Full Court’s decision in ACCC v Pacific National

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

Introduction

The Full Court of the Federal Court (Middleton, Perram and O’Bryan JJ) recently dismissed the ACCC’s appeal from, and allowed the respondents’ cross-appeals in relation to, Beach J’s decision[1] to dismiss the ACCC’s claim that Pacific National’s (PN’s) proposed acquisition of Aurizon’s Acacia Ridge rail terminal (Terminal) would contravene s 50 of the Competition and Consumer Act 2010 (Cth) (CCA): Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77.  The Full Court’s decision considers, in detail, important issues about market definition, the meaning of “likely” under s 50, and the Court’s powers to accept undertakings in s 50 proceedings.  The key findings are briefly summarised below.

The decision at trial

At trial the ACCC argued that PN’s acquisition of the Terminal would be likely to have the effect of substantially lessening competition in relevant market(s) in which rail linehaul services for transport of intermodal freight (excluding bulk steel) over long distances on the North-South and East-West corridors were supplied to beneficial freight owners and freight forwarders for whom neither road nor sea services were an effective substitute for rail linehaul services (referred to as “captive” customers).  It alleged that the acquisition would be likely to substantially lessen competition because the acquisition would give PN the ability to discriminate against third party users of the Terminal and increase already high barriers to entry. Justice Beach dismissed the ACCC’s s 50 case at trial but held that the Commission would have succeeded in the absence of an access undertaking proffered by PN.[2]  A summary of the trial decision is here.

Market definition

An acquisition will contravene section 50 of the CCA if it would have the effect, or be likely to have the effect, of substantially lessening competition in a market.  As noted, the trial judge defined the relevant market(s) by reference to only those users of the relevant services which had no effective substitute (“captive” customers).

The dispute on appeal (arising from the respondents’ cross-appeals) concerned whether the trial judge had erred in identifying such a market in this case, based on the factual finding that conditions for competition in relation to the “captive” customers were different from those concerning other customers.  Each member of the Full Court found that the trial judge had not erred.  In particular, the majority (Middleton and O’Bryan JJ) endorsed the trial judge’s approach, observing that the application of s 50, and the process of market definition, are evaluative exercises.  In doing so, it rejected the propositions first, that it was necessary for the trial judge to be satisfied of certain matters with a high degree of empirical certainty before defining the relevant market(s) by reference to “captive” customers (at [139]), and secondly, that there was not a sufficient evidentiary basis for the trial judge’s findings (at [148]).

The meaning of “likely” under section 50 of the CCA

In recent years, there has been significant controversy about whether “likely”, in s 50, refers to a possibility that is “more probable than not”, or to some lower likelihood, such as a “real chance”.  The Aurizon respondents’ cross-appeal grounds contended that the trial judge had erred in interpreting “likely” as requiring such a lower likelihood.

The majority (Perram J not expressing a view) considered the meaning of “likely” in light of the text, context and purpose of the CCA: [221].  They concluded that the ordinary meaning of the word “likely” is “probable” (in the sense of “more probable than not”) ([222]), and emphasised that the juxtaposition of the dual legal standards incorporated into s 50 supported this interpretation of “likely” in s 50. The way in which the first legal standard is expressed, namely, “would have the effect of”, conveys certainty.  The second legal standard in s 50, “would […] be likely to have the effect of”, would be expected to convey a probable outcome and not a “real chance”: [223].

However, the majority acknowledged that the word “likely” in the context of the statute has been interpreted to mean a likelihood that is less than probable for 40 years: [243].[3]  The majority also considered the legislative history of the use of the dual legal standard in the CCA, including the absence of any amendment to alter the meaning of the dual legal standard.  Having done so, the majority observed that if it was considering the matter for the first time, it would have decided that “likely” meant “probable”, but decided that there was insufficient reason to change course now by adopting a different interpretation: [244].

Ultimately, the majority did not endorse the substitution of a “real chance” test for the statutory language of “likely”, but nonetheless endorsed the approach adopted by French J in Australian Gas Light Company,[4] and found that the trial judge made no error when His Honour stated that the word “likely” meant “real commercial likelihood.”[5]  The majority also endorsed the trial judge’s observation that the application of s 50 requires a single evaluative judgment, that it is not appropriate to ask what standards of proof apply to primary facts which involve predictions about the future, but that the degree of likelihood of any particular future fact will be relevant to assessing the “likely” effect on competition: [245]-[246].  However, the majority found that the primary judge erred in concluding that, in the absence of the undertaking, PN’s acquisition of the Terminal would contravene s 50 (Perram J reached the same conclusion). This was largely because the prospect of a new entrant in the relevant market in the short to medium term, absent the acquisition, was merely speculative. Thus, the comparison between the factual and the counterfactual didn’t differ in any real or substantive way, and the prospect of a substantial lessening of competition was therefore “unlikely”: [263].

The use of undertakings

As noted, the trial judge found that PN’s acquisition of the Terminal would have contravened s 50, but for an undertaking which PN provided to the court on the last day of trial, which governed the manner in which PN would negotiate and provide third parties with access to the Terminal in the future.  The ACCC’s appeal grounds raised various matters concerning the trial judge’s acceptance of the undertaking.  It was not strictly necessary for the Court to deal with the ACCC’s appeal grounds, given its conclusion that the trial judge had erred in finding that the acquisition would, absent the undertaking, contravene s 50.  However, each member of the Full Court nonetheless addressed these matters, and the following observations can be made on this aspect of the judgment.

First, the majority concluded, following Thomson Australian Holdings,[6] that s 80 of the CCA is a complete and comprehensive statement of the circumstances in which injunctions might be granted in respect of contraventions of the CCA: [327].

Secondly, each member of the Full Court concluded that it is not open to the Court, under s 80, to take a proffered undertaking into account in determining whether an acquisition would contravene s 50 of the CCA (and the trial judge erred in doing so): [334], [426].  However, the Court may accept an undertaking in lieu of granting injunctive relief where an acquisition would contravene or has contravened s 50, and the trial judge could, given the factual findings he made, have adopted that course here: [335], [426].

Thirdly, each member of the Full Court found that the trial judge was not prevented, by constitutional limitations, from accepting the undertaking, notwithstanding that it operated to create rights and obligations: [336]ff.

Fourthly, each member of the Full Court concluded that the Court’s power to accept an undertaking is not limited to a power to accept undertakings in terms proposed by the ACCC: [342], [430].

Fifthly, the majority found that it would have been appropriate for the trial judge to accept the undertaking in this case as a remedial measure, and that the terms of the undertaking were not so vague as to be unenforceable in contempt proceedings: [366]ff.  However, Perram J disagreed, and concluded that the trial judge had erred “by erroneously overrating the effectiveness of the use of civil contempt proceedings to enforce the undertaking’s terms and in assuming that the undertaking might not be sabotaged by less direct means”: [435].  Perram J further described challenges the Court faces in considering whether to accept undertakings, emphasising the need to approach this question “with the greatest caution and with a weather-eye on the limitations of the legal imagination”, and observing that the occasions on which such undertakings might be appropriate will be “exceptional”:  [438].

[1]           Australian Competition and Consumer Commission v Pacific National Pty Limited (No 2) [2019] FCA 669.

[2]           Australian Competition and Consumer Commission v Pacific National Pty Limited (No 2) [2019] FCA 669, at [1612].

[3]           Referring to Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331, per Deane J.

[4]           Australian Gas Light Company v Australian Competition and Consumer Commission (2003) 137 FCR 317 at [348].

[5]           [2019] FCA 669, at [1275], following French J in Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317 at [352].

[6]           Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150.