Does the ACCC need to rethink its competition cases?

Pacific National successfully saw off a federal court challenge from the ACCC. Picture: Supplied.

ACCC boss Rod Sims has a problem with the courts and merger approvals. And just sometimes the issue is the facts which get in his way.

The latest decision for him to ponder was Aurizon’s sale of the Acacia Ridge rail terminal to Pacific National, which gives the already-dominant east coast rail provider more market strength.

Queensland rail tracks have a narrower gauge than NSW and Victoria so until the inland rail line is completed that gives PN a natural advantage and erects a barrier to competition, according to the ACCC.

PN carries mostly containers and the reality is just 5 per cent of container traffic from down south goes further than Brisbane. So in fact the market power exists already.

That said, a powerful company has still become more powerful and barriers to entry have risen.

Another rail company, SCT, has got around the problem by building its own interstate terminal and while not in the same container game it showed there are alternatives.

The inland rail will offer more.

These facts made it hard for the ACCC to win its “substantially lessen competition” arguments, as the full Federal Court found.

The ACCC had originally objected to the fact that the trial judge agreed with the regulator but agreed to a solution by allowing PN to offer an open access undertaking.

The full court agreed the judge’s undertaking was unusual but said it was OK. And in any case, it wasn’t necessary because the merger didn’t breach the rules in anyway.

This means the ACCC started with at least an open access undertaking, and in the end got nothing, so went backwards.

On any reading it was an embarrassing defeat.

Sims has long had problems with courts and merger matters, arguing he doesn’t need to prove the future when the mere fact a deal is happening is the problem.

If Qantas was to buy Virgin or Coles but Woolworths the person in the street would say the deals were bad for the economy. Can’t the court accept that without needing to prove the counterfactual, goes his reasoning.

He has a point.

But maybe in Aurizon, the ACCC focused in the wrong area. The deal which killed competition was the sale of the intrastate rail business to Linfox.

The terminal itself was not the focal point the ACCC argued according to this view.

In merger issues the ACCC is fighting the so called “trade practices mafia”; lawyers and economists who make their living by getting mergers past the regulators.

Semantics and fighting over counterfactuals are bread and butter to these people because they are arguing about future issues which may never happen.

The courts say there should be a real chance of them happening.

In the Aurizon case, the ACCC was relying very much on Qube being a potential competitor. But in evidence to the court Qube said it had no plans to run interstate trains and so that killed that line of attack.

The trade practices crowd argues that the ACCC should look at its own internal dynamics to see if it misses the point on merger matters.

Given it has an 80 per cent win rate in consumer protection matters, the ACCC rejects the argument its litigation team is not functioning well.

In the Aurizon matter it had car companies, Woolworths and BlueScope supporting its case that PN buying Acacia Ridge would be harmful to instate trade. But that wasn’t enough. It had to prove it would substantially lessen competition.

The real villain was the decision to close its interstate business rather than selling it to a potential competitor.

But this wasn’t the case before the court.

The ACCC defeat was another in the hands of its lawyers Melbourne based DLA Piper and another win for Linda Evans at Clayton Utz and Ruth Higgin SC, who both worked on the case against the ACCC to get TPG and Vodafone cleared.

In that case the courts again took the self interested view of the merger participants rather than looking at the deal and its impact on competition.