to encompass the costs which it was anticipated that NRC would be incurring when its program of investment in new wagons and locomotives and of cost reductions was complete. The BDG anticipated that with the new investment, it would be able to operate longer trains, to operate train services more efficiently, and to operate its terminals more efficiently. It is against that finding that the significance for which Charlick contends concerning the fact that the 1 May 1996 price reductions involved prices below NRC’s “average variable costs” must be assessed.
In fact, there was within NRC some tension between the process of setting prices by the marketers, as had historically been the case, and those prices being set by the BDG or within its aegis, so as to introduce a less complex and idiosyncratic pricing policy. To that end, BDG sought from mid 1995 to establish a requirement that it authorise all new business quotes, but it did not manage to procure that control at that time. There was a price review announced by NRC in October 1995. I accept the evidence of Hanscomb that the BDG played little role in its (largely unaltered) pricing structure announced in October 1995 and that it was to a substantial extent determined by NRC sales personnel.
In the meantime, the BDG concept of future efficient costs was being developed and refined, and its implications fully considered. One consequence was the development of “the future efficient train plan”, which required review of the existing rail corridors and their usage. It also raised for consideration the allocation of costs for trains travelling over more than one corridor, such as the Melbourne-Adelaide-Perth corridors. The BDG also continued to refine the Revenue Yield Model. It was, on 10 November 1995, able to propose a pricing reform to replace existing special pricing rates for selected customers who held “Five Pack” licences, derived from that process. It remained an ongoing and evolving task.
One step in BDG’s process was a recommendation presented to the NRC Board in December 1995 entitled “East Coast Operations – Capital Requirements”. It recommended a substantial capital investment in new locomotives and wagons, terminal redevelopment and rail track improvements. The east coast operations included the Adelaide-Melbourne corridor. On that corridor, it proposed a reduction in train numbers but an increase in train lengths. The proposal for fewer but longer trains on that corridor involved amalgamating the Superfreighter Service and the Intermodal Service. The recommendation concerning the capital investment program was accepted by the Board on 15 December 1995.
At the same meeting, Hanscomb presented to the Board of NRC a proposal for a new pricing structure for domestic container freight. He was authorised to continue to address that proposal. The BDG proceeded to do so. Its purpose was to ensure that the base rate applicable to container movement by rail exceeded NRC’s future efficient costs of that particular movement. The proposed costs were addressed in respect of each individual rail corridor. The outcome of that review was that price reductions were proposed for most corridors. Because the existing price structures were not consistent, the reductions would not produce a uniform cost alteration. In its work, the BDG also had regard to road rates for container haulage, as it formed the view that particularly on the shorter corridors (including the Adelaide-Melbourne corridor) there was a need to price competitively to ensure that the rail service offered attracted sufficient business to generate a demand to the level necessary to meet efficient train lengths and train usage. Galbraith was charged with the responsibility of ensuring that those proposed rates were sufficient to cover future efficient variable costs and made some contribution to future efficient fixed costs.
In the case of the Adelaide-Melbourne corridor, the BDG’s considerations resulted in proposed reductions of prices of container freight ex Melbourne of up to 10 per cent and ex Adelaide of up to 13 per cent.
The BDG work was presented to the Board on 2 February 1996 by paper dated 24 January 1996. Hanscomb’s presentation was expressly supported by Graham, NRC’s general manager. It was entitled ‘Domestic Intermodal Pricing Policy’. It was recognised at that time that that would lead to a reduction in revenue, roughly estimated at about $20 million, but that consequence was regarded as
·necessary to ensure existing freight transport levels were maintained, and possibly increased, and
·warranted having regard to NRC’s future efficient costs when the capital improvements were all brought into effect.
It did not specifically identify the proposed price reductions. They were not formally presented to, and approved by, the Board before they were announced.
On 2 April 1996 NRC announced the new price rates to its customers. Those rates were for single container movements, with an ‘incentive’ price structure for large volume users. They were to come into effect on 1 May 1996. They were explained to represent significant reductions on existing rates (of the order referred to above for the Adelaide-Melbourne corridor), and to be based on NRC’s future efficient costs flowing from its investment program.
Charlick’s complaint arises from the application of that price reduction to the carriage of international shipping containers between Adelaide and Melbourne on the Superfreighter Service. It contends that NRC was able to do so only
·because its “market power” meant that it was not exposed to competition in moving international shipping containers and so could “afford” to do so without long term consequence, and
·because, during the period that that price reduction was operating, it could afford to sustain the losses which that price reduction would generate, and then revert to a higher pricing structure when Charlick’s role as a provider of the Intermodal Service was diminished or lost.
It submits that the “windfall” nature of the price reductions for international shipping container transporters was entirely unnecessary.
Charlick accepts that NRC’s price review announced to operate from 1 May 1996 was generally, or at least in respect of the transport of domestic containers, a response to its existing confusing and inconsistent pricing structures pertaining to the transport of domestic containers, and also a response to its being confronted with the prospect of competition and increasing competition in the transport of domestic containers. Those considerations, it submits, simply did not apply to international shipping container movement.
I find, as Charlick urged, that the decision to apply the proposed price changes to the movement of international shipping containers was made only between 13 March 1996 and 2 April 1996. The evidence clearly indicates that NRC’s principal focus over the more prolonged period of the price review was on the carriage of domestic containers. It is not a necessary corollary that the inclusion of international shipping containers within the price review was not rational, nor that it was driven by the proscribed purpose or purposes which Charlick alleges.
I find that there was during 1995 a general assumption on the part of BDG that international shipping containers would be included in the area of NRC’s business which was subject to the price structure review. They were not separately addressed. There was no occasion when they were contemplated expressly as being excluded from the price review process, or when they were contemplated expressly as being the subject of a separate price review or as being treated differently from domestic containers. To the extent that NRC’s documents during that period, make any particular reference to domestic containers, I find that that was simply because domestic container freight constituted the much more significant volume of NRC’s container freight business and the awareness of the pricing structures for that business inherited by NRC was in part a driving mechanism for the price review.
On 8 January 1996, a meeting of the BDG addressed the question of international shipping container freight being included in the proposed price review. By that stage, it was apparent that a new and reduced generally applicable pricing structure was to be recommended. I find that, on that occasion, the discussion included that the erratic existing pricing structures for domestic container freight did not apply in the case of international shipping container freight. I also find that, on that occasion, it was acknowledged that the application of the proposed new pricing structure to international shipping container freight would result in a very significant “windfall” to shippers of that freight because they had not been in receipt of the type or level of discounts which applied in respect of domestic containers. Alexander was asked to assess the cost of providing the Seatrain service and Leo Hammett (“Hammett”), also a member of the BDG, to discuss the issue with Alan White (“White”). White at the time was the National Customer Manager – Shipping. His role was in the marketing/sales area. He was not a member of the BDG. His responsibilities included dealing with Charlick in relation to the Intermodal Service, as well as all customers of NRC utilising its interstate rail transport services for international shipping containers.
At that time, the precise proposed pricing structure to be recommended for the Adelaide-Melbourne corridor had not been resolved. Work was ongoing on that matter. The corridor was of particular focus because its length made it more vulnerable to road transport competition (as perceived by the BDG), and so the proposed rates for that corridor would need to have regard to that competition. During the remainder of January and in February 1996, the BDG focus did not return to international shipping containers. It concentrated, in so far as it was concerned with the Adelaide-Melbourne corridor, on seeking to refine the future efficient costs and upon determining what rates could generally be applied to container transport on that corridor, bearing in mind the market competition. It eventually determined that it could prescribe rates which were competitive and which also represented a revenue return in excess of future efficient variable costs with some contribution to overheads.
In that period, in my judgment, the BDG was working under the strong desire to introduce the proposed price review promptly, and so far as possible to make it applicable to all mainland rail corridors. It applied little if any focus to the application of the proposed rates to international shipping containers.
The topic of how to treat international shipping containers next arose explicitly on about 13 March 1996 in a discussion among members of the BDG. The minutes of that meeting record that Hanscomb
“recommended that shipping rates be isolated. Leo [Hammett] has spoken with Alan White who is leaning towards price differentiation.”
I accept the evidence of Hanscomb, Galbraith and Alexander that the minute overstates the then attitude of Hanscomb or of other members of the BDG on that topic of whether international shipping containers should be excluded from the proposed price review. It is more likely to be an inaccurately recorded reflection of his view that international shipping customers might not qualify for the volume discount rates under consideration. I find that the issue having arisen as one requiring to be addressed, the principal concern was to ensure that it was addressed so as not to delay the program for the implementation of the proposed price schedule, and that it was not an especially significant topic addressed at the meeting. Whatever was to be decided on the topic was not seen as likely to be an obstacle to that program. I accept Hanscomb’s oral evidence that, the issue having been raised, in the period to 2 April 1996 he proceeded on the basis that a consistent fee structure for transport of containers, including shipping containers, should be adopted. There is no physical feature of international shipping containers which requires that they be treated differently as an item of freight compared to domestic containers; they are physically the same. I also accept that the underlying process for the price review was not simply the desire for logic and coherence instead of the somewhat chaotic existing pricing structure for domestic container movement. I find, as appears earlier, that more fundamentally the purpose of the price review was to determine a pricing structure which would represent a profit on future efficient variable costs (otherwise the business would never be profitably operated) and to the extent possible in the face of competition, to represent a return on future efficient overhead costs on each corridor of NRC’s operations. The application of that underlying reason for the price review being conducted carried with it, so far as Hanscomb was concerned, the consequence that the price review should apply consistently to the interstate movement of all containers.
In my judgment, the decision to proceed to apply the price schedule announced on 2 April 1996 to international shipping container freight was taken by Hanscomb in that period of two weeks or so after 13 March 1996, by applying the underlying thesis for the proposed price schedule to container freight consistently. He then sought, and obtained, the approval of Graham to the implementation of the proposed price schedule before it was commenced.
I accept the evidence of Hanscomb and Graham that they did not apply that price schedule, in particular the price reductions on the movement of international shipping containers between Adelaide and Melbourne, to eliminate or substantially damage Charlick in any market in which Charlick was a participant, or to deter or prevent Charlick from engaging in competitive conduct in any such market. I have therefore rejected the attack upon Hanscomb’s credibility on that critical issue. I also find that Hanscomb and Graham were the persons who relevantly represented the mind of NRC in relation to that decision.
White was not called to give evidence on the topic, or at all. It is not clear whether Hammett took up with him after 13 March 1996 the question whether the proposed price reductions should have applied to international shipping containers. There is some indirect evidence that White in March 1996 was of the view that he considered that it should do so. I do not place any weight on it. I have proceeded on the basis that there is no clear evidence of White’s attitude to the question. He, or those working under him, did prepare a series of tables comparing rates applicable to Charlicks before and after the price reduction came into effect, and Charlick’s rates. Those tables were not presented to the BDG. I accept that, if White was to be called as a witness, it was appropriate for NRC to have called him rather than Charlick: Spence v Demasi (1988) 48 SASR 536 per Cox J at 547. He is still employed by NRC. His absence as a witness may enable the more ready drawing of an inference adverse to NRC’s case if that inference might be drawn from existing evidence, and also may touch upon whether I should accept the evidence of Hanscomb and Graham (as I have done): Jones v Dunkel (1958-1959) 101 CLR 298 per Menzies J at 312-313. In reaching the findings of fact referred to above, I have borne those things in mind.
In reaching my conclusion, I have also accepted, the evidence of Galbraith, Chamberlain and Alexander as well as the evidence of Hanscomb that it was the ultimate decision of Graham upon the recommendation of the BDG which was the source of the decision making power within NRC on the topic. That was one reason why Graham established the BDG. He himself sought to remove the marketing division from being the decision-maker (subject to the direction of the Board or of himself) on the topic. I have also had regard to the evidence of Galbraith, Chamberlain and Alexander that, after 13 March 1996, the topic whether the proposed price reductions were to operate in relation to international shipping containers was not the subject of any formal discussion within the BDG. The absence of such discussion, in my mind, tends to confirm that the issue when addressed on 13 March 1996 was not a very significant one. Its absence also tends to confirm that White’s attitude to the question was not regarded as a critical one to its resolution and that the decision after that meeting really evolved into its final expression – that the price reductions should apply to international shipping containers – by Hanscomb’s consideration of the issue, in consultation with Graham or at least with his approval. Finally, on this aspect, I accept the evidence of each of the members of the BDG that there was no consideration given by them or, so far as they were aware within the BDG, to Charlick’s position or to the consequences of the price reductions to Charlick’s business conducted from the Gillman Facility.
The basis upon which the BDG proceeded to fix its pricing schedule by reference to its future economic costs, about which I have made findings above, removes the significance which might otherwise attach to the fact that its prices announced to come into effect from 1 May 1996 were or may have been, at least in respect of the Adelaide-Melbourne corridor, below the average variable operating costs of providing those line haul services.
I have also had regard to other evidence that Graham and White had addressed a changed role for Charlick, as a terminal operator only, in the overall range of operations in the interstate transport of containers or of international shipping containers. I accept the evidence of the General Manager of Charlick John Ernest Barr and its operations manager Barrie Rowe that that possible change in its role had been raised with them by Graham and White. Those communications took place from 1994, and reflect an awareness of the competition which Charlick provided to NRC on the Adelaide-Melbourne corridor. Those approaches have not caused me, either by themselves, or in the light of all the evidence, to have reached a different view to that referred to above. I accept that NRC was concerned at the cost of providing the train for the Intermodal Service. Both Chamberlain and Alexander explained in an acceptable way the reasons for that concern. In addition, there were at the time of the price reductions, other actual and potential competitors to NRC in relation to interstate container freight.
NRC was clearly aware of Charlick’s role as a competitor in its provision of the Intermodal Service through the Gillman Facility. It maintained a review of the rates Charlick’s provided for the Intermodal Service, and periodically compared those rates to NRC’s Superfreighter Service rates. That comparison which most closely tied in time to the price reduction announced on 2 April 1996, namely a comparison apparently prepared on 31 March 1996, is the one which I have found was prepared by White or at his direction and which was not considered by Hanscomb or the BDG when the decision to implement the price reductions, including in respect of international shipping containers, was made. I have also had regard to that material in reaching my conclusion. I do not consider that those comparisons, in the light of all the evidence, show that NRC through its critical decision makers had the proscribed purpose alleged by Charlick. In my view, those comparison were made within NRC’s marketing division and reflect an understandable intention to maintain intelligence as to the operations of one of its competitors.
Charlick has also placed reliance upon two invoices sent by NRC to Charlick on 22 May 1996 and 30 June 1996 in respect of the services NRC had provided to AN, and which AN had then provided to Charlick for the Intermodal Service. It is not suggested that NRC was not entitled to invoice AN for those services, or in those amounts. The contention is that the timing of those invoices, allegedly unprompted by any event other than the scheduled price increases, supports the conclusion for which Charlick contends. I find that following the expiration of the Transition Period on 31 January 1996 under the NRC Agreement, NRC became the operator of services on the Adelaide-Melbourne corridor. That also followed from the termination of the Rail Freight Services Agreement at that time. Accordingly, from that time, NRC was entitled to charge AN for services provided to AN, and which AN procured from NRC apparently to meet AN’s obligations to Charlick under the ISA. In the light of those matters, I do not consider that the timing of the invoices tends to support the inference as to NRC’s purpose as alleged to be relevant to this application. I accept Graham’s evidence that the timing of the invoices was directed by NRC’s accounting processes following the expiry of the Transition Period, and after work carried out by Chamberlain and after a period of negotiation between NRC and AN. I further accept Graham’s evidence that the timing of the invoices was not directed to causing AN to increase its charges to Charlick for the Intermodal Service at a critical time relevant to the NRC price reductions operating from 1 May 1996 so as to impede Charlick’s ability to compete with NRC in the provision of interstate transport of international shipping containers or so as to interfere with Charlick’s ability to compete in any market.
On 14 or 19 July 1996, NRC proposed to Charlick that it would provide a fixed number of wagons on each weekday to be part of the train used for the Superfreighter Service, at a fixed price per round trip, and on a “take or pay” basis. NRC proposed to discontinue the train providing the Intermodal Service. Charlick declined that proposal. It contends that the proposal was made when NRC was aware that Charlick would have been very concerned about the economic viability of the Intermodal Service by reason of the NRC reduced rates available on the Superfreighter Service, and the prospect of AN increasing its rates (prompted by NRC’s invoices to AN referred to above), and by reason of its awareness that Charlick had unsuccessfully sought both NRC and AN to reduce rates charged for provision of the Intermodal Service train. The proposal, if accepted, would have meant that the Intermodal Service would have been faster, but considerably more expensive. The “take or pay” proposal was one which, in a general way, NRC had put to others of its customers but generally they had refused it. The uneven nature of demands for the Intermodal Service made it a proposal which was not particularly suitable to Charlick, because it required a constant minimum commitment to a number of wagons to be economically worthwhile. There were other practical difficulties associated with Charlick accepting it. Charlick contends the proposal was, in reality, not a realistic one to the knowledge of NRC. Thus, it submits, it provides further evidence from which the inference for which it contends about one purpose of NRC in introducing the price reductions on 1 May 1996, at least in so far as they apply to international shipping containers, might be drawn. I accept that Charlick perceived that proposal as commercially unrealistic, and for reasons which were sound to it. Galbraith explained how he had been requested to assist in the development of the proposal. Certain of Charlick’s concerns about the proposal related to assumptions he had made in his work in its development. I accept his evidence that his approach to the development of the proposal was not in any way driven by an intention to generate a commercially unrealistic one, but was the reverse. Charlick’s concerns in that regard, in my view, simply reflect the different perspectives from which the proposal was assessed. I accordingly do not attribute to that proposal the significance for which Charlick contends. I have had regard to it in making my findings overall on whether NRC had as one of its purposes in introducing the price reductions on 1 May 1996 a purpose proscribed by s 46 of the Trade Practices Act.
Damages
As I have concluded that Charlick has not made out the contravention by NRC of s 46 of the Trade Practices Act which it alleges, it is also not necessary to address this question.
Orders
In my judgment the appropriate orders are that the application against NRC should be dismissed.
Confidentiality Orders
In the course of the hearing, I made various orders under s 50 of the Federal Court of Australia Act 1976 (Cth) to protect the asserted confidential nature of various commercial considerations of the parties or of other entities which produced documents under subpoena. In each instance, I gave liberty to apply to vary or discharge those orders. In general, those orders restricted the publication of certain evidence to counsel and solicitors for the parties and to nominated experts of the parties. In a few instances, having regard to the role of the solicitors for one or other of the parties in a more general way than these proceedings, I restricted publication to counsel only and to nominated experts.
I was greatly assisted in dealing with those issues in the course of the hearing by the commonsense and candour of counsel and solicitors for Charlick and the NRC (and for AN whilst it was a party to the proceedings) and to the parties themselves.
Having considered the written submissions, I propose to maintain the rulings made during the hearing, generally by consent, except in so far as the parties are in agreement that they should be varied. The parties agree that commercial confidentiality should attach to the following categories of documents: Charlick’s contractual arrangements with Patrick; Charlick’s costs of road movement of containers; proposals to Charlick concerning use of the Gillman Facility; NRC information relating to costs; NRC Budgets, NRC Corporate Plans, Marketing Plans and Business Plans, and sections of NRC Board papers; and Patrick, TNT and AN documents tendered by NRC which were accepted as commercially confidential to those entities. It is only at the margins of those categories that issues on this topic now persist, and only with respect to relatively few documents or passages of transcript. In my view, justice is best served in the light of the ongoing claims for confidentiality in each of those instances, to give effect to the continued claims for confidentiality where they are acknowledge by agreement or where they are claimed by one party but disputed by the other. I direct that solicitors for NRC prepare minutes of order to reflect the variations to the status of the documents and transcript presently the subject of orders under s 50 of the Federal Court of Australia Act 1976 to reflect that ruling.
I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate:
Dated: 14 April 1999
Counsel for the Applicant: Mr A Besanko QC
and Mr R C White QC
with them
Mr N WilsonSolicitors for the Applicant: O’Loughlins Counsel for the First Respondent: Mr P Taylor SC
with him
Mr R Ross-SmithSolicitors for the First Respondent: Phillips Fox Counsel for the Second Respondent: Mr R Conti QC
with him
Mr P GraySolicitors for the Second Respondent: Deacons, Graham & James
by their agents
Piper AldermanDates of Hearing: 13-16 October 1997,
20 October 1997,
22-24 October 1997,
27-30 October 1997,
3-7 November 1997,
17-21 November 1997,
25-28 November 1997,
1-4 December 1997,
9-11 December 1997, and
23-24 March 1998Date of Judgment: 14 April 1999
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4
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