Aurizon wins in court, ACCC not ready to give up

The Federal Court has dismissed the ACCC’s proceedings against rail companies Pacific National and Aurizon, which related to control of Acacia Ridge Terminal, a key asset in Australia’s intermodal rail network.
The Court indicated that it would have found that the proposed acquisition had the likely effect of substantially lessening competition in breach of the Competition and Consumer Act had it not been for the undertaking offered to the Court by Pacific National on the last day of the hearing.
Pacific National had offered the ACCC a court-enforceable undertaking that it submitted would prevent it from discriminating in providing access to other rail operators at the Acacia Ridge Terminal. The ACCC rejected the proposed undertaking as it would not protect potential entrants from discriminatory conduct in the terminal’s day-to-day operations under Pacific National ownership or the operating agreement.
The Court has now accepted a similar undertaking from Pacific National.
The ACCC remains of the view that a long-term behavioural undertaking to provide access at Acacia Ridge Terminal will not be effective in enabling competition in the supply of intermodal rail services.
“An owner or operator has so many subtle ways of discriminating against, or damaging, another user of the terminal. Such an undertaking would not be enough to give a would-be entrant sufficient confidence to make the significant investment necessary to actually enter the market,” ACCC chairman Rod Sims said.
“Aurizon may have sought to maximise its sale price by entering into these transactions with its closest competitor, Pacific National, but the transactions will create huge, likely insurmountable, barriers to new entrants who may wish to enter the markets and compete with Pacific National,” Mr Sims said.
“The ACCC does not believe that these barriers will be addressed by the undertaking accepted by the Court.”
The ACCC’s action was launched in response to Pacific National’s proposed acquisitions of Aurizon’s Queensland intermodal business and the important Acacia Ridge Terminal in Brisbane. At the time these transactions were announced, Aurizon shut down its interstate intermodal business.
“The ACCC, along with many rail freight customers, was extremely concerned that the effect of these transactions would be to entrench a monopoly in container rail freight right down Australia’s east coast,” Mr Sims said.
Before entering into the relevant agreements, Pacific National and Aurizon were each other’s closest competitors in a highly concentrated and important industry for the economy.
Pacific National and Aurizon were the only suppliers of intermodal rail services within Queensland. On interstate routes to and from Queensland, they were the two biggest suppliers of intermodal rail linehaul services and the only two rail providers focussed on hauling containers for transport companies.
The ACCC’s case concerned the deal between Aurizon and Pacific National for the sale or operation of Acacia Ridge Terminal, because of the effect it would have on competition in interstate rail operations.
The ACCC argued that if Acacia Ridge was owned or operated by Pacific National, no new competitor would enter because access to this terminal would be in the hands of a rival striving to protect its own business.
At the time of the transactions, and throughout the ACCC’s investigation and the proceedings, at least one other buyer remained interested in acquiring all or parts of Aurizon’s intermodal business to compete with Pacific National.
This decision removes the potential for new interstate competition.
“This result of this decision is a major blow to the Australian economy. Although the Court dismissed our case on the basis of an undertaking by Pacific National, we still have strong concerns that the transaction will substantially lessen competition in this nationally important industry,” Mr Sims said.
“This unfortunately means that control of the terminal is being handed to Pacific National, on the basis of an undertaking as to how they will manage operations at Acacia Ridge Terminal on a day to day basis on a non-discriminatory basis,” Mr Sims said.
“Competition is extremely important in keeping freight rates down in the interest of local manufacturers, distributors and retailers.”
“Adding to Pacific National’s dominance means that consumers will end up paying more for their purchases, including groceries.”
Aurizon’s Queensland business
Before the ACCC launched these proceedings, Aurizon had announced that if the ACCC opposed the sale of its Queensland intrastate intermodal business to Pacific National, Aurizon would simply close that business down. The business offered intermodal rail services between Cairns and Brisbane.
Aurizon then argued that, as the business would otherwise be closed down, Pacific National’s proposed purchase of this business should be allowed to proceed.
However, the ACCC obtained an injunction from the Federal Court restraining Aurizon from closing this business. Aurizon then changed its position and sold the operations to Linfox, preserving competition in the Queensland market.
“This highlights the importance of critically assessing claims made by merger parties. Businesses can, and often appropriately do, change their previously announced positions based on changed circumstances,” Mr Sims said.
Merger litigation
“Whilst each matter is determined on its facts, this case illustrates the significant hurdles faced by the ACCC in opposing mergers in Court,” Mr Sims said.
“Despite this, we will continue to make merger review decisions in line with our mandate to enhance competition and consumer welfare,” Mr Sims said.
“We will continue to examine all claims made by businesses, and particularly those about what they will or won’t do absent a merger.”
The ACCC will now carefully consider the judgment.
Background
The ACCC commenced proceedings on 18 July 2018 alleging that Pacific National’s acquisition of the Acacia Ridge Terminal from Aurizon would have the likely effect of substantially lessening competition in breach of section 50 of the Competition and Consumer Act 2010 (CCA).
The ACCC also alleged that a ‘terminal services subcontract’ between Pacific National and Aurizon that provided for Pacific National to conduct the day to day operations at the interstate side of the Acacia Ridge Terminal would substantially lessen competition in the interstate and Queensland intermodal rail markets in contravention of section 45 of the CCA.
The ACCC was concerned that the acquisition of the Acacia Ridge Terminal, or the existence of the long-term terminal services subcontract, would deter a new entrant from providing interstate linehaul services in competition with Pacific National.
The term ‘intermodal’ freight is used to describe the carriage of general freight usually in a container using two or more modes of transportation, such as truck and rail. ‘Intermodal rail linehaul’ refers to the rail leg of the movement of intermodal freight. ‘Steel rail linehaul’ refers to similar services that are provided in respect of steel products. An intermodal terminal, such as the Acacia Ridge Terminal, comprises infrastructure with a connection to a rail line where containers can be transferred between transportation modes.
The ACCC commenced a public investigation of Aurizon’s proposed exit plans, including the proposed acquisitions by Pacific National of the Acacia Ridge Terminal and Queensland intermodal business on 27 October 2017.
The ACCC issued a Statement of Issues on 15 March 2018, and announced its opposition to the proposed acquisitions and terminal services subcontract on 19 July 2018. Proceedings were commenced on 18 July 2018.
The full list of respondents to the ACCC’s proceedings is:

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