Federal Court of Australia Australian Competition and Consumer Commission v NSW Ports Operations Hold Co Pty Ltd [2021] FCA 720 File number: NSD 2289 of 2018 Judgment of: JAGOT J Date of judgment: 29 June 2021 Catchwords: COMPETITION – privatisation of Port Botany and Port Kembla – port commitment deeds – where provisions of deeds require the State to compensate port operators if container volumes above specified threshold divert to possible container terminal at the Port of Newcastle – alleged contravention of s 45 of the Competition and Consumer Act 2010 (Cth) – whether hypothetical container terminal at Port of Newcastle would operate in same market as Port Botany or Port Kembla – relevant market existing monopoly market for container terminal services in New South Wales – whether compensation provisions had purpose, effect or likely effect of substantially lessening competition – no likely anti-competitive effect of compensation provisions – where provision of port commitment deed relating to privatisation of the Port of Newcastle required port operator to reimburse the State for compensation paid under Port Botany or Port Kembla deeds – whether reimbursement provisions had purpose, effect or likely effect of substantially lessening competition – no likely anti-competitive effect of reimbursement provisions. STATUTORY INTERPRETATION – Crown immunity – whether s 45 of the Competition and Consumer Act 2010 (Cth) applies to State making and giving effect to port commitment deeds – whether State entering or giving effect to compensation provisions was "carrying on business"– privatisation of ports giving effect to government policy – Crown immunity – whether s 45 applied to first to third respondents making or giving effect to port commitment deeds – derivative Crown immunity – whether application of s 45 to first to third respondents would adversely affect proprietary right or interest of the Crown – where Treasurer had statutory rights to enter privatisation transactions – where legislative intention that statutory rights allow acts necessary or convenient to enter transactions – where compensation provisions necessary or convenient to effect privatisation transactions – s 45 inapplicable by operation of derivative Crown immunity. Legislation: Competition and Consumer Act 2010 (Cth) ss 2, 2A, 2B, 4, 4E, 4F, 4G, 4L, 45, 51 Competition Policy Reform Act 1995 (Cth) Competition Policy Reform (New South Wales) Act 1995 (NSW) Environmental Planning and Assessment Act 1979 (NSW) ss 1.3, 1.4, 4.22, 5.12, 5.14, 5.16, 5.19, 5.23, 5.24, 5.27 Independent Pricing and Regulatory Tribunal Act 1992 (NSW) s 4 Ports and Maritime Administration Act 1995 (NSW) ss 6, 7, 8, 9, 10, 10A, 10B, 12, 13, 16, 17, 21, 47, 61, 62, 67, 77, 78, 80, 81 Ports Assets (Authorised Transactions) Act 2012 (NSW) ss 3, 4, 5, 6, 7, 9, 11, 20, 21, 25, 32, 33, 34, 35, 36 State Owned Corporations Act 1989 (NSW) ss 3, 20C, 20E, 20F, 20H, 20I, 20N, 20O, 20P, 20Q, 20R, 20S, 20X, 20Y, Sch 5 Cases cited: Air New Zealand Ltd v Australian Competition and Consumer Commission [2017] HCA 21; (2017) 262 CLR 207 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) [1990] FCA 710; (1990) 27 FCR 460 Australia Meat Holdings Pty Ltd v Trade Practices Commission [1989] ATPR 50,082 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103; (2015) 236 FCR 78 Australian Competition and Consumer Commission v Australian Competition Tribunal [2017] FCAFC 150; (2017) 254 FCR 341 Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2006] FCAFC 128; (2006) 153 FCR 574 Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38; (2007) 232 CLR 1 Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2008] FCAFC 141; (2008) 170 FCR 16 Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909; (2013) 310 ALR 165 Australian Competition and Consumer Commission v Flight Centre Travel Group Limited [2016] HCA 49; (2016) 261 CLR 203 Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 826 Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77; (2020) 277 FCR 49 Australian Competition and Consumer Commission v Pacific National Pty Limited (No 2) [2019] FCA 669 Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 Australian Gas Light Company v Australian Competition & Consumer Commission (No 3) [2003] FCA 1525; (2003) 137 FCR 317 Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 Boral Besser Masonry Limited (now Boral Masonry Ltd) v Australian Competition and Consumer Commission [2003] HCA 5; (2003) 215 CLR 374 Bradken Consolidated Ltd v The Broken Hill Proprietary Company Ltd [1979] HCA 15; (1979) 145 CLR 107 Bropho v Western Australia [1990] HCA 24; (1990) 171 CLR 1 Carlton & United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd [1987] FCA 640; (1987) 16 FCR 351 Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138 Construction Forestry Mining & Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36; (2013) 248 CLR 619 Cool & Sons Pty. Limited v. O'Brien Glass Industries Limited [1981] FCA 99; (1981) 35 ALR 445 Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd [1982] FCA 193; (1982) 44 ALR 173 Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211 Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Hannes v Director of Public Prosecutions (Cth) (No 2) [2006] NSWCCA 373; (2006) 165 A Crim R 151 Hecar Investments No. 6 Pty. Limited v. Outboard Marine Australia Pty. Limited [1982] FCA 114; (1982) 41 ALR 697 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 JS McMillan Pty Ltd v Commonwealth [1997] FCA 619; (1997) 77 FCR 337 Lewis v Australian Capital Territory [2020] HCA 26; (2020) 381 ALR 375 McGraw-Hinds (Aust) Pty Ltd v Smith [1979] HCA 19; (1979) 144 CLR 633 Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR Murphy v State of Victoria [2014] VSCA 238; (2014) 45 VR 119 News Limited v South Sydney District Rugby League Football Club Limited [2003] HCA 45; (2003) 215 CLR NT Power Generation v Power & Water Authority [2002] FCAFC 302; (2002) 122 FCR 399 NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48; (2004) 219 CLR 90 Ogden Industries Pty Ltd v Lucas [1967] HCA 30; (1967) 116 CLR 537 Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd [1982] FCA 285; (1982) 44 ALR 667 Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1989] HCA 6; (1989) 167 CLR 177 Radio 2UE Pty Ltd v Stereo FM Pty Ltd [1982] FCA 223; (1982) 44 ALR 557 Re Howard Smith Industries Pty Ltd and Adelaide Steamship Industries Pty Ltd (1977) 15 ALR 645 Re Queensland Co‑operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 8 ALR 481 Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority [1997] HCA 36; (1997) 190 CLR 410 Re Tooth & Co Ltd (1979) 39 FLR 1 Rural Press Ltd v Australian Competition and Consumer Commission [2002] FCAFC 213; (2002) 118 FCR 236 Rural Press Limited v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53 Seven Network Ltd v News Ltd [2007] FCA 1062 Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 Singapore Airlines Ltd v Taprobane Tours WA [1991] FCA 808; (1991) 33 FCR 158 Smith v Capewell [1979] HCA 48; (1979) 142 CLR 509 Smith v Leurs [1945] HCA 27; (1945) 70 CLR 256 Software AG (Aust) Pty Ltd v Racing and Wagering Western Australia [2009] FCAFC 36; (2009) 175 FCR 121 SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (No 2) [2012] FCA 1116; (2012) 298 ALR 69 SST Consulting Services Pty Limited v Rieson [2006] HCA 31; (2006) 225 CLR 516 Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 1381; (2000) ATPR 41-783 Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; (2000) ATPR 41-752 Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 Trade Practices Commission v CSR Ltd [1990] FCA 521; (1991) 13 ATPR 41-076 Trade Practices Commission v TNT Management Pty Ltd [1985] FCA 19; (1985) 6 FCR 1 Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 Wynyard Investments Pty Ltd v Commissioner for Railways (NSW) [1955] HCA 72; (1955) 93 CLR 376 Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] AC 584 Town Investments Ltd v Department of the Environment [1978] AC 359 United States v EI du Pont de Nemours & Co 351 US 377 (1956) Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Number of paragraphs 1634 Dates of hearing: 12 October – 29 October 2020; 1 December – 17 December 2020 Date of further submissions: 18 March 2021; 16 April 2021; 28 April 2021, 29 April 2021 Counsel for the Applicant: Mr M Borsky QC, Mr R Yezerski, Mr A Barraclough, Ms A Muhlebach and Ms J Watson Solicitor for the Applicant: Australian Government Solicitor Counsel for the First, Second and Third Respondents / Cross-Claimants: Mr N Hutley SC, Dr RCA Higgins SC, Mr B Lim and Mr T Rogan Solicitor for the First, Second and Third Respondents / Cross-Claimants: Gilbert + Tobin Counsel for the Fourth Respondent/Cross-Respondent: Mr SJ Free SC and Mr IJM Ahmed Solicitor for the Fourth Respondent/Cross-Respondent: Minter Ellison Lawyers Counsel for the First, Second and Third Cross-Respondents: Mr G Rich SC and Mr B Hancock Solicitor for the First, Second and Third Cross-Respondents: Allens Linklaters ORDERS NSD 2289 of 2018 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: NSW PORTS OPERATIONS HOLD CO PTY LTD ACN 163 262 351 First Respondent / Cross-Claimant PORT BOTANY OPERATIONS PTY LTD ACN 161 204 342 Second Respondent / Cross-Claimant PORT KEMBLA OPERATIONS PTY LTD ACN 161 246 582 Third Respondent / Cross-Claimant STATE OF NEW SOUTH WALES Fourth Respondent AND: PORT OF NEWCASTLE OPERATIONS PTY LIMITED ACN 165 332 990 First Cross-Respondent PORT OF NEWCASTLE INVESTMENTS (PROPERTY) PTY LIMITED ACN 169 286 024 Second Cross-Respondent PORT OF NEWCASTLE INVESTMENTS PTY LIMITED ACN 169 132 441 Third Cross-Respondent STATE OF NEW SOUTH WALES Fourth Cross-Respondent THE COURT ORDERS BY CONSENT THAT: 1. Subject to the orders below and to further order of the Court, pursuant to s 37AI of the Federal Court of Australia Act 1976 (Cth), the reasons for judgment in this matter not be disclosed to or published by any person save for the persons identified in order 2 of the Confidentiality Orders made by Jagot J on 26 March 2020, being: (a) Court staff and any other person assisting the Court; (b) the Commission, Commission staff and barristers and external solicitors retained by the Commission for the purpose of the Proceedings; (c) barristers and the External Solicitors retained by the Respondents or Cross-respondents for the purpose of the Proceedings; (d) any mediator appointed by the Court in relation to the Proceedings; and (e) Support Staff of the persons listed in sub-paragraphs (a)-(c). 2. To the extent that the reasons for judgment refer to Confidential Information of a Confidentiality Claimant (as defined by the Confidentiality Orders made by Jagot J on 26 March 2020), an extract from the reasons for judgment containing that Confidential Information may be disclosed to the relevant Confidentiality Claimant for the purpose of obtaining instructions as to whether the Confidentiality Claimant intends to maintain its claim. 3. No later than 2 business days following delivery of the reasons for judgment, the parties' external legal advisors are to provide to one another a copy of the reasons for judgment which identifies any material pertaining to their client or a third party that is subject to an existing confidentiality claim under the Confidentiality Orders made by Jagot J on 26 March 2020. Such identification is to make clear: (a) the relevant Confidentiality Claimant; and (b) whether the material is proposed to be redacted because it is 'External Only Confidential', 'Highly Confidential', 'Confidential' or 'Value Impact Information' within the meaning of the Confidentiality Orders made by Jagot J on 26 March 2020 or for another reason. 4. No later than 4 business days following delivery of the reasons for judgment, the parties' external legal advisors are to respond to the copies of the reasons for judgment provided pursuant to order 3 above, identifying: (a) any proposed redactions that are agreed; and (b) any proposed redactions that are not agreed. 5. No later than 7 business days following delivery of the reasons for judgment, the parties' external legal advisors are to jointly provide the Court with agreed versions of the reasons for judgment reflecting redaction of different material ('External Only Confidential', 'Highly Confidential', 'Confidential' or 'Value Impact Information') for the purpose of facilitating the making of such interim orders as may be appropriate to permit those versions to be published to persons entitled to receive them consistent with the Confidentiality Orders made by Jagot J on 26 March 2020 and any further orders. 6. Order 1(h)(iii) of the Confidentiality Orders made by Jagot J on 26 March 2020 be replaced with 'Michael Jessup and Joe Dowling for the PON.' 7. The proceeding be listed for case management on a date to be confirmed in consultation with the parties to consider the appropriate course in relation to any non-publication or suppression orders under s 37AF of the Federal Court of Australia Act 1976 (Cth). THE COURT ORDERS THAT: 8. The originating application be dismissed. 9. The cross-claim be dismissed. 10. The parties confer and file agreed or competing proposed orders as to costs within 14 days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JAGOT J: 1 INTRODUCTION [1] 2 BASIC FACTS [13] 2.1 Participants in the container port supply chain [14] 2.2 Container shipping [15] 2.3 Required approvals for a container terminal [30] 2.4 Ports [31] 2.5 Transactions and events [53] 2.6 PON's preliminary business case [205] 2.7 ACCC's contentions about basic facts [256] 3 CROWN IMMUNITY [287] 3.1 Statutory provisions [287] 3.2 Authorities [298] 3.3 ACCC's/PON's submissions [311] 3.3.1 Crown immunity submissions [311] 3.3.2 Derivative Crown immunity submissions [330] 3.4 Consideration [337] 3.4.1 Crown immunity [337] 3.4.2 Derivative Crown immunity [355] 4 WITNESSES [425] 4.1 Lay witnesses [425] 4.2 Expert witnesses [439] 5 MARKET [446] 5.1 Principles relevant to market definition [446] 5.2 Some preliminary observations [466] 5.2.1 Issues [466] 5.2.2 A key dispute about the market [472] 5.2.3 The relevant hypothesis about a container terminal at the Port of Newcastle [478] 5.2.4 Some basic propositions about the market [491] 5.3 Industry participants [519] 5.3.1 General [519] 5.3.2 The use of terms such as "competition", "substitution" and "market" [531] 5.3.3 The bidding process [535] 5.3.4 The s 155 notice [541] 5.3.5 Oral and documentary evidence – NSW Ports [551] 5.3.6 Oral and documentary evidence – PON [583] 5.3.7 Industry experts [598] 5.3.8 Port of Tauranga and Port of Auckland [610] 5.3.9 Consideration [615] 5.4 Economists [653] 5.4.1 Summary of Mr Smith's evidence about the market [654] 5.4.1.1 General [654] 5.4.1.2 Ports [659] 5.4.1.3 Stevedores [667] 5.4.1.4 Port Botany and the Port of Newcastle [671] 5.4.1.5 Reply report [681] 5.4.2 Summary of Dr Pleatsikas's evidence about the market [686] 5.4.2.1 General [686] 5.4.2.2 Port Botany, Port Kembla and the Port of Newcastle [689] 5.4.3 Summary of Mr Ockerby's evidence about the market [708] 5.4.3.1 General [708] 5.4.3.2 Port Botany and the Port of Newcastle – overview [712] 5.4.3.3 Port Botany and the Port of Newcastle – analysis [715] 5.4.3.4 Reply to Mr Smith [734] 5.4.3.5 Reply to Dr Pleatsikas [745] 5.4.4 Summary of Mr Balchin's evidence about the market [747] 5.4.4.1 General [748] 5.4.4.2 Ports [749] 5.4.4.3 Port Botany and the Port of Newcastle [757] 5.4.5 Economists' joint report [769] 5.4.6 Economists' oral evidence [771] 5.4.7 Consideration [825] 6 RELEVANT PRINCIPLES - PROSCRIBED PURPOSE AND EFFECT [894] 6.1 Substantially lessening competition [894] 6.2 Purpose [904] 6.3 Likely effect [915] 7 PURPOSE OF COMPENSATION PROVISIONS [926] 7.1 Overview [926] 7.2 Consideration [931] 8 LIKELY EFFECTS OF IMPUGNED PROVISIONS [981] 8.1 Some facts and considerations [981] 8.2 Required exercise [1031] 8.3 May 2013/May 2014 [1045] 8.4 Likely effect on the State/public operator [1070] 8.5 Likely effect on NSW Ports [1105] 8.6 Likely effect on private operator/PON [1130] 8.6.1 Preliminary observations [1130] 8.6.2 ACCC's 10 supporting propositions [1141] 8.6.2.1 Increasing volumes of containers [1145] 8.6.2.2 Port Botany's capacity [1147] 8.6.2.3 Port Botany road congestion [1160] 8.6.2.4 Newcastle area container demand [1163] 8.6.2.5 Suitability of the Port of Newcastle for a container terminal [1169] 8.6.2.6 Planning approvals [1172] 8.6.2.7 Capacity to accommodate larger vessels [1195] 8.6.2.8 Attitude of shipping lines [1201] 8.6.2.9 PON's need to diversify [1203] 8.6.2.10 NSC/MDC proposal [1211] 8.6.2.11 ACCC's conclusions [1212] 8.6.3 ACCC's reliance on subsequent events [1222] 8.7 The case for a container terminal at the Port of Newcastle [1226] 8.7.1 Preliminary observations [1226] 8.7.2 Other evidence relevant to viability – before May 2014 [1237] 8.7.3 Other relevant matters [1242] 8.7.4 Ms Calfas's evidence [1278] 8.7.5 PON - consultants' reports [1281] 8.7.5.1 Preparation of the PON consultants' reports [1281] 8.7.5.2 Content of the PON consultants' reports [1298] 8.7.5.3 McKinsey & Co September 2020 email [1364] 8.7.5.4 Conclusions about the PON consultants' reports [1365] 8.7.6 The PON PBC [1397] 8.7.6.1 Content of the PBC [1397] 8.7.6.2 Abandonment of the PBC? [1402] 8.7.6.3 Shipping lines subsidising transport to Sydney [1408] 8.7.6.4 Shipping lines providing regular and sufficient connectivity [1418] 8.7.6.5 New distribution centres co-locating [1430] 8.7.6.6 Initial single berth terminal [1453] 8.7.6.7 Planning approvals required [1460] 8.7.6.8 Shareholder support required [1463] 8.7.7 The industrial and economic experts [1471] 8.7.8 PON's submissions [1490] 8.7.9 Some further evidence of Dr Pleatsikas [1564] 8.7.10 Other submissions by NSW Ports [1566] 8.7.10.1 Likely effect of the compensation provisions alone [1566] 8.7.10.2 Port Kembla (again) [1580] 8.7.11 Key conclusions [1582] 8.7.12 Further issues [1612] 9 ORDERS [1634] Schedule 1 – EXTRACTS FROM COMPENSATION AND REIMBURSEMENT PROVISIONS 1. INTRODUCTION 1 The Australian Competition and Consumer Commission (the ACCC) contends that compensation provisions in two Port Commitment Deeds (PCDs) entered into by the State of New South Wales (the State) and the first and second respondents (the Port Botany PCD) and the State and the first and third respondents (the Port Kembla PCD) had the purpose and/or effect or likely effect of substantially lessening competition. The ACCC alleges that, as a result, the first and second respondents (Hold Co and Botany Operator respectively) contravened s 45(2)(a)(ii) of the Competition and Consumer Act 2010 (Cth) as in force on 31 May 2013 (CCA) by making the Port Botany PCD, and the first and third respondents (Hold Co and Kembla Operator respectively) contravened the same provision by making the Port Kembla PCD. The first to third respondents are collectively referred to below as NSW Ports. The ACCC also alleges that the effect or likely effect of giving effect to the compensation provisions would be to substantially lessen competition in contravention of s 45(2)(b) of the CCA. The ACCC seeks pecuniary penalties in respect of the alleged contraventions of the CCA and permanent injunctions preventing NSW Ports from giving effect to the compensation provisions in the future. 2 NSW Ports are also cross-claimants against the first to third cross-respondents, Port of Newcastle Operations Pty Limited, Port of Newcastle Investments (Property) Pty Limited and Port of Newcastle Investments Pty Limited (collectively, PON), and the fourth cross-respondent, the State. NSW Ports contend that if they are not entitled to so-called "derivative Crown immunity" as a result of which s 45 of the CCA does not apply to the impugned provisions and the Court concludes that the reimbursement provisions in the Port Commitment Deed entered into between the State and the PON parties (the Newcastle PCD) (by which PON agrees to reimburse the State in relation to liability under the compensation provisions in the Port Botany PCD and the Port Kembla PCD) has the effect or would be likely to have the effect of substantially lessening competition, then the reimbursement provisions should be set aside and severed from the Newcastle PCD. The consequence, NSW Ports say, is that there would be no occasion to grant the relief sought by the ACCC against NSW Ports. 3 NSW Ports are a consortium involving Global Infrastructure Partners (GIP) and Industry Funds Management (IFM). 4 PON is owned by two 50% shareholders, Gardior Pty Ltd (Gardior), which is the trustee for The Infrastructure Fund (TIF), and China Merchant Port Holdings Co, Ltd (CM Ports). Macquarie Infrastructure and Real Assets (MIRA) manages TIF and Gardior's investment in PON. 5 Accordingly, the ACCC seeks relief only against NSW Ports. Hold Co is the corporate vehicle through which the NSW Ports consortium acquired its interest in Port Botany and Port Kembla. Botany Operator and Kembla Operator are wholly-owned subsidiaries of Hold Co. 6 NSW Ports deny that the ACCC is entitled to the relief it seeks against them and, if the two identified pre-conditions are satisfied (they are not entitled to derivative Crown immunity and the Court concludes that a reimbursement provision in the Newcastle PCD has the effect or would be likely to have the effect of substantially lessening competition), seek relief by their cross-claim against PON. 7 Relevant extracts from the compensation and reimbursement provisions are reproduced in Sch 1. 8 The compensation provisions concern the potential operation of a prospective container terminal at the Port of Newcastle during the 50 year term of the PCDs while the container terminals at Port Botany have capacity or a prospective container terminal at Port Kembla has capacity. They provide for the State to pay compensation to NSW Ports for containers diverted from Port Botany (or a container terminal at Port Kembla, if one exists) to a container terminal at the Port of Newcastle (if one exists) above a specified threshold amount. The reimbursement provisions require PON to indemnify the State for payments under the compensation provisions. 9 I have concluded that the ACCC's originating application and NSW Ports' cross-claim must be dismissed. NSW Ports have the benefit of "derivative Crown immunity" in respect of the compensation provisions so that s 45 of the CCA does not apply to NSW Ports in making or giving effect to those provisions. If this is incorrect and the compensation provisions are subject to s 45 of the CCA then, in any event, the purpose of the compensation provisions was not to substantially lessen competition. The likely effect of the making of the compensation provisions was not to substantially lessen competition. The likely effect of giving effect to the compensation provisions in the future will not be to substantially lessen competition. 10 To the contrary, the position without the compensation provisions as at May 2013 (the date when they were made) and today's date (after which they may be given effect) is the same as the position with the compensation provisions – PON had and has mere speculative hopes that it might be able to: (a) satisfy its board, its shareholders and the NSW government that a container terminal at the Port of Newcastle while Port Botany has capacity might be viable, and/or (b) persuade the NSW government to change the State policy which has been in place since July 2012, which is to the effect that no new container terminal should be developed in NSW until Port Botany has reached capacity and, when that occurs, the next container terminal should be developed at Port Kembla, not the Port of Newcastle. These mere speculative hopes were and remain far-fetched and fanciful on the evidence, and were and are not a real chance or real possibility. As such, there was and is not any credible threat of entry by PON into the pleaded market for Container Port Services in New South Wales (NSW). 11 Further, the position with and without the compensation provisions is also otherwise the same. The compensation provisions as at May 2013 had and as at today's date will have no likely effect on any other aspect of competition, including: (a) any incentives of the State, a public authority, or a prospective private operator of the Port of Newcastle in respect of a prospective container terminal at the Port of Newcastle, or (b) any incentives of NSW Ports in respect of a prospective container terminal at the Port of Newcastle. 12 While the reimbursement provisions challenged by NSW Ports (if their defence otherwise fails) are a likely effect of the compensation provisions, PON too has the benefit of "derivative Crown immunity" in respect of the reimbursement provisions, so that s 45 of the CCA does not apply to PON in making or giving effect to those provisions. Further, the position without the reimbursement provisions also would be the same as the position with the reimbursement provisions. 2. BASIC FACTS 13 The following summary is largely taken from the parties' submissions to the extent that they record facts not in dispute and from the statement of agreed facts. It also includes other parts of the evidence not in dispute. 2.1 Participants in the container port supply chain 14 Ports are one part of a total supply chain for the import and export of containers. The supply chain includes shipping lines, shippers, port authorities, towage operators, line operators, shipping agents, stevedores, freight forwarders, transport operators, intermodal operators, empty container park operators, and container packing/unpacking facilities. 2.2 Container shipping 15 Many Australian exports and imports are shipped by sea. The cargo can be carried in many forms. One form is containers. Containerised cargo is shipped in standardised steel boxes. A TEU (Twenty-Foot Equivalent Unit) is a container with standard dimensions of 20 feet long and 8 feet wide and high. It is conventional in the shipping industry to measure the capacity of container ships and port container terminals in TEUs. 16 Container ships are ships that are purpose built for, and dedicated to, the carriage of shipping containers. Container ships are operated by global shipping lines. 17 A container terminal is a port terminal comprising specialised infrastructure and equipment that is purpose-built for loading and unloading container ships and transferring containers within and from the port, and which is dedicated to handling the import, export or transhipment of shipping containers from container ships. 18 A container terminal has the following physical requirements – channel access and depth, turning basin, berths and dredged berthing boxes, landside infrastructure, road and rail connections, and access to intermodal terminals. 19 Globally, the container shipping industry is moving towards the use of container ships of 14,000 TEUs or more which are also becoming a larger percentage of the total ships in the global container shipping fleet. 20 In the container import supply chain, generally: (1) the Australian importer orders goods from overseas and specifies the Australian port to which the goods should be shipped; (2) the overseas exporter packs the container and arranges for the goods to be transported to the port via a shipping line; (3) the shipping line is paid by the overseas exporter or the Australian importer; (4) on arriving at the Australian port, the shipping line pays the port for wharfage (and possibly some other services such as navigation charges and pilotage) and the stevedore to unload and store the container; (5) the Australian importer pays for a transport/logistics company/freight forwarder to transport the container to a destination, often a distribution or intermodal centre where the container is unpacked and the goods forwarded to the Australian importer; and (6) the Australian importer pays for the empty container to be returned to the port or an empty container park for the shipping line to collect. 21 In the container export supply chain, generally: (1) the Australian exporter or an overseas importer pays a shipping line to transport the goods to an overseas port; (2) the Australian exporter pays a transport/logistics company/freight forwarder to collect the goods, place them in containers and transport the goods to a location nominated by the shipping line such as an empty container park, inter-modal centre or container terminal; (3) the shipping line pays the stevedore to receive, store and load the container onto the ship and the port for wharfage (and possibly some other services such as navigation charges and pilotage); (4) the shipping line ships the container to the overseas port and pays for the unloading and storage of the container at the overseas port; and (5) the overseas importer pays for the container terminal to be transported to its selected destination. 22 While the description above describes liability for the making of certain types of payments, all costs in the total supply chain can ultimately be passed on to the importer/exporter. 23 Importers and exporters frequently use freight forwarders to manage their imports and exports. 24 Containers are frequently packed and unpacked (or stuffed and unstuffed, in industry parlance) at a distribution centre, to enable cargo to be distributed onwards as required. 25 Transhipments are containers which arrive at a container terminal on one ship, are stored and then leave the container terminal on another ship. 26 The contractual arrangements between importers/exporters (or freight forwarders) and shipping lines generally involve standard terms include free alongside ship (FAS), free on board (FOB), cost and freight (CFR), and cost insurance and freight (CIF). The primary difference in the terms concerns the timing of the passing of risk and the responsibility for cargo insurance. 27 While importers/exporters ultimately pay for the costs in the supply chain, costs are generally divided in the industry into: (1) blue water costs – the cost of shipping containers across the water from one port to another (usually paid by the importer/exporter or freight forwarder to the shipping line); (2) quayside costs – the cost of moving a container from the ship across the quay to a train or truck or vice versa (usually paid by the shipping line to the port and stevedore); and (3) landside costs – the cost of delivering the container to a distribution centre or other facility as required or vice versa (usually paid by the importer/exporter or freight forwarder to various entities involved in land transport, storage and handling). 28 The largest component, by several orders of magnitude, consists of landside costs. Port charges are part of quayside costs. Quayside costs are the smallest component of the three classes of costs. As noted, it is the shipping line which usually pays the quayside costs, consisting principally of wharfage charges to the port and handling charges to the stevedore. These are charged on a $ per TEU basis. 29 The parties use various terms to describe the parties in these arrangements. They use some terms interchangeably including importer/exporter, customer (of the ports) and shipper, including freight forwarders. Accordingly, shippers should not be confused with shipping lines, as shipper means importer/exporter or customer of the port. Further, while shipping lines, stevedores, and others involved in the supply chain are also customers of ports (in that they lease land and facilities from the port as landlord), "customer" in these reasons means importers/exporters and freight forwarders as their agents. 2.3 Required approvals for a container terminal 30 The parties do not agree about the full range of approvals that PON would require in order to construct a container terminal at the Port of Newcastle. For the purpose of this case it is sufficient to note that a range of approvals from the State and, potentially, the Commonwealth would be required either in the form of a new approval or in the form of amendment to an existing approval. Otherwise, this issue is discussed below. 2.4 Ports 31 Ports in NSW are regulated by the Ports and Maritime Administration Act 1995 (NSW) (PAMA Act). Part 5 of the PAMA Act regulates port charges. Under the definition of "relevant port authority" in s 47(1)(a1) NSW Ports (through Botany Operator) and PON are the relevant port authorities for the charging for wharfage. Botany Operator does not receive navigation or pilotage charges. Relevantly, it receives wharfage charges only from shipping lines. Section 61 regulates wharfage charges. By s 61(2) the charge is calculated by reference to the quantity of cargo (as noted, for containers, this is on a $ per TEU basis). By s 61(3) the charge is payable by the owner of the cargo at specified times (in practice, this is the shipping line and not the importer/exporter). By s 62 the relevant port authority fixes wharfage (and other charges a relevant port authority may levy). By s 62(3) such charges may be fixed at different rates including by reference to cargo (that is, price discrimination by a relevant port authority to different importers/exporters is permissible). By s 67 a relevant port authority may enter into an agreement with any person about a charge and that agreement applies instead of the determination of the relevant port authority. By such an agreement a relevant port authority may also confer other rights and privileges on the person. Under Pt 6 there is a price monitoring scheme to which Port Botany, Port Kembla and the Port of Newcastle are subject by s 78. Under the scheme, charges are publicised and increases in charges must be notified to the Minister. 32 Section 11 of the Independent Pricing and Regulatory Tribunal Act 1992 (NSW) (the IPART Act) provides that the Independent Pricing and Regulatory Tribunal (IPART) has a standing reference to investigate prices of any "government monopoly service" as specified in Sch 1 which is said to include charges by a relevant port authority under the PAMA Act. By s 4(1) the Minister may declare a government monopoly service. By s 4(2) the regulations or the Minister may declare a government monopoly service if the Minister certifies that it is a service (a) for which there are no other suppliers to provide competition in the part of the market concerned, and (b) for which there is no contestable market by potential suppliers in the short term in that part of the market. No declaration has been made by the Minister in respect of any port. The parties disagree about whether the Minister has power to make any declaration but NSW Ports and the State (which contend that there is such power) acknowledge that the issue does not arise for determination in this case. Accordingly, for present purposes the IPART Act has no application to Port Botany, the Port of Newcastle or Port Kembla. To the extent the economists assumed to the contrary, they are incorrect. But there is a regulatory regime for price disclosures to the Minister as provided for in Pt 6 of the PAMA Act as described above. There is also the potential for price regulation of a port under Pt IIIA of the CCA. 33 Under a landlord port model, the port operator owns or leases the port land and leases or sub-leases it to operators such as container terminal operators (also known as stevedores), bulk cargo terminal operators and towage operators. In the landlord port model, the port operator receives rent and licence fees from the land leased/licenced to container terminals and other operators. It also receives revenue in the form of wharfage from shipping lines (for containers this is a charge per TEU imported or exported through the port). 34 Under a vertically integrated or owner and operator model, the port operator may also own and operate a container terminal at the port. In this model, the port operator also provides stevedoring services to container ships, receives containers from container ships, and loads them onto trucks and trains which access the container terminal. In this way, the port operator receives revenue from shipping lines for loading and unloading container ships, and from land-based customers for landside cargo handling services. 35 Most shipping cargo in NSW passes through Port Botany, Port Kembla or the Port of Newcastle. 36 Port Botany is located about 15 km south of the Sydney CBD. It is the principal port in NSW and the only port in NSW with container terminals. It has three container terminals operated by independent stevedores. NSW Ports provides land and facilities to these stevedores, DP World, Patrick, and Hutchison, which operate the container terminals. Port Botany opened in December 1979. The addition of the third terminal was the most recent significant development at Port Botany which substantially increased its TEU handling capacity. 37 In 2016, 95.4% of full import containers destined for NSW, and 91.6% of full export containers originating in NSW, were handled by Port Botany. 38 Before it was privatised Port Botany was operated by Sydney Ports Corporation (SPC) constituted under the PAMA Act. SPC was a statutory State-owned corporation within the meaning of s 3(1) and Sch 5 of the State Owned Corporations Act 1989 (NSW) (SOC Act). On 2 May 2013, pursuant to s 3(1) of the PAMA Act, the Minister for Roads and Ports declared Botany Operator as trustee for the Port Botany Unit Trust to be the port operator of the private port of Botany Bay (Port Botany) for the purposes of the PAMA Act, commencing on the Completion Date as defined in the Sale and Purchase Agreement – Port Botany. The privatisation was otherwise carried out under the provisions of the Ports Assets (Authorised Transactions) Act 2012 (NSW) (the PAAT Act). 39 Port Botany is operated under a landlord business model under which the operator owns or leases the port and leases or sub-leases parts of the port to port users including terminal operators and stevedores. As noted, Botany Operator's revenue comprises wharfage fees and rent. Botany Operator does not charge navigation or pilotage fees. 40 Port Kembla is located about 90 km south of Sydney in Wollongong. 41 Port Kembla is primarily a bulk and vehicle port. It does not have a container terminal, but handles a small volume of containers. 42 Before it was privatised Port Kembla was operated by Port Kembla Ports Corporation (PKPC) constituted under the PAMA Act, which was a statutory State-owned corporation within the meaning of s 3(1) and Sch 5 of the SOC Act. On 2 May 2013, pursuant to s 3(1) of the PAMA Act, the Minister for Roads and Ports declared Kembla Operator as trustee for the Port Kembla Unit Trust to be the port operator of the private port of Port Kembla for the purposes of the PAMA Act, commencing on the Completion Date as defined in the Sale and Purchase Agreement – Port Kembla. The privatisation was otherwise carried out under the provisions of the PAAT Act. 43 Kembla Operator operates Port Kembla under a landlord business model. 44 The Port of Newcastle is located about 160 km north of Sydney in Newcastle. 45 The Port of Newcastle primarily handles bulk cargo, mainly coal. It also handles a small number of containers which has slowly increased over the years. Its container handling capacity is confined because it does not have a container terminal. 46 Before it was privatised the Port of Newcastle was operated by Newcastle Ports Corporation (NPC) constituted under the PAMA Act, which was a statutory State-owned corporation within the meaning of s 3(1) and Sch 5 of the SOC Act. 47 On 15 May 2014, pursuant to s 3(1) of the PAMA Act, the Minister for Roads and Freight declared Port of Newcastle Operations Pty Limited (as trustee for the Port of Newcastle Unit Trust) to be the port operator of the private port of Newcastle for the purposes of the PAMA Act, commencing on the Completion Date as defined in the Sale and Purchase Agreement – Port of Newcastle. The privatisation was otherwise carried out under the provisions of the PAAT Act. 48 PON operates the Port of Newcastle under a landlord business model. As it does not have a container terminal it could operate a prospective container terminal under a vertically integrated or an owner and operator model. 49 Other ports in NSW: there are other ports in NSW but none have, or are suitable for the development of, a container terminal. 50 Australian ports: the principal container ports in Australia are Port Botany, the Port of Brisbane, the Port of Melbourne, the Port of Fremantle and the Port of Adelaide. Port Botany, the Port of Brisbane and the Port of Melbourne are on Australia's east coast. The Port of Brisbane is about 930 km north of the Port of Newcastle. The Port of Melbourne is about 870 km south west of Port Botany. 51 Shipping services along the east coast of Australia typically call at each of the Port of Brisbane, Port Botany and the Port of Melbourne. Shippers and shipping lines would not consider these ports to be substitutes for one another due to the land transport costs involved in shipping goods to or from one State through a port in another State. 52 If, however, a container terminal was developed at the Port of Newcastle ships would not call at both Port Botany and the Port of Newcastle. Shipping lines would arrange services so that a ship would only call at one or other of these ports in the course of their trip along the east coast of Australia, as well as the Port of Melbourne and the Port of Brisbane. 2.5 Transactions and events 53 In April 2001 the Broken Hill Proprietary Company Limited (BHP) obtained development consent to build, amongst other things, a container terminal at the Newcastle Mayfield site capable of handling up to 350,000 TEUs per annum and associated road, rail and wharf infrastructure and dredging. This 2001 development consent required that the development be carried out generally in accordance with the matters specified in a number of documents, including an Environmental Impact Statement titled "Development of a Multi-Purpose Terminal and Remediation of the Closure Area, BHP Newcastle Steelworks" dated 11 August 2000 (EIS). Under the EIS, approval was given for a wharf with three berths; two northern berths with a length of 300m and one southern berth with a length of 350m. This configuration and these lengths are also set out diagrammatically in figure 6.9 of the EIS. Under the EIS, the container terminal to be operated contemplated a largely manual terminal. The EIS noted that the terminal would be operated using five portainer cranes, eight rubber tyred gantries (RTGs), 14 tractors, 14 tri-trailers, 14 forklifts, 10 mini-vans and a fuel truck. It was contemplated that trucks would be loaded with containers by RTGs operated manually by operators. It was also contemplated that loading containers for rail transport would occur manually using portainer cranes, tractors, trailers and forklifts. As a summary, the EIS noted that "the Terminal would generally operate in automatic control except for some rail and road loading/unloading operations, and ship loading operations". Under the EIS, it was contemplated that the railway would be established so as to accommodate four to six railway sidings. The EIS also is premised on the basis that the container terminal at Port of Newcastle will accommodate trains of a length of 640m. 54 The then NSW Labor government announced a NSW Ports Growth Plan in October 2003. Under that plan it was proposed that Port Botany would first be developed to its full capacity. After Port Botany reached its full capacity, the former BHP Steelwork site known as Mayfield at the Port of Newcastle would be acquired by the State and developed as a container terminal. The NSW Ports Growth Plan said that: The plan is a set of principles designed to provide strategic direction to allow the private sector to commence planning for the next tranche of major container trade growth through NSW ports, while allowing public sector providers of road and rail infrastructure to settle their long term development plans. 55 At that time, Port Botany did not have its third terminal and thus had a limited TEU capacity per year which was identified in an NPC report of July 2010 (see below) as 1.6 million TEU per year. 56 In 2005 planning approval was also secured to dredge part of the Hunter River to provide additional capacity for development at the Mayfield site. 57 By 2007 the State had acquired the Mayfield site and transferred it to NPC. 58 In a 2007 submission to the Council of Australian Governments, the NSW Treasury said that major elements of the NSW Ports Plan included the "identification of Newcastle as the next major container port following the exhaustion of the capacity available at Port Botany and the reservation of land for that purpose (at the former BHP site)". 59 In late 2007 NPC's Business Plan 2008/2009-2018/19 referred to the 2003 NSW Ports Growth Plan and the 2007 transfer to it of the Mayfield site, and said that "NPC considers there are good prospects of a container terminal operating on the Mayfield site within the next ten years". 60 In May 2008 the NSW Department of Planning released an exhibition draft on NSW Major Ports which included a statement that: Newcastle Port also has the potential to become the State's next major container facility when Port Botany reaches capacity, necessitating a planning regime that will preserve the area for port related activities. 61 NPC began work on a master plan for development of a container terminal at the Port of Newcastle. In April 2009, NPC sought expressions of interest for the development of Port of Newcastle including a container terminal. By late 2009 it had issued an invitation for detailed proposals for development including a container terminal on the site with capacity to handle in excess of one million TEUs of container cargo per year. 62 In 2009 Hutchison Port Holdings was announced as the operator of the third terminal at Port Botany. The development of the third terminal significantly increased Port Botany's TEU capacity per year. Apparently in response to concerns about traffic impacts, the development consent for the third terminal included a condition limiting Port Botany to a maximum of 3.2 million TEUs per year. 63 By May 2010 NPC had selected a consortium known as Newcastle Stevedores Consortium (NSC) as its preferred developer of the Mayfield site. The NSC consortium members included Anglo Ports (a company that provided project and management advice on port operations, investments and acquisitions), Grup TCB (a Spanish company that operated container ports in various countries), SCT Logistics (a provider of freight services) and Newcastle Stevedores Pty Ltd (a supplier of stevedore services at Port of Newcastle). 64 In July 2010 NPC published a container terminal analysis. The purpose of this analysis was to "confirm the need for Newcastle to be the site for the next NSW container facility, to be available when Port Botany reaches its 3.2 million TEU pa capacity". The analysis included the following observations: (1) Newcastle's container development should proceed at the earliest possible time based on the trade to and from Newcastle's hinterland, the pressure it will take off Sydney's road congestion, and the benefits it can provide to NSW importers and exporters; (2) the vision is to deliver a globally competitive container and general cargo terminal, capable of providing real benefits to the NSW government and importers and exporters on Australia's east coast; (3) establishing a container facility in Newcastle would support Australian exporters from the Hunter and regions to the north and north west of Newcastle; (4) equitable distribution of economic growth potential between Sydney and the regions, including the Hunter region, was approved by Cabinet in 2003 and 2010; (5) local employment in the Hunter region would be generated; (6) the presence of Newcastle as a container port would "re-capture" some of the previously lost NSW trade from Brisbane. Establishing the next NSW container terminal south of Sydney would have the opposite impact, i.e. it would provide Brisbane with an opportunity to extend its capture of NSW generated container exports; and (7) a container terminal in Newcastle would result in a net NSW trade gain whereas any other location risked a net loss of NSW trade to Brisbane. 65 In 2011 the Commonwealth published its National Ports Strategy 2011. The Strategy focused on the need for an economically, socially and environmentally sustainable future and the need for the nationally co-ordinated master planning of ports to drive supply chain efficiency. The Strategy said: Ports and related land-side logistics chains are critical to the competitiveness of Australian businesses, which rely on them to deliver business inputs and to take exports to the global market. Long-term integrated plans will help to attract public and private investment in ports and related logistics sectors. Reform can also remove barriers to trade, reduce transaction costs, increase competition and contestibility [sic] and provide important linkages to domestic and global value chains. Ports are therefore critical to productivity and economic growth in Australia. 66 In March 2011 a NSW Liberal/National Coalition government replaced the NSW Labor government. 67 In June 2011 NSW Treasury approved NPC entering into commercial negotiations with NSC for the development of the Mayfield site including a container terminal. Negotiations were on the basis that NPC could not bind the State and that State approval to any commercial deal would be required. Shortly thereafter, NPC agreed term sheets with NSC for the development of, among other things, a container terminal at Port of Newcastle. 68 In September 2011 the NSW government announced that it would privatise Port Botany by way of a 99 year lease and in doing so would ensure that key public interest outcomes were protected. 69 GIP and IFM formed a bidding consortium for the Port Botany privatisation transaction (NSW Ports Consortium). Ari Droga and Julio Garcia, representatives of NSW Ports, were responsible for co-ordinating the bid of NSW Ports Consortium. 70 By this stage the negotiations between NPC and NSC were nearing completion. By October 2011, NPC and NSC had finalised agreements for the development of the Mayfield site. In November 2011, NPC sought the State's approval to execute the agreements with NSC. 71 On 18 November 2011 the Treasurer informed NPC as follows: As you are aware, the NSW Government will be undertaking a scoping study into the intended long-term lease of Port Botany. In addition to examining market interest, sale structure, business preparation, and the interests of stakeholder groups, the scoping study will have regard to the State's longer term port infrastructure needs and the roles of Newcastle and Port Kembla. We consider that it would be prudent to consider the proposed development of the Mayfield site as multi-cargo facility including a container terminal within the context of an overarching strategy for port infrastructure in NSW. As a consequence, the Government wishes to wait for the outcome of the scoping study before considering the Mayfield site development as outlined in your letter. The scoping study is expected to be completed by April 2012. 72 In December 2011 the State engaged Morgan Stanley as a consultant to prepare a scoping and strategy study in relation to the long term lease of Port Botany. 73 By December 2011 NSW Ports Consortium was receiving preliminary advice that a key consideration for any long-term lease of Port Botany was "competing terminals" and thus the State's policy in relation to Port Kembla and the Port of Newcastle. The preliminary advice was that a second container port will likely impact on the long term growth and earnings prospects of Port Botany and the risks could be mitigated either by "[o]btaining a guarantee from the NSW Government that it will not allow the development of a second container terminal (… considered to be highly unlikely)" or "[o]btaining a first right of refusal in relation to the acquisition of any container terminal operations at Newcastle Port or Port Kembla." 74 In this period the State also informed NSC that it would not decide whether to approve NSC's development proposal at Newcastle unless and until the scoping and strategy study for Port Botany was completed. 75 In late 2011 and early 2012 Transport for NSW and Infrastructure NSW (State agencies) commenced a review of ports policy for NSW. 76 The Transport for NSW Corporate Plan 2012-2017 noted that: The efficient movement of goods is an essential driver of economic prosperity and quality of life in our metropolitan and regional communities. The NSW freight and logistics industry contributes more than $50 billion to our Gross State Product. NSW roads, rail network, intermodal terminals and ports are some of the most important pieces of infrastructure to enable domestic and international freight movements and support economic development. 77 In February 2012 the Treasurer confirmed to NSC the need for the State to obtain the scoping and strategy study for Port Botany which was anticipated to be received by mid-2012. The Treasurer said, however, that in recognition of the discussions between NSC and NPC the transaction team would consider the question of container port capacity at Newcastle as a priority to allow the NSW Government to respond to NPC on the issue as early as possible. In this regard the Treasurer said he appreciated the time NSC had taken to share its views on this matter and NSC's interest in developing infrastructure in New South Wales but "from an overall State development perspective it is appropriate that we consider the long term future of container capacity at New South Wales ports as the Government embarks on this important transaction". 78 By 8 March 2012 Transport for NSW was advising the Treasury led Port Botany project advisory group (which included Infrastructure NSW and the Department of Planning and Infrastructure) that the economics of containers coming into Newcastle and being railed or trucked down to Sydney was highly questionable given that most containers were destined for within 40 km of Sydney and the State had invested heavily in port infrastructure at Botany which had excess capacity. No party consulted saw the Port of Newcastle as NSW's next container terminal. All were of the view that Port Kembla should be the location for the next container port. 79 In March 2012 the NSW Ports Consortium was again advised by its proposed adviser that the threat of a second container terminal at Port Kembla or Port of Newcastle was a key competition issue. 80 On 30 March 2012 Morgan Stanley noted that one potential bidder for Port Botany wanted clarity on the government's position about Port of Newcastle as it would compete with Port Botany and lead to value loss. 81 Morgan Stanley submitted an indicative valuation to the Treasurer on 5 April 2012. They recommended that the existing 3.2 million TEU cap on Port Botany be removed. As to the outstanding issue of a container terminal development at the Port of Newcastle, Morgan Stanley said: • Botany value loss of XXXX XXXX XXXX • Bidders will react unfavourably to a competing port owned by Government • Undermine rationale to remove the Botany cap • Not supported by stakeholders, including INSW [Infrastructure NSW] and TfNSW [Transport for NSW] • Will likely increase the NSW container transport task 82 The overview by Morgan Stanley said: Issue 7 - Newcastle proposal to develop a container terminal - background NPC tendered a new terminal including a container port, have a preferred proponent, awaiting NSW govt approval + Planning approval. Bottom line is that we have modeled its impact on Botany, XXXX XXXX XXXX value loss, independent of us NPC's container proposal is not supported by Infra NSW and Transport NSW. Inconsistent message to bidders about government competing with Botany. Recommendation is that the State does not support the Container element of the proposal. 83 Morgan Stanley recommended that the State not approve the container terminal element of the development of the Port of Newcastle. 84 Morgan Stanley also recommended that Port Kembla should be the next logical container terminal after Port Botany as Port Botany and Port Kembla were complementary and: • Service same hinterland – same trade drivers • Port Kembla and Port Botany will both service Moorebank Terminal • Port Kembla is the next logical container terminal after Port Botany. 85 Morgan Stanley suggested that the State seek combined bids for the privatisation of both Port Botany and Port Kembla, and that the Port of Newcastle transaction be staged after Port Botany and Port Kembla. 86 By 12 April 2012 the Treasury transaction team (including Morgan Stanley) advising the Treasurer noted that: If the container terminal development were to proceed, the financial impact on proceeds from the Port Botany Transaction is not immaterial, as some container volumes and related revenue would be diverted from Port Botany to Newcastle. In addition, it could undermine the rationale to remove the Port Botany cap or to transact Port Botany and Port Kembla as a potential package, and bidders may see the risk of competing with a Government owned Port of Newcastle as a further negative. Further, the development of the container terminal would also be on the same timeframe as the SIMTA intermodal development at Moorebank, but would not have any real relationship to that facility (unlike Botany or Port Kembla) and would likely increase the NSW container transport task by requiring additional infrastructure to/from Sydney and Newcastle. Stakeholder consultation (including with Shipping Australia) for Port Botany has clearly established that Port Kembla is seen as being the preferred location for a container terminal (in preference to Newcastle) once Port Botany becomes full. … …a Newcastle container terminal is not supported by the 20-year strategic plans currently being prepared by INSW and TfNSW which are to be publicly released during 2012. 87 The Treasury transaction team observed that: Preferred method for dealing with the Botany cap - The most significant issue for the Transaction arising from the scoping and strategy study is the cap on total container movements at Port Botany. The existing planning approval for the 3rd terminal imposes a cap on container throughput for the entire port (ie all 3 terminals) of 3.2m twenty foot equivalents (TEU) per annum. - Throughput last year was 2m TEU pa and the port is expected to reach 3.2m TEU pa in about 2017. The physical capacity of the port is estimated to be 8m+ TEU per annum. - The Port Botany terminals are highly valuable assets. The State's investment in the new 3rd terminal alone will be nearly $1b by the time it comes into operation next year. Not allowing these assets to achieve their full capacity is a waste of valuable State capital investment and would represent a highly inefficient outcome for the State. - The Government needs to address the cap issue now regardless of whether the Port Botany transaction proceeds or not. In fact Sydney Port Corporation has already commenced preliminary work to address the cap independent of the transaction. To the transaction advisers' knowledge, Port Botany is the only major container port in the world that has a whole-of-site cap of this nature. - The current planning approval does not specify the reason for the cap but it is understood to be a reaction to community concerns about the local impacts of expanding the port, particularly the road traffic impacts. - Roads are already congested irrespective of the amount of port traffic: … - Capping throughput does not encourage Port Botany freight onto rail: … - The cap will increase the land transport task and associated costs to the community: … - The Transport Masterplan and the INSW strategic plan are progressing on the assumption that throughput at Port Botany will exceed 3.2m TEU pa, and all containers in NSW will call Port Botany until it reaches its natural capacity. - Unless the cap is removed bidders will significantly discount the value of Port Botany (by up to 30-40% based on current estimates). Infrastructure funds are inherently conservative investors and are unlikely to pay fair value for a growth opportunity that depends on the Government changing pre-existing regulatory settings at some unspecified point in the future. - To deal with this issue in a timeframe consistent with the government's announced transaction timetable, a removal of the cap via legislation or via SEPP [State Environmental Planning Policy] is required. (A separate paper will be provided on these two potential mechanisms). 88 The Treasury transaction team considered that: Port Kembla and Newcastle may have roles to play in servicing the State's container needs in the long-term as Port Botany reaches its natural capacity, but shifting container trade to these ports because of the planning cap at Botany increases transport costs artificially and prematurely. 89 They also said: If the Government wishes to also transact Port Kembla and Newcastle Port in the near term, the Project Team recommends that the Government combine Port Kembla with Port Botany in the current process and transact Newcastle Port immediately thereafter. 90 On 4 May 2012 the NSW Ports Consortium wrote to the Treasurer saying: The container market serviced by Port Botany is the same as that which could be serviced by container terminals in either Newcastle or Kembla. The creation of additional container terminal capacity at either Newcastle or Kembla, prior to Port Botany reaching its maximum potential capacity, will have the negative consequences of bringing forward the investment required by the Government in both road and rail infrastructure which is required to cater for the same level of container imports and exports into and out of Sydney. We therefore suggest that until such time as Port Botany is approaching its maximum physical container capacity, it will be more efficient for the NSW economy and the Government's budget for container exports and imports to be serviced at the existing facilities at Port Botany. The risk of substitution from a second container terminal in NSW before it is economically warranted is also very material for potential bidders. We believe potential Transaction proceeds for Port Botany will be optimised, and the risk of substitution best addressed, by including Port Kembla with Port Botany under the Transaction. This will ensure that the acquirer will be better able to manage and co-ordinate an integrated solution and response to NSW's future trade demands. Should the inclusion of Port Kembla in the Transaction not be feasible, we would expect bidders will require as much certainty as possible around the prerequisites and timing for development of potential competing container ports. We would expect that this would include a requirement for a clear undertaking from the NSW Government not to approve, or subsidise, the development of container terminal capacity in Newcastle or Port Kembla until such time as Botany is unable to service the demand. (Original emphasis). 91 On 16 May 2012 Treasury sent an email to Morgan Stanley with a proposed letter to NPC to the effect that the State would approve of NSC's development proposal excluding the container terminal given "the potential for an adverse impact on the [Port Botany] Transaction in a number of respects including financial impacts and adverse buyer perceptions regarding competing with a State-sponsored container terminal". The final version of this letter was sent by the Treasurer to NPC on 31 July 2012, albeit modified to remove the reference to the potential adverse impact on the Port Botany transaction. 92 In or about May 2012 Morgan Stanley submitted its Scoping Study to the State in respect of the long-term lease of Port Botany (Port Botany Scoping Study). The Port Botany Scoping Study: (1) identified the existing 3.2 million TEU per year cap on Port Botany (imposed by a condition of a development consent for the third terminal) was of the highest materiality, saying: The existing planning approval for Port Botany which imposes a cap on container movements needs to be resolved prior to the Transaction. The concept of a capacity limit on a port is unique to Port Botany – the Project Team was unable to identify any other port in Australia or globally that has a similar regulatory cap. The existence of the Container Cap does not resolve landside logistics problems – less than 2% of traffic on the M5 East is related to port traffic. On current estimates, the 3.2 million TEU p.a. cap will be exceeded in 2017-2018 and therefore the cap needs to be addressed irrespective of the Transaction. Port Botany as an investment proposition is very different with and without a cap and it would materially affect bidder appetite. Should the 3.2 million TEU p.a. cap remain, the State will need to develop an alternative container port, either at Port Kembla, Port of Newcastle or elsewhere. This would mean an inefficient outcome for the State: • The State has just spent ~A$1 billion in expanding the potential capacity of Port Botany to approximately 6-8 million TEU p.a. Botany would remain significantly underutilised with latent container handling capacity of around 5 million TEU p.a.; • Requirement to construct a new container port with adequate capacity to meet demand comes with considerable costs, likely to amount to more than A$1 billion in aggregate within the next 5-10 years; • Additionally, there would be significant investment required in associated road and rail infrastructure (and re-aligning the logistics supply chain) to service container trade going through a new more remote container port and transiting from/to metropolitan Sydney (which is the source of most container traffic); and • As a result, diverting freight via an alternative container port before Botany has reached capacity comes with a significant increase in the NSW transport task, additional costs to the economy and a negative impact on Gross State Product as there would be a corresponding increase in freight costs for containerised goods, and no offsetting economic benefits. Recommendation: That the cap be removed prior to the Transaction via a new legislated planning regime. The existing conventional planning approval regime is not able to provide certainty on this issue in a timeframe consistent with Government's announced Transaction timetable. Removing the cap will allow Port Botany to reach its already installed capacity, increase certainty for bidders and maximise proceeds from the Transaction. If the cap issue is not resolved prior to the Transaction, or there is no certainty around resolving it, the Project Team recommends the Transaction not proceed; (2) explained that: Port Botany currently has a capacity limit of 3.2 million TEU per annum, imposed in 2005 following the 2003 development consent granted under the Environmental Planning and Assessment Act 1979 (EPA Act) to construct the third terminal. According to the "SPC 30 Year Vision 'Likely' Growth Scenario", the Port Botany TEU limit of 3.2 million p.a. is expected to be exceeded in 2018 and the site is estimated to reach its maximum natural capacity of 7 million TEUs p.a. by 2030. If this TEU limit is not removed, it will significantly adversely impact the value that could be realised as part of the Potential Transaction and is an inefficient and artificial constraint on the State's asset utilisation and its economic demands. It is recommended that this cap issue is resolved prior to a Transaction. … Port Botany is crucial to the economic growth of NSW, contributing approximately $50 billion in trade each year. Growth will continue in Sydney and therefore throughput volumes will continue to grow. Freight is a derived demand, and demand for the import of goods in Sydney will not stop at the level of the Port Botany cap. Therefore, the cap will inevitably be lifted to cater for this growth. However, without this certainty potential bidders will not reflect this in their purchase price and therefore the Government will not receive full value for the potential of Port Botany. (3) identified the development of a competing container terminal at Port of Newcastle as an issue of medium-high materiality and said that: [w]ere the NPC container development to proceed in the short term, it would have a material financial impact on the Port Botany Transaction, reinforce the inefficiencies in capping Port Botany below its full utilisation, and impose higher landside transport costs onto the economy. It would also be on the same timeframe as the Commonwealth's recently announced intermodal development at Moorebank, but would not have any real relationship to that facility (unlike Port Botany or Port Kembla). … a container terminal at Newcastle is likely to confuse bidders as to the long-term State policy for container facilities in NSW, and likely lead to a lower Transaction Value to the State as bidders discount future growth at Port Botany, and factor in the risk of competing with the State-owned Newcastle Port Corporation. Recommendation: Consistent with our preliminary recommendation to the Treasurer in the Interim Report, the Project Team recommends that the State denies the concept approval for dedicated container facilities at the Port of Newcastle (i.e., only that part of the Mayfield proposal that relates to containers) as such an action would deliver the overall best policy and financial outcome for the State. (4) said that the "the perceived valuation impact [on Port Botany] may exceed the actual cash impact, as bidders will tend to make conservative assumptions" and "[t]here is the potential for adverse bidder perceptions regarding competing with a State-sponsored container terminals, with bidders already questioning the intentions of the State in this regard"; (5) recommended that the State "denies the concept approval for dedicated container facilities at the Port of Newcastle (i.e., only that part of the Mayfield proposal that relates to containers) as such an action would deliver the overall best policy and financial outcome for the State"; (6) identified stakeholder issues including the following: Infrastructure NSW: • On current forecasts, additional container port capacity will be required in about 20 years (and in the absence of significant productivity improvements at Port Botany, new capacity may be required sooner) … • While both Port Kembla and the Port of Newcastle have the potential to develop some container trade, in light of potential constraints at Botany in the future, the incremental costs (both infrastructure investment and transport costs) of transporting containers to destinations in Western Sydney will need to be taken into account • Believed that Port Kembla was the next logical location for a container terminal in NSW once Port Botany reached capacity … Newcastle Ports Corporation: • Newcastle Ports Corporation Mayfield Container Proposal: Keen to see the proposal progressed as quickly as possible • Strongly urged the State to recommend NSC's proposal … Port Kembla Port Corporation: • Believes Port Kembla to be a preferable location for the next container facility in NSW given the proximity to the distribution centres in the West and South-West Sydney … Transport for NSW: • Notes that the economics of containers coming into Newcastle and being railed or trucked down to Sydney is questionable given that most containers are destined to within 40 kilometres of Port Botany and the State has already invested heavily in port infrastructure at Botany (which currently has excess capacity) • Believes that, although NPC is currently not asking for any funding from the State for the proposed terminal, if the container terminal proposal were approved, it may necessitate additional investment on landside transport infrastructure by the State … Infrastructure Australia: • Strong supporter of the Moorebank Intermodal Facility. Prefer the SIMTA site • Believes that there are road/rail issues with Kembla and Newcastle, but Kembla is better suited as the next container facility after Port Botany is at full capacity. (7) as summarised by the State, recorded the views of other stakeholders as follows: (a) the Finance Minister expressed the view that the container cap on Port Botany should be removed and "Port Botany should be allowed to grow, the Port of Newcastle not required at this stage as a container port"; (b) the Moorebank Project Office emphasised the importance of increasing the cap on throughput at Port Botany, otherwise the then proposed Commonwealth funded Intermodal Terminal at Moorebank would not be viable; … (c) Asciano expressed the view that "[b]oth Kembla and Newcastle are capable of handling containers, but Newcastle is further away from the origin and destination of cargoes and does not have adequate transport infrastructure. Kembla has previously serviced dedicated container ships but will require additional infrastructure to service greater volumes"; (d) DP World expressed the view that "Port Kembla is the next logical container port, rather than Newcastle. Kembla is closer to the origin and destination of containers"; (e) Hutchison Port Holdings expressed the view that neither Port Kembla nor Port of Newcastle were ideal container ports when compared to Botany; (f) Qube Logistics expressed the view that "Port Kembla would be the next logical container terminal after Port Botany. This is primarily due to its location relative to the origination and destination of containers. In particular, Port Kembla would be the ideal location to rail containers directly to the proposed Moorebank Intermodal Terminal"; (g) Shipping Australia expressed the view that "[s]hipping lines are more likely to call at Port Kembla as it is closer to the origination and destination of containers and closer to the rail links into Sydney … short sea container services currently already call Port Kembla"; (h) the Commonwealth Department of Finance expressed the view that "[t]o the extent that there is additional container capacity in NSW (after Port Botany, Port Kembla is the next logical option from the point of view of the Moorebank IMT, as with the Maldon-Dombarton rail line it will be connected to the Moorebank IMT via the SSFL [South Sydney Freight Line]"; and (i) the Commonwealth Department of Infrastructure and Transport stated that neither Port Kembla nor Port of Newcastle offered the most efficient solution and it was "cheaper to send the boxes to Melbourne and truck/train them back 8 hours to Western Sydney where access is easy"; (Citations omitted). (8) recorded that: Analysis and discussions with the industry have indicated the following: • The Port of Newcastle currently handles 18,000 TEUs of containers from geared vessels, servicing the current Newcastle area. Therefore, containers calling Newcastle are likely to be in small volumes, servicing a niche market (potentially to support the significant coal infuser in Newcastle); • Less than 10% of NSW container movements according to the NPC management case are expected to flow via a dedicated NPC container terminal; • International shipping lines are unlikely to call two container terminals within 170 kilometres of each other; and • Based on stevedoring and landside transport costs, depending on volumes achieved, Newcastle may be competitive for imports bound for the Newcastle hinterland in the medium to long term. However, it is highly unlikely that Newcastle will be cost competitive with Botany for imports destined to the Sydney region. Therefore, based on the above conclusions, the utilisation of a Newcastle container terminal is questionable, although if it is 100% at risk to the private sector then the returns themselves are not an issue for the State. (9) recommended that the State not approve the NSC proposed development of a container terminal development at the Mayfield Port of Newcastle site as: • Valuation Impact – Under the NPC management case, the development of a Newcastle container terminal will have a considerable impact on Port Botany volumes and its cashflows. Furthermore, the perceived valuation impact may exceed the actual cash impact, as bidders will tend to make conservative assumptions. Given the proposal for the container terminal is a concept plan, rather than a Development Approval (and a Development Approval would not be forthcoming before a Transaction is finalised), bidders will consider the impact of a container terminal at Newcastle whether or not it is finally approved, hence affecting transaction value for Port Botany; • There is the potential for adverse bidder perceptions regarding competing with a State-sponsored container terminals, with bidders already questioning the intentions of the State in this regard; • Morgan Stanley expects the most significant impact will be on export volumes (at least initially) and that as a consequence a Newcastle terminal will probably reduce the rail modal freight share percentage via Botany, all other things being equal, contrary to Government's objective to increase rail modal share at Port Botany; • The approval of another near-term container terminal in NSW may complicate the ability to lift or remove the existing Port Botany development approval capacity cap. The need to lift the Botany cap may not be considered by stakeholders as critical at a time where Newcastle is installing container terminal capacity in parallel; … • Although the proposed container terminal is a private sector development and Morgan Stanley's understanding is that it is at no cost to NPC, it is highly likely that once developed rail and road infrastructure spend to/from the Sydney region will be sought for containers travelling to/from Newcastle; • An additional container terminal outside Port Botany will result in the Botany footprint being inefficient, as there is currently significant unutilised container handling capacity at Port Botany which can service the State's container freight needs well into the future; • A container terminal in Newcastle will undermine the recently announced Moorebank IMT business case. The proposed Moorebank intermodal terminal has no direct relationship with a Newcastle container terminal; and • Lastly, it is our understanding that a Newcastle terminal is not consistent with the 20 year plans being developed by TfNSW and INSW and it will be highly confusing for bidders if Government approves a terminal in contradiction to its own 20 year policy directions. Note that the 2003 Ports Growth Plan, being nearly ten years old, should not be relied upon as a current strategy for NSW container port development. In any event, this document only referred to the development of Newcastle for containers after Port Botany has reached capacity (which it has not); (10) noted that most stakeholders (other than NPC) believed that: • There is significant capacity at Botany, once the cap is lifted; and • Port Kembla is closer to Sydney, and is the more logical centre for the next major container facility servicing the Sydney Basin. In particular, if the supporting rail network is upgraded, then Port Kembla will complete an "arc" of interconnected rail and intermodal terminals spanning south and south-west Sydney (e.g., Moorebank and Minto). (11) considered that NSC's proposal (on the basis of NSC's assumptions) would mean that: …container trade is lost [from Port Botany] to NPC from 2015 until 2035, at which point Port Botany reaches the 7.0 million TEU practical capacity limit. As a result, the tangible impact of the proposal is lower container growth at Port Botany between 2015 and 2035. This results in the 7 million TEU not being reached in 2039, as projected under SPC's 30 Year Vision, but in 2053; (12) further, said were a container terminal at Newcastle to be developed in the short term it would: …have a material financial impact on the Port Botany Transaction, reinforce the inefficiencies in capping Port Botany below its full utilisation, and impose higher landside transport costs onto the economy. It would also be on the same timeframe as the Commonwealth's recently announced intermodal development at Moorebank, but would not have any real relationship to that facility (unlike Port Botany or Port Kembla); (13) recommended that if there was to be another container terminal outside Port Botany that Port Kembla was the logical location due to: • Proximity to the high growth industrial area in the western suburbs of Sydney; • Closest international port to Sydney; • Closest to the proposed intermodal facilities in Moorebank and potentially Eastern Creek; • Direct access to the proposed South Sydney Freight Line; and • The current rail infrastructure, particularly if the Maldon-Dombarton Rail Line is constructed, will complete an "arc" of interconnected rail and intermodal terminals spanning south and south-west Sydney; and (14) recommended a "light-handed price monitoring model be implemented to cover future port charges", noting that the "threat of future tariff regulation (as with airports) is significant and will moderate future pricing outcomes". 93 The Port Botany Scoping Study also recorded the following matters: Competition for port services is driven by the relative location and distance from other port facilities, industrial and commercial activities undertaken nearby and relative efficiency of the port. Many bulk ports develop as local monopolies serving the specific cargoes in the adjacent hinterland. Competition between Australia's three east coast capital city ports is limited due to distance, with the demand for each port determined to a large extent by the origin and destination of the goods in question. Each of the capital city ports in Australia are destination ports, that is, each port services a captive local market. This is largely due to large geographical distances between the ports and suboptimal road and rail links that make the inland cost of transporting cargo significant and uneconomical. … Australia's three east coast capital city ports are linked via liner shipping services. A liner service is a regular service calling usually on a fixed rotation on set days of the week. This requirement for consistency and the distance to the Australian market creates inter-dependence on the Australian east coast capital city port network of Melbourne, Sydney and Brisbane. … Port Botany's location on the east coast allows it to attract either multiple weekly line-haul or feeder services from all of the major foreign regions with which Australia has significant trading partners. Port Botany is currently serviced by approximately 30 strings, with the greatest capacity on the southbound North-East / East Asia to Australia route (approximately 1.7 million TEU p.a.). 94 The Port Botany Scoping Study also said: According to SPC's Import Container Destination Study, ~ 98% of imports through Port Botany are destined to within the Sydney Metropolitan Area. Further, 85% of all containers are destined to, or originate from, within 40 kilometres of the port. This is largely due to the geographical distance between the ports that makes the inland cost of transporting relatively small volumes of cargo significant and uneconomical. … In NSW, two sites have been identified as potential new container terminals – the Port of Newcastle and Port Kembla. Port Kembla is the closest to Sydney and therefore the cost of transporting is the cheaper of the two, for the majority of containers. However, for either Port Kembla or the Port of Newcastle it appears uneconomical for shipping lines to call two ports so close to each other. Shipping lines would rather make a single stop at Port Botany (which has excess capacity) where there is already existing and well established supporting infrastructure. 95 The Port Botany Scoping Study identified that investment "highlights" for ports included: 96 In May 2012 NSC received a market study assessment by Price Waterhouse Coopers (PWC) for a container terminal at Port of Newcastle (Mayfield Market Study Assessment). The assessment included discussions with companies involved in shipping and logistics and potential Port of Newcastle customers. The assessment included the following: • The propensity of customers to use Newcastle as a major import port would be assisted by changes to the logistics network so that customers could require that liners call at Newcastle and goods could be efficiently distributed to the natural hinterland. This is less likely to be the case while logistics chains remain focused on Port Botany and metropolitan Sydney unless NSC and its strategic partners such as SCT Logistics can ensure delivery of goods into the logistics chain in a time and cost effective manner i.e. as effectively as for goods landed at Botany. • In the short term at least, market participants thought it more likely therefore that growth in container trade at Newcastle would be driven by push factors (e.g. further congestion at Port Botany) unless there is extensive upfront capital investment in the Newcastle area (e.g. new distribution centres or changes to the logistics chain) that will "pull" customers to Newcastle. 97 On 16 July 2012 NPC was granted a concept development consent for a concept plan involving development of a container terminal at the Port of Newcastle. A concept development consent requires further development applications to be approved for any development to be carried out in accordance with the approved concept. 98 Also on 16 July 2012 Transport for NSW issued an internal government discussion paper "Options for Container Ports in NSW". The discussion paper, based on an analysis by economic consultants, concluded that "current road, rail and quayside network capacity is insufficient to support the forecast volumes in 2031" and "Port Kembla is the most cost effective location for an expansion of container handling facilities and network infrastructure is based on the preliminary assessment of forecast freight flows and infrastructure development costs". It said that further research and analysis was required for the NSW government to make a "bankable" decision on the location of future container terminal development. The supporting consultants' report considered that Port Botany could provide container capacity of between 6 and 8 million TEU per year (given the third terminal which had been developed) but additional container port capacity would be required in 20 years. The potential locations for that additional capacity were the Port of Newcastle and Port Kembla. The report analysed the capital investment costs, freight transport costs for the road and rail task and network capacity issues to indicate the preferred location for the additional container port capacity, noting that the report should be seen as a "guiding principles" document. 99 The supporting consultants' report recorded the following matters: (1) 94% of container volumes are moving to or from metropolitan Sydney with only 6% going to or from regional areas. This split is estimated to continue for the next 20 years; (2) to establish a container port at either the Port of Newcastle or Port Kembla will require a significant amount of capital investment to ensure necessary capacity across the container supply chain; (3) the estimated project investment costs for Port Kembla is $4.1 billion (if all costs are allocated to the port); (4) the estimated project investment costs for the Port of Newcastle is $12.1 billion (if all costs are allocated to the port); (5) under a proportional costs allocation, the estimated project investment costs for Port Kembla remains $4.1 billion and the estimated project investment costs for the Port of Newcastle reduces to $6.1 billion; (6) the cost of moving containers by road from each port to the Moorebank intermodal terminal is between $277 and $293 per TEU for Port Kembla and is $546 per TEU for the Port of Newcastle; (7) the cost of moving containers by rail from each port to the Moorebank intermodal terminal is between $348 and $381 per TEU for Port Kembla and is $439 per TEU for the Port of Newcastle; and (8) based on the information available and the preliminary analysis undertaken within this study the Port Kembla site appears the next logical location for a NSW container port when Port Botany reaches capacity The advantages identified in the preliminary analysis for a Port Kembla container port include: • Lower estimated capital costs based on infrastructure requirements currently identified and assigned; • Lower road and rail transport costs based on the flow of containers into the Sydney metropolitan area; and • Greater diversity in transport access routes given multiple road and rail options to Port Kembla from the Sydney metropolitan region. 100 On 27 July 2012 the Treasurer and Minister for Roads and Ports announced that the NSW government would proceed with the long-term lease of both Port Botany and Port Kembla. The announcement said that in relation to the "development of intermodal terminals across South and West Sydney, the Government's freight strategy to be released later in 2012 would seek to develop Port Kembla as the logical next long term tranche of container capacity after Port Botany". 101 On 31 July 2012 the Treasurer wrote to NPC noting that the timing of NPC's request to execute binding contracts with NSC directly intersected with both: • the development of the Government's Freight Strategy, which includes consideration of the State's long-term container port requirements and will replace the 2003 Ports Growth Plan; and • the Government's recent announcement that it intends to transact Port Kembla along with Port Botany, which has heightened the need to develop a clear State-wide strategy for the provision of container port facilities in New South Wales. 102 The letter noted that Cabinet had decided to support the development of a multi-use cargo facility at Mayfield excluding the proposed container terminal. The reasons for refusing the container terminal were identified as: • there is significant unutilised container handling capacity at Port Botany which can service the State's container freight needs well into the future; • TfNSW and INSW have both indicated that they consider Port Kembla the next logical container port development after Port Botany. The Freight Strategy, to be released later in 2012, will therefore seek to develop Port Kembla as the next tranche of container capacity after Port Botany. The 2003 Ports Growth Plan, being nearly 10 years old, is not representative of this Government's strategy for NSW container port development; • we note that the Mayfield development would be on the same timeframe as the Commonwealth's recently announced intermodal terminal at Moorebank, but would have much less complementarity with that facility than Port Botany or Port Kembla; and • industry participants that the project team has interacted with support Port Kembla as the next priority container development after Port Botany. 103 In August 2012 the State met with the ACCC and notified it that Port Botany was well placed to meet demand in the medium to long term and that Port Kembla was expected to be the State's next container port in the long term. This was for reasons including that it was closer to the high growth industrial area in the western suburbs of Sydney than Port of Newcastle, the capacity of Port Kembla could be optimised by enhancing rail logistics, and planned and potential intermodal facilities (including at Moorebank) would facilitate efficient logistics links to Port Kembla. The key competition concerns of the State were also recorded as being to "[f]acilitate effective competition in the provision of port services in order to promote efficiency and economic growth". 104 On 22 August 2012 Anglo Ports of NSC wrote to the Treasurer confirming that it would "stand ready to develop Phase 3 (Berths 5 and 6 as a dedicated container terminal) at a time decided by government in the future and most importantly our consortium acknowledge that such a directive may not be authorized for some time (could be 20 years away)". 105 On 23 August 2012 the Treasurer's policy adviser wrote to the Treasury to the effect that a summary of a meeting with NSC prepared by NSC attributed inaccurate comments to the Treasurer and required a response aligning with the government's position that: 1) Tsr acknowledges current container throughput at Newcastle Port related specifically to Hunter region/catchment. Treasurer comfortable with this container operation and expects organic growth for Hunter region only (but not beyond) 2) Future development will be dependent on Planning and Ports process and decisions that will outline the specific development allowed on the Mayfield site and that is consistent with Government ports strategy. [Help: Can somebody please outline what this process is and put some clearer words around it???] 3) Treasurer only approves of development that will not compromise PB/PK transaction. 106 The Treasurer authorised NPC to continue negotiations with NSC for the development of a multi-cargo facility at Mayfield which would be confined to handling existing container traffic plus "organic growth" (that is, excluding the proposed container terminal). On 30 August 2012 the Treasurer wrote to NSC confirming that it welcomed the future development of non-container operations at Mayfield it having been made clear that the State's expectation was that "Port Botany will remain the State's primary container port and that Port Kembla will meet any additional demand for container handling facilities that is created when Port Botany reaches capacity". The Treasurer said he would request NPC to continue negotiations with NSC as a matter of priority. 107 In October 2012 the State Infrastructure Strategy 2012-2032 was published by Infrastructure NSW under the Infrastructure NSW Act 2011 (NSW) which referred to reasons for preferring the development of Port Kembla as a container terminal port before the Port of Newcastle, being that the vast majority of containers would be expected to be destined for the Greater Sydney area, and investments in WestConnex and the F6 Extension would support the development of Port Kembla. The State Infrastructure Strategy 2012-2032 said: (1) "[o]nce Port Botany reaches capacity, (which is not expected to happen during the timeframe of this Strategy), it is planned for Port Kembla to become NSW's supplementary container port"; (2) "[t]he container trade is characterised by the excess of imports over exports. The main freight supply chain task in connection with Port Botany is the distribution of import containers within Sydney: in fact 98 percent of import containers are destined for no further than 50 kilometres from the port gate. It is this proximity to the market that provides Port Botany with its non-replicable competitive advantage"; (3) "[c]ontainer trade through Port Botany is forecast to nearly quadruple by 2031, reaching over seven million TEUs, up from two million TEUs in 2011"; (4) "[w]ith the development of the third terminal, Port Botany now has the portside infrastructure to move at least seven million TEUs per annum, based on Sydney Ports Corporation estimates"; (5) "Infrastructure NSW assumes that through a combination of automation and more efficient labour arrangements, Port Botany will be able to realise its potential throughput. On this basis, Port Botany will be able to handle Sydney's container trade for at least the next 20 years, and probably longer"; and (6) "[b]eyond the timeframe of this Strategy, there may be some benefit to the development of supplementary container port capacity in NSW. For example, an alternative facility could improve the resilience of NSW's infrastructure in the event that Port Botany wharfage was incapacitated. Planning for this investment will need to start in the 2020s.The Government has announced its expectation that Port Kembla will provide the next logical tranche of container capacity, once Port Botany is fully utilised. Significant investment in landside infrastructure will be required to support Port Kembla. The vast majority of containers to this facility would be expected to be destined for the Greater Sydney area. The recommended investments set out in this Strategy in WestConnex (over the next 10 years) and in the F6 Extension (during the 2020s), will support the development of Port Kembla. Potential rail investments to Port Kembla are assessed in Section 10". 108 In October 2012 the NSW Parliament passed the PAAT Act. This Act: (1) authorised the transfer of ports assets to the private sector or to any public sector agency provided that ownership of the freehold title to the relevant land remained with a public sector agency and a leasehold interest did not exceed 99 years: s 4; (2) required the proceeds of any transaction to be paid to the State into the Restart NSW Fund established under the Restart NSW Fund Act 2011 (NSW): s 5; (3) provided that the Treasurer has and may exercise all such functions as are necessary or convenient for the purposes of an authorised transaction: s 6; (4) provided that an authorised transaction is to be effected as directed by the Treasurer and can be effected in any manner considered appropriate by the Treasurer: s 7; and (5) provided that a "port SOC" (defined to include Port Kembla Port Corporation and Sydney Port Corporation: s 3) was subject to the direction and control of the Treasurer in the exercise of any of its functions for the purposes of an authorised transaction while it was a public sector agency and that the Treasurer may give directions for the purposes of an authorised transaction to a port SOC or a transaction entity and that those directions were required to be complied with: ss 11(1) and 11(2). 109 The proposed structure of the privatisation, as explained by the State, involved the State establishing a Port Lessor for each port, initially as a subsidiary of the State-owned corporation that was operating the relevant port (Port SOC). The Port Lessor was to remain State owned. The State also established a Port Manager, which was also a subsidiary of the existing Port SOC. The Port Manager was the trustee of a unit trust. Thereafter: (1) on Day 1 of the transaction: (a) the State transferred all of the Port land assets of the existing Port SOC to the Port Lessor, together with facilities that attached to that land that might be characterised as chattels; (b) the State transferred all other Port assets of the Port SOC that were not land to the Port Manager as trustee of the unit trust; (c) the Port Lessor leased the Port land to the Port Manager as trustee of the unit trust under an interim lease; (d) the Port Lessor leased the Port Lessor's chattels to the Port Manager as trustee of the unit trust; and (2) on Day 2 of the transaction, the shares in the Port Manager and the units in the Port Manager unit trust were sold to the successful bidder. At the same time, the Port Lessor granted a 99-year lease of the Port land to the successful bidder's nominated Port lessee. 110 Section 32(1) of the PAAT Act also nullified the development consent condition which imposed the 3.2 million TEU per year cap on Port Botany as a part of the consent to the Port Botany third terminal ("[a] planning control is of no effect to the extent that it would operate to impose a cargo throughput limit for Port Botany"). 111 On 25 October 2012 the State wrote to NPC saying that: The Freight Strategy to be released later in 2012, which replaces the previous Government's 2003 Ports Growth Plan, will therefore seek to develop Port Kembla as the next tranche of container capacity after Port Botany. The Government does not however object to the concept of a container terminal development at Newcastle once Port Botany and Port Kembla are fully developed and developable container handling capacity is fully utilised at both Port Botany and Port Kembla. This is of course subject to any relevant Government approvals required at the time including planning approvals. 112 In November 2012 a Draft NSW Freight and Ports Strategy was published. The purpose of the strategy was to provide a freight network that supported the projected growth of NSW and to balance the needs of freight with those of the broader community and the environment. It said that Port Botany might approach its natural capacity between 2030 and 2040 and that new port infrastructure at Port Botany or Port Kembla might be needed to help relieve these pressures. The draft strategy situated the development of ports within the wider context of the need to develop the road and rail infrastructure that surrounded them. The draft strategy identified Port Kembla as the location for a future container terminal to augment the capacity of Port Botany "when required". It recognised Port of Newcastle as continuing to be the primary coal export port and continuing to service bulk grain and other commodities. 113 The State provided the draft strategy to bidders for the Botany and Kembla leases, with a memorandum stating that the final strategy was expected to be publicly released in mid-2013. 114 The NSW Long Term Transport Master Plan was published in December 2012. It contemplated the finalisation and implementation of the Draft NSW Freight and Ports Strategy. That draft was finalised in November 2013 in substantially the same terms as the draft. 115 In December 2012 Morgan Stanley prepared a running list of issues for the Port Botany privatisation which referred to "[n]on-compete type restrictions on Sydney Harbour, Newcastle, Kembla if unsold" against which the noted position was "[n]o. (Bidders may alternatively seek a Sydney-airport like right to develop next container tranche within 100 km radius, picking up Kembla)". 116 By December 2012 there were four final bidders selected for the Port Botany and Port Kembla leases. 117 In a response to the initial bid of NSW Ports on 20 December 2012 Morgan Stanley, on behalf of the Treasurer, informed NSW Ports (and, it may be inferred, the other three bidders) that: Any mark-ups you make to the Bid Version Transaction Documents should reflect the minimum changes that you require to undertake the Transactions based on the cash consideration outlined by you in Section 4.3 above. The mark-ups you make to each of the Bid Version Transaction Documents will form part of the State's Preferred Bidder evaluation considerations. NSW Treasury reiterates that the Bid Version Transaction Documents together with the Day 1 Transaction Documents represent the State's preferred position with regard to the risk allocation regime, terms and other elements of the Transactions. The selection of the Preferred Bidder will be based to a significant degree on any proposed changes to the Bid Version Transaction Documents. In particular, any changes to the liability and risk allocation regime set out in the Bid Version Transaction Documents will be viewed unfavourably. 118 As described by the State, in December 2012, the Treasurer issued directions and orders under the PAAT Act to entities including the Ports SOCs and the entities that would function as the Port Lessors (Port Botany Lessor Pty Limited (PB Lessor) and Port Kembla Lessor Pty Limited (PK Lessor)) and the Port Managers (Botany Operator and Kembla Operator). These directions and orders facilitated the necessary steps on Day 1 of the transaction. Those directions and orders included: (1) a direction requiring SPC to acquire all of the shares in PB Lessor and Botany Operator; (2) directions requiring SPC, PB Lessor and Botany Operator to enter into certain transaction documents, known as Day 1 Documents; (3) an order vesting certain assets, rights and liabilities of SPC in SPC and/or PB Lessor in the manner specified in the order; (4) a direction requiring PKPC to acquire all of the shares in PK Lessor and Kembla Operator; (5) directions requiring PKPC, PK Lessor and Kembla Operator to enter into certain transaction documents, known as Day 1 Documents; and (6) an order vesting certain assets, rights and liabilities of PKPC in PK Lessor in the manner specified in the order. 119 In a report to IFM (part of the NSW Ports Consortium) of 25 January 2013 it was recorded that: 3. Revenue largely contracted or monopolistic in nature Container volumes at Port Botany, which comprise around 50% of total revenues for Port Botany and Kembla, face very limited competition from other ports given the large distances to alternative facilities, and the high cost and inefficiency of moving goods into or out of Port Botany's catchment area from other ports using road or rail transport. The nearest alternative port, Newcastle, is located 175 kilometres north of Port Botany and does not currently have the capability to handle large container volumes. Port Kembla would be the most serious potential competitor to Port Botany in the medium term, but can instead provide a complementary facility and site for expansion as part of this sale. Developing the Port of Newcastle for future container shipping is unlikely in the next 20 years and would face a range of constraints. These include attracting reliable container shipping movements and overcoming landside logistic constraints as containers accessing Sydney from the Port of Newcastle also face increasing congestion on the F3 Freeway and capacity constraints on the Northern Sydney Freight Corridor. … 6. Future expansion opportunities The opportunity to acquire Port Kembla gives NSW Ports the option to expand the container facilities to meet NSW's growth requirements as Port Botany reaches capacity. Port Kembla is the logical site for future container expansion as it is in close proximity to Sydney and high growth industrial areas in western Sydney. 120 By mid-February 2013 one bidder, referred to as Hobson, wrote to the NSW Treasury with comments on the draft transaction documents, identifying "fundamental" issues. One such issue was compensation if State policy changed over time to favour the Port of Newcastle as the location of the second NSW container terminal. Treasury considered this showed Hobson was very risk averse and noted that Treasury "could be aggressive and simply state that they should have pointed this out in their indicative bid as we would not have shortlisted them. Ask them why they misled us in their indicative bid?" At a meeting with Hobson on 22 February 2013 Hobson again raised the issue. The Treasury transaction team subsequently identified Hobson as "a significant way from the State's risk position", "alone on a number of issues", and "the least attractive of the Bidders". Treasury recognised however that a decision would have to be made about the comfort that might be given to bidders around the issue of development of a container terminal at Newcastle, albeit that "the Government's policy is that any container terminal at Newcastle should only be developed once Port Botany and Port Kembla are full, and in the meantime only organic growth should be allowed". This was because once the information in respect of NPC's proposal was disclosed "there may be other bidders that request compensation for a Government sponsored container terminal at Newcastle". 121 In a meeting on 28 February 2013 the Steering Committee established within NSW Treasury considered that the ongoing discussions between Government and NPC would need to be disclosed to bidders and that once disclosed other bidders may also seek compensation for a Government sponsored container terminal at Newcastle. It was noted that a competing container terminal at Newcastle would impact the value of the Port Botany and Port Kembla transaction by XXXX XXXX XXXX. Existing NSW government policy that such a container terminal would only be permitted once Port Botany and Port Kembla were both full was also noted. 122 Hobson reiterated its concerns about development of another container terminal to the State in correspondence of 1 March 2013. Treasury responded to the effect that it did not intend to communicate with bidders outside of the specified process. 123 The Treasury transaction team updated the Treasurer on 5 March 2013. One item was any change of law relating to Newcastle where this was noted: • Bidder seeking protection from State developing a competing container terminal at Newcastle and/or a limitation on competing developments at Newcastle • Current status of potential Newcastle development and Government position on this not clear to Transaction Team; accordingly disclosure requirements also unclear but needs to be addressed • Once Government disclosure in data room, all Bidders likely to seek protection or to re-price their bids 124 On 5 March 2013 Morgan Stanley said to Treasury that: 2. Competition from Newcastle This is a risk that the State leases the Botany and Kembla ports to a new private equity group, and then develops competing container capacity at Newcastle. The State's existing policy position is that Botany and then Kembla ought be developed for containers first, before Newcastle. Newcastle Port Corporation has been engaged in discussions on the Mayfield site development, including a general cargo port. This could add to container capacity in Newcastle as a result of additional cranes being installed. This raises a grey area of whether a "general cargo facility" which has the ability to handle containers is effectively the same as a container facility. The Transaction Team believes that these discussions should be disclosed once the State's position on additional capacity at Mayfield is fully determined. The options for the State include: a) Do nothing: Our view is that this is likely to sacrifice material value, even if no containers are developed at Newcastle b) Cap the container throughput at Newcastle at some upper bound (albeit this is likely to support a Bidder "ask" for assurance there will be no cap at Botany), over some period of time (to be determined by a review of the Newcastle business plan). Of itself, this may deter proposals for container handling at Newcastle: c) Provide assurance that the State will not support any incremental container handling capacity (i.e. cranes) at Newcastle without the consent of the Botany/Kembla Port Lessee, until the State is satisfied (acting reasonably) that Botany and Kembla have been fully developed (this essentially reflects existing State policy) d) Provide a rolling assurance to Bidders that the State will not support new container handling capacity being installed with (say) 20 years of the development of private sector capacity. Given the recent development of T3, this would provide an initial period of coverage for the new Port Lessee which would periodically be extended where new container handling is installed from time to time (e.g. at Kembla); e) Or, some combination of item b) above and either item c) or d). 125 In a follow-up email to Treasury on 7 March 2013 Morgan Stanley said the options in relation to development of Newcastle were to: • Do nothing/allow the development • Allow the development and provide comfort to bidders • Block the development and leave it at that • Block the development and provide comfort to bidders anyway 126 Morgan Stanley said government policy settings had changed in the past and may do so in the future, disclosure was required, all bidders would seek protection once disclosure was clear, the unmitigated value impact to the State was up to XXXX XXXX which likely exceeded the positive benefit of the terminal, and the recommendation was to provide comfort to bidders. 127 Morgan Stanley also described the Newcastle issue as a "new strawman" in an email to the NSW Treasury of 7 March 2013 and suggested provisions to deal with the issue including that the State would not call for or tender for the development of container capacity at Newcastle until both Port Botany and Port Kembla were full; and compensation of the lessees of Port Kembla and Port Botany if container volumes exceeded 200,000 TEUs per year at Newcastle within the first 50 years of the proposed leases. The email said that current State policy was to develop Port Botany to its fullest extent first, then Port Kembla, and only then develop container capacity at Newcastle, and that the long-term leases of Port Botany and Port Kembla were being conducted in this policy environment, albeit recognising that governments cannot bind future decisions of governments. Treasury responded on 9 March 2013 to the effect that once the disclosure was made it would not matter if the government "kills NSC containers" as the bidders would still want compensation. 128 In a follow-up email of 10 March 2013 Morgan Stanley noted that the State would presumably deal with the issue of compensation in any privatisation of the Port of Newcastle "requiring any private developer to pay the state the equivalent of the port logistics contribution at [N]ewcastle for new container growth, and use that to offset some of the cost of paying out on this on the other side". Similar observations in respect of any compensation required to Port Botany and Port Kembla being offset by a provision in transaction documents relating to the privatisation of the Port of Newcastle were made in other communications from Morgan Stanley to the State in March 2013 and in advice from Transport for NSW to the State who indicated that the Treasurer was "ok" with this. 129 A summary by Morgan Stanley of the key commercial and strategic matters relating to the privatisation of Port Botany and Port Kembla of 13 March 2013 noted that if the State supported some development at Newcastle then its options included: a) Do nothing: Our view is that this is likely to sacrifice material value, even if no containers are developed at Newcastle b) Cap the container throughput at Newcastle at some upper bound (albeit this is likely to support a Bidder "ask" for assurance there will be no cap at Botany), over some period of time (to be determined by a review of the Newcastle business plan). Of itself, this may deter proposals for container handling at Newcastle; c) Provide compensation for container volumes at Newcastle that exceed a reasonable projection of organic growth; d) Provide assurance that the State will not support any incremental container handling capacity (i.e. cranes) at Newcastle without the consent of the Botany/Kembla Port Lessee, until the State is satisfied (acting reasonably) that Botany and Kembla have been fully developed (this essentially reflects existing State policy) e) Provide a rolling assurance to Bidders that the State will not support new container handling capacity being installed with (say) 20 years of the development of private sector capacity. Given the recent development of T3, this would provide an initial period of coverage for the new Port Lessee which would periodically be extended where new container handling is installed from time to time (e.g. at Kembla); f) Or, some combination of items above. 130 The Morgan Stanley summary said that: Through consultation with Government it has been determined to offer a combination of the following elements which reflect State policy: • Items (d) and (e), where the State will not over-invest on top of private sector investment, and will not call for new terminals before Botany/Kembla are full; and • Item (c) where the State will provide compensation for container volumes above an organic growth profile, until such time as the other elements above fall away. The State can mitigate the risks of this approach through: • Approving or not approving developments at Newcastle from time to time; and • The terms of any lease at the Port of Newcastle can superimpose container growth requirements; and • The State could require ongoing financial contributions from any eventual container development at the Port of Newcastle to offset compensation payments to the Lessees of the Ports of Botany/Kembla. 131 The Steering Committee within Treasury briefed the Treasurer on 13 March 2013. Under the heading "Change in Law – Newcastle Container Terminals" the briefing note said: • Bidder seeking protection from State developing a competing container terminal at Newcastle and/or a limitation on competing developments at Newcastle • Current status of potential Newcastle development not clear; accordingly disclosure requirements also unclear but needs to be addressed • Once Government disclosure in data room, all Bidders likely to seek protection or to re-price their bids. [I]f the issue is not addressed, re-pricing of bids creates a potentially material impact on transaction proceeds today, even if Newcastle development does not proceed • This bid price impact may well exceed the value to the State of the Newcastle development. 132 The briefing recommended as follows: • Must disclose current status of Newcastle and reiterate Government policy (draft Transaction Memo attached). This will make it clear that the State has the ability to call for container developments at Newcastle under the proposed lease • Provide regime to Bidders to mitigate impacts of State-sanctioned Newcastle developments that are inconsistent with current policy which Bidders are "buying" today • Refer over for preliminary drafting of a "Port Development Sequencing Agreement" which essentially provides contractual support for current Government policy as understood by the Transaction Team, and compensation for impacts of a change in policy • The risk for the State in this approach is that (i) it subsequently changes its policies and supports container developments at Newcastle, after having transacted leases at Botany and Kembla on a different basis and (ii) it then has to compensate Botany/Kembla Lessees for this change. (We note that Government could require a Newcastle developer to make a financial contribution to mitigate the costs to Government of such compensation). 133 The regime to be provided to bidders developed into the compensation provisions in the PCDs. 134 The minutes of the Steering Committee meeting of 14 March 2013 recorded that the Treasurer agreed with the recommendations made and was comfortable with the proposed PCDs and compensation provisions. It was noted that the PCDs reflected "the areas of risk that the State has sought to provide comfort to bidders on, including competing container terminal capacity at Newcastle" and that it "confirmed the Government's policy position with regard to Newcastle, given the Treasurer's statements that there will be full scale container operations at Newcastle only once Port Botany and Port Kembla are at full capacity". 135 In a report by IFM to IFM Australia Infrastructure of 14 March 2013 it was reported that: • In its current configuration, Port Botany's capacity (based on quay and yard capacities) is 6.82 million TEUs. This capacity constraint would not be reached until FY35, on the Consortium's Base Case container forecasts. • DPW's berths could be expanded, such that Port Botany's capacity increases to 7.65 million TEUs. Capacity in this scenario would not be reached until FY39. • The Sydney road network is capable of handling the forecast 7.65 million TEUs, assuming the current 14% rail modal share. Landside access, therefore, is not the key limitation on future growth. • Some operational improvements and investment will be required for rail to maintain its current 14% modal share. If this does not happen, the road network could accommodate the additional containers. 136 The report to IFM Australia Infrastructure also noted that: The IC1 paper [13 March 2013] provides an analysis of the competitive strength of Port Botany and Port Kembla, and their respective current and likely future roles within the NSW economy. A request from the IC1 meeting, however, was the provision of further information in relation to potential competition from the Port of Newcastle and smaller port facilities in the Sydney area as well as the approximate cost premia associated with using the Port of Melbourne. … The Port of Newcastle is predominantly a coal export terminal (c.95% of trade), handling only a small amount of containers (about 15k TEUs p.a.). The ability to develop container terminals at the Port of Newcastle is limited by both land constraints and landside logistics. The existing port facilities do not have additional land that can be developed as container storage areas. The existing facility is estimated to be able to accommodate only up to 500k TEUs per year. While there is potential to increase capacity, existing proposals have only gone up to about 1 million TEUs and this would require construction of additional berths by extensive dredging of contaminated sediments. On the landside, the current rail line which extends 170km between Newcastle and Sydney offers limited opportunities for significant freight growth as it is shared with passenger services on the same dual track. With priority given to passenger trains and curfews in place for freight trains during morning and afternoon peaks, the rail line can only accommodate about one freight train per hour in each direction, implying the rail link is already close to capacity. The increasing population growth in the NSW Central Coast has also increased pressure to increase passenger services on the rail line. Additional limitations on capacity are due to several bottlenecks on the corridor, tight curves and sections of steep grade that restrict the speed and limit permissible loads of freight trains. The road connecting Sydney and Newcastle is the F3 freeway which is already highly utilised and frequently congested. The F3 also serves growing population centres on the Central Coast. Transporting containers from the Port of Newcastle would require: • Upgrade to the Northern Sydney Freight Corridor: Approximately $4 billion will be required to upgrade the Northern Sydney Freight Corridor, in addition to current improvement works costing $1.1 billion that are already underway. • Incremental transport costs: Newcastle is located further away from Sydney, compared to Port Kembla. Landside traffic would need to travel an additional 60-70 km, adding cost and time. Transporting containers through Newcastle would cost an additional $160 per TEU by road and $100 per TEU by rail, relative to Port Botany. In comparison, transporting out of Port Kembla would incur smaller incremental transport costs of $100 per TEU by road and $50 per TEU by rail. • Additional intermodal container terminal capacity: The majority of the IMTs have currently been developing towards the south-west of Sydney. To accommodate rail from the Port of Newcastle, the Eastern Creek IMT would need to be developed. • Improvements to road capacity: Newcastle is connected to Sydney via the F3. Congestion at specific locations on the F3 would need to be addressed to accommodate additional container traffic. The F3-M2 tunnel link has been proposed, with the costs estimated at $4-5 billion. URS previously analysed the potential for Newcastle to develop its container handling facilities as part of the EIS study for the multi-purpose terminal proposal (URS, 2000) and concluded that Newcastle was being bypassed due to inadequate container handling facilities and less competitive costs than Sydney. The majority of Sydney's total container trade services the Sydney metropolitan area (>80%), with the remaining generated from rural NSW. Those generated from rural NSW consist mainly of exports, and of these, approximately one quarter is generated from areas such as northern NSW. As such, the URS analysis concluded that Port Newcastle only had potential and capacity to be developed as a niche export port but not a viable alternative for Sydney's existing or future container trade. (Citations omitted). 137 Morgan Stanley undertook some quick modelling of the possible amount of compensation that would be payable based on NSC's previous proposal for a container terminal at Newcastle. This resulted in a present value of $44.5 million compensation, which was said to be "minimal (even without further mitigants), and well below the amount by which Bidders would be discounting their Botany/Kembla bids". This was sent to Treasury on 15 March 2013. 138 Also on 15 March 2013 Morgan Stanley emailed Treasury and responded to a question whether there was any unintended consequence of the State's approach for Newcastle or advantage to the Port Botany/Port Kembla owners, noting that Treasury did not think there was, putting the compensation issues to one side, and saying that at least "with a clear regime in place anyone and everyone looking at a Newcastle deal can value it the same way". Morgan Stanley considered that the State's approach to the development of a container terminal at Newcastle should not be an issue for two main reasons "(1) the government doesn't want containers there anyway so I doubt a Newcastle bidder is going to pay a lot for container optionality in the near term (2) the government can design into Newcastle transaction docs offsetting arrangements to mitigate the damages payable under the PCD anyway. This was discussed with the treasurer who was ok with this". 139 The draft PCDs were also made available to bidders on 15 March 2013. The PCDs were said to cover a range of matters in relation to "documenting the State's stated policy to fully develop container capacity at Port Botany and Port Kembla prior to development of container capacity at Port Newcastle. This provides a regime for describing 'full capacity' at Port Botany and Port Kembla, and prior to full capacity, a payment mechanism in the event container volumes at Newcastle were to exceed an organic growth profile". Further, in a transaction memo to bidders of the same date titled "Government commitment to full development of Port Botany and Port Kembla for containers and interaction with proposed development of multi-cargo facilities at Newcastle Port" it was said: Government recognises that the potential NPC development intersects with the Transactions. Accordingly and in support of the policy position the Government is providing Bidders with a codified regime (including a compensation formula) if container volumes at the Port of Newcastle exceed an organic growth path prior to Port Botany/Port Kembla being fully developed for containers. Bidders should have regard to the draft Port Commitment Deed which is being placed in the data room on 15 March 2013. 140 On 18 March 2013 Transport for NSW sent an email to Treasury saying, in respect of NSC's proposal for a container terminal at Port of Newcastle: …leasing berths and land suitable container capable facilities in Newcastle at this time will have an adverse impact on the transaction to enter into long term leases of Port Botany and Port Kembla. A competing container facility in Newcastle will create risk that liner services may shift from the existing port call patterns and impact on future earnings of Port Botany and Port Kembla. …To address this risk TfNSW understands that the potential bidders for Port Botany and Port Kembla have been advised that the development of a container capable facility at Newcastle is being examined and it is proposed that the lease terms will include a compensation structure. 141 On 19 March 2013 NSW Ports Consortium received advice that the Port Botany and Port Kembla long-term leases deserved a premium as there was limited substitution risk as a result of the proposed Newcastle arrangements. In a report to IFM of 27 March 2013 it was reported that: In the bid documents, the State has also provided for compensation if the container growth at Newcastle exceeds the "organic" growth projections whilst there is excess capacity at Botany and Kembla, hence providing us with additional protection on diversion of container throughput. 142 The NSW Ports Consortium was announced as the successful bidder for Port Botany and Port Kembla on 12 April 2013. 143 In April and May 2013, as described by the State, the Treasurer pursuant to the powers under the PAAT Act issued a number of further directions to entities including the Port SOCs, PB Lessor, PK Lessor, Botany Operator and Kembla Operator. These directions facilitated the necessary steps on Day 2 of the transaction. Those directions included: (1) a direction to SPC to execute a share purchase agreement in respect of Port Botany under which the shares in Botany Operator were sold to Hold Co and the units in the Port Botany Unit Trust were transferred to Hold Co (PB Sale and Purchase Agreement); (2) a direction to Botany Operator to enter into various documents, including the Port Commitment Deed for Port Botany; (3) a direction to PB Lessor to enter into certain documents, including a lease over land in connection with Port Botany with NSW Ports Botany Property Co Pty Ltd (PB Property) for a period of 99 years. PB Property was Hold Co's nominated Port Lessee; (4) a direction to PKPC to execute a share purchase agreement in respect of Port Kembla under which the shares in Kembla Operator were sold to Hold Co and the units in the Port Kembla Unit Trust were transferred to Hold Co (PK Sale and Purchase Agreement); (5) a direction to Kembla Operator to enter into various documents, including the Port Commitment Deed for Port Kembla; and (6) a direction to PK Lessor to enter into certain documents, including a lease over land in connection with Port Kembla with NSW Ports Kembla Property Co Pty Ltd (PK Property) for a period of 99 years. PK Property was Hold Co's nominated Port Lessee. 144 The State noted that under cl 3 of Sch 5 to the PAAT Act the Governor by proclamation was given the power to dissolve SPC and PKPC. By the Ports Assets (Authorised Transactions) (Dissolution of Port Corporations) Proclamation 2016, SPC and PKPC were dissolved. 145 On 31 May 2013, as a condition for completion of the sale and purchase agreements, the Port Botany PCD and the Port Kembla PCD were executed pursuant to the directions of the Treasurer. The Port Botany PCD was executed by the Treasurer for and on behalf of the State, Botany Operator, NSW Ports Botany Property Co Pty Ltd and Hold Co. The Port Kembla PCD was executed by the Treasurer for and on behalf of the State, Kembla Operator, NSW Ports Kembla Property Co Pty Ltd and Hold Co. As noted by the State, none of the State owned corporations (SOCs) previously involved in the operation of Port Botany or Port Kembla was a party to the PCDs. Nor did those SOCs have any role in the preparation of the PCDs. 146 Each PCD has a term of 50 years (unless the leases of the ports are terminated at an earlier time). Clause 3 of each PCD contains a compensation provision. The effect of the compensation provision is that unless Port Botany or Port Kembla are both at Full Capacity (as defined by cl 3.1), the Botany Operator and Kembla Operator are to be compensated if container volumes beyond a defined threshold are diverted from Port Botany or Port Kembla to the Port of Newcastle. Clause 3.3 imposes pre-conditions about which NSW Ports must satisfy the State in order to be able to claim compensation. If the State is satisfied in respect of those pre-conditions, compensation will be payable under cl 3.3 if, for two consecutive financial years, (i) the volume of containers imported or exported through the Port of Newcastle exceeds a threshold of 30,000 TEUs plus natural growth (the Threshold); and (ii) the container traffic through the Port of Newcastle in excess of that threshold causes a reduction in containers imported or exported through Port Botany or Port Kembla. Further: (1) by cl 3.4 the amount of compensation payable by the State is the weighted average wharfage charge per TEU imposed by Botany Operator or Kembla Operator on port users, multiplied by the volume of container traffic through the Port of Newcastle that exceeds the Threshold (measured in TEU), with the compensation payable to Botany Operator or Kembla Operator to be paid on a pro rata basis as between those ports, based on the volume of containers handled at each port during the relevant period; (2) NSW Ports cannot enforce its right to payment under cl 3.3, unless it complies with cll 3.5 and 3.6: cl 3.7(c), which, among other things, require NSW Ports to make a written submission to the State within 20 Business Days of the end of the relevant financial year (cl 3.6(a)); and (3) NSW Ports must use reasonable endeavours to minimise any loss of revenue that may be the subject of a claim under the PCD: cl 6(d). 147 As the State described it, the Port Kembla PCD also contains provisions in respect of the development of Port Kembla. The State noted that: Under clause 24.2 of the Port Kembla Lease, NSW Ports is obliged to develop Port Kembla to the extent "Feasible" and consistent with (amongst other things) the "actual and anticipated future growth in, and pattern of demand for, Core Port Infrastructure and Port Services" and "the Port Objective". The notion of whether it is "Feasible" to develop Port Kembla is addressed in clause 24.3 and includes matters such as whether approvals can be obtained, whether the development will optimise the use of the port, whether the development is consistent with growing trade through the port, and whether a reasonable commercial return can be obtained. The "Port Objective" is defined in clause 6.1 as being for Port Kembla to be a major seaborne trade gateway for NSW. In the event that NSW Ports does not comply with its obligations, the port lessor … is entitled to give notice requiring NSW Ports to provide an Upgrade Plan dealing with the development of the port. That plan was required to be given effect to, and if NSW Ports did not do so, the port lessor could step in at NSW Ports' costs. (Citations omitted). 148 On 18 June 2013, the NSW government announced that it intended to grant a long-term lease of the Port of Newcastle, subject to completion of a scoping study. The announcement said: Newcastle will be the big winner from the offer of a long-term lease on the city's port facilities, NSW Treasurer Mike Baird said today. The Government has announced in the 2013-14 Budget it will proceed immediately to a scoping study on offering a 99-year lease on the Port of Newcastle. Mr Baird said if the transaction was successful, $340 million of the proceeds would be directed towards the revitalisation of central Newcastle, to which the Government has already committed $120 million. … "Newcastle has been asked to make many painful adjustments in recent decades, particularly as the city's proud tradition of steel-making came to a close. "The city's time has come. "The Government's commitment to Newcastle's renewal will unlock its potential as a vibrant place to live and visit. "While the renewal of Newcastle will proceed regardless, the lease of the Port will allow us to turbo-charge this priority project," said Mr Baird. … Mr Hazzard said. "This confirms Newcastle is smack in the centre of the Liberals and Nationals Government's plan to ensure the Hunter has a bright and pivotal future in rebuilding NSW. "The community's voice has been heard loud and clear and the Government intends that Newcastle's heart will be rejuvenated through the stimulus of a new light rail package. "It has the potential to be the catalyst for addressing Newcastle's transport needs and to provide the basis of further light rail extensions in the future. "If the business community needed any further confirmation that Newcastle should be a magnet for dollars for development – then this is it." He said the 99-year lease would not proceed unless the scoping study confirmed value for money. 149 The State retained Morgan Stanley to prepare the scoping study for the Port of Newcastle. 150 On 5 July 2013, Morgan Stanley sent an email to Treasury which referred to the ongoing negotiations between NPC and NSC and said it was "clear that NSC" was not aware of "the PCD compensation regime" or alternatively: …they must be assuming that the State will be liable for any compensation to NSW Ports. This is not what the Treasurer thinks. … If Mayfield is to be approved by Treasury/MS it needs to be formally disclosed to NSC including the fact that they will be paying any compensation. 151 Morgan Stanley noted to the Treasury on 19 July 2013 that NSC's development proposal (which involved two stages and the potential for conversion into a container terminal in stage 2 at the Government's discretion) might trigger compensation payments under the PCDs which could be offset by either NSC picking up the incremental costs, or by the future port landlord increasing trade charges to cover the costs, or both. Morgan Stanley identified three options – accept NSC's proposal, reject NSC's proposal, or confine the proposal to stage one only. It was noted that the first option, enabling the development to proceed, "[m]ay expose the State to liability under the Port Botany Port Commitment Deed … depending on the extent to which containers are diverted from Botany and the extent of recovery of these costs either via contract or statutory port charges". In respect of the third option it was noted that "PCD exposure remains, given NSC's forecasts include ~200kTEU even without Berths 5&6". Morgan Stanley recorded that: During the sale process, various bidders expressed concern regarding the potential development of container capacity at Newcastle Port, including statements to the effect that left unrestricted, the potential for container development at Newcastle Port would impact their continued participation in the sale process. During the sale process, the NSW Government reiterated its policy position that [t]here is significant unutilised container handling capacity at Port Botany which can service the State's container freight needs well into the future, and that Port Kembla will be the next major container port development once Port Botany reaches maximum capacity. It was clearly communicated to bidders that Port Botany and Port Kembla will be the State's primary container handling facilities until full developable capacity at both sites is reached. Accordingly, and in support of the policy position of the NSW Government, the State provided Bidders with a codified regime (including a compensation formula) if container volumes at Newcastle Port exceed an organic growth path prior to Port Botany or Port Kembla being fully developed for containers (the "Port Commitment Deed" or "PCD"). 152 Morgan Stanley recommended that negotiations be permitted to proceed with respect only to stage one (excluding the proposed container terminal), noting that: We are of the view that there is no commercial case for NPC to include Stage 2 in the lease area in the context of the Transaction, given the very long lead time until it is likely to be developed, and the risk that it is never actually developed at all given the lack of any time-based trigger – it appears that the only rationale for incorporation of Stage 2 is to is to maintain the optionality for a container terminal as part of the development to address a perceived probity concern arising from the scope of the original procurement process (which included a container terminal). We do not have the same level of concern with Stage 1 of the development, as we understand that two tenants have already been identified and committed (ICL and Cargill). Financial returns to NPC from Stage 1 appear to be adequate, and it may provide scope for additional break bulk and general cargo volumes at the port which may be value-accretive to the Transaction. If Government was to authorise NPC to proceed with a modified form of NSC's proposal, incorporating Stage 1 only, then a number of matters would need to be addressed in the negotiations with NSC, including: • arrangements to limit non-organic container growth and/or transfer liability to NSC for any compensation payable to the Port Botany lessee in the event that the PCD compensation arrangements are triggered; … • a thorough review of NSC's funding plans and business case to confirm viability and capability to deliver. In addition, any probity risks arising from the original expression of interest process would need to be considered. We note that NPC has asserted, on the basis of legal advice, that any variation of the proposal to exclude a container element (which relies on Stage 2 development) may expose NPC to the risk of claims from non-NSC participants in the original expressions of interest process… We also note that the concept of a "Stage 1 only" development has not been tested with NSC, and the impact on their business case and appetite to proceed is not known at this stage. In particular, to the extent that containers are fundamental to their business case, and the PCD arrangements either remove this element or impose material compensation exposure upon NSC, they may not be prepared to proceed at all. If Government is supportive of a "Stage 1 only" development, then this will need to be tested with NSC as an immediate priority. In practice, there is a very high level of uncertainty that a "Stage 1 only" development could be progressed to a sufficiently advanced state by the time the Transaction process commenced that bidders could fully value it. 153 Morgan Stanley provided the Treasurer with a report on 22 July 2013 in which it said that if proceeding with stage one only was acceptable to NSC, then NPC could progress negotiations subject to inclusion "of a satisfactory mechanism to ensure any compensation liability under the Port Commitment Deed is passed back to NSC". 154 In the report, Morgan Stanley identified NSC's two stage development proposal, stage 2 (berths 5 and 6 and potential future container terminal) having a volume based development trigger with no firm time based development commitment. Primary concerns about NSC's proposal included that: • Capability of NSC to deliver proposal is not known – We do not believe they have funding committed at this time – Ability to advance proposal to a state of commitment/deliverability within the transaction timeframe that would allow bidders for the long-term lease to fully value to development is highly uncertain • Project may trigger compensation from State under the Port Commitment Deed – NSC forecasts ~200k TEU during Stage 1, notwithstanding that the project has no dedicated container handling infrastructure – However, we think that ~200k TEU during Stage 1 is unlikely due to – The lack of dedicated container facilities to efficiently lift that many TEU, particularly when the berths will also be used by general and bulk cargo; and – A low likelihood that shipping lines and logistics companies will vary their routes etc. to call on Newcastle in that volume, particularly when the cost of container transfer at the Stage 1 berths is likely to be high due to the lack of dedicated facilities. – If they realised these forecasts (which we and others consider unlikely), and NSW Ports could establish diversion of trade from Botany, PCD compensation may be triggered – PCD compensation payments could be offset by either NSC picking up the incremental costs, or by the future port landlord increasing trade charges to cover the costs, or both – In the absence of the NSC proposal proceeding, the future port landlord would need to use trade charges to cover these costs, should they arise via other developments. This will be developed further under the terms of the transaction generally and the head lease specifically. 155 Morgan Stanley reiterated its stage one only recommendation and said that if this was acceptable to NSC then NPC may be authorised to progress negotiations subject to a "drop dead date" in advance of the long-term lease process commencing (e.g. November 2013) and inclusion of a satisfactory mechanism to ensure any compensation liability under the Port Commitment Deed would be passed back to NSC. They also noted that: There is a relatively high likelihood that these conditions may not be met (particularly the "drop dead date") in which case, NPC would be required to suspend negotiations with NSC, allowing a future port owner to then determine whether they wished to recommence negotiations or progress an alternative use for the site. 156 In July 2013 NSW Ports' Managing Director reported to NSW Ports' board that: The proposed lease of the Port of Newcastle has generated a great deal of press and fuel to the campaign by the journalist Greg Cameron for Newcastle to become a container port. One of the likely bidders for Newcastle is Anglo Ports who are promoting a container terminal within their approach (as part of a multi purpose facility). It is important for NSW Ports to be active in monitoring the NSW Government i.e. our bid was based upon NSW Government policy of Kembla being the next port to develop container facilities and not Newcastle. Whilst there would be considerable doubt about the long term viability/sustainability of a container terminal at Newcastle (as the related road/rail infrastructure would not [sic] be prohibitive) nevertheless it is a highly political issue. 157 The Treasurer wrote to NSC on 26 July 2013 to the effect that the Government did not support NSC's current proposal but was interested in seeing if NSC and NPC could agree a revised development involving only stage one. The letter said negotiations should be conducted with NPC and would be subject to final approval from the Government. 158 On 2 August 2013 the Treasury transaction team in respect of the privatisation of the Port of Newcastle considered the disclosure to bidders of the Port Botany and Port Kembla PCDs in a document titled "Mayfield Development Negotiation Parameters". The proposed disclosure said: During the Botany/Kembla process, Bidders were concerned that after the transactions were completed and the purchase price had been paid, the State might develop competing container capacity at Newcastle to divert container traffic to that Port. To deal with this concern, a regime was put in place that in effect would hold the Botany/Kembla lessees whole (via financial payments) if container development occurred at Newcastle that diverted containers from those ports above an assumed organic growth profile from a starting volume of 30,000 TEUs. This regime came with a number of important carve outs: … The State requires that the financial obligations under this arrangement be mirrored by the developer of any container capacity at Newcastle. Ultimately these arrangements do not prevent container volume growth at Newcastle, but the costs of doing so will need to be borne by the container developer (i.e. by making payments to the State). On a per-container basis, the costs of this will progressively increase as the containers taken via Newcastle exceed the organic growth threshold. The amount of the compensation payable to the Port Botany or Port Kembla Lessee will be the amount by which containers through Newcastle Port exceeds that permitted under the regime, multiplied by the weighted average price per TEU of wharfage charges actually imposed at Port Botany during the relevant period. 159 At a subsequent meeting on 6 August 2013 between Treasury, NPC and NSC, NSC was advised that "it was government policy to concentrate container traffic initially at Botany, then at Port Kembla, and that any container development at Newcastle which took container revenue from Botany or Kembla would involve payment according to the Newcastle Container Development contribution payments regime". In the Mayfield Development Negotiation Parameters, Treasury identified negotiation parameters with NSC as including the following: (1) any revised development proposal will cover the original "Stage 1" land and berths 2, 3 and 4. It will exclude the "Stage 2" land and berths 5 and 6; and (2) any proposal to conduct container operations at the site will need to take into account the government's policy that Port Kembla will be the next major NSW container port after Port Botany. Consequently: (a) the development will not include any dedicated container handling infrastructure and will be restricted to handling organic container volumes which are incidental to bulk and general cargo trades; and (b) NSC will be liable to fund any commitments otherwise payable by Government entities if it is in breach of these restrictions. 160 The Managing Director of NSW Ports followed up his report in July 2013 by seeking information from the board about the State's position on the development of a container terminal at Newcastle. A board member provided the Managing Director with a summary of the compensation provisions which the Managing Director considered a "very good outcome". The Managing Director requested the full documents (the Port Botany and Port Kembla PCDs) and caused a review of them to be conducted, subsequently reporting to the NSW Ports board in August 2013 that: The arrangements entered into with the Government to protect NSW Ports from potential future competing container activity in Newcastle has been reviewed and it provides a clear and secure protection for NSW Ports. 161 By 13 September 2013 the negotiations between NSC and NPC about the proposed lease and project delivery agreement were complete. NPC notified NSC that it would be seeking approval of the NPC board to take the project (modified to exclude the development of a container terminal) to the NSW government seeking government approval and delegation to enter into binding agreements. NPC noted that "NPC does not and cannot represent that the Project will receive such approval, or that the Project will in fact proceed beyond this point". The NPC board approved the referral of the project to the NSW government. Around this time NSC became a consortium known as Mayfield Development Corporation (referred to below as NSC/MDC). 162 On 17 September 2013 Morgan Stanley recommended to the State that NPC continue to negotiate a revised lease with NSC/MDC provided that the agreement transferred to NSC/MDC the risk of the State being exposed to any obligation to pay compensation to NSW Ports under the PCDs for container growth at Newcastle in excess of agreed limits. A draft deed dated 10 October 2013 contained provisions which precluded NSC from conducting or permitting any activity that would be likely to create a liability for the State under the Port Botany or Kembla PCDs (cl 3.3(a)) and obliged NSC to make a payment to the State in the event such a liability were to arise due to NSC's conduct (cl 3.5). 163 In September 2013 Morgan Stanley also provided its interim scoping study for the privatisation of the Port of Newcastle to the State which confirmed that there was no reason that the proposal should not proceed. 164 In late October 2013, Morgan Stanley advised NSW Treasury not to enter into binding agreements with NSC/MDC "on the eve" of a broader privatisation transaction affecting the Port of Newcastle. 165 By that time NSC/MDC had also changed its position and was no longer willing to enter into an agreement with the State to accept the State's liability under the PCDs. NSC/MDC proposed instead that: • the State would instead transfer its potential liability under the Port Commitment Deed to a future holder of the long-term lease of the Port of Newcastle (the "Port Lessee"); and • the terms of MDC's lease with NPC would provide that MDC would work with a future Port Lessee to agree an equitable basis upon which it would share any liability arising to Port Lessee under the Port Commitment Deed (effectively an "agreement to agree"). 166 Morgan Stanley recommended against this revised proposal. In around November 2013, the Treasurer issued a direction under the PAAT Act for NPC to cease negotiations with NSC/MDC, and those negotiations ended. 167 The NSW Freight and Ports Strategy (the Strategy) was published in November 2013 and, in respect of the sequencing of container capacity, was the same as the November 2012 draft. It embodied the State policy as it had crystallised by July 2012 (the NSW government having announced on 27 July 2012 that Port Kembla would be privatised with Port Botany and was the next logical location for a container terminal in NSW). The Strategy contemplated a 20 year time horizon so that the policies could give certainty over the long term to private investors. The Minister's message accompanying the Strategy said: (1) "[a]n efficient and effective freight network is the cornerstone of economic productivity and growth. It reduces the cost of everyday goods and services, underpins the strength of our economies, and generates vital employment. Freight matters to every person in the State"; (2) "[u]nderpinning this Strategy is the need to address the significant challenges NSW will face in the next 20 years amidst the doubling of the State's freight task. These challenges include: increasing the efficiency of the existing network infrastructure, expanding network capacity to support economic growth, funding infrastructure construction and funding the growing operations and maintenance task in line with increasing utilisation of the network"; and (3) "[t]he NSW Government has partnered with industry and the community to develop the Freight and Ports Strategy. A four month consultation period following the draft Strategy's release in November 2012 was instrumental in strengthening this Strategy, ensuring valued perspectives on key issues raised such as air freight, coastal shipping, regional road freight productivity and infrastructure funding were integrated in the final version". 168 The Strategy recorded that the "movement of freight is a basic element of logistics". As the NSW government provides the physical network for the movement of freight "there is an inexorable link between the actions of government and the performance of logistic tasks across the economy … Transport of freight is critical to the State economy and the efficiency of the transport network contributes to the success and growth of NSW as well as being significant to maintaining national defence interests and capability. Conversely, inefficiencies, friction and capacity constraints in the transport network add costs for manufacturers, producers and consumers". Further, the "role of government in the freight task focuses on delivering network capacity to enable supply chain efficiency. This includes removing obstacles for achieving best practice, creating capacity and, where necessary, becoming involved in the marketplace to ensure the network operates efficiently". 169 The Strategy said it is "a core component of the State's overall strategic planning framework". The Strategy "will provide a framework for industry, all levels of government and stakeholders to guide investment and other decisions to enhance freight logistics in NSW". The Strategy identified land use planning and infrastructure investment as key tools of government to "a transport network in NSW that allows the efficient flow of goods to their market". The Strategy identified that the "existing throughput of two million Twenty Foot Equivalent Units (TEU) per annum at Port Botany is projected to increase to a total of seven million TEU by 2031" and "road upgrades and improved rail operations to support a doubling of freight on rail by 2020 are critical to meeting the forecast growth at Port Botany by 2031". 170 According to the Strategy: While there is currently significant spare capacity, constraints on container movements at Port Botany will depend on the rate of growth of containers, as well as the productivity levels that can be achieved by the stevedores and overall optimisation of the port. Depending on the rate of growth, from a planning perspective it appears reasonable to expect that Port Botany might approach its natural capacity between 2030 and 2040. New port infrastructure at Port Botany and/or Port Kembla may be required to help relieve these pressures, and will need to be supported by significant land freight network improvements. 171 The Strategy said that "Port Botany will remain the key container port in NSW, given current planning and investments to date". Further, "Port Botany will continue to grow to accommodate the future container demand in NSW. This growth will be supported by improvements to the supply chain connecting to the port and will be considered as part of the overall transport planning being undertaken for the Port Botany and Sydney Airport Precinct". The Strategy said "[w]ith continuing investment in the port and related supporting infrastructure, it is important that Port Botany's capacity is fully utilised to accommodate long term container trade growth … Meeting the challenge of seven million TEU per annum will only be possible if the arterial road and rail connections servicing the port can efficiently transport trade volumes". The Strategy also said "Port Kembla has been identified as the location for the development of a future container terminal to augment the capacity of Port Botany when required" and "expansion of Port Kembla for high intensity container operations when Port Botany reaches throughput capacity will require containers to be moved by both road and rail". The Strategy identified that the Port of Newcastle would "continue to be NSW's primary coal export port" and "continue to service bulk grain and other commodities". 172 The Strategy said that "[a]t present, 85 per cent of import and export containers originate or are destined for locations within a 40 kilometre radius of Port Botany. Approximately 14 per cent of container movements occur by rail, with the rest by road. The existing capacity of intermodal terminals in Sydney is inadequate to meet the growing demand for import and export container movements". Further, "[w]hile government does not need to be directly involved in the development or operation of intermodal terminals, it has a role in identifying and protecting land and freight corridors. Government also has a role, where necessary, in identifying supporting road and rail infrastructure. The development of appropriate intermodal terminals in the Sydney metropolitan area and regional areas will contribute to increasing freight moved by rail, particularly in the container market". 173 The Strategy identified the need for developing network capacity "just in time" to meet forecast usage demand given the significant network infrastructure task facing NSW over the next 20 years. The Strategy identified Transport for NSW as a key body responsible for assessing the priority of "freight infrastructure projects to ensure value for money outcomes". According to the Strategy "[p]lanning decisions need to consider freight logistics needs and network implications". 174 The State must have received and accepted the final scoping study for the privatisation of the Port of Newcastle which confirmed that the privatisation could proceed and it then announced its proposal to privatise the Port of Newcastle by long-term lease on 5 November 2013. The announcement said: The NSW Government will proceed with the long-term lease of the Port of Newcastle to fund the revitalisation of central Newcastle and priority infrastructure across NSW, Treasurer Mike Baird and Ports Minister Duncan Gay announced today. Mr Baird said the government had received and considered the recommendations of the comprehensive scoping study, which confirmed it is in the State's interest to go ahead with the lease of the Port of Newcastle – the world's largest coal exporting port. "Today is an exciting day for the people of Newcastle, who are one step closer to achieving the much-needed revitalisation of their city centre – a major investment which will be made possible through funds raised by the lease of the Port," said Mr Baird. "The scoping study has revealed strong initial interest from investors for this transaction, that if successful, will drive economic growth and the renewal of Newcastle by fast-tracking critical infrastructure needs in the region. … Mr Baird said an Expressions of Interest process will be launched later this month, with the Government to shortlist qualified parties for the next round of the process. "As one of the largest ports in Australia, the Port of Newcastle plays a critically important role in the export of coal and the movement of other cargo," said Mr Baird. "In addition, the Port has tremendous ongoing growth and development potential, and has extensive strategic port-side land available for the future growth of general cargo, dry bulk and bulk liquids." Mr Gay said the lease will include more than 700 hectares of land owned by the Newcastle Port Corporation (NPC), as well as all road and rail infrastructure and wharves owned by NPC within the port boundary. … Mr Baird said there was strong interest from both Australian and overseas investors for State-owned assets, as demonstrated by the recent long term lease of Port Botany and Port Kembla. 175 The State then invited expressions of interest for leases of the land and assets of the Port of Newcastle. At this time coal constituted 95% of the throughput at the Port of Newcastle and 70% of its revenue. It was also forecast at this time that coal exports from the Port of Newcastle would increase in the period up to 2043. The Port of Newcastle handled container traffic of only 15,000 TEUs per year. By contrast, Port Botany handled in excess of 2 million TEUs annually. Port Botany also had substantial additional capacity, particularly since the removal in 2012 of a previous volume cap of 3.2 million TEUs annually. 176 The Information Memorandum issued by the State to potential bidders for the Port of Newcastle in December 2013 said: In the long term, steady growth in container traffic will eventually exhaust the land and berth capacity for containers at Port Botany (which has limited potential for further footprint expansion) and Port Kembla (subject to its future development path) where land availability to cater for ongoing vehicle growth may compete with future container developments. The much larger land footprint at the Port of Newcastle makes it the logical next tranche of container capacity once other port capacity is approaching saturation. Depending on the rate of growth and extent of development of capacity at other ports, it is foreseeable that there could be demand for large-scale development of container terminals at Newcastle on a 30 to 40-year type timeframe. 177 The Information Memorandum said: In July 2012, the NSW Government indicated that Port Kembla was to become the next container port after Port Botany. Port Kembla's container facilities are unlikely to be required for some time, with Port Botany's planning constraint on TEU throughput removed in 2012. Given this, a container terminal at the Port of Newcastle may not be required until after 2040. 178 The Information Memorandum said: Newcastle has the greatest development opportunity of NSW's major ports with 190Ha of developable land, while Botany and Kembla have limited or no land currently available for development and would need to reclaim land to build additional terminal areas and berths. … The Hunter region contributed approximately $36Bn to Gross State Product (in FY12) … including an estimated $18.9Bn contribution from the local coal industry. In addition to the Hunter Valley mining industry, Newcastle is the second largest population centre in NSW and a key industrial centre for the State. In 2012, in a report for the State Infrastructure Strategy, Deloitte Access Economics estimated long-term growth in GRP for the Hunter to be 2.5% (real). 179 The Information Memorandum also identified the compensation provisions in the PCDs and said: The financial obligations of the State under this arrangement will be passed to the Newcastle Port Lessee under the Port Commitment Deed ("PCD"). The Acquirer is not prevented from developing container facilities at the Port; however, the Acquirer will be required to compensate the State for any costs under the Botany/Kembla Port Commitment Deed that result from container developments at the Port of Newcastle. Based on current forecasts, container volumes are not expected to trigger any liability under the PCD for the Port Lessee/Acquirer, and the State sees the risk of costs arising under the PCD as being within the control of the Acquirer. Notwithstanding the PCD, the Acquirer may choose to further develop container trade at the Port and seek to attract container volumes above the PCD Threshold. The Acquirer will need to determine commercially whether the incremental value of revenues derived from land rental and port charges from all container movements sufficiently offsets any PCD payments prior to the end of the arrangements. 180 The draft Newcastle PCD made available to bidders in February 2014 included provisions reflecting this arrangement. 181 In March 2014 the Treasury transaction team for the privatisation of the Port of Newcastle advised bidder Hallen (ultimately the successful bidder) that the risk of development of a container terminal at Newcastle outside of the port lease area was a merely hypothetical and remote risk. They said: The Port Commitment Deeds provided to NSW Ports for the Port Botany and Port Kembla transactions allocated hypothetical risks of a large scale "premature" container development in light of the fact that the NSW Government was the then owner of the Port of Newcastle. The State is extremely reluctant to enter into further rounds of documentation to govern even more remote hypothetical scenarios related to competing privately- funded container developments at Newcastle. We suggest Hallen consider the following: • After grant of the Newcastle Port Lease, the NSW Government will no longer hold any relevant property interests at the Port of Newcastle. Nor does it have the appetite to fund or the expertise to undertake a container port development. As such any port-related development at Newcastle would need to be privately funded. • The State considers it extremely unlikely that a private developer would develop new container facilities at Newcastle in direct competition to Port Botany and Port Kembla where those ports were not "fully developed" and had actual or potential additional capacity, and in circumstances where the Newcastle Port Manager didn't see the commercial merit in developing these facilities itself and may in fact actively oppose the introduction of "upstream containers". • The Newcastle Port Manager has substantial control of and recourse to Port users in respect of any such risks given its statutory charging powers, surplus land capacity, relationship with RMS in respect of the channel and other submerged lands required to be accessed by a third party development and the fact that the Ports and Maritime Administration Act (PAMA) does not have the facility for appointment of a second contemporaneous Port Manager. 182 Hallen did not agree that this risk was hypothetical but said that on the basis of commercial and legal advice it did not intend to challenge the compensation clause (that is, the reimbursement provisions) in the draft Newcastle PCD. 183 The Treasury transaction team for the privatisation of Port of Newcastle advised the Treasurer on 10 April 2014 that: Under the Port Commitment Deed (PCD), the State has a residual risk exposure to make container payments to NSW Ports in the event that: • The Newcastle Private Co triggers container payments, and • The State terminates the lease and elects to take back the port instead of re-leasing it. Transaction team's view is that there is a very low probability of container payments being triggered: • the numeric threshold in the PCD is more than twice the current container throughput at Newcastle, and under forecasts prepared by ACIL Allen container volumes at Newcastle are not expected go close to the PCD threshold • NSW Ports would need to demonstrate that containers had been diverted from Botany/Kembla to Newcastle • The nature of the landside logistics task is focussed on Botany and south-western Sydney, meaning it is unlikely to be economic for large-scale container facilities to be developed in Newcastle before Botany and Kembla are at capacity • Financiers are likely to require some level of assurance or control over container developments, as the cost is essentially borne by them. That is, in a termination scenario the cost of container payments would be reflected in the business valuation and hence the proceeds that are returned to lenders (see Financier Side Deed section below) • The State has a high degree of discretion over whether the lease is terminated, and in the event it is terminated, whether the port is re-leased or retained by the State. 184 On 30 April 2014, the State announced that it had agreed to lease the Port of Newcastle to a consortium (the Port of Newcastle Consortium), which subsequently became PON, comprising of CM Ports and TIF, and that the long-term lease would deliver gross proceeds to the State of $1.75 billion. 185 CM Ports is listed on the Hong Kong Stock Exchange. It is China's largest port operator and operates some 38 ports in 18 different countries around the globe. The majority of those ports are or include container terminals. TIF is a wholesale investment fund that invests in unlisted infrastructure assets in Australia and overseas. It is convenient to also note here that MIRA, which has managed TIF's investment in PON since 2018, is a division of the Macquarie Group and one of the world's leading infrastructure investors and managers. The board of the first cross-respondent, PON Operations, now has seven members, comprising three directors nominated by MIRA (Messrs FitzSimons, Kwiatkowski and Dines); three nominated by CM Ports (Mr Liu, Ms Luk and Mr Sun); and an independent Chairman (Prof Green). 186 Also on 30 April 2014 the State entered into transactions effecting the privatisation of the Port of Newcastle in favour of the PON entities. As noted, PON is ultimately owned as to 50% by TIF and as to 50% by CM Ports. Since late 2018 MIRA has managed TIF's investment in PON. 187 On 30 May 2014 the Treasurer for and on behalf of the State and PON entered into the Newcastle PCD. This was a condition of completion of the Newcastle Sale Agreement by which the privatisation of Port of Newcastle was principally effected, along with the Newcastle Port Lease. 188 Clause 3 of the Newcastle PCD requires PON to reimburse the State for any payments it is required to make to Botany Operator or Kembla Operator under the compensation provisions in the Port Botany PCD and the Port Kembla PCD. Specifically the Newcastle PCD: (1) will operate for a term of 50 years (cl 2); (2) if NSW Ports makes a submission under cl 3.5 of the Port Botany or Port Kembla PCDs, seeking payment from the State, the State and PON must consult together on a response and PON may take over the conduct of the State's response (cl 3.5); (3) if the State becomes obliged to make a payment under the compensation provisions, the State may give notice to PON, stating the amount the State is obliged to pay (cl 3.6); and (4) within 40 days of receipt of such a notice from the State, PON must pay to the State the amount referred to in the notice, without deduction or set-off (cl 3.7). 189 Clauses 3.6 and 3.7 of the Newcastle PCD are together referred to as the reimbursement provisions. 190 At the time the Port of Newcastle was privatised PON was required to submit a Port Development Plan within six months. The Port Development Plan 2015-2020 said: (1) Port of Newcastle is strategically located within the northern catchment of New South Wales and is well positioned to capitalise on the established export supply chains of the Hunter Valley and beyond. Over the next five years we expect strong growth in coal export trade, alongside an increase in some non-coal commodities; namely, the import of bulk liquids such as fuels; (2) the strategic planning framework guiding infrastructure within NSW is the NSW 2021 Plan, supported by the State Infrastructure Strategy 2012-2032, the NSW Long Term Transport Master Plan 2012, and the NSW Freight and Ports Strategy 2013, which provide progressively more policy detail on freight and port infrastructure development priorities to create greater efficiencies and improvements; and (3) Port of Newcastle handles container trade from geared vessels at East Basin 1 and 2 Berths in Carrington and Mayfield 4 Berth. This is anticipated to continue during 2015-2020 in its current form, with potential for some gradual organic growth and fluctuation in trade associated with regional demand. There are no plans for the development of a major dedicated container terminal within the timeframe of this Port Development Plan. 191 In March 2015 the NSW Liberal/National Coalition government was re-elected. 192 In August 2015 NSW Ports received a consultant's document by Mott MacDonald comprising a 30 year masterplan. This document recorded that "[b]ased on the trade forecasts provided by NSW Ports, Port Botany will require additional capacity in approximately 2043 (base case) or as early as 2037 (upper bound trade forecast)". This involved a maximum TEU capacity at 2045 of 7.91 million TEU per year and a planned capacity at 2045 of 7.12 TEU per year. 193 In March 2016 Anglo Ports made an unsolicited proposal to PON to develop a container terminal on the Mayfield site. DP World Australia Ltd (DP World Australia), a stevedoring business, also made an unsolicited proposal in May 2016 for the same purpose. Both proposals involved high level concepts but no commercial feasibility analysis. The PON board considered the proposals in July 2016. DP World Australia made a presentation to PON about the opportunity in September 2016. In its presentation DP World Australia identified challenges DP World Australia faced in its existing terminal at Port Botany. DP World Australia proposed a staged development over seven years culminating in a 1 million TEU per year container terminal from year 7 onwards. In October 2016, PON entered into a memorandum of understanding with DP World Australia, whereby it agreed to work exclusively with DP World Australia for a period to undertake due diligence and feasibility analysis of a container terminal development and operation at the Mayfield site. PON continued to deal with DP World Australia in respect of due diligence and feasibility studies until mid-2018. No deal was finalised by the time the memorandum of understanding expired. DP World Australia maintained that the PCDs made the project unviable for it and was unwilling to take on any obligation under the Newcastle PCD. DP World Australia's CEO said subsequently that a container terminal at Newcastle would be attractive but for the PCDs, and that it was hard to see "it working with that handbrake". 194 The State's NSW Freight and Ports Plan 2018-2023 records the following: • Given the significant cost of new infrastructure, the NSW Government and industry need to boost the performance and utilisation of the State's existing roads, rail, ports, pipelines and airports; • We will … increase the share of rail freight at Port Botany to 28 per cent by 2021; • The NSW freight and ports network is fundamental to the State's future $1.3 trillion economy; • The largest growth in freight volumes in NSW will occur in Greater Sydney, which will see the freight task increase by almost 50 per cent by 2036; • Port Botany plays a major role in the NSW economy as a gateway for international trade. It is the primary container port and NSW's primary bulk liquid and gas port; • 90% of imports remain within 60km of Port Botany; • Significant rail freight capacity upgrades in Sydney including: Port Botany Rail Line Duplication – the last three kilometres of railway line to Port Botany; Cabramatta Loop – passing loop to support operations at Moorebank Intermodal Terminal; and Western Sydney Freight Line – corridor protection for future rail connections to serve Western Sydney Airport, Western NSW and Port Botany; • Intermodal terminals within Greater Sydney are critical for increasing the utilisation of the rail freight network, particularly containers to and from Port Botany. There are a number of metropolitan intermodals under construction, including the Moorebank Intermodal Terminal; • Port Kembla has been identified as the location for the development of a future container terminal to augment capacity of Port Botany when required; • Recognising Port Botany's role as the primary container facility in NSW and plans for Port Kembla as the location for the development of a future container terminal, the efficient operation of Port Botany and Port Kembla requires the coordination of a wide range of stakeholders, including stevedores, road and rail freight operators and networks; and • NSW government actions to support that include improving Port Botany rail window management, investigating productivity boosting technologies for Port Botany, investigating second truck marshalling area in Port Botany, and improving both the movement of empty containers into and out of Port Botany (including the use of rail) and their utilisation. 195 In response to a stakeholder issue identified as "need for containerised freight at Newcastle Port" the NSW Freight and Ports Plan 2018-2023 said: The Plan recognises the interest of the Port of Newcastle in diversifying and expanding the port's trade base. An initiative has been included in the Plan to support the Port of Newcastle as the commercial operator of the port, to explore other trade opportunities as they deliver their masterplan, such as examining landside capacity constraints that may need to be addressed beyond the timeframe of this Plan. The NSW Government policy position is that Port Kembla has been identified as the location for the development of a future container terminal to augment capacity of Port Botany when required. Current arrangements do not prohibit the development of a container terminal at the Port of Newcastle but rather allow for the growth of container volumes through Newcastle that service the region. 196 On 25 February 2019 NSW Ports held a strategy day, the outcomes of which referred to a container terminal at Port Kembla and said "there was support to resolve the preferred concept design and address the operational issues for an outer harbour development", "[t]iming and land area for a PK container terminal should be part of our overall thinking of our core trade land requirements as part of our 30 year master plan review", and "[a]greement that we keep the vision alive by finalising the technical analyses … but no need to rush into the other proposed stages of this work — it is too premature. Will be better clarity through review of 30 year master plan". NSW Ports said that "we need to continue to pursue Maldon Dombarton as being essential for a container terminal in PK". This is a reference to the Maldon to Dombarton Rail Link. Infrastructure Australia recommended against proceeding with that rail link in 2017 as in the short to medium term, there is no clear economic basis for the project to proceed, as there is sufficient capacity on the existing lines to meet projected rail freight demand. Apart from this, NSW Ports: (1) in mid-2018 commissioned a consultants' report to "undertake an analysis piece setting out the benefits and opportunities of Port Kembla as NSW's second container port" (KPMG, "Quay Conclusions" Report (February 2019) (KPMG report)). The KPMG report was finalised in February 2019 and was released by NSW Ports on the basis that it confirmed that "Port Botany is the State's key container port, and a new container terminal will not be needed until the mid-2040s". The KMPG report found the NSW Government's container port strategy, which would see Port Kembla developed as the next container port in NSW to augment capacity at Port Botany, "still stands as the most efficient and effective way of meeting the State's container export and import demands"; (2) in mid-2018 met with shipping lines, bulk liquid operators, stevedores, port operators and freight forwarders across Shanghai, Hong Kong and Singapore and, amongst other things, "presented our container terminal strategy explaining why Port Kembla was selected as the next container port after Botany and the geographical distance from the market to the Port of Newcastle"; (3) engaged with the government and the media in respect of the role of Port Kembla as the second container port for New South Wales; and (4) in 2019 engaged with key stakeholders in the Illawarra region noting that "[i]n light of the recent media regarding a container terminal at Port of Newcastle, we have engaged with the guests at this dinner to present the case for the container terminal at Port Kembla. Each is supportive of a container terminal at Port Kembla and they have been conducting their own advocacy in this regard". 197 In August 2018 three board members of NSW Ports identified the development of a container terminal at Port of Newcastle as one of the top five risks facing NSW Ports. 198 In October 2018 NSW Ports responded to a notice issued by the ACCC under s 155 of the CCA. One part of the response said, based on the assumption that a viable container terminal is operational at Port of Newcastle (that is, assuming all necessary landside infrastructure has been built), the potential LGAs (local government areas) that would become Contestable Areas are set out in Annexure B. Annexure B shows 16 local government areas as a "Contestable Area" between Port of Newcastle and Port Botany. The notice defined "Contestable Area" as a local government area in which it is financially viable for a Shipper (defined as an importer or exporter of goods that initiates the transport of their containerised goods on ships) to import or export their goods through more than one port. The evidence is that because NSW Ports did not have this information available it retained consultants to prepare the response. The response was prepared by consultants without the definition of "Contestable Area" and within 24 hours. 199 A 2019 NSW Ports' strategy day identified as a strategic risk "significant new competition by other port" as "possible". That risk remained in NSW Ports' 2020 risk register. The only noted "specific initiative" against this risk is "Defend ACCC Prosecution". The register also identifies several "Ongoing Actions" regarding this risk factor, including "Maintain capability of infrastructure", "Competitive pricing" and "Customer relations". 200 In the past few years (2017 to 2020) the State (and Commonwealth) has made substantial investments in public infrastructure designed to facilitate the efficient use of Port Botany and Port Kembla as container terminals. As described by the State, these infrastructure investments include: (1) the development of the Port Botany Rail Line Duplication project, supported by $400 million from the Commonwealth government. This project involves a dedicated freight only rail track from Port Botany to near Marrickville. This project was added to the Infrastructure Australia priority list and was made on the assumption that containers moving through Port Botany were expected to increase by 4.5 million TEUs over the coming decades. The project was designed to provide the capacity to meet forecast rail demand generated by the Moorebank Intermodal Terminal, Enfield Intermodal Terminal, St Marys Intermodal Terminal and future terminals; (2) the Sydney Gateway Project, which had a project value of $2.4 billion. This project involved various road connections and upgrades to provide a high capacity connection from Sydney Airport and Port Botany to the WestConnex. The purpose of the project included to reduce congestion on existing roads to Port Botany and to support the efficient distribution of freight between Port Botany and logistic centres in western Sydney; (3) the reservation of land for the western Sydney Freight Line. This is a future transport link that will provide a dedicated freight link between Port Botany and the Western Parkland City; (4) the rezoning of land for the Mamre Road precinct in western Sydney to protect it for use as a future intermodal terminal. This precinct will have an area of 999 hectares. This terminal will have dedicated access to Port Botany via the western Sydney Freight Line and is anticipated to have a cost of $2.6 billion; (5) the Moorebank Intermodal terminal, which is a 241 hectare precinct on Commonwealth land, and which is designed to deal with up to 1.05 million TEU of international containerised freight per year. The terminal is designed to deal directly with freight from Port Botany. It is the largest intermodal logistics precinct in Australia. There has also been private sector investment in the precinct, including the development of distribution centres by Woolworths across 26 hectares at a cost of $700-$780 million to Woolworths and $420-$460 million to Qube; (6) the St Marys Intermodal Freight Hub, which it is anticipated will deal with up to five 600m trains per day from Port Botany and with an annual throughput of 301,000 TEU; (7) the M1 Princess Motorway Improvements for Picton Road to Bulli Tops. The objectives of these improvements include to "increase the reliability of access into and out of Port Kembla, including for general freight, larger restricted access vehicles and high performance freight vehicles"; and (8) the M1 Princess Motorway Mount Ousley Interchange. This involves road upgrades on the M1 motorway. The objectives of the proposal include to "provide for the growing freight task including supporting the expanding port at Port Kembla". This proposal was expressly developed in the context of the State's policy that Port Kembla would become the State's second container port. 201 In January 2020 NSW Ports received a contestable cargo capture plan from consultants. One of the plan's objectives is to "gain and retain contestable cargo" including by "maintain[ing] competitiveness v. other ports". It said "'contestable cargo' in the context of this plan refers to cargo which is contestable between different sea-ports as well as cargo which is contestable between coastal shipping and overland rail". The plan noted that "the vast majority of import cargo being handled through Port Botany and Port Kembla is not contestable by other ports given the proximity of those ports to the inland destination relative to that of the nearest competing ports." Contestable cargo included "containerised products, such as panels for a solar farm or fertiliser, bound for regional NSW for which importation through Melbourne or Brisbane may be a viable alternative to Port Botany". Potential actions included: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. (Original emphasis). 202 In February 2020 Infrastructure Australia published its priority list of nationally significant infrastructure needs. The priority initiatives include an east coast deep water container port capacity over the next 10-15 years. An accompanying diagram showed the east coast with three container terminals, at Melbourne, Sydney and Brisbane. The report noted that as shipping companies tend to service multiple ports along a route they choose the vessel size by reference to the capacity of all ports along the route. While Sydney could accommodate ships of 10,000 TEUs, Melbourne was limited to approximately 8,000 TEU vessels. The report said: No Australian port can accommodate the larger, more energy-efficient ships carrying more than 14,000 TEUs. Therefore, Australia is unable to benefit from the potential cost reductions and efficiency improvements because of its container port constraints (both wharf-side and land-side). 203 The report identified the initiative as infrastructure improvements enabling larger vessels to access ports on the east coast and said this "could require channel deepening at existing ports, development of new port locations and enhanced land-side access infrastructure at ports". Further: Given the preference of cargo ships to make multiple stops on a route, a network of deep water ports will likely be required, rather than a single port at a given location. This incentivises shipping lines to provide larger vessels to service Australia and maximises potential economic efficiencies. Any capital investment should be considered in the context of pricing arrangements to avoid impeding competition. 204 In September 2020, NSW Ports rejected an open offer by the ACCC to resolve its claims in the proceeding without any penalties being payable by NSW Ports, provided NSW Ports gave an undertaking preventing it from enforcing or giving effect to the compensation provisions, and made a costs contribution. 2.6 PON's preliminary business case 205 Since no later than October 2016 PON has been in contact with the ACCC about the compensation and reimbursement provisions in the PCDs. PON representatives met with the ACCC in October 2016. The ACCC informed PON that to pursue a case it would need "the assistance and cooperation of PON on factual elements of the case". The ACCC noted that there needed to be "a real likelihood of another entrant" competing in the market. PON noted that the Mayfield site had potential opportunity for a container terminal but PON would need to work through the business case to see if a container terminal would work. PON noted an increasing move towards containerisation so PON needed to be "on the front foot". The ACCC said that "in order to establish the case, we would need shipping lines saying in a rational and supported way that if there was a container terminal at PoN, they would use it in a meaningful way, may divert current shipments from PB or PK to PoN, and why, costs, time etc". Further, that it would be relevant if "someone with relevant expertise, funds, and a willingness to develop the terminal existed". PON said it would need to get more certainty about the commerciality of the project but would continue to engage with the ACCC. PON anticipated completing a business case for the project mid-way through 2017. 206 In March 2018 the Managing Director of CM Ports wrote to PON saying that: CMPort would hereby express our keen intention on cooperating with PoN in developing and operating the Newcastle Container Terminal. Moving forward, we will set up a dedicated team to work with PoN in performing a feasibility study over a period of 1 year. Concurrently, we may also submit a business proposal in adherence with any deadlines set forth by PoN. 207 In May 2018 the Managing Director of CM Ports wrote to Gardior, the trustee for TIF, saying: … kindly consider this an expression of our keen intention to further cooperate with TIF by means of Port of Newcastle (PoN), or a newly formed Joint Venture with TIF, in owning, developing and operating the Newcastle Container Terminal. Moving forward, we shall set up a dedicated team to work with TIF in conducting a feasibility study over the course of one year. Concurrently, we may also submit a business proposal in accordance with any deadlines set forth by PoN. 208 On 11 May 2018 PON's Chair, Mr Green, in an internal email said: I wanted to look into how we mount a case for XXXX XXXX XXXX XXXX XXXX XXXX as we move to large scale container volumes. Once XXXX XXXX XXXX XXXX, even if only on a wish list initially, it also assists the case for the primary asset, in our case the container terminal. We should start thinking how we proceed on rail infrastructure, including the prospect of a XXXX XXXX XXXX XXXX through western Sydney. We would quickly lose public support if it became evident we were transferring Sydney's traffic problems to Newcastle roads – rail connectivity will be a XXXX XXXX, so long as we can find someone to pay for it. 209 PON's Executive Manager Communication responded on 11 May 2018 as follows: From a PR perspective, if we make this a key part of our business case, it negates our government cost savings message and could help government and competitors XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 210 In July 2018 the Managing Director of CM Ports wrote to PON saying: …it is our intention to further invest in PON with the purpose of developing the Newcastle Container Terminal (NCT) into a world-class deep water facility capable of handling Ultra Large Container Vessels (ULCVs); i.e. for PON to XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. Moving forward, we are in support of forming a joint project team with members from both PON and CMPort. We may then follow a tentative work plan that includes physical environmental surveys, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX, and the design & construction stage, to be followed by official acceptance upon completion. With your valued support, it is our aim to complete the project as per the estimated timeline reflected in the NCT Project Plan Outline. 211 PON's current CEO, Mr Carmody, was appointed in August 2018 with the mandate of "removing" the Newcastle PCD, so that PON can diversify its business through the development of a container terminal. 212 PON's Chair, Mr Green, met with PON's shareholder, TIF, in August 2018. Mr Green recorded that: The Board was also interested in progress on the container terminal though it was interesting and somewhat disappointing to note that they were not themselves entirely convinced of the possibility or desirability of such a development, seemingly because of the risks involved. Again there was only scant evidence of familiarity with the operational impact of the PCD, the process required to remove it, and the significant implications of a favourable ACCC decision. However there were some reasonable questions about the logistics of unwinding the PCD for the government and NSW Ports, and how we should go about addressing these. The Board provided no guidance on how it would work with CMP on a business plan for the container terminal, though it did indicate a preparedness to XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. Clearly there will have to be some bilateral discussions between Gardior and CMP on how we go forward with regard to XXXX XXXX XXXX XXXX XXXX in the event that the PCD is removed or mitigated. 213 In response to a query by the ACCC on 27 September 2018 Mr Carmody said in an internal PON email: The lack of a fully developed container terminal business case and the lack of formal agreement from TIF is quickly coming back to bit[e] us. We will delay ACCC interviews … and next week will have to be totally focused on getting a business case pull together. …We will have to use external consultants. Does anyone have anything that approaches a business case document that we can build off? I know there are multiple documents – but is there an actual primary document? 214 PON engaged a number of external consultants to investigate aspects of the feasibility of a container terminal development at Port of Newcastle, and began preparing a Preliminary Business Case (the PON PBC) which was ultimately finalised and presented to PON's board in February 2019. 215 The PON PBC is not a final investment proposal. A detailed business case and business plan (including detailed supply chain and financial analyses and a marketing plan) would have been required to progress the project towards shareholder approval. The PON PBC was based on consultants' reports including: (1) Deloitte Access Economics, "NSW Container and Port Policy – Port of Newcastle", March 2018 (Deloitte report); (2) AECOM, "Port of Newcastle - Rail Capacity Assessment", April 2018; (3) Lycopodium, "Port of Newcastle: Container Transport Economics Study", August 2018) Lycopodium report); (4) AECOM, "Mayfield Container Terminal Development: High Level Concepts and Costings", November 2018; (5) AlphaBeta Strategy & Economics, "Global Gateway for New South Wales: the Economic Impact of a Container Terminal at Port of Newcastle", December 2018 (AlphaBeta report); and (6) AECOM, February 2019 "Assessment of Shipping Channel Constraints". 216 There is evidence that PON was heavily involved in the preparation of the consultants' reports to ensure that they properly reflected PON's case that the development of a container terminal at Port of Newcastle was viable and appropriate for the State of New South Wales. 217 The PON PBC proposed that a prima facie case exists "for PON to develop a highly automated, integrated and efficient container terminal" (using XXXX XXXX XXXX XXXX XXXX XXXX XXXX in the stacking yard) in three stages: (1) stage 1 – XXXX TEU capacity. Stage 1 works include the development of XXXX XXXX XXXX and the installation of XXXX XXXX cranes. It will be automated; able to service container vessels up to XXXX TEUs; and capable of receiving XXXX long trains. It is estimated to cost over XXXX XXXX; (2) stage 2 – XXXX TEU capacity. Stage 2 works include the development of a XXXX XXXX XXXX; the extension of the XXXX XXXX XXXX XXXX and the installation of an additional XXXX XXXX cranes. It will be able to accommodate vessels up to XXXX length overall (LOA) and capable of receiving XXXX long trains. It is estimated to cost over XXXX XXXX; and (3) stage 3 – XXXX TEU capacity. Stage 3 works include the development of a XXXX XXXX, the installation of an additional XXXX XXXX cranes and XXXX rail mounted gantries. It will be able to accommodate ultra large container vessels up to XXXX LOA. It is estimated to cost over XXXX XXXX. 218 The PON PBC said: While this report contains conclusions and recommendations as a result of the Base Case analysis, it should be noted that a more thorough evaluation of the proposed design remains a work in progress. 219 The PON PBC said that the stage 1 development, excluding capital dredging, would be built within the existing planning approval. This is a reference to the 2001 development consent. The PON PBC said stages 2 and 3 would require new planning approvals. 220 The PON PBC noted that Newcastle is not currently a location for distribution centres and said that "initially, products that are imported to Newcastle, and ultimately sold or consumed in the Port's catchment, may need to be transported to existing warehousing or distribution centres in Sydney before being sent back to Newcastle as part of aggregated freight consignments" but that "[o]ver time, supply chains will realign to take advantage of lower congestion, shorter transport distances and available and affordable industrial land in Newcastle. As future Distribution Centre capacity is created, imports will be deconsolidated and distributed both locally and to the Port's catchment providing even greater savings." It noted XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX offered enormous opportunity to augment the facilities and services provided by the proposed Newcastle container terminal. It described XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. The PON PBC said: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 221 The PON PBC noted that "shipping lines are almost certainly not going to consider calling both Newcastle and Sydney in the same service", so "ships calling Newcastle will need to be able to do full container exchanges that will include containers with freight servicing the Sydney market, as well as containers with freight servicing PON's catchment." The volume forecasts assumed that: …the average mix will be achieved by shipping lines acting rationally, wanting to maximise exchanges and balance the mix such that, if required, they may cross-subsidise where necessary. Shipping lines may cover or reduce the cost of transfers to Sydney of freight landing in Newcastle. 222 The PON PBC identified the lack of existing infrastructure as a weakness of the proposal and that: An efficient supply chain for containers to and from Newcastle, including intermodal services, Distribution Centres, ECPs [empty container parks] and related container services to support the terminal, does not currently exist. This lack of infrastructure creates a need for the repositioning of Sydney freight and catchment imports that need access to Sydney Distribution Centres in the early stages of development. There is a potential cost implication of this repositioning. 223 The PON PBC said: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 224 The PON PBC said: While this Preliminary Business Case assumes the successful removal of the PCD, lack of political policy support may have a material impact on the likelihood and timing of the required planning approvals. 225 The PON PBC said that the current obligations of "the PCD" (defined in the Glossary as "Port Commitment Deed – the contractual commitment of the NSW Government to pay NSW Ports for containers shipped through a future container terminal developed at the Port of Newcastle, for another 50 years") will result in negative NPVs (net present values) for PON at all stages of the project and negative NPV for the total project in stage 1. It also noted that PON is pursuing a range of legal and political strategies to either have the obligations of the PCD removed or significantly reduced. 226 The PON PBC refers to Port Botany, Port Melbourne and Port Brisbane as competing or competitor ports. 227 The PON PBC assumed the development of a container terminal would be supported by substantial equity and debt from PON's shareholders. 228 Before the PON PBC was prepared, on 26 June 2018, PON met with Mr Dent, the then General Manager Operations/Logistics of ANL (a shipping company) who noted that: ANL would be more likely to provide services to PON if there was the XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX… …from a shipping line perspective price, service levels and cargo volumes are key and they would need to be sure they can get the contributing import cargoes to move via Newcastle and quickly distributed to destination. …ANL makes most of its money on the import trade. (southbound from Asia). …it would be beneficial if PON could provide detail of XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. … 229 A report to PON's board in November 2018 recorded that the advice from shipping lines, shipping consultants and CM Ports had been consistent: • Lines are almost certainly not going to consider calling both Newcastle and Sydney in the same service. • Ships calling Newcastle will need to be able to do full container exchanges that will include containers with freight from or to the Sydney market as well as containers with freight from or to the PON catchment area. • Lines have contracts and commercial arrangements that may take up to three years to change. • Shipping lines want to be able to capitalise on the economies of scale from larger ships and larger exchanges. Ports with facilities that handle larger ships will have an advantage. • Shipping lines have indicated intention to grow ships sizes to from the current largest size of 8,500 TEU to 10,000+TEU 230 In a speech in 2018 Mr Carmody said: We don't see Port of Newcastle Container Terminal as competition for Botany or Brisbane – our container port is global-facing and its natural catchment is regional New South Wales. 231 In January 2019 Mr Kwiatkowski (a director of PON Operations) reviewed the draft PON PBC and noted: Business Case states that there will be a need for substantial shareholder equity in the project financing mix, who likes this? Even if shareholders were to be generous, the project would be non-bankable on the basis of such Business Case. 232 In February 2019, on presentation of the PON PBC, PON's board approved progress to "Decision Gate 2A", that is, the preparation of a "Detailed Business Case" at a cost of about $3.4 million. 233 In March 2019 the NSW Liberal/National Coalition government was re-elected. 234 In May 2019 PON reported to its shareholders including that: (1) the fact that the Liberals had been re-elected in New South Wales has a negative impact on the potential to remove the Newcastle PCD; (2) PON was assisting the ACCC to prosecute its case against NSW Ports; (3) despite the uncertainty about the Newcastle PCD there was work on the Newcastle Container Terminal project that it would be efficient and prudent to undertake now; and (4) continuing momentum on the project is critical to credibility with new customers, NSW Government and is the central tenet of the ACCC proceedings. 235 PON's shareholders agreed to establish a Steering Committee for the project. The Steering Committee subsequently approved the formation of a Project Management Team, which would be assisted by CM Ports and MIRA. 236 In October 2019 one of PON's directors, Mr Kwiatowski, said shipping industry insiders were uneasy about a statement of Mr Carmody that "I would argue with the changes going on in the shipping world, there will be a cascading effect on the larger vessels into the Australian trade and if we actually have somewhere for them to call, we'll probably start getting them". Mr Kwiatowski said: …industry experts know how serious investments decisions in port business are made. It's not done on a basis of: "we'll spend X million $ on infrastructure and equipment, some customers will come". There were some cases, where following the above route [of Mr Carmody, ie of developing a port for larger vessels to call] produced very costly and ultimately unwanted port infrastructure's "white elephants". 237 In November 2019 Mr Dent noted to PON in respect of PON's PBC that: With only 2-3 calls per week in stage one will customers (importers/exporters) change their supply chain arrangements? Most of their cargo will still be going via Port Botany and if now split over two ports they may find their transport (road/rail) costs via Port Botany going up as they now have reduced volume. The customers will have volumes related tariffs and possibly volume incentives as well. The saving for a smaller volume via PoN may be offset by additional costs/ loss of rebates via Port Botany. Was this tested when the preliminary business case was put together? 238 Mr Dent also noted that: Whilst the industry will espouse support for an alternative to Port Botany, lines will be concerned with the fact there is just the one berth initially, with the second berth four years after the commencement of operations stage one. Vessels are often off schedule and should it clash with an on window vessel further delay[s] are to be expected. Port Botany has the luxury of multiple berths and operators, better able to manage off window vessels. Vessel delays and the cost of schedule rectification is a big issue for the lines. If vessels experience delays in PoN they may bypass for Port Botany. 239 In November 2019 the PON board approved a budget for further work on the container terminal project. The evidence is not entirely clear but the estimate of the cost of the further work is some $7.47 million. That budget included expenditure on market and supply chain analyses, hydrological and geotechnical studies of the shipping channel and berths at Port of Newcastle, and the development of a design simulation to consider the design, configuration and operation of the terminal. 240 In February 2020 PON's board was presented with a PCD Resolution Strategy which "identified the advantages of substantive political involvement to facilitate resolution of the Newcastle PCD and therefore accelerate the MDT [multi-purpose deepwater terminal] project". 241 On 16 April 2020 PON considered the success fees that should be paid to its employees, including Mr Carmody, if certain results were achieved including the removal of the Newcastle PCD. A base case outcome recorded that: PCD is removed by government with a fair payment/contribution from PON (reflecting the low probability ascribed to container terminal operations buy [sic] bidders in 2014). 242 On 23 April 2020 a report to PON's board recommended the board approve a "budget of up to $3.8M to develop the full MDT Business Case to support the ACCC -v- NSW Ports court proceedings". The report also said: The 2018 preliminary business case is 18 months old and due to changes in macro-economic conditions, along with time, no longer carries currency. Consequently, a new full MDT Business Case is required to support the ACCC -v- NSW Ports court proceedings, mediation, NSW State Deal and future financing. 243 The same report to PON's board said: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 244 On 24 April 2020 PON wrote to the Prime Minister saying: Since privatisation of the Port of Newcastle in 2014, we have been working on a proposal to develop a cutting-edge container terminal on the east coast of Australia that can return international competitiveness to our international logistics. … The owners of the Port of Newcastle have been seeking to make the investment for several years. Due to the resistance experienced to date, our funding envelope for the project has been between XXXX (current Stage 1) and XXXX (optimal Stage 1). This range represents the investors refusal to provide investment to the project while the Port Commitment Deed penalty remains in place and the uncertainty that the NSW Government would approve a larger development than the current planning approvals the Port has (these approvals date back to 2001, when the NSW Government was going to build a container terminal in Newcastle). To complicate matters, as you would appreciate, the COVID-19 pandemic has hit the investment sector hard and PON is no exception. Consequently, the ability of PON to contribute to the costs of planning works and make contributions to capital costs in the current environment is hampered. Given the uncertainty of global investment funds, the temporary downturn in international container shipping and the economy's need for immediate significant private investment, I write to you today seeking your support in a number of areas to fast-track this project so it can deliver these benefits in a much shorter timeframe than was originally envisaged. We seek your assistance in the following areas – 1. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 2. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX … 3. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX 245 PON thereafter engaged McKinsey & Co to prepare an "investment grade" business case, including financial analysis. The objective of this engagement was "an investment grade business case for the MDT. This investment case will be required to be of a standard that is suitable to assure shareholders and potential investors of PON of both the benefits and risks associated with the construction and operation of this terminal". 246 Further consultants' reports obtained by PON include: (1) market analysis by Ocean Shipping Consultants (OSC), in respect of which a final report dated 5 May 2020 has been completed; (2) a terminal design simulation undertaken by TBA Group. PON asked TBA to consider alternative design options, including revised staging for the construction of the terminal, in order to come up with an optimal design for the terminal; (3) a hydrological study concerning the shipping channel and berths at Port of Newcastle, which is being undertaken by DHI/SeaPort OPX; (4) a geotechnical study to inform any requirements for ground improvements and suitable pavement options for a container terminal, undertaken by Douglas Partners; (5) a planning pathways study and related studies by WSP (who advised that "existing approvals do not reflect future development of the MDT as a modem facility designed to meet current and future needs of the port. The information provided on preferred future planning pathways for the MDT has assumed that a significantly revised layout is required to achieve an appropriate form of development"); and (6) a navigation screening study prepared by DHI/SeaPort OPX. 247 Mr Dent reviewed OSC's draft report in March 2020 and noted the following: The executive summary needs further work, having a clear conclusion and recommendation. What I take away from the report is that Port Botany has ample capacity and that a subsidy is required if a terminal is to be established in Newcastle. 248 OSC's final report, "Port of Newcastle Supply Chain Analysis for a Container Terminal" was provided to PON in May 2020 (OSC report). 249 McKinsey & Co informed PON in August 2020 in an update document that, as to potential volumes through a Port of Newcastle container terminal: • XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX • XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX • XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX • XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX • XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 250 McKinsey & Co also informed PON that the container terminal would need to have XXXX XXXX XXXX XXXX to attract importers, so a XXXX XXXX XXXX was not feasible. 251 By September 2020 TBA had recommended to PON a proposed MDT involving XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX (1) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX (2) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX (3) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX (4) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 252 In September 2020 PON noted that XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 253 On 25 September 2020 McKinsey & Co emailed Mr Dent of PON to this effect: We are hearing some conflicting views about the destination for containers in NSW which has a significant impact on the investment case (since the destination for containers influences the extent of the cost equalisation we need to offer). Would you mind emailing the shipping lines we spoke to (OOCL, PIL, ANL) in order to ask them for their answer to the email below please? If they were able to share a view ASAP that would be really helpful. 254 This email noted the view of McKinsey & Co that the destination of containers from Port Botany to the distribution centre where disaggregation (or unstuffing) occurs is XXXX to western Sydney, XXXX to the rest of Sydney and XXXX to outside of Sydney. 255 The evidence was to the effect that the "investment grade" business case prepared by McKinsey & Co was anticipated to be available for presentation to PON's board in November 2020. The hearing continued until 17 December 2020. No "investment grade" business case (prepared by McKinsey & Co or otherwise) was tendered in evidence. 2.7 ACCC's contentions about basic facts 256 The ACCC contended that there were 10 key matters of fact, nine of which were principally founded on the documentary evidence (the tenth also depending on the evidence of witnesses which is dealt with separately). It is convenient to record my response to the ACCC's contentions about the 10 key contentions. The contentions are identified below in italics. 257 First, the State's policy, from around 2003 to 2012 was that the Port of Newcastle would be the next location at which a container terminal would be developed after Port Botany. 258 The State policy from 2003 to 2012 was that after Port Botany reached its full capacity as a container terminal, the next container terminal to be developed would be at Port of Newcastle. 259 This policy, insofar as it identified Port of Newcastle as the next container terminal to be developed after Port Botany reached full capacity, was under question from late 2011 when the State announced it would privatise Port Botany and Transport for NSW and Infrastructure NSW commenced a review of ports policy for NSW. From March 2012 it was apparent that there were serious issues of concern within the State and its advisers about the Port of Newcastle being the next container terminal to be developed after Port Botany reached full capacity. On 27 July 2012 the Treasurer and Minister for Roads and Ports announced that the State would seek to develop Port Kembla as the logical next long term tranche of container capacity after Port Botany. This policy decision was reflected in the State Infrastructure Strategy 2012-2032 published by Infrastructure NSW in October 2012. It was also reflected in the State's draft NSW Freight and Ports Strategy published in November 2012. This draft also identified that the expectation was that Port Botany might approach its natural capacity between 2030 and 2040, after which new port infrastructure at Port Botany or Port Kembla might be needed. 260 This policy was also reflected in the NSW Long Term Transport Master Plan was published in December 2012. The policy remained unchanged in the final NSW Freight and Ports Strategy published in November 2013. It remains unchanged to date. The State has implemented a number of significant infrastructure decisions subsequently reflecting this policy. 261 Accordingly, at the time the compensation provisions were made on 31 May 2013 the policy of the State was that: (a) Port Botany would be developed to full capacity first, (b) it was anticipated that Port Botany may approach its natural capacity between 2030 and 2040, after which new port infrastructure at Port Botany and Port Kembla may be required, (c) after Port Botany and Port Kembla had reached their full capacity, the next container terminal in NSW would be developed at the Port of Newcastle. 262 Second, in at least the period from 2010 to 2013, a private sector consortium was interested in developing a container terminal at the Port of Newcastle. 263 NSC/MDC was selected by NPC as the preferred developer of a container terminal at the Port of Newcastle by May 2010. NPC was permitted to negotiate with NSC/MDC in June 2011 on the basis that it could not bind the State and that State approval to any commercial deal would be required. By October 2011 NPC and NSC/MDC agreed a term sheet and draft contracts for the proposed development. When NSC/MDC sought approval to enter into the agreements the State informed it that development of a container terminal at the Port of Newcastle would be considered in the context of an overarching strategy for port infrastructure in NSW. As a result, the State would not agree to the development of a container terminal at Port of Newcastle. It would agree only to the development of a multi-use cargo facility. NPC was permitted to negotiate with NSC/MDC on this basis only. By that time, in July 2013, the State was also contemplating the privatisation of the Port of Newcastle. Negotiations between NPC and NSC/MDC continued on the limited basis approved by the State. By November 2013 the Treasurer had directed NPC to cease negotiations altogether. 264 The NSC/MDC proposal for a container terminal at the Port of Newcastle never moved beyond a concept phase. Even in concept, the proposed container terminal was phase 2 of the proposed development with no timing commitment. It may be inferred that NSC/MDC did not have funding in place for the development. The advisers to the State also considered that there was no commercial justification for the inclusion of phase 2 in the development proposal. NSC/MDC said that it was ready to develop a container terminal "at a time decided by the government in the future" which it acknowledged may not be for 20 years. In other words, NSC/MDC did not propose to develop a container terminal contrary to the State policy that Port Botany's capacity should be used first. 265 Third, there was a link between the change in the State's policy with respect to Newcastle being the location for NSW's next container terminal, and the work done for the State by Treasury and Morgan Stanley, regarding the Port Botany privatisation, in late 2011 and 2012. 266 If by this, the ACCC means that the State changed its policy because it proposed to privatise Port Botany, I disagree. The State decided to privatise Port Botany first, it may be inferred, because such a privatisation was the policy of the NSW Liberal/National Coalition government elected in March 2011 and, secondly, because Port Botany is NSW's only dedicated container terminal and the State policy was always that Port Botany would be developed to its full capacity before any other container terminal would be developed. At the same time as the privatisation of Port Botany, the State was reviewing its port development strategy through the work of Transport for NSW and Infrastructure NSW. The interim outcomes of that review informed with the conclusions reached by the Treasury and Morgan Stanley, that Port Botany should be developed to capacity as a container terminal, then Port Kembla, and only then the Port of Newcastle. The conclusions reached by the Treasury and Morgan Stanley did not drive the conclusions reached by Transport for NSW and Infrastructure NSW. Rather, the Treasury and Morgan Stanley considered the interim conclusions and recommendations of Transport for NSW and Infrastructure NSW which informed their own conclusions. 267 Accordingly, the privatisation of Port Botany did not cause the State's change of policy. It coincided with the State's change of policy but the change of policy was not driven by the fact of the privatisation of Port Botany. The change in the State policy was an outcome only of the consideration of efficient and cost-effective infrastructure development for NSW. 268 Fourth, the State was told in 2012 and early 2013 that the Port of Newcastle could compete with Botany and that bidders for Botany and Kembla would consider that risk of competition to be material. 269 It is correct that the State was told that if a container terminal was developed at the Port of Newcastle it would compete with Port Botany. It is apparent from the course of the communications as a whole that by "compete" what was meant was that if a container terminal was developed at the Port of Newcastle it would divert some container trade away from Port Botany and that, despite the State policy to the contrary, this perceived risk had a not immaterial value to the Port Botany privatisation because bidders would make conservative assumptions about the perceived risk. 270 Fifth, before the privatisation of Port Botany in 2013, the State was told that bidders for Port Botany and Port Kembla would want protection from that risk of potential competition from Newcastle. 271 Subject to the observation above in relation to the fourth point, it is correct that the State's focus was to protect bidders from the financial effects of the perceived risk that the State policy might change in the future, as a result of which a container terminal may be developed while Port Botany has capacity or while a container terminal at Port Kembla has capacity. . 272 Sixth, the Compensation Provisions were directed to providing that protection, and the Treasurer himself signed off on the Compensation Provisions on that basis in March 2013. 273 If, by "that protection", it is understood to mean the protection described in fifth point above, this is correct. 274 Seventh, the State contemplated the effects of the Compensation Provisions, including the State withholding approval for a container development at the Port of Newcastle and/or requiring investors in a privatised the Port of Newcastle to reimburse or indemnify the State for its liability under the Compensation Provisions. 275 The State did not contemplate that withholding approval for a container development at the Port of Newcastle would be an effect of the compensation provisions. Rather, it contemplated that it had four options which included doing nothing, allowing the development of a container terminal at the Port of Newcastle and providing comfort to bidders, blocking the development of a container terminal at the Port of Newcastle, and blocking the development of a container terminal at the Port of Newcastle and providing comfort to bidders anyway. 276 In this regard, it is also necessary to recall that the development of a container terminal at the Port of Newcastle meant the NSC/MDC development proposal as described above, which NPC had been pursuing (with the State's approval until 2012) from a time when that pursuit was consistent with the policy of the State, at least to the extent of the next container terminal, after Port Botany had reached capacity, being at the Port of Newcastle. 277 It is also necessary to recall that the State's policy at the time was that Port Botany be developed to full capacity first, then Port Kembla, and only then Port of Newcastle. For this reason the advisers to the State considered the risk of development of a container terminal at Port of Newcastle contrary to the State policy to be a "straw man" that, nevertheless, had to be dealt with given its potential impact on the value bidders would attribute to Port Botany and Port Kembla. 278 The State did contemplate that if the compensation provisions were included as part of the privatisation of Port Botany and Port Kembla, the State could offset any potential liability under those provisions in the transactions effecting the privatisation of the Port of Newcastle. 279 Eighth, the Treasurer himself contemplated a reimbursement obligation as a consequence of the Compensation Provisions before he executed the Port Botany and Port Kembla PCDs containing the Compensation Provisions on behalf of the State. 280 This is correct. 281 Ninth, the Reimbursement Provision was in fact imposed as a consequence of the Compensation Provisions. 282 In my view, this is correct. 283 Tenth, since becoming the owner of Port Botany and Port Kembla, the NSW Ports Respondents have held the view that a Newcastle Terminal would compete with Port Botany if the Botany and Kembla PCDs were not in place, and have been concerned about that prospect. 284 As discussed below, this submission needs to be unpicked. On the evidence, NSW Ports considers that the compensation provisions provide it with financial protection if the State policy changes and a container terminal is developed at the Port of Newcastle and diverts containers away from Port Botany before Port Botany reaches capacity. 285 On the evidence, the reimbursement provisions are irrelevant to NSW Ports other than to the extent that they argue that, if anything has an anti-competitive effect, it is the reimbursement provisions alone and not the compensation provisions. 286 NSW Ports also does not accept that there is a credible threat of entry by a container terminal at the Port of Newcastle in the reasonably foreseeable future and has not done so since the State policy changed, the cap on Port Botany was removed, and Port Kembla was privatised with Port Botany. 3. CROWN IMMUNITY 3.1 Statutory provisions 287 References below are to the provisions of the CCA as in force at 31 May 2013 (the date the Port Botany and Port Kembla PCDs were executed). 288 Section 2 of the CCA provides: The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection. 289 Section 2B provides: (1) The following provisions of this Act bind the Crown in right of each of the States, of the Northern Territory and of the Australian Capital Territory, so far as the Crown carries on a business, either directly or by an authority of the State or Territory: (a) Part IV; (b) Part XIB; (c) the other provisions of this Act so far as they relate to the above provisions. (2) Nothing in this Act renders the Crown in right of a State or Territory liable to a pecuniary penalty or to be prosecuted for an offence. (3) The protection in subsection (2) does not apply to an authority of a State or Territory. 290 By s 4 an "authority" in relation to a State or Territory means: (a) a body corporate established for a purpose of the State or the Territory by or under a law of the State or Territory, or (b) an incorporated company in which the State or the Territory, or a body corporate referred to in paragraph (a), has a controlling interest. 291 By s 4E: For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services. 292 Section 4F provides: (1) For the purposes of this Act: (a) a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, or a covenant or a proposed covenant, shall be deemed to have had, or to have, a particular purpose if: (i) the provision was included in the contract, arrangement or understanding or is to be included in the proposed contract, arrangement or understanding, or the covenant was required to be given or the proposed covenant is to be required to be given, as the case may be, for that purpose or for purposes that included or include that purpose; and (ii) that purpose was or is a substantial purpose; and (b) a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if: (i) the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and (ii) that purpose or reason was or is a substantial purpose or reason. 293 Section 4G is in these terms: For the purposes of this Act, references to the lessening of competition shall be read as including references to preventing or hindering competition. 294 Section 4L is as follows: If the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision in the contract, then, subject to any order made under section 51ADB or 87, nothing in this Act affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable. 295 Section 45, in Div 2, Pt IV of the CCA, included these provisions: (2) A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: (i) is an exclusionary provision; or (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition. (3) For the purposes of this section, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services. (4) For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely: (a) the other provisions of that contract, arrangement or understanding or proposed contract, arrangement or understanding; and (b) the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation or a body corporate related to the corporation is or would be a party; together have or are likely to have that effect. 296 Section 45 of the CCA was subsequently amended but not in a manner which any party suggests is material to this case. The key provisions are now s 45(1) (in equivalent terms to s 45(2) above and s 45(3) (which remains in substantially similar terms to s 45(3) above). Section 45(4) remains identical. 297 Section 51 of the Act in May 2013 (and now) provides that in deciding if a person has contravened Pt IV anything done in, relevantly, a State, if the thing is specified in and specifically authorised by an Act passed by the Parliament of that State or regulations made under such an Act, that thing must be disregarded. 3.2 Authorities 298 Bradken Consolidated Ltd v The Broken Hill Proprietary Company Ltd [1979] HCA 15; (1979) 145 CLR 107 concerned the application of the Trade Practices Act 1974 (Cth) (Trade Practices Act) to the Commissioner for Railways of the State of Queensland. Section 8(1) of the Railways Act 1914 (Qld) provided, among other things, that the Commissioner represented the Crown and had all the powers, privileges, rights and remedies of the Crown. Gibbs ACJ (as he then was) at 114 referred to Wynyard Investments Pty Ltd v Commissioner for Railways (NSW) [1955] HCA 72; (1955) 93 CLR 376 in which it was held that a statutory body representing the Crown had the immunities of the Crown: at 114. Otherwise, Gibbs ACJ identified that the Commissioner was, in a number of respects, subject to direct control of the legislature, Governor or Minister. All moneys payable to the Commissioner were payable into Consolidated Revenue. Contracts into which the Commissioner entered were of no effect until approved by the Minister. Accordingly, these matters also confirmed that the Commissioner was an agent of the Crown and entitled to Crown immunity: at 115. 299 Gibbs ACJ referred to the "established rule of construction that no statute binds the Crown unless the Crown is expressly named therein or unless there is a necessary implication that it was intended to be bound": at 116. The Trade Practices Act bound the Crown in right of the Commonwealth insofar as it carried on a business but was silent about the Crown in right of the States: at 116. As such, the statute did not bind the Crown in right of the State. Further, if the statute was enforced against the other parties to the contracts it would prejudice the Commissioner "just as much as if its provisions had been directly enforced against him": at 123. As a result, the statute could not apply to the transactions: at 124. 300 Stephen J reasoned to the same effect: at 127-129. 301 Mason and Jacobs JJ referred to an identical presumption of legislative intention not to bind the Crown as between the Crown in right of the Commonwealth and the Crown in right of the States: at 136. Accordingly, the absence of an intention to bind the Crown in right of Queensland exonerated both the Commissioner and the other parties to the transactions from the provisions of the Trade Practices Act: at 137-138. Murphy J dissented concluding that the Trade Practices Act bound the Crown in right of the States: at 140. 302 In the joint judgment of Mason CJ, Deane, Dawson, Toohey, Gaudron and McHugh JJ in Bropho v Western Australia [1990] HCA 24; (1990) 171 CLR 1 at 15 it was observed that the rule that legislative provisions are prima facie inapplicable to the Crown is a rule of statutory construction. Further, the presumption extends beyond the Sovereign to the activities of governmental instrumentalities or agents acting in the course of their duties as such. They observed at 19 that: [T]he historical considerations which gave rise to a presumption that the legislature would not have intended that a statute bind the Crown are largely inapplicable to conditions in this country where the activities of the executive government reach into almost all aspects of commercial, industrial and developmental endeavour and where it is a commonplace for governmental commercial, industrial and developmental instrumentalities and their servants and agents, which are covered by the shield of the Crown either by reason of their character as such or by reason of specific statutory provision to that effect, to compete and have commercial dealings on the same basis as private enterprise. 303 At 21-22 their Honours continued: Once it is recognized that the rule does not, of itself, provide an impregnable foundation for its own observance, there can remain no basis in principle for unqualified insistence upon the rule as an inflexible one, with the stringent implications which recent cases have accorded it. In other words, once it is accepted that a legislative intention to bind the Crown may be disclosed notwithstanding that it could not be said that that intention was "manifest from the very terms" of the statute or that the purpose of the statute would otherwise be "wholly frustrated", fundamental principle precludes confinement of the general words which the legislature has used in a way which will defeat that intention. Such a legislative intent must, of course, be found in the provisions of the statute – including its subject matter and disclosed purpose and policy – when construed in a context which includes permissible extrinsic aids. If such a legislative intent does appear from the provisions of a statute when so construed, it must necessarily prevail over any judge-made rule of statutory construction including the rule relating to statutes binding the Crown. … That being so, earlier judicial statements to the effect that it must be manifest from the very terms of the statute itself that it was the legislative intent that the general words of a statute should bind the Crown, or that it must be apparent that the purposes of the statute would be wholly frustrated unless the Crown were bound, should be read as applying to the context of the particular statutory provisions involved in the cases in which they were made. Such statements should no longer be seen as precluding the identification of such a legislative intent in other circumstances or as warranting the overriding of a legislative intent which can be discerned in the provisions of a statute when construed in context. 304 The joint judgment continued at 23-24 to this effect: In the case of legislative provisions enacted subsequent to this decision, the strength of the presumption that the Crown is not bound by the general words of statutory provisions will depend upon the circumstances, including the content and purpose of the particular provision and the identity of the entity in respect of which the question of the applicability of the provision arises. … Always, the ultimate questions must be whether the presumption against the Crown being bound has, in all the circumstances, been rebutted, and, if it has, the extent to which it was the legislative intent that the particular Act should bind the Crown and/or those covered by the prima facie immunity of the Crown. 305 Justice Brennan in Bropho said this at 28 to the same effect: [T]he presumption cannot be put any higher than this: that the Crown is not bound by statute unless a contrary intention can be discerned from all the relevant circumstances. As the Court must determine whether the legislature intended … that the statute should affect the activities of the Executive Government, the circumstances which properly relate to that question must be considered. Those circumstances include the terms of the statute, its subject matter, the nature of the mischief to be redressed, the general purpose and effect of the statute, and the nature of the activities of the Executive Government which would be affected if the Crown is bound. 306 In NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48; (2004) 219 CLR 90 McHugh ACJ, Gummow, Callinan and Heydon JJ considered s 2B of the Trade Practices Act, which provided that the Pt IV of the Act bound the Crown so far as the Crown carried on a business. They said: (1) the word "business" normally is a "wide and general word": [66]; (2) the purpose of introducing s 2A (and, I note, s 2B) was to ensure that the Commonwealth Government (and, I note, State governments) should, in its commercial activities, be subject to the same regime as corporations: [66]; (3) for s 2B to apply the conduct need not itself be the actual business engaged in. It need only be in the course of the relevant entity carrying on a business: [67]; (4) nothing in the Act limits the meaning of "business" by reference to the criteria for market definition: [69]; and (5) the only question is: what business was the relevant entity carrying on? So far as it was carrying on a business, s 46 applied to it: [70]. 307 The joint judgment in NT Power also said that in Bropho it was concluded that "a search for legislative intent that the general words of statutes should bind the Crown should be conducted without the restrictive limitations of the traditional rule": [19]. Their Honours additionally referred at [167]-[168] to the observations of Kitto J in Wynyard Investments at 394 in relation to derivative Crown immunity. Justice Kitto identified three classes of case: (1) ''a provision, [which] if applied to a particular individual or corporation, would adversely affect the exercise of an authority which he or it possesses as a servant or agent of the Crown to perform some function so that in law it is performed by the Crown itself''; (2) cases "in which a provision, if applied to a particular individual or corporation, would adversely affect some proprietary right or interest of the Crown, legal equitable or statutory''; and (3) ''an anomalous class of cases where a provision creating a liability by reference to the ownership or occupation of property would, in its application in respect of certain kinds of property, impose a burden upon the performance of functions which, though not performed by servants or agents of the Crown, are looked upon by the law as performed for the Crown''; 308 Their Honours identified at [170] that the relevant question in this regard was whether the application of s 46 to the entity claiming derivative Crown immunity: ''would be, for a legal reason, an interference with some right, interest, power, authority, privilege, immunity or purpose belonging or appertaining'' to the Government … [citing Wynyard Investments]. More recently, this Court said that the interference to be looked for is a ''divesting'' of ''property, rights, interests or prerogatives'' [Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 at [42], per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ] belonging to the Government. The better view is that the principle applies to proprietary, contractual and other legal rights and interests and not otherwise, notwithstanding that it has been said to extend to ''arrangements or understandings'' [Bradken at 137, per Mason and Jacobs JJ; see also Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] AC 584 at 621, 624, per Lord Reid; at 629, per Lord Tucker; at 632, per Lord Asquith of Bishopstone]. 309 Their Honours rejected the argument that a financial impact on the Northern Territory Government (as opposed to prejudice to property rights, legal rights, legal interests or legal prerogatives) was sufficient to enliven derivative Crown immunity: [173]-[175]. 310 In Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38; (2007) 232 CLR 1 Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ, in a joint judgment, identified the issue as whether ss 46 and 47 of the Trade Practices Act applied to "conduct of a trading corporation in, or in connection with, negotiations for, entry into, or performance of, a contract with a State or Territory government where the government's conduct is not in the course of carrying on a business". Those sections "bound the Crown in right of a State or Territory so far as the Crown carries on a business, either directly or by a government authority (s 2B)". The argument was thus one of derivative Crown immunity: [1]. Their Honours said: (1) "[w]hen, in 1995, s 2B was added, providing that certain provisions of the Act bound the Crown in right of a State or Territory when carrying on a business, the conclusion reached in Bradken was reversed in so far as the Crown was carrying on a business, but reinforced in so far as the Crown was not carrying on a business"; [43]; (2) "[t]here is nothing unusual about a circumstance in which making or giving effect to a contract involves an offence by one party to the contract but not by the other. The consequences of such illegality for the rights of the respective parties will not necessarily be the same. Furthermore, there is nothing unusual about the Act applying to one party to a transaction, or proposed transaction, but not to the other": [44] (citations omitted); (3) "…as Gibbs J said in McGraw-Hinds (Aust) Pty Ltd v Smith [[1979] HCA 19; (1979) 144 CLR 633 at 643-644], the fact that an offence is one that may not be committed by the Crown is no reason for concluding that it may not be committed against the Crown": [47]; (4) "[t]he reasons given in Bradken for the conclusion that ss 45 and 47 of the Act did not apply to the conduct of the Queensland Commissioner for Railways must now be regarded, in the light of this Court's decision in Bropho, as too widely expressed": [52]; (5) "[t]wo things are clear. First, the proposition applied in Bradken was regarded as a corollary of the principle about Crown immunity. Secondly, both the proposition about Crown immunity and its corollary are principles of statutory construction. The Court's statement in Bradken of the principle about Crown immunity no longer accurately represents the law. It has been overtaken by the decision in Bropho": [58]; (6) (after referring to the reasons of Kitto J in Wynyard Investments at 393-394, including that the "cases in which a statutory provision not binding on the Crown must be denied an incidence upon a subject of the Crown because that incidence would be in legal effect upon the Crown" fall into the three classes Kitto J identified), "[w]e are concerned with the second of these classes, bearing in mind that what is involved is the 'incidence … in legal effect' upon the Crown. General references to unspecified forms of prejudice to interests of the Crown in a context such as this are unhelpful. There were references in the argument for the respondents to the 'right' of States to enter into contracts, where what was in contemplation would be described more accurately as a freedom … For reasons already given, whether and to what extent it is to the advantage of executive governments, Commonwealth or State, for corporations dealing with them to be unfettered by laws which promote competition, is a question to which there is no simple answer. Because of its power to make laws with respect to trading corporations, it is a question on which the language of the federal Parliament's legislation is decisive, subject to s 51(1)": [60]; (7) (after referring at [61] to the reasons of Kitto J in Wynyard Investments at 396 which focus on an interference with "some right, interest, power, authority, privilege, immunity or purpose belonging or appertaining to the Crown"): "[t]he need for concentration on legal consequences in this context has been stressed in recent times by this Court in NT Power … [at [170]]. The principle of construction to be applied is that, since the Act does not bind the Crown in right of a State or Territory when it is not carrying on a business, then, save to the extent to which a contrary intention appears, the Act will not be read so as to divest the Crown of proprietary, contractual or other legal rights or interests. Consistently with Bropho, such a contrary intention may appear from the language of the Act, and its objects and subject matter as emerging from that language": at [62]; (8) "…it would be wrong to conclude that ss 46 and 47 had no application to any conduct of the first respondent in relation to its dealings with the second, third and fourth respondents. The first respondent was a trading corporation. A conclusion that, in carrying on dealings with a government in the course of its own business, it enjoyed a general immunity not available to the government when the government was carrying on business itself would be remarkable. Such a conclusion would be impossible to reconcile with the object of the Act as now declared in s 2. Furthermore, such a conclusion would go far beyond what is necessary to protect the legal rights of governments, or to prevent a divesting of proprietary, contractual and other legal rights and interests. As a result of changes to the Act since Bradken, State and Territory governments no longer enjoy any general immunity from the Act. Acting under s 51(1), State and Territory Parliaments may legislate to protect governmental interests, but the legislative emphasis on the specificity with which they must do that (increased since Bradken) draws attention to the importance attached to the pursuit of the object declared in s 2": [64]; (9) "[u]nderlying this argument is the idea that the Act operated so as not to enact any law that would circumscribe the freedom of the Crown in right of a State or Territory to make any kind of contract it wished, and, furthermore, that the Act preserved the Crown's freedom in that respect, by providing that corporations dealing or negotiating with the Crown should be free to propose and make any kind of contract, unfettered by any constraint under the Act. These ideas cannot be supported by reference to any established principle of statutory construction, and they are impossible to reconcile with the purpose and subject matter of the Act. It is one thing to read the Act so as not to divest the Crown of legal rights. It is another thing altogether to read the Act as giving an executive government (as distinct from a Parliament acting under s 51(1)), including all its servants and agents, a freedom not enjoyed when the government itself is carrying on business, from any impact of laws enacted for the promotion of competition and fair trading in the public interest. And it is even more unlikely that that freedom extends to all persons dealing with that executive government": [68]; (10) "[i]n order to protect legal rights of the Crown, it is not necessary to deny that entering into or performing a contract could involve a contravention of s 46 or s 47 by a non-government party … The outcome is determined by the application of the detailed legislative scheme concerning remedies. It is not dictated by a general conclusion that, in order to preserve the Crown's immunity, it is necessary also to extend a general immunity to any non-government party negotiating or contracting with the Crown": [70]; (11) "[t]he reaction of South Australia to Offer 1A hardly suggests that the conduct of the first respondent was within its contemplation. Even if it had been, the purpose of the Act is to promote competition, which is a process which operates for the public benefit, not to satisfy the expectations of parties": [73]; (12) "[a]s a matter of construction of the Act, however, it is wrong to conclude that it operates to preserve unfettered the contractual capacities of the Crown, to the extent of withholding the application of the Act from conduct by non-government parties in response to an invitation to tender": [73]; and (13) "[t]he construction urged by the respondents imposes a very extensive qualification upon the Act's object of promoting competition and fair trading in the public interest, in the name of the protecting of the capacities of the Crown, a qualification strikingly at odds with the way the Act deals with governments when they themselves carry on a business": [74]. 3.3 ACCC's/PON's submissions 3.3.1 Crown immunity submissions 311 The ACCC submitted that three matters are relevant to the application of s 2B. First, as a question of construction, what does "the Crown" mean for the purposes of s 2B? Second, as a matter of fact, who was engaged in carrying on the business of SPC, PKPC and NPC? Third, when will conduct be conduct that falls within the phrase "so far as the Crown carries on a business, either directly or by an authority of the State or Territory"? 312 As to the first matter, the meaning of Crown, the ACCC submitted that the concept includes the executive government of the particular polity, which is comprised of ministers, government departments, public servants, statutory authorities, officials, and statutory corporations: NT Power Generation v Power & Water Authority [2002] FCAFC 302; (2002) 122 FCR 399 at [160], citing Town Investments Ltd v Department of the Environment [1978] AC 359 at 381. The Crown "acts in its day to day activities through the agency of its public service and through other institutions or instrumentalities created for the purpose" and its "functions nowadays extend beyond traditional, or clearly regal, functions of government to activities of an entrepreneurial or commercial kind which, in general, were previously engaged in only by subjects of the Crown": Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority [1997] HCA 36; (1997) 190 CLR 410 at 438. 313 Accordingly, the ACCC submitted that where the State carries on a business through a corporation that is either incorporated for a State purpose, or in which the State has a controlling interest, such corporations are to be treated as the Crown for the purposes of the CCA. This construction is consistent with the purpose of the provision, being to secure "equivalent treatment of non-government and government business": NT Power at [71]. Thus, s 20F of the SOC Act provided that SPC, PKPC and NPC, as SOCs under that Act, did not represent the State unless the SOC Act or any other Act expressly provided. Section 2B of the CCA expressly provides that so far as those corporations carry on a business they are the Crown for the purposes of the CCA. As such, the ACCC submitted that the distinction sought to be drawn by the other parties between the State and the SOCs, SPC, PKPC and NPC, is illegitimate. The ACCC said the relevant inquiry is whether the Crown is carrying on the business, irrespective of whether the Crown does so directly or by an authority. 314 As to the second matter, the persons engaged in carrying on the business, the ACCC submitted that the starting points are the PAMA Act and the SOC Act. 315 The PAMA Act: relevant provisions include: (1) ss 6-8: establishing SPC, PKPC and NPC as statutory SOCs; (2) s 9: specifying the objectives of port corporations, being (a) to be a successful business (and to this end, inter alia, to maximise the net worth of the State's investment in the port corporation); (b) to promote and facilitate trade through its port's facilities; (c) to ensure that port safety functions imposed by the Act are carried out properly; (d) to promote and facilitate a competitive commercial environment in port operations; and (e) to improve productivity and efficiency in its ports and the port-related supply chain; (3) s 10: specifying the principal functions of a port corporation, being to (a) to establish, manage and operate port facilities and services in its ports; (b) to exercise the port safety functions for which it is licensed in accordance with its operating licence; and (c) to facilitate and co-ordinate improvements in the efficiency of the port-related supply chain; (4) s 10A: by which the responsible Minister may give a port corporation a direction in relation to the exercise of any of the corporation's functions in connection with its principal objectives under s 9(d) (to promote and facilitate a competitive environment in port operations) and s 9(e) (to improve productivity and efficiency in its ports and the port related supply chain). A port corporation was required under that section to comply with any such direction; (5) s 10B: by which regulations could be made to promote the economically efficient operation of, use of and investment in land-based port facilities and port-related supply chains; (6) s 12: relating to "port safety functions"; (7) s 13: relating to performance standards and quality assurance programs for services under operating licences; (8) s 16: concerning a direction by the Minister for the transfer of assets to a ports corporation; (9) s 17: concerning a direction by the Minister for the transfer of port safety assets, rights and liabilities of a ports corporation to Roads and Maritime Services (the Authority); and (10) s 21(1): that the voting shareholders of a ports corporation were to consult the Minister about various matters including any proposed recommendation about the appointment of a director and any proposed action of the voting shareholders concerning the preparation, completion or modification of a port corporation's statement of intent. 316 The SOC Act: relevant provisions include: (1) s 20C: concerning the transfer of assets, rights and liabilities of the State to a statutory SOC in exchange for the issue of shares or on any other basis; (2) s 20E: specifying the principal objectives of statutory SOCs; (3) s 20H: that a statutory SOC was to have only two shareholders, the Treasurer and another Minister nominated as a voting shareholder; (4) s 20I: the establishment of the portfolio Minister; (5) ss 20N-P: the power of the portfolio Minister to give the statutory SOC directions and notices with which it must comply; (6) s 20Q: concerning the constitution of statutory SOCs including that the Ministers who are the voting shareholders of a statutory SOC are responsible for ensuring that the constitution of the SOC contains certain provisions; (7) s 20R: to the same effect as s 20Q concerning subsidiaries of a statutory SOC; (8) s 20S: concerning dividends; (9) s 20X: concerning the acquisition and disposal of assets requiring the approval of the voting shareholders; (10) s 20Y: concerning the sale or disposal of a statutory SOC's undertaking requiring approval of the voting shareholders; 317 The ACCC thus noted that the executive government, including the Treasurer, exercised a significant control over, and responsibility for, SPC, PKPC and NPC. It follows, said the ACCC, it is not to treat the conduct of the statutory SOCs and of the members of the executive as distinct. Rather, these involved different functions within the one business. The State, through the statutory SOCs in which members of the executive government played a significant role, was carrying on the business of operating the ports. 318 The ACCC said it was not significant that the privatisation of the ports was effected by legislation. The legislation, the PAAT Act, does not signify that the State was not carrying on the business of operating the ports. To the contrary, it signifies that the State was involved in that business because it legislated to provide for the business assets to be transferred to another entity. 319 According to the ACCC, it was also not significant that the proceeds of the long term leases were to be invested in a particular fund. The fact that money is designated for a particular purpose does not signify that the State was or was not carrying on a business. 320 As to the third matter, the question when conduct falls within the phrase "so far as the Crown carries on a business, either directly or by an authority of the State or Territory", the ACCC said that the answer is that any conduct engaged in in the course of carrying on that business is subject to the operation of the CCA. The conduct "need not itself be the actual business engaged in": NT Power at [67]. Accordingly, as the ACCC put it: In the present case, the State was carrying on the business of operating the ports. In the course of operating that business, the State made a decision to privatise two of those ports. In the course of implementing that decision, the State decided to enter into a clause that would provide bidders for the leases of the ports with protection from competing business from the third port (the business of which the State proposed to continue to carry on for a period post privatisation of the other two ports). The subject matter of the clause was the everyday business of the ports, namely the physical traffic of container flow through the ports. The broader purpose of the Compensation Provisions was also one that served that business, such that the entry into the PCDs can be characterised as conduct engaged in in the course of carrying on that business. A private trading corporation that engaged in such conduct would be caught by the CCA. So should the Crown. The fact that the decision was entered into in relation the privatisation of the business does not mean that it was not entered into in the course of carrying on that business. It is only if the inquiry is erroneously limited to whether the impugned conduct itself constitutes the business engaged in that such an argument can succeed. However NT Power stated conclusively that such an approach should not be taken. (Citations omitted). 321 According to the ACCC it is immaterial that the sale of each port was a one off event. The sales were in the course of carrying on the business of operating the ports. 322 The ACCC said that it is also immaterial that the compensation provisions do not come into effect until after the State has entered into long term leases and thereby effectively disposed of the business of operating the ports. The provisions were entered into by the State as a party to a contract that was entered into in the course of carrying on a business, and the State would give effect to that obligation in the same capacity. It is that capacity which characterises the conduct of the State, not the time at which the contractual entitlement to payment under the (allegedly) anticompetitive provisions is ultimately triggered. 323 According to the ACCC, JS McMillan Pty Ltd v Commonwealth [1997] FCA 619; (1997) 77 FCR 337 is distinguishable. Justice Emmett said that: (1) "'[t]he expression "carry on business", in its ordinary meaning, signifies a course of conduct involving the performance of a succession of acts and not simply the effecting of one solitary transaction': per Gibbs J in Smith v Capewell [[1979] HCA 48;] (1979) 142 CLR 509 at 517": 354; (2) the Commonwealth, in providing printing services under the guise of the Australian Government Printing Service (AGPS), was carrying on a business within the meaning of s 2A of the Trade Practices Act: 355; (3) by s 2A "the Commonwealth is to be bound only where the conduct complained of is engaged in, in the course of carrying on the business": 356; (4) the "conduct of the Commonwealth in issuing the request for tender and in dealing with prospective tenderers was not activity engaged in in carrying on the business which has hitherto been carried on by the Commonwealth … under the name AGPS": 356; (5) the "conduct complained of is that of officers of the Commonwealth who have had nothing to do with the day-to-day operations of the AGPS. It is conduct quite divorced from the carrying on of that business": 356-357; and (6) "[a] one off decision to cease engaging in the activities of AGPS, to dispose of the plant and equipment relevant to those activities, to undertake not to engage in those activities in the future and, in the capacity of client, to invite private enterprise to take on those activities, is not conduct in the carrying on of a business": 357. 324 The same distinction, submitted the ACCC, cannot be drawn in the present case for the reasons given above. In JS McMillan the impugned conduct was not engaged in for any purpose that served the business of AGPS. It was not conduct that was designed to secure the revenue or the value of the assets of the business. In the present case, the compensation provisions served a purpose directly related to the business of the ports, and should be characterised as conduct in the course of carrying on that business. 325 Alternatively, the ACCC submitted that if not distinguishable, JS McMillan must be either read down as provided for in NT Power or should not be followed as it is incorrect. 326 Further, the ACCC submitted that even if entry into the compensation provisions was not conduct undertaken in the course of carrying on the businesses of Port Botany and Port Kembla, it was conduct undertaken in the course of carrying on the business of the Port of Newcastle. 327 As a result, according to the ACCC, the State did not enjoy Crown immunity when it entered into the compensation provisions. As such, NSW Port cannot enjoy derivative Crown immunity. If the State did enjoy Crown immunity then, in any event, the ACCC submitted that NSW Ports did not enjoy derivative immunity. 328 PON made submissions to the same effect. PON also said that the entry into the PCDs (and the compensations provisions) was in the course of the State carrying on the business of operating the ports because: (1) the State's business of operating ports continued until it privatised Port of Newcastle in 2014. It would be curious if the a business was being carried on both before and after the entry into the long-term leases, but that the entry into the agreements effecting those transactions was not a part of carrying on that business; (2) the terms of the Port Botany and Port Kembla PCDs were closely related to the ongoing conduct of the State's business. In particular, the compensation provisions concerned the State's obligation to make payments to NSW Ports in the event that it, or its successor in its business of operating the Port of Newcastle, conducted that business in a manner that led to diversion of container volumes from Port Botany or Port Kembla; (3) the lease transactions in general, and the entry into the PCDs in particular, were conduct of the State acting through the Treasurer. The Treasurer was one of the voting shareholders of the SOCs through which the State conducted the business of operating ports; and (4) the involvement of the Treasurer in both the operations of the State's business and the entry into the PCDs and the State's ongoing conduct of the business of operating ports mean that JS McMillan can have little relevance to the conclusions in this case. 329 PON also submitted that the other relevant business carried on by the State is, in effect, that of a landlord of land suitable for operating a port. Prior to the entry into the long-term leases, the State was the owner of that land through the SOCs. By entering into the long-term leases, the State transitioned to carrying on a business as a landlord, deriving revenue from the letting of land suitable for port operations. That business was one that included the leasing of the land at which Ports Botany and Kembla operated and subsequently leasing the land on which the Port of Newcastle operates. 3.3.2 Derivative Crown immunity submissions 330 The ACCC noted that s 45(2)(a)(ii) of the CCA as at 31 May 2013 provided that a corporation shall not make a contract if a provision of the proposed contract has the purpose, or would have or be likely to have the effect, of substantially lessening competition. Section 45(1)(b) presently provides that a corporation must not give effect to a provision of a contract if that provision has the purpose, or has or is likely to have the effect, of substantially lessening competition. Those provisions apply generally to trading corporations. Section 51(1) of the CCA empowers State and Territory Parliaments to exempt conduct in a State or Territory from Part IV of the CCA. This confirms that the CCA is intended to have broad and general application, including to trading corporations dealing with the Crown: see Baxter at [48], [73]. 331 The ACCC noted that in Baxter Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ referred to the Trade Practices Act not being read so as to divest the Crown of proprietary, contractual or other legal rights or interests: [62]. The contrary approach, of focusing only on some prejudice to or adverse effect upon, some proprietary, contractual or other legal rights of the Crown, is not supported by Baxter. Further, no proprietary, contractual or other legal rights of the Crown may be identified in this case. 332 As to ss 6 and 7 of the PAAT Act, the ACCC submitted that those provisions enabled the Treasurer to exercise all such functions as are necessary or convenient for the purposes of an authorised transaction (ss 3 and 4, the transfer of ports assets to the private sector or to any public sector agency) and for an authorised transaction to be effected as directed by the Treasurer in any manner considered appropriate by the Treasurer. They do not set aside the matrix of federal and state laws within which the Treasurer must otherwise operate. So much is clear from s 25(2) of the PAAT Act (the provisions of the PAAT Act only prevail where identified in regulations as an inconsistent provision for the purposes of s 25). There are no such regulations. Further, the compensation provisions do not effect an authorised transaction. They do not transfer any port assets. Section 7 thus has no operation with respect to the compensation provisions. Section 7 does not confer any relevant legal right. And s 45 does not prejudice or interfere with, still less divest the State of, any legal right. 333 As to the State's contractual rights, the ACCC submitted that the fact that (if the ACCC is correct) s 4L would apply and the compensation provisions would be severed from the Port Botany and Port Kembla PCDs does not mean that the State is divested of a contractual right. The State did not have absolute freedom to contract when carrying on business: Baxter at [68]. In any event, severance of the compensation provisions divests the Crown of an obligation to pay compensation, not a legal right. An obligation is not a right: Ogden Industries Pty Ltd v Lucas [1967] HCA 30; (1967) 116 CLR 537 at 586. 334 As to the State's proprietary rights in the port assets, the ACCC submitted that the argument does not go beyond that relating to s 7 of the PAAT Act. And as was said in Baxter, governmental, commercial, and political interests or freedoms should not be confused with legal, equitable, or statutory rights or interests: at [60]. As the ACCC put it a right to deal with assets "in a value-maximising way" can mean no more than value-maximising within the confines of the laws of Australia. 335 As to the State's implementation of policy, the ACCC submitted that this is not a legal right or interest that will engage derivative Crown immunity. 336 PON supported these submissions. According to PON: (1) s 45 manifests a clear intention that it is to apply to an entity such as NSW Ports in respect of the compensation provisions in the PCDs. Section 45 applies to any corporation; (2) s 45 applies to a State so far as it is carrying on a business. NSW Ports was and is carrying on a business, so if s 45 did not apply to it in respect of its conduct in making and giving effect to the compensation provisions, it would be in a better position than the State otherwise would be, an anomalous result as noted in Baxter at [64], [68]; (3) the purpose of s 2B, to ensure that the Crown is in the same position as other corporations so far as the State is carrying on a business, would be defeated if NSW Ports was not so subject in carrying on its business: NT Power at [15], [21]-[27]; (4) the mere fact that s 45 does not apply to the State in respect of its conduct (if that be the case) does not mean that s 45 cannot apply to a party contracting with the State. It is also not necessary to protect the legal rights of the State to extend any immunity to NSW Ports: Baxter at [44], [70]. This is particularly so given the operation of s 4L severing the contravening provisions: SST Consulting Services Pty Limited v Rieson [2006] HCA 31; (2006) 225 CLR 516 at [36], [40]; (5) the State's freedom to contract with corporations is constrained by the obligation of the corporations to comply with the law: Baxter at [60], [68]. Equally, the State's capacity to enter into transactions authorised by the PAAT Act is not absolute and is also constrained by the obligation of the corporations with which the State transacts to comply with the law. This is reinforced by s 31(1) of the Interpretation Act 1987 (NSW) (the Interpretation Act) (an Act or instrument shall be construed as operating to the full extent of, but so as not to exceed, the legislative power of Parliament); (6) to require corporations dealing with the State not to make or give effect to contracts that have the purpose or effect of substantially lessening competition, is at least as likely to benefit the State as it is to adversely affect the State's interests: Baxter at [48], [60]; and (7) on the facts of the present case, no legal right or interest of the State will be impaired or adversely affected by s 45 applying to NSW Ports. Crown immunity benefits only the Crown and whoever asserts it must do so on behalf of the Crown: Wynyard Investments at 395. The invalidity or unenforceability of the compensation provisions will not affect any right of the State, as the provisions impose a liability on the State. NSW Ports asserts Crown immunity for its own benefit, not that of the State. 3.4 Consideration 3.4.1 Crown immunity 337 The State is bound by Pt IV of the CCA so far as it carries on a business, either directly or by an authority of the State: s 2B. It necessarily follows that, otherwise, the State is not bound by Pt IV of the CCA: Baxter at [43]. 338 In formulating the State policy, the NSW government was not carrying on a business. Accordingly, the implementation of the State policy is not subject to s 45 of the CCA. This issue is discussed further below in the context of the likely effect of the impugned provisions. 339 As the State submitted, the CCA Act is not an Act that "otherwise expressly provides" for the purposes of s 20F of the SOC Act (which provides that SOCs do not represent the State unless the SOC Act or any other Act so provides). The reference to "Act" in s 20F means an Act of the NSW Parliament: ss 12 and 65 of the Interpretation Act, Hannes v Director of Public Prosecutions (Cth) (No 2) [2006] NSWCCA 373; (2006) 165 A Crim R 151 at [721]. But in any event, s 20F of the SOC Act does not mean that the State is not carrying on a business by an authority of a State for the purposes of s 2B of the CCA. Section 20F means only that the SOCs do not represent the Crown for the purposes of NSW law. 340 What business was the State carrying on? Given the terms of the PAMA Act and the SOC Act, the most apt answer is that SPC and PKPC were each carrying on a business of operating their respective ports. As discussed below, PON's assumption that through these entities the State was carrying on a single business does not sit comfortably with the statutory regime under which the ports were operated. 341 Irrespective of s 20F of the SOC Act, it must follow in the terms of s 2B of the CCA, that the State was carrying on those businesses by an authority of the State (that is, by the SOCs). But the State must also be right that this does not mean that every aspect of the State's dealings with the ports was in the course of carrying on the businesses of operating the ports. The fact that members of the executive government were involved in the carrying on of the business of each SOC does not have this consequence. In other words, the fact that it may be accepted that the State played a significant role in each SOC's carrying on of the business of operating the ports does not answer the relevant question. The question is whether the State entered into or would give effect to the compensation provisions in the course of carrying on those or another business. 342 Contrary to the ACCC's submissions, the State did not decide to privatise the two ports in carrying on the businesses of operating those ports or the Port of Newcastle. It decided to privatise the ports as a matter of government policy. The compensation provisions did not serve the purpose of the carrying on of those businesses, that is, the businesses of the State operating the two ports through the SOCs. The provisions had nothing to do with those businesses. The compensation provisions served the purpose of ensuring that bidders did not discount their bids on account of the risk that the State policy might change so that the State could maximise the value it obtained from the privatisation. This is not to confine the impugned conduct to the businesses engaged in, but is to focus on the question whether the conduct is in the course of carrying on the businesses. As the State submitted: (1) the decision to privatise the port assets was not a decision made by SPC or PKPC, or a decision in which they had any involvement; (2) the decision was made by the executive government to implement NSW government policy; (3) the privatisations could not be effected under the SOC Act or PAMA Act, which regulated the SOCs in their conduct of the business of operating the ports; (4) the privatisations could only be effected under the provisions of the PAAT Act, which had nothing to do with the SOCs in their conduct of the business of each in operating their ports; (5) to the extent that the SOCs were involved in any of the privatisation transactions, it was only because they held relevant assets that were to be dealt with pursuant to the directions given by the Treasurer; and (6) the SOCs, responsible for the business of operating their respective ports, were not parties to the Port Botany or Port Kembla PCDs. 343 As NSW Ports also submitted, the SOCs were legally disabled from disposing of their fixed assets or main undertakings without the approval of shareholder Ministers by ss 20X and 20Y of the SOC Act. As NSW Ports put it: That highlights the legal delineation, in this particular statutory context, between the carrying on of the business of operating ports and the disposition of the assets and main undertakings of the business. The latter acts were removed from the purview of the business and placed within the political control of the Ministers having oversight of the State-owned corporations. (Original emphasis). 344 As NSW Ports also put it, the fact that the SOCs were subject to political control does not mean that the political control is itself necessarily an act in the course of the SOC carrying on its business. 345 The State, in effect, decided to carry on the business of operating each port through a SOC. It could have, but did not, structure those undertakings as one business. By the enabling legislation for SOCs, it structured the operation of the ports in NSW as three separate businesses. When it came to the decision to privatise the ports, this had nothing to do with the SOCs. They had no role to play other than to be divested of their assets to other new State entities (a separate entity for each port, supporting the conclusion that the port operations involved three separate businesses) so that there could then be a transfer of those assets to private sector entities. The fact that the businesses were separate is also supported by the event in relation to Port Kembla, where the decision to include the assets of that port with Port Botany in the privatisation was made late in the day. SPC and PKPC were also dissolved in 2016 by the Ports Assets (Authorised Transactions) (Dissolution of Port Corporations) Proclamation 2016, and no longer have any existence. It is not apparent how giving effect to the compensation provisions could be in the course of carrying on of the business of operating the ports by those non-existent entities. As NSW Ports submitted, the compensation provisions, when made, were directed to circumstances that could arise, if at all, in the future when the State would not be carrying on the Port Botany and Port Kembla businesses. 346 The fact that the Port Kembla and Port Botany PCDs and the compensation provisions concern the operation of the ports is immaterial. The issue is whether the making of the compensation provisions and the giving effect to those provisions was or would be in the course of the State carrying on the businesses of operating the ports (which it did through the SOCs). As the State put it: Even if the subject matter of the Compensation Provisions related to operational matters (in the strained sense which the ACCC suggests), the conduct of the State in proposing the Compensation Provisions and executing the Port Commitment Deeds containing such provisions was not in any relevant sense of an operational kind forming part of the business previously carried on by SPC and PKPC. 347 Nor, for the reasons given, can I accept that in entering into or giving effect to the compensation provisions the State was acting in the course of carrying on the business of operating the Port of Newcastle through NPC. To adopt the words of the State again: If it is contended that because the Port Commitment Deeds touched upon container traffic that might pass through the Port of Newcastle, then this is too tenuous a connection to affect the character of the activity. The mere fact that a contract might mention the operations of another different and separate business does not mean that the contract is made in the course of that different and separate business. 348 Further relevant indicators that in privatising Port Botany and Port Kembla (and in the course of doing so, entering into the compensation provisions) the State was not conducting itself in the course of carrying on the businesses of operating the ports include that for each of Port Botany and Port Kembla, the privatisation was a single event, albeit comprised of a series of steps. In other words, each Port could be privatised once only. There is no regular or systematic series of acts involved in privatising a port, in contrast to the regular and systematic series of acts involved in the business of operating the ports: Murphy v State of Victoria [2014] VSCA 238; (2014) 45 VR 119 at [46]-[47]. 349 No inconsistency between JS McMillan and NT Power is apparent. In JS McMillan Emmett J accepted that the Commonwealth was carrying on a printing business through the AGPS. He did not accept that the sale by tender of that business was in the course of carrying out that or any other business by the Commonwealth. In NT Power the point made was that the conduct need not itself be the business but need only be in the course of the carrying on of the business. 350 It is not that the sale of a business can never be in the course of carrying on that business. Whether that is so or not must depend on the facts concerning the business and the sale. On the facts of the present case, I consider that the State was carrying on businesses of operating the ports through the SOCs. The privatisation of Port Botany and Port Kembla, however, had nothing to do with the course of those or any other businesses. It was a decision of NSW government policy implemented outside the context of the operation of any business. 351 To the extent it is necessary to deal with PON's submissions separately, the following responses may be given: (1) PON incorrectly assumes that the State, by the SOCs, was carrying on a single business of operating ports in NSW so that, when Port Botany and Port Kembla were privatised, the State continued to operate Port of Newcastle through NPC. The assumption is not self-evidently correct. From the provisions of the PAMA Act and the SOC Act, as summarised above, a more obvious and natural conclusion is that the State was carrying on three separate business – the operation of Port Botany through SPC, Port Kembla through PKPC, and Port of Newcastle through NPC. If that is so, the operation of each business of Port Botany and Port Kembla, respectively, ceased on privatisation. Those businesses did not continue as PON posits (2) in any event, if it is the case that the State was carrying on a single business of operating the three ports, then the fact that the State continued to carry on that business in respect of the Port of Newcastle does not mean that the privatisation of Port Botany and Port Kembla was in the course of carrying on the business of operating the three ports. Rather, the privatisation of two of the ports, in the circumstances (which includes the statutory context described above), was a step separate and distinct from the operation of the (assumed single) business; (3) the terms of the PCDs did concern the operation of the Port of Newcastle either by the State though NPC or by a private entity on privatisation. Again, however, that fact does not mean the conduct of privatisation of Port Botany and Port Kembla was in the course of the carrying on the business of operating the ports, let alone the course of each business of operating each port. The PCDs were merely an obligation to the private entity operating Port Botany and Port Kembla contingent on the nature of the operation of the Port of Newcastle; (4) the dual role of the Treasurer, as the person effecting the privatisation and as a voting shareholder on the SOCs, does not mean that every or any action of the Treasurer should be taken to have been performed in the exercise of his functions in this second capacity. The statutory scheme regulating the SOCs and the privatisation makes this clear. The Treasurer was not acting as a voting shareholder in SPC or PKPC in effecting the privatisation. He was acting in a designated role under the PAAT Act having nothing to do with his role as a voting shareholder in the SOCs when effecting the privatisation; and (5) it is correct that in JS McMillan the persons responsible for effecting the tender had nothing to do with the operation of AGPS: see at 356-357. It is difficult to accept, however, that this fact was determinative. If it were, the application of the statutory scheme to the Crown would depend on the coincidence of the identity of the personnel the Crown used to effect its objective. The key point in JS McMillan was that the conduct of the tender for the sale of the AGPS business was "quite divorced from the carrying on of that business": at 357. In the present case, as noted, the Treasurer was vested with various functions. But there cannot be any doubt that, under the statutory scheme, those functions were separate and distinct. In exercising his functions under the PAAT Act, the Treasurer was not acting as a voting shareholder of any SOC. He was involved in conduct separate and distinct from the operation of each SOC. Accordingly, JS McMillan is not irrelevant. It discloses the importance of identifying the business or businesses the Crown is carrying on either directly or through an authority of the Crown. The conduct must be in the course of carrying on such a business before ss 2A or 2B are engaged. 352 PON's alternative submission that the State made and would give effect to the compensation provisions in carrying on a business of leasing land suitable for port operations is also unpersuasive. There was no such business (or businesses) when the ports were vested in the respective SOCs responsible for their operation. The argument is that the State entered into such a business at the time it granted each long-term lease of the port. The PCDs, however, were separate and distinct from any such business. The Treasurer is the State party to the Port Botany and Port Kembla PCDs. The parties to the PCDs do not include the landlords, PB Lessor or PK Lessor. The PCDs operate for a term of 50 years and not the term of the leases of the ports (which are for 99 years). The obligations of the State under the PCDs are separate and distinct from the State's rights and obligations as landlord through PB Lessor and PK Lessor. The SOCs and PB Lessor or PK Lessor are only in the PCDs to the extent that they are the subject of releases by the relevant private entities. It cannot be said that the Treasurer entered into the PCDs in any function as landlord. His entry into the PCDs was not in the course of carrying on the business of leasing ports. The entry was in the course of ensuring the State received maximum value for money in privatising the ports. The fact that the privatisation was effected in part by the entry into leases of land by the State, through the relevant authorities of the State, does not mean that the privatisation itself was in the course of carrying on the business of being a landlord of the ports. Rather, the carrying on of that business (assuming it to be such) was a consequence of the privatisation. 353 Contrary to PON's further submissions, the fact that the State retains an active role in the operations of Port Botany and Port Kembla under the leases of those ports (by requiring the ports to be used and developed effectively for port purposes) does not mean that the State is continuing to conduct the business or businesses of operating the ports. It is obvious that the State has an interest in ensuring that the ports are effectively used and developed as ports. That is part of its governmental functions. Equally, the privatisation of the ports was part of its governmental functions. Neither the fact of its ongoing role in the operation of the ports, nor its role as port landlord, mean that it entered into or would give effect to the compensation provisions in the PCDs in the course of carrying on any business. 354 For these reasons, I do not accept that s 2B was engaged with respect to the State's conduct in making the compensation provisions in the PCDs or would be engaged by the State giving effect to the compensation provisions in the PCDs. Accordingly, Pt IV of the CCA did not and does not apply to the State's conduct in that regard. 3.4.2 Derivative Crown immunity 355 The conduct of the State in making and giving effect to the compensation provisions is not subject to s 45 of the CCA. Accordingly, so far as the conduct of NSW Ports is concerned as the other contractual party which made and may give effect to the compensation provisions, the question is whether the application of s 45 to NSW Ports would "adversely affect some proprietary right or interest of the Crown, legal equitable or statutory'' (Kitto J's second category of case of derivative Crown immunity in Wynyard Investments at 394). 356 To the extent that it was submitted that this third category of case was confined to a divestment of a proprietary right or interest of the Crown, legal equitable or statutory, in the sense that the legal right must be destroyed or removed absolutely, I would disagree. Justice Kitto referred to "adversely affect" and "interference" for a legal reason in Wynyard Investments. In NT Power at [170] the High Court did not suggest that Kitto J's formulation was too broad, but noted that it had been said in Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334 at [42] that the required "interference" was a divesting of the legal right. I do not consider that, by this, the High Court meant that the legal right had to be destroyed or removed absolutely. A legal right may be divested in whole or part. A partial divestment is nevertheless a divestment. Whether an interference for a legal reason with a legal right amounts to a divestment of the legal right must depend on the nature of the right and of the nature and extent of the interference with it. 357 Contrary to the State's submissions, it is not apparent that the reasoning in Baxter depended on the fact that the contravening conduct of the private entity was unilateral, involving the making of an offer: at [32], [35], and [44]. As the High Court noted at [44], the legislation extends to contracts which, by definition, do not involve unilateral action. Nevertheless, it is also apparent from the High Court's reasoning that the fact that the conduct involved unilateral action by the corporation, in effect, against South Australia, made the outcome in Baxter more readily apparent than might otherwise have been the case: at [73]. 358 Nor is it apparent that the reasoning would not apply to a case where the impugned conduct may be described as an outworking of State policy. In this regard, I accept that the compensation provisions support the State policy as adopted by July 2012. But the compensation provisions were (and are) not the means by which that policy was (or is) effected. The policy was (and is) effected primarily by the publication of the various State planning and strategic documents, including the NSW Freight and Ports Strategy released in November 2013. The more recent NSW Freight and Ports Plan 2018-2023 reflects the fact that the policy of sequencing and the relevant order of ports remains as identified in the NSW Freight and Ports Strategy. The State policy would remain irrespective of the validity or enforceability of the compensation provisions. 359 It is also doubtful that the State had a relevant right or interest in pursuing its policy objectives so as to engage the principle of statutory construction that, subject to any contrary intention, legislation is presumed not to operate to divest the Crown of a legal right or interest. I am unable to conceive of the State's interest in pursuing its policy objective of ports development sequencing as a kind of legal right or interest at all. It is also unnecessary to so conceive of the State's interest in its own policy because its policy involves a strategic infrastructure plan in the public interest of NSW as a whole. It has nothing to do with the carrying on of any business or any concern about competition between Port Botany and the Port of Newcastle. The agencies of the State involved in developing the State policy and the NSW government in adopting it were focused only on the most economically efficient and least costly (for the public, for private developers, and for those involved in the NSW container freight task) options for NSW as a whole. The State policy has nothing to do with the carrying on of any business and by s 2B the relevant provisions of the CCA did not and do not apply to the formulation, adoption and implementation of that policy. 360 A necessary corollary of the fact that s 45 of the CCA does not apply to the State in respect of the making or giving effect to the compensation provisions is that, unless a contrary intention appears, s 45 also does not apply to NSW Ports if that would involve the "incidence … in legal effect" (Kitto J in Wynyard at 393) of s 45 upon the State, in the sense that it would divest the State of some legal right. This does not mean s 2 of the CCA (the object of the CCA to, relevantly, enhance the welfare of Australians through the promotion of competition) is irrelevant. The object of the Act, as disclosed in Baxter at [62] and [64], is relevant to the question whether the CCA evinces a contrary intention. 361 I do not accept the State's proposition that because s 2B evinces a clear legislative intention that Crown immunity should apply in a manner that protects the non-business related interests of the Crown, it necessarily follows that derivative Crown immunity applies to NSW Ports. In Baxter the Crowns in right of the States were not running a business. By s 2B, ss 46 and 47 of the Trade Practices Act did not apply to them. Yet those provisions did apply to the corporation dealing with the Crowns. 362 Sections 6 and 7 of the PAAT Act give the Treasurer plenary power to effect the transfer of port assets over which the State had (and has) proprietary rights. The fact that, in exercising those powers, the State was (and is) not bound by Pt IV of the CCA does not automatically mean that a corporation dealing with the State in respect of the transfer of port assets is not so bound. That consequence follows only if, first, the application of Pt IV of the CCA to the corporation would involve the legal incidence of those provisions falling upon the State so as to divest the State of a legal right and, second, the CCA does not evince a statutory intention that its provisions should so extend. 363 In the present case, it is apparent that in giving effect to the authorised transactions under the PAAT Act to transfer the assets of Port Botany and Port Kembla to NSW Ports, the Treasurer considered that in order to maximise the value the State could obtain for the assets it was necessary or convenient to enter into the compensation provisions. In summary, if the compensation provisions were not included in the authorised transactions the Treasurer considered that entities bidding for the port assets would discount their bids to account for the perceived risk that State policy as to the sequencing of container development (both the fact and the order of sequencing) might change. If this occurred, the State would not be obtaining what it perceived to be maximum value for its assets. As the State put it, the compensation provisions were a form of insurance for the other party to the authorised transactions to deal with an issue of sovereign risk. 364 At this stage, the consideration of the concept of a "legal right" may be deferred. It is noticeable that in Baxter the High Court may be inferred to have characterised the so-called "right" in that case (the general freedom to contract) as a mere "freedom" or "capacity": at [68], [72], [73], [74]. But it cannot be said that the High Court's reasoning was simply that there was no divestment of a relevant legal right of the Crown, so no question of statutory construction arose. Rather, statutory construction considerations were relevant. They indicated that the application of the statutory provisions to a corporation negotiating and contracting with the executive for the supply of a product in the circumstances as existed in Baxter was not modified by the principle of statutory construction that, subject to any contrary intention, legislation is not to be construed so as to divest the Crown of a legal right. 365 In this regard, it is necessary to note that there are two "contrary" statutory intentions which may be relevant. 366 If the relevant question is the contrary legislative intention that Pt IV applies to the Crown (that is, contrary to the presumption that legislation does not bind the Crown), the CCA gives an express answer in ss 2A and 2B – Pt IV applies only so far as the Crown is carrying on a business. 367 If the relevant question is the contrary legislative intention that Pt IV applies to a corporation that is not the Crown even if the effect of so doing is to apply Pt IV to the Crown so as to divest the Crown of any legal right, the CCA does not give an express answer – and Baxter is not authority for the proposition that such a general contrary legislative intention exists. 368 This second question of statutory construction is identified in Baxter at [62]. The reasoning at [64] ff in Baxter includes that there is no general legal right of the Crown to make any contract it wishes. Rather, the untrammelled capacity to make such contracts as the Crown wishes is a mere "freedom": at [68]. Interfering with that freedom does not involve divesting the Crown of a legal right: at [68]. Concluding to the contrary is unnecessary to protect the Crown's legal rights: at [70]. The real question is the extent to which the second principle of statutory construction (that the Act is not to be construed so as to divest the Crown of legal rights) modifies the application of the statutory provisions: at [66]. This principle of statutory construction is different from concluding that the executive is free from any impact of the competition laws (in distinction from Parliament acting under s 51): at [68]. The Trade Practices Act did not operate to "preserve unfettered the contractual capacities of the Crown": at [73]. Preserving the "capacities" of the Crown in this way would impose a "very extensive qualification upon the Act's object of promoting competition and fair trading in the public interest": at [74]. It would also be inconsistent with the restrictions imposed by s 51(1) of the CCA on the capacity of a Parliament to exempt anti-competitive behaviour from the Act and would seem to give the public officials of States and Territories a wider power to give dispensations from the operation of Commonwealth law than State or Territory legislatures: at [73]. 369 If Pt IV of the CCA applies so that NSW Ports could not make or give effect to the compensation provisions, there is no doubt that the State would be divested of its capacity under the PAAT Act, at least in part, to enter into the authorised transactions as the Treasurer considered necessary or convenient (a capacity which included the giving of various directions to the SOCs to enable the transactions to be carried out). The arguments of the ACCC and PON against this conclusion are unpersuasive. 370 First, it may be accepted that the compensation provisions do not themselves effect the authorised transactions. But they are provisions which were necessary or convenient to enable the authorised transactions to be effected. They are provisions "for the purposes of an authorised transaction" as provided for in ss 6 and 7(2) and (3) of the PAAT Act. 371 Second, it is also not to the point that the severance of the compensation provisions from the PCDs would divest the State of a liability (in distinction from a right). This submission focuses upon the consequence of the (assumed) contravention – severance of the compensation provisions by operation of s 4L of the CCA. The relevant focus, however, is the antecedent operation of the statutory provisions of the PAAT Act which vested the Treasurer with statutory authority to do that which was necessary or convenient to effect the authorised transactions (that is, the transfer of the State's proprietary rights) including by contract. It is those rights which may be divested in part if Pt IV of the CCA applies to the other contracting party, NSW Ports. In any event, the compensation provisions contain mutual rights and obligations as between the State and NSW Ports. It is the State which determines if the compensation provisions are engaged: cl 3.3(a), (d) and (e). The State obtains a release from any other liability: cl 3.9. Further, as NSW Ports and the State submitted, the relevant principle of statutory construction concerns the rights and interests of the Crown: Baxter at [59], [60]. 372 Third, while it may be accepted that there is no legal right in the State to deal with its assets in a way that maximises their value, this submission also fails to confront the fact that it is the statutory authority vested by the NSW Parliament in the Treasurer to effect the authorised transactions that is being divested in part by the application of Pt IV of the CCA to the other party to the authorised transaction. 373 Fourth, it is not material that it may be inferred that NSW Ports is asserting derivative Crown immunity for its own benefit. The State is also asserting that NSW Ports has derivative Crown immunity, presumably for the State's benefit. Accordingly, it cannot be said that the assertion is not for the benefit of the State. 374 By applying s 45 to the other party to the authorised transaction, the State would be prevented by s 45 from doing what it could lawfully otherwise do irrespective of s 45 (because it was not carrying on a business in effecting the authorised transactions). This conclusion, it seems to me, is inescapable. But this conclusion would have applied equally in Baxter. The application of ss 46 and 47 to the corporation in Baxter necessarily prevented the executive of South Australia from negotiating as it saw fit, despite the fact that at the time of the negotiation the executive objected to the corporation's conduct. While the High Court did not decide this issue, there are sufficient indications in the reasons to conclude that the attitude of the Crown to the conduct cannot be determinative or, perhaps, even relevant: at [73]. This is a necessary conclusion. If it were otherwise, the application of statutory provisions to the Crown would depend upon the mere coincidence of whether the Crown perceived the conduct of the other corporation to be favourable or unfavourable (a perception which, as Baxter, shows, may change over time). 375 Accordingly, one feature that distinguishes the present case from Baxter should not be seen as relevant – that the Treasurer considered the compensation provisions to be in the interests of the State. I have also rejected above two other purported distinguishing features – that the compensation provisions involve bilateral conduct (that is, they include the State) rather than unilateral conduct (that is, they involve conduct of the corporation alone) and that the compensation provisions reflect or are an outworking of the State policy. As to the former, as discussed, Baxter indicates that bilateral contractual conduct is also potentially regulated: at [68], [70]. As to the latter, as discussed, the State's policy is supported by the compensation provisions but no more, and the interest of the State in pursuing its policy objective cannot be considered to be a legal right or interest of the relevant kind to engage the second principle of statutory construction identified above. 376 The real distinguishing features of the present case when compared to Baxter include, first and foremost, the fact that the Treasurer's effecting of the authorised transactions was specifically enabled by the provisions of the PAAT Act. This is not some general amorphous "right" or "freedom" of the executive government to enter into contracts of supply. We are dealing with a specific statutory capacity of the Treasurer to effect the authorised transactions, being the transfer of identified port assets in which the State had proprietary rights of ownership, as necessary or convenient and without limitation. 377 Second, the body vested with functions under the PAAT Act is a Minister of the Crown, the Treasurer, and not the executive at large. By s 33 of the PAAT Act, the Minister may only delegate functions under the Act to the Secretary of the Treasury or to any other Public Service employee prescribed by the regulations (none being prescribed). 378 Third, the context is also not the general supply of goods (in which the Crown had no legal rights) to the executive, but the transfer by the State of a specific class of assets, the three ports in NSW which the State owned, as identified in the PAAT Act. 379 Fourth, it may be inferred from the provisions of the SOC Act and the PAAT Act that the relevant class of assets, the three ports owned by the State, are of high policy and economic significance to the State. In particular, s 5 of the PAAT Act required the proceeds of sale of the three port assets to be paid into the Restart NSW Fund. This is a fund established under the Restart NSW Fund Act 2011 (NSW), s 6 of which provides that the purpose of the Fund is to improve economic growth and productivity in the State. 380 In these circumstances, it is difficult to avoid the conclusion that the PAAT Act vested specific statutory rights in the Treasurer as a Minister representing the Crown. It is equally difficult to avoid the conclusion that applying Pt IV of the CCA to the conduct of NSW Ports, as the other contracting party, would apply the legal incidence of the CCA to the Treasurer who was not otherwise so bound. That reality should be directly confronted. But would applying s 45 of the CCA to NSW Ports divest the Crown of a legal right? And does the CCA evince a contrary intention to apply its provisions to the conduct of NSW Ports even if that does involve divesting the State of a legal right? 381 As noted, the first question posed above necessarily involves consideration of the nature of the legal right and the nature and the extent of the asserted divestment of that right. 382 The PAAT Act defines the nature of the relevant right. If, for example, the PAAT Act provided that it operated subject to the CCA, then it could not be concluded that the CCA operated to divest the State of any legal right. The statutory rights vested in the Treasurer would not then extend to making or giving effect to any provision that contravened the CCA. 383 Section 31 of the Interpretation Act is not material. That section is concerned with the legislative power of the NSW Parliament. It does not exceed the power of the NSW Parliament to make a law which authorises the Crown to engage in conduct which would otherwise contravene the CCA. Such a law may nevertheless be a law for the "the peace, welfare, and good government of New South Wales": s 5 of the Constitution Act 1902 (NSW) (NSW Constitution Act). Further, as the State submitted, the second principle of statutory construction, if it is engaged, means that the CCA does not apply to the conduct of NSW Ports. The CCA is not ousted by the PAAT Act. It simply does not apply because of the operation of the second principle of statutory construction. Contrary to the submissions of the ACCC, the concept of the State exceeding its power never arises. 384 For the same reasons, s 36 of the PAAT Act is also immaterial because it concerns a provision of the PAAT Act being invalid because it exceeds the legislative power of the NSW Parliament. 385 Nor do I consider s 25 of the PAAT Act to be material. Section 25 is concerned with the relationship between the PAAT Act and other State legislation, not legislation of the Commonwealth. Even if the State had wished to it could not have prescribed the CCA in a regulation under s 25(2) as that section applies only to State legislation. 386 The relevant provisions are ss 34(1) of the PAAT Act which provide that the PAAT Act "binds the State and, in so far as the legislative power of the Parliament of New South Wales permits, the other States, the Territories and the Commonwealth" and s 35(1)(c) of the PAAT Act which provides that it "is the intention of the Parliament of New South Wales that the operation of this Act should, as far as possible, include operation in relation to the following … – things, acts, transactions and matters (wherever situated, done, entered into or occurring) that would, apart from this Act, be governed or otherwise affected by the law of another State, a Territory, the Commonwealth or a foreign country". 387 When ss 34(1) and 35(1)(c) are read with ss 6 and 7 of the PAAT Act, it is not difficult to infer a legislative intention of the NSW Parliament that the statutory rights vested in the Treasurer by the PAAT Act should not be circumscribed by the operation of any law of the Commonwealth to the extent such a law would be inconsistent with the Treasurer effecting an authorised transaction as necessary or convenient. 388 The fact that the PAAT Act was enacted after the enactment of s 51 of the CCA does not indicate to the contrary. In this regard, the first version of s 51 was introduced by the Competition Policy Reform Act 1995 (Cth) which commenced on 17 August 1995. NSW enacted, in response, the Competition Policy Reform (New South Wales) Act 1995 (NSW) (Competition Policy Reform (New South Wales) Act). Sections 13 and 14 of this latter Act apply the "application laws" of NSW and other jurisdictions to the Crown so far as the Crown carries on a business, subject to the exemptions in s 15. 389 But the fact that the PAAT Act does not amend the Competition Policy Reform (New South Wales) Act does not mean that the NSW Parliament intended Pt IV of the CCA to apply to the Treasurer exercising functions as a representative of the Crown under the PAAT Act. 390 For one thing, s 51 operates in the context of s 2B which provides that the CCA applies to the Crown only insofar as it is carrying on a business and, in exercising functions under the PAAT Act, the Treasurer is not carrying on a business on behalf of the Crown. 391 For another, s 51 operates in the context of the principle of statutory construction that, subject to a contrary intention, legislation is not to be construed as divesting the Crown of a legal right including a statutory right. 392 Further, if there is inconsistency between the PAAT Act and the CCA, the latter would prevail by operation of s 109 of the Commonwealth Constitution. In other words, as the State submitted, there was no occasion or need for the NSW Parliament, in the PAAT Act, to exclude the operation of s 45 of the CCA expressly. 393 Finally, as NSW Ports submitted, s 51 permits States to authorise conduct which would otherwise be contravening conduct, but does not answer the question of what conduct would be contravening conduct requiring authorisation. In other words, s 51 of the CCA presupposes the existence of contravening conduct. If the conduct is not contravening because the State is not carrying on a business and thus s 2B of the CCA is not engaged, or because the CCA does not contain a contrary intention to the application of the presumption that a statue is not to be construed as divesting the Crown of a legal right, then amendment of the Competition Policy Reform (New South Wales) Act to exempt conduct for the purpose of an authorised transaction from the operation of Pt IV was unnecessary. Lack of such amendment cannot thereby be taken as indicative of any intention of the NSW Parliament that the CCA Act was to apply to authorised transactions under the PAAT Act. 394 It is more difficult to discern a legislative intention of the NSW Parliament in the PAAT Act that any private entity should not be circumscribed by the CCA in its dealings with the Treasurer in respect of an authorised transaction. To adopt the reasoning the High Court used in Baxter at [65] and [73], assume the private entities tendering for the port assets colluded with each other, their purpose being to substantially lessen competition for those assets in contravention of the CCA. Could it be inferred that the NSW Parliament intended the PAAT Act to operate to exempt the private entity from complying with the CCA? Such an intention seems unlikely. 395 This latter proposition, however, is not an answer to the relevant question in the present case. The PAAT Act may evince one intention with respect to the conduct of the Treasurer in respect of the effecting of an authorised transaction and another intention with respect to a private entity in respect of an authorised transaction. If the identification of the relevant right is determined by the provisions of the PAAT Act, as I consider it must be, then I conclude from the scope, purpose and language of the PAAT Act that the NSW Parliament intended that the Treasurer be empowered to effect an authorised transaction as necessary or convenient and unaffected by the provisions of the CCA. Such an intention is unsurprising given: (a) the Treasurer was not carrying on any business in exercising functions under the PAAT Act, and (b) accordingly, the Treasurer was not bound by the CCA in exercising functions under the PAAT Act given the terms of s 2B of the CCA. 396 It must follow from this that the relevant statutory rights vested in the Treasurer by the PAAT Act include the right for the Treasurer to negotiate and contract on terms which would involve the other party to the authorised transaction, if a corporation, contravening the CCA. This is necessary because of the bilateral character of any authorised transaction. I do not accept that this construction of the PAAT Act is precluded by the principle of legality. It is not apparent how the principle that legislation is not to be construed so as to interfere with fundamental rights is engaged in the circumstances of the present case. 397 This said, it is not possible to infer that the NSW Parliament intended that any private entity with which the Treasurer was negotiating and/or contracting in respect of an authorised transaction could engage in conduct against the Treasurer in contravention of the CCA. 398 This creates a difficulty in characterising the relevant statutory rights under the PAAT Act. If those rights enable the Treasurer alone to engage in conduct contravening the CCA, they are meaningless because every authorised transaction may involve a private entity which would otherwise be bound by the CCA. Yet it cannot be inferred that the NSW Parliament intended a private entity which would otherwise be bound by the CCA from engaging in conduct against the Treasurer which would contravene the CCA. 399 One thing, however, seems clear. Just as the perception of the Crown about whether conduct is in or against its interests cannot determine (or perhaps even affect) the application of the CCA, so too it would be unsatisfactory for the Crown's perception to determine the nature and extent of the statutory rights vested in the Treasurer by the PAAT Act. Perceptions may change over time, as Baxter demonstrates. 400 Concepts other than perception, however, are both available and discernible from the provisions of the PAAT Act which I consider inform the characterisation of the relevant statutory right of the Treasurer under the PAAT Act. 401 By s 6 of the PAAT Act the Treasurer has and may exercise all such functions as are necessary or convenient for the purpose of an authorised transaction. By s 7(1), an authorised transaction is to be effected as directed by the Treasurer and can be effected in any manner considered appropriate by the Treasurer. By s 9(1), for the purposes of an authorised transaction, the Treasurer may establish or direct the establishment of a transaction company. By s 11, each port SOC and transaction entity is subject to the direction and control of the Treasurer. By s 19, the Treasurer may make vesting orders under Sch 4 for the purposes of an authorised transaction. By s 20(1), the Treasurer may make severance orders in relation to fixtures for the purposes of an authorised transaction. By s 21, the Treasurer may direct a public sector agency to grant any relevant authorisation relating to port assets to a new operator. 402 The scheme of the PAAT Act thus enables the Treasurer to do what is required to be done for the purposes of an authorised transaction. On this basis, the legislative intention of the NSW Parliament in enacting the PAAT Act may be discerned. The NSW Parliament intended that the statutory rights vested in the Treasurer by the PAAT Act included the Treasurer, for the purposes of an authorised transaction, requiring the other party to the transaction to engage in conduct that would otherwise contravene the CCA. 403 The concept of the Treasurer requiring the other party to engage in conduct that would otherwise contravene the CCA does not resolve all uncertainty. But it does involve objective considerations. It is a question of fact answered by reference to the circumstances at the time of the conduct. That relevant fact cannot change. The Treasurer either did or did not require the conduct at the relevant time. This characterisation of the statutory right constitutes a relatively clear criterion to distinguish between conduct authorised by the PAAT Act (or purported to be authorised given that the provisions of the CCA are yet to be considered) and conduct not authorised by the PAAT Act. 404 In the present case, on the evidence, the Treasurer required NSW Ports to agree to the compensation provisions. Morgan Stanley, on behalf of the Treasurer, informed bidders on 20 December 2012 that changes to the transaction documents should be minimised as they represented the State's preferred position and that any changes to the liability and risk allocation regime would be viewed unfavourably. The Treasurer proposed the compensation provisions to bidders on 15 March 2013 as part of the risk allocation regime. In doing so, the compensation provisions were described as a "codified regime" if container volumes at the Port of Newcastle exceeded an organic growth path before Port Botany and Port Kembla were fully developed. NSW Ports did not request any change to the compensation provisions. It accepted the provisions as proposed by the Treasurer. 405 Against this background, the question whether the application of s 45 to NSW Ports in respect of the compensation provisions would divest the State of a legal right may be answered. The answer to that question is "yes". If s 45 of the CCA applies to the other party to the authorised transactions involving Port Botany and Port Kembla, NSW Ports, then the CCA would operate to divest the Crown of part of the statutory right it vested in the Treasurer, being the statutory right to transfer part of the proprietary rights of the State in the three identified ports to NSW Ports by contract and as part of that transaction to require NSW Ports to engage in conduct that might otherwise contravene provisions of the CCA (noting that s 4(1) of the PAAT Act prevented the Treasurer from transferring ownership of the land comprised in the port assets). 406 It is true that s 45 would not operate to divest the Treasurer of the whole of the statutory rights vested by the PAAT Act or the whole of the State's proprietary rights in the three port assets or the whole of the contractual rights in respect of effecting the authorised transactions. But it must be concluded that it would operate to divest the Treasurer of an important aspect of those rights – the right of the Treasurer to require the other party to the authorised transaction to engage in conduct, including making and giving effect to contractual provisions, that would otherwise contravene s 45 of the CCA, being a provision which does not apply to the Treasurer in exercising functions under the PAAT Act. This is a sufficient divestment of legal rights (statutory, proprietary and contractual) to engage the relevant principle of statutory construction. That is, it is presumed that the CCA Act does not have this operation unless, "from the language of the Act, and its objects and subject matter as emerging from that language" (Baxter at [62]), that intention may be discerned. 407 This brings me to the second question, whether the CCA evinces a contrary intention to this presumption. Unlike in Baxter, where the existence of the relevant legal right was itself dubious, it is necessary to confront this question directly in the present case. 408 It is convenient to acknowledge immediately that the issue is not whether the Commonwealth Parliament may be inferred to have had in mind the PAAT Act when it enacted the CCA. Plainly, this could not be the case given that the CCA was enacted in 2010 and the PAAT Act in 2012. The issue is whether it may be inferred that the Commonwealth Parliament, in enacting the CCA, intended that s 45 should apply to a corporation in the kind of circumstances involved in the present case, where the effect of such application will be to divest the State of the kind of statutory, contractual and proprietary rights granted by the PAAT Act. 409 To the extent that the relevant rights vested in the Treasurer by the PAAT Act might be characterised as a statutory enabling of a mere freedom to contract as appears necessary or convenient to the Treasurer, the result in Baxter weighs in favour of concluding that the relevant contrary intention of the CCA Act exists. 410 In contrast to Baxter, however, are the four distinguishing features already noted: (a) the existence of the PAAT Act as the source of the statutory rights in respect of the transfer by the State of a class of assets owned by the State (rather than the existence of a general concept of freedom enjoyed by all competent persons and bodies to contract to acquire goods in which the Crown had no pre-existing proprietary rights), (b) the fact that the class of assets is confined to three identified ports owned by the State (rather than goods sought to be acquired by the Crown in respect of which the Crown has no legal rights), (c) the fact that the PAAT Act vests the statutory right in a Minister of the Crown specifically, subject only to a confined power of delegation in s 33 of the PAAT Act (rather than the right being exercisable by members of the executive), and (d) the context of dealing with the three ports, which may be inferred to be of high significance to the State's policy and economic objectives, as confirmed by the provisions of the SOC Act and the PAAT Act, and the fact of payment of the proceeds of sale into the Restart NSW Fund (rather than a contract for supply, albeit of an important medical product, in Baxter). 411 Further, we are not dealing with statutory rights alone, let alone statutory rights which might be described as a mere freedom to contract. The statutory rights relate to the transfer of the State's proprietary rights in the three ports by the making of contracts with, relevantly, private entities. 412 As a result, it is more difficult to say in the present case that the construction for which the State and NSW Ports advocate would impose a "very extensive qualification upon the Act's object of promoting competition and fair trading in the public interest": Baxter at [74]. As the Full Federal Court observed in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2006] FCAFC 128; (2006) 153 FCR 574 at [102]: The amount involved in the combined purchases of goods and services by the executive governments of the States and State instrumentalities is massive and, as this case illustrates, in many fields would dominate demand. It is one thing to exempt the executive government from legislative prohibition as to conduct, particularly where the dominant position of the executive government in many markets would complicate procurement. It is another to have a substantial area of commerce in which restrictive practices can be carried on by all those dealing with a government, perhaps to the disadvantage of the public purchasing authority, but also to the detriment of other suppliers and consumers. 413 The qualification upon the object of the CCA in the present case, however, would be far more confined. It would apply only to authorised transactions under the PAAT Act, which concern only the transfer by contract of the State's proprietary rights in the three nominated ports in NSW, Port Botany, Port Kembla, and Port of Newcastle. 414 This brings me back to the scope, purpose and language of the CCA as the determinant of legislative intention. Each of the features of the CCA to which the ACCC and PON referred is relevant to the existence or otherwise of the relevant contrary intention. Section 45 of the CCA applies to all trading corporations. By s 2, the object of the CCA is to promote competition to enhance the welfare of Australians. States can specifically exclude conduct from the application of Pt IV by enacting legislation of the relevant kind under s 51. In negotiating and contracting the authorised transactions, NSW Ports was a trading corporation acting in the course of carrying on its business. Had the State also been effecting the authorised transactions in the carrying on of a business, s 45 of the CCA would have applied to it by operation of s 2B. These features of the CCA also all weigh in favour of the existence of the relevant contrary intention. 415 Other considerations, however, are also relevant. Section 45 of the CCA does not apply to the Treasurer at all (as an individual). The Treasurer, however, is a representative of the Crown and, by s 2B of the CCA, Pt IV applies to the Crown but only so far as the Crown carries on a business either directly (which must include the carrying on of a business through one of its Ministers) or by an authority of the State. Section 2B evinces a clear intention that the CCA does not apply to the Crown if is not carrying on a business. The CCA was enacted in the context of the existence of the presumption that, subject to a contrary legislative intention, legislation is not to be construed as divesting the Crown of legal, including statutory, proprietary and contractual, rights. 416 The search for legislative intention necessarily involves an evaluation of the weight to be given to competing considerations, recognising that legislation "rarely pursues a single purpose at all costs", and thus the issue may not be identifying the purpose of the legislation, but how far the legislation goes in pursuit of that purpose: Construction Forestry Mining & Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36; (2013) 248 CLR 619 at [40]-[41] citing Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138 at [5]-[7]. 417 The nature of the legal rights of the Crown in question (statutory, contractual and proprietary rights in respect of a specific and confined class of assets of high policy importance to the State), the circumstances in which those rights may be exercised (by the Treasurer or a confined class of delegates only), and the effect of the application of s 45 of the CCA to NSW Ports (to divest the State of an important aspect of those statutory, contractual and proprietary rights) are all important factors in determining whether the CCA contains an intention contrary to the presumption that legislation is not to be construed so as to divest the Crown of legal rights. 418 I consider that the CCA does not evince a statutory intention that s 45 should operate to divest the State of its statutory, proprietary and contractual rights to effect an authorised transaction under the PAAT Act, including the right of the Treasurer to require the counterparty to engage in conduct that contravenes s 45 of the CCA for the purpose of the authorised transaction. 419 The object of the CCA in s 2 is to be read in the context of the provisions of that Act as a whole. Those provisions include s 2B which applies Pt IV of the CCA to the State so far (but only so far) as it is carrying on a business. The exercise of functions under the PAAT Act do not involve the State carrying on a business. The rights vested in the Treasurer under the PAAT Act to give effect to an authorised transaction require a counterparty to which the port assets may be transferred and the PAAT Act expressly contemplates that such a counterparty may be a private entity (which might otherwise be subject to the CCA). Applying s 45 of the CCA to the counterparty necessarily involves applying that provision to the Crown and thereby divesting it of those rights. In the context of s 2B, s 2 of the CCA is not determinative. That is, the object of enhancing the welfare of Australians through the promotion of competition is not pursued by the CCA at any cost. Insofar as the Crown is concerned, the object is pursued only so far as the Crown is carrying on a business. 420 Nor is s 51 of the CCA determinative. Section 51 is also to be read in the context of the CCA as a whole which includes s 2B. Section 2B is specific to the States. It evinces a clear legislative intention that Pt IV of the CCA is not to apply to the State except insofar as it is carrying on a business. Section 51 is not specific to the States or any person dealing with the States. It may apply to "anything done in a State". It is difficult to conclude that ss 2, 45 and 51 of the CCA indicate a legislative intention that s 45 of the CCA should apply to a corporation in the position of the counter-party under the PAAT Act, when the effect of that would be to apply s 45 to the State so as to divest the State of legal rights when the State is not itself carrying on a business, apparently contrary to the terms of s 2B. 421 In contrast to the present case, in Baxter the application of ss 46 and 47 of the Trade Practices Act to the corporation did not involve applying those provisions to South Australia. The conduct in issue was proposed to and not required by South Australia. The application of the provisions to the corporation did not divest South Australia of any legal right. It merely potentially qualified a future capacity of members of the South Australian executive to acquire goods in which South Australia enjoyed no pre-existing rights on any basis those members saw fit. The capacity to acquire goods is not unique to the State. It is a capacity shared by all persons. The acquisition of goods by members of the executive does not necessarily involve any high governmental function or policy, and in Baxter it was not suggested the goods in question involved any such consideration. As such, there were no criteria by which the goods in Baxter could be distinguished from any other goods. If ss 46 and 47 did not apply to the corporation in those circumstances, a vast swathe of commercial activity in Australia (purchasing of any goods by any level of government) would be exempt from the operation of those provisions of the CCA. In the circumstances in Baxter the question of how far the CCA went to achieve its object in s 2 could be answered without great difficulty – nothing indicated that the relevant provisions of the CCA were not to apply to a corporation dealing with the Crown in the course of the carrying on of the business of the corporation where the application of those provisions to the corporation would not divest the Crown of any legal right (in that there was neither a legal right of the Crown nor its divestment) and the non-application of those provisions would remove such a large area of commercial activity (supply of goods generally to a government) from the purview of the Act. 422 The circumstances of the present case stand in stark contrast to those considered in Baxter. 423 For these reasons, s 45 of the CCA did not apply to NSW Ports to the extent that it made the compensation provisions and does not apply to NSW Ports to the extent that it may give effect to the compensation provisions in the future. It follows that the ACCC's originating application and the cross-claim of NSW Ports must be dismissed. 424 I consider the balance of the issues in the matter assuming my conclusions about Crown immunity and/or derivative Crown immunity above are incorrect. 4. WITNESSES 4.1 Lay witnesses 425 A number of the lay witnesses hold specialist expertise in respect of the operation of container terminals and were able to give opinion evidence relating to that matter. 426 Before making brief comments about my overall impression of the witnesses, I will record my view that it is to be expected that the lay witnesses called for PON and NSW Ports had an interest in supporting their respective cases. In respect of some aspects of their evidence, this inevitable tendency was more apparent in the evidence of the PON representatives than the NSW Ports representatives. This does not mean that I consider the PON representatives were dishonest or consciously biased. Other than in one respect (an aspect of the evidence of Mr Liu), I accept that the PON representatives were giving their honestly held opinions. Even in respect of that aspect of Mr Liu's evidence, I do not consider that he was being dishonest. 427 Julio Garcia: Mr Garcia is the head of infrastructure for the North American region for IFM. He was appointed a director of NSW Ports shortly after its bid to acquire the Port Botany and Port Kembla assets and was a director at the time of entry into the PCDs relating to those ports. I have no concern about his veracity. 428 Ari Droga: Mr Droga is a partner of the Australian business of GIP. He was a director of NSW Ports at the time of its bid to acquire the Port Botany and Port Kembla assets and entry into the PCDs relating to those ports. I have no concern about his veracity. 429 Adrian Croft: Mr Croft is an executive director at IFM and was a director of NSW Ports at the time of its bid to acquire the Port Botany and Port Kembla assets and entry into the PCDs relating to those ports. I have no concern about his veracity. 430 Marika Calfas: Ms Calfas is the CEO of NSW Ports. She is an environmental engineer. She was employed by SPC (which operated Port Botany) from 2001 until May 2013, during which time she was responsible for environmental management and planning of the port, Sydney Harbour, and the Cooks River and Enfield intermodal terminals. She was directly involved in SPC's $1 billion expansion of Port Botany between 2001 and 2013. She was also responsible for SPC's 30 Year Strategic Vision. She started working for NSW Ports in June 2013 as the general manager of planning and infrastructure. She became the executive general manager – strategy, planning and infrastructure in 2014. She was made interim CEO then CEO in 2015. I have no concern about her veracity. 431 Maciej Kwiatkowski: Mr Kwiatkowski is a director of PON appointed by MIRA. His experience is in the development and operation of container terminals. He gives evidence about the operation of container terminals and specific evidence about the suitability of Port of Newcastle for the development of a container terminal and the viability of such a development with and without the reimbursement provisions in the Newcastle PCD. 432 Mr Kwiatkowski's evidence did not initially disclose the key differences between the Port of Gdansk (which he managed) and the Port of Newcastle. As NSW Ports submitted, the Port of Gdansk was identified as a priority or "core" node of the trans-European transport network, being of "the highest strategic importance for achieving the objectives of the trans-European transport network policy". Poland was required by the European Union (the EU) to develop the transport network including the Port of Gdansk. The EU co-funded the development of the Port of Gdansk. As a result, no proper comparison can be drawn between the Port of Gdansk and the Port of Newcastle. Mr Kwiatkowski also gave some evidence about matters where he did not know all of the relevant facts. 433 Subject to these reservations, I have no concern about his veracity. 434 Hugh FitzSimons: Mr FitzSimons is a director of PON appointed by MIRA. He too expressed opinions about the Port of Newcastle using Port of Gdansk as a comparator, but readily accepted the differences in cross-examination. Having regard to his evidence as a whole, it is apparent that he had no direct involvement with the development decisions in respect of the Port of Gdansk, as those decisions had been made before he became a director of Deepwater Container Terminal (DCT) Gdansk. 435 Subject to these reservations, I have no concern about his veracity. 436 Yunshu (Nelson) Liu: Mr Liu is a director of PON appointed by CM Ports. English is not his first language. Having taken that fact into account, I nevertheless do not accept one aspect of Mr Liu's evidence, being the alleged effect of the compensation provisions (as opposed to the reimbursement provisions) on the potential decision-making of CM Ports. Otherwise Mr Liu compared the Port of Newcastle to the Colombo International Container Terminal (CICT) when the CICT was supported by the Sri Lankan government and substantial public funding. Mr Liu also presented himself as in part responsible for the development of the CICT as a transhipment hub when the Port of Colombo was already a recognised transhipment hub before CM Ports developed the CICT. In these circumstances the ACCC's submission that Mr Liu gave his evidence without advocacy or concern as to whether his evidence assisted the ACCC's or PON's interests in the case is an over-statement. I consider that Mr Liu's evidence was skewed towards PON's interest and this fact must be recognised in assessing the weight to be given to his evidence. 437 Craig Carmody: Mr Carmody was appointed as the CEO of PON in August 2018. His experience in the industry is limited. He had no involvement with the industry in 2010. From 2010 to 2013 he was a policy adviser to government including in respect of infrastructure development. For a short period thereafter he worked at a consultancy reviewing maritime infrastructure in Australia. He was then employed by a subsidiary of Maersk (the world's largest transporter of shipping containers) as head of its strategy and corporate affairs in Australia. His lack of long experience and highly specialised knowledge in this industry is relevant to the assessment of the weight that should be given to his opinions. He also advanced some opinions about matters in respect of which he had limited knowledge. However, I do not doubt his opinions were honestly held. 438 Noel Dent: Mr Dent was a consultant to PON and from October 2019 has been employed by PON. He is a former general manager for operations and container logistics at ANL. I have no concern about his veracity. 4.2 Expert witnesses 439 Pleun (Peter) van Duijn: Mr van Duijn was called by the ACCC as an industry expert. He has significant experience in the development and operation of container terminals. I have no concern about his veracity. 440 Alexander King: Mr King was called by the State as an industry expert. He has significant experience in the development and operation of container terminals. I have no concern about his veracity. 441 Patrick Smith: Mr Smith was called by the ACCC as an economic expert. It is necessary to separate his manner of presentation in the hearing from the substance of his opinions. In his oral evidence Mr Smith was long-winded, sometimes non-responsive, and apparently reluctant to make concessions which I consider should have been made. He did tend to make speeches when a direct answer to the question would have been more helpful. NSW Ports submitted that, as a result, Mr Smith was an unsatisfactory expert witness who approached the task of giving evidence as an advocate for the ACCC, rather than with a view to providing assistance to the Court on matters within his expertise. 442 Having sat through Mr Smith's evidence I understand why NSW Ports considered it appropriate to make this submission and I do not criticise it for doing so. That said, I do not consider that Mr Smith was doing other than giving his honest expert opinions. His manner of giving evidence seemed to me to be more a reflection of his personality than any lack of impartiality. I would prefer to evaluate his evidence based on its substance and apparent cogency or otherwise, rather than the manner in which the oral evidence was given. 443 Christopher Pleatsikas: Dr Pleatsikas was called by NSW Ports as an expert economist. His evidence was direct, clear and concise. He was impressive in his written and oral evidence. 444 Jeffrey Balchin: Mr Balchin was called by NSW Ports as an expert economist to give evidence concerning the catchment areas of Port Botany and Port of Newcastle if the latter developed a container terminal and the commercial feasibility of the development of a container terminal at the Port of Newcastle. His evidence was direct, clear and as concise as it could be given the tasks he undertook. He was impressive in his written and oral evidence. 445 Jason Ockerby: Mr Ockerby was called by the State as an expert economist. His evidence was direct, clear and concise as it could be given the tasks he undertook. He was impressive in his written and oral evidence. 5. MARKET 5.1 Principles relevant to market definition 446 In Boral Besser Masonry Limited (now Boral Masonry Ltd) v Australian Competition and Consumer Commission [2003] HCA 5; (2003) 215 CLR 374 McHugh J identified that: (1) "[t]he inclusion of the terms 'substitutable' and 'competitive with' in s 4E also means that market definition must be determined in accordance with economic principles. The terms of the Act have economic content and their application to the facts of a case combines legal and economic analysis": [247]; (2) "[i]n economic terms, a market describes the transactions between sellers and buyers in respect of particular products that buyers see as close or reasonable substitutes for each other given the respective prices and conditions of sale of those products". As observed in Re Queensland Co‑operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 8 ALR 481 (QCMA) at 517: A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them … Within the bounds of a market there is substitution – substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. … Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives. … [I]n determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to 'give less and charge more' would there be, to put the matter colloquially, much of a reaction: [248]; (3) "[i]n determining the ambit of the market, the cross-elasticities of both supply and demand [whether consumers or producers can replace one product with another without a great deal of difficulty in response to price or condition changes] are relevant". As Dawson J said in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1989] HCA 6; (1989) 167 CLR 177 at 199: In setting the limits of a market the emphasis has historically been placed upon what is referred to as the "demand side", but more recently the "supply side" has also come to be regarded as significant. The basic test involves the ascertainment of the cross-elasticities of both supply and demand, that is to say, the extent to which the supply of or demand for a product responds to a change in the price of another product. Cross-elasticities of supply and demand reveal the degree to which one product may be substituted for another, an important consideration in any definition of a market: [251]; (4) "[t]hus, the market is the area of actual and potential, and not purely theoretical, interaction between producers and consumers where given the right incentive – a change in price or terms of sale – substitution will occur": [252]; and (5) "[t]he views and practices of those within the industry are often most instructive on the question of achieving a realistic definition of the market. The internal documents and papers of firms within the industry and who they perceive to be their competitors and whose conduct they seek to counter is always relevant to the question of market definition": [257]. (Citations omitted). 447 To the same effect as this last proposition above, in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 826 Allsop J (as he then was) said at [444]: If, in the real commercial world, the firm in question takes the trouble to be concerned about restricting a new entrant's capacity, because of the potential effect on the sales and profits of its nearby local outlets (and not because of any concern about the potential effect on sales and profits of other, more widely situated, outlets), that may assist in a conclusion as to the importance of the closeness of competition and the concern as to additional constraints in that local area. The reality of the concern of the firm in question may assist in the illumination of the correct framework to analyse that conduct … Woolworths submitted that whilst the purposive approach requires the relevant market to be defined by reference to the conduct sought to be impugned, the alleged purpose is not a relevant consideration in determining the market in which that purpose is to be assessed. I do not accept that submission. The impugned purpose in connection with the provisions of the relevant deed is the conduct to be assessed. The very fact that the firm behaved with that purpose may tell one something of the market. Further, it is the market analysis or tool best adapted to consider that conduct which is to be chosen. 448 At [442] in Liquorland Allsop J (as he then was) said: Thus, the identification of the market as the correct analytical tool or instrumental concept to assess the conduct in question will be assisted by the recognition of the close competition and factors dealing with constraints that may be seen to be affected or advanced by the conduct in question. This relationship between the conduct the subject of analysis, and the correct market for its analysis takes place in the context where value judgments must be made in an economy where markets overlap and where the geographical boundaries (for the reasons given earlier) are likely to be blurred: cf Queensland Wire … at 195-96 per Deane J. 449 Similarly, Greenwood J in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909; (2013) 310 ALR 165 at [970] said: To the extent that a firm perceives itself as free from any constraint to charge more and give less in a particular field of activity, those perceptions are highly significant in marking out the boundary of the field of transactions. If a firm, by its conduct, seeks to exclude another firm from entry into a field of activity, that field of transactions is likely to properly reflect the relevant field of activity for analysis. 450 In Re Tooth & Co Ltd (1979) 39 FLR 1 at 38-39 the Trade Practices Tribunal identified that the delineation of a market should comprehend the "maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another". Further, the consideration of longrun substitution possibilities rather than shortrun and transitory situations is required recognising that "the market is the field of actual or potential rivalry between firms". 451 In Australian Competition and Consumer Commission v Flight Centre Travel Group Limited [2016] HCA 49; (2016) 261 CLR 203 at [69] Kiefel J (as she then was) and Gageler J stressed that market definition is "purposive or instrumental or functional". 452 In Air New Zealand Ltd v Australian Competition and Consumer Commission [2017] HCA 21; (2017) 262 CLR 207 Kiefel CJ, Bell and Keane JJ said at [12] that the "authorities confirm that a market, within the meaning of the TPA, is a notional facility which accommodates rivalrous behaviour involving sellers and buyers" and should be "understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes" (citing Deane J in Queensland Wire at 195). At [26] their Honours said that "concepts such as market and cross-elasticity of supply and demand provide no complete solution to the definition of a market. Much will depend upon the context in which the question arises. The exercise of market definition needs to take into account the conduct in question and its effects, and the statutory terms governing the question" (citations omitted). At [27] their Honours said "[s]ection 4E treats substitutability as the principal driver of the rivalrous behaviour accommodated by a market. The act of switching or substitution marks the conclusion of that rivalry: one of the rivals has prevailed". At [31] their Honours said that on the facts of that case "Australia was not merely the end of the line for services generated by an interplay of forces of supply and demand occurring outside Australia". Rather the tussle between suppliers to obtain orders was competition in Australia. 453 At [39] in Air New Zealand Nettle J agreed that market definition involves a fact-intensive exercise centred on the commercial realities of the market and competition. His Honour said at [40], "where sellers are engaged in marketing their goods and services, or perceive themselves to be competing, in areas beyond the area in which they are located, commercial reality is likely to dictate that the market includes those further areas". 454 At [60] in Air New Zealand Gordon J observed that a market must have "economic and commercial reality" and must not "be artificial or contrived" (citing Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103; (2015) 236 FCR 78 (ANZ) at [138]). Continuing to cite ANZ at [138], her Honour said at [61]: The identification of the market must therefore "accurately [and] realistically describe and reflect the interactions between, and perceptions and actions of, the relevant actors or participants in the alleged market, that is, the commercial community involved". 455 At [62] in Air New Zealand Gordon J stressed that, depending on the purpose of the exercise, the definition of the market may be different. Her Honour continued at [78] in these terms: …competition is a dynamic process, rather than a situation, which expresses itself as "rivalrous market behaviour" – behaviour that involves "independent rivalry in all dimensions of the [service] offered to consumers". Competition is the means to protect the interests of consumers, not competitors. This is why it has been rightly said, in later decisions in the Federal Court, that competition may take many forms and that the way competitors behave is likely to tell you something of the market. As has been explained, the functional approach to market identification requires consideration of the alleged anti-competitive conduct. Considering "competition" and identifying the "market" are thus part of the same process; "it is for the sake of simplicity of analysis that the two are separated". (Citations omitted). 456 At [127] in Air New Zealand Gordon J said: A market is commonly described by reference to four dimensions – product (here, the types of services supplied), function (where within the supply chain the services are supplied), geography (the physical area in which the services are supplied) and time (the period in which the supply occurs) [Flight Centre at [67]]. Those dimensions, and that form of analysis, are tools. They are not the starting point of the process of market identification for the purposes of considering the application of particular provisions of the TPA. A court begins with the problem at hand (the impugned conduct) and asks: what market identification best assists in the assessment of that conduct and its asserted anti-competitive attributes? What process best assists in that assessment is determined by "the substantive criteria for the particular contravention in issue … in the commercial context the subject of analysis" [Flight Centre at [69] quoting ANZ at [137]]. 457 In Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [143] the Full Court of the Federal Court said: It is important to recognise that the process of market identification is not done in a vacuum, nor is it an enquiry about a stable unitary extant thing; rather it is a process to answer a question whether a particular contravention has occurred. The first step is to identify "precisely what it is that is said to have been done in contravention of the section": Queensland Wire 167 CLR 177 at 195 (Deane J). One must then ask "what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes": Gordon J in Air New Zealand 344 ALR 377 at 390 [58], citing … Liquorland … at [437]. 458 Their Honours stressed at [150] in Yazaki that a market includes an area of potential close rivalry. 459 In Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77; (2020) 277 FCR 49 the Full Court of the Federal Court observed that: (1) "the identification of markets must be the essential first step in assessment of present competition and likely competitive effects": [101]; (2) "[t]he word 'substantially' as used in the section is imprecise. However, the Courts have consistently said that, in each of sections 45, 47 and 50, the word does not connote a large or weighty lessening of competition, but one that is 'real or of substance' and thereby meaningful and relevant to the competitive process" [104]; (3) "[a]s observed by Professor M Brunt in an article that has been referred to many times in the cases, the 'market' concept is an instrumental concept designed to assist in the analysis of processes of competition and sources of market power; 'market definition is but a tool to facilitate a proper orientation for the analysis of market power and competitive processes – and should be taken only a sufficient distance to achieve the legal decision' ("Market Definition Issues In Australian And New Zealand Trade Practices Litigation" (1990) 18 Australian Business Law Review 86 at 93 and 126-7). Market definition is also an evaluative exercise because its object is to describe, and thereby define, in a given area of trade and commerce the competitive constraints affecting suppliers and acquirers": [138]; and (4) "[t]he degree of lessening that satisfies the legal standard is encapsulated by the word 'substantially' which, as observed earlier, is imprecise but has been interpreted as meaning real or of substance, thereby connoting a lessening that is meaningful to the competitive process": [138]. 460 In Australian Gas Light Company v Australian Competition & Consumer Commission (No 3) [2003] FCA 1525; (2003) 137 FCR 317 (AGL) French J (as he then was) said, in the context of an acquisition case: [348] The meaning of "likely" reflecting a "real chance or possibility" does not encompass a mere possibility. The word can offer no quantitative guidance but requires a qualitative judgment about the effects of an acquisition or proposed acquisition. The judgment it requires must not set the bar so high as effectively to expose acquiring corporations to a finding of contravention simply on the basis of possibilities, however plausible they may seem, generated by economic theory alone. On the other hand it must not set the bar so low as effectively to allow all acquisitions to proceed save those with the most obvious, direct and dramatic effects upon competition. By the language it adopts and the function thereby cast upon the Court and the regulator in their consideration of acquisitions s 50 gives effect to a kind of competition risk management policy. The application of that policy, reflected in judgments about the application of the section, must operate in the real world. The assessment of the risk or real chance of a substantial lessening of competition cannot rest upon speculation or theory. To borrow the words of the Tribunal in the Howard Smith case [Re Howard Smith Industries Pty Ltd and Adelaide Steamship Industries Pty Ltd (1977) 15 ALR 645], the Court is concerned with "commercial likelihoods relevant to the proposed merger". The word "likely" has to be applied at a level which is commercially relevant or meaningful as must be the assessment of the substantial lessening of competition under consideration – Rural Press Limited v Australian Competition and Consumer Commission [2003] HCA 75[; (2003) 216 CLR 53] at [41]. [349] The term "competition" was the subject of consideration in the decision of the Trade Practices Tribunal in QCMA at … [511-512]. The Tribunal regarded "rivalrous market behaviour" as the expression of competition. It is a "process rather than a situation". It requires "both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers". [350] Competition in a market is not assessed by a snapshot view of participant behaviour at a particular time. The theatre of competition is a theatre of real actors and shadow actors. The shadows are cast by the potential for new entry. The competitive process is informed by the rivalry of the participants and the potential rivalry of potential participants. Competition so understood is conceptually distinct from the idea of the market and the elements of market structure which may constrain or facilitate it. Those structural elements are referred to, inter alia, in the factors set out in s 50(3) of the Act. [351] The word "substantial" in "substantial lessening of competition" is another term requiring qualitative judgment which suggests that the use of analogues such as "large" or "weighty" would misdirect. It applies to "lessening" which encompasses hindering or preventing competition (s 4G). As I said in Stirling Harbour Services Pty Ltd v Bunbury Port Authority … [[2000] FCA 1381; (2000) ATPR 41-783 at [13]] there is only limited assistance to be gained by replacing the words used in the Act with other words. A description of the kind of judgment required by the word "substantially", which appears recently to have been approved in the High Court, is that the effect of the acquisition be "meaningful or relevant to the competitive process" – Rural Press Ltd at [41]. [352] In determining whether it could be said that there is likely to be a substantial lessening of competition in a market it is necessary to consider the future state of the relevant market with and without the proposed acquisition – Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd … [[1982] FCA 193; (1982) 44 ALR 173 at 191]; Outboard Marine Australia Pty Ltd v Hecar Investments [No 6 Pty Ltd [1982] FCA 285; (1982) 44 ALR 667 at 669-70]. 461 In Rural Press Limited v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53 (Rural Press HCA) Gummow, Hayne and Heydon JJ said: (1) "[t]he views and practices of those within an industry can often be most instructive not only on the question of achieving a realistic definition of the market, but also on the question of assessing the quality of particular competitive conduct in relation to the level of competition and the impact of its cessation": [45]; (2) a new entrant into a monopoly market may introduce competition into that market. An arrangement under which the new entrant withdraws from that market, accordingly, can substantially lessen competition in that market: [46]; and (3) on the facts in that case "[w]hile neither the area nor the increases in sales, advertising revenues and profits achieved were large, it does not follow that the River News did not achieve a substantially pro-competitive impact by its move south or that the arrangement did not have a substantially anti-competitive impact in causing its retreat north. The move was profitable. There was no reason to suppose that it would not remain profitable or that Waikerie Printing would not seek to continue gaining those profits. The trial judge found that but for the arrangement Pick would have continued to publish the River News in the Mannum area. The success of Pick's experiment invalidates the Rural Press parties' argument that regional newspaper markets in South Australia must inevitably be single firm markets. The fact that the River News continued to be available after April 1998 does not mean that competition was not substantially lessened: the Rural Press parties have not successfully challenged the findings of the trial judge that from April 1998 it ceased to promote circulation or seek advertising revenue in Mannum, and that its circulation dropped "very significantly": [44]. (Citations omitted). 462 In Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 at [353]-[354] the Full Court of the Federal Court identified the standard analytical tool for identifying a market as the "hypothetical monopolist test" or SSNIP (a small but significant non-transitory increase in price) test which posits that two products will be in the same market if the producers of one of those products could not profitably impose a SSNIP above the competitive level without losing sales to the producers of the other product, where the SSNIP is an increase of 5% to 10% above the competitive level. At [355]-[356] they explained why the SSNIP had to be above the competitive price and not a monopoly price in order to avoid the "Cellophane fallacy": Cellophane Case (United States v EI du Pont de Nemours & Co 351 US 377 (1956)). The Cellophane fallacy involves a failure to recognise that if the price at which a product is sold is a monopoly price then no further profit-increasing prices are feasible. That is, while consumers will switch from the monopoly priced product A to another product B if there is any posited increase above the monopoly price for product A, this does not mean product A and product B are in the same market because product B has not prevented product A from being sold at the monopoly price. 463 At [660] in Seven Network the Full Court said: The trial Judge also considered that much of the evidence did not distinguish between competition and close competition, a distinction which his Honour considered to be critical in this case. It is unlikely that any person, not an economist or competition lawyer, would draw such a distinction. The witnesses may not have described the perceived competition as "close", but it does not follow that it was not. In any event, "closeness" is a matter of degree. The evidence must be scrutinised in context to identify the sense in which the term "competition" was used. It should not be dismissed as ambiguous unless the ambiguity cannot be resolved. 464 In Seven Network at [670] the Full Court said: We do not treat the SSNIP test as being irrelevant to the question of market identification. However a qualitative application of the test requires identification of its purpose. As we understand it, the test looks to the actual or likely effect of competitive conduct, or potential competitive conduct, upon price and other conditions of supply, including quality of the product. However competitive conduct may not have an immediate and obvious effect upon those matters. Particularly in a relatively new industry, competitors may be looking for longer term, rather than shorter term, advantages. The "richness" of the concept of competition referred to in … [QCMA] means that competition may take many forms. Its effects may be immediate or delayed. The SSNIP test addresses the effects of competition, but it does not define the way in which it occurs. 465 In Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211 at 242 von Doussa J said that: Transport costs are important in determining the geographic ambit of a market for goods where transport costs are a significant factor in relation to the value of the goods: Australia Meat Holdings Pty Ltd v Trade Practices Commission [1989] ATPR 50,082 per Davies J at 50,092 (Sheppard J agreeing at 50,097). 5.2 Some preliminary observations 5.2.1 Issues 466 The issues are whether the impugned compensation (and, on the cross-claim, reimbursement) provisions involved the proscribed statutory purpose or had when made or will have in the future the proscribed statutory effect of substantially lessening competition in the pleaded market for the supply of Container Port Services in NSW. 467 The time at and circumstances under which the claimed proscribed purpose and likely effect of the making of the impugned provisions are to be evaluated is the date on which the impugned provisions were made (31 May 2013 for the compensation provisions and 30 May 2014 for the reimbursement provisions). The likely effect of giving effect to the impugned provisions may extend over the 50 year term during which the provisions operate (until 2063 for the compensation provisions and 2064 for the reimbursement provisions respectively). In this latter respect, it is necessary to evaluate the likely effect of giving effect to the impugned provisions as at today's date for the reasonably foreseeable future, recognising the length of the term of the impugned provisions of 50 years. 468 As noted, by s 4E of the CCA, a "market" for goods and services means, relevantly, a market for goods and services that are substitutable for, or otherwise competitive with (relevant) goods and services. Section 45(1) proscribes conduct making or giving effect to a contract that has the purpose, or would have or be likely to have the effect, of substantially lessening competition. By s 45(3), competition means competition in a market. 469 The pleaded market is a market for the supply of Container Port Services in NSW. Container Port Services, as pleaded, means the operator of a port making available to shipping lines, stevedores and land transport operators the use of land and facilities at the port on or from which shipping lines, stevedores and land transport operators provide Container Services and making available to shipping lines services to assist a ship to navigate into and out of the harbour and channel. 470 Container Services, as pleaded, means the services provided by shipping lines, stevedores, and land transport providers when cargo is shipped into and out of NSW. These Container Services comprise: (a) Shipping lines transport containerised cargo by sea to or from ports in NSW. (b) Stevedores load and unload containerised cargo and empty containers on to or from ships, trains or trucks, transport containerised cargo and empty containers within the port, provide storage facilities for containers within the port, and transport empty containers to and from any external storage facilities. (c) Land transport operators transport containerised cargo to or from a sea port by rail or road (to or from the container's origin or destination). (d) The demand for Container Services is complementary: there is no demand for one type of Container Services independent of demand for the other types of Container Services. 471 Subject to some immaterial matters, NSW Ports denied and the State admitted the existence of this market. 5.2.2 A key dispute about the market 472 At the risk of over-simplification, a key dispute between the parties about the market issue may be summarised as follows. The parties all accepted that the relevant potential effect of the impugned provisions related to the likelihood a container terminal being established and profitably operating at the Port of Newcastle. The ACCC and PON contended that without the impugned provisions there was and is a real chance and real possibility that a container terminal would be established and profitably operate at the Port of Newcastle. NSW Ports and the State contended that without the impugned provisions there was and is no real chance or real possibility that a container terminal would be established and profitably operate at the Port of Newcastle. 473 The ACCC and PON also contended that, as it is common ground that if a container terminal is operating at the Port of Newcastle it will capture a not immaterial portion of container volumes currently serviced by Port Botany, there will be competition between those ports in the market for the supply of Container Port Services in NSW. 474 NSW Ports and the State contended that if a container terminal is operating at the Port of Newcastle then the existing monopoly market serviced by Port Botany would divide into two separate monopolistic markets, one serviced by Port Botany and one serviced by the Port of Newcastle, with insubstantial overlapping areas. This is because: (a) application of the hypothetical monopolist test involving a SSNIP shows that the two ports would not be close substitutes in terms of Container Port Services, and (b) on a catchment area analysis, given the locations of Port Botany and the Port of Newcastle, the overwhelming determining factor for using one port rather than the other will be land transport costs, and small but significant changes to wharfage fees (the cost of Container Port Services) could not affect the decisions of importers/exporters or shipping lines to use one or other port. 475 NSW Ports and the State thus contended that each customer that could use the Port of Newcastle if developed as a container terminal ("could" in the sense of possible having regard to the customer's location, business structure and shipping requirements) will use the Port of Newcastle if the total cost of doing so will be less than the total cost of using Port Botany. Equally, each customer that could use Port Botany (in the sense of possible having regard to the customer's location, business structure and shipping requirements) will use Port Botany if the total cost of doing so will be less than the total cost of using Port of Newcastle. As any cost differential between the two ports would be overwhelmingly dominated by land transport costs, no change in the cost of Container Port Services by the ports will be able to influence the choice of port by a customer. That is, customers for which the Port of Newcastle provides the relative land transport cost advantage will switch from Port Botany to the Port of Newcastle and there will be nothing that Port Botany can do to entice them to switch back. This "one off switch", it was submitted, does not involve a process of competition in a market as required by the CCA. It involves the creation of two smaller monopolistic markets out of one existing large monopolistic market for Container Services in NSW. 476 This aspect of the dispute involved a substantial portion of the evidence and the submissions. However, as the following discussion explains, market identification is a tool for the purpose of competition analysis. The only available market permitting such an analysis is the one the ACCC identified – the existing market for Container Port Services in NSW. Further, the two separate monopolistic markets proposed by NSW Ports and the State do not and will never exist. Those posited markets are the result of simplifying assumptions, in particular the assumption of ceteris paribus, that all other things will be equal between Port Botany and the Port of Newcastle assuming the Port of Newcastle has a container terminal. 477 The compensation and reimbursement provisions which comprise the impugned conduct pre-suppose that a container terminal in fact exists at the Port of Newcastle which is capable of handling containers diverted from Port Botany. But the fact that the impugned provisions make this assumption does not mean that it is appropriate in evaluating the effect of the impugned provisions to assume circumstances such as all things being equal between the two ports contrary to the reality of the existing market for Container Port Services in NSW and the likelihood of any container terminal at the Port of Newcastle entering that market. 5.2.3 The relevant hypothesis about a container terminal at the Port of Newcastle 478 Another important matter needs to be identified at the outset. There is an existing container terminal at Port Botany. There is no container terminal at either Port Kembla or the Port of Newcastle. Since July 2012 the State policy, as subsequently reflected in a number of published strategic planning documents, is that the existing container capacity at Port Botany will be used before any new container terminal is developed in NSW and that the next container terminal in NSW will be at Port Kembla not the Port of Newcastle (which, under the State policy, is third in line). I refer to this policy as the State policy, but it is important to recognise that it is a policy of the NSW government adopted in July 2012 on the basis of recommendations by State agencies including Transport for NSW and Infrastructure NSW, which consulted with other State agencies (including the Department of Planning) in formulating their recommendations. 479 Accordingly, the relevant issue is not simply the operation of any container terminal at the Port of Newcastle. The impugned provisions are more confined in their operation. The impugned provisions are only engaged if a container terminal at the Port of Newcastle results in the diversion of containers from Port Botany (or Port Kembla) to the Port of Newcastle in circumstances where Port Botany (or Port Kembla) has not reached Full Capacity (as defined in the Port Botany and Port Kembla PCDs). 480 It follows that the only hypothetical container terminal at the Port of Newcastle which is relevant to the operation of the impugned provisions is one which is capable of handling diverted container volumes from Port Botany (or Port Kembla), and is operating before Port Botany (or Port Kembla) has reached Full Capacity as defined in the Port Botany and Port Kembla PCDs. 481 The focus of the evidence and submissions in this case, however, was the relationship between a (hypothetical) container terminal at the Port of Newcastle and the actual container terminals at Port Botany while Port Botany has capacity. None of the submissions or expert evidence focused on the relationship between a (hypothetical) container terminal at the Port of Newcastle and a (hypothetical) container terminal at Port Kembla. That potential dynamic thus remains in the realm of speculation. The assumption underlying the expert evidence was that Port Botany has continuing capacity, but that its capacity was finite and would be reached sooner (according to the ACCC and PON) or later (according to NSW Ports and the State). 482 There is insufficient evidence enabling rational inferences to be drawn and conclusions reached about the relationship between a (hypothetical) container terminal at the Port of Newcastle and a (hypothetical) container terminal at Port Kembla assuming Port Botany has reached Full Capacity. This latter assumption would be necessary if that relationship were to be analysed, because NSW Ports holds the long-term lease over both Port Botany and Port Kembla. NSW Ports, it is also clear on the evidence, would not develop a container terminal at Port Kembla while Port Botany has capacity. 483 This lack of evidence may reflect another reality about the operation of the PCDs. 484 The point is that the PCDs cannot operate in respect of Port Kembla unless a container terminal has been constructed and is operating at Port Kembla. This appears from: (a) aspects of the definition of Full Capacity in cl 3.1, in particular cl 3.1(h) and (i), (b) cl 3.3(d) which refers to the number of containers imported or exported by Port Kembla in the Relevant Support Period, (c) cl 3.3(e) which refers to the number of containers imported or exported by Port Kembla in the Previous Support Period, and (d) cl 3.4 which calculates the NSupport which will necessarily be zero if Port Kembla does not have a container terminal. 485 This means that the only potentially relevant hypotheses are the operation of a container terminal at the Port of Newcastle: (a) while Port Botany has capacity, or (b) while Port Kembla has capacity, which necessarily means after a container terminal is constructed and operating at Port Kembla. That is, the compensation provisions (and thus the reimbursement provisions) would not operate at all if Port Botany has reached Full Capacity and Port Kembla has no container terminal. 486 Assume Port Botany has reached or will soon reach Full Capacity. The choice for the NSW government would be between implementing the State policy, for the next container terminal to be developed at Port Kembla, or to change the State policy and support the next container terminal being developed at the Port of Newcastle. One thing is clear – it is that the NSW government would not support the development of container terminals at both ports. The impugned provisions cannot be relevant to this future choice by the State. The impugned provisions cannot operate because Port Botany will be at Full Capacity before the next container terminal is operating and there will be no container terminal at Port Kembla. 487 As a result, it cannot be said that the impugned provisions make it any less likely that the NSW government will change the State policy to enable a container terminal to be constructed at the Port of Newcastle after Port Botany has reached Full Capacity but before any container terminal is constructed at Port Kembla. The impugned provisions simply do not speak to the making of that choice in those circumstances. Other circumstances will be relevant to that choice, including the State policy, but not the impugned provisions. 488 In theory, it is possible that within the term of the impugned provisions a container terminal might be constructed and operating at Port Kembla, Port Kembla might not be at Full Capacity, and PON might wish to construct a container terminal at the Port of Newcastle. The problem for the ACCC and PON is that this theoretical possibility is completely in the realm of speculation. No evidence addresses this possibility. 489 These considerations lead to the conclusion that the only hypothesis relevant to the potential operation of the impugned provisions, and in any event the only one which has a proper evidentiary foundation enabling the drawing of rational inferences and conclusions, is the operation of a container terminal at the Port of Newcastle while Port Botany has capacity. The evidence adduced only permits an assessment of whether there is a real chance or real possibility of a substantial lessening of competition by the making or giving effect to the impugned provisions within the context of this hypotheses. 490 For these reasons, when I refer to a container terminal at the Port of Newcastle below, I mean a container terminal at the Port of Newcastle while Port Botany has capacity. 5.2.4 Some basic propositions about the market 491 It is convenient to record some basic propositions about the market which I consider inform the resolution of the issues in dispute. 492 First, the impugned provisions were made in the context of the existing market for Container Port Services in NSW. Accordingly, their likely effect at the time of their making is necessarily to be assessed by reference to that market. 493 Second, a container terminal at the Port of Newcastle will be a new entrant into the existing market. There is no dispute that in the existing market for Container Port Services in NSW, Port Botany enjoys a monopoly over most of the State. Its monopoly does not extend to certain regions where, in the south, some export container volumes are handled through the Port of Melbourne and, in the north, some export container volumes are handled through the Port of Brisbane; but otherwise Port Botany enjoys a monopoly over NSW containers. 494 Third, it is not in dispute that a container terminal at the Port of Newcastle will not immediately enter the existing market on the basis of equivalent functionality to Port Botany. PON does not suggest such an entry into the market is possible. On the evidence, it is apparent that a container terminal at the Port of Newcastle would not be functionally equivalent to Port Botany for a number of years (and possibly may never achieve that equivalence). 495 Fourth, and accordingly, the assumption that all things are equal between Port Botany and a container terminal at the Port of Newcastle on entry by the latter into the existing market bears no resemblance to reality. 496 Fifth, even if a container terminal at the Port of Newcastle achieves sufficient functional equivalence with Port Botany, there is no basis to infer that this state will continue. On the evidence, there are a number of dynamic circumstances which would affect the relative functionality of the two ports. Those circumstances include: (a) the container handling capacity of each port (the capacity of the Port of Newcastle container terminal is proposed to increase in stages), (b) the efficiency of stevedoring services offered by each port, (c) the road and rail connectivity of each port, (d) the shipping connectivity of each port, and (e) the convenient location of distribution and storage centres (for example, for empty containers) for each port, which may be made available either on port land or outside of the port. 497 While the two ports do not ultimately control these port functionality factors (other than (a), but subject to government approval), it cannot be assumed that they are unable to materially influence them as part of their conduct in the market for Container Port Services. The economists called by NSW Ports and the State assumed or proposed that a port had no material influence on these factors but, as will be explained, this is contrary to the evidence. 498 NSW Ports and the State submitted that at least (b) to (e) of these port functionality factors do not form a part of the pleaded Container Port Services. Rather, (b) to (d) are part of or connected to the pleaded Container Services, while (e) involves private developers making their own development decisions. 499 The problem with this submission is that the pleaded Container Port Services involve the port making land and facilities at the port available for the pleaded Container Services. In so doing, a port can (and must be inferred would) ensure that as part of the provision of Container Port Services, the port facilitated and enhanced the efficient provision of Container Services. 500 Take stevedoring services as an example. Stevedoring services are not part of Container Port Services and it is common ground that competition between stevedores occurs in a different market from the market for Container Port Services. However, in providing Container Port Services to stevedores, ports can (and it must be inferred on the evidence do) make available land and facilities in a manner which the port considers will be most advantageous to the maximisation of the use of the port by importers/exporters and shipping lines. Conduct of a port in making land and facilities available to stevedores (which is part of the pleaded Container Port Services) which has the purpose or effect of maximising the profitability of Container Port Services by enhancing the efficiency of stevedoring services (a part of Container Services) is itself conduct in the market for Container Port Services. 501 The same conclusion must apply to conduct of a port in relation to the making available of land and facilities to other entities involved in the container supply chain, including shipping lines (to which a port makes available berths etc) and road and rail and land transport entities (to which a port makes available land and facilities). To the extent that a port may also make land and facilities available within a port to distribution and logistics services, this necessarily also forms a part of Container Port Services to land transport entities (that is, distribution and logistics service providers are themselves land transport entities). 502 In each case, if in making available land and facilities as part of Container Port Services, the port is acting to maximise the profit of its Container Port Services by facilitating maximum use of Container Services by importers/exporters and shipping lines – which it rationally must be – then the port is acting in the market for Container Port Services. 503 The consequence of potentially dynamic port functionality over time, materially influenced by the port itself, tends to support the view that I have reached that to focus on an assumed steady state of equivalent functionality between the container terminals (actual at Port Botany and hypothesised at the Port of Newcastle) is liable to result in misconceptions about the relevant market and to negate the capacity to evaluate the likely effects of the impugned provisions. 504 Apart from these considerations, there are five examples against which the results of the economic analyses about the relevant market can be tested. These examples suggest that the analysis of the economists called by NSW Ports and the State assuming a container terminal at the Port of Newcastle which is functionally equivalent to Port Botany is not the best analytical tool for the identification of the relevant market. 505 One, the conclusion that entry by a container terminal at the Port of Newcastle would divide Port Botany's existing monopoly into two smaller separate monopolies results from the fact that orthodox application of a SSNIP to the assumed functionally equivalent ports demonstrates that neither port will act as a close price constraint on the other. 506 A necessary corollary of this analysis is that the existing three eastern seaboard ports (the Port of Melbourne, Port Botany and the Port of Brisbane) are also each monopolists. All of the economists agree that these three ports are monopolists and compete with one another only at the margins of their natural catchment areas (which means the area of a port's relative land transport cost advantage compared to the next closest port, as explained further below). In other words, it should be the case that the price of Container Port Services charged by Port Botany (consisting only of wharfage fees) is not closely constrained by the price charged by the other two eastern seaboard ports. 507 The evidence, however, is to the contrary. NSW Ports set Port Botany's prices for all export containers no higher than the prices of the Port of Melbourne and the Port of Brisbane for export containers. It did so because it in fact competes with the Port of Melbourne for export containers from the southern and south-western region of NSW and with the Port of Brisbane for export containers from the northern region of NSW. That is, Port Botany's prices for all export containers was driven by competition in relation to areas and customers within those areas that would be described as "marginal" (in that the areas are at the margins of Port Botany's catchment area and the customers are too small in number to cause a SSNIP to identify any close constraining of each other's prices). According to NSW Ports, it set prices for all export containers so as not to lose a marginal number of customers from marginal areas to other ports when a SSNIP would show that it could have profitably increased its price for export containers by at least (and in fact more than) 5-10%. 508 While the threat of price regulation of Port Botany's prices is real (and Dr Pleatsikas and Mr Ockerby considers that threat explains Port Botany's prices), it is clear from Ms Calfas's evidence that Port Botany's prices for export containers are in fact set to ensure no loss of containers to the Port of Melbourne or the Port of Brisbane. Apparently marginal competition is driving the price of all export containers handled by Port Botany other than in respect of the one case of price discrimination in which Port Botany engages (discussed below). 509 Two, Dr Pleatsikas's application of the SSNIP test would indicate that a container terminal at Port Kembla, only 90 km from Port Botany, would also be in a separate market for Container Port Services from Port Botany. While Dr Pleatsikas gave evidence that this might not be so because of potentially high elasticity of demand as between Port Botany and Port Kembla, his quick analysis during oral evidence indicated that the numerical results of a SSNIP, even assuming high elasticity of demand, would yield the result of separate markets for Port Botany and Port Kembla. Once the whole of the evidence is understood, this proposition is implausible. 510 Three, the economic analyses of Dr Pleatsikas, Mr Ockerby and Mr Balchin would not have predicted or countenanced the existence of a customer in respect of which NSW Ports profitably implements price discrimination. Yet such a customer exists. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 511 Four, it is not in dispute that ships come to markets. In the ordinary course, shipping lines ensure their ships servicing the east coast of Australia call at each of the Port of Melbourne, Port Botany and the Port of Brisbane. It is common ground that if there is a functionally equivalent container terminal at the Port of Newcastle, ships will not call at both Port Botany and the Port of Newcastle. They will call at one or other of those ports, as well as the Port of Melbourne and the Port of Brisbane. This indicates that, for the purposes of shipping lines, functionally equivalent container terminals at Port Botany and the Port of Newcastle would be close substitutes for one another. The economic analyses of Dr Pleatsikas, Mr Ockerby and Mr Balchin does not explain this fact. 512 Five, the supply of Container Port Services is subject to network externalities. Calls by ships increase cargo and increased cargo increases calls by ships. The industrial experts, Mr van Duijn and Mr King, both considered that ports generally compete with each other to increase their global shipping connectivity, but that such competition was not apparent as between Port Botany, the Port of Melbourne and the Port of Brisbane because ships generally call at all three ports. They also agreed that if there was a functionally equivalent container terminal at the Port of Newcastle, ships would choose to call at either Port Botany or the Port of Newcastle. The analysis of Dr Pleatsikas, Mr Ockerby and Mr Balchin does not allow for potential competition between Port Botany and the Port of Newcastle to influence ships to choose to call at one port in preference to another. 513 Apart from these five examples, the inescapable fact is that there is an existing market for Container Port Services in NSW. NSW Ports, via Port Botany, is the principal supplier of those services. If a (sufficiently) functional container terminal exists at the Port of Newcastle, then, in effect: (a) nearly every customer of that port will be a former or otherwise potential customer of Port Botany (some may possibly be attracted from the Port of Brisbane), and (b) every ship that calls at that port will otherwise have called at Port Botany. These facts tend to support my conclusion that the relevant market for any competition analysis is the existing market for Container Port Services in NSW, and that the posited two separate monopolistic markets hypothesis is not the best tool for that purpose. 514 Further, assume Dr Pleatsikas, Mr Ockerby and Mr Balchin are right – even if all that is occurring can be accurately described as the bifurcation of one existing larger monopoly into two new smaller monopolies, that bifurcation will be a dynamic process, responding to changes in the port functionality factors identified above. 515 Additionally, the assumption that neither port will be able to materially influence any of the port functionality factors in their favour, despite it being common ground that they will be motivated to do so, would need to be supported by clear and cogent evidence before I would accept it. But the evidence, such as it is, is to the contrary. If the ports are or would be engaged in rivalry to ensure that the port functionality factors favour them, in order to maximise their supply of Container Port Services, then it is inherently implausible that they are not or would not be operating in the same market. At the least, any competitive effects analysis should extend to such rivalrous conduct on the basis that it may be in the same market. 516 Ultimately, insofar as the identification of the relevant market is concerned, it is necessary to recognise that the "market" is "an instrumental concept, designed to assist in the analysis of processes of competition and sources of market power. In this case, it is the identification of a market that best enables the court to evaluate the issues": Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 at 132. As explained further below, the market which best enables the required analysis in the present case is the existing market for Container Port Services in NSW. 517 There are other issues in dispute about the pleaded market including: (a) the extent to which on the hypothesis of a (sufficiently) functionally equivalent container terminal operating at the Port of Newcastle the respondents' posited one off switch of customers from the existing Port Botany monopoly to the hypothetical Port of Newcastle monopoly is realistic or is an incomplete and oversimplified description of what is likely to occur, and (b) the existence of any area or customers between Port Botany and the Port of Newcastle which might be contestable between the ports. 518 With these preliminary observations in mind, the evidence about the market issue can be assessed. 5.3 Industry participants 5.3.1 General 519 The ACCC and PON relied on the views of industry participants to support the proposition that a container terminal at the Port of Newcastle would compete with the container terminal at Port Botany (and any container terminal at Port Kembla in the market for Container Port Services in NSW). 520 It is appropriate to observe immediately that the documentary and oral evidence discloses that the industry participants, in common with the economists called by NSW Ports and the State, assumed a hypothetical container terminal at the Port of Newcastle sufficiently functionally equivalent to Port Botany, including the necessary landside development (specifically, proximate distribution centres) and shipping connectivity (as described above) to enable the Port of Newcastle to present a viable alternative to Port Botany for exporters/importers and shipping lines. 521 It is also convenient to identify some propositions which are either uncontroversial or are clear on the evidence and which form part of the relevant context. 522 First, Port Botany is currently the only container terminal port in NSW and services, in effect, nearly all of NSW. The evidence supports the existence of some confined areas of competition as between Port Botany and the Port of Melbourne XXXX XXXX XXXX and as between Port Botany and the Port of Brisbane XXXX XXXX XXXX XXXX XXXX XXXX. 523 Second, Port Botany currently operates as a monopoly for Container Port Services across the majority of NSW. It is common ground between the parties (except for perhaps the Port of Newcastle) that Port Botany does not generally compete in the same market as Port of Melbourne or Port of Brisbane for Container Port Services. As noted, evidence of competition is confined to areas towards the margins of what are generally accepted to be the "natural catchment areas" or "hinterlands" of the ports. These are the areas where one port has a relative land transport cost advantage compared to the next closest port. One of the economists, Mr Balchin, gives a different meaning to "catchment area" (as the area to or from which the port in fact handles containers) and "hinterland" (as the area over which the port has a land transport cost advantage relative to other ports). Unless used in the context of Mr Balchin's evidence, in these reasons, "catchment area" and "hinterland" both mean the area over which the port has a land transport cost advantage relative to the next closest port. 524 Third, if a container terminal is operating at the Port of Newcastle which is sufficiently functionally equivalent to Port Botany, then it is common ground that a substantial number of existing customers of Port Botany for Container Port Services (that is, importers/exporters) would switch from Port Botany and become customers of the Port of Newcastle. Further, a substantial number of potential future customers who would otherwise use Port Botany would instead use the Port of Newcastle. As noted, if a customer's business enables it to use either port and it is posited that both ports have functionally equivalent container terminals, then it is uncontroversial that a customer's decision about which port to use will be driven by the total supply chain cost which is dominated by the land transport cost. Further, it is not in dispute that the price of Container Port Services (effectively, wharfage) is a small part only of the total supply chain cost. The dominant cost component is land transportation which is dictated by the distance to and from the respective ports. 525 I note that the ACCC and PON contended that this third uncontroversial proposition is sufficient to establish that there would be competition in the pleaded market between Port Botany and a container terminal at the Port of Newcastle. They also contended that, in any event, the evidence establishes that: (a) more than a mere one off switch will occur if a container terminal is developed at the Port of Newcastle, and (b) while each port will have a natural catchment area, those areas will overlap to some extent. 526 Fourth, if the Port of Newcastle has a sufficiently functionally equivalent container terminal, it is common ground that a ship will not call at both Port Botany and the Port of Newcastle. A ship will call at one or other of those ports (that is, ships will call at Port Melbourne, Port Botany and the Port of Brisbane, or will call at Port Melbourne, the Port of Newcastle, and the Port of Brisbane). 527 Fifth, there are large areas of NSW where it is clear that there is a substantial difference in land transportation costs as between Port Botany and the Port of Newcastle. 528 Sixth, and as a result, on the assumption of sufficient functional equivalence between container terminals, each port would have a natural catchment area or hinterland where the use of the port by importers/exporters would be driven by their own distribution requirements and the cost of land transport to and from the ports. 529 Seventh, there is a 50 km green wedge around the Hawkesbury River that separates the northern suburbs of Sydney from the Central Coast. This fact is relevant because it explains why Ms Calfas was unable to identify a customer between Port Botany and the Port of Newcastle which would be contestable between the two ports assuming the functional equivalence of their respective container terminals. It also explains the evidence of Mr Ockerby and Mr Balchin about the confined number and extent of "in between" or "marginal" customers and areas as between Port Botany and the Port of Newcastle. 530 Eighth, I accept the evidence of the economists that a monopolist seeks to maximise the extent of its monopoly and the use of its facilities. It does not do so because of competition in a market (by definition, it does not have competition), but because it is rational for it to do so to maximise profits. On the same basis, however, it must be accepted that a monopolist would seek to protect its monopoly from any change in circumstances including the threat of competition or the entrant of another would be monopolist over part of its existing monopoly. 5.3.2 The use of terms such as "competition", "substitution" and "market" 531 I accept that, as Dr Pleatsikas explained: …commercial enterprises tend to use the word "market" in a very different way than economists often use the same word and concept… The concept of a market in the context of competition analysis is a very specific economic concept. So I don't think that applying commercial common sense is the right standard to use when defining a market in a competition case. There's a very specific set of economic principles that are brought to bear to determine what a relevant market is. And ignoring those principles in favour of some vague standard of commercial common sense is certainly – can result in the possibility that you end up with something that isn't a relevant market from an economic perspective. 532 I also accept that lay descriptions of "competition", "substitution" and "market" may apply to both: (a) the case theory of the ACCC and PON, that if a functional container terminal is operating at the Port of Newcastle it would compete with Port Botany in the market in NSW for Container Port Services, and (b) the case theory of NSW Ports and the State, that if a functional container terminal is operating at the Port of Newcastle it would: (i) bifurcate Port Botany's existing monopoly by a process of one off switching by existing customers of Port Botany who are within the Port of Newcastle's catchment area to the Port of Newcastle, and (ii) operate in its own market, separate and distinct from the market of Port Botany (which would be reduced to its catchment area, being the area over which it enjoys a land transport cost advantage compared to the Port of Newcastle). The lay descriptions to this effect, accordingly, are ambiguous. 533 The perceptions of industry participants have been identified in the authorities as a material (even highly material) consideration to identifying the relevant market and competition within the relevant market. In the circumstances of the present case, these perceptions confirm the uncontroversial facts that there is an existing market for Container Port Services in NSW largely supplied by Port Botany and that a sufficiently functionally equivalent container terminal at the Port of Newcastle will result in a substantial number of customers of or who would otherwise use Port Botany switching to the Port of Newcastle. This proposition is accepted on both case theories. 534 The perceptions of industry participants are also relevant, however, because they disclose: (a) the recognition by industry participants that the effect of any container terminal at the Port of Newcastle will be on and in Port Botany's existing market for Container Port Services in NSW, and (b) whether the participants consider that the ports would be: (i) powerless in the face of an inevitable switch from Port Botany to the Port of Newcastle (as the economists for NSW Ports and the State assume), or (ii) able to materially influence decisions of importers/exporters and shipping lines as to which port to use either by controlling the price of Container Port Services or by influencing one or more of the port functionality factors to their respective advantage/disadvantage. 5.3.3 The bidding process 535 NSW Ports in its letter of 4 May 2012 identified the two ports as servicing the same market if a container terminal was developed at the Port of Newcastle. In the letter, NSW Ports also referred to the risk of substitution from a second container terminal in NSW. The second container terminal in contemplation of NSW Ports at the time was at the Port of Newcastle. NSW Ports also referred to "potential competing container ports" in the letter, by which it meant the Port of Newcastle (or Port Kembla). 536 Further, it is apparent from the bidding process that NSW Ports did not want a container terminal to be developed at the Port of Newcastle. This is because it anticipated that such a container terminal would result in a substantial number of customers using the Port of Newcastle rather than Port Botany. 537 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 538 As NSW Ports submitted, this statement is consistent with the compensation provisions giving NSW Ports financial protection against customers substituting the Port of Newcastle for Port Botany should a container terminal be developed at the Port of Newcastle in the future. I agree with NSW Ports that no Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298) inference can arise from the fact that NSW Ports did not call Mr Blood to give evidence. There is no unexplained failure to call Mr Blood. In common with the other lay witnesses, Mr Blood's views about potential competition in the future from the Port of Newcastle if it were to be developed as a container terminal confirm the uncontroversial fact that, on the assumption of sufficient functional equivalence, substitution as identified will occur. 539 Those involved in the privatisation process on behalf of the State shared the views of NSW Ports that a (sufficiently functionally equivalent) container terminal at the Port of Newcastle would result in a substantial number of customers using the Port of Newcastle instead of Port Botany. The recognition of this fact is the explanation for the inclusion of the impugned provisions in the PCDs. 540 Because of the problem of potential ambiguity about meaning, I am unable to agree with the ACCC and PON that the descriptions of "competition", "market" and "substitution" in the documents relating to the privatisation process are "powerful evidence" of the views of industry participants that a container terminal at the Port of Newcastle would compete in the same market as Port Botany and any container terminal at Port Kembla. They are powerful evidence, however, that if a sufficiently functional container terminal is operating at the Port of Newcastle it will cause a substantial number of customers to substitute the Port of Newcastle for Port Botany for their containers. This process, even if it ultimately creates a new separate market for the Port of Newcastle, would also transform Port Botany's existing market. Accordingly, if, as NSW Ports and the State contended, the process of transformation ultimately involves the creation of two separate markets, that effect is wrought upon the existing market. The industry participants are right to have perceived that fact. 5.3.4 The s 155 notice 541 The ACCC and PON relied on the fact that NSW Ports answered the s 155 notice issued by the ACCC on 18 October 2018 by identifying 16 local government areas as a contestable area as between Port Botany and Port of Newcastle. It will be recalled that the s 155 notice defined a "Contestable Area" as a local government area in which it is financially viable for a shipper (which must mean importer/exporter) to import or export their goods through more than one port. Further, because NSW Ports did not have this information available it retained consultants to prepare the answer. The consultants prepared this answer within 24 hours without the definition of "Contestable Area" being available to them. NSW Ports also qualified its answer to the effect that it assumed that a viable container terminal is operational at the Port of Newcastle, meaning that all necessary landside infrastructure has been built. In other words, the answer assumes sufficient functional equivalence period between Port Botany and the Port of Newcastle in terms of Container Port Services. The response to the s 155 notice was reviewed by Ms Calfas who recognised that the notice was an important document and that that NSW Ports needed to answer as accurately as it could. 542 The ACCC and PON submitted that by its answer NSW Ports admitted that a container terminal at the Port of Newcastle would compete with Port Botany in 16 local government areas. The response, they said, confirmed that there is a substantial geographic area in NSW in which a container terminal at the Port of Newcastle would compete with Port Botany. Alternatively, the response is sufficient to describe the geographic dimension of a market in which Port Botany and the Port of Newcastle would compete in the supply of Container Port Services. 543 NSW Ports submitted that the evidence shows that as recently as November 2018 NSW Ports was unable to identify which areas of NSW would become "Contestable Areas" if a sufficiently functional container terminal was developed at the Port of Newcastle, which is why NSW Ports had to retain consultants to prepare an answer to question 20 in the s 155 notice. Further, NSW Ports submitted that material weight could not be given to the answer as an admission by it given that the consultants prepared the response without the definition of "Contestable Areas" and within 24 hours. According to NSW Ports, in these circumstances, it is unclear what the response means and it is clearly not a considered view of NSW Ports as an industry participant. 544 I consider that the answer to the s 155 notice is an admission by NSW Ports. The fact that the answer was prepared by consultants within a short period of time does not mean that the answer is other than an admission. Nor does the fact that the consultants did not have the definition of "Contestable Areas". For one thing, the consultants must have given some meaning to the term "Contestable Areas". The natural inference to draw is that they gave the phrase its ordinary meaning of "disputable" as between Port Botany and the Port of Newcastle assuming the latter was developed with a functional container terminal. In context, this must mean that in the hypothesised circumstance a customer rationally may choose either Port Botany or the Port of Newcastle to provide the relevant service. 545 This inference is supported by the fact that three areas are not identified in the answer as "Contestable Areas" between Port Botany and the Port of Newcastle, being Armidale, Inverell and Newcastle. This indicates that the view taken was that these areas were not contestable by Port Botany at all. This is reinforced by the fact that Armidale is identified as contestable by Port Brisbane. Further, NSW Ports did have the definition of "Contestable Area" and must be taken to have agreed with the consultants' proposed answer on the basis of that definition. Otherwise, NSW Ports would not have submitted the answer to the ACCC. Accordingly, the answer is a previous representation by NSW Ports which is against its interests in this proceeding. 546 However, there are other considerations which indicate that the admission should be weighed along with all of the other evidence rather than being treated as determinative of any issue in dispute in and of itself. 547 One, it is not apparent how NSW Ports (which did have the definition) reached the view that it was financially feasible for importers/exporters to ship their goods through Port Botany or the Port of Newcastle in the hypothesised circumstance. 548 Two, to the extent this was the criterion that the consultants used (in the sense that it is inherent in the ordinary meaning of a "contestable" area), it is also not apparent how they reached the view that it was financially feasible for shippers to ship their goods through Port Botany or the Port of Newcastle in the hypothesised circumstance. 549 Three, the same issue is the subject of detailed and considered evidence in this proceeding, both expert and lay, which must also be taken into account. 550 All of this said, however, the answer is an admission by NSW Ports that if the Port of Newcastle has a sufficiently functional container terminal there are 16 local government areas in which NSW Ports and the Port of Newcastle would be in a contest for customers for Container Port Services. 5.3.5 Oral and documentary evidence – NSW Ports 551 The ACCC and PON contended that various witnesses called by NSW Ports conceded that a container terminal at the Port of Newcastle would compete with Port Botany. 552 The same problem of the potential ambiguity of this evidence arises. The evidence undoubtedly confirms the uncontroversial fact that a substantial number of customers of Port Botany would switch to the Port of Newcastle if it had a sufficiently functional container terminal. However, this evidence does not necessarily defeat the case theory of NSW Ports and the State that such a container terminal would create two separate monopoly markets in circumstances where each monopolist would rationally wish to maximise use of its monopoly. 553 Accordingly, as the ACCC submitted, Mr Garcia gave evidence that: (1) early in 2012, he considered that a potential container terminal at Newcastle could be a competitive threat to Port Botany; (2) substitution by a container terminal at the Port of Newcastle was a perceived material risk for bidders in the Port Botany privatisation process; (3) while this became less of a concern during the privatisation process, he continues to hold the view that there is potential for competition for Port Botany from a container terminal at the Port of Newcastle at some time in the future; (4) the compensation provisions were directed at ameliorating the risk of competition from the Port of Newcastle if it were developed with a container terminal in the future (noting that by this stage in the privatisation process Mr Garcia did not consider the compensation provisions to be important but accepted they were favourable to bidders); and (5) NSW Ports agreed to the compensation provisions so as to enjoy the potential protection they gave from competition by a future container terminal at the Port of Newcastle (noting that Mr Garcia stressed that the provisions gave financial protection to NSW Ports if container volumes at the Port of Newcastle exceeded a certain threshold). 554 Mr Droga gave similar evidence to that of Mr Garcia as follows: (1) before the PCDs were executed, Mr Droga was conscious of the risk that a competing container terminal could be developed at the Port of Newcastle at some time in the future (noting, however that he considered the risk had been substantially ameliorated by the State announcing its port policy sequencing policy in July 2012 and including Port Kembla with Port Botany into the proposed privatisation. By the time these events had occurred, NSW Ports was comfortable with the risk profile presented by the Port of Newcastle); (2) if the Port of Newcastle was to be developed with a container terminal ahead of time it may then provide a competitive force to or could potentially compete with Port Botany; (3) under certain conditions being satisfied, specifically that a fully functioning container terminal was developed at the Port of Newcastle, it could compete with Port Botany for some of the addressable market being serviced by Port Botany or in certain areas currently or in the future; (4) if a container terminal was developed at the Port of Newcastle, it would not be good for Port Botany. It would be fair to describe that as in the top handful of long-term strategic risks for Port Botany (a risk which had become the subject of more focus as a result of this proceeding); and (5) the compensation provisions provided NSW Ports with protection if the State changed its mind about its port sequencing policy. NSW Ports was happy to receive that protection. It could provide economic compensation in the event that competitive capacity was developed and exercised over time at Newcastle. He appreciated at the time the compensation provisions were made that their effect was to provide compensation "in the event that there was proof that the terms of the indemnity were activated and within that involved a substitution of a box that otherwise would have gone to Botany going to Newcastle". He accepted that competition would very likely be a reason for that substitution. 555 The ACCC and/or PON relied on Ms Calfas's evidence to the following effect: (1) NSW Ports considers that it competes for containers with the Port of Brisbane and Port Melbourne; (2) NSW Ports has a commercial and business development team, one objective of which is to gain and retain contestable cargo and to maintain Port Botany's competitiveness against other ports (that is, Port Melbourne and the Port of Brisbane); (3) if a container terminal were developed at the Port of Newcastle, NSW Ports' commercial and business development team is likely to implement plans to capture and retain export cargos that might otherwise go to the Port of Newcastle and to maintain Port Botany's competitiveness versus the Port of Newcastle; (4) the only way for Port Botany to compete for exports in the Port of Newcastle's Newcastle hinterland would be on service availability in terms of shipping service frequency and global reach. Otherwise the customer's choice would be a result of land transport costs and the cost differential for the Port of Newcastle's hinterland is equal to or more than what NSW Ports charges for its services; (5) ports compete – "there is [a] price for the shipper, which includes a component of ports, which is not a big component. But then there is service offering and efficiencies, and – and the like, which play into cost as well". Port costs are relevant only to the extent that they make a difference to the overall cost that the shipper incurs; (6) the competition between ports includes non-price considerations – "[t]here may be ports that are cheaper, but they don't provide the service: the global connectivity; the frequency of service that is required in order to meet the needs of the shipper. So it is more than just a price consideration"; (7) "…we [Port Botany] compete on service and connectivity as much as anything else" (that is, connectivity to and from ports by either road or rail and of ports in terms of frequency and global reach of shipping services); (8) "…you [a port] need to be able to have the frequency of service and the global connectivity if you're going to be able to offer a product that's competitive for exporters as well as for importers". So for agricultural exports from northern NSW, if the Port of Newcastle can offer frequency of service (by shipping lines) and global connectivity (by shipping lines), those customers will switch from Port Botany to the Port of Newcastle because the train goes straight past the Port of Newcastle. If, however, the Port of Newcastle does not offer that frequency of service and global connectivity then the customers will not switch as it is only economic for a full train to go to one location. Some agricultural exports from northern NSW are also shipped through the Port of Brisbane; (9) the opportunity of gaining or conversely the risk of losing contestable cargo to competing ports should be a key consideration driving their performance, connectivity and service level; (10) in order to retain contestable cargo NSW Ports will take steps to ensure connectivity and performance is optimal; (11) "…contestability is not a black or white answer". Areas where a port will compete will change with the different infrastructure delivered. A port would not sink money into infrastructure to compete at the margins. The current contestable areas with the Port of Melbourne and the Port of Brisbane involve exports which are a declining part of Port Botany's volume, about 26% of the total; and (12) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 556 Ms Calfas also gave evidence as follows: (1) she considered that a "contestable area" between ports was as an area where the "price or the cost to the shipper to go to one or more ports would be broadly comparable". This had to be the "ultimate determining factor" of contestability as between ports because the price of services offered by a port is not a big component of a shipper's costs. It is only if that port cost makes a difference to the overall cost that the importer/exporter incurs that it could be said there was any competition on price between ports for container volumes. This could occur in "some" or "small" circumstances; (2) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX (3) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX; (4) the Port of Newcastle, if developed as a container terminal, would be different from Port Melbourne and the Port of Brisbane. There is a catchment area that would flow preferentially to the Port of Newcastle if it is developed as a container terminal; (5) NSW Ports' Contestable Cargo Capture Plan (CCCP) was not drafted with the Port of Newcastle in mind. Only some of the actions in the CCCP directed towards the Port of Melbourne and the Port of Brisbane would apply to the Port of Newcastle if it is developed as a container terminal. Port Botany could only compete with the Port of Newcastle for containers from within the Port of Newcastle's hinterland on shipping service frequency and global connectivity as the cost differential in the overall transport cost to Port Botany (rather than the Port of Newcastle) would be equal to or greater than the amount of wharfage (that is, the price charged by the port). Accordingly, "in order to incentivise, in any form, of [sic – the] other way, be it commercial or otherwise, we would have to accept zero wharfage or subsidise the exports out of Port Botany, which we would not do". In other words, there was no opportunity for the kind of commercial arrangements (including possible price discrimination to attract customers) as between Port Botany and the Port of Newcastle as suggested might be possible in the CCCP (discussed further below); (6) Ms Calfas did not consider that Port Botany would risk losing export container volumes to the Port of Newcastle if its prices were not competitive with those at Newcastle. The containers from northern NSW would flow preferentially to the Port of Newcastle in any event unless its "pricing was such or its service was such that it wasn't able to offer the service that exporters needed from that region". The Port of Newcastle has a distinct catchment area from which it would draw containers; and (7) Ms Calfas did not regard the Port of Newcastle as posing a risk of significant new competition to Port Botany. The predominant trade of Port Botany is import containers and the predominant market for those goods is the greater Sydney region. The majority of goods coming into the Port of Newcastle (if developed as a container terminal) would be destined for the greater Sydney region. Without substantial capacity on the northern Sydney freight line those goods would have to be trucked to Sydney which involves a significant cost and would be a deterrent to use of the Port of Newcastle. Distribution centres are also located in the Sydney region because it involves the shortest transport route to and from the customers and their outlets. 557 Ms Calfas used the export of aluminium from Tomago as an example of her understanding of the dynamics that would exist as between Port Botany and the Port of Newcastle if it has a container terminal. Aluminium from Tomago is exported via Port Botany to multiple ports globally. Ms Calfas said: So you need to be able to have the frequency of service and the global connectivity if you're going to be able to offer a product that's competitive for exporters as well as for importers. Now, assuming Newcastle can – if Newcastle can't do that, then a number of those products will still come to Botany because Botany has, you know, 23 services going through it with 137 ships connecting across the globe. Now, if Newcastle can offer that service, then those products go on a train and that train path literally goes right past Newcastle to get to Port Botany … this train goes straight past Newcastle – you wave at it as you go past – and then has to keep going to Port Botany. It makes no sense for that cargo to continue going to Port Botany on a line that is the northern freight line with the – the passenger – the passenger trains that are on that, and then risking delays, breakdowns, waiting to get into a stevedoring terminal at Botany, breaking up the trains and getting into the terminal. So it's – it's a switch. They're either going to switch to Newcastle. Because they're much closer to Newcastle, they would have to go past it to get to Botany, or they're going to not go to Newcastle because Newcastle doesn't have the connectivity and they can't – they're not likely to cherry-pick because once that train is full, it's only economic for a full train and it's only economic for the full train to go to one location. So that's the reason I said "maybe some." … What we try to do is have the most efficient system we can, not just within the ports but connecting to and from the ports, which is that connectivity. So we compete on service and connectivity as much as we do on anything else. 558 PON submitted that while Ms Calfas denied that NSW Ports was involved in advocacy against the development of a container terminal at the Port of Newcastle, it was apparent that this is the case. Amongst other things, NSW Ports retained a consultant (KPMG) to prepare the KPMG report in circumstances where, according to PON: (a) The express purpose of NSW Ports' engagement of KPMG was, "To highlight the benefits to the New South Wales economy from retaining Port Kembla as the nominated second container port for New South Wales considering the whole of logistics chain impact in the context of alternative port facilities": KPM.001.001.0633 at 0644; cf. T 506.1 – 507.37, T 518.14 (Calfas). (b) In an email to executive staff dated 27 August 2018, Ms Calfas said "NSWP's KPMG study needs to appropriately debunk the Port of Newcastle analysis at the same time as supporting the KPMG analysis": NSP.100.014.2036 at 2037; T 508.13 – 34 (Calfas). (c) In a report to the Board, Ms Calfas described the KPMG report as a "report on the benefits and opportunities of Port Kembla as New South Wales' second container port": NSP.100.106.0657 at 0673; T 509.24 – 43 (Calfas). (d) Ms Calfas asked her staff to "hold off making the key message changes" that had been suggested until "we can agree what the key messages should be internally": NSP.100.003.1700. Although Ms Calfas said she was "not certain" that she wanted to agree internally within NSW Ports what the key messages in the KPMG report would be, and although Ms Calfas said she did not "believe" that was correct, the Court will infer that it is correct from the express terms of her contemporaneous email: cf. T 512.1 – 27 (Calfas). (e) The KPMG report was "launched" at an event at which Ms Calfas gave a speech and to which "industry stakeholders, government representatives and media" were invited: NSP.100.026.4802; T 518.16 – 21 (Calfas). The media release published by NSW Ports on the same day trumpeted that "Premature port investments will result in higher costs for NSW", and said, "the current proposal for a container port at Newcastle had significant issues": PXN.002.001.0118. Ms Calfas resisted the proposition that her principal purpose in commissioning the KPMG report and launching it publicly in this way was to counter a potential rival in Port of Newcastle, conceding only that this was "partially" why she did those things: T 520.11 – 32 (Calfas). However, the notion this was not principally an exercise in advocacy against "premature port investments" at Newcastle should not be accepted: cf. T 518.43 – 520.35, 587.7 – 12 (Calfas). NSW Ports hardly needed to warn the government or the media about premature investments at Port Kembla (which it owns). Further, Ms Calfas agreed that the KPMG report was not commissioned and launched publicly for the internal purposes of NSW Ports: T 520.24 (Calfas). (f) Although NSW Ports had filed an affidavit of Mr Ellis, an author of the KPMG report, it chose not to call him. The Court can therefore infer that Mr Ellis's evidence would not have assisted NSW Ports' case, and more comfortably infer that the purpose of KPMG's engagement was to assist NSW Ports in advocating that a container terminal should not be developed at Port of Newcastle until after one had been developed at Port Kembla. 559 The ACCC submitted that: Given Ms Calfas' evidence that there would be competition between a container terminal at the Port of Newcastle and Port Botany at least in terms of service quality (i.e., global connectivity, frequency of shipping services, etc), the NSW Ports Respondents' submission that a container terminal at the Port of Newcastle would operate in a separate market to Port Botany is untenable. The circumstance that the Port of Newcastle would compete with Port Botany on quality in respect of some container cargo is powerful evidence that the two ports would be competitors in at least one market. 560 The ACCC and/or PON also referred to NSW Ports' CCCP dated January 2020. PON identified that the CCCP: (a) Reveals that NSW Ports has a "Commercial and Business Development Team" whose "core objectives" include "gain[ing] and retain[ing] contestable cargo": at 5278; T 498.6 (Calfas). (b) Defines "contestable cargo" as "cargo which is contestable between different sea ports as well as cargo which is contestable between coastal shipping and overland rail": at 5278; T 498.44 (Calfas). (c) Identifies certain import cargoes that "are contestable between NSW Ports' facilities and other ports," including "containerised products, such as panels for a solar farm or fertiliser, bound for regional New South Wales for which importation through Melbourne or Brisbane may be a viable alternative to Port Botany": at 5279. (d) States that "exports from regional New South Wales may viably be exported through Melbourne, Brisbane or Newcastle as an alternative to Port Botany or Port Kembla": at 5279; T 498.46 – 499.25 (Calfas). The CCCP goes on to say that "this category of contestable cargo provides the largest potential revenue benefit for NSW Ports and accordingly features most prominently in our marketing activities": at 5280. (e) Includes, as examples of contestable export cargo, containerised agricultural exports from northern New South Wales and western New South Wales, which may be handled though Port Botany, Brisbane or Melbourne: at 5280; T 499.16 – 25 (Calfas). (f) Describes the methodology to be applied by the Commercial and Business Development Team in order to gain and retain contestable cargo: at 5282 – 5286; T 500.7 – 14 (Calfas). It includes the development of "marketing plans" to pursue or defend the relevant contestable cargo "opportunity": at 5284 – 5285. (g) Identifies the northern New South Wales and southern Queensland region as a "next priority opportunity", one rationale for which is that it would create volume to support rail services from the Hunter Valley to Port Botany: at 5289. The volume containers targeted are not enormous. For example, the northern New South Wales and southern Queensland opportunity was in the order of 10,000 – 30,000 TEUs per year: at 5289. And yet, NSW Ports plainly wishes to "capture" these volumes and to take steps to do so. (h) Identifies transhipment cargoes as contestable "inherently contestable between the mainline ports": at 5281. 561 The CCCP includes amongst categories of action which "may feature in specific marketing plans" this statement: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. (Original emphasis). 562 The CCCP states that: The vast majority of import cargo being handled through Port Botany and Port Kembla is not contestable by other ports given the proximity of those ports to the inland destination relative to that of the nearest competing ports. 563 As to export cargo, the CCCP says: Approximately half of the containerised exports through Port Botany originate from regional NSW, as do the vast majority of bulk commodities exported through Port Kembla. Depending on the location of the point of origin, availability of road /rail transport and access to intermodal facilities, exports from regional NSW may viably be exported through Melbourne, Brisbane or Newcastle as an alternative to Port Botany or Port Kembla. 564 The CCCP identifies limited classes of products which are "contestable cargo" as between ports. These include primarily non-containerised cargo. Non-containerised cargo is not the pleaded product market. The relevant market is for Container Port Services which is confined to containerised cargo and empty containers. Accordingly, competition between any of the ports for non-container cargo is immaterial. The CCCP, however, and NSW Ports itself (including Ms Calfas) are not confined in their commercial considerations to containerised cargo and empty containers. NSW Ports must consider all aspects of its operations. 565 The CCCP also discloses that it considers some kinds of containerised cargo to be contestable as between Port Botany, Port Melbourne and the Port of Brisbane. This comprises import containers described as "containerised products, such as panels for a solar farm or fertiliser, bound for regional NSW for which importation through Melbourne or Brisbane may be a viable alternative to Port Botany" and export containers described as containerised agricultural products from (a) the Riverina region (contestable between Port Botany and the Port of Melbourne), (b) northern NSW or southern Queensland (contestable between Port Botany and the Port of Brisbane), and (c) on finalisation of the inland rail development scheduled for 2025, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. It otherwise identifies transhipment containers (which are to be shipped on in order to connect with a non-mainline port of origin or destination) as contestable cargo driven by the decisions of shipping lines. Transhipment contestability is said to be the subject of a separate analysis, to which no party referred. 566 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 567 I accept that Ms Calfas was unable to identify any equivalent customer as between Port Botany and the Port of Newcastle and that XXXX may be unique in terms of its location and container volumes, making price discrimination feasible for XXXX, when this might not be the case for any other customer. The concern is that the analyses of the economists called by NSW Ports and the State would not have identified the potential existence of a customer such as XXXX. 568 I consider that Ms Calfas's evidence, understood in the context of the CCCP, supports the following conclusions: (1) while the vast majority of container volumes from the east coast of Australia are not contestable on price because of relative land transport cost advantages between ports, NSW Ports has a team dedicated to identifying opportunities for Port Botany to compete with the Port of Melbourne and the Port of Brisbane for contestable containers, which (unsurprisingly) involve those parts of Port Botany's catchment near to each of the other ports; (2) although it only competes on price with the other existing ports in those parts of its catchment area near to the other ports, Port Botany's prices for all export containers are set by reference to the prices of the Port of Melbourne and the Port of Brisbane; (3) Ms Calfas did not consider that there would be similar marginal catchment areas within which Port Botany could compete on price with the Port of Newcastle, if the latter port has a sufficiently functional container terminal. This evidence must be inferred to be inconsistent with NSW Ports' answer to the s 155 notice; (4) although they have large separate catchment areas based on relative land transport cost advantages, Ms Calfas considers that Port Botany competes generally with the Port of Melbourne and the Port of Brisbane on non-price factors, particularly quality of service and shipping connectivity; (5) NSW Ports is focused on identifying contestable containers as between it, the Port of Melbourne and the Port of Brisbane, and is willing to engage in price discrimination if it can be profitably implemented to increase the container volumes shipped through Port Botany; (6) Ms Calfas considers that Port Botany would compete generally with the Port of Newcastle, if it has a sufficiently functional container terminal, on non-price factors, particularly quality of service and shipping connectivity; (7) NSW Ports considers it could take steps to optimise the quality of its Container Port Services and its connectivity (road, rail and shipping services) and would do so to retain contestable cargo with any other port, including the Port of Newcastle if it has a sufficiently functional container terminal; and (8) despite Ms Calfas's contrary evidence, the unavoidable conclusion is that NSW Ports is advocating against the establishment of a container terminal at the Port of Newcastle. Its advocacy is focused on the NSW and Commonwealth governments and industry stakeholders. Given that a container terminal does not yet exist at the Port of Newcastle, NSW Ports' actions are necessarily limited to advocacy. If, however, a container terminal was established at the Port of Newcastle, NSW Ports also considers that it could optimise a number of the port functionality factors in its favour (quality of Container Port Services, road and rail connections, and shipping connectivity) and would attempt to do so. 569 NSW Ports' advocacy includes the KPMG report. The KPMG report, however, is no more and no less an advocacy document than the reports of PON's consultants discussed below. It is relevant that NSW Ports commissioned and published the KPMG report in circumstances where the purpose of the report is expressed to be to "determine the relative competitiveness and the likely catchment areas of Port Botany, Port Kembla and Port of Newcastle as container ports". In doing so, it is apparent that KPMG's analysis assumes that any container terminal at the Port of Newcastle would be functionally equivalent to Port Botany. 570 These matters begin to disclose why the approach of the economists called by NSW Ports and the State to the market issue is not well-adapted to the circumstances. In particular: (1) a SSNIP as between Port Botany, the Port of Melbourne and the Port of Brisbane would necessarily result in the conclusion that they are in three separate markets (this conclusion is necessary given the results of applying the SSNIP to Port Botany discussed below); (2) despite the fact that economic analysis would show that they do not closely constrain each other on price for the vast majority of containers, the Port of Melbourne and the Port of Brisbane do in fact closely constrain Port Botany's prices for all export containers because Port Botany sets a price for those containers no higher than the price of the other two ports in order to retain marginal contestable container volumes; and (3) NSW Ports considers that it can and does compete generally with the Port of Melbourne and the Port of Brisbane on non-price factors which it is able to optimise in its own interest including road, rail and shipping connectivity. 571 Given these matters, it is difficult to accept that the market identification process adopted by NSW Ports and the State is capable of identifying potential competition between the Port of Newcastle and Port Botany, even if Ms Calfas is right that there is currently no scope for price competition or price discrimination between them. Rather, identifying the market as anything other than the existing market for Container Port Services in NSW would seem to ensure the lack of any scope for any form of competition in a market between Port Botany and the Port of Newcastle. 572 PON submitted that the views of the economists called by NSW Ports and the State about the relevant market are not reconcilable with NSW Ports' pricing strategy. Again, I agree. NSW Ports' pricing strategy reflects three circumstances. The first is the existence of competition with the Port of Melbourne for some export containers from the southern regions of NSW. The second is the existence of competition with the Port of Brisbane for some export containers from the northern regions of NSW. The third is the existence of potential price regulation of NSW Ports. I accept that this third circumstance is relevant, but it does not negate the existence of the first two circumstances. Those two circumstances indicate that NSW Ports is motivated to set prices to capture all contestable containers even if the number of containers which are contestable is small compared to the total. 573 Given this evidence of its conduct to date, it must be inferred that if a container terminal at the Port of Newcastle entered the market, NSW Ports would do everything in its power to retain or capture containers from the Port of Newcastle. If that includes Port Botany setting its prices so as not to lose even small volumes of containers to the Port of Newcastle compared to the total volume which Port Botany handles, it must be inferred that NSW Ports would do so. If that includes price discrimination if NSW Ports could profitably do so for any customer which would otherwise use the Port of Newcastle, it must also be inferred that NSW Ports would do so. 574 Further, it must be inferred from the evidence that NSW Ports will do whatever it can to ensure that: (a) a container terminal is not established at the Port of Newcastle, and (b) if a container terminal is established at the Port of Newcastle, the functionality of that container terminal is not maximised. At the least, it is clear that NSW Ports considers it can materially influence a number of the port functionality factors including quality of Container Port Services (which include a port providing effective land and facilities for stevedoring services and road and land transport operators) and shipping connectivity. 575 Any likely effect of the impugned provisions on the dynamic described above will be considered later. The relevant point presently is that seeking to analyse the potential competitive effects of the impugned provision on the basis that each of Port Botany and the Port of Newcastle would be monopolists in their own separate markets necessarily involves specification of a market which negates any possibility of competition, on price or otherwise, being identified. It is only by recognising that any potential new market will be created out of (and thus transform) the existing market for Container Port Services in NSW that there is any capacity for analysis of potential competitive effects of the impugned provisions. 576 PON submitted that the evidence of Ms Calfas "confirms that Port Botany will lose export volumes to Newcastle, and seems to posit that pricing will not make a difference to that outcome for 'the majority' of exports". This is a fair summary of this aspect of Ms Calfas's evidence noting, however, that Ms Calfas's evidence assumed a sufficiently functional container terminal at the Port of Newcastle. In a context where NSW Ports has set its wharfage charges for export containers by reference to and so as not to lose relatively minor volumes to the Port of Melbourne or the Port of Brisbane, the fact that Ms Calfas considers that wharfage charges will not make a difference for the majority of exports does not support the hypothesised existence of two separate markets for Container Port Services in NSW assuming a sufficiently functional container terminal at the port of Newcastle. 577 PON also submitted that Ms Calfas's answers indicate that "Port Botany would be at risk of losing export container volumes to PON, if its prices were not competitive with those at Newcastle. If anything, the risk of losing export container volumes to PON due to uncompetitive pricing would be greater than that of losing volumes to Melbourne or Brisbane, given the relative proximity of Newcastle to Port Botany, and the relative proximity of Newcastle to the containerised export cargoes that originate in the north and north-west of NSW". 578 I do not accept that Ms Calfas's evidence supports this submission. Ms Calfas explained the dynamics of competition between Port Botany and the Port of Melbourne for export containers from the southern regions of NSW and between Port Botany and the Port of Brisbane for some export containers from northern and north-western NSW. This dynamic explains why NSW Ports is price sensitive on export containers to the Port of Melbourne and the Port of Brisbane. She also explained why she considered that the same dynamics would not generally apply as between Port Botany and the Port of Newcastle. 579 I accept, however, that Ms Calfas's evidence to this effect cannot be determinative. Her evidence to this effect must be evaluated along with the following: (a) the answer of NSW Ports (as settled by Ms Calfas) to the s 155 notice which identified 16 local government areas as contestable between the two ports, which must be inferred to mean contestable on the level of wharfage charges, (b) the fact that NSW Ports is price sensitive to the loss/gain of small volumes of export containers, (c) the evidence of competition at the margins between Port Botany and each of the Port of Melbourne and the Port of Brisbane, and (d) the fact that Ms Calfas considered that NSW Ports could and would compete with the Port of Newcastle on non-price factors. 580 PON referred to Ms Calfas's evidence that she did not know whether NSW Ports would ensure that its wharfage charges were competitive with the Port of Newcastle's prices if it were developed with a container terminal. I accept Ms Calfas's evidence to that effect. It is unlikely that Ms Calfas could give any other answer to this question given that there is no container terminal at the Port of Newcastle and thus NSW Ports cannot presently assess what, if any, containers might be in contest between the two. Ms Calfas's evidence appropriately allows for the possibility that, consistent with NSW Ports' pricing in response to the Port of Melbourne and the Port of Brisbane for export containers, the prices of the Port of Newcastle might or might not constrain wharfage charges for containers imported or exported through Port Botany. 581 PON submitted that the fact that NSW Ports perceives competition from Newcastle as a strategic risk and has engaged in advocacy against the development of a container terminal at Port of Newcastle is compelling evidence that Port Botany and a container terminal at the Port of Newcastle will operate in the same market: see Liquorland at [443]-[444] and Air New Zealand at [78]. 582 I consider that this evidence compels the conclusions that: (a) industry participants correctly recognise that the effect of a container terminal at the Port of Newcastle will be on and in Port Botany's existing market for Container Port Services in NSW, (b) NSW Ports considers that its advocacy is capable of influencing relevant government decision-makers about whether a container terminal should be permitted or supported at the Port of Newcastle, and (c) consistent with conclusions below, the impugned provisions have not caused NSW Ports to do nothing in response to the prospect of a container terminal at the Port of Newcastle. These conclusions indicate that a purposive approach to market identification involves a focus on the existing market for Container Port Services in NSW because that is the market best capable of enabling an assessment of the competitive effects, if any, of the impugned provisions. 5.3.6 Oral and documentary evidence – PON 583 The ACCC and/or PON relied on evidence from PON to support their case that if a container terminal was developed at the Port of Newcastle it would compete in the same market with Port Botany. This evidence is largely to the same effect as indicated above, except that the representatives of PON consider that there will be greater potential for it and Port Botany to compete on the price of Container Port Services than Ms Calfas would contemplate. 584 The PON PBC identifies Port Botany, Port Melbourne and the Port of Brisbane as "competitor ports" and that if developed with a container terminal the Port of Newcastle would also be a "competitor port" of these ports. While the identification of the Port of Melbourne as a competitor is overreach, Ms Calfas indicated that if there is a sufficiently functional container terminal at the Port of Newcastle then that part of Port Botany's existing market which is contestable with the Port of Brisbane (for export containers from the northern regions of NSW) will instead be contestable as between the Port of Newcastle and the Port of Brisbane. This is consistent with PON's perception as disclosed in the PBC. 585 The PON PBC says that competitive reactions from Port Botany and the Port of Brisbane to the development of a container terminal must be anticipated including "using contractual or market power to disincentivise use of Newcastle, price-cutting to reduce the Newcastle advantage, or marketing that seeks to downplay Newcastle's benefits and attractiveness". I consider this to be a realistic assessment, particularly in respect of Port Botany which stands to lose a material part of its existing market if there is a sufficiently functional container terminal at the Port of Newcastle. 586 While NSW Ports would ultimately need to assess whether it could and would profitably reduce wharfage charges to retain one or more customers that might otherwise choose to use the Port of Newcastle, there is no doubt that it would have a strong incentive to consider that potential closely. NSW Ports also would have a strong incentive to do everything it could to minimise the functionality and use of a container terminal at the Port of Newcastle in order to protect its existing market in NSW. The existence of these strong incentives further indicates that the existing market for Container Port Services in NSW is the best analytical tool for the assessment of any competitive effects of the impugned provisions. 587 These same considerations apply to the evidence of PON's witnesses. 588 Mr Carmody said that the Port of Newcastle would compete with Port Botany as follows: (1) the Port of Newcastle would initially seek export container volumes from its catchment area that are currently shipped through Port Botany; (2) over about 10 to 15 years, if the inland rail project is built, the Port of Newcastle may be able to compete with Port Botany for export containers from outside its catchment area (that is, in my words, the geographical area of relative land transport cost advantage for the Port of Newcastle will increase at the expense of Port Botany if the inland rail project is built); (3) the Port of Newcastle could attempt to secure export volumes by convincing one or more large exporters to export goods through the Port of Newcastle instead of Port Botany. This would attract shipping lines who will want to capture this export business and, as those shipping lines will also need to unload import containers, it will assist in growing import volumes (that is, in my words, PON would analyse customers to see if it could identify a customer XXXX XXXX XXXX to use its services, by price discrimination if necessary, and if achieved this would enable the Port of Newcastle to benefit from the network externalities in respect of the use of a port as between cargo volumes handled by a port and shipping lines calling at the port); (4) the Port of Newcastle could attempt to convince one or more large importers of containers to switch from Port Botany to the Port of Newcastle. It could only achieve this switch if it could offer a better service or lower overall cost (including landside logistics costs) than Port Botany (in my words, another version of a potential XXXX XXXX XXXX XXXX); (5) the Port of Newcastle could attempt to convince one or more shipping lines to commit to regular weekly calls at the Port of Newcastle by offering guaranteed access to berth slots, better service, faster turnaround times and lower prices as compared to Port Botany (in my words, these are examples of what a port might do to influence the choices of shipping lines); and (6) the Port of Newcastle's ability to compete with Port Botany should improve as existing supply chains (which currently depend on Port Botany) are further developed and supplemented. Avoiding the time and cost associated with freight being transported on services affected by road and rail congestion in the vicinity of Port Botany and the Sydney metropolitan area could prompt supply chains to be reconfigured and intermodal terminals and distribution centres to be built closer to, or at, the Port of Newcastle, as container volumes handled at the Port of Newcastle increase. 589 As noted, in a speech he gave in June 2018 to the Hunter Business Chamber Infrastructure Lunch Mr Carmody, in advocating the case for the development of a container terminal at the Port of Newcastle, said: We don't see Port of Newcastle Container Terminal as competition for Botany or Brisbane – our container port is global-facing and its natural catchment is regional New South Wales. 590 This proposition may appear to be inconsistent with Mr Carmody's evidence in this proceeding but, as should be apparent, the statement is partly correct. If a container terminal at the Port of Newcastle is sufficiently functionally equivalent to Port Botany, the Port of Newcastle will enjoy a monopoly over at least some customers in the geographical area where it has a relative land transport cost advantage over Port Botany. 591 Mr Kwiatowski effectively assumed that the Port of Newcastle, if developed with a container terminal, would compete with Port Botany and would have an advantage over Port Botany in terms of improved infrastructure, specifically the capacity to handle large vessels. He also said that in his experience shipping lines would switch ports over time depending on the nature of the port. Transhipment ports are volatile and shipping lines can switch quickly. Other ports which develop a new container terminal experience a more gradual shift to their services depending on benefits such as lower costs to the shipping lines. Shipping lines consider "the charges for handling services, the speed of turnaround, the frequency of vessel calls, having a seamless logistics chain between the different modes of transport, a low incidence of damage to containers and the availability of information about the location of the cargo and any delays". I accept that this is Mr Kwiatowski's experience and it is relevant evidence. 592 Mr Liu also assumed that the Port of Newcastle, if developed with a container terminal, would compete with Port Botany, saying that the competition would be in respect of the overall costs to shipping lines, service levels and service offerings including the capacity of the Port of Newcastle to accommodate larger vessels than Port Botany. I accept that this is Mr Lui's expectation and it is relevant evidence. 593 Mr Dent considered that a container terminal at the Port of Newcastle would be a direct competitor to Port Botany and that it would need to capture some of the import containers into Port Botany to support the export trade from the Port of Newcastle's catchment area. He expected shipping lines would support the development of a competing container terminal to Port Botany to put downward pressure on stevedoring costs and pressure stevedores to improve service levels. 594 I accept that competition between stevedores is not a part of Container Port Services. As discussed, however, to the extent that a port, in providing Container Port Services to a stevedore, can materially influence the quality and price of the stevedoring service to increase the use of Container Port Services then that is conduct by the port in the market for Container Port Services. 595 Mr Dent considered that for a container terminal at the Port of Newcastle to succeed it would need to attract a sufficient balance of import and export cargo and shipping services away from Port Botany. He explained that these two elements are interrelated. If shipping services are infrequent (for example, because there is insufficient berth capacity to accommodate additional ships, or because shipping lines cannot be confident they will be able to access berth space when they need it) then customers of the shipping lines (importers/exporters) will be less likely to switch to the Port of Newcastle. Similarly, if the Port of Newcastle is unable to attract a sufficient volume of cargo, then shipping lines will not be willing to switch services from Port Botany to the Port of Newcastle. 596 Mr Dent's evidence to this effect is cogent and persuasive. 597 Mr Dent was also referred to in the email within PON concerning a meeting with ANL in June 2018 (see above). At that time Mr Dent was ANL's general manager for operations and logistics. As noted, the email records Mr Dent as confirming that "ANL would be more likely to provide services to PON if there was the ability to XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. Wharfage charges are the major component of charges by ports to shipping lines for Container Port Services. This is evidence that those two ports, Auckland and Tauranga, compete on wharfage charges to attract shipping lines. 5.3.7 Industry experts 598 The ACCC and PON also relied on the evidence of the industry experts, Mr van Duijn and Mr King. While they have expertise relating to the operation of ports, Mr van Duijn and Mr King are not economists. The primary relevance of the evidence of Mr van Duijn and Mr King concerned the viability of the development of a container terminal at the Port of Newcastle. Mr van Duijn considered that a form of development of a container terminal at the Port of Newcastle (not that proposed in the PON PCB) would be viable. Mr King considered that the development of a container terminal at the Port of Newcastle as proposed in the PON PBC would not be viable. This evidence is relevant to the assessment of the competitive effects of the impugned provisions. Mr van Duijn and Mr King otherwise dealt with the issue of competition between the two ports assuming the operation of a sufficiently functional container terminal at the Port of Newcastle. It is that part of their evidence which I consider as relevant to market identification. 599 According to Mr Van Duijn, ports generally have a captive hinterland and a contestable hinterland. The captive hinterland is where there is only one obvious choice of port for importers/exporters due to proximity, transport connections and other factors. The area where this choice is equivalent or marginally different for importers/exporters as between ports is the port's contestable hinterland. Mr van Duijn said contestable hinterlands or catchment areas (terms he used interchangeably) are influenced by many factors, including land transport facilities, container supply chain and logistics, port facilities, shipping facilities and macro-economic conditions. The best way to accurately define a port's captive and contestable hinterlands is to conduct a container origin and destination study. Mr Van Duijn has not done such a study for this matter. His opinions are based on such studies he conducted for the Port of Melbourne and the Port of Brisbane and his industry knowledge. On that basis, Mr van Duijn considers that Port Botany's captive catchment area is most of NSW except for the southern region (contestable with the Port of Melbourne) and a small area in the northern region (contestable with the Port of Brisbane). These areas are shown in figure 10 below: 600 It will be apparent that this evidence is generally consistent with the evidence of Ms Calfas about Port Botany's perception of competition between it and the Port of Melbourne and the Port of Brisbane. 601 Having regard to the studies he conducted for the Port of Melbourne and the Port of Brisbane, his industry knowledge, and another study he conducted for the Victoria University Institute of Supply Chain Logistics, Mr van Duijn considers that a container terminal at the Port of Newcastle (by which he must mean a sufficiently functional container terminal) would result in the catchment areas as depicted in figure 11 below: 602 Mr van Duijn gave this evidence (1) there is only one contestable area as between Port Botany and the Port of Melbourne – being an area around Wagga Wagga. Otherwise, the catchment areas of Port Botany and the Port of Melbourne do not overlap; (2) there is only one contestable area as between Port Botany and the Port of Brisbane – being an area around Moree. Otherwise, the catchment areas of Port Botany and the Port of Brisbane do not overlap; (3) if the Port of Newcastle is developed with a container terminal it also would have a catchment area mostly to its north and north west; (4) the Port of Newcastle's catchment area would overlap with the Port of Brisbane in the same area around Moree that is currently contestable as between Port Botany and the Port of Brisbane; (5) the Port of Newcastle's catchment area would also overlap with Port Botany in an area near the boundary of its catchment area with Port Botany, extending to the west. Otherwise Port Botany and the Port of Newcastle would have separate catchment areas; (6) the Port of Newcastle's catchment area would not overlap with the catchment area of the Port of Melbourne (or any container terminal at Port Kembla – which I note is evidence undermining the cases of the ACCC and PON about Port Kembla); (7) the overlap in the catchment areas of Port Botany and the Port of Newcastle is "more difficult to determine" than that between the Port of Newcastle and the Port of Brisbane due to land transport cost differentials, the likelihood of logistics providers locating near the Port of Newcastle, and the rail connections to the Port of Newcastle from central west NSW; (8) to precisely determine the area of overlap between the catchments of Port Botany and the Port of Newcastle, a full container origin and destination study would need to be conducted, including a full economic analysis but Mr van Duijn is confident in his assessment as indicated on figure 11; (9) the Port of Newcastle is likely to take a significant share of containerised freight from Port Botany, mainly from the north-western and central regions of NSW, the Hunter and Central Coast and potentially from some of the northern suburbs of Sydney; (10) once the inland rail is constructed, particularly the part between Parkes and Narromine, there would be potential for the Port of Newcastle to attract container volumes from Parkes which currently are shipped through Port Botany; (11) the total population in the Port of Newcastle's catchment area exceeds 1 million. On that basis, approximately 200,000 import TEUs per year could be more cost-effectively and expediently shipped through the Port of Newcastle, mostly involving customers of Port Botany; (12) pricing and service levels will become important factors in the decision about whether to use Port Botany or the Port of Newcastle; (13) ports can compete on costs and non-cost related items such as service levels, choice of stevedore, ease of doing business, and the size of ships able to enter the port. Service issues include making sufficient berths available and ensuring that road and rail infrastructure is sufficient to handle container volumes being transported. Port costs, in effect wharfage and perhaps navigation fees, are only a small component of the total cost of the container supply chain; (14) ports are able to compete on all components of their charges, such as wharfage alone (Port Botany) or wharfage and navigation charges (Brisbane Newcastle, Port Kembla and Melbourne) and port access charges (Brisbane), all of which are a relatively small component of the total supply chain cost; (15) ports also compete on service levels such as making berths available and ensuring infrastructure within their lease area is efficient and capable of handling road and rail transport efficiently; (16) port operators liaise closely with and enter into commercial arrangements with stakeholders to improve their services and capabilities. For example, NSW Ports made a funding contribution to Patrick Terminals to improve the on-dock rail facility at Port Botany; (17) port operators can encourage stevedores and others involved in the supply chain to keep their costs competitive by providing effective land and facilities for the provision of their services at a competitive price by the port; (18) port operators also liaise closely with the Commonwealth and State governments to enhance infrastructure funding to the port and infrastructure connections servicing the port; (19) having common ownership of different capacities (such as at the Port of Adelaide where the port operator also offers pilotage, mooring, channel maintenance, a container terminal and logistics services) enables ports to bundle services to provide lower costs and increased efficiencies; (20) PON proposes a similar structure to XXXX XXXX XXXX XXXX, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX to attract cargo volumes and shipping lines; (21) once a container terminal is operational at the Port of Newcastle it can be anticipated that NSW Ports and the stevedoring companies at Port Botany will review their competitive position to minimise the loss of container volumes to the Port of Newcastle; and (22) it is likely that NSW Ports will react most aggressively to the start-up of a proposed container terminal at the Port of Newcastle on pricing and service levels, but to what extent cannot be identified. 603 Mr van Duijn agreed that if the Port of Newcastle could offer the same level of connectivity as Port Botany (in terms of shipping lines' frequency of calling and coverage of export destinations) then, all other things being equal, exporters for whom transport costs to the Port of Newcastle are cheaper than to Port Botany would ship through the Port of Newcastle. If, however, the Port of Newcastle did not have the same degree of shipping connectivity, exporters whose destinations are not serviced by the shipping lines calling at the Port of Newcastle, would ship via Port Botany. 604 Other than the proposition that the Port of Newcastle's catchment area would overlap with Port Botany's catchment area near the common boundary of their catchment areas, Mr van Duijn's evidence as summarised above is consistent with the other evidence. 605 In the joint report Mr King agreed with, amongst other things, Mr van Duijn's propositions (14) and (15) above. Propositions (14) and (15) are consistent with my inference that NSW Ports would do what it could to prevent or hinder the functionality and use maximisation of a container terminal at the Port of Newcastle. 606 Apart from this, Mr King gave evidence that: (1) the port supply chain includes shipping lines, vessel handling services, stevedores, freight forwarders, land transport providers, logistic services providers and importers/exporters (also called customers); (2) the customer is ultimately responsible for the cost of the port supply chain; (3) the customer or freight forwarder (if the customer uses one) decides which port to use; (4) it is unusual for a shipping line to set the arrival or export port for the containerised cargo it carries unless the shipping line is also acting as the logistic service provider which can include freight forwarding services. Major shipping lines such as Maersk Shipping offer a range of logistic services including customs, inland transport and storage across Australia; (5) key factors in the efficiency of the port supply chain include quality, cost, timeliness and reliability of the total supply chain; (6) shipping lines frequently claim that the cost of port services is too high and a disincentive to call at a port, but in fact quayside costs (stevedoring and wharfage principally) are a minor component of the overall supply chain cost; (7) shipping lines decide which port to call at by reference to cargo moving through the port, cost efficient connectivity to distribution centres for container stuffing and unstuffing, and the shipping line's existing series of port calls; (8) the majority of container shipping services that call at Australian port are made up of a number of shipping lines in a consortia or vessel sharing arrangements; and (9) a reduction in wharfage and stevedoring charges at a container terminal at the Port of Newcastle is likely to be the key incentive for ships to cease calling at Port Botany and to start calling at the Port of Newcastle (and is possible if, as proposed, the container terminal at the Port of Newcastle is XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX). 607 Mr King also gave evidence that: (1) there is a lot of qualitative evidence that ports use commercial arrangements to attract shipping lines to the port. At present, Port Botany does not do so as it is a monopolistic gateway to NSW and thus does not need to offer commercial arrangements to attract shipping lines to the port; and (2) all other things being equal, lower wharfage and stevedoring charges at the Port of Newcastle would be a factor in influencing shipping lines to call at the Port of Newcastle instead of Port Botany. However, the determinative issue is total supply chain costs. While shipping lines only pay the quayside costs part of that supply chain (wharfage, stevedoring and navigation charges) and not the landside costs (road or rail transport) they are sensitive to the total supply chain cost which the importer/exporter ultimately bears. 608 This evidence of Mr King is consistent with the evidence of Mr Carmody and the PON witnesses about wharfage charges being at least relevant to the choice of port by shipping lines, even if the determinative factor is the overall supply chain cost. His evidence about ports materially influencing the choice of port by shipping lines is also consistent with Ms Calfas's evidence about ports competing in relation to shipping connectivity and the statement of Mr Dent that the negotiability of wharfage charges is relevant to the choice of port by shipping lines. 609 This evidence confirms my view that ports have a material influence over at least some (if not all of) the identified port functionality factors. It also indicates that PON's expectation of an overlapping contestable catchment area with Port Botany (if a container terminal at the Port of Newcastle is sufficiently functionally equivalent to Port Botany) should not be dismissed as mere speculation. 5.3.8 Port of Tauranga and Port of Auckland 610 There is evidence concerning the consequences of the development of a container terminal at the Port of Tauranga. 611 The Port of Tauranga is the largest container terminal in New Zealand. It handles a large amount of container cargo from the Auckland area, in common with the Port of Auckland. It is located about 200 km south of the Port of Auckland. The container volumes at the Port of Tauranga have almost doubled between 2010 and 2017 from 511,343 TEU to 1,085,987 TEU. 612 In common with the Port of Tauranga, the posited container terminal at the Port of Newcastle involves a start-up, using state of the art automation and technologies. 613 PON submitted that the evidence established that various shipping lines switched from the Port of Auckland to the Port of Tauranga. The evidence is a little less clear than PON submitted. What is apparent, however, is that various shipping lines use the Port of Tauranga including lines that use it as their sole New Zealand port. Further, over time, additional shipping lines began to use the Port of Tauranga. Other evidence includes the following: (1) in November 2006, the Port of Tauranga announced that Maersk had decided to concentrate the bulk of its business at the Port of Auckland causing the loss of 4,600 containers per month from the Port of Tauranga; (2) in March 2008, the Port of Tauranga announced that Hamburg Sud and Maersk had consolidated their East Coast North American services resulting in the loss of 20,000 containers annually from the Port of Tauranga; and (3) in around 2014, the Port of Tauranga temporarily lost the business of the Maersk Southern Star service to the Port of Auckland as part of a consolidation by Maersk. This caused the loss of 10% of the Port of Tauranga's container volumes. The Maersk Southern Star service, however, subsequently returned to the Port of Tauranga bringing with it an expected 70,000 additional TEUs per year. 614 We also know from the evidence of Mr Dent that ANL (the shipping line) considered that negotiability of wharfage charges by the Port of Tauranga and the Port of Auckland were relevant to the choice of port by shipping lines. This too is consistent with the evidence of Mr van Duijn, Mr King and the PON witnesses. 5.3.9 Consideration 615 The ACCC made a number of propositions that it submitted were supported by the evidence discussed above. I identify those propositions in italics below and my response to them on the basis of the evidence considered thus far. 616 All of the lay evidence on the issue of market definition is consistent and points to a singular conclusion: a container terminal at the Port of Newcastle would compete with the existing container terminal at Port Botany. That was the effect of the evidence given by both the ACCC's lay witnesses and the lay witnesses called by the NSW Ports Respondents. It is also the position that emerges clearly from the documents produced during the Port Botany and Port Kembla privatisation process, and which is the ultimate conclusion to be drawn from the NSW Ports Respondents' response to the s 155 Notice. 617 For the reasons given above, if it is assumed that there is a sufficiently functional container terminal at the Port of Newcastle, this is an accurate summary of the lay and industry evidence except to the extent Ms Calfas said that she did not accept that Port Botany could or would compete on price with a container terminal at the Port of Newcastle. I accept that the lay and industry evidence assumes that because a sufficiently functional container terminal at the Port of Newcastle would take customers away from Port Botany, the two are competing in the same market. I consider that assumption reflects the reality that a sufficiently functional container terminal at the Port of Newcastle would transform Port Botany's existing market for Container Port Services in NSW. As a result, the likely effects of the impugned provisions should be considered in the context of that existing market. 618 To assess the potential competitive effects of the impugned provisions assuming the existence of two separate monopoly markets is ill-adapted for the required purpose because: (a) it assumes a steady state as between two functionality equivalent container terminals when, given the port functionality factors, the relative functionality of the container terminals would be dynamic, (b) as to the level of wharfage charges, it wrongly assumes that Port Botany is not sensitive to the potential loss or gain of marginal volumes of containers, (c) as to the level of wharfage charges, it wrongly assumes that Port Botany is incapable of profitable price discrimination, (d) it is inconsistent with the industry evidence that ports generally enjoy a captive, but also have a contestable, catchment area, and (e) it wrongly assumes, contrary to the evidence of Ms Calfas, the PON witnesses and the industry experts, that ports are incapable of materially influencing the port functionality factors. 619 As discussed above, cogent evidence would be required to support any inference that in providing Container Port Services ports are unable to materially influence port functionality factors. All of the industry witnesses assumed that ports can and do play a part in influencing the port functionality factors. Mr van Duijn and Mr King, for example, specifically identified that ports influence the decisions of shipping lines as to which port to use on the basis of both price and non-price considerations. 620 As to port functionality factor (a) (the container handling capacity of each port), it is apparent that a container port will have control over that factor to a significant extent. Subject to government approval, it is the port that will decide its container handling capacity and when that capacity becomes available. 621 As to port functionality factor (b) (the efficiency of stevedoring services offered by each port), it is difficult to imagine that, in providing Container Port Services by making land and facilities available to stevedores, ports do not use their bargaining power to ensure that the stevedores will provide the most efficient stevedoring services including by way of negotiations about work practices, plant, equipment and facilities. As I have said, the provision of stevedoring services is not a part of Container Port Services. But if, as must be the case, in providing Container Port Services to stevedores, ports materially influence the provision of stevedoring services to increase the use of the port, then that conduct is conduct in the market for Container Port Services. 622 As to port functionality factor (c) (the road and rail connectivity of each port, including land and facilities made available to land transport companies), the same considerations apply as for stevedoring services. Ports make land and facilities available to land transport entities as part of Container Port Services. It is obvious that a port will exercise its bargaining power in doing so to maximise its use by importers/exporters. That also is conduct in the market for Container Port Services. 623 As to port functionality factor (d) (the shipping connectivity of each port), the evidence is clear. Ports can and do materially influence their shipping connectivity on price and non-price factors which the ports control or materially influence. 624 As to port functionality factor (e) (the convenient location of distribution and storage centres), there is also scope for material influence by a port. A port can make port land available for such a facility. A port can maximise the efficiency of any facility by making land and other facilities available to effectively integrate the facility with road and rail and land transport facilities. 625 Apart from the exercise of their bargaining power by being the provider of the land and facilities identified as comprising Container Port Services, it cannot be doubted that Port Botany and the Port of Newcastle are and will be lobbying, advocating and marketing in their own competing interests (the Port of Newcastle to enable development of a container terminal and Port Botany to ensure that the State policy does not change). Further, they are and will be advocating, lobbying and marketing to the same people – the NSW government, NSW public agencies, the Commonwealth government, shipping lines, importers/exporters in NSW, land transport entities, and distribution and logistics entities. The purpose of their advocating, lobbying and marketing is and will be to opposing ends – for PON to facilitate the development and functionality of a container terminal at the Port of Newcastle and for NSW Ports to maintain the State policy under which there is to be no such container terminal until Port Botany and Port Kembla have reached their capacity. If this does not indicate that the appropriate analytical tool for any competition analysis is the existing market for Container Port Services in NSW, then it is difficult to know what would lead to that conclusion. 626 This body of evidence supports the ACCC's case that there is a market for the supply of container port services in New South Wales and that, at all material times, Port Botany and the Port of Newcastle were suppliers or potential suppliers of Container Port Services in that market. It is also consistent with the ACCC's allegation that, at all relevant times, the prospect of an increased supply of Container Port Services in that market operated as a competitive constraint on the operator of Port Botany. 627 For the reasons given above, I agree that Port Botany supplies the existing market for Container Port Services in NSW. Otherwise, these propositions are more appropriately dealt with as part of the competition analysis. In particular, it remains to be seen if PON as at May 2013/May 2014 or today's date presented or presents a credible threat of entering the existing market for Container Port Services in NSW. 628 Given the consistency of views amongst the lay witnesses and the objective contemporaneous documentary record, the Court would not lightly prefer the views of professional expert economists to those of the actual participants in the relevant industry. To the contrary, in evaluating the expert evidence, the Court should accept that expert evidence only to the extent that it is consistent with the lay evidence. 629 Apart from what I have said above, I prefer to evaluate the economic evidence about market identification before drawing any firm conclusions in this regard. 630 PON also made a number of propositions that it submitted were supported by the evidence discussed above. I identify those propositions in italics below and my response to them on the basis of the evidence considered thus far. 631 Port Botany has since well before 2012 serviced substantially all of the containers destined for or originating from destinations in New South Wales. 632 I agree that the evidence indicates that the vast majority of containers destined for or originating from destinations in NSW are handled through Port Botany. 633 NSW Ports has a team, a core responsibility of which is to design and implement plans to capture and retain contestable cargo. 634 I agree, but the CCCP did not consider the Port of Newcastle in the context of contestable container volumes. 635 The volumes of containers that are presently contestable are a small proportion of Port Botany's total volumes. 636 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 637 Nevertheless, in order to capture and retain cargo that is contestable as between Port Botany and the Port of Melbourne or Port of Brisbane, NSW Ports has implemented a number of marketing and pricing strategies. 638 I agree. 639 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 640 I agree, subject to the fact that the prices at the Port of Brisbane are also relevant to Port Botany's price of export containers. 641 If a container terminal were constructed at Port of Newcastle, it would handle a significant number of containers that would otherwise have been handled at Port Botany. 642 This is not in dispute provided the hypothesised container terminal at the Port of Newcastle is sufficiently functional. 643 For the shippers of those containers, using Port of Newcastle will be preferable, either on the basis of price or non-price factors, to using Port Botany. 644 I agree that if there is a sufficiently functional container terminal at the Port of Newcastle, it will have its own captive catchment area. This is not in dispute. If there is a sufficiently functional container terminal at the Port of Newcastle, the dispute is whether there will be a contestable catchment area between Port Botany and the Port of Newcastle. 645 The number and identity of shippers [importers/exporters] of containers that use Port of Newcastle instead of Port Botany will not be constant over time. 646 I agree. 647 There would be shippers [importers/exporters] of a non-trivial volume of containers for whom the land transport costs of using Port Botany were roughly similar to those of using Port of Newcastle. 648 The industry evidence does not establish this proposition. Mr van Duijn identified one area of overlap in his catchment areas for Port Botany and the Port of Newcastle based on the cost differential between land transport to and from those ports from the area in question. However, Mr van Duijn did not identify the estimated volume of containers being shipped to or from that contestable area. Ms Calfas could not identify any area which would be contestable as between Port Botany and the Port of Newcastle based on what she considered to be the determinative factor of the total supply chain cost, which is dominated by land transport cost. As noted, this is inconsistent with the evidence of NSW Ports' response to the s 155 notice which supports the conclusion that there will be importers/exporters of a non-trivial volume of containers for which the land transport costs of using Port Botany would be roughly similar to those of using Port of Newcastle. 649 In a world without the Compensation Provisions, in order to reduce the loss of custom from Port Botany to Port of Newcastle, NSW Ports would engage in a competitive response, at least aiming to retain or recapture the containers shipped by those shippers described in the sub-paragraph above. 650 This proposition involves some suppressed premises. One, that there is a sufficiently functional container terminal at the Port of Newcastle. Two, that in a world with the compensation provisions, NSW Ports would not engage in the same competitive response. As explained further below, what can be safely said on the evidence is that, with or without the compensation provisions, if there is a sufficiently functional container terminal at the Port of Newcastle it is likely that NSW Ports would do whatever it could to retain or recapture containers which would have been handled through Port Botany and instead are handled through the Port of Newcastle. 651 Each of the State, NSW Ports and PON consider that a container terminal at Port of Newcastle would compete with that at Port Botany. 652 Leaving aside the positions of the State and NSW Ports in this proceeding, this accurately reflects the internal deliberations of the State and NSW Ports assuming that a sufficiently functional container terminal is operating at the Port of Newcastle. 5.4 Economists 653 I summarise below the key propositions of each of the economists relevant to the issue of market definition. The summary below includes quotes and extracts from the reports of the economists. I deal separately with the economists' joint report and oral evidence, which was given in concurrent session. The summary below does not represent my findings. 5.4.1 Summary of Mr Smith's evidence about the market 5.4.1.1 General 654 Consideration of the relevant market involves the assessment of the substitutability between different products or services. Market definition is focused on marginal customers that are most likely to switch between two alternative service providers in response to a relative price change. 655 Market definition should only be a first step, and is a tool to be used to assist in the ultimate assessment of the likely effect of the conduct in question on competition. Competition is a dynamic process of rivalry, whereby firms attempt to win business from one another by constantly improving their offerings to customers – such as by offering lower prices, better quality, or more convenient services. 656 The process of defining a relevant market begins by considering one or more narrow candidate markets, typically centred around one or more of the products/services and the geographic areas of operation of the parties and asking whether, if a hypothetical monopolist controlled all of the products/services in the candidate market, it would be able to impose a small, but significant, non-transitory (i.e. permanent) increase in price of the order of 5% to 10% (a SSNIP). If such a hypothetical price increase were unprofitable, then this would indicate that the market should be widened to include products or geographic areas previously outside of the candidate market and to which the switching was occurring. The test is then repeated iteratively until a price increase would actually be profitable, at which point the products and geographic areas within the candidate market will have been found to be a relevant market. 657 Demand side substitution refers to the willingness and ability of buyers to switch to alternative products from those in candidate market in response to a change in relative prices. 658 Supply side substitution refers to the ability of suppliers of products outside of the candidate market to quickly and easily begin supplying products that compete with those in the candidate market in response to a price increase. 5.4.1.2 Ports 659 Container port operations comprise only one element of a broader container freight supply chain. There are many other participants in this process that help transport imports and exports in and out of Australia. These include shipping lines, cargo owners (i.e. importers and exporters), container stevedores, road and rail transport operators, related infrastructure operators such as intermodal terminal or empty container parks, as well as governments. 660 Port operators can and, in some cases, do supply stevedoring services themselves. 661 The catchment areas served by ports are determined not only by the location of exporters and the end-destination of imports, but also by the willingness of shipping vessels to call at a port. A port will only attract shipping vessels if there is a suitable quantity of imports and exports that can be served by the port. Conversely, importers and exporters will only be willing to use a port if there is a regular service of suitably sized vessels at a price that makes it worthwhile for those importers and exporters to use the port. 662 The container terminal operator can influence the size of the catchment area served by the port. Given the comparatively large size of fixed costs (loading and unloading vessels) and the small size of incremental costs (transport by truck or train), if a container terminal operator were to cut the charges for loading and unloading vessels, this could greatly expand the port's catchment area, and thereby ensure that it attracts importers, exporters and shipping lines. 663 Ports in different States have been unable or unwilling to compete for substantial volumes of containers outside the State in which the port is located. 664 Port services for cargo other than containers is not a good substitute for container port services. 665 Container ports are likely to compete with one another on the basis of their location, as well as the price and quality of their services, where quality may include considerations of the speed of loading and unloading container ships, and the landside connections for the transport of containers. 666 The compensation provisions only reimburse NSW Ports for wharfage charges not stevedoring service charges. 5.4.1.3 Stevedores 667 Container stevedores are responsible for lifting containers on and off ships at ports, as well as receiving containers from and delivering containers to land transport operators. 668 Stevedores are customers of port operators: they pay fees to port operators in return for the use of land and facilities at these ports. Stevedoring can therefore be said to be "downstream" of container port services provided by the ports. 669 There are five major container stevedoring companies currently active in Australia: DP World, Flinders Adelaide Container Terminal, Hutchison, Patrick and Victoria International Container Terminal. 670 NSW Ports operates as a port landlord and therefore does not supply its own stevedoring services, but instead charges fees to three third-party stevedore companies, DP World, Hutchison and Patrick, who are responsible for equipment, securing customers, and loading and unloading containers within their terminal at Port Botany. 5.4.1.4 Port Botany and the Port of Newcastle 671 The relevant geographic market in which Port Botany competes is NSW. 672 The Port of Newcastle's natural catchment area comprises those geographic areas where the road or rail freight cost associated with transporting containers between it and each of these areas is lower than the total cost of transporting containers between those areas and any other container port. 673 Two consultants to PON (Deloitte Access Economics and AlphaBeta) have identified the Port of Newcastle's natural catchment area for container volumes as encompassing northern and western parts of NSW which are currently serviced by Port Botany. As a result, there would be competition between Port Botany and the Port of Newcastle for container volumes to and from these areas. 674 While capacity constraints are not often considered at the stage of market definition, the geographic area the Port of Newcastle could realistically serve would be constrained by its available capacity which would be likely to grow over time. 675 The Port of Newcastle's natural catchment area does not include areas for which it could compete by cutting freight or other costs incurred by customers. For example, it is proposed that the Port of Newcastle will accommodate 1,500 m long trains in stage 1 (and 1,800 m long in stage 2) while Port Botany can only accept 640 m long trains. As a result, there is opportunity for lower rail freight costs at the Port of Newcastle compared to Port Botany. 676 The fact that the incremental cost of land transport is a small percentage of the total fixed fees set at a container port (wharfage and stevedoring fees) implies that the geographic area that the Port of Newcastle could contest would be sensitive to changes in these fixed fees. The more the Port of Newcastle reduces its fixed fees, the greater the area for which it will become the lower-cost port for importers/exporters (in terms of truck travel time). A 50% fee reduction would see the Port of Newcastle become the lower-cost port for importers/exporters for certain areas of northern and western Sydney. 677 Figure 4 below shows the areas where the Port of Newcastle will become the lower-cost port for importers/exporters depending on the reduction in its fixed fees. 678 SA3, as referred to in the title to this figure, means Statistical Area Level 3 (SA3) zones, which are geographical areas used by the Australian Bureau of Statistics (ABS) and other agencies that typically have a population of between 30,000 and 200,000 people. 679 As the Port of Newcastle gains efficiencies it will be better able to compete for marginal volumes located further away from it. 680 Further rail infrastructure could also impact the likely geographic scope of customers for which the Port of Newcastle could compete. The inland rail is likely to reduce the cost of transporting containers between some areas and the Port of Newcastle including imports destined for northern and western Sydney. 5.4.1.5 Reply report 681 Dr Pleatsikas claims to have conducted a SSNIP test and determined that Port Botany could profitably increase prices by 10%. However, he has assumed that demand is inelastic as a result of which a monopolist can profitably raise prices. He contends that demand is inelastic because the value of the cargo is likely to be higher than the total container transport cost. Specifically, Mr Smith said: while that assumption might be correct in regard to demand for container transportation via any port (i.e. demand elasticity at a "market" level), that assumption might not be correct for shippers that are faced with a price rise for container transportation that goes via a specific port, if there were other, cheaper, ports available to take the same container to the same ultimate destination (i.e. demand elasticity at a "firm" level). If PON were to develop a container terminal, then the choice facing shippers would not be whether or not to continue transporting containers at all, if all wharfage fees were to increase by 5 or 10% (this demand might well be inelastic), but rather whether to transport containers via PB [Port Botany], or to transport containers via PON, if PON were to increase wharfage fees by 5 or 10% relative to the wharfage fees charged by PB (this demand is less likely to be inelastic). In particular shippers that face this choice across large, repeat volumes of containers are likely to switch between alternative ports in response to small relative price changes, even though they would not be willing to switch entirely away from using container transportation if prices at all ports were to rise. 682 Further, according to Mr Smith: Dr Pleatsikas concludes that PB is a monopolist over the volumes that it currently serves. That appears to be the case currently, in that PB handles 96% of containers that derive from, or are destined to, any location throughout NSW – accordingly PB is a (near) monopolist over all containers derived from or destined to NSW. But that does not mean that it is sensible to conclude that PB would remain a monopolist, if PON were to enter and develop a container terminal, and take away containers that are currently served by PB. 683 Assuming that the Port of Newcastle has entered the market, Dr Pleatsikas asserts that both the Port of Newcastle and Port Botany could profitably increase prices. This approach does not cover all scenarios or all elements of competition. As to all scenarios: (1) development of a container terminal at the Port of Newcastle would occur over time, in stages; (2) this staged development would change the size and location of the geographic area from within which an importer/exporter could feasibly switch from Port Botany to the Port of Newcastle in response to small changes in wharfage fees by either port; (3) developments in infrastructure outside of the ports and resulting changes in the incremental costs of land transport to each port may change the size and location of the geographic area from within which an importer/exporter could feasibly switch between Port Botany and the Port of Newcastle in response to small changes in wharfage fees by either port; and (4) if the stevedores at one of the ports reduced fees that may change the size and location of the geographic area from within which an importer/exporter could feasibly switch between Port Botany and the Port of Newcastle. 684 In contrast, Dr Pleatsikas's approach involves continually redefining separate geographic markets to cover all containers that would actually be served by Port Botany and the Port of Newcastle at each point in time, excluding an assessment of the continuous switching that is likely to take place between the two ports over a long period of time. 685 As to all elements of competition: (1) Dr Pleatsikas's analysis excludes consideration of entry, expansion or improvement in quality by the Port of Newcastle. For example: (a) if the Port of Newcastle enters as a high cost, lower quality container terminal, customers from its catchment area may not be attracted to use it or Port Botany might be able to entice such customers who do switch to the Port of Newcastle to switch back again; and (b) if the Port of Newcastle enters as a low cost, high quality container terminal then customers from its catchment area may engage in a one off switch but it is illogical to include (a) as part of the competitive process and to exclude (b) from that process; and (2) ignoring competitive acts of entry and expansion, merely because they might cause a substantial "one-way" shift in demand towards the new entrant would risk excluding some of the most important, and most valuable elements of competition. 5.4.2 Summary of Dr Pleatsikas's evidence about the market 5.4.2.1 General 686 For competition purposes, the market definition task delineates an area of close competition relevant to the firms, products and conduct at issue. Substitution (specifically, close substitutes), in either demand and/or supply, is what defines that area of close competition. 687 Many competition authorities (including the ACCC) utilise the "hypothetical monopolist test" that employs the so-called SSNIP method (as noted, the small but significant non-transitory increase in price) to identify close substitutes. 688 In this test it is not sufficient that some customers might switch in response to a SSNIP. The issue is whether a sufficient number of customers would switch to make the SSNIP unprofitable. In terms of geographic markets, accordingly: if a hypothetical monopolist of Product A at some defined geographic location (location X) attempted to implement a SSNIP, but a sufficient number of consumers, in response, would switch to purchasing the same product from suppliers at a different geographic location (location Y) that the SSNIP by the hypothetical monopolist at location X would be unprofitable to that hypothetical monopolist, then the producers locations X and Y likely compete in the same relevant geographic market. If such a price increase by a hypothetical monopolist at location X would be profitable (because an insufficient number of buyers would switch to suppliers located at other geographic locations), then the producers at locations X and Y would compete in separate relevant geographic markets. 5.4.2.2 Port Botany, Port Kembla and the Port of Newcastle 689 In terms of the product dimension of the market, Port Botany, Port Kembla and the Port of Newcastle provide or hope to provide significant import/export services for a variety of cargo types, not just container cargos. 690 Port operators are incentivised to invest in port infrastructure to increase the efficiency and attractiveness of the port because of economies of scope. Economies of scope refer to the situation where unit costs decline when the production of different goods and/or services are produced in combination. That is, the existence of economies of scope indicates that it is more efficient to produce the combination of goods and/or services than to produce them separately. 691 The existence of significant economies of scope across several products, as in this case, often requires that relevant product markets be defined broadly to include many or all of those products. 692 For the ports relevant to this case, there are likely significant economies of scope in providing ports' operator/landlord services to a variety of cargo operations at a port. 693 The relevant functional dimension of the market is the port/operator landlord function. 694 Whether the relevant product market is that identified by the ACCC (Container Port Services) or more broadly (port services for all cargo, as noted above), once one properly considers the relevant test for defining the relevant geographic market, according to economic theory, principles and practice, the sound conclusion is that Ports Kembla/Botany do not compete in the same market as the Port of Newcastle. This is confirmed by the hypothetical monopolist test and other economic indicators. 695 A SSNIP imposed by a monopolist at Ports Kembla/Botany would not be rendered unprofitable by substitution that increased the demand for the port operator/landlord function at the Port of Newcastle (or any other port). By way of context: (1) according to economic theory, the derived demand for an intermediate product that is a small fraction of the total cost of the product for which that intermediate product is an input is likely to be inelastic and probably highly inelastic. The reason for inelastic demand in such a case is the fact that buyers of the end product (such as the transportation of a container from origin to destination) are unlikely to react to very small changes in prices. When an input (such as a wharfage charge) accounts for a small fraction of the costs to provide an end product, a price increase in that input will cause only a very small increase in the price of the end product; and (2) the port operator/landlord per container wharfage charge is a small fraction of the cost of the applicable downstream product (either a small fraction of the end-to-end transport and related processing cost of a container or an even smaller fraction of the value of the products contained in that container). Consequently, the elasticity of demand for wharfage charges is very likely to be inelastic and probably highly inelastic (and the elasticity of demand for the end-to-end costs for moving a container is likely inelastic as well, as the end-to-end costs are a relatively small fraction of the value of the products in the container). 696 In terms of the application of the SSNIP: (1) currently, Port Botany assesses a per TEU wharfage charge of $141.50 for an imported full container, a per TEU charge of $96.23 for an exported full container, a per TEU charge of $55.24 for a trans-shipped container and a per TEU charge of $14.72 for an empty container (whether imported or exported). The blended rate for all containers is thus about $100 per TEU; (2) a 5%-10% SSNIP would be $5-$10 per TEU; (3) assume the total cost of moving a loaded container from or to China is $2000. This figure is derived from Mr Balchin's assessment and, if anything, is an underestimate of the total cost as it excludes the land transport costs to transport the container from its foreign origin to the foreign port and port costs at the foreign port. A SSNIP by a (hypothetical or actual) monopolist of port operator/landlord services at Port Botany would represent a fraction of one percent of total container transport/processing costs (i.e, $5-$10 out of approximately $2000 or about 0.25 to 0.5 percent); (4) a SSNIP by the port operator/landlord at Ports Botany/Kembla would be profitable on this basis: (a) assume only moderately inelastic demand for container shipping services (or port operator/landlord wharfage charges) (e.g., -0.5); (b) further assume that Port Botany handles about 2.64 million TEUs; (c) a SSNIP of 10% would increase port operator/landlord charges by about $10 (from $100 to $110) and reduce container traffic at Port Botany by 0.25% (a 0.5 % price increase of the overall transport cost of $2000 multiplied by 0.5, the assumed elasticity); (d) this would result in containers handled by Port Botany being reduced by 6,600 (i.e. a reduction from 2.64 million to 2,633,400); (e) consequently, the lost revenue on the 6,600 containers that no longer are handled would be $660,000 (6,600 containers multiplied by $100); and (f) by contrast, the revenue increase on the remaining containers is more than $26 million (i.e., 2,633,400 containers multiplied by an additional $10 per container as a result of the SSNIP); and (5) in economic terms there is thus a relevant geographic market for port operator/landlord services at Port Botany and a separate relevant geographic market for port operator/landlord services at the Port of Newcastle. 697 In respect of the assumptions identified in (4) above Dr Pleatsikas noted: (1) assumption (a) involves only moderate inelasticity and is therefore a conservative assumption in favour of the ACCC and PON as it results in a more expansive geographic market; (2) assumption (b) is consistent with the evidence of Ms Calfas and Mr van Duijn concerning the TEUs per year handled by Port Botany; (3) as noted, the port operator/landlord charges of $100 per TEU in (c) represent the blended rate for all containers handled by Port Botany; and (4) the calculation giving 6,600 in (d) is 2.64 million containers multiplied by the reduction in container traffic of 0.25%. 698 Further, the same analysis would result in the same outcomes even if it is assumed that the demand was highly elastic, which provides further economic support for the view that Ports Botany/Kembla exist in a separate geographic market from the Port of Newcastle. I note in this regard that in his other evidence Dr Pleatsikas assumed a moderately high elasticity of demand of 4 and a high elasticity of demand of 8. I consider it useful to illustrate the same calculations using these different assumptions of elasticity of demand as they show the SSNIP test consistently results in a conclusion of separate markets. 699 Assumed elasticity of demand of 4: (a) assume only moderately high elastic demand for container shipping services (or port operator/landlord wharfage charges) (e.g. 4); (b) further assume that Port Botany handles about 2.64 million TEUs; (c) a SSNIP of 10% would increase port operator/landlord charges by about $10 (from $100 to $110) and reduce container traffic at Port Botany by 2% (a 0.5 % price increase of the overall transport cost of $2000 multiplied by 4, the assumed elasticity); (d) this would result in containers handled by Port Botany being reduced by 52,800 (i.e. a reduction from 2.64 million to 2,587,200); (e) consequently, the lost revenue on the 52,800 containers that no longer are handled would be $5,280,000 (52,800 containers multiplied by $100); and (f) by contrast, the revenue increase on the remaining containers is more than $25.5 million (i.e., 2,587,200 containers multiplied by an additional $10 per container as a result of the SSNIP). 700 Assumed elasticity of demand of 8: (a) assume highly elastic demand for container shipping services (or port operator/landlord wharfage charges) (e.g. 8); (b) further assume that Port Botany handles about 2.64 million TEUs; (c) a SSNIP of 10% would increase port operator/landlord charges by about $10 (from $100 to $110) and reduce container traffic at Port Botany by 4% (a 0.5 % price increase of the overall transport cost of $2000 multiplied by 8, the assumed elasticity); (d) this would result in containers handled by Port Botany being reduced by 105,600 (i.e. a reduction from 2.64 million to 2,534,400); (e) consequently, the lost revenue on the 105,600 containers that no longer are handled would be $10,560,000 (105,600 containers multiplied by $100); and (f) by contrast, the revenue increase on the remaining containers is more than $25 million (i.e., 2,534,400 containers multiplied by an additional $10 per container as a result of the SSNIP). 701 I note here that Dr Pleatsikas's reference in (a) of each calculation to "(or port operator/landlord wharfage charges)" may mislead the reader. The SSNIP is applied to the port operator/landlord wharfage charges. The inelasticity or elasticity of demand, however, concerns the demand for container shipping services at the overall cost of $2000 of which port operator/landlord wharfage charges are one component. 702 To return to the summary of Dr Pleatsikas's evidence, while the "catchment area" analysis is not the appropriate tool for defining the geographic market boundaries of each port that analysis provides insight as to why the hypothetical monopolist test provides such strong results. In summary: (1) the analyses used to generate "catchment areas" bear no necessary resemblance to the methods used to define relevant geographic market boundaries. Relevant market boundaries are defined with respect to substitution in response to price changes, whereas "catchment areas" are defined according to cost minimisation (in this case cost minimisation of transportation charges); (2) the boundaries of the catchment areas proposed by the ACCC and PON also depend on transport services which are outside of the product and functional market of Container Port Services; (3) however, the concept of a "natural catchment area" tends to validate the view that, for the relevant product and functional markets in this case, the Port of Newcastle and Ports Botany/Kembla compete in separate markets; (4) analysis shows that a posited SSNIP in wharfage charge would have no significant influence for port users (importers or exporters) over which port to use given the magnitude of the asserted transportation cost advantages in the "natural catchment" analysis (that is, the transportation cost advantages as asserted by PON as part of its analysis of its business case, specifically in the Lycopodium report of August 2018); (5) further, on the "natural catchment" analysis, neither port could influence substitution through competition because of the small magnitude of the charges for Container Port Services in relation to the large asserted transport cost differentials; (6) on this approach subsequent switching would not occur unless there was a significant change in transport costs – a cost over which the port operators/landlords have (and would have) no significant influence; and (7) the inevitable conclusion from this "natural catchment area" theory is that the operator/landlord at Ports Botany/Kembla, on the one hand, and the operator/landlord at the Port of Newcastle, on the other hand, do not compete in the same relevant geographic market. 703 Further, the lack of competition for Port Botany in its geographic market of NSW is the economic rationale for the regulatory regime that the State has imposed on NSW Ports. In summary: (1) wharfage charges are regulated by Pt 6 of the PAMA Act which became effective on 1 July 2013 under the PAAT Act, before privatisation of Port Botany and Port Kembla; (2) the objective of price monitoring is to promote the economically efficient operation of ports by ensuring that port charges are appropriate and promote a competitive commercial environment (ss 77-78 PAMA Act); (3) under the price monitoring regulations, changes in charges by port operators/landlords must be notified to the NSW Minister for Roads, Maritime and Freight, who also reviews charges and changes in charges by port operators/landlords (ss 80- 81); (4) the regulatory regime was specifically extended to the Port of Newcastle under the Port Assets (Authorised Transactions) Amendment Act 2013 (NSW); and (5) the Minister can refer the level of pricing and annual increases to IPART under the IPART Act. I note that Dr Pleatsikas's understanding of IPART's role is probably incorrect, but it does not alter the fact that ports operate under a threat of price regulation, even if only as a result of Pt IIIA of the CCA. 704 To return again to the summary of Dr Pleatsikas's evidence, price regulation is a common feature in monopoly markets – i.e., markets in which firms face no effective competition and no effective competitor. 705 The existence of a price regulation and monitoring regime for port operator/landlord functions is useful (in the sense of being supportive), but not determinative (unlike the hypothetical monopolist test, which is determinative), for identifying the scope of the relevant geographic market in this case. The fact that Port Botany and Port Kembla, on the one hand, and the Port of Newcastle, on the other hand, are each separately subject to price regulation implies that they are monopolies that do not compete (i.e., they operate in separate relevant geographic markets). 706 The regulatory system for prices for these ports was apparently devised prior to the time that the compensation provisions were set forth to the bidders. This timing difference supports the view that these ports are separate monopolies, that the view of them as monopolies predated the development of the allegedly offending compensations provision and is independent of this contractual provision. 707 Accordingly: (1) the relevant product market is port operator/landlord services and the relevant functional level is the operator/landlord function; (2) irrespective of the definition of the relevant product, the hypothetical monopolist test for determining relevant geographic market boundaries demonstrate that Ports Botany/Kembla, on the one hand, and the Port of Newcastle, on the other hand, would compete in separate markets; and (3) Ports Botany/Kembla are not economic competitors to the Port of Newcastle, as competition economists, using broadly accepted economic theory, principles and analysis, understand the term "economic competitors". 5.4.3 Summary of Mr Ockerby's evidence about the market 5.4.3.1 General 708 The purpose of market definition in anti-competitive conduct cases is to define the scope of service (including products and functions) and geographic areas that are potentially affected by the impugned conduct and to assist in understanding the mechanisms of potential competitive effects. 709 Markets may be defined in terms of the range of products and functions that are included in the market and the geographic reach of the market. 710 The geographic dimension of the market is defined using the standard test used by competition practitioners – the hypothetical monopolist test which asks whether a hypothetical operator of a container terminal at the Port of Newcastle could increase price by a small but significant amount (say 10%) without causing enough importers and exporters to substitute to Port Botany and thereby make such a price increase unprofitable (the SSNIP). The SSNIP is usually defined to be a price rise of 5% to 10% of the pre-merger prices maintained for 12 months. The SSNIP involves an iterative process as the hypothetical monopolist test seeks to identify the relevant market as the smallest group of products (either in product or geographic terms) such that a hypothetical monopolist would find it profitable to engage in a SSNIP over that group of products, holding the prices of all other products fixed. 711 The approach to defining the market should reflect the nature of potential competitive interaction between market participants. The extent or scope of the market should identify and include competitive constraints that are likely to have a substantial effect on the pricing, quality and output of relevant services, and exclude those that do not have such effect. 5.4.3.2 Port Botany and the Port of Newcastle – overview 712 Analysis of road transport cost differentials for customers across NSW demonstrates that there are very few customers who would switch between ports in response to a 10% change in current wharfage prices at either port (i.e., a $10 change in a, say, $100/TEU wharfage charge). The same analysis shows that for the key import/export locations that would be served by each port, the road transport cost differential is in excess of $200-$300/TEU. It would not be profitable for the Port of Newcastle to attempt to create an economic incentive for these customers to substitute between ports. 713 The boundaries of the market are refined based on a model of freight movements in NSW. The model captures the cost of transporting freight including: (a) transporting imported containers from the port to the locations where they are unpacked and then transporting the imported contents of the container to final customers, and (b) transporting export freight to the location of facilities where the freight is packed and then transporting the container to the port for export. 714 The significance of defining separate markets for the Port of Newcastle and Port Botany is that the price setting process for each port does not have the interdependences or strategic interactions that are associated with firms competing. 5.4.3.3 Port Botany and the Port of Newcastle – analysis 715 Transport for NSW's Strategic Freight Model (SFM) and Sydney Freight Movement Model (FMM) show that more than 57% of containers imported into NSW are delivered to locations with 40 km of Port Botany and around 70% of containers are delivered to locations within 60 km of that port. Further, over 98% of containers imported into NSW are delivered to destinations closer to Port Botany than the Port of Newcastle. 716 Analysis shows that the land transport cost advantages held by each port in respect of the top five locations for container volumes within their respective catchment areas far exceeds the current wharfage charge. The results of this analysis are shown in the table below for the top five import destinations: 717 Footnote 12 to this table explains that XXXX/minute/TEU is derived from an analysis by PON's consultant, OSC, in its report of 5 May 2020 in respect of PON's "investment grade" business case for a container terminal at the Port of Newcastle, i.e. the OSC report. Footnote 13 explains that the wharfage charge is as set out in NSW Ports, Schedule of Charges, 1 July 2019. 718 A similar result is reached in respect of the top five export locations as shown in the following table: 719 The distribution of transport costs for all import/export locations in NSW shows that importers/exporters would have a strong preference for either Port Botany or the Port of Newcastle (if developed with a container terminal). There are very few customers located "in between" the two ports. Rather, the vast bulk of import and export containers (delivered to southern and western Sydney) have materially lower transport costs to Port Botany. A significantly smaller number of shippers delivering to/from Newcastle and northern NSW would have material lower transport costs to the Port of Newcastle. The distribution is shown below: 720 The discrete nature of the cost differential between the ports means that there is only a small group of marginal customers (the "in between" customers) relative to the inframarginal customers (the customers for which each port has a significant cost advantage in serving). This means that the actions (and pricing decisions) of each port would not be affected by competition for the "in between" customers. For example, even a 20% price increase by the Port of Newcastle from (assumed) current levels would be profitable because it would: (a) increase its profits substantially from inframarginal customers (customers that would not switch to Port Botany in response to a $20/TEU price increase as the incremental transport cost differential is, for many, in excess of $200/TEU), and (b) not reduce profits because there are so few of customers "in between" the Port of Newcastle and Port Botany who would switch to Port Botany. 721 This analysis demonstrates that Port Botany and the Port of Newcastle would not compete in the same market and that each would have substantial pricing power in these markets (subject to regulation). 722 Because a container terminal does not exist at the Port of Newcastle, the relevant starting price for the SSNIP must be the prices currently charged by NSW Ports at Port Botany. 723 The difference in non-port logistics costs faced by customers in using each port will define whether the ports are close substitutes. Intuitively, if a substantial number of importers/exporters have similar non-port logistics costs from using each port, the ports are likely to compete in the same market. 724 To apply the SSNIP it is necessary to construct a model of non-port logistics costs which will show how importers/exporters will choose between the two ports based on transport costs assuming that the two ports charge the same for their services (in effect, wharfage fees). Next, a 10% price increase by the Port of Newcastle is imposed to identify the volume of customers that would switch to Port Botany. If the price increase is profitable for the Port of Newcastle, it is concluded that the two ports do not operate in the same market. 725 The model of non-port logistics costs involves: (a) for imports, the first leg is transporting the container from the port to its delivery location (where it is unpacked) and the second leg is transporting the unpacked freight to final customers, and (b) for exports, the first leg is transporting the freight from its point of origin to the location where it is packed into a container and the second leg is transporting the packed container to the port. 726 The non-port logistics costs thus depend on: (a) the geographic distribution of final consumption (production) for the imported (exported) goods being transported, and (b) the geographic structure of the supply chain network, namely the locations of distribution centres or other intermediate facilities where freight is packed into or unpacked from containers. 727 Otherwise conservative assumptions (in favour of a more extensive market) are used in the modelling including: (a) the same TEU cost per container for the first and second legs which is likely to understate the transport costs for imports as the second leg would likely have significantly higher cost per TEU as the unpacked freight would be shipped in multiple trucks, (b) importers will choose to import their goods through the port that minimises the sum of wharfage costs and transportation costs, (c) imported freight delivered to final customers is sourced from intermediate facilities that are located closest to them (that is, a higher degree of efficiency in the flow of freight), (d) exporters will choose to export their goods through the port that minimises the sum of wharfage costs and transportation costs, and (e) the intermediate facilities used to pack freight into export containers are located in the same region as the point of production of the exported goods. Income as opposed to population is also used as it is better at capturing consumption than population alone. 728 At a price increase of 5% to 10% the model shows that there is negligible substitution. This confirms that the two ports are in separate markets. The figure below shows the result of a 20% price increase by the Port of Newcastle with the purple area representing no decrease in container import volumes and the red area representing a decrease in container import volumes of less than 1% of the Port of Newcastle's total volume: 729 The same result (a loss of container volumes of less than 1%) follows from Port Botany increasing its import container prices by 20%. The same analysis shows an even lesser volume loss on export containers for both ports in response to price increases of 20%. 730 The following tables show the results of the analysis for all containers (import and export) handled by the Port of Newcastle and Port Botany assuming price increases by the ports of their charges by 5% to 20%: 731 The following figures show catchment area losses between the ports based on a 20% increase in the price for export containers: 732 The relevant functional market consists of services supplied by port operators, which include wharfage (wharf and berth infrastructure), renting of land for freight handling services and providing services to land transport operators. As to the relevant product market, there is some evidence of substitution from bulk and containerised exports, such as the containerisation of bulk grains. While these are broader than Mr Smith's functional and product definitions of the market the results remain the same on his approaches. 733 Mr Ockerby's modelling indicated that the Port of Newcastle would capture only 9% of the container volumes from its catchment area on the initial operation of its proposed container terminal (identified as 2016). This would increase to 40% in a 50 year period to 2056. 5.4.3.4 Reply to Mr Smith 734 Mr Smith's analysis is flawed. 735 Mr Smith's approach to the market is based on observation and not economic analysis. 736 Mr Smith assumes that because the Port of Newcastle is within NSW (an area currently serviced by Port Botany) the two ports would be close substitutes for importers/exporters. They would not be because of the significant transport cost differences between using each port. 737 Mr Smith has wrongly assumed that transport cost charge differences between using each port would be small relative to port charges. This leads Mr Smith to conclude that the two ports would be close competitors when they are not. A formal analysis of the market shows the two ports exist would exist in separate markets. 738 Mr Smith's analysis of catchment areas is defined by the location of final customers and the source of exports and thus excludes consideration of the logistics supply chain. This chain includes intermediate facilities including distribution centres, warehouses and logistics providers – which receive and unpack containerised freight before it is distributed to final consumers. Mr Smith's approach thus overstates the degree to which the ports are substitutes. 739 There are only two approaches which appropriately link market definition to competition analysis, as follows: i. Define a broader market (possibly NSW or Australia wide markets) and undertake competition analysis that reflects how the differential in non-port logistics costs between the ports affect pricing outcomes; or ii. Define a narrow market around each port having been satisfied the differential in non-port logistics costs are sufficient that the pricing decisions of the ports would be independent and undertake competition analysis separately based on the incentives/regulatory constraints facing the port in each market. 740 Mr Ockerby has undertaken (ii) above. Mr Smith has undertaken neither approach. 741 Mr Smith, however, has compared the incremental cost of transporting a container TEU per kilometre and the total charges for wharfage and stevedoring at a port. This approach is flawed because: (1) presenting incremental costs on a per km basis has the effect of making the transport cost appear small and not important to the choice of port for shippers, when the actual transport costs difference between the ports is not small and is a key factor in the choice of port. The transport cost difference between the Port of Newcastle and Port Botany for key import locations in southern and western Sydney is in the order of $300 per TEU; and (2) combining stevedoring and wharfage charges has the effect of making the port operator charges look large and potentially very important in influencing the choice of port for shipper, when the relevant charge for determining whether the ports are in the same market is the wharfage charge (which is around $100 per TEU) and only a fraction of the total charges. 742 A basic comparison of the transport costs on a per TEU basis with the wharfage charges clearly shows that port operators are not able to create economic incentives for shippers (meaning importers/exporters) to switch ports. A 10% reduction in, say, a $100 wharfage charge at the Port of Newcastle (relative to Port Botany) will not cause a shipper to incur an additional $300 to switch to the Port of Newcastle. Hence, the Port of Newcastle could not contest these geographic areas. If Mr Smith had conducted even the most basic version of a SSNIP he would have reached this conclusion. 743 Mr Smith, however, does use a comparison of costs on a per TEU (not per km) basis in assessing whether Port of Brisbane and Port Melbourne are in the same market, concluding they are not because of the significant transport cost differences. This analysis is inconsistent with his analysis of Port Botany and the Port of Newcastle. Analysis shows that if Mr Smith considered that transport costs per TEU per km relative to total port costs should be the basis of market definition, then an eastern seaboard-wide market would be defined. 744 Mr Smith's analysis is also based on extreme changes in price (50%, 75%, 90%) which is inappropriate as an economic tool. 5.4.3.5 Reply to Dr Pleatsikas 745 Dr Pleatsikas undertakes the hypothetical monopolist test in two ways: a. The first is based on an economic assessment that because wharfage charges only accounts for a small fraction of end-to-end costs of shipping a container, the demand for wharfage services would be inelastic (i.e., an increase in wharfage charges would cause only a very small change in the end product and therefore little quantity response). Therefore, assuming a relatively low demand elasticity in the SSNIP calculation, Dr Pleatsikas finds that a 10% increase in price would be profitable. This result is unremarkable given the assumption. b. The second is based on a thought experiment of an increase in wharfage charges and the likelihood that this would cause switching from PoN to PB given the substantial cost advantages PoN has in serving customers in its catchment area (as asserted by Lycopodium). Dr Pleatsikas observes that this cost advantage would mean that a 10% increase in price would not have any material influence on shipper's choice of port. 746 Mr Ockerby agreed with Dr Pleatsikas that as wharfage charges represent only a small component of the cost of shipping that changes in wharfage charge will have little effect overall for containers, but considered it questionable that this analysis goes to the questions of the geographic boundaries of the market. He preferred Dr Pleatsikas's second application of the hypothetical monopolist test as described in (b) above. 5.4.4 Summary of Mr Balchin's evidence about the market 747 Mr Balchin was instructed to identify the catchment areas of Port Botany and the Port of Newcastle (if developed with a container terminal) and the likely commercial feasibility of a container terminal at the Port of Newcastle. 5.4.4.1 General 748 Spatial economies are commonly subdivided into regions and within each a single seller is in a quasi-monopoly position. A key determinant of the quasi-monopoly position of these economies is transport cost and clustering of customers in geographic space: Hotelling, Harold (March, 1929), "Stability in Competition", (1929) 153(39) Econ. J 55. 5.4.4.2 Ports 749 The economics literature and relevant studies have found that the cost of land transport at the origins and destinations for cargo, rather than "blue water" shipping costs or port costs themselves, has the principal influence on the geographic area for substitution between ports: Productivity Commission, "Port Authority Services and Activities, Report No. 31", 31 May 1993, 64; Essential Services Commission, "Review of Victorian Ports Regulation, Final Report", 33. 750 For Australia, it is apparent that land transport costs are likely to be the most significant differentiator between which port is used. This is because the relative cost of land transport is much more significant than the relative cost of sea transport and port handling costs. That is, blue water sea freight is much cheaper on a tonne/km basis than is land freight. Further: a. typically shipping companies charge a "pan-Australian rate", meaning they charge the same amount for taking a shipping container to any of the Australian east coast ports, b. on a per kilometre basis, the cost of shipping is a fraction of the road transport costs, c. eastern capital cities have located ports near their city centres and major distribution centres, aiming to minimise aggregate logistical costs, d. each time a container is handled it adds additional costs, and e. historically, it has been more cost efficient to ship directly to eastern capital city ports and minimise road transport costs. 751 The demand for services by importers/exporters is based on delivery from the point of origin to the ultimate destination. Customers choose how to transport their goods based on the total costs of transportation rather than port costs alone. The relative materiality of land transport costs at the destination means port charges themselves tend not to be the factor deciding which port is chosen by customers, as the cost of using the services of a port tends to be modest relative to the other dominated by the cost of the other elements of the supply chain. 752 The transport of freight within a container represents only part of the total transport from source to destination. Focusing on imports, containers are typically transported to a distribution centre, where the containers are opened and the goods are then repacked and forwarded to a different destination, which may be the final destination or a step closer (e.g., a warehouse). Recognising this, it is necessary to distinguish between containerised freight (which has a source and destination within the container) and non-containerised transport (the transport of goods before and after the goods are placed in containers). 753 As noted, the area of land transport cost advantage of a port is referred to by Mr Balchin as its hinterland. Containers from a port's hinterland may be handled through a different port because of the occurrence of factors that more than offset the land transport cost advantage of the first port. The area to or from which a port in fact handles containers is referred to by Mr Balchin as the catchment of the port. 754 As the cost of the port service is only a modest component of the total cost of transporting containers, a container port typically will have limited ability to provide inducements to parties engaged in the transportation of containers that would be meaningful in the context of that total cost. Accordingly, there is typically limited ability for a port through its own initiatives to alter the flow of trades. This issue is quite central to defining the geographic scope of the market. 755 The expectation that ports have a captive hinterland within a geographic area, and so are quasi-monopolies, is well established by the economics literature and also international experience with ports. 756 At some distance from a port it is conceivable for there to be zones where substitution between the ports becomes feasible. At those locations where there is overlap in the hinterland areas between ports factors other than transport costs alone will impact on the expected demand for a port. Other factors are also relevant including: (1) decisions about the location of distribution centres; (2) decisions of government, particularly with respect to transport corridors and also the zoning of land for things such as warehouses; (3) the extent that ships will want to stop at the port (shipping lines wish to limit the number of stops and stop where the most cargo is destined to go); (4) the size of ships that arrive are dictated by the smallest port which they are visiting. Therefore, even if a port can handle a very large ship that ship will not be chosen if the other ports to be visited cannot accommodate it; and (5) as a result, the capacity of all three eastern ports (Botany, Brisbane and Melbourne) dictates the ship size visiting the eastern coast. 5.4.4.3 Port Botany and the Port of Newcastle 757 The geographical catchments of Port Botany and the Port of Newcastle are derived by a three step method: (1) derive the geographical areas for which Port Botany and the Port of Newcastle would have a land transport cost advantage with respect to each other, as well as with respect to other ports in the provision of containerised freight, which defines each port's hinterland. For the purpose of simplifying the exercise, it is assumed that the cost and quality aspects of all other elements of the transport and logistics chain (i.e., cost and frequency of sea transport, cost of port operations, etc.) are the same between the two ports; (2) estimate the total containerisable freight that would be produced by, or consumed within, the respective hinterlands of the two ports; and (3) address the question of the extent of the containerisable freight that would be expected to depart or arrive in containerised form via the Port of Newcastle, and the extent to which its hinterland may be served via containers arriving or departing via other ports. This step addresses directly the influence of the other elements of the transport and logistics chain on the destination or origin of the containerised segment of the transport task. 758 To identify areas of land transport cost advantage Mr Balchin: (1) focused on SA3 zones; (2) calculated the distance between the respective ports and the main population centre within each of the SA3 zones, assuming in this regard that the main population centres are likely to be the source or destination of freight; and (3) created a high-level model of freight trucking costs to estimate the cost of transporting containers via truck between the respective points, which includes the cost of capital equipment, fuel, oil and other consumables, labour and tolls. He assumed implicitly that the cost of shipping containers by truck will be the price setter, with the rail price being set at a level sufficiently below road prices to compensate for any of road's service quality advantages and rail's "last mile" costs. 759 Mr Balchin identified that approximately 21.8% of the import freight that had entered Port Botany in containers would ultimately be delivered to the Port of Newcastle, while approximately 32% of the export freight would be sourced from the Port of Newcastle hinterland. He also noted that the population Port Botany's hinterland was increasing more rapidly than that of the Port of Newcastle suggesting the latter's containerisable freight share will decline over time. 760 Mr Balchin also considered that the Port of Newcastle would be likely to capture only a small part of the containerisable freight from within its hinterland immediately because: (1) over 90% of import containers currently landed at Port Botany are transported to the top 10 western Sydney SA3 zones that comprise the major logistics hub of the state where: (a) major distribution centres in western Sydney represents a large sunk investment by both the private and public sectors, which creates a substantial barrier to the movement of these businesses to alternative locations; and (b) the current location of the major distribution centres reflects a rational decision to minimise the total delivered cost of containerised freight, which is unlikely to change should a container terminal at the Port of Newcastle be constructed; (2) at most only a small minority of western Sydney's national distribution centres would choose to relocate or establish new distribution centres in the Port of Newcastle's hinterland, dedicated container lines are likely to be reluctant to provide services to a container port at Port of Newcastle; and (3) the value of port costs that could potentially be controlled by the Port of Newcastle (i.e. port landlord costs and stevedoring) is 16% or less of the overall total logistical cost of supplying a container. As a result, it would not be possible for the Port of Newcastle to cross-subsidise or otherwise influence the movement of national distribution centres into its hinterland. 761 Mr Balchin considered these propositions were consistent with the experience at the Port of Adelaide. Reliable TEU measurements from 1994 show that even after 22 years of container port operation, the Port of Adelaide had captured only just over 20% of the imported containerisable freight associated with its hinterland and just under half of the exported containerisable freight, and even in 2018 (after 47 years of operation) it has only managed to capture 59% of imports (0.09 TEU per person compared to the Australian average of 0.15 per person), although the Port of Adelaide appears now to have captured all of its export potential. The shortage of TEUs landed at the Port of Adelaide is offset by the surplus at the Port of Melbourne, which handles 0.22 TEU of imports per person. In Mr Balchin's view, the low volume of imported containers into the Port of Adelaide has been due to an inability to attract a sufficient number of major distribution centres to Adelaide, with supplies continuing to come primarily from centres located in Melbourne. 762 According to Mr Balchin, the Port of Newcastle is likely to capture a smaller share of its hinterland's containerisable freight at a commensurate point in the project's life than experienced by the Port of Adelaide given that the latter port has a larger local population and is much more distant to the incumbent Port of Melbourne (about 726 km compared to about 174 km), both of which would increase the benefits from the creation of a new major distribution centre in Adelaide relative to Newcastle. 763 Mr Balchin provides two scenarios as follows: a. As a best case scenario, I have assumed that the Port of Newcastle achieves the same outcomes as the Port of Adelaide, commencing with imports that are 12.5 per cent of its hinterland's potential with the capture of additional import share growing at a geometric rate of 3.37 per cent per annum, and exports commencing at 12.5 per cent of the hinterland's potential with the capture of additional export share growing at a geometric rate of 3.04 per cent per annum. b. As a likely case scenario, I multiply (reduce) the above share for imports by a factor (of approximately 0.6) that is derived by examination of the empirical relationship between each of the Australian port's shares of their potential containers, their local population and distance from the nearest large port. 764 Mr Balchin's analysis resulted in the following best case scenario: a. Exports – at best an initial capture of approximately 28 per cent of the hinterland's potential, with full capture of the hinterland's export freight over a period of approximately 42 years. b. Imports – at best an initial capture of approximately 12.5 per cent of the hinterland's import freight, with achievement of 59 per cent of the hinterland's import freight over approximately 42 years. 765 Mr Balchin's analysis resulted in a likely case scenario of the Port of Newcastle capturing initially about 7.5% of the imports from within its catchment area increasing to a maximum of approximately 36% over a 50 year period (to 2067). For exports the capture was estimated to rise from an initial 28% to nearly 100% by the end of the notional 50 year period. 766 Mr Balchin also tested whether any of the SA3 zones in the ports' respective hinterlands can be characterised as contestable due to the actions of a port, by assessing whether the borders for the hinterlands would change with a plausible price change by one of the ports, being a 10% increase in the port price consisting of wharfage and stevedoring charges (giving a price of $355 per TEU). He also tested price increases of 20% and 50%. He then repeated this analysis using Mr Smith's port charges of $386 per TEU but Mr Balchin's travel times. 767 As a result of this analysis of both his and Mr Smith's port prices (wharfage and stevedoring), Mr Balchin identified that there are only two SA3 zones that would switch hinterlands if a 10% change in port prices was assumed. One of these (Wagga Wagga) is a zone that is contestable between Port Botany and the Port of Melbourne and so is irrelevant to this matter. The second of these (Clarence Valley) is a zone that would be contestable between the Port of Newcastle and Port Brisbane, but would account for only a small share of container volumes. No further SA3 zones would switch hinterlands with even a 20% change in port prices. A reason for this sharp division of hinterlands between the Port of Newcastle and Port Botany is the existence of the 50 kilometre "green wedge" around the Hawkesbury River that separates the northern suburbs of Sydney from the Central Coast. 768 In a further report Mr Balchin identified an error he made when applying an assumption he made about diesel costs. He had updated those costs but put the new input in his analysis of costs for urban but not regional areas. 5.4.5 Economists' joint report 769 Mr Smith, Dr Pleatsikas, Mr Ockerby and Mr Balchin prepared a joint report. Insofar as that report is relevant to the identification of the market the following matters additional to their other reports should be noted. 770 Leaving aside Mr Balchin (as this was outside the scope of his instructions), they agreed that: (1) stevedoring likely exists in a separate market from the market within which NSW Ports competes; (2) monopolists improve their products and services to maximise profits; and (3) NSW Ports' ability to exercise its market power is constrained by the threat of formal price regulation. 5.4.6 Economists' oral evidence 771 To the extent the economists' oral evidence did not involve repetition of their written evidence, the following key propositions emerged relevant to the identification of the market. 772 Mr Smith said that: …market definition should be purposive. It shouldn't affect the ultimate competition assessment. So even on the basis of Dr Pleatsikas and Mr Ockerby's assessment that PON may operate in a market we may define as separate, PON's entry would amount to the introduction of a substantial competition. 773 Dr Pleatsikas said: Market definition is the key step in assessing competitive effects. Absent a view as to the boundaries of the relevant market, it's not possible to determine how competition may be affected, assuming there is any effect. A standard test for defining market boundaries is the hypothetical monopolist test, a test that Mr Smith never applies. While it is true that in many cases this test doesn't provide precise information as to market boundaries, it is often sufficiently definitive to provide the requisite guidance for any competitive analysis. Properly applied, the hypothetical monopolist test is straightforward and by definition includes all close substitutes. In other words, all sources of significant competitive constraints within the market. There is agreement that the relevant product market in this case is port services. While there is some disagreement about exactly which port services are included, this disagreement does not really matter for the purpose of assessing competitive effects, at least in this case. There is agreement that the relevant product market does not include stevedoring services or local transportation services. These services are outside product market and therefore not relevant from an economic perspective to the competitive assessment. This is where I think the real weakness in Mr Smith's analysis appears, because he continually includes stevedoring services and/or local transportation services when he'' trying to do – when he's trying to analyse competitive effects. The controversy as to market definition is focused on the extent of the relevant geographic market. In this case the hypothetical monopolist test is definitive in describing the extent of the relevant geographic market. All the requisite information is readily at hand and can be estimated with significant precision. And the end costs because all else equal that's the basis on which shippers choose the port, incremental profit margins and port fees. The relevant elasticity of demand is also required. Economic theory and available data, including the fact that the cost of transporting containers between the two ports is much higher than port fees, indicate that demand for port services is inelastic and probably highly inelastic. However – and I pointed this out in footnote 37 of my report – the results of the hypothetical monopolist test do not depend on whether the demand for port services is elastic or inelastic. In fact, they can be highly elastic and the relevant geographic market would be exactly the same. Proper application of the hypothetical monopolist test indicates that Port Botany and the Port of Newcastle are separate relevant geographic markets, because changes in port fees have almost no impact on demand for service at each port. And this is another place where Mr Smith gets things wrong. He seems to think that the hypothetical monopolist test automatically assumes there is no port – no container port – at the Port of Newcastle; that is absolutely not the case. The hypothetical monopolist test is valid whether there is or is not a port at the Port of Newcastle, and that is because there is virtually no result – no likelihood that the result will change over time. The results remain valid for a wide range of circumstances, because the elements that are used in the hypothetical monopolist test are stable as to whether there is or is not a port – container port at Newcastle. Catchment areas are not a basis for identifying relevant geographic market boundaries because they depend entirely on local transportation cost savings, and local transportation costs are not in the relevant product market. Furthermore, any changes in the catchment areas over time will be a response to changes in transportation costs and do not affect the conclusion as to the relevant geographic market boundaries – relevant geographic market boundaries for port services, which is what we are concerned about here. I have remarks about competition one-way switching, but I will hold off on making those remarks until we get to those topics. 774 Dr Pleatsikas continued: Assuming the Port of Newcastle were to commence container operations, any switches by container shippers between the two ports would be one-way switching and in response mainly to purported large transportation cost savings. These purported transportation cost savings, the local transportation cost savings, are much too large to respond to any manipulation of port fees by the port operators. In other words, there will be no significant competition between the ports on the basis of port fees and other parameters that are within the purview of the port operator in the relevant market. One-way switching does not affect the results of the hypothetical monopolist test. One-way switching does not represent competition between the ports in the sense that competition economists think of competition. The switching, to the extent it occurs, is a reaction to differences in local transportation costs. Because these differences are allegedly several times the level of port fees, changes in port fees would not result in the diversion of many, if any, containers between the ports. At best, there would be a narrow region between the ports where container shippers might have a choice between the ports. However, there is no evidence that this would apply to a significant number of containers in the case of these two ports. Therefore, it would be most unlikely that either port would discount fees to attract very small volumes. Even if they did, this would not amount to significant competition between them. In other words, switching occurring in response to local transportation cost savings, not in response to the price of port fees, including wharfage fees. 775 Mr Balchin said: …my conclusion was … geographic areas where either Port could be said to compete for the custom were very small to non-existent. And, to some extent, that reflects the peculiar geography of Sydney, that there's a large green wedge north of the Greater Sydney Region in which there's very little economic activity. I also concluded that, given the … situation, if Port of Newcastle did build a container terminal, there would be little that could be done to attract, by, by either Port to attract custom. It's also difficult to see that there's much that Port Botany would do, given that threat to its current charges. It is the case that there would be trade that it would lose. But that is what I would class as – actually, I think, Mr Ockerby used a good term. It's, effectively, a "bifurcation of one monopoly – regional monopoly – into two regional monopolies". 776 Mr Ockerby said: …the purpose of market definition is to identify the potential competitive constraints that…[are] going to have a substantial [effect] on outcomes. You know, those potential constraints that are likely to have a substantial [effect] on prices, output, quality for the services that we care about, that we're interested in. And the reason market definition has that purpose because that allows us to then examine, "Well, how does the conduct that we're interested in affect those constraints?" So the market definition is identifying the constraints. … So in this case the, as I see it, the sort of, primary purpose of market definition is to determine whether PON would be a constraint on pricing at Port Botany? So would PON affect their pricing? Or you can use the term "quality adjusted prices", I think, captures, you know, both price, quality, and output effect. So that's the, that's the purpose, in this case, because, ultimately, we want to see whether these provisions reduce PON's likelihood that it will enter. And if it's prevented from entering, would that affect, would that mean that the constraint that it would have otherwise imposed on Port Botany is no longer there? Or if it would enter, in any event, how would the provisions affect the way in which it would constrain Port Botany? So that's the, sort of, framework that I am in. You know, the, I think, the facts of this case are such that, you know, the threat of PON entering or, even, actual entry, well, you know, just simply, would never impose a constraint on Port Botany, on its quality adjusted prices. And the reason for that is that there are, just significant land transport cost differentials for shippers using either of those ports. So in my report at Figure 2.1, that's at paragraph 78, I provide an illustration of what the distribution of customers are and how the land transport costs for those customers differs. And, I think, this, this analysis, I would say is, you know, is consistent with that by Mr Balchin. So what, what that, what that figure shows you is that there are a lot of shippers that are close to Port Botany. And those shippers have between a 2 [$200] and $300 cost disadvantage or cost advantage from using Port Botany over Port – Port Newcastle. There are some customers, some shippers that are located closer to PON. And those, those, face a similar, sort of, 2 [$200] to $300 cost advantage from using PON over Port Botany. And what you can see from that figure is, there's very few shippers in between. And that distribution is important. Because when it comes to thinking about whether PON could …[constrain] Port Botany from increasing prices? The simple answer is, "No." … So if we, if we just use a round number as $100, and then, think about whether Port Botany could raise that by 10 per cent, 20 per cent, you know, something of that order of magnitude, which is a substantial increase. And, you see, that you know, the shippers that are facing cost differentials of 2 [$200] or $300 are never leaving to PON. You know, they're, it would cost them an additional, you know, $300. They would happily absorb 20. They would happily absorb 50 or 100. There is a, you know, there is a small number of customers that might substitute. But they're not going to constrain Port, Port of, well, Port Botany from raising prices. And so, you know, we can formalise that in a hypothetical monopolist test. And, you know, I've done that alongside Dr Pleatsikas. Which is, a hypothetical monopolist test is sort of a, you know, a standard economic tool. But it really asks the question that I've just put to you which is that could PON constrain Port Botany from profitably raising prices? That's the hypothetical monopolist test, and it's easily answered by this, this, this data. So we reach a conclusion that PON and Port Botany operate in separate markets. And by that, we mean that PON won't constrain Port Botany from raising prices. The significance of that conclusion to me is, you know, is this, it's that it means that the pricing of those Ports don't, aren't interdependent. They don't have what economists call, "a strategic interaction". All right. So it's not that, in their decisions. Their pricing decisions are independent from one another. Port Botany's pricing would be independent from whatever PON sets its price at. You know, economists use those terms, "strategic interactions", and "reaction functions", and other, other terminology, particularly in oligopolistic markets. And, you know, I think, lawyers typically use the term "rivalry" and, I think, it encapsulates the, sort of, a broadly, the, the same, the same concept. And it's the absence of that "strategic interaction" which is the, sort of, implication of finding those Ports to be in separate markets. 777 Mr Ockerby continued: So what we end up with is exactly – you know, we end up with these local monopolies with very little overlap. And in this case we have PON entering and, as Mr Balchin said, bifurcating this market, such that we have gone from one monopoly – regulated monopoly – to two regulated monopolies – two monopolies. And so the competitive conditions that are faced by shippers has not really changed. Right? So each of them faced a monopoly before and they're now facing a monopoly afterwards. There's not the choice, which Mr Smith…[alludes] to. He is saying the entry of PON creates choice for these shippers but there is no choice. They would not incur the costs of – the large transport costs of going to Port Botany when Port of Newcastle is right beside them. 778 Mr Smith agreed that he had: (1) ascertained that there is currently a NSW market for Container Port Services because of the distances between Port Botany and Victoria, Queensland and other states; (2) identified that Port Botany is conducting business in that NSW market; and (3) taken that NSW market as the framework for his competition assessment. 779 That is, Mr Smith did not seek to ascertain whether on entry by the Port of Newcastle there would be a bifurcation of that NSW market into two markets. He said he did not do this for two reasons: …firstly, in my reply report I do consider whether or not a SSNIP would always be possible by Port of Newcastle. I think it not. It wouldn't necessarily always be profitably possible. And, secondly, the elements of that analysis are then swept up into my competition assessment. So I don't ignore the fact that transport costs are – price differentials are material, and I do go through the-at least as far as I understand the facts of the likely history of how the Port of Newcastle would develop and those alternatives would change for different sets of shippers at different times. 780 Mr Smith said in both 2013 and 2020 a container terminal at the Port of Newcastle does not exist and that is the market he is assessing in terms of competition. He continued: …there is often an interrelationship between what analyses are undertaken at the market definition stage and what are undertaken at the competitive assessment stage. And I think you often move analyses between those two stages and, as I have said, I think the market definition should not affect the ultimate competition assessment. 781 Mr Smith did not agree that if the market definition is wrong there may be a focus on the wrong source of harm. He said: I don't think that is correct. I mean, I agree there is a necessary purpose in market definition. It is an important exercise to start. I do think that you can conduct the correct competition assessment even if asked to assume a different market, as I have done in this case. 782 Mr Smith agreed that capacity constraints on a new entrant were not usually taken into account in market definition as most new entrants are capacity constrained. He agreed that if capacity constraints were taken into account then it would distort the analysis and potentially lead to a misidentification of a market, which is why traditional market definition ignores capacity constraints. 783 In respect of Mr Smith's hypothesis that a container terminal at the Port of Newcastle might be high priced (with the result that it might not always be able to profitably implement a SSNIP), Mr Smith rejected the proposition that his assumed high price would involve the Cellophane fallacy. He explained: And here I am just wrestling which state of the world are we in, which of the 50 years shall we choose, what set of efficiencies, costs, land and seaside infrastructures shall we choose? And what are these other factors and quality parameters? And I'm just saying that in some of those states of the world I don't think a SSNIP is necessarily profitable. In some of them it would be profitable. 784 Dr Pleatsikas responded: …let me just try to focus, first, on the market definition issue and the market definition test, the hypothetical monopolist test, because I think that Mr Smith misconstrues the test in some fundamentally important ways. First of all, the test assumes – you know, basically we're not talking about sweet and sour or soft drinks here. We are talking about two ports, Port Botany and the Port of Newcastle, and whether they compete with one another. And in conducting a hypothetical monopolist test under those circumstances, what you do is you make an assumption that the – Port Botany raises its price, and you assume that – and this is an important difference from what Mr Smith has said – you assume that there is a port at Newcastle and it can accept any of the containers that are diverted from Port Botany because of the SSNIP. That's an important assumption. Another important assumption is that the SSNIP, which is a significant non-transitory increase in price, is in the neighbourhood of five to 10 per cent, and this is validated across the world in the hypothetical monopolist test. The reason why we don't do a bigger price increase is because bigger price increases tend to find markets that are too broad and markets that are so broad that they don't really – they don't really provide the kind of precision that we need in market definition tests. We look for the foreseeable future, not, you know – I think trying to forecast 50 years out is, you know, frankly a fool's errand. We don't know what things are going to look like in 50 years. But we look for the foreseeable future, and that can be in the next two years, the next five years, the next 10 years. It's confined to a specific product market. In other words, we don't combine prices in different markets. A lot of the work that Mr Smith has done combines stevedoring costs, sometimes other costs, sometimes transportation costs. You know, we're looking at a container port services market or a port services market. So, you know, we're looking at those prices, not the price of other things. And this is important. In non-merger contexts, the SSNIP is imposed on a competitive market price or a price that we can assume is close enough to a competitive market price. Here we have Port Botany, which has its prices constrained by regulation, and I think we can take that as a reasonable proxy. So the important thing is here that you don't – if there's one port, you know, for instance, in several of Mr Smith's scenarios, you know, he's conceiving that the Port of Newcastle is charging a super competitive price; that's the wrong price to use for a SSNIP analysis. And the cellophane fallacy was brought up. And the cellophane fallacy is one of the most fundamental principles in market definition. And it basically says that – and it's based on a basic principle in economics, which is the profit-maximising price for a monopolist is to price up to the point where, in fact, demand is elastic, and so other things that wouldn't normally be substitutes seem to be substitutes. They are not substitutes, not in the way we think about them, because the monopoly price is causing the substitution. It is not because there is a competitive market price. And so any conception that the Port of Newcastle can't impose a SSNIP because it's charging a really high price already is – it really takes us away from the concept of what a SSNIP is. It's inappropriate and, if you read the guidelines, you will see that it's inappropriate. And so, you know, in the end, we – you can determine whether either of these ports could impose – profitably impose – a SSNIP. And, as I said, it doesn't matter whether the demand is elastic or inelastic, although economic theory and principles would indicate that demand is inelastic. And to think about this in more concrete terms, we're talking about a SSNIP that's about $10. And compare that to – and this is based on Mr Smith's transportation costs analysis – compare that to a cost of transporting containers between the ports of about 250 to 500 dollars. It's clear that, you know, people aren't going to switch between the ports for a $10 increase. They just incur much too much of a cost penalty in doing that. And that's why, in the end, you find these separate markets. And the separate markets can't be ignored here; they're a fundamental finding about how competition would work between the ports. And, you know, just as an example, you know, Mr Smith talks, well, but the price is really high already and this – because the Port of Newcastle is inefficient, it can't impose a SSNIP. Well, as I've said, it can't impose a SSNIP because, you know, you are imposing a SSNIP on the wrong price. But, beyond that, if it's able to charge a really high price, because certain – certain shippers in its catchment area can, you know – or, you know, have these massive cost savings to use Newcastle verses Port Botany, it's obvious that Port Botany isn't going to price up to Newcastle's price; there's no constraint. And, in fact, you know, in any sort of real world construct of prices, wharfage fees and transportation costs in the way we can conceive of them over the next – over the foreseeable future, there isn't going to be that switch. There isn't going to be competition on price between the ports and that's because – and we see that by the market definition analysis. The market definition analysis operationalises our concept of how these two ports would compete and, in fact, they wouldn't. … That, I think, gives a flavour to what I – you know, to my disagreements with Mr Smith. They're fundamental. They go to, you know, whether there's one market or two, and there are two markets here. And, you know, given the level of costs, the two markets are not going to become one. You don't have to continually redo the tests because the basic inputs to the tests are not going to change, or not going to change by anywhere near enough to make any difference. So for the foreseeable future, the market definition tests that I've put forward in my report is a valid test and you could do the same test on the Port of Newcastle, and if you use the right price, as I say, the competitive market price, you will get the same results. I think that summarises it. 785 Mr Ockerby made the following points in response: (1) unless the number of marginal customers as between Port Botany and the Port of Newcastle drastically increases, they will each be able to profitably sustain a SSNIP; (2) geographic market definition is not about lines on a map. Port Botany and the Port of Newcastle will overlap in their geographic distribution of customers. The geographic market identifies whether they will compete or not by constraining each other's prices; (3) Mr Smith has fallen into the Cellophane fallacy by raising the Port of Newcastle's prices to the point where a customer will switch – that is not how the SSNIP operates; (4) there is no evidence of this large value of quality which would overcome the massive cost differences. And if the Port of Newcastle is lower quality the correct approach is to lower its starting price for the SSNIP as the right starting price must be a competitive price to avoid the Cellophane fallacy; (5) Mr Smith is effectively speculating that entry by the Port of Newcastle could constrain Port Botany's market power, but that is not possible on an economic analysis; (6) the idea that it is simply sufficient for the Port of Newcastle to take container volumes away from Port Botany as an indicator of competition is not right – overlap of customers does not indicate competition. For example, even in Brisbane there are many areas where the Port of Brisbane does not have a majority share of container volumes. Port Botany holds the major share. This may be because of national distribution centres of customers, but whatever the cause the ports do not constrain each other. For those customers where Port of Brisbane is the lower cost port, Port of Brisbane has a monopoly. Port Botany could not compete given the low wharfage cost compared to the high transport cost differential; (7) when the Port of Newcastle takes market share from Port Botany, Port Botany will be a passive player. It cannot mount a competitive response given the transport cost differential; and (8) Mr Smith is chasing down every possible permutation of what a container terminal at the Port of Newcastle might look like and asking if there is any possible anti-competitive effect but an economist reasons on a probabilistic basis of what is most likely. 786 Mr Balchin responded as follows: One issue I will comment on, though, is a comment – about a comment that was made by Mr Smith around work that the results of both Mr Ockerby and myself, where we suggested the – while there may be an initial – we drew borders where each of the ports had a cost advantage initially and what we thought would be an enduring cost advantage in serving in a transport cost sense. But the containers that were actually attracted into those areas would increase over time with a rigid – both of our results are actually very similar, that we both suggested they would only capture a small portion of containers initially and that would rise over time. Mr Smith suggested that that is, therefore, something where, even though there are very large transport cost differentials, that there is scope for Port of Newcastle to influence the containers over time. And that was, therefore, an example of rivalry that could be – that could occur if the container terminal is purchased – is built at Port of Newcastle. That is just a proposition I would disagree with. In my view, if you focus carefully on the terms and conditions of – on the market in question and the terms and conditions for container terminal services, those charges are of such a small magnitude it is very unlikely that they would influence the proportion of containers that are likely to be attracted into the area. 787 Dr Pleatsikas agreed that as a matter of economic principle it is important to note that a market definition exercise is not an end in itself; rather, it is a tool for analysing competitive issues of interest. He agreed that market definition should be purposive or contextual. He noted that in his experience commercial enterprises tend to use the word "market" in a very different way from how economists use the same word and concept. He also said that "commercial common sense" means many different things to different people. Further, there is a very specific set of economic principles that are brought to bear to determine a relevant market. Ignoring those principles in favour of some vague standard of "commercial common sense" can result in the possibility that you end up with something that is not a relevant market from an economic perspective. He continued: In this case where you have quantitative information which you often do not have in – in market definition cases, that while common sense is useful, it's not something that allows one to define boundaries as precisely as when you have quantitative information that allows you a better – a better way to calibrate it. … I don't think commercial common sense is really very helpful in this particular circumstance, in particular, because I'm not sure there's a commercial common sense standard that allows one to determine when two ports that are separated by a certain amount of distance, and where you have very precise quantitative information, I don't think it's necessary. However, having said that, I will say that given the – the information one utilises in a market definition test – the hypothetical monopolist test – and given the scale of the – of the wharfage fees, and given the scale of the transportation cost differentials or the transportation costs for shipping from one port to the other, that common sense would indicate that the two ports are in different markets. But frankly, I don't think that – I think if that is a sort of confirmatory proposition, I think that the market definition test, the hypothetical monopolist test in this case, can be applied with quantitative information, which is really what you would like to have in a market definition exercise, and that the market definition exercise is definitive in determining that the two ports are in different relevant geographic markets. 788 Dr Pleatsikas agreed that competition occurs on both price and non-price factors (e.g. quality). He said his analysis was done on an "all else equal" between the two ports basis. As the container terminal at the Port of Newcastle did not exist, he considered this a necessary assumption. His SSNIP test assumed that the non-price factors or quality factors are equivalent between the two ports. 789 Dr Pleatsikas explained that: …to be precise in economic terms, Port Botany competes at Port Botany – or Port Botany provides service at Port Botany. And people come to it from various places around New South Wales – are shipped to it from places around New South Wales. But the relevant geographic market is at Port Botany. It's – Port Botany is the site of production. And that's the relevant market right there. 790 However, Dr Pleatsikas explained, if two ports are close enough together that they compete with one another, the relevant geographic market includes both ports. He continued: I think that the way to look at it is Port Botany is the geographic location of port services in New South Wales. And it's the location of supply. Now, if there are several locations of supply that compete with one another, you know, in a lay sense I think you can encompass all of the production locations in one sort of geographic area, if you like. They're in the same geographic market if they compete with one another. But, you know, to think about it as, you know, a market that's equivalent to the area in which people access the port I think just is the wrong way to look at things from a – you know, competition economics standpoint. 791 In response to the proposition that industry participants considered that Port Botany and a container terminal at the Port of Newcastle would compete in the same market, Dr Pleatsikas said: You know, if industry participants disagree with it, I would say I wouldn't necessarily be surprised that some do, but from an economic – based on economic theory and economic principles they are quite distinctly in different markets, different relevant geographic markets, and I think the common sense way to look at it if you want to look at it from a common sense way, is to think about how to operationalise the hypothetical monopolist test. And if you operationalise it the way that it's supposed to be operationalised which is a five to 10 per cent increase in fees, that's $10 – five to 10 dollars. And if it costs somewhere between 250 and 500 dollars to transport containers between the ports, nobody is going to switch or virtually no one will switch their – their choice of port, paying 250 to 500 dollars to – in response to a $10 increase in the wharfage fees. It's just not going to happen. … …as I've said, people in business tend to talk about markets in a way that does not accord with the competition economics concept of what a relevant market is. The word is used very differently in a business context than in competition economics context. So if you are telling me that industry participants say, well, we're competing with this or we're competing with that, I would not be at all surprised; it just doesn't happen to accord with the concept of a relevant market as it's understood by regulatory agencies across the world. … I've worked on untold numbers of competition cases and I have seen many businesspeople talk about markets. Sometimes, although very seldom, their concept of a market is at least somewhat similar to the economic concept of a relevant market. Most times, in fact, the vast majority of times, it is not. They have something else in mind, and I recognise why they – you know, why they do it and why they use that terminology, but it's not the same except in very unusual circumstances to the concept of a relevant economic market. 792 In response to NSW Ports' letter during the bid process about the risk of substitution between the two ports Dr Pleatsikas said: … in my view, the – the bidders for Port Botany would have been legitimately concerned that a container terminal at the Port of Newcastle would at some point in time divert traffic that might otherwise go to Port Botany if there were no container terminal at the Port of Newcastle. But as I've explained in my report, that risk is basically based on one-way substitution because there are – you know, substantial transportation cost savings for some shippers to ship to the Port of Newcastle instead of Port Botany, but that doesn't indicate that there's competition between them or that substitutability in the way that competition economists generally think of substitutability, which can go both ways, is – is an issue. … Port of Newcastle is not in the same relevant geographic market as Port Botany, as far as container terminal services go. Therefore, I would say that they do not compete, because two entities in different markets are not viewed as competitors in competition economics. 793 Dr Pleatsikas disagreed with the proposition that he was treating market definition as an end in itself. He reiterated that: …in my experience, industry participants use the word "competition", use the word "substitution" in a very different way, and in my report, as an expert economist, I am charged with using economic theory, economic principles, and economic techniques to analyse the market and competition issues at hand. And so I have to use those tools, and when I use those tools, I come to very different conclusions than what these statements seem to imply. 794 He said that the letter from NSW Ports referred to above was not correct as a matter of economics, but completely consistent with what he saw business people saying all the time. He said he had seen the evidence of industry participants, but the hypothetical monopolist test was definitive that the ports would be in different markets. 795 This evidence was also given: MR BORSKY: Would it be relevant to your conclusions, Dr Pleatsikas, that the CEO of NSW Ports says that if a container terminal were developed at the Port of Newcastle, her commercial and business development team would implement plans to maintain Botany's competitiveness versus Newcastle? DR PLEATSIKAS: I would expect that regardless of whether there's a port at Newcastle or a – or not, that the – that the Port Botany operator would implement plans to make it as attractive as possible in order to maximise the – the traffic that goes through it. … …it's an interesting fact, but it doesn't change the fact that they're not really competing in the sense that competition economists consider the two ports – or competition economists consider the concept of competition. You know, I certainly would be surprised if there were – you know, if they weren't concerned about a port being developed at Newcastle because it will divert traffic. There is no question it will divert some traffic from Port Botany. But it's not a situation where competition in the way economists think about competition and competition law, as far as I understand it – and I am only a lay person and cannot really understand it fully, but as far as I can understand how competition economics interfaces with competition law, it's just a different concept. 796 To the same effect, this exchange occurred: MR BORSKY: Are you aware that a current director of NSW Ports says that the risk of competition from Newcastle in relation to containers is one of the strategic risks that NSW Ports, including its board, are focused upon? DR PLEATSIKAS: I'm not specifically aware of it, but I would be surprised if they didn't have a view on – on that, because, as I say, there's no question that a container port at Newcastle will end up diverting some traffic because of the transportation cost savings over which they really have very little control. They have no control, essentially. And those transportation cost savings are likely to be of such a scale that there's really very little that the – you know, in terms of varying prices – that the – Port Botany can do about it – which is why it's not really competition – between ports. 797 Dr Pleatsikas said that the perception of PON that it would be competing with Port Botany was also incorrect as a matter of economics, but an understandable business reaction to the realities and he would expect business people to make such statements. 798 Dr Pleatsikas agreed that he applied the SSNIP to a hypothesised container terminal at the Port of Newcastle. He disagreed that he should be applying the SSNIP to the circumstances in 2013 where there was no container terminal at the Port of Newcastle. He continued: … a hypothetical monopolist test where PON doesn't exist is a – is just a test that would possibly measure diversion to Melbourne or Brisbane. But I don't really see that that's terribly useful for the purpose of trying to determine whether and which – and it's one of the things we're trying to determine here. If we're trying to be purposive, we're trying to determine whether and to what extent Newcastle and Botany compete or would compete. 799 Dr Pleatsikas said that rather than saying that Port Botany operated in the market for container services in NSW, it would be precise to say there is a market for port services at Port Botany drawing containers from NSW which has no competitors. While he agreed in a general sense that if a container terminal existed at the Port of Newcastle and that customers would choose between the ports based on their perceptions of price and non-price considerations, he did not accept that this would involve competition. He explained: I would say that, basically, what's going to happen is someone will switch from Botany to Newcastle. And the likelihood they will switch back is very low. So that in essence there really isn't much, you know, switching back and forth; it's going to be switching one way. In all of the – and I mean all of the analyses that have been done, particularly those by the Port of Newcastle, are based on that view. 800 If a container terminal existed at the Port of Newcastle, Dr Pleatsikas said that: The geographic market for port services would be a port services market at Newcastle. The geographic market for transportation services for accessing the Port of Newcastle would be some area, but that's not the market we're talking about. Put it this way. That's not the market of relevance to this particular proceeding, as I understand it. 801 According to Dr Pleatsikas, the production locations would be Port Botany and the Port of Newcastle which would each draw container volumes from a wide geographic area and the relevant economic quanta determine that Port Botany and Port of Newcastle are in different relevant geographic markets. 802 Dr Pleatsikas also said that some rivalry at the boundaries of the areas the ports draw from does not mean that the services of each port are close substitutes. Ports might express their conduct in terms of rivalry having regard to these boundary areas but that does not make their services close substitutes. Characterising them as competitors in the one market as a result is a non-economic way of analysing the issue. 803 This exchange occurred: MR BORSKY: Well, I suggest to you, Dr Pleatsikas, that there's a far simpler framework to apply here that better accords with the commercial realities. And that is a New South Wales-wide market for container port services. DR PLEATSIKAS: I would disagree with that completely. I don't think that's based on a sound economic view. MR BORSKY: It's based on the reality that Port Botany is currently the predominant container port in New South Wales. Would you agree with that? DR PLEATSIKAS: Well right now it's, as I understand it, really, the only container port in New South Wales, …[excepting] some minor processing of containers at some other ports. 804 Dr Pleatsikas rejected the proposition that his SSNIP test depended on the demand for container port services being inelastic. He said he had explained that the same results occurred even if demand were assumed to be elastic, but the application of economic principles suggested that demand was highly inelastic. He continued: …let's take highly elastic demand of like four. That's highly elastic. The maths would work – if you take the number of containers that I have here as diverted, 6600, they would be eight times higher. So they would be, I think, 52,800 would be the number of containers that would be diverted. And if you do the math, you would find out that it's still extremely profitable to impose the SSNIP. 805 Dr Pleatsikas agreed that the closer the ports are the more elastic the demand between them will be. 806 Mr Ockerby agreed that if there is a container terminal at the Port of Newcastle and prices were to be moved by a small amount from current prices then a very small number of customers would switch ports. That very small number of customers would consider the container port services of the two ports to be substitutes. He agreed that on his analysis there are too few of those customers to create an incentive for the ports to compete on price. He agreed that he assumed that the ports would charge the same prices to all importers/exporters. He considered differential pricing unlikely given the marginal costs involved and lack of incentives for the ports to do so. He did not accept that the ports would price unprofitably. He explained that his analysis showed that: …there is substantial ability to raise prices to customers that are in close proximity, and then lesser ability to raise prices to customers that are further away. And so the ability for PON to constrain Port Botany's prices, though, is limited across the board in Port Botany's catchment. So any price increase, whether it's across the board, or differentiated as you are describing, would not be constrained by the Port of Newcastle. 807 Mr Ockerby said that the position with respect to XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX to use Port Botany XXXX XXXX XXXX XXXX XXXX XXXX was not comparable to the areas between Port Botany and the Port of Newcastle. He explained: I'm not aware of any evidence that such a regime is possible on the sort of wholesale basis that we would need in order to – for example, in the contestable areas we are talking about, you know which I think is Wyong and Gosford, I think are the areas, there's a very small number of shippers. And they're not of a – and there's a reasonable number of them, I think. And so the cost of administering such a regime would be unlikely to offset the benefit of doing so. 808 Mr Ockerby noted that despite the large incentive for NSW Ports to engage in price discrimination if it could (higher prices for those customers closer to it), it did not do so XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. This indicated an inability to profitably price discriminate – in his view the distances are too large to make marginal customers profitable and to cover the administrative costs of doing so. 809 Mr Ockerby accepted that his conclusions conflicted with the answer NSW Ports gave to the ACCC in response to the s 155 notice as he did not consider any of the 16 identified local government areas to be contestable. He said that he recognised that the answer contained no definition of contestable areas and in any event he gave weight to his own empirical analysis. He agreed that if he applied his approach to the area of XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX as contestable because he assumed no price discrimination between customers in his analysis. He said in any event there was such a small number of customers in a potentially equivalent position as between Port Botany and the Port of Newcastle that it could not be concluded the ports would constrain each other's prices. He also said, considering the cost differential between the two ports, it was questionable whether it would be profitable for them to discount their charges by an amount sufficient to contest any areas. He explained that profitability depended on the marginal costs of serving the customers in the area, the number of customers in those areas, and the volume of containers they generated, as well as the administrative costs of implementing price differentiation (because NSW Ports would need to be able to trace containers to administer the arrangement), noting that he had not analysed those administrative costs. He continued: …let's have a conservative estimate, say, of $150 of marginal cost associated with serving customers, then if a customer – there is a $300 cost differential between that customer and the Port of Newcastle, they would need to discount substantially in order to have that – attract that customer. They wouldn't be willing to price below their marginal cost. And so the question is, is there a gap between the marginal cost and the price that they charge in order to attract that customer. 810 Mr Ockerby noted that the marginal cost of $150 was the ACCC's number based on stevedoring charges. He explained that this was because Mr Smith's analysis was based on a discount of wharfage and stevedoring charges of 50% and 70%. He considered that magnitude of price discrimination was not feasible. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX and that it must have been profitable for NSW Ports for it to do so. He agreed that he had not conducted a full analysis (in the sense of a detailed plan capable of implementation by NSW Ports) of the profitability or unprofitability of Port Botany price discriminating in a range of circumstances. Nevertheless, based on what he had considered, his view was that price discrimination by NSW Ports was unlikely to be feasible. 811 Mr Ockerby rejected the proposition that the red area on his figure 7-10 (reproduced above) represented an area of competition between the ports. His analysis showed that the ports could not profitably compete in this regard as with a price increase of 5% to 10% there would be no red area on figure 7-10. He explained: The purpose of the 20 per cent is to demonstrate the size of price change you would need to effect in order to have substitution occur. It is not trying to – I'm doing this analysis to demonstrate that a price increase is not profitable. You are trying to interpret it, I fear, as an example of likely substitution, and that's not the analysis at all. 812 Mr Ockerby did not accept that he had ignored competition on non-price grounds. He had assumed that there is no relevant distinction on quality or on non-price grounds upon which consumers of the Container Port Services might make switching decisions. He observed: If Port of Newcastle was offering a lower quality service, they would have to offer a lower price. The analysis is based on a quality adjusted price. If the quality goes down, then the price has to go down. … …if you did take into account quality – If you did add quality to the analysis and said, you know, …[that] the service offered by Port of Newcastle was lower quality, you couldn't assume they would be charging the same price as Port Botany for the higher quality service. The starting price for your SSNIP analysis would change. 813 Mr Ockerby agreed that his estimate that the Port of Newcastle (if developed with a container terminal) would capture 9% of import containers from its catchment area initially, increasing to about 40% over 40 years reflected the variable of population growth in its catchment area over that period. Other factors in his modelling remained constant (e.g. distance to the nearest largest port and the relationship between freight share and population across every postcode in Australia). He explained: The model is based on Port of Newcastle's catchment population and the relationship between population and the coefficient in the regression. And so the prediction is based purely on PONs growth in its population over that – in the future. It doesn't – the sort of logic of the model is that – that there are potential economies of scale in having distribution centres. And they are based on population growth. So population growth allows – with a sufficient size, that's the sort of – one of the underlying reasons for including population of the catchment in the model, is that once a population within a catchment reaches – as it grows, it becomes more sustainable for there to be distribution centres that serve solely that catchment. Distribution centres have a fixed cost attached to them, so some might base themselves in Sydney and serve all of New South Wales or, indeed, all of New South Wales and Queensland conceivably. But when PONs catchment reaches a particular size there might be a sustainable business case for a distribution centre that I'm proxying via the population growth for that. 814 Mr Ockerby said that his model implicitly took into account the quality of service offered by both ports, explaining that: …the model is based on postcode data for every postcode to which a shipper receives and – so we're talking about looking at the relationship across Australia or the eastern sea board, largely. And that will include postcodes between, say, Adelaide and Melbourne and between Brisbane and Sydney. And so to the extent that there are differences in those ports' quality that's driving a relationship between the share and the distance to the larger port, then it is captured. It's embedded in there. It's not explicit as a factor. But to the extent that, say, Adelaide has a less frequent shipping service than Melbourne, and the distance measure for postcodes between those two is capturing that to some extent, then it will capture that relationship. 815 Mr Ockerby accepted that this implicit capture of data did not allow for changes in quality of service at the two ports over time. He accepted that if the quality of service offered by the Port of Newcastle deteriorated over the period of his analysis as compared to the quality of service offered by Port Botany, then the growth in the Port of Newcastle's share of import volumes from within its catchment area probably would be lower than that which he had modelled. 816 Mr Balchin agreed that his modelling was driven by three principal variables based on the operations of the Port of Adelaide – population growth, shipping connectivity and time. He agreed that in his view population alone did not capture the likely growth in the Port of Newcastle's capture of the share of freight from its hinterland. He agreed that the growth in the Port of Newcastle's share would also be related to the establishment and location of distribution centres in its hinterland. In terms of shipping connectivity, he said a classic network externality was involved, in that the more customers who use the port, the more shipping lines would service the port. He then said: None of that assumes the port does anything but just sit there and hope people turn up, which is my quibble. 817 Mr Balchin agreed that the Port of Adelaide (the base for his model) had done what it could to attract customers, shippers and distribution centres. As a result, implicit in his model is the assumption that the Port of Newcastle would also do what it could to attract customers, shippers and distribution centres. He continued: My view and my evidence, and I haven't changed my opinion, is that its capacity to do so is extremely limited, given the wharfage charges are only a very small part of the total logistics chain cost. So, yes, if Port of Newcastle in its efforts were more successful, it might attract a larger share. I really don't believe we're talking about – given my view is there's very little they can do besides letting people know that they exist, making sure that there's – you know, informing people about the opportunities to … distribution centres around Newcastle – they're really – there's not much more that they can do, rather than to hope people turn up. So the more – so the more complete answer would be that if it turns out that more shipping lines decide to provide services to Port of Newcastle and more distribution centres decide to locate in its hinterland, that will imply a greater share of its sort of native traffic than I've assumed here – than I've assumed in these calculations. 818 Mr Balchin was unaware of Mr van Duijn's evidence that shipping lines were highly price sensitive and might switch ports for a price difference of about a dollar a lift. Mr Balchin found this extremely surprising given the size of a dollar as a proportion of the total logistics chain cost. 819 Mr Balchin agreed that a port can make sure that there is land close to the port on which distribution centres could locate, but said he did not accept that there was a lot a port could do to make a distribution centre decide to locate there. He agreed that a port can capture container volumes from another port's hinterland. He said, however, that the issue is whether ports compete for those volumes, which is different from capturing those volumes. 820 Mr Balchin considered price discrimination by the Port of Newcastle and Port Botany to be unlikely for a variety of reasons. He said: … I find that there are very few areas where even a reduction in wharfage charges of 100 per cent would lead to traffic being diverted to the neighbouring port, even assuming that the cost and quality aspects are the same. So if the – if the quality aspects of the Port of Newcastle were lower than Port Botany, if the value of the product, because it has lower shipping connectivity, then that would reinforce that conclusion. 821 Mr Smith in response said: (1) he did not consider the Cellophane fallacy applied in this case. This is not a case where the Port of Newcastle would have market power as it would be a relatively small and new entrant; (2) the other economists had taken a static approach when there is significant uncertainty about the variety of conditions that might affect the two ports. For example, the shipping lines which are going to consider these ports as alternatives will shift over time, as will the level of quality of service offered by the ports; (3) the ports will have the ability and incentive to engage in price discrimination; (4) wharfage charges are not the only thing a port can change within the scope of Container Port Services – for example, a port is unlikely to do nothing in response to the quality or cost of stevedoring services at the port which affects the choice of shipping lines to call at the port or not; and (5) the fact that a port does not directly control a factor does not mean it does not compete with respect to that factor – both Ms Calfas and the PON witnesses say that the ports would react to each other and that is sufficient to establish the existence of competition in the same market. 822 Mr Ockerby in reply said: PON, in my view, will operate in a separate market as a monopolist, and as a monopolist operating in that market we expect it to undertake the type of commercial activity that we see other monopoly ports operating doing in Australia today. We see Botany, Melbourne investing in landside facilities, including their quality of service. They're the typical actions of a monopolist. It is important not to conflate those with competing with Port Botany. The fact that they will do and undertake marketing plans and invest to improve services and talk to shippers are the actions of a monopolist and all ports do that today. 823 Dr Pleatsikas in reply said: First, you know, as I've said, we're dealing with a port services market, however you want to define it, and I think it's important to recognise that Mr Smith, through everything, never performs an accepted test that one uses to define markets. And even in his comments, he kept throwing in references to stevedoring and things, and transportation that are outside the market. The second thing I think to say is, you know, from an economic perspective in assessing the potential for interactions between the two ports, one evaluates not on the basis no shipper would be or could be incentivised by pricing policies. Rather, one is motivated by defining competition interactions, there's more than a de minimis … we're dealing here with millions of containers. … … Since we are dealing with millions of containers here, you know, when we're talking about, you know, some shippers may be more or less equidistant from the ports in terms of transport costs, you know, we're talking about a few thousand containers or even a few tens of thousands of containers, we're really talking about, you know, one per cent or less in many cases of the containers that are subject to, you know, some sort of pricing incentives. You know, XXXX has been brought up. XXXX is a special case. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX … there has been no information whatsoever if there's any kind of customer or set of customers that exist in the area between Port Botany and Port of Newcastle that could elicit this kind of pricing response and would constitute a substantial number of containers. 824 Mr Balchin said it was necessary to keep "a laser-like focus" on the things a container port services provider can influence and the economic plausibility of the effect of any such influence, which was very limited. 5.4.7 Consideration 825 The hypothesis of a one off switch from Port Botany to the Port of Newcastle is problematic both conceptually and on the evidence. Equally problematic are two other related hypotheses: (a) the Port of Newcastle will have a static notional captive catchment area, and (b) there will be no or only a trivial contestable catchment area as between the two ports. As the evidence discloses, these hypotheses assume the existence of a container terminal at the Port of Newcastle which is functionally equivalent to Port Botany. They also assume that this functional equivalence exists on entry by the Port of Newcastle into the market for Container Port Services in NSW and continues thereafter in an ongoing steady state. 826 The reality is different. A container terminal at the Port of Newcastle will not spring up on the basis of functional equivalence with Port Botany. The capacity of a container terminal at the Port of Newcastle will change over time. The port functionality factors of a container terminal at the Port of Newcastle will change over time. The notional captive catchment area of the Port of Newcastle (that is, the area of the port's relative land transport cost advantage compared to Port Botany, which is only notionally captive as use of a port will also depend on other factors such as customer distribution requirements, location of distribution centres, and shipping connectivity of the port) will thereby change over time. 827 While the notional captive catchment area of the Port of Newcastle has a natural maximum extent based on relative land transport cost advantage, that relative area of advantage can change over time depending on other infrastructure such as rail connections. Relevantly, for every increase in the size of the notional captive catchment area of the Port of Newcastle, there will be a corresponding decrease in the notional captive catchment area of Port Botany. To restate the obvious, nearly every customer that the Port of Newcastle captures will be an existing or potential customer which Port Botany has lost. 828 I accept that the concept of substitutability within s 4E of the CCA necessarily involves the potential for two way substitution. Each service must be potentially substitutable for the other (even if, by contractual arrangements or otherwise, they are not presently substitutable). In Air New Zealand at [27] Kiefel CJ, Bell and Keane JJ said: The market spoken of in s 4E is a market in Australia. Section 4E treats substitutability as the principal driver of the rivalrous behaviour accommodated by a market. The act of switching or substitution marks the conclusion of that rivalry: one of the rivals has prevailed. 829 I do not consider that, by this statement, their Honours meant that competition may exist irrespective of the potential for two way substitution. When they said that a switch marks the conclusion of the rivalry, they were not suggesting that the potential for two way substitution had ceased in perpetuity. They were identifying that switching is an outcome of a competitive process. 830 Inherent within this potentiality for two way substitution is the capacity of one entity (in this case, Port Botany) to prevent or hinder a customer from making any initial switch to another port (in this case, the Port of Newcastle). The very existence of that capacity, to prevent or hinder an initial switch, is evidence of the potential for two way substitution. Re-conceptualise this case as one under s 46 of the CCA (conduct by a corporation in a market in which that corporation has substantial market power having the purpose or effect of substantially lessening competition). NSW Ports, through Port Botany, has market power in the existing market for Container Port Services in NSW. Assume the Port of Newcastle starts operating as a container terminal port. It will not be functionally equivalent to Port Botany. It will have to try to entice customers and ships away from Port Botany and to it. Then ask, what is the market in which NSW Ports could exercise market power? What is the market in which the Port of Newcastle would be engaging in efforts to entice customers and ships away from Port Botany? I consider the answer to be clear – it would be the existing market for Container Port Services in NSW. A functionally equivalent container terminal may ultimately transform that market into another kind of market or markets, but the process of transformation is in and of the existing market for Container Port Services in NSW. 831 Conceiving of the relevant market in this way (the existing market for Container Port Services in NSW) does not, of course, answer the question whether the purpose or likely effect of the State or NSW Ports making or giving effect to the impugned provisions involves a substantial lessening of competition in that market. It may be that there is no credible threat of entry into the market. It may be that the market is largely a natural monopoly. A natural monopoly was described in Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; (2000) ATPR 41-752 (Stirling Harbour FC) at [50] as a "method of production in which it is cheaper for one producer to produce the total industry output than would be the case with any other means of production". It may be that, accordingly, there is no real potential for competition between an incumbent and a new entrant in such a natural monopoly market. There may be other reasons why it must be found that the purpose and likely effect of the impugned provisions is not the substantial lessening of competition in the market for Container Port Services in NSW. However, unless that is identified as the relevant market, there is no capacity to analyse that issue in the relevant context. 832 The evidence of Dr Pleatsikas, Mr Ockerby and Mr Balchin about market definition does not recognise that any effect of a container terminal at the Port of Newcastle will be on and in the existing market of Port Botany for Container Port Services in NSW. The evidence is clear. It is not as if a container terminal at the Port of Newcastle will have a captive catchment area the moment it commences operations. Even when a container terminal at the Port of Newcastle is functional to some or even to a large extent, on the evidence, Port Botany will still dominate volumes for import containers from the Port of Newcastle's supposedly captive catchment area and will still obtain substantial numbers of export containers from that area. Further, the view of these economists that both ports will be passive players throughout the entirety of this process, unable to materially influence the choice of customers or shipping lines on price or non-price factors concerning the provision of Container Port Services, is inconsistent with the evidence of the industry participants about ports. 833 As I have said, the evidence of Dr Pleatsikas, Mr Ockerby and Mr Balchin about market definition assumes the existence of a container terminal at the Port of Newcastle functionally equivalent to Port Botany. It assumes that this circumstance continues to exist in a steady state rather than in flux. It assumes that Port Botany does not consider its prices closely constrained by the loss/gain of marginal volumes of containers when the evidence is that it does. It assumes that ports do not have a material influence over any of the port functionality factors, but the evidence is to the contrary. As a result, their analysis necessarily results in a hypothesised one off switch of customers from Port Botany to the Port of Newcastle. On the assumptions made, no other conclusion is open. But the evidence indicates greater scope for dynamic rivalry between the two ports than these economists' evidence contemplates on the cost of wharfage, the quality of Container Port Services, and in materially influencing the port functionality factors as part of the provision of Container Port Services. 834 I accept that it is necessary to distinguish between the conduct of a rational monopolist and an entity engaging in competition. A rational monopolist will act to protect its monopoly and to maximise use of its services. A threat of entry by another entity into an existing monopoly market may or may not enhance competition. But if the task is to analyse the purpose and likely effect of impugned conduct on competition, then I consider that the relevant market has to be identified as the existing monopoly market. It may be that the existing market, as in Stirling Harbour FC, is a natural monopoly and thus only weakly contestable so that there is no substantial effect on competition as a result of a potential new entrant. But to adopt a market definition which effectively prevents any meaningful analysis of that issue is not conceptually valid. 835 For example, the evidence indicates material scope for Port Botany to exercise its power in the market for Container Port Services in NSW to ensure that a container terminal at the Port of Newcastle does not become functionally equivalent to Port Botany. In so doing, Port Botany will retain and attract customers who would otherwise have used the Port of Newcastle. On the evidence, Port Botany has an incentive and the capacity to do this do this by encouraging shipping lines not to call at the Port of Newcastle for Container Port Services by itself offering better Container Port Services, negotiable wharfage charges, and/or improved port functionality factors. That is, there is the potential for two way substitution by reason of this fact alone in that Port Botany has capacity to prevent or hinder any initial switch by customers from it to a container terminal at the Port of Newcastle. 836 Further, if any customer does switch from Port Botany to the Port of Newcastle, there is a real prospect of Port Botany being able to entice a switch back. It can do this because it can encourage shipping lines that do call at the Port of Newcastle to instead call at Port Botany by Port Botany offering better Container Port Services, negotiable wharfage charges, and/or improved port functionality factors. As Mr King said, there is a lot of qualitative evidence that ports use commercial arrangements (I infer, in the provision of Container Port Services) to attract shipping lines to the port. This supports the evidence of Ms Calfas and the PON witnesses that attracting ships to call at a port by the provision of Container Port Services in particular ways and on particular bases is a key element of competition between ports. There is also evidence of competition between the Port of Tauranga and the Port of Auckland in respect of attracting ships and shipping lines by negotiating wharfage fees. While Port Botany currently has no need to use the means available to it as ships generally call at all three eastern coast ports, if there is a sufficiently functional container terminal at the Port of Newcastle, I consider it unrealistic to assume that Port Botany (if it needed to) would not use every available option, price and non-price, to persuade shipping lines that their ships should call at it and not at the Port of Newcastle. 837 I consider that the very fact that there is no dispute that a ship will not call at both Port Botany and the Port of Newcastle if the latter has a sufficiently functional container terminal indicates that it is necessary to evaluate any competitive effects of the impugned provisions on the basis that the two ports will operate in the same market for Container Port Services. On the evidence, from the perspective of a shipping line, it currently needs to ensure that a ship calls at the Port of Melbourne, Port Botany and the Port of Brisbane. None of these ports are substitutable for one another from the perspective of a shipping line. But if there is a sufficiently functional container terminal at the Port of Newcastle, a ship will still call at the Port of Melbourne and the Port of Brisbane, but will only call at either Port Botany or the Port of Newcastle. From the perspective of a shipping line's route planning for any given ship, the two ports will be potentially substitutable. 838 The identification of a small marginal area containing a small number of marginal customers as between Port Botany and the Port of Newcastle is also founded on the same assumption of equivalent functionality as between Port Botany and the Port of Newcastle in terms of their container terminals. But unless and until equivalent functionality is achieved, it must be the case that there will be a larger number of customers who might switch to the Port of Newcastle but whom Port Botany can entice to remain using Port Botany. Again, the idea that Port Botany will be passive in the face of a potentially substantial number of its customers switching from it to the Port of Newcastle is untenable. It must again be inferred that, if it needed to, Port Botany would use every available option, price and non-price, to persuade customers to continue to use it and not the Port of Newcastle. 839 PON, in particular, submitted that the concept of a one way switch was misconceived. 840 PON submitted that: The interrelationship between container volumes and shipping services is apt to fluctuate over time, making PON more or less likely to attract shipping services as container throughput rises and falls; and more or less likely to attract container volumes as shipping services calling at the port increase or decrease. The "one-time switch" theory belies this reality. It leaves no room for changes in relative "connectivity". It presumes that port users will make a choice between Port Botany and PON once – all at about the same time and entirely due to relative costs – and will never reconsider that choice. 841 I agree. I also consider that, as discussed, ports can and do materially influence the choice of port by shipping lines. On this basis alone, if there is a sufficiently functional container terminal at the Port of Newcastle, there would be the potential for two way switching between the ports even from within their notional captive catchment areas. In short, if the shipping service the customer requires is not available at one port, the customer will necessarily substitute the one port for the other. Assuming a sufficiently functional container terminal at the Port of Newcastle, this would remain a dynamic process. 842 PON submitted that the hypothesis of a onetime switch is not an established legal or economic concept. I was not referred to any relevant authority about one way switching. The important proposition for present purposes is that ceteris paribus is an assumption. One of its purposes is to simplify economic analysis. But it does not reflect reality. In the case of a new entrant into an existing largely monopolistic market where there are substantial barriers to entry, the assumption is far distant from reality. A simplifying assumption can result in a form of analysis which is not well adapted to the task at hand. In my view, this is what has occurred in the present case. 843 In another kind of market, where there are no barriers to entry and entry is immediately functional, the assumption of all other things being equal may be apt. In Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 1381; (2000) ATPR 41-783 (Stirling Harbour FCAFC) this was described as a perfectly contestable market: see at [16], [18], [59], and [60]. 844 If one thing is clear from the evidence it is that the market for Container Port Services in NSW is not a perfectly contestable market. To the contrary, it may be (to a large extent) a natural monopoly (and capable of regulation as such under PT IIIA of the CCA). As Mr Ockerby explained: (1) "a natural monopoly exists where there are large fixed and sunk costs and low marginal costs such that it is lower cost for one firm to serve the market than for more than one firm to serve the market"; (2) "port operators are in possession of substantial market power, due to high barriers to entry, including increasing returns to scale relative to the size of the market. In other words, they are natural monopolies"; (3) "ports are natural monopolies that generate positive externalities to the rest of the economy when developed"; (4) in order to achieve the substantial economies available in organising imports and exports through a single port (including the large sunk costs of developing a container terminal, co-ordinating shipping lines, lowering transport costs by using ports in close proximity to an urban centre, agglomerated logistics supply chains, and promoting competition between stevedores) "other market participants must sink their own investments in locating their facilities, including distribution networks in and around" the port, in this case, Port Botany; (5) Port Botany currently has a monopoly over Container Port Services for large parts of NSW and is subject to the threat of price regulation which suggest the existence of a natural monopoly; (6) Port Botany's existing monopoly is reinforced by the sunk asset-specific investments that others have made in assets that are specific to using its services. Without the threat of regulation Port Botany could expropriate those sunk asset-specific investments in the form of higher prices for wharfage; and (7) examples of such sunk asset-specific investments for Port Botany include: • investment of $30 million by Pacific National into rail mounted gantry cranes at the Chullora Sydney Freight Terminal; • investment in the Rooty Hill Regional Development Centre for handling construction materials by rail by Holcim; • an investment of $60 million by GrainCorp to upgrade 13 key country sites to boost its rail efficiency; • an investment of $14 million by a joint venture announced by GrainCorp and MCS Grain storage to develop a container packing facility at Cooks River; • an investment of $160 million by Toll Group in a major retail and e-commerce fulfilment centre at Prestons in South Western Sydney; • 1.5 billion investment by Qube committed to develop a new intermodal freight terminal at Moorebank; • VISA Global Logistics investment in development and operation of container handling facilities at Erskine Park; • Enfield Intermodal Terminal investment by ACFS Port Logistics and LINX in the provision of container services; and • investment by various rail operators in up to 100 new locomotives introduced on the NSW rail network valued at approximately $5 million each. 845 Mr Ockerby's point was that a new entry into a natural monopoly may be privately profitable for the new entrant, but harmful to economic efficiency as it results in a wasteful duplication of costs. His ultimate conclusion about the likely effect of the impugned provisions is that they are pro-competitive and not anti-competitive because: (a) the overall impact of the compensation provisions is to lower wharfage charges relative to costs, and (b) the overall impact of the reimbursement provisions is to lower overall logistics costs relative to costs. This analysis is discussed below in the context of the likely effects of the making and giving effect to the impugned provisions. For present purposes what is relevant is that the context which enables this analysis starts from the position that the relevant market is Port Botany's existing monopoly market over large parts of NSW. As such, this aspect of Mr Ockerby's analysis lends support to my conclusion that the relevant market for any competitive effects assessment in this case is the existing market for Container Port Services in NSW. 846 The evidence relating to Tomago Aluminium is also helpful. Mr van Duijn and Ms Calfas confirmed that if all other things are equal an importer/exporter such as Tomago Aluminium will ship containers through the port which gives the lowest transport cost and the necessary shipping line connectivity. PON submitted that this evidence discloses that Port Botany will remain competitive for containers from Newcastle if it has a shipping connectivity advantage over the Port of Newcastle. For the purposes of market definition, as noted, the fact that the two ports would be potentially substitutable by shipping lines indicates that any analysis of competitive effects must start from the position that the two ports would be operating in the same market. 847 The example of the Port of Tauranga in New Zealand on which PON relied is another useful example. It confirms the opinions of those in the industry and industry experts that ports seek to attract ships. They do so because, on the evidence, ships are attracted to a port by cargo, and cargo is attracted to a port by ships. Ports need to attract both cargo and ships to maximise the profitability of the port's Container Port Services. In the present case, as noted, any cargo and ships that the Port of Newcastle may attract will be cargo and ships that would otherwise have been attracted to Port Botany. 848 PON submitted that new customers of both ports will emerge over time. Assuming a sufficiently functional container terminal at the Port of Newcastle, this is also true. As new customers emerge, their initial choice of port will be dictated by not only relative total supply chain costs of using each port, but also the relative port functionality factors of each port. The conduct of one port (Port Botany or the Port of Newcastle) to minimise their total supply chain costs and maximise their port functionality factors will necessarily be at the expense of the other port (Port Botany or the Port of Newcastle). This too indicates that any analysis of competitive effects must start from the position that the two ports would be operating in the same market. 849 PON submitted that new infrastructure such as the Inland Rail Project may also make the Port of Newcastle the port of choice for customers from locations such as Parkes to Narromine because this could be expected to change the relative land transport cost advantages between Port Botany and the Port of Newcastle in the latter's favour. On the evidence, again assuming a sufficiently functional container terminal at the Port of Newcastle, this must be accepted. 850 What also must be inferred is that, assuming a sufficiently functional container terminal at the Port of Newcastle, there will be potential rivalry between Port Botany and the Port of Newcastle for infrastructure investment by the NSW and Commonwealth governments. This is another indicator that the best approach is to consider the potential operation of a container terminal at the Port of Newcastle within the existing market for Container Port Services in NSW. 851 PON submitted that as a result of the matters discussed above the process of switching between the Port of Newcastle and Port Botany will be ongoing and thus both ports will continue to supply services in the same market indefinitely. I agree that, assuming a sufficiently functional container terminal at the Port of Newcastle, things will never be or remain equal between the two ports. They would always be in flux or potential flux relative to one another, where the gain or loss of one is highly likely to equate to a converse gain or loss to the other. Again, this indicates that the best approach is to consider the potential operation of a container terminal at the Port of Newcastle within the existing market for Container Port Services in NSW. 852 PON submitted that it would be unrealistic to conclude that NSW Ports would not engage in competitive conduct to dissuade existing and potential customers from using the Port of Newcastle, and equally unrealistic to conclude that NSW Ports would make no attempt to recapture customers who switch from Port Botany to the Port of Newcastle. For the reasons given above, I agree if it is assumed that there is a sufficiently functional container terminal at the Port of Newcastle. 853 PON submitted that clear and cogent evidence would be required to support the conclusion that NSW Ports would do nothing in response to a significant portion of its customers switching to the Port of Newcastle. According to PON, NSW Ports has not adduced such evidence and, in any event, such evidence would not be accepted. In fact, I consider that the evidence of NSW Ports is that, assuming a sufficiently functional container terminal at the Port of Newcastle, NSW Ports would do everything it could to prevent or hinder customers from switching to the Port of Newcastle. Ms Calfas's evidence that NSW Ports could do nothing in respect of customers where the Port of Newcastle had the relative land transport cost advantage assumed functional equivalence between the two ports. It should not be inferred, however, that if NSW Ports could do something to retain customers it would not do so. 854 PON submitted further that, even if the development of a container terminal at the Port of Newcastle would result in merely a one way switch of a material number of customers from Port Botany to the Port of Newcastle, this demonstrates that the ports compete in the same market. PON referred to Mr Smith's evidence that: Ignoring competitive acts of entry and expansion, merely because they might cause a substantial "one-way" shift in demand towards the new entrant would risk excluding some of the most important, and most valuable elements of competition. Dr Pleatsikas's approach attempts to redefine the market every time there has been such a "one-way, one-time" switch of customers, and so ignore[s] the competitive process that led to the switching in the first place. 855 As discussed, I consider that the concept of a one way switch is an unrealistic over-simplification. To this extent, I agree with Mr Smith that Dr Pleatsikas's approach to market definition does not provide a framework enabling a meaningful assessment of potential processes of competition in the market for Container Port Services in NSW. 856 The ACCC described Mr Smith's logic in these terms: Once it is accepted that Port Botany currently supplies container port services in a NSW-wide market, and that a container terminal at the Port of Newcastle would attract a portion of Port Botany's current NSW container volumes, it follows that a container terminal at the Port of Newcastle would compete with Port Botany in a NSW market for container port services. 857 I agree that the existing market for Container Port Services in NSW permits analysis of the effects of entry by the Port of Newcastle into that market. As such, it permits the analysis of the purpose and effect of the impugned provisions. The approach to the relevant market advocated by NSW Ports and the State assumes away any potentially proscribed purpose and effect of the impugned provisions. 858 The ACCC submitted that Mr Smith's definition of the relevant market as the market for Container Port Services in NSW is consistent with the fact that all of the lay witnesses recognised that there would be some substitution from Port Botany to the Port of Newcastle if the latter is developed with a container terminal. For the reasons given above, I agree, provided the hypothesised container terminal is sufficiently functional. 859 I accept, however, that other difficulties with Mr Smith's evidence are apparent, as identified in the submissions for NSW Ports and the State. 860 Mr Smith did not consider whether there would be a realistic prospect of Port Botany and the Port of Newcastle constraining each other's prices for Container Port Services. He did not accept that this consideration of close constraint needed to inform the definition of the market because, in his view, it could be part of the evaluation of competitive effects of the conduct. When Mr Smith did impose a SSNIP on the Port of Newcastle in his reply report, he did so assuming that the Port of Newcastle would be charging high prices (when the SSNIP must be imposed on competitive prices to avoid the Cellophane fallacy). He also imposed the SSNIP assuming that the Port of Newcastle would be capacity constrained, whilst accepting that such constraints are generally excluded to avoid distorting the analysis. 861 None of this is fatal to Mr Smith's conclusions about the relevant market, because his conclusions reflect the fundamental fact that any entry by a container terminal at the Port of Newcastle will be into the existing market for Container Port Services in NSW. 862 The State noted that Mr Ockerby said: So in order to understand the competitive effects of a one off switch it, sort of, has to be, I think, recognised – and it comes from the market definition – that the case for developing a container terminal at PON is not based on competing with Port Botany. The act of developing a container terminal at PON is not a competitive act. You know, the business case for PON – and this applies to ports generally – is on the basis of having a monopoly over their catchment area. That's – the ports don't typically – there are some exceptions, in Rotterdam, I think, there is one where ports are located in close proximity to another. But typically they're choosing hinterlands which are separate from one another, such that they incur these fixed costs, they are the monopoly, they become the natural monopoly for that Hinterland. And they can charge a price which captures the surplus that shippers get from using that port. They're not going to compete with another port, that's the, sort of, logic of port development. Or the economics of it. 863 As the evidence discussed above discloses, this is an over-simplification. PON does assume in its PBC that it will have an area which, if its container terminal is sufficiently functional, will be captive to it because of a relative land transport cost advantage over Port Botany. Neither PON nor Mr Ockerby, however, consider that PON will be able to capture anything like 100% of that captive market from Port Botany. To the contrary, the evidence is that Port Botany will remain dominant in the captive catchment area of the Port of Newcastle for decades. This is because the Port of Newcastle would be a new entrant which could never enter on the basis of functional equivalence to Port Botany. Every customer and every ship the Port of Newcastle obtains will have been enticed to it from Port Botany. That is why Port Botany's existing market for Container Port Services in NSW is the market which permits a meaningful analysis of potential competitive effects. Further, the existence of a captive hinterland or catchment area is the logic of port development. But the existence of a captive hinterland does not exclude the existence of a contestable hinterland. 864 Mr van Duijn identified only two container terminal ports in such close proximity to each other that they do not possess any separate incontestable catchment area, being the Port of Antwerp and the Port of Rotterdam, which are 100 km apart. He otherwise considered that ports generally have both a captive and a contestable catchment area. In other words, the logic of port development does not require that the port enjoy a natural monopoly over all customers in its catchment area. Even in the case of Port Botany, the Port of Melbourne and the Port of Brisbane, that paradigm of entirely separate monopolies does not exist. 865 The State submitted: Having regard to the quantum of those [land transport] costs and the fact that they dwarf any wharfage charges by Port Botany or Port of Newcastle, there is no prospect that either port could adjust their charges in such a way as to meaningfully affect the decisions of customers. Mr Smith's views on this topic were ultimately shown to be merely theoretical. They were not supported by any data analysis to make good the proposition. It is falsified by the data analysis that was in fact conducted by Mr Ockerby and Mr Balchin. 866 Even if this is correct, it does not establish that the relevant market is not the existing market for Container Port Services in NSW. The submission is also belied by the reality that NSW Ports has set its price for export containers (that is, its wharfage fees) with the object of not losing a marginal number of customers to the Port of Melbourne and the Port of Brisbane. 867 The State also submitted: What Mr Smith is observing in the analysis of Mr Ockerby and Mr Balchin is that the concept of a bifurcation of the market into two markets does not signal that there will be an instantaneous and uniform transfer of all shippers from Port of Botany to the Port of Newcastle. For shippers that are proximate to the Port of Newcastle, the switch (if and when it occurs) will depend upon the availability of exogenous variables such as distribution centres and the availability of shipping line services. No amount of differentiation in the price or quality of the port services supplied by PoN will be apt to make the Port of Newcastle a close substitute if it is not. Once it is, no amount of differentiation in the price or quality of the port services supplied by NSW Ports will be apt to make it a close substitute. The process remains a "one off switch" even if the process is drawn out and different for different shippers. 868 For the reasons given above, this submission is an over-simplification of the process that will be involved if the Port of Newcastle enters the market for Container Port Services in NSW. Further, as discussed, the exogenous variables which the State has identified are subject to material influence by a port in and as part of the provision by the port of Container Port Services. 869 The State submitted that the fact that the Port of Newcastle will seek to maximise use of its facilities (included the hypothesised container terminal) from within its catchment area or hinterland would be the actions of a rational monopolist. The same proposition is evident in the conduct of Port Botany, the existing monopolist. Mr Smith's evaluation, the State said, has failed to take this fact into account. 870 However, as discussed, the rational monopolist hypothesis may be accepted, but it is potentially engaged only on the assumption of two separate monopoly markets which itself depends on the assumption of all other things being equal. 871 I turn now to consideration of other aspects of the evidence of Dr Pleatsikas, Mr Ockerby, and Mr Balchin. 872 Dr Pleatsikas's disagreement about the product dimension of the market due to economies of scope is immaterial. Dr Pleatsikas made clear that his analysis was the same if the product dimension of the market is confined to Container Port Services or port services more generally (that is, to include non-containerised cargo). It follows that it is unnecessary to resolve this issue. If it were necessary to resolve this issue, I consider that while Dr Pleatsikas's view about the product dimension of the market is inherently cogent, there is insufficient quantitative evidence to support the conclusion of sufficient economies of scope to justify defining the product dimension of the market more broadly than Container Port Services. 873 Nor was there any material issue between the economists about the functional dimension of the market – which involves the provision by ports of land and access for Container Services. 874 Dr Pleatsikas's approach of first identifying the production locations (that is, each of the ports) is not contrary to legal principle. In contrast to Air New Zealand, this is not a case where there is any suggestion that the relevant market is other than in Australia. It may be accepted that the geographical dimension of the market is the location where the rivalry occurs rather than the location of supply: Air New Zealand at [31] and [40]. The point Dr Pleatsikas was making is that if rivalry occurs in the present case, it occurs at the production location (that is, each port), irrespective of the fact that the ports each draw customers from a wider geographic area. 875 The fact that Dr Pleatsikas identified as an important assumption in the hypothetical monopolist test that the Port of Newcastle has a functionally equivalent container terminal capable of accepting any containers diverted from the Port of Botany is not inconsistent with an orthodox approach to market definition. I have concluded, however, that it is inapt for the task of market definition in the present case for the reasons given above. 876 The statement in Seven Network at [591] that the "primary focus of the enquiry is identification of a market in which a relevant respondent or related entity supplies the product in question" does not mean that entry by a new product or new service is necessarily in the same market as the existing product or service. But in the present case, there is no dispute that the potential for substitution will be predominantly from the existing service (Port Botany) to the new service (the Port of Newcastle). That fact alone means that the relevant market for any competitive assessment should be the market of the existing service. 877 Dr Pleatsikas identified that Port Botany provides services in an existing market which he identified as the market for port services or Container Port Services at Port Botany which, he accepted, attracts importers/exporters from across NSW. To that extent, he did not ignore the existing market. What he did, however, is conduct an analysis assuming away the process by which the Port of Newcastle might enter into that market and the process by which such entry might transform that market. His analysis, instead, assumes that the act of transformation of the existing market into two separate markets is complete on and from the moment of entry. It is this mode of analysis of the market which I do not accept. 878 Dr Pleatsikas did not accept that Port Botany's existing market in NSW would continue to exist. He plainly disagreed with that proposition. Nor did he accept that the two ports would operate in the same market because importers/exporters in NSW would have a choice between the ports which they would make based on their perceptions of the relative price and non-price benefits offered by the ports. He said: I would say that, basically, what's going to happen is someone will switch from Botany to Newcastle. And the likelihood they will switch back is very low. So that in essence there really isn't much, you know, switching back and forth; it's going to be switching one way. In all of the – and I mean all of the analyses that have been done, particularly those by the Port of Newcastle, are based on that view … …the relevant economic quanta determine that Port Botany and Port of Newcastle are in different relevant geographic markets. 879 The analyses of the Port of Newcastle are those reflected in its PBC and subsequent consultant and internal investigations into the feasibility of the development of a container terminal at that port. Otherwise, as explained, the economic quanta which Dr Pleatsikas has used to identify the relevant market reflect his assumption of a perpetual state of all other things being equal between the ports. 880 Apart from this, the fact that a competitive price is inherently a quality adjusted price does not mean that the analyses of Dr Pleatsikas, Mr Ockerby and Mr Balchin are capable of recognising that ports may compete on the quality of Container Port Services. This is because they assumed that the quality of Container Port Services would be the same as between Port Botany and the Port of Newcastle. As a result, their analysis assumes away any potential for competition on non-price factors. As such, I agree with the ACCC that their approach to the issue of the identification of the market (but not otherwise) denudes the "very rich concept" of competition of its vitality: QCMA at 511. 881 Dr Pleatsikas's approach to the market exposed another problem. On his analysis, the elasticity of demand between ports depends on their relative locations because it is a factor of the land transport cost differential between them. However, even assuming a high elasticity of demand between Port Botany and Port Kembla, Dr Pleatsikas's analysis strongly suggested that on his approach those two ports would also be in different markets. This seems unlikely and suggests that his approach is confounded by the reality of the way in which ports in fact compete on price and non-price factors including by materially influencing the port functionality factors through the manner of delivery of Container Port Services and so as to maximise use and profitability of their Container Port Services. 882 Dr Pleatsikas, however, has not conflated the concepts of the market and competition. His identification of a market as an area of close competition is orthodox. His analysis also does not exclude recognition of the fact that "competition is a matter of degree": Re Tooth at 39. The problem with his market analysis is that it fails to recognise that the relevant hypothetical construct is that of entry by the Port of Newcastle into Port Botany's existing market for Container Port Services in NSW. As a result, and as the ACCC submitted, his evidence about the market does not analyse the economic processes that will be involved and does tend to obscure rather than reveal any potential for competition in the market. 883 The same conclusions apply to the evidence of Mr Ockerby about the relevant market. 884 Mr Ockerby, unlike Dr Pleatsikas, identified a small number of potentially contestable customers between Port Botany and the Port of Newcastle. He explained: The discrete nature of the cost differential between the ports means that there is only a small group of marginal customers (the "in between" customers) relative to the inframarginal customers (the customers for which each port has a significant cost advantage in serving). This means that the actions (and pricing decisions) of each port would not be affected by competition for the "in between" customers. For example, even a 20% price increase by PoN from current levels would be profitable because it would: • increase its profits substantially from inframarginal customers (customers that would not leave to PB in response to a $20/TEU price increase as the incremental transport cost differential is, for many, in excess of $200/TEU); • not reduce profits because there are so few of customers "in between" PoN and PB who would leave to PB. As such, each port's actions will be separate from the actions of the other port – in other words, the ports will not compete. 885 As the ACCC submitted, however, NSW Ports has demonstrated it is keenly aware of marginal customers between it and, respectively, the Port of Melbourne and the Port of Brisbane. It has demonstrated that in order to retain such customers it will set prices which are competitive with those other ports despite the container volumes involved being a small proportion of the total volumes handled by Port Botany. It has demonstrated its willingness to engage in price discrimination if it can profitably do so. As discussed, the fact that Ms Calfas was unable to identify marginal customers between Port Botany and the Port of Newcastle was on the assumption of all other things being equal between the two ports. In reality, if there was a credible threat of entry into the market by the Port of Newcastle, Port Botany would have the incentive and the capacity to materially influence circumstances so that all things are not equal between the two ports. 886 Mr Ockerby's evidence that it could not be assumed that the Port of Newcastle would charge the same price as Port Botany if the Port of Newcastle offers a lower quality service supports the proposition that the two ports, in fact, would closely constrain each other's prices if a container terminal at the Port of Newcastle was sufficiently functional to enable it to entice a material number of customers and ships away from Port Botany. 887 Mr Balchin considered the availability of distribution centres, shipping connectivity, and population growth as the key driving factors in the Port of Newcastle's capacity to capture container volumes from its (supposedly captive) catchment area. He did not accept that a port could materially influence any of these factors. He considered that distribution centres would locate near a port in response to the port's increasing share of container volumes from its catchment area which would be driven in turn by population growth and shipping connectivity. It may be accepted that a port can do nothing to influence population growth. I do note, however, that Mr Balchin's assumption that population growth drives container volumes conflicts with Mr King's analysis. 888 As to decisions by shipping lines calling at a port, Mr Balchin said: Again, I will quibble with the sort of gloss over the causation that you [counsel for the ACCC] put. I think I would phrase it as the growth will depend on where those shipping lines choose to serve that port. Because we're dealing with a classic – in sort of economics we call it network externality, that as usage of a port increases, that the value of that activity also increases. As more people use the port, the more shipping lines, therefore, get attracted to use the port. And in turn that encourages more people to use the port. None of that assumes the port does anything but just sit there and hope people turn up, which is my quibble. 889 Mr Balchin accepted that his analysis was based on the actual experience at the Port of Adelaide and accepted also that the Port of Adelaide would have informed people it existed and did "what it could" to attract distribution centres and shipping lines. He also expected the Port of Newcastle would do the same as the Port of Adelaide to do what it could to attract shipping lines and distribution centres. He explained, however, that what the port could do is "extremely limited" given that wharfage charges are such a small component of the total supply chain cost. He considered that apart from letting people know the port is there, a port could not do much other than "to hope people turn up". This, however, is inconsistent with the industry evidence including that of Mr van Duijn and Mr King about ports materially influencing, on price and non-price factors, the choice of port by shipping lines. It also fails to recognise that in providing Container Port Services (land and facilities) to shipping lines, stevedores and land transport operators (which, as noted, must include distribution and logistics services providers to the extent they may be accommodated within a port), ports may and it must be inferred do ensure that they maximise the profitability of Container Port Services by facilitating maximum use of the Container Services by importers/exporters and shipping lines. A port so acting in the provision of Container Port Services is engaged in conduct in the market for those services. 890 I agree with PON that the object of the market definition exercise in this case is to identify the area in which the purpose and effect of the impugned provisions can best be evaluated. 891 PON submitted that the effect of the impugned provisions is to deny entry by the Port of Newcastle into the market so that the fact (if it be the fact) of a lack of ongoing rivalry between the ports is immaterial. The denial of entry into the existing market is sufficient to identify the relevant market as Port Botany's existing market. PON said: The Court does not need to answer the question of what relevant market or markets would be supplied by a well-established container terminal at Port of Newcastle and the container terminal at Port Botany, because the conduct in this case is not directed to affecting behaviour in such a world; it is directed to preventing such a world arising. 892 However, the impugned conduct may or may not have the effect of preventing entry by the Port of Newcastle. Any such potential effect necessarily must be analysed within the existing market for Container Port Services in NSW, which I understand to be PON's point. Further, whether the conduct was directed at preventing entry by the Port of Newcastle is a separate consideration best addressed in the context of the purpose of the impugned provisions. 893 For these reasons, I am satisfied that any analysis of the purpose and effect of the impugned provisions on competition should be conducted in relation to the existing market for Container Port Services in NSW. 6. RELEVANT PRINCIPLES - PROSCRIBED PURPOSE AND EFFECT 6.1 Substantially lessening competition 894 In Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd [1982] FCA 211; (1982) 44 ALR 173 at 192 Smithers J said: Although the words "substantially lessened in a market" refer generally to a market, it is the degree to which competition has been lessened which is critical, not the proportion of that lessening to the whole of the competition which exists in the total market. Thus a lessening in a significant section of the market, if a substantial lessening of otherwise active competition may, according to circumstances, be a substantial lessening of competition in a market. 895 This statement is referred to with approval in Rural Press Ltd v Australian Competition and Consumer Commission [2002] FCAFC 213; (2002) 118 FCR 236(Rural Press FCAFC) at [131] and Singapore Airlines Ltd v Taprobane Tours WA [1991] FCA 808; (1991) 33 FCR 158 at 181. 896 In Rural Press FCAFC the Full Court said: [128] It is true that the incursions by the River News into the Murray Bridge newspaper market were confined to a relatively small area, coinciding with the new boundaries of the Mid-Murray Council. It is also true that the number of copies of the River News sold in the area was, in raw numbers, modest. But this does not mean that the level of competition introduced into the market by the River News can be dismissed as trivial or insubstantial. The circulation of the Standard itself was not large, reflecting the small population of the geographic area constituting the market. The River News was effectively the only competition in that market. The evidence of Mr Pick was that the River News was offering cheaper advertising rates than the Standard (although rates must be judged by reference to the audience likely to be reached) and was taking steps to increase circulation. And as Mr Douglas correctly accepted, an assessment of the competition offered by River News has to take into account the potential to expand its operations. As was said by the Full Court in ASX Operations v Pont Data [ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460], at 478, in asking whether the provisions of an agreement or an arrangement have, or would be likely to have, the effect of substantially lessening competition, one looks not so much at the position of particular competitors "as to the state or condition constituting the market … in question, actually and potentially". [129] What Rural Press and Bridge Printing did was to nip the actual and potential competition in the Murray Bridge newspaper market "in the bud": Trade Practices Commission v CSR Ltd [[1990] FCA 521;] (1991) 13 ATPR ¶41-076, at 52,145, per French J. Not only did their actions effectively snuff out the services actually provided by the River News to readers and advertisers in Mannum, but also the potential for the River News to expand those services and compete more effectively with the Standard on price and quality. The section of the public that might have benefited from the competition in a market previously (and subsequently) dominated by a single player was denied that opportunity. 897 In Rural Press HCA Gummow, Hayne and Heydon JJ at [41] said the "relevant questions in this case are whether the effect of the arrangement was substantial in the sense of being meaningful or relevant to the competitive process, and whether the purpose of the arrangement was to achieve an effect of that kind". Footnote 26, referred to in [41], said it was plain that the authorities cited therein "do not support the proposition that it would be sufficient for liability if the relevant effect was quantitatively more than insignificant or not insubstantial". Their Honours continued: [44] While neither the area nor the increases in sales, advertising revenues and profits achieved were large, it does not follow that the River News did not achieve a substantially pro-competitive impact by its move south or that the arrangement did not have a substantially anti-competitive impact in causing its retreat north. The move was profitable. There was no reason to suppose that it would not remain profitable or that Waikerie Printing would not seek to continue gaining those profits. The trial judge found that but for the arrangement Pick would have continued to publish the River News in the Mannum area. The success of Pick's experiment invalidates the Rural Press parties' argument that regional newspaper markets in South Australia must inevitably be single firm markets. … [45] The Rural Press parties did not answer a fundamental question. If they had not seen the competitive impact of the River News as actually or potentially substantial, why did they fear it? They paid extremely close attention to the new activities of the River News, they recorded them, they communicated about them orally and in writing and they exhibited adamantine opposition to them. In itself that can be the conduct of a bona fide competitor, and in limited respects the Rural Press parties did respond competitively … The views and practices of those within an industry can often be most instructive not only on the question of achieving a realistic definition of the market, but also on the question of assessing the quality of particular competitive conduct in relation to the level of competition and the impact of its cessation. [46] … What Pick did was to compete – to respond to a sudden change in the commercial environment by introducing rivalrous conduct into a part of a market that had previously not known it. His capacity, energy and determination caused the River News, at least in that part of the market, to become a small but potentially significant competitor. The presence of even one competitor of that kind tended to dilute the impact of the existing monopoly. The arrangement between the monopolist and Pick's employer almost totally negated the beneficial effects of Pick's competitive behaviour over the previous nine months – a choice for readers and advertisers where before there was none, a wider range of news in the Standard and lower advertising rates. That is why the arrangement had the purpose and effect of substantially lessening competition in the Murray Bridge regional newspaper market. 898 In Radio 2UE Pty Ltd v Stereo FM Pty Ltd [1982] FCA 223; (1982) 44 ALR 557 at 562 Lockhart J said: The word "substantial" is imprecise and ambiguous. Its meaning must be taken from its context. It can mean considerable or big: Palser v. Grinling (1948) A.C. 291 per Viscount Simon (at p. 317). It can also mean not merely nominal, ephemeral or minimal. Sometimes it is used in a relative sense, and at other times to indicate an absolute size or quantity. In the context of s. 45, the word "substantial" is used in a relative sense. The very notion of competition imports relativity. One needs to know something of the businesses carried on in the relevant market and the nature and extent of the market before one can say that any particular lessening of competition is substantial. The Act is concerned to promote and stimulate competition between business people and to discourage and remove unfair business practices which inhibit competition. Parliament cannot have intended trivial or insubstantial interferences with competition to fall within the prohibition of s. 45. The word "substantial" appears in various contexts in the Act itself. It has been considered by judges of this Court as meaning real or of substance. See Cool & Sons Pty. Limited v. O'Brien Glass Industries Limited, a judgment of Keely J., [[1981] FCA 99;] (1981) 35 A.L.R. 445 (at p. 458); Hecar Investments No. 6 Pty. Limited v. Outboard Marine Australia Pty. Limited [[1982] FCA 114; (1982) 41 ALR 697 at 702], a judgment of Franki J … In Dandy Power … a judgment of Smithers J … his Honour said that the word "substantially" in the context of the phrase "substantially lessening competition" (sub-ss. 47 (10) and (13) of the Act) was used "in a sense importing a greater rather than a less degree of lessening". 899 The reasoning of Lockhart J in Radio 2UE does not support the submission of NSW Ports and the State that a substantial lessening of completion requires a "considerable" lessening of competition. The observation in SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (No 2) [2012] FCA 1116; (2012) 298 ALR 69 at [75], in referring to "substantially" meaning something closer to "considerably" than "trivial, minimal or nominal" is not to be understood as proposing anything different. 900 To the contrary, in Pacific National at [104] Middleton and O'Bryan JJ said: The word "substantially" as used in the section is imprecise. However, the Courts have consistently said that, in each of sections 45, 47 and 50, the word does not connote a large or weighty lessening of competition, but one that is "real or of substance" and thereby meaningful and relevant to the competitive process: Stirling Harbour [FC] … at [114] per French J (approved on appeal at Stirling Harbour … [FCAFC] at [13] per Burchett and Hely JJ); AGL … at [351] per French J; Rural Press [HCA] … at [41] per Gummow, Hayne and Heydon JJ. 901 Action to prevent or impede entry into a market by a new product or service may be for the proscribed purpose or have the proscribed effect. In Liquorland at [807] Allsop J said: If a purpose is to prevent or impede market entry and so to prevent competitive activity, that is sufficient it seems to me to amount to a purpose directed to the competitive process. One does not need to superadd a further purpose that the success of that purpose is to affect the degree of competitive activity as opposed merely to preventing the firm's share of revenue in a mercantilist sense. The entry of competitors is an essential attribute of the competitive process. It is the means of access for competitive trading and for pressure on incumbent firms, through their revenue and profitability, to offer more or charge less in order to retain their places in the competitive (on this hypothesis increasingly competitive) market. If the grant of new licences were seen as a competitive threat they were so seen because they were a threat to business through competitive activity. A purpose to prevent or impede such competitive activity is a purpose concerned with the process and conduct of competition. 902 At [827] in Liquorland his Honour continued: …the notion of purpose in the context of s 45(2)(a)(ii) and (b)(ii) must be understood in the real world. People are unlikely ever to direct themselves to a consideration of market definition, the choice of a market, the notion of the competitive process (as opposed to competitors), the elements of the operation of the competitive process and the substantial (in the sense discussed below) lessening, preventing or hindering of competition. 903 The ACCC also noted s 4G of the CCA which provides that in the Act "references to the lessening of competition shall be read as including references to preventing or hindering competition". 6.2 Purpose 904 The purpose proscribed by s 45(2)(a)(ii) of the CCA is the purpose of substantially lessening competition. 905 "The distinction between purpose and effect is significant. In a case such as the present, it is the subjective purpose of News and ARL in including the 14 team term, that is to say, the end they had in view, that is to be determined. Purpose is to be distinguished from motive. The purpose of conduct is the end sought to be accomplished by the conduct. The motive for conduct is the reason for seeking that end": News Limited v South Sydney District Rugby League Football Club Limited [2003] HCA 45; (2003) 215 CLR 563 at [18] (citations omitted). 906 "The manifest effect of a provision in an agreement, in a given case, may be the clearest indication of its purpose. In other cases, it may be difficult, or even impossible, to determine the purpose (of a kind relevant to the operation of the Act) of a provision in a written contract merely by reading the document": News Limited at [18]. 907 "[T]he application of a subjective test does not exclude a consideration of the circumstances surrounding the reaching of the understanding. By considering the surrounding circumstances, the court will be using objective considerations to determine whether the parties held the subjective purpose they claim": News Limited at [44]. 908 "[A] proscribed purpose need not be the only purpose. It may be one of a number of purposes provided it is a substantial purpose: s 4F(1)(b)": Seven Network at [452]. In the present case, see s 4F(1)(a) of the CCA. 909 A substantial purpose means a purpose which is "considerable or large" and "real and not imaginary": Seven Network at [858]. The question has been expressed this way – "did the prescribed purpose, if it existed, loom large among the objects the corporation sought to achieve by the conduct": Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110 at [97]. 910 "In a multi-party contract different parties may seek to have a provision included for different purposes. Indeed, in commercial contracts, arrangements and understandings the parties may frequently not share common purposes. There will be, to use the expression of Gummow J in … [News Limited] at [62] 'a plurality of purposes' all of which must be examined to determine whether any purpose for the inclusion of an impugned purpose is a substantial purpose. Nothing in the text of ss 45 and 4F requires that all including parties must share the impugned purpose. There are indications to the contrary": Seven Network at [862]. 911 "In reality, the purpose for including a provision will generally be obvious from its terms, seen in the context of the contract as a whole, the parties to it, the industrial and/or commercial context in which it is to operate and the objective circumstances surrounding such inclusion. In most cases, those factors will provide a satisfactory basis for inferring purpose. In many, perhaps most, cases, it will be difficult for a decision-maker to resist the inference that all of the parties to a contract, arrangement or understanding were aware of the purpose of a particular provision and had the purpose of producing the intended result. Any differences in attitude to such a provision are more likely to be as to motive than as to purpose": Seven Network at [876]. 912 "Whilst we accept that the Court must inquire as to whether a particular purpose is anti-competitive, it does not follow that the purpose must also be capable of achievement in the relevant market. The words 'realistically capable of substantially lessening competition' do not appear in s 45 or s 4F. We agree that there must be a relevant market, that the relevant provision must have been included for the purpose of substantially lessening competition in that market, and that such purpose must be a substantial purpose for such inclusion. We do not agree that the Court must inquire into whether the object sought to be achieved was 'realistically capable of substantially lessening competition in the relevant market' if those words mean more than that the purpose must be anti-competitive in an identified market. Such an inquiry would be, in effect, an inquiry into whether the provision had the likely effect of substantially lessening competition in that market. That approach would obviate or blur the distinction between purpose and likely effect or effect": Seven Network at [897]. 913 As to the requirement of s 4F(1)(a)(i), that the provision be included in the contract for the requisite purpose, this is said in Seven Network: [864] Section 4F requires inquiry as to whether the provision "was included" for a (substantial) purpose. The inquiry therefore is as to whether a relevant including party has caused the provision to be inserted into the contract, arrangement or understanding for an anti-competitive purpose, and whether that purpose was a substantial purpose. The fact that the non-including parties did not have that purpose does not mean that the provision was not included for the impugned purpose. The absence of a shared impugned purpose on the part of the non-including parties is irrelevant. So also the fact that other including parties caused the provision to be inserted for purposes other than the impugned purpose does not mean that the provision was not inserted for that purpose. The other including parties' purposes, which are not anti-competitive, will be relevant, however, to determine whether the impugned purpose was a substantial purpose for the introduction of the provision. As we have already noted Gummow J said in … [News Limited] at [62] "the introduction of a 'substantial purpose' test avoids difficulties in discerning the relevant purpose of multiple parties to a contract, arrangement or understanding". … [868] The respondents also contend that if it were not necessary that the anti-competitive purposes be shared, parties might, unknowingly, contravene the section. On his Honour's approach that would also be the case for non-including parties. If the particular purpose is to be addressed by reference to the including party or parties' purpose, and not otherwise, it would follow that the objectives and purposes of other non-including parties to the contract, arrangement or understanding would be irrelevant in determining whether the provision has the proscribed purpose. It is not suggested that in order to engage s 45, non-including parties must share the impugned purpose. [869] The construction which we favour means that including parties who do not have the proscribed purpose are treated in the same way as non-including parties. The protection for these parties is primarily in the requirement that the proscribed purpose must be a substantial purpose. 914 The State observed that it "formally maintains that it is necessary for both parties to have the impugned purpose in order for s 45 of the CCA to apply", citing Carlton & United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd [1987] FCA 640; (1987) 16 FCR 351 at 356, Stokely-Van Camp Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 at 617, and Rural Press FCAFC at [105]. According to the State, on either view of the law (the purpose of one party may suffice or the purpose of both parties must be the proscribed purpose), the claim must fail. 6.3 Likely effect 915 In Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 at [242] the Full Court said: Competition is a process and the effect upon competition is not to be equated with the effect upon competitors, although the latter may be relevant to the former. Competition is a means to the end of protecting the interests of consumers rather than competitors in the market (Queensland Wire per Mason CJ and Wilson J at 191). Competition is defined to include competition from imported goods (s 4). The Court has to make a qualitative judgment about the impact of the impugned conduct on the competitive process. For example, a short term effect readily corrected by market processes is unlikely to be substantial. The lessening of competition must be adjudged to be of such seriousness as to adversely affect competition in the market place, particularly with consumers in mind. It must be "meaningful or relevant to the competitive process": Stirling Harbour … [FC] at para 114. 916 Their Honours continued at [247] as follows: The question is whether, as at the date of the impugned conduct, it was likely, having regard to existing circumstances, that the conduct would effect a substantial lessening of competition in the market (Trade Practices Commission v TNT Management Pty Ltd [[1985] FCA 19;] (1985) 6 FCR 1 at 50). We must put aside the hindsight knowledge that it did not, save that this illustrates one potential outcome. 917 In Stirling Harbour FCAFC at [12] the Full Court explained that: in determining whether the proposed conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market, the Court has to: - consider the likely state of future competition in the market "with and without" the impugned conduct; and - on the basis of such consideration, conclude whether the conduct has the proscribed anti-competitive purpose or effect Dandy Power … at 259; Outboard Marine Australia Pty Limited v Hecar Investments No 6 Pty Limited (1982) 44 ALR 667 at 669-670 … The test is not a "before and after" test, although, as a matter of fact, the existing state of competition in the market may throw some light on the likely future state of competition in the market absent the impugned conduct. 918 In Dowling at 134 Lockhart J said that the "effect of a contract is a relatively simple concept requiring examination of the results" of the contract. 919 In QCMA at 511 the Trade Practices Tribunal said that the issue is probable and not "possible or speculative effects" but it must be accepted that "the probabilities with which we are concerned are commercial or economic likelihoods which may not be susceptible of formal proof. We are required to look into the future, but we can be concerned only with the foreseeable future as it appears on the basis of evidence and argument relating to the particular application". 920 In Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2008] FCAFC 141; (2008) 170 FCR 16 at [329] Dowsett J said: The effect of conduct is its outcome as demonstrated by evidence concerning actual events. Likely effect involves a prediction as to whether particular events will flow from relevant conduct. Likely effect may vary, depending upon the time at which the prediction is made. It may be made before, at the time of, shortly after, or long after the relevant causal conduct. 921 In Pacific National at [265] Middleton and O'Bryan JJ said: It is uncontroversial that the height of barriers to entry is relevant to the assessment of competition in a market and, as a general proposition, increasing barriers to entry would be expected to lessen competition (by lessening the competitive constraint afforded by the potential for new entry): see QCMA at …[512]; Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd … [[1982] FCA 285; (1982) 44 ALR 667 at 669] per Bowen CJ and Fisher J; Queensland Wire at 189 per Mason CJ and Wilson J, at 201 per Dawson J. However, it does not follow that in every case in which barriers are raised by an acquisition that competition will be substantially lessened unless new entry is impossible or close to impossible. 922 The requirement that the conduct be likely to have the proscribed effect does not involve an assessment of the balance of probabilities. It is sufficient if there is a real chance or possibility of the conduct having the proscribed effect: Monroe Topple at [111], Seven Network at [749]-[750]. In Pacific National at [242]-[244] the Full Court declined to depart from this meaning. At [245] Middleton and O'Bryan JJ cited AGL at [348] in support of the proposition that a real chance or possibility does not encompass a "mere possibility" and the statutory provision requires a focus on what is "commercially relevant or meaningful". NSW Ports and the State formally submitted that in s 45 "likely" means more probable than not but accepted that I am bound by Seven Network and Pacific National. 923 The question of likelihood of having the proscribed effect is to be determined having regard to the available knowledge at the time of the conduct, but the "fact that a particular outcome did not occur does not demonstrate that it was unlikely to occur at the time of the relevant conduct": Seven Network at [791], citing Universal Music at [247]. 924 In Pacific National at [246] Middleton and O'Bryan JJ agreed with the primary judge that a single evaluative judgment was required. The primary judge, Beach J, in Australian Competition and Consumer Commission v Pacific National Pty Limited (No 2) [2019] FCA 669 observed that: [1278] …the ACCC is going too far in saying that it can necessarily establish a contravention of s 50 by proof of a real chance of the existence of a counterfactual and a real chance of a substantial lessening of competition in the sense that one real chance is compounded with another. Indeed, to apply s 50 on the basis of a real chance of a substantial lessening of competition built upon a real chance in the counterfactual may, depending upon how one does it, be erroneous. In doing so I would not have directed myself to the single statutory question and may have inappropriately reduced the probability inherent in the real chance to be assessed for the ultimate question. [1279] …the magnitude of any real chance that it demonstrates in respect of the alleged future states will practically and ultimately affect the magnitude of the real chance that it is able to demonstrate in respect of the alleged effects on competition and whether that rises to the requisite level of a likely effect of substantially lessening competition. Considering both the counterfactual and the alleged competitive effects together, the evaluation required compositely is whether a real commercial likelihood of a substantial lessening of competition has been shown. 925 I do not accept NSW Ports' submission that the observation in Australian Competition and Consumer Commission v Australian Competition Tribunal [2017] FCAFC 150; (2017) 254 FCR 341 at [8], referring to a public benefit being "of substance", is relevant to s 45 of the CCA. In that paragraph the Full Court was concerned with s 95AZH(1) of the CCA which is not concerned with the substantial lessening of competition. It is clear that their Honours' observations about the need for a public benefit "of substance" have nothing to do with the concept of a substantial lessening of competition. 7. PURPOSE OF COMPENSATION PROVISIONS 7.1 Overview 926 The issue in this regard is whether the State and/or NSW Ports, by the compensation provisions, intended to achieve the object of substantially lessening competition (the ACCC's primary focus, but not exclusive, being the alleged purpose of preventing or hindering the establishment or operation of a container terminal at the Port of Newcastle). The required focus is the subjective purpose or purposes of the State and/or NSW Ports in making the compensation provisions. 927 For the reasons given below, I consider that the end or objective or purpose which the State intended to achieve by the compensation provisions is clear. The State's motive was profit maximisation. It wanted to sell to the successful bidder the existing container port monopoly across most of NSW at a price which reflected the value of that monopoly. Thus, the State's purpose was to ensure that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle. The compensation provisions thereby ensured that the State could get full value for the sale of the existing monopoly by the State agreeing to indemnify the successful bidder, in effect, for the risk that the extent of the existing monopoly might be reduced because of a container terminal at the Port of Newcastle. 928 NSW Ports' motive in making the compensation provisions was also profit maximisation. It did not want the profitability of the existing monopoly in respect of container port services in NSW to be reduced by a container terminal at the Port of Newcastle. The substantial purpose of NSW Ports, as the successful bidder, thus was to ensure that it retained what it would pay for – the full extent of the existing monopoly of Port Botany in respect of container port services in NSW. 929 As Dr Pleatsikas and Mr Ockerby observed, this does not mean that NSW Ports was paying a bid price to retain monopoly profits (contrary to Mr Smith's evidence). The privatisation proposal always involved the threat of price regulation and NSW Ports' proposed and actual prices do not involve monopoly profits. 930 Nothing in the text of the compensation provisions or the circumstances as they existed at the time those provisions were made (or the circumstances as they could be reasonably predicted into the foreseeable future at that time) supports the proposition that it was a substantial purpose of either the State or NSW Ports to prevent or hinder the establishment and operation of a container terminal at the Port of Newcastle. Nor does any evidence support an inference of any such proscribed purpose of the State or NSW Ports in respect of any prospect of giving effect to the impugned provisions in the future (which is itself unrealistic for the reasons given below). 7.2 Consideration 931 The submissions of the ACCC and PON confuse the purpose of the impugned provisions with their potential effect. It may be that the potential effect of the compensation and/or reimbursement provisions is to prevent or hinder the Port of Newcastle from entering the market for Container Port Services in NSW. It also may be that the potential effect of the compensation provisions is that NSW Ports has the option of relying on those provisions rather than competing with the Port of Newcastle if a container terminal is established and operating at that port. These issues are discussed below in the context of the likely effects of the compensation provisions. What cannot be said, however, is that the State and/or NSW Ports intended to achieve either object in making the compensation provisions. 932 The compensation provisions assume the existence of a container terminal at the Port of Newcastle which has the capacity to handle all containers diverted from Port Botany to it. If any party had intended to prevent or hinder the establishment or operation of a container terminal at the Port of Newcastle or to enable NSW Ports to not compete if a container terminal was established and in operation at the Port of Newcastle, then the compensation provisions were a decidedly odd way to achieve this. The State had considered and rejected the option of blocking the development of a container terminal at the Port of Newcastle or placing a cap on the containers Port of Newcastle could handle, and instead decided to pursue the compensation provisions. In context, it did so because this scheme enabled it and the successful bidder for Port Botany and Port Kembla to both get full value for what they were respectively selling and buying. 933 The text and context of the compensation provisions shows that the substantial purposes of the State and NSW Ports were as described above: for the State, to ensure that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle and, for NSW Ports, to ensure that it would retain what it would pay for – the full extent of the existing monopoly of Port Botany in respect of container port services in NSW. These purposes are the two sides of the same coin. Neither involve the purpose of preventing or hindering the development or operation of a container terminal at the Port of Newcastle. 934 I do not accept that it would have occurred to either the State or NSW Ports that the compensation provisions might enable NSW Ports to sit back, relax and watch the money roll in under the compensation provisions if a container terminal was operating at the Port of Newcastle. Whatever the proper construction of the Port Botany and Port Kembla PCDs, those contracts exist in the real world. In the real world, if a container terminal is operating at the Port of Newcastle, there will still be a substantial number of customers and ships that will use Port Botany. The idea that NSW Ports considered that it could "give less and charge more" (QCMA at 517) because of the compensation provisions is far-fetched. NSW Ports would still have an incentive to maximise its profits. To do that, it would need to ensure that it maintained or enhanced the price-quality package that customers and ships would receive in using Port Botany. If it did not, the risks are obvious. Even avoiding the contentious concept of a contestable catchment area as between Port Botany and the Port of Newcastle, NSW Ports would risk: (a) losing export containers from the south of NSW, which it has to date fought to retain, to the Port of Melbourne, (b) losing export and import containers to the Port of Newcastle in the Port of Newcastle's captive catchment area more quickly and in greater numbers than might otherwise be the case, thereby weakening the case for future investment, both public and private, which would benefit Port Botany, and (c) losing its commercial reputation. 935 In the context of purpose, the issue is not the proper construction of the compensation provisions but how they are likely to have been understood by the State and NSW Ports at the time they were made. There are numerous aspects of the compensation provisions which indicate that the parties to those provisions never intended that NSW Ports would not do everything it reasonably could to prevent container volumes from being diverted from Port Botany (or Port Kembla) to a container terminal at the Port of Newcastle. To conclude otherwise would involve attributing to NSW Ports an unrealistic appetite for risk – the risk that if it did nothing to respond to a container terminal at the Port of Newcastle it might also receive nothing under the compensation provisions. In particular, taking the Port Botany PCD as an example: (1) under cll 3.3(d) and (e) the Botany Port Manager must demonstrate to the reasonable satisfaction of the State a reasonable and material causal connection and correlation between the amount of containers the Port of Newcastle gained over a specified rate of annual increase and the amount of containers lost by Port Botany: if the State could argue that the cause of the loss was in fact a decline in the price-quality offering of Port Botany then the condition precedent to payment would not be satisfied; (2) under cl 3.9 NSW Ports has effectively released the State from any other claim in respect of any increase in the capacity of the Port of Newcastle to handle containers. As a result, it is confined to a claim under cl 3.3 which involves the Botany Port Manager demonstrating that the conditions precedent to compensation have been met to the reasonable satisfaction of the State; and (3) by cl 6(d) NSW Ports must use reasonable endeavours to minimise any loss of revenue that may be the subject of a claim by it under the PCD. 936 While there is scope for dispute about the proper construction of these provisions (dealt with below in the context of the likely effect of the provisions), the question of purpose involves the subjective purpose of the parties. The inclusion of these provisions in the Port Botany and Port Kembla PCDs indicates a subjective understanding by the parties that NSW Ports would seek to protect the profitability of Port Botany (and Port Kembla) by doing what it could to minimise any loss of containers to the Port of Newcastle. 937 For these reasons I do not accept the contentions of the ACCC and PON that the purpose of the compensation provisions was to: (a) prevent or hinder the development of a container terminal at the Port of Newcastle, (b) make Port Botany and/or Port Kembla immune from competition (by the threat of or actual entry into the market for Container Port Services) from the Port of Newcastle, or (c) enable NSW Ports to act without any constraint from competition that the Port of Newcastle would otherwise provide. 938 The conflation of purpose and effect is evident in the submission of the ACCC and PON. For example, PON submitted that: Under normal commercial circumstances, the successful bidder faced with threatened or actual loss of its customers to a new entrant or potential new entrant would engage in rivalrous behaviour to limit those losses. That is the competitive pressure brought to bear by the new entrant or potential entrant. The inoculation of one market participant from the economic effects of substitution will inevitably reduce the competitive pressure on that market participant, because it will no longer face the same incentive to engage in the competitive conduct to protect its revenue from the risk that its customers would substitute suppliers. It reduces and distorts the ordinary commercial incentives to engage in rivalrous behaviour. … This distortion of incentives would apply well before entry in fact occurred. The mere possibility of entry, under normal commercial circumstances, would act as a significant competitive constraint: see … [QCMA] at … [512] per Woodward J. The significant reduction in the incentive to act in a competitive manner to discourage potential new entry is a substantial lessening of competition. … A purpose to enable the incumbent to behave in a manner substantially less constrained by the threat or reality of new entry is a purpose of reducing competition in a manner that is meaningful to the competitive process. 939 These submissions concern the effect of the compensation provisions. While the effect of a provision may be relevant to ascertaining the purpose of the parties who agreed to the provision, purpose is not to be confused with effect. There may be a proscribed purpose with no proscribed effect and a proscribed effect with no proscribed purpose. The subjective understanding of the compensation provisions by the State and NSW Ports is clear – they did not intend that NSW Ports would be inoculated against the threat of entry into the market for Container Port Services by the Port of Newcastle. They intended that if that threat materialised NSW Ports would be compensated for the loss of containers over and above a specified natural growth rate of container volumes at the Port of Newcastle if it had continued without a container terminal. This intention is specifically identified in advice from the Treasury transaction team to NSC, "Mayfield Development Negotiation Parameters", about disclosure of the compensation provisions to bidders for the Port of Newcastle. The advice in August 2013 was that: The State requires that the financial obligations under this arrangement [the compensation provisions] be mirrored by the developer of any container capacity at Newcastle. Ultimately these arrangements do not prevent container volume growth at Newcastle, but the costs of doing so will need to be borne by the container developer (i.e. by making payments to the State). 940 While this advice post-dates the Port Botany and Port Kembla PCDs, it does so by only a few months and in the context of explaining the operation of the compensation provisions. It cannot be inferred from this that the State intended to hinder or prevent a container terminal being established at the Port of Newcastle. The fact that the State wanted the successful bidder for the Port of Newcastle to be liable for any payment required under the compensation provisions (and, I accept, may be inferred to have intended this consequence at the time the compensation provisions were made) does not suggest to the contrary. While it is obvious that a person may achieve an intention directly (by, for example, prohibiting a container terminal at the Port of Newcastle in the lease) or indirectly (by, for example, making the cost of a container terminal at the Port of Newcastle prohibitive), that analysis does not fit the facts of the present case. 941 It is relevant that between 2003 and July 2012 the policy of the NSW government was that container ports should be developed in sequence, with the next container port at the Port of Newcastle not being developed until Port Botany had reached capacity. 942 The change by the NSW government to State policy in July 2012 was only that the next container terminal to be developed after Port Botany had reached full capacity would be Port Kembla rather than the Port of Newcastle. The NSW government also decided that the cap imposed by a condition of development consent restricting the total TEUs handled by Port Botany to 3.2 million per year should be removed so that Port Botany would have a natural capacity limit of 7 million TEUs per year, with the consequence that capacity at Port Botany would no longer be exhausted by about 2017 but would continue until about 2030. 943 NSW government policy was in the process of changing from no later than March 2012 when analysis by Transport for NSW and, subsequently, Infrastructure NSW, indicated that the next container terminal should be at Port Kembla because that option would be the most economically efficient overall. From at least March 2012, it is apparent that the NSW government was proceeding on the basis that the policy of sequencing container terminals would remain, but that Port Kembla would precede the Port of Newcastle in the development sequence because of a range of economic efficiency considerations. Similarly, from at least April 2012, it was the view of the Treasury transaction team that, irrespective of the proposed privatisation of Port Botany, the 3.2 million TEU per year cap on Port Botany needed to be removed to enable efficient infrastructure use of that port and the logistics and supply chains developed in and around western Sydney. 944 The decision of the NSW government announced on 27 July 2012 to combine the privatisation of Port Botany and Port Kembla reflected and in part implemented the change to the State policy – that Port Kembla would be developed with a container terminal next after Port Botany had reached capacity. Consistently with this, on 31 July 2012, NPC was notified that Cabinet did not approve a concept proposal for a container terminal at the Port of Newcastle. 945 The cap on Port Botany was ultimately removed in October 2012 by the coming into force of the PAAT Act, s 32(1). As a result, there was no longer a restriction of 3.2 million TEU per year at Port Botany. The expectation of the State was that, without the cap, Port Botany would have a practical capacity limit of 7 million TEU per year which would not be used until 2030 at the earliest (see the Port Botany Scoping Study of May 2012). 946 Accordingly, by no later than July 2012, the State policy in respect of the sequencing and development of container terminals in NSW under which the Port of Newcastle was third in line and only to be developed after capacity had been used at Port Botany and Port Kembla (meaning that a container terminal would next be constructed at Port Kembla). Everything that occurred thereafter is consistent with this State policy. The State policy was supported by apparently sound economic infrastructure considerations in that the conclusions of Transport NSW and Infrastructure NSW are closely reasoned and supported by detailed analysis. At the least, to demonstrate that these conclusions were incorrect or involve an incorrect focus would have required further detailed analysis and close reasoning. 947 The new State policy was reflected in the State Infrastructure Strategy 2012-2032 published by Infrastructure NSW in October 2012, the Draft NSW Freight and Ports Strategy published in November 2012, the NSW Long Term Transport Master Plan published in December 2012, the NSW Freight and Ports Strategy published in November 2013, and the State's NSW Freight and Ports Plan 2018-2023. On the evidence, the State policy and these published plans and strategies remain in force. 948 The ACCC submitted that the State policy "was substantially (if not predominantly) a consequence of a desire by the State to protect the successful bidder from the threat of competition from the Port of Newcastle". It said that the State called no witness to give contrary evidence and the documentary record supported this contention. The ACCC said that the State would not approve NSC's proposal until it had finalised its scoping study and the outcome of the Port Botany Scoping Study was a recommendation that the State not approve the development because it would expose the successful bidder to a threat of competition from the Port of Newcastle, and the State then rejected NSC's proposal. 949 I do not accept the ACCC's submissions in this regard. It is apparent from the documentary record, which is detailed and did not require supporting oral evidence from any witness on behalf of the State, that Transport for NSW and Infrastructure NSW evaluated the issue of the use and development of container port capacity in NSW on the basis of the best interests of NSW as a whole. Their focus was the public interest in terms of maximising the use of existing infrastructure, ensuring the best value for money for new infrastructure investment, and ensuring the most cost effective supply chain for containers to and from NSW. Having regard to those considerations, Transport for NSW and Infrastructure NSW recommended that Port Botany should be used to its full capacity (unrestricted by the artificial TEU cap which had been imposed as a condition of development consent on the third terminal) and Port Kembla should be the next container port, not the Port of Newcastle, and that infrastructure investment should reflect these priorities. 950 It is clear that the NSW government accepted the recommendations of Transport for NSW and Infrastructure NSW for the reasons they gave. It is also clear that the reason the NSW government refused to support NSC's container terminal proposal is that it would be inconsistent with the State policy and was otherwise unjustifiable. The concern of the State was not that a container terminal would be developed at the Port of Newcastle inconsistent with the State policy, but that bidders for Port Botany would discount their bids because of the risk that the State policy itself might change thereby enabling the development of a container terminal at the Port of Newcastle. The State never considered (for good reasons, as discussed below) that a container terminal would be developed at the Port of Newcastle inconsistent with the State policy. 951 It is not the case that the threat of competition from the Port of Newcastle caused the change in the State policy. The State policy was formulated on the basis of a NSW-wide public interest assessment focusing on maximum economic efficiency for the State as a whole. The State policy, in substance, is a major infrastructure planning policy. Its focus is the sequence and timing of major port infrastructure development which has significant ramifications for other infrastructure capacities and requirements, including the timing of the provision of other infrastructure capacities. The NSW government recognised that there was a pressing need for substantial infrastructure investment in NSW for a number of decades, and that it should implement a "just in time" principle of infrastructure provision. It is obvious why the State requires such a policy. Haphazard development of major port infrastructure such as a container terminal could result in significant detriment to the overall economic performance of NSW. It is necessary for the NSW government to promulgate policy about such development so that public and private investment can be appropriately planned and sequenced over the longer term to maximise the value to NSW of such investment. 952 As such, the ACCC has the relevant cause and effect relationship the wrong way around. A threat of competition from the Port of Newcastle did not have the effect of changing the State policy. A public interest assessment focusing on overall economic efficiency caused the change in the State policy and it is that change that had an effect on whatever threat of competition the Port of Newcastle otherwise presented. In any event, the decisions of the State about its ports sequencing and development policy are outside the scope of the CCA because they have nothing to do with the carrying on of any business: s 2B of the CCA. 953 I accept the State's submissions as follows: The [ACCC's] submission is that the Court can infer that the State's change in policy, favouring Port Kembla rather than Port of Newcastle as the next location for a container terminal once Port Botany reached capacity, was "substantially (if not predominantly) a consequence of a desire by the State to protect the successful bidder from the threat of competition from the Port of Newcastle". … The submission has no sensible foundation. In part it appears to be based on an erroneous reading of the Scoping Study, namely that the outcome of the study was "a recommendation that the State not approve the development because it would expose the successful bidder to a threat of competition from the Port of Newcastle" … No fair reading of the Scoping Study leads to that conclusion. As explained above, the Scoping Study concluded that there was an overwhelming list of reasons why the State should remove the throughput cap at Port Botany, operate Port Botany to full capacity, and then seek to develop Port Kembla to full capacity before developing Port of Newcastle. It is hardly an exaggeration to say that almost everyone outside the NPC boardroom who had views on these matters was in agreement about the conclusions. An incidental but logical corollary of that was that the extant proposal to develop a container terminal at Port of Newcastle should not proceed. … The very notion of desiring to "protect the successful bidder" from the threat of competition from the Port of Newcastle shows how the ACCC has failed to take account of the policy settings that were in operation. The ACCC has not suggested that the decision to lift the throughput capacity at Port Botany was itself anti-competitive or somehow part of the [anti-competitive] scheme described … [by the ACCC] . But once the cap had been lifted there was simply no prospect of any container terminal port in NSW competing with Port Botany for a matter of decades. 954 The first hint of any issue which might involve anything like the compensation provisions was in April 2012 when Morgan Stanley mentioned to the NSW Treasury that the State did not wish to send "[i]nconsistent message[s] to bidders about government competing with Botany". This consideration was separate from and had nothing to do with the evaluations of Transport for NSW and Infrastructure NSW about port sequencing and development. 955 This inchoate issue did not crystallise until February 2013 when bidder Hobson identified compensation as a fundamental issue if the State changed its policy to favour the Port of Newcastle as the next container terminal (instead of Port Kembla which had been included as part of the privatisation of Port Botany on 27 July 2012). In this regard, it may be noted that Hobson did not suggest any prospect of the State changing its policy that container capacity at Port Botany would be used before the establishment of the next container terminal in NSW. The State and those advising it considered the issue raised by Hobson to be a "straw man", but recognised that bidders would be conservative about risk and materially reduce the price they were willing to pay the State for the rights on account of the risk. 956 The fact that the State owned and controlled the Port of Newcastle until May 2014 does not affect my conclusions. While the privatisation of the Port of Newcastle was not announced until November 2013 (following an earlier announcement of a long-term lease proposal in June 2013, subject to a scoping study), it must be inferred that in the minds of those advising and constituting the State there was a probability from 2012 onwards that the Port of Newcastle would also be privatised. The NSW government would not have made the announcement in the terms it did in June 2013 unless it intended to privatise the Port of Newcastle and had a high degree of confidence that the scoping study would support privatisation. 957 The compensation provisions operated if the State (contrary to the State policy) established a container terminal at the Port of Newcastle or if a private port operator did so after privatisation. Either way, the purposes of the State and NSW Ports remained the same; for the State, to ensure that bidders did not discount their bids because of the risk of the establishment of a container terminal at the Port of Newcastle and, for NSW Ports, to ensure that it would retain what it would pay for – the full extent of the existing monopoly of Port Botany in respect of container port services in NSW. 958 It is true that it had previously been State policy that a container terminal would next be developed at the Port of Newcastle once Port Botany had reached capacity. However, that policy had changed by no later than July 2012. There were (and are) also strong disincentives to the NSW government changing the State policy again having regard to the economic infrastructure analyses of Transport for NSW and Infrastructure NSW. Those disincentives are discussed further below. 959 Both the State and NSW Ports were faced by what they must be inferred to have perceived to be a form of asymmetric risk – the risk of a container terminal being established at the Port of Newcastle was low in their minds by the time the privatisation deal came to be finalised, but bidders would disproportionately discount the value of Port Botany because the risk, if it occurred, could significantly reduce the profitability of Port Botany (and Port Kembla in the longer-term). 960 This is why Mr Garcia agreed that he perceived the risk to bidders for Port Botany and Port Kembla to be material in 2012. The evolution of the State policy and NSW Ports' own due diligence throughout 2012, as well as the inclusion of Port Kembla in the privatisation, explains why he became "less and less" concerned about this risk. A risk may be material, even if it is very unlikely to eventuate, because of the magnitude of the consequences if the risk does eventuate. If a sufficiently functional container terminal was operating at the Port of Newcastle, it may be able to take a significant share of container volumes from Port Botany. The magnitude of the potential harm to Port Botany was thus high. Even a small risk of that occurring would have been, and was, highly relevant to NSW Ports. The State appreciated this because it realised that the asymmetry of the risk might well cause a significant loss of value to the asset it was selling. This is why the State accepted that it had to disclose the risk and do something to ameliorate it. This does not necessarily mean that NSW Ports or the State, at the time the compensation provisions were made, considered the likelihood of the risk occurring to be high, probable, or even real. What the State must have accepted, however, was that the risk was not so trivial or so remote that bidders could be relied upon to dismiss it as irrational and irrelevant to their bid price. In this regard, it is relevant to note that the risk being addressed was the risk of a change of the State policy in the future. It was not the risk that a container terminal might be developed at the Port of Newcastle contrary to the State policy; that possibility was never contemplated. 961 The fact that Mr Garcia and Mr Droga accepted that the compensation provisions provided NSW Ports with financial protection in the event of competition for container volumes from the Port of Newcastle and that such protection was valuable does not mean that NSW Ports or the State, in entering into the compensation provisions, had the purpose of: (a) preventing or hindering the Port of Newcastle from competing with Port Botany, or (b) enabling Port Botany not to compete with the Port of Newcastle. As Mr Droga said, what NSW Ports was "happy to receive" from the State was compensation for the effect of potential competition from the Port of Newcastle. NSW Ports and the State, it is apparent, were not seeking to prevent or hinder such competition from occurring. They were agreeing to financial compensation to NSW Ports from the State if it did occur and NSW Ports suffered loss as a result. A purpose of that kind is not a purpose of substantially lessening competition, even though it may or may not have that effect. 962 This is consistent with Mr Droga's evidence that he did not believe the compensation provisions "provide protection or limitation on trade at Newcastle", but rather provided "a payment from the New South Wales government should certain metrics be met". As NSW Ports submitted, the NSW Ports' evidence, fairly considered, is that the compensation provisions gave financial protection to NSW Ports if there was competition for containers from the Port of Newcastle, not that NSW Ports should be protected from such competition by preventing or hindering the development of a container terminal at the Port of Newcastle. "Protection from competition", in context, means financial protection from the loss resulting from competition, not the prevention or hindering of competition. 963 The submission of NSW Ports and the State that the purpose of the compensation provisions was to codify the State's policy as it existed from July 2012 onwards is problematic. As PON submitted, it is clear that the purpose of the State policy was (and is) to prevent the development of a container terminal at the Port of Newcastle until container capacity is used at Port Botany and Port Kembla. If the compensation provisions codified the State policy then their purpose would be to prevent the development of a container terminal at the Port of Newcastle for three or more decades. The submissions, accordingly, are in fact contrary to the interests of NSW Ports and the State in this case. If the substantial purpose of the State and/or NSW Ports had been to prevent or hinder entry of the Port of Newcastle into the market for Container Port Services in NSW then, depending on the likelihood of entry into the market by PON, that may involve the proscribed purpose. It would not matter that no container terminal exists at the Port of Newcastle. As s 4G of the CCA makes clear, if competition is prevented or hindered, it is lessened. 964 However, I do not accept that in making the impugned provisions NSW Ports or the State had the purpose of preventing or hindering the development of a container terminal at the Port of Newcastle. The "codified regime" referred to in the bid documents issued in March 2013 is the regime established by the compensation provisions. The compensation provisions are engaged only if a container terminal is in fact established and operating at the Port of Newcastle within the 50 year term of the Port Botany and Port Kembla PCDs and if Port Botany and Port Kembla have not reached Full Capacity. That is, the compensation provisions do not codify the State's policy to prevent a container terminal at the Port of Newcastle until Port Botany (and Port Kembla) have reached capacity, but rather assume the State policy has changed to enable the development of a container terminal at the Port of Newcastle while Port Botany (or Port Kembla) has not reached Full Capacity. The fact that a Morgan Stanley representative inaccurately described the compensation provisions as "documenting" the State policy does not mean that this represents the purpose of either the State or NSW Ports in including the compensation provisions in the PCDs. 965 Consider the circumstances from the perspective of the State. In effect, it was selling an existing monopoly of Port Botany for Container Port Services that extended over a large part of NSW. The State wanted to get full value for that monopoly. It could only get full value by giving financial protection to bidders from the risk of the monopoly being reduced by a container terminal being developed at the Port of Newcastle because the risk that the State policy might change could never be eliminated. It knew that it could get indemnified for liability as a result of providing that financial protection by requiring an indemnity as part of the privatisation of the Port of Newcastle. 966 From the State's perspective, with the impugned provisions: (a) the successful bidder for Port Botany would have paid full value for the existing monopoly, (b) any future successful bidder for the Port of Newcastle would not have paid anything for the existing monopoly, and (c) if the future successful bidder for the Port of Newcastle wanted a part of the existing monopoly it, rather than the State, should pay for it. 967 Dr Pleatsikas reached the same conclusions but hypothesised that any bidder for the Port of Newcastle, if they considered they could develop it with a container terminal, would have discounted their bid by the net present value of the reimbursement provisions. If a bidder believed it could develop a container terminal at the Port of Newcastle contrary to the State policy (in my view, an entirely unreal proposition), I consider that this must be right. He also hypothesised that a bidder for Port Botany would have paid for the net present value of the operation of the compensation provisions. I accept that this is a more precise characterisation of the position of the bidder for Port Botany. My characterisation in (a) above is intended to convey how I consider the State would have perceived what was involved. 968 There is also evidence that PON appreciated these facts at all times. On 16 April 2020 PON assessed the success fee which it should pay to its employees if the reimbursement provisions were set aside should reflect the "low probability ascribed to container terminal operations [at the Port of Newcastle] buy [sic] bidders in 2014". This reinforces my view that PON did not pay the State for any right to construct a container terminal while Port Botany has capacity or before a container terminal is constructed at Port Kembla. 969 From this perspective, as at May 2013, the compensation provisions (and contemplated reimbursement provisions) were not intended to prevent or hinder a container terminal at the Port of Newcastle. They were intended to allocate financial costs and benefits appropriately if the State policy changed in the future and a container terminal was permitted to be constructed at the Port of Newcastle before Port Botany and Port Kembla had reached Full Capacity. After all, from the perspective of the State and NSW Ports, NSW Ports paid for what it received and PON paid for what it received. The question which would arise for the State is, why should PON now get more than it received for nothing? I note that this posited perspective of the State is reflected in evidence that the current Treasurer of NSW said to Mr Carmody at a meeting about PON's plans in November 2018 that "PON knew what it bought, including the PCD". This question, however, concerns the likely effect of the impugned provisions discussed below. 970 There is no suggestion at all in the detailed documentary record that the State (or NSW Ports) considered that the compensation provisions would prevent or hinder a container terminal at the Port of Newcastle. This is telling given the detailed documentary record. 971 The purpose which the State identified in its submissions – to maximise the amount that it received on privatisation of Port Botany and Port Kembla – does confuse purpose and motive, but that does not assist this aspect of the case of the ACCC and PON. As noted, the State's motive was profit maximisation. The end or purpose sought to be achieved by the State was to ensure bidders did not discount their bids because of the risk of a container terminal at the Port of Newcastle taking container volumes away from Port Botany. The end or purpose sought to be achieved by NSW Ports as the successful bidder was to ensure that it retained the value of the rights it was acquiring if the risk of a container terminal at the Port of Newcastle taking container volumes away from Port Botany eventuated. 972 I accept that it does not matter that, on the evidence, if a container terminal was established at the Port of Newcastle it would not attract containers from across the whole of NSW. Port Botany would retain a substantial captive hinterland. This is immaterial as it is common ground that the Port of Newcastle would itself have a large hinterland from which it could draw substantial volumes of containers that would otherwise have been handled by Port Botany. 973 I do not agree that inferences of the kind described in Jones v Dunkel at 308, 312 and 320-321 arise or should be drawn against NSW Ports and the State. The documents on which the ACCC and PON relied do not support the conclusion that the State's purpose in proposing and agreeing to the compensation provisions was to ensure that NSW Ports would not be constrained by competition from a container terminal at the Port of Newcastle, and would bid accordingly. The purpose, rather, was to ensure that bidders did not discount their bids because of the risk of competition from the Port of Newcastle. The intended end or object was not to free NSW Ports from the constraint of such competition; it was to compensate bidders if the risk to profitability by reason of such competition eventuated, so that they would bid on that basis. In my view, this is clear from all of the documents, the surrounding circumstances, and the text of the compensation provisions. Nothing called for an explanation by persons involved in the privatisation on behalf of the State of any unexplained or ambiguous matter. 974 I do agree, however, that NSW Ports' submission that its purpose in agreeing to the compensation provisions is irrelevant because it was not an "including party" is misconceived. NSW Ports did not need to propose the compensation provisions to have been a party to including those provisions within the Port Botany and Port Kembla PCDs. It agreed to the inclusion of the compensation provisions, which means that its purposes are relevant to s 45(2)(a). Section 4F does not suggest otherwise. It does not require any inquiry into the proposer of the provision or the party which benefits from the provision. It suffices if the provision is included in a contract by agreement and without objection in which event the purpose of each contracting party is relevant. As the ACCC submitted, any other construction of s 4F would mean that an anti-competitive provision proposed by and inserted solely for the benefit of one party would not be capable of engaging s 45. There is no justification in the scope, objects or purpose of the CCA, or the text of the relevant provisions, for that construction. 975 Seven Network is not to the contrary. At [851] in Seven Network the including parties are described as those who caused the provision to be included in the contract. In the present case, the State and NSW Ports both caused the compensation provision to be included in the Port Botany and Port Kembla PCDs. At [881]-[884] in Seven Network the issue was inclusion of a provision in a contract over the objection of a party. In that event, it was the purpose of the proposing party, not the party which objected to the provision, which was relevant. In the present case, NSW Ports did not object to the compensation provisions. It was happy for them to be included in the PCDs. The fact that it did not wish its bid to be marked down by the State if it proposed any amendment to the compensation provisions may be accepted. The relevant fact, however, is that it agreed to the inclusion of those provisions in the PCDs without objection. While Seven Network and ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) [1990] FCA 710; (1990) 27 FCR 460 do not fix the metes and bounds of circumstances in which a party to a contract may not be an including party, there is nothing in the facts of the present case which would place NSW Ports in that category. 976 I also consider that the submission of NSW Ports and the State that the State "cannot have had a subjective purpose of suppressing competition that it did not consider would exist in the future" fails to recognise that the issue was one of risk. The State appreciated that bidders would perceive a risk that the State policy might change and that as a result a container terminal might be established at the Port of Newcastle. The State appreciated that its policy could not eliminate that perceived risk because governments can change and governments can change their minds. The compensation provisions do not answer the question whether there was a real chance or a real possibility of the risk eventuating in the foreseeable future because the risk, as I have said, was asymmetrical – provided the risk of a change in the State policy was not so trivial that bidders would dismiss it as irrational (which was plainly not the case) it had to be addressed. 977 The same conclusion applies to the State's submissions that the compensation provisions "ought properly be described as arising through a sidewind, in response to the concern raised by bidders (and the advice that the transaction team gave about the need to manage equivalent concerns among other bidders)" and that bidders might hold a "false perception" of the risk of a competing container terminal at the Port of Newcastle and "irrationally devalue the price that the State would receive as part of the privatisation for no good reason". The compensation provisions were not a sidewind. One or other bidder was bound to raise the issue at some time because of the nature of the risk. The perception of risk was not false because an asymmetrical risk is always relevant. Further, the devaluing of a bid to reflect the risk would not have been irrational, given the asymmetrical nature of the risk. The State considered the issue a "straw man" because it assessed the risk to be exceedingly small, but it also knew that the risk existed and the perception of it could not be eliminated. The State thus was not dealing with a "red herring". The issue was real, even if the State and NSW Ports considered that the risk itself was not. 978 The State submitted that the key issue is that from the State's perspective its policy settled that a container terminal would not be established at the Port of Newcastle until capacity at Port Botany and Port Kembla had been used; the consequence is that no additional step of resolving the policy and securing its implementation through the device of the compensation provisions was required or understood to be an outcome achieved through those provisions. I agree, but still consider that the compensation provisions did something the State's policy could not do. They enabled the State to obtain full value for the existing monopoly it was selling. 979 I otherwise agree with the submissions of NSW Ports and the State to the following extent: (1) the question for the bidders would be whether they were purchasing a market covering a large part of New South Wales, or whether they were purchasing a market covering only the southern half of New South Wales; (2) the protection obtained by the compensation provisions was "financial" or "economic" in the event of diversion of containers from Port Botany to the Port of Newcastle, rather than protection against such diversion occurring; (3) a purpose of financial protection is not necessarily the same as a purpose of protection from competitive constraint, even if the financial protection might have the effect of operating as a competitive constraint; (4) the decision-making processes of the State are formal and involve the recording in detail each step in the privatisation process and the thoughts of the participants as they went through it. Despite that record, the ACCC and PON have been unable to point to any document in which either of the contractual parties, or any of the responsible individuals, expressed their desire to use the compensation provisions as a means to prevent or hinder competition with or from the Port of Newcastle; (5) the absence of any expression of a purpose to prevent or hinder competition between Port Botany and the Port of Newcastle amongst the vast array of material recording the State's decision making is demonstrative of the fact that no such purpose existed; and (6) the PCDs addressed the perception of sovereign risk by creating a scheme for financial compensation that was wholly reactive to events that might transpire. 980 For these reasons, I am not satisfied that either the State or NSW Ports, in making the compensation provisions, had the purpose of substantially lessening competition. Further, as noted, no evidence supports an inference of any such proscribed purpose of the State or NSW Ports in respect of any prospect of giving effect to the impugned provisions in the future (which is itself unrealistic for the reasons given below). 8. LIKELY EFFECTS OF IMPUGNED PROVISIONS 8.1 Some facts and considerations 981 Some facts and considerations which are apparent from the evidence (either directly or by inference) and are relevant to the evaluation of the likely effect of the compensation and/or reimbursement provisions should be identified. 982 (1): Participants in this industry are well resourced, commercially sophisticated, well informed, have significant industry knowledge, and would be able to conduct detailed investigations and analyses of the circumstances relevant to any proposed investment. 983 (2): As discussed, the State policy about sequencing and development of container terminals had nothing to do with the impugned provisions. The policy (as it existed from 2003 and in its changed form from July 2012 onwards) is separate from the impugned provisions. The effects of that policy, accordingly, are not to be confused with the likely effects of the impugned provisions. The submissions of the ACCC and PON to the contrary must be rejected. 984 Under the NSW Labor government between 2003 and 2011, State policy was to sequence the development of container terminals using up capacity at Port Botany before developing a container terminal at the Port of Newcastle. Under the NSW Liberal government from July 2012 onwards, the State policy was to sequence the development of container terminals using up capacity at Port Botany before developing a container terminal at Port Kembla and then, once capacity at Port Kembla had been used, at the Port of Newcastle. 985 While the formulation and adoption of the State policy in July 2012 was unaffected by the impugned provisions, it is relevant to consider whether the impugned provisions have any likely effect on the NSW government potentially changing the State policy in the future. As explained below, there is no rational basis upon which it can be inferred that the impugned provisions involved any real chance or real possibility of preventing the NSW government from changing the State policy. 986 (3): The planning and development of a container terminal is a very large and expensive exercise. It would be years in the planning and in the construction. On this basis, the State policy would always have been understood by the State and industry participants to mean that Port Botany had to be sufficiently approaching its capacity before the State would support the development of the next container terminal, planned by the State to be at Port Kembla. 987 (4): Given the nature of container terminal development, the reasonably foreseeable future for a port owner is the long-term future. Ports do and would have to engage in long-term strategic planning of all of their operations. Port or prospective port operators would not be concerned by the need for a long-term strategy involving a decade or more of work. 988 (5): There is no evidence that any industry participant at any time has considered attempting to develop a container terminal without the support of the State and contrary to the State policy. The evidence is all to the contrary. 989 First, the State itself never contemplated this possibility. All of its internal documents assume that the relevant risk was not that a private operator of the Port of Newcastle might develop a container terminal contrary to the State policy and without the support of the NSW government. The relevant risk was identified as the NSW government, in the future, changing the State policy and supporting the development of a container terminal at the Port of Newcastle while Port Botany has capacity or before a container terminal is developed at Port Kembla. There is also no evidence that NSW Ports has contemplated that a container terminal might be developed at the Port of Newcastle contrary to the State policy. The focus of NSW Ports in terms of its advocacy is to ensure the NSW government does not change the State policy. 990 Second, the circumstances in respect of NSC/MDC support the inference that there was no prospect of any industry participant proceeding to develop a container terminal at the Port of Newcastle without the support of the State. It is clear from NSC/MDC's correspondence of 22 August 2012 that it had no intention of developing a container terminal at the Port of Newcastle other that at a time as contemplated by the State's policy. The reason for this position, in my view, is obvious. To be viable, any container terminal requires substantial government support in terms of public infrastructure planning and implementation (roads and rail in particular) and government encouragement and facilitation of private infrastructure planning and implementation (distribution centres in particular). This need for government support is apparent throughout the evidence including: (1) the National Ports Strategy 2011 – "[l]ong-term integrated plans will help to attract public and private investment in ports and related logistics sectors"; (2) the Transport for NSW Corporate Plan 2012-2017 – "NSW roads, rail network, intermodal terminals and ports are some of the most important pieces of infrastructure to enable domestic and international freight movements and support economic development"; (3) the Treasury transaction team advice, "Near Term Decisions requested from the Treasurer/Government", 12 April 2012 – a container terminal at the Port of Newcastle would "likely increase the NSW container transport task by requiring additional infrastructure to/from Sydney and Newcastle"; (4) NSW Ports' letter to the Treasurer 4 May 2012 – additional container capacity at the Port of Newcastle or Port Kembla would "have the negative consequences of bringing forward the investment required by the Government in both road and rail infrastructure which is required to cater for the same level of container imports and exports into and out of Sydney"; (5) the Port Botany Scoping Study May 2012 – developing alternative container terminals at Port Kembla or the Port of Newcastle would involve "significant investment … in associated road and rail infrastructure (and re-aligning the logistics supply chain)"; (6) the PWC Mayfield Market Study Assessment, 22 May 2012 – use of the Port of Newcastle as a major import port would need "extensive upfront capital investment in the Newcastle area (e.g. new distribution centres or changes to the logistics chain) that will 'pull' customers to Newcastle"; (7) the Transport for NSW discussion paper "Options for Container Ports in NSW" July 2012 – the costs for developing a container terminal at Port of Newcastle would be $12.1 billion if all such costs were allocated to the port development and $6.2 billion if those costs were proportionally allocated to the port development; (8) the Draft NSW Freight and Ports Strategy November 2012 – a container terminal at the Port of Newcastle would involve significantly greater public infrastructure expenditure than a container terminal at Port Kembla; (9) the NSW Long Term Transport Master Plan December 2012 – was consistent with the Draft NSW Freight and Ports Strategy November 2012; (10) the internal NSW Ports' report, "Project Cook: Investment Review Investment Committee Paper 2" 14 March 2013 – development of a container terminal at the Port of Newcastle would require an upgrade to the Northern Sydney Freight Corridor, incremental transport costs, additional intermodal container terminal capacity, and improvements to road capacity; (11) the NSW Freight and Ports Strategy November 2013 – was consistent with the Draft NSW Freight and Ports Strategy; (12) the NSW Freight and Ports Plan 2018-2023 – "[g]iven the significant cost of new infrastructure, the NSW Government and industry need to boost the performance and utilisation of the State's existing roads, rail, ports, pipelines and airports"; (13) the PON PBC – contemplates the requirement for a re-alignment of the existing logistics supply chain for a container terminal to be viable at the Port of Newcastle and notes a weakness as the lack of existing infrastructure including intermodal services, distribution centres, empty container parks and related container services; and (14) the McKinsey & Co advice to PON August 2020 – that a "[c]ritical driver for PON volumes [is] likely to be … rail network and terminal (intermodal) capacity from PON to Sydney". 991 Third, there is also evidence that PON has always understood this reality. This supports the inference that the same reality would have been and was understood by a prospective private operator in May 2013 and PON in May 2014. The need for the support of the State is apparent from PON's view that its prospects of developing a container terminal would be materially improved by a change in the NSW government in the 2019 election because NSW Labor was said to have given a public commitment to "fix the PCD", to be concerned about poor privatisation deals, to consider the Hunter region a Labor stronghold, and to consider that the Hunter and Newcastle regions had been actively overlooked in terms of regional and economic development funding. 992 PON also developed and revised a detailed and sophisticated strategy of maintaining communications with the NSW government while educating stakeholders about linking "regional development to improved port competitiveness leading to lower freight charges for farmers and regional exporters" and the economic and employment benefits to be obtained from a container terminal at the Port of Newcastle. PON's interest in the identity of and in continuing its advocacy to the NSW government reflects its apparent objective of effecting a change in the State policy to enable a container terminal to be developed at the Port of Newcastle. The evidence does not support the inference that PON is acting on the basis that it may in fact construct a container terminal contrary to the State policy. 993 Fourth, as explained below, there are legal and practical impediments to the development of a container terminal at the Port of Newcastle without the support of the NSW government. 994 In my view, the evidence supports the inference that there was and is no real chance or real possibility of PON (or any private operator) developing a container terminal at the Port of Newcastle while Port Botany has capacity of before a container terminal is developed at Port Kembla, unless the support of the NSW government is secured for that development which would require a change in the State policy. 995 I also consider that it must follow that there was (and is) no real chance of the necessary financing being obtained to construct a container terminal at the Port of Newcastle unless the support of the NSW government is secured for that development. The evidence discloses how much ports depend on government support and the need for them to engage in strategic government management including advocacy for infrastructure which will benefit the port. Without this support being secured, I cannot see any real possibility of financing being obtained to enable construction of a container terminal at the Port of Newcastle. 996 Mr Balchin gave this evidence: Lastly, I observe that a number of the affidavits that go to this matter have conceded that a new container terminal at the Port of Newcastle is not the NSW Government's preferred option for the further development of container terminal capacity in NSW. Rather, it is conceded that the NSW Government's preferred option is for Port Botany to continue as the sole container terminal in NSW until its capacity is used, and then for the next container terminal to be developed at Port Kembla. My assumption would be that the Government's view is based on a consideration of the whole-of-system cost to the citizens and businesses of NSW, including the direct and indirect costs of expanding transport infrastructure where required to ensure the efficient movement of freight into and out of NSW. I would expect the NSW Government's views on this matter to be a factor that a potential investor in a container terminal at the Port of Newcastle would take into account when judging the commercial feasibility of the investment, and for this to be given substantial weight given the importance of efficient land transport links into and out of the port for the commercial success of a container terminal. 997 Mr Balchin's assumption is correct. The State policy was, as Mr Balchin put it, the result of "consideration of the whole-of-system cost to the citizens and businesses of NSW". While I accept that: (a) governments can change and can change their minds, (b) State policy is ultimately a manifestation of the political will of the NSW government, (c) the public interest is a polycentric concept, and (d) perceptions about the needs of and opportunities for the Hunter region are relevant, there are some kinds of major infrastructure which require a "consideration of the whole-of-system cost to the citizens and businesses of NSW". The next container port in NSW, its timing and location, is one such kind of major infrastructure. 998 I should also note here that although Dr Pleatsikas referred to the "sunk costs principle" (that sunk costs are irrelevant to future decisions), it is clear that the State does not apply that principle in its decision-making. State policy, at all times, has taken into account and given weight to maximising the value from sunk costs of the State, the Commonwealth and private developers. 999 As a result, I am satisfied that, without the support of the State, a prospective private operator of the Port of Newcastle as at May 2013 and PON as at May 2014 would not have been willing to and would not commit to the construction of a container terminal at the Port of Newcastle. Consistent with PON's actual actions to date, the prospective private operator as at May 2013 and PON as at May 2014 would only have been willing to proceed with a container terminal at the Port of Newcastle if they could secure a change in the State policy. The prospective private operator and PON would have understood that to have any chance of securing this change of policy, they would need to present a good case that it would be in the public interest to do so which would include but not be confined to the issue of the viability of the container terminal. 1000 (6): The State is a legal entity which continues. The NSW government is decided at four yearly State elections required under the NSW Constitution Act. The policy of the State is determined by the NSW government of the day. 1001 An election was held in 2011 and the then NSW Labor government was replaced by a NSW Liberal government which has continued to hold government at further elections in 2015 and 2019. 1002 There is no evidence about the likely political landscape of NSW from 2013 onwards (that is, whether a change in the NSW government was or is likely or not after 2013). There is no evidence about the political landscape of NSW as at today's date. As a result, the prospects of a change of NSW government potentially resulting in a change of the State policy were and are in the realm of speculation. Such a change is always possible given our democratic system of cyclical elections but, without evidence, I consider that it would be wrong to conclude that because the NSW government might change in the reasonably foreseeable future assessed from May 2013/May 2014 or from today, it would follow that there is a real chance or real possibility of a change in the State policy. This approach would involve two levels of speculation: (a) as to a change in government, and (b) as to a resulting change in the State policy. 1003 I can say nothing about speculation (a), as there is no evidence one way or another. As to speculation (b), there is some evidence but conclusions would remain speculative. Even if PON is right that its case for a container terminal would be considered more favourably by a NSW Labor government, there are some inescapable facts: (1) it has been State policy since 2003, under both NSW Labor and NSW Liberal governments, that container terminal development should be in sequence, using up existing capacity at Port Botany first, and substantial public and private investments in the container supply chain in NSW have been made on that basis; (2) the State policy since July 2012 (Port Botany first, and then Port Kembla, and then the Port of Newcastle) has been implemented in part with associated substantial public and private expenditure – the cap on Port Botany has been removed, Port Kembla was privatised with Port Botany, the Port of Newcastle was privatised on the basis it would be third in line for a container terminal, and road and rail and intermodal and other public and private infrastructure funded by the Commonwealth and the State has continued to be constructed on the basis of the State policy; (3) any potential benefits to the Hunter region (PON's main selling point for its case) would depend upon the NSW government being satisfied that a container terminal at the Port of Newcastle while Port Botany has capacity would be viable; and (4) it must be inferred that any NSW government would have to consider the whole of system cost and efficiency of supporting a container terminal at the Port of Newcastle while Port Botany has capacity. 1004 In seeking to persuade the NSW government to change the State policy, PON would need to present an apparently sound case about these considerations. Unsurprisingly, PON's investigations since 2018 have been directed to developing a case which might favour it, particularly in respect of the viability of a container terminal at the Port of Newcastle and the relative public infrastructure costs of a container terminal at the Port of Newcastle and at Port Kembla. 1005 The fact that PON's consultants' reports (discussed below) assess public infrastructure considerations, as well as longer-term viability of the container terminal, confirms that PON is well aware of the fact that basing a case for a change of the State policy on viability alone will not be sufficient. In closing submissions PON attempted to address the issue of relative public infrastructure costs as between a container terminal at Port Kembla or the Port of Newcastle. PON referred to the Transport for NSW costs comparison. PON noted that the F2/F3 road corridor or NorthConnex had been constructed irrespective of the development of a container terminal at the Port of Newcastle. Transport for NSW had posited that this would cost $3 billion and had partly or fully allocated that cost to a container terminal at the Port of Newcastle. Further, another cost for the M1 Hexham allocated to the Port of Newcastle by Transport for NSW had already been committed irrespective of a container terminal at the Port of Newcastle. 1006 The problem for PON is that while it may or may not be right about the magnitude of the cost of public infrastructure required to support a container terminal at the Port of Newcastle, it is the NSW government which it will need to persuade about issues which extend beyond the mere allocation of public infrastructure costs to support a container terminal at the Port of Newcastle. The prospect of that occurring remains entirely speculative. 1007 (7): Between October 2003 and early 2012 the policy of the State was that once Port Botany had reached capacity, the next container terminal developed in NSW should be at the Port of Newcastle. During the latter part of this period, after the development of the third terminal which substantially increased its capacity, Port Botany was subject to a condition of development consent restricting it to a total of 3.2 million TEUs per year. By 2012 it was apparent that Port Botany might reach this TEU cap by as early as 2017. 1008 As part of the review of ports policy in 2011/2012, it became apparent to the State that in order to maximise the efficient use of public and private infrastructure investment, the artificial cap on the maximum capacity of Port Botany of 3.2 million TEUs per year had to be removed. The development consent condition was removed by s 32(1) of the PAAT Act in October 2012. On that basis, the State expected that Port Botany would have a capacity of about 7 million TEUs per year and its capacity would not be exhausted until about 2030 at the earliest. 1009 (8): Consistent with the State policy as crystallised by July 2012, the Treasurer notified NPC on 31 July 2012 that it would support the development of a multi-use cargo facility at the Port of Newcastle, but not a container terminal. NSC/MDC's proposal to NPC for the long-term lease of the Port of Newcastle proposed a multi-use cargo facility in stage one and a container terminal in stage two. NSC/MDC's proposal did not specify when or under what circumstances stage two might be developed. NSC/MDC subsequently acknowledged on 22 August 2012 that stage two, a container terminal, "may not be authorized for some time (could be 20 years away)". In other words, as I have concluded, NSC/MDC did not propose constructing a container terminal without NSW government support or other than in accordance with the State policy. 1010 (9): The potential privatisation of the Port of Newcastle was being mentioned by the Treasury transaction team by 10 March 2013. The fact that the Treasurer, apparently immediately and without demur, approved the suggestion made on 10 March 2013 that any compensation to Port Botany and Port Kembla could be offset by a provision in respect of the privatisation of the Port of Newcastle indicates that the privatisation of the Port of Newcastle was a definite part of the State's plans by no later than that date (and probably earlier). 1011 It also indicates what is obvious; a party in the position of the State as at May 2013, proposing to impose a contingent liability on itself arising from a risk of development of another one of its assets it was proposing to privatise (that is, the Port of Newcastle), would know and expect that it would be able to transfer that contingent liability to the successful bidder for that other asset. That conclusion does not involve mere speculation. It was commercial common sense. The reimbursement provisions (or their equivalent) were immediately conceived by Morgan Stanley once the compensation provisions were on the table and were immediately endorsed by the Treasurer because they were an obvious and sensible consequence of the compensation provisions. The submissions to the contrary of the State and NSW Ports are not persuasive. 1012 The submissions of the State to the effect that no decision was made to privatise the Port of Newcastle until November 2013 assumes that the decision was made immediately before the public announcement of the privatisation. This is incorrect. It ignores the negotiations between NPC and NSC/MDC which the State permitted to run their course, and the fact that in June 2013 the State announced the long-term lease of the Port of Newcastle subject to a scoping study. As I have said, the NSW government would not have made such an announcement unless it intended to privatise the Port of Newcastle and was confident that the scoping study would support privatisation. 1013 Accordingly, I am satisfied that as at May 2013 it was probable (indeed, highly probable) that the Port of Newcastle would be privatised and it was probable (indeed, highly probable) that any such arrangement would include the reimbursement provisions. This does not involve building a possibility upon a possibility. Separate from the compensation provisions, the probability as at May 2013 was the transfer of the operation of the Port of Newcastle to private interests. Because of the compensation provisions, the probability as at May 2013 was that the transfer would be on the basis of the equivalent of the reimbursement provisions. 1014 For this reason, it was the case that prospective private operators of the Port of Newcastle existed as at May 2013. Those prospective private operators would have been considering their strategic investment positions with respect to the Port of Newcastle before, as at and after May 2013. While their focus would have intensified after the announcement in June 2013 and again after the announcement in November 2013, the idea that the industry might have been taken by surprise at either announcement is untenable. It must be inferred that by May 2013 they knew that the Port of Newcastle would be privatised next and were considering their positions in this regard. 1015 For this reason also, it was the case that the prospective privatisation of the Port of Newcastle as at May 2013 was to be on the basis of the equivalent of the reimbursement provisions. That is, with the compensation provisions, the equivalent of the reimbursement provisions is a necessary element of the circumstances from May 2013. Without the compensation provisions, the equivalent of the reimbursement provisions is not a relevant element of the circumstances from May 2013. 1016 (10): The Port Botany and Port Kembla PCDs, containing the compensation provisions, were made on 31 May 2013. The PCDs have a term of 50 years. 1017 (11): At that time, negotiations between NPC and NSC/MDC in respect of the long-term lease of the Port of Newcastle were continuing as authorised by the State for the development only of a multi-use cargo facility and not a container terminal. The State's negotiation parameters included that NSC/MDC would be liable for any payment required by the State under the compensation provisions. 1018 (12): By October 2013 NSC/MDC did not wish to proceed with the long-term lease of the Port of Newcastle for a proposed multi-cargo facility, and the State considered that it should not approve any long-term lease given the proposed privatisation of that port. The Treasurer then issued a direction to NPC for it to cease negotiations with NSC/MDC in November 2013. 1019 (13): The State announced that the proposed privatisation of the Port of Newcastle would proceed on 5 November 2013. The privatisation requirements included that the successful bidder would be liable to reimburse the State for any liability it had under the compensation provisions. 1020 (14): The privatisation bid documents for the Port of Newcastle said that, given that Port Kembla was to become the next container port after Port Botany, a container terminal at the Port of Newcastle may not be required until after 2040. 1021 (15): The Newcastle PCD, containing the reimbursement provisions, was made on 30 May 2014. 1022 (16): A prospective private operator of the Port of Newcastle as at May 2013 and PON as at May 2014 and today has an obvious incentive to expend significant sums of money (albeit trivial compared to the cost of a container terminal development) to ascertain if it can satisfy itself, its shareholders and the NSW government that the State policy should change and a container terminal should be constructed at the Port of Newcastle either while Port Botany has capacity or before any container terminal is constructed at Port Kembla. From the perspective of a private operator and PON, provided it can satisfy itself that the container terminal will be profitable, it has an incentive to be the next container terminal in NSW. 1023 Even if all that PON can achieve is to obtain precedence over Port Kembla in the sequence of container terminal development (that is, a change in the State policy to enable a container terminal next at the Port of Newcastle after Port Botany reaches capacity), PON would have the profit-making potential of a container terminal decades earlier than would otherwise be the case. In circumstances where it can be inferred that PON did not pay the State for the value of a container terminal at the Port of Newcastle while Port Botany has capacity or before any container terminal is constructed at Port Kembla, it is more than worth PON's while to conduct expensive investigations to ascertain if it can make a good case for its container terminal. 1024 These realities are supported by PON's submissions as follows: Port Botany cannot continue to service the growing New South Wales container volumes indefinitely. At some point, it will reach its operational capacity, and, as it does so, Port Botany will become increasingly congested, leading to unsatisfactory productivity, berth availability and reliability. The situation will be ripe for a rival container terminal to wrestle significant container volumes away from Port Botany: see, T 689.20 – 28 (King). … Developing a new container terminal requires years of planning, design and construction. An aspiring new entrant cannot simply wait for the day that Port Botany is unable to cope any longer: it must already be up and running, before that day. This is especially the case if that new entrant might otherwise be beaten to the punch by another port, owned by the incumbent … Rather than allow that to happen, PON wishes to "capture the first mover advantage as NSW's second container terminal" PON.004.006.7749 at 7755. (Emphasis added). 1025 NSW Ports also appreciates this reality, that PON has an incentive to gain precedence over Port Kembla irrespective of the continuing capacity of Port Botany. An internal NSW Ports email of 11 January 2019 records a response to the KPMG report obtained by NSW Ports to support its position of maintenance of the State policy that: PoN may have strategic, political reasons to pursue their development and thereby establish as the second container port, not at the cost of PB, but at the cost of PK. Botany is the incumbent and will be best placed; but I don't see harm in also presenting PK in a brighter light. 1026 It must be stressed here: (a) if Port Botany has reached Full Capacity, the impugned provisions will not operate in respect of container volumes diverted from Port Botany, (b) if Port Kembla does not have a container terminal, the impugned provisions will not operate in respect of container volumes that Port Kembla hypothetically might have been capable of handling, (c) as noted and as will be explained further, the impugned provisions can have no relevance to any decision of the NSW government about whether the Port of Newcastle should take precedence again over Port Kembla for the development of a container terminal once Port Botany has reached Full Capacity, and (d) as will also be explained further, it is worthwhile for PON to investigate its prospects of a container terminal at the Port of Newcastle, even if all it ultimately achieves is a change of the State policy to enable a container terminal at the Port of Newcastle to take precedence over Port Kembla after Port Botany has reached Full Capacity. 1027 Consistent with these rational expectations, PON has in fact continued to investigate the prospects of a container terminal while Port Botany has capacity. 1028 (17): Nothing much can be made of the fact that since 2019 NSW Ports' Risk Register has identified the "possible" threat of significant new competition from another port (meaning a container terminal at the Port of Newcastle). These proceedings were commenced in December 2018. It would have been irrational of NSW Ports to ignore the risk, given this litigation. The existence of a mere possibility is not the same as a real chance or real possibility. 1029 The ACCC submitted that "the Court may safely conclude that the NSW Ports Respondents remain of the view that preserving the Compensation Provisions provides clear and secure protection against the risk of competition from a Newcastle Terminal, to such an extent that no other 'ongoing actions' are required to address that risk". In fact, the compensation provisions provide NSW Ports with financial protection from the risk of the effects of competition by a container terminal at the Port of Newcastle if such a container terminal is developed and is capable of diverting container volumes from Port Botany (or Port Kembla is it has a container terminal) to the Port of Newcastle. The fact that NSW Ports identified actions in response to the identified "possible" threat of significant new competition as, among other things, "Maintain capability of infrastructure", "Competitive pricing" and "Customer relations" supports the inference that the compensation provisions have had no effect on the incentives of NSW Ports if the risk eventuates. So too does NSW Ports' continued advocacy against the Port of Newcastle and in favour of Port Botany and Port Kembla. This issue is also discussed further below. 1030 For the same reasons, NSW Ports' vigorous defence of these proceedings is not evidence that it sees the compensation provisions as protecting it from competition by the Port of Newcastle, as opposed to providing it with financial protection from the risk of the effects of any competition that the Port of Newcastle might provide within the term of the PCDs while Port Botany has not reached Full Capacity and if a container terminal is constructed at Port Kembla and has not reached Full Capacity. 8.2 Required exercise 1031 The required exercise involves a comparison of likelihoods (in the senses of real chances or real possibilities and not mere speculation) in respect of competition in the market for Container Port Services in NSW, existing and prospective as at the time of the making of or potential giving effect to each of the compensation provisions and the reimbursement provisions, with and without each of the compensation provisions and the reimbursement provisions. If any comparison exposes the likely effect (in the sense of a real chance or real possibility) of a substantial lessening of competition then the statutory proscriptions are engaged. 1032 I should note that the parties assumed that all of the currently available information may be applied to expectations for the foreseeable future as at May 2013 and May 2014. That is, they assumed that I could assess the likely effect of the making of the impugned provisions having regard to information which came into existence after the making of the provisions. Such a blanket assumption may be incorrect. However, on the facts of the present case, as I will explain, this does not matter much as, for the most part, the information which came into existence after May 2013 and May 2014 merely reinforces the conclusions apparent from the evidence as it existed at those times. 1033 In any event, information which came into existence after the making of the provisions is relevant to the likely effect of giving effect to the impugned provisions. As the impugned provisions have not yet been given effect, the likely effect of giving effect to them in the future is to be assessed prospectively from today's date. 1034 Otherwise, the likely effect of the making of the impugned provisions involves three distinct spheres of consideration. 1035 First, there is the likely effect of the making of the impugned provisions on the State as the owner/operator of the Port of Newcastle in May 2013 and as the seller of the long-term lease of the port in May 2014. 1036 For May 2013, given the cases as put by the parties, this involves two questions: (a) as at and from May 2013, without the compensation provisions, would the State have had any incentive to develop or facilitate development of a container terminal the Port of Newcastle, and (b) as at and from May 2013, would the compensation provisions in any way have affected any incentive of the State to develop or facilitate development of a container terminal the Port of Newcastle. 1037 By May 2014 the State had granted the long-term lease of the Port of Newcastle. Its role from then on was not as the owner/operator/seller of the port but primarily as a relevant decision-maker in respect of State policy and planning approvals, and as principal provider of infrastructure investment supporting ports in NSW. 1038 Second, there is the likely effect of the making of the impugned provisions on NSW Ports as the owner of the long-term leases and operator of Port Botany and Port Kembla as at and from May 2013/May 2014. 1039 I note that it is not suggested that the reimbursement provisions could have any relevant effect on NSW Ports in respect of Port Botany/Port Kembla as they do no more than provide the State with a right of reimbursement from PON for payments made under the compensation provisions. As a result, given the cases as put by the parties, this issue involves three questions: (a) what is the proper construction of the compensation provisions, (b) on the basis of that proper construction, as at and from May 2013 would the compensation provisions have any likely effect on NSW Ports in respect of Port Botany/Port Kembla, and (c) if so, does that involve a real chance or real possibility of a substantial lessening of competition in the market for Container Port Services in NSW. 1040 Third, there is the likely effect of the impugned provisions on a prospective private operator of the Port of Newcastle as at and from May 2013 and PON as the owner of the long-term lease and operator of the Port of Newcastle as at and from May 2014, as well as the likely effect (in this context) on the State as a relevant decision-maker in respect of State policy and planning approvals, and as principal provider of infrastructure investment supporting ports in NSW. 1041 Given the cases as put by the parties, this involves two questions: (a) as at and from May 2013 and May 2014, was the likely effect of either (or both), as may be relevant, of the impugned provisions to prevent or hinder the development of a container terminal at the Port of Newcastle, and (b) if so, does that involve a real chance or real possibility of substantial lessening of competition in the market for Container Port Services in NSW? The second question is necessary because NSW Ports and the State do not accept that a container terminal at the Port of Newcastle involves any real chance or real possibility of increasing competition in the market for Container Port Services in NSW. 1042 The first question, (a), involves sub-questions including: (i) was there in fact a good case to be made to change the State policy to enable the development of a container terminal at the Port of Newcastle before Port Botany reaches capacity, (ii) if so, what was (and is) the likelihood of the State changing its policy and supporting that development, and (iii) if so, what was (and is) the likelihood of that development being undertaken. 1043 The likely effect of giving effect to the impugned provisions in the future involves the same considerations as set out above evaluated prospectively from the current date. While the submissions of the parties approached this issue on the basis it is subsumed into the consideration of likely effects as at and from May 2013/May 2014, I have sought to identify below circumstances where there has been some material change between May 2013/May 2014 and today's date (in effect, this is confined to a perceived increase in Port Botany's capacity, a perceived greater need by PON to diversify away from coal, and continuing public and private infrastructure development on the basis of the State policy). 1044 This proposed analysis encompasses the ACCC's proposition that there were four likely circumstances as at May 2013 without the compensation provisions: a) the State would have had an incentive to itself develop a Newcastle Terminal or to permit such development, and would not have any financial interest in limiting or minimising competition from the Port of Newcastle with Port Botany or Port Kembla, or any incentive to impose the Reimbursement Provision or any equivalent provision on any public or private operator of the Port of Newcastle (Newcastle Operator); b) any (public or private) Newcastle Operator would likewise have had substantial incentive to pursue the development of a Newcastle Terminal, such that there was a significant prospect that the Newcastle Operator would develop (or procure the development of) a container terminal in the future; c) Port Botany and Port Kembla would also have an incentive to innovate so as to deter entry by the Port of Newcastle; and d) if a Newcastle Terminal was in fact developed, there would be meaningful competition between Port Botany and the Port of Newcastle for container volumes. 8.3 May 2013/May 2014 1045 It is convenient to deal with a few issues about May 2013/May 2014, the first being the date the compensation provisions were made and the second being the date the reimbursement provisions were made. 1046 I accept NSW Ports' submission that the likely effect of the compensation and reimbursement provisions must be considered at the time of each relevant PCD (May 2013 and May 2014). 1047 NSW Ports in particular contended that it was not legitimate to consider that, as at May 2013, the reimbursement provisions were themselves a likely effect of the compensation provisions. 1048 I disagree for the following reasons. 1049 I do not accept that the reimbursement provisions were not a likely effect of the compensation provisions. As discussed, I consider that the compensation provisions made the equivalent of the reimbursement provisions highly probable. The reimbursement provisions were not the product of some inspiration by Morgan Stanley. They were an obvious commercial response by the State to the compensation provisions and recognised as such by the Treasury transaction team and by the Treasurer who accepted their commercial logic immediately. 1050 I note Mr Ockerby's observation with which I also agree: …it is not economically sensible to look at the reimbursement provisions in isolation from the compensation provisions. The compensation provisions and the reimbursement provisions operate in concert to ensure the integrity of the regulatory regime developed by the State of NSW for container terminals serving import and export freight from PB [Port Botany] and to provide an efficient (subsidy-free) signal for the development of a container terminal at PoN. 1051 The contrary evidence of Dr Pleatsikas is not persuasive because it assumes that, having received the premium payment from NSW Ports, the State would have no incentive to seek to "double dip" by imposing the reimbursement provisions on PON and no incentive not to repay the premium to NSW Ports under the compensation provisions if necessary. I consider this too sophisticated an approach. Why would the State not want to receive the premium, keep the premium, and ensure that if any part of the premium had to be paid back to NSW Ports, that PON (as the beneficiary of the circumstances triggering any such required payment), rather than the State, had to make that payment? 1052 Insofar as I agree with the ACCC that the compensation provisions made the reimbursement provisions likely (indeed, highly probable), I do not accept NSW Ports' proposition that the ACCC's chain of reasoning involves a "fatal dilemma". NSW Ports notes, as is the fact, that the chain of reasoning is that the compensation provisions are likely to have the effect of substantially lessening competition because one likely effect of those provisions was the reimbursement provisions and the reimbursement provisions would be likely to have the effect of substantially lessening competition. As such, the premise is that the reimbursement provisions are unlawful. 1053 This, says NSW Ports, involves a fatal flaw because: (a) if unlawful, s 4L of the CCA would operate from the time the reimbursement provisions were made, so the provisions in fact have no effect, (b) NSW Ports could not have reasonably foreseen that the compensation provisions would cause the reimbursement provisions, (c) PON made the reimbursement provisions so that NSW Ports cannot be held responsible for PON's illegal conduct – as stated in Smith v Leurs [1945] HCA 27; (1945) 70 CLR 256 at 262, there is generally no duty on one person to control the actions of another person so as to prevent that other person doing damage to a third person, and (d) one would not posit hypothetical illegal conduct. Unlawful conduct by third parties, said NSW Ports, is not an "effect" of anterior conduct by an innocent party, even if a rigid "but for" analysis would be satisfied. To reason otherwise would mean that: (i) all manner of innocent provisions and conduct could be assessed as contravening the CCA because they gave occasion for others possibly to engage in proscribed conduct, and (ii) pro-competitive conduct would be assessed as illegal if it incentivised one's competitors to engage in illegal anti-competitive conduct designed to defeat the effects of the competition. 1054 NSW Ports referred to two cases in support of these propositions, Seven Network Ltd v News Ltd [2007] FCA 1062 (Seven Network FCA) at [2809] and Lewis v Australian Capital Territory [2020] HCA 26; (2020) 381 ALR 375 at [37] (also at [3], [87]-[91] and [151]. 1055 In Seven Network FCA Sackville J said at [2809]: In assessing the likely effects on competition of giving effect to a particular provision, it is not appropriate to assume, in the counter-factual world, that a party will either misrepresent its intentions, or be successful in misleading the representee. 1056 In Lewis at [37] Gageler J said: The policy of the common law therefore demands that counterfactual analysis in a case of wrongful imprisonment be undertaken on the assumption that everyone who had lawful capacity to contribute to deprivation of the plaintiff's liberty acted in strict performance of their legal duties and acted or refrained from acting in strict compliance with the conditions expressly or impliedly imposed on the exercise of their legal powers. 1057 I deal with each of these arguments in turn. 1058 If NSW Ports is right about s 4L, then there is never any scope for a contravention of s 45 in respect of a severable provision. In all cases in which a provision is severable, s 4L will operate if the provision has the proscribed effect and there will never be any contravention of s 45. That proposition need only be stated to be rejected. The effect to which s 45 attaches is the effect of the conduct or provision assuming it is not severed. 1059 The relevant issue is not what NSW Ports did foresee or could reasonably have foreseen. The likely effect of the compensation provisions is a question of objective fact. 1060 The analogy with Smith v Leurs does not work. The issue does not concern any duty on NSW Ports. The issue is the likely effect of the compensation provisions. 1061 The analogy with Seven Network FCA and Lewis requires more extensive consideration. 1062 I accept that the concept of the likely effect of conduct or a provision should not be equated with the "but for" test of causation. An event may not have occurred but for a conduct or a provision but may not be a likely effect of the conduct or provision. The issue is effect, not cause. 1063 In Lewis, the High Court was considering the issue of a causal relationship between the tort and the alleged loss. There was no loss caused by the tort because, assuming every authority otherwise acted lawfully, the applicant would still have been detained albeit lawfully. The present case is different. 1064 In Seven Network FCA, the point Sackville J was making was that it was not open to Seven to hypothesise that the impugned contractual provision in that case would have had the proscribed effect by reason of Seven itself giving the AFL or NRL Partnership (as defined by Sackville J) a misleading impression about its own intentions. Again, there is no meaningful analogy to the present case. 1065 The absurd consequences which NSW Ports identifies as a potential consequence of the ACCC's approach are imaginary. The only relevant comparison here is between circumstances with the compensation provisions (the actual world) and circumstances without the compensation provisions (the hypothetical world). The compensation provisions only enter the hypothetical world by reason of their posited absence from that world. Accordingly, this is not about positing that in a hypothetical circumstance (that is, without the compensation provisions) a person may act illegally (the State and PON by making the reimbursement provisions). To the contrary, this is about the actual effect of the compensation provisions. NSW Ports' arguments are misconceived because they wrongly propose that the likely effect of the compensation provisions involves a hypothetical analysis when it does not. 1066 Contrary to NSW Ports' submissions, it would not be sufficient if impugned conduct or a provision was the mere occasion for others possibly to engage in proscribed conduct. In any such case, even if a "but for" test was satisfied, it could not be the case that the proscribed conduct was a likely effect of the earlier conduct. Nor would that be the consequence if pro-competitive conduct caused (in a "but for" sense) an anti-competitive response. 1067 NSW Ports' arguments as described above are a result of conceptual confusion. As a matter of objective fact the (highly) likely effect of the compensation provisions at the time they were made was the State imposing the equivalent of the reimbursement provisions on the successful bidder for the Port of Newcastle. If the likely effect of the reimbursement provisions is to substantially lessen competition, then that is a likely effect of the compensation provisions. NSW Ports is not thereby being made responsible for illegal conduct of PON. It is being made responsible for the likely effects of its own conduct in entering into the compensation provisions. 1068 Nevertheless, in case these conclusions are wrong, I will consider the matter on the basis that: (a) the likely effect of the compensation provisions included the equivalent of the reimbursement provisions, and (b) the likely effect of the compensation provisions must be considered in isolation from the reimbursement provisions. This covers all possibilities because: (c) it is common ground that without the compensation provisions the reimbursement provisions would not exist, and (d) the considerations in (a) will deal with the likely effect of the reimbursement provisions, because the differences in circumstances as between May 2013 and May 2014 are readily identifiable. 1069 Relevantly: (1) as at May 2013, the State was the owner/operator/prospective seller of the Port of Newcastle and the maker of State policy and provider of State infrastructure investment, whereas as at May 2014 it had privatised the Port of Newcastle and continued to be the maker of State policy and provider of State infrastructure investment; (2) as at May 2013, NSW Ports was the new lessee and operator of the privatised Port Botany and Port Kembla, which it continued to be in May 2014; (3) as at May 2013, there was a prospective private operator of the Port of Newcastle; (4) as at May 2014, PON was the successful bidder and thus the private operator of the Port of Newcastle; and (5) as a practical matter, on the evidence, the hypothesis of a prospective private operator of the Port of Newcastle is subsumed into the position of PON as at May 2014. As a result, I refer to PON below in its capacity as a prospective private operator of the Port of Newcastle at May 2013 and as the port leaseholder and operator from May 2014. 8.4 Likely effect on the State/public operator 1070 I do not accept the case of the ACCC and PON that the State itself, as at May 2013, had an incentive to develop or to facilitate the development of a container terminal at the Port of Newcastle in its capacity as owner/operator/seller of that port. I also do not accept that the compensation provisions had any possible effect on any such incentive. 1071 The State did not have, and without the compensation provisions would not have had, the proposed incentive as at May 2013 for two fundamental reasons: (a) it had recently adopted and partly implemented its policy that the Port of Newcastle should only be developed with a container terminal after Port Botany and Port Kembla had reached capacity, and (b) it planned to privatise the Port of Newcastle as soon as reasonably practicable in any event on the basis of its policy that the Port of Newcastle was to be developed as a container terminal third, after Port Botany and Port Kembla had reached capacity. 1072 The State had shown no previous interest in itself developing a container terminal at the Port of Newcastle. It explained to bidder Hallen for the Port of Newcastle in March 2014 that it had neither the appetite to fund nor the expertise to itself undertake a container terminal development. This must always have been the case. 1073 Further, the State's recently adopted and partly implemented policy and proposed privatisation of the Port of Newcastle had nothing to do with the compensation provisions or the foreshadowed reimbursement provisions. The recently adopted and partly implemented State policy and proposed privatisation of the Port of Newcastle meant that it would be irrational in the extreme for the State to have any incentive in its capacity as owner/operator/seller of the port to develop a container terminal at the Port of Newcastle contrary to State policy or to facilitate any prospective private operator doing so. 1074 The State submitted: …the State in its capacity as owner of the Port of Newcastle had directly rejected a proposal for such a development. It did not do so for cynical or shortsighted reasons or because of a simple assessment of the best way of maximising the return on port assets. Rather, it concluded that such a development was contrary to the public interest and would be for several decades. The submission also ignores the broader historical and policy context. Ports policy had been resolved. The case against any near or medium term development in the Port of Newcastle was compelling. There was no ongoing process of balancing the incentives of a potential economic return for the State in permitting the development, even putting to one side that the financial "incentive" for the State in respect of the value of that single asset could never be understood in isolation from the broader financial and non-financial considerations that the State would take into account. The Compensation Provisions did not change any of those basic facts or settled conclusions. … It is not enough for the ACCC and PoN to simply point to the theoretical possibility that government policies can change from time to time. The proposition that, absent the Compensation Provisions, the State may have developed a container terminal at the Port of Newcastle in May 2013 has to be situated in a real world context. The ACCC and PoN have conspicuously failed to explain the thought process that they say might have led the State, absent the "disincentivising" effect of the Compensation Provisions, to decide in May 2013 that it should develop a container terminal at the Port of Newcastle. At that time there was no longer a cap on the throughput capacity at Port Botany. Port Botany had very substantial unused capacity. The State's settled policy since at least 2003 had been that there should not be inefficient duplication of container terminal capacity. It seems that the ACCC and PoN are contemplating that without the Compensation Provisions "disincentivising" it, the State may have abandoned that policy and instead pursued a laissez faire policy of infrastructure duplication, all in the name of obtaining a financial return on the State's assets at the Port of Newcastle. Unsurprisingly, none of Mr Smith, the ACCC or PoN has sought to conduct a financial analysis to demonstrate how the potential marginal return on such a development for the State could possibly have provided such an incentive as to outweigh the vast public and private costs associated with inefficient duplication of infrastructure. The proposition is, with respect, absurd. 1075 I agree with the submission that the State had no incentive as at May 2013 to develop or facilitate the development of a container terminal at the Port of Newcastle. I agree with the submission that it is not enough for the ACCC and PON to rely on the fact that government policy can change. As I have said, left at that level, the prospect of change is mere speculation and, on my analysis, government support is fundamental to the existence of any real chance or real possibility of a container terminal at the Port of Newcastle before Port Botany has reached capacity. I agree that the State policy from July 2012 reflected the NSW government's conclusions about the public interest. I agree that the conclusions about the public interest are based on a detailed assessment of the efficient use of public infrastructure and the overall cost of the container freight task in NSW. 1076 Everything the State did from 2012 onwards accorded with and supported the State policy as adopted by July 2012. 1077 Irrespective of the compensation provisions, the State's only incentives as owner/operator/seller of the Port of Newcastle were not to depart from the State policy which it had adopted and in part implemented. 1078 First, the State had established the policy in response to advice about the most effective use of significant public infrastructure investment in support of Port Botany and the overall cost of the freight task to NSW. It was aware of advice to it, based on apparently detailed analysis, that the premature development of any container terminal in NSW (that is while Port Botany still had capacity) would: (a) involve a significant under-utilisation of prior public infrastructure investment and accelerate the need for further prior public infrastructure investment, (b) be highly questionable in terms of viability, and (c) increase the overall cost of the NSW freight task. 1079 Second, the State had already implemented the policy in part by including Port Kembla in the privatisation of Port Botany and removing the cap on TEUs per year on Port Botany. For the NSW government to change the State's policy without a material change in circumstances or persuasive new information would not have been impossible, but it had no incentive to do so if its own motion, and certainly not before the planned privatisation of the Port of Newcastle. 1080 The advice the State had obtained was unequivocal and consistent in its terms since 2011, including that: (1) "[t]he efficient movement of goods is an essential driver of economic prosperity and quality of life in our metropolitan and regional communities. The NSW freight and logistics industry contributes more than $50 billion to our Gross State Product. NSW roads, rail network, intermodal terminals and ports are some of the most important pieces of infrastructure to enable domestic and international freight movements and support economic development": Transport for NSW Corporate Plan 2012-2017; (2) "[t]he Port Botany terminals are highly valuable assets. The State's investment in the new 3rd terminal alone will be nearly $1b by the time it comes into operation next year. Not allowing these assets to achieve their full capacity is a waste of valuable State capital investment and would represent a highly inefficient outcome for the State": Treasury transaction team advice, "Near Term Decisions requested from the Treasurer/Government" 12 April 2012; (3) "diverting freight via an alternative container port before Botany has reached capacity comes with a significant increase in the NSW transport task, additional costs to the economy and a negative impact on Gross State Product as there would be a corresponding increase in freight costs for containerised goods, and no offsetting economic benefits": Port Botany Scoping Study May 2012; (4) "[a] container terminal in Newcastle will undermine the recently announced Moorebank IMT business case. The proposed Moorebank intermodal terminal has no direct relationship with a Newcastle container terminal": Port Botany Scoping Study May 2012; (5) "Port Kembla is closer to Sydney, and is the more logical centre for the next major container facility servicing the Sydney Basin. In particular, if the supporting rail network is upgraded, then Port Kembla will complete an 'arc' of interconnected rail and intermodal terminals spanning south and south-west Sydney (e.g., Moorebank and Minto.)": Port Botany Scoping Study May 2012; and (6) "TfNSW and INSW have both indicated that they consider Port Kembla the next logical container port development after Port Botany. The Freight Strategy, to be released later in 2012, will therefore seek to develop Port Kembla as the next tranche of container capacity after Port Botany. The 2003 Ports Growth Plan, being nearly 10 years old, is not representative of this Government's strategy for NSW container port development": letter from the NSW Treasurer to NPC 31 July 2012. 1081 This advice was supported by and reflected in: (1) the Transport for NSW discussion paper concerning options for container ports in NSW, 16 July 2012; (2) the NSW government announcement of the privatisation of Port Botany and Port Kembla, 27 July 2012; (3) the State Infrastructure Strategy 2012-2032 published by Infrastructure NSW, October 2012; (4) the Draft NSW Freight and Ports Strategy, November 2012; and (5) the NSW Long Term Transport Master Plan, December 2012. 1082 Given these facts, without the compensation provisions, the State had no incentive as at or from May 2013 to develop or permit the development of a container terminal at the Port of Newcastle in its capacity as owner/operator/seller of the Port of Newcastle. 1083 As NSW Ports submitted: Even if it be assumed, as the ACCC asserts, that the Crown has economic incentives to develop a container terminal at Port of Newcastle, it is undeniable that the Crown does not behave like a profit-maximising commercial organisation. It responds legitimately, and necessarily, to non-commercial, non-financial, non-economic incentives such [as] the public interest, the welfare of the State, and political motivations. The chance, if there be one, of the Crown developing a container terminal at the Port of Newcastle in response to such multifactorial incentives is not a real commercial chance of the kind protected by s 45 of the CCA. 1084 This reflects Mr Ockerby's evidence which I accept as follows: There are limits to the ability of economics to inform an understanding of incentives for government in making policy. Governments are not the profit or utility maximising entities that are the typical agents in economic models. 1085 The submissions to the contrary disregard the contemporaneous circumstances as they existed leading up to and as at May 2013. 1086 The submission that the State would wish to see container revenues flow to it from a container terminal at the Port of Newcastle rather than a private operator at Port Kembla and Port Botany ignores the fact that the State had undertaken analyses which supported the conclusions that the viability of a container terminal at the Port of Newcastle while Port Botany had capacity was highly questionable. In these circumstances, the idea that the State had any incentive to facilitate a container terminal at the Port of Newcastle before its privatisation is untenable. 1087 The State's position is reflected in the documents generated for and on behalf of the State which disclose that: (1) "…the government doesn't want containers there anyway so I doubt a Newcastle bidder is going to pay a lot for container optionality in the near term": email from Morgan Stanley to NSW Treasury, 15 March 2013; (2) "[d]epending on the rate of growth and extent of development of capacity at other ports, it is foreseeable that there could be demand for large-scale development of container terminals at Newcastle on a 30 to 40-year type timeframe": PON Information Memorandum, December 2013; (3) "…a container terminal at the Port of Newcastle may not be required until after 2040": PON Information Memorandum, December 2013; and (4) the NSW government does not have "the appetite to fund or the expertise to undertake a container port development": Treasury transaction team response to bidder Hallen, draft transaction documents departures, March 2014. 1088 While a number of the above documents were created after the Port Botany and Port Kembla PCDs, they accurately reflect a consistent policy position on behalf of the State since no later than July 2012. 1089 As noted, I infer that the State planned to privatise the Port of Newcastle at the time it entered into the Port Botany and Port Kembla PCDs. The Treasury transaction team was discussing this prospect as at March 2013. The State also would have had no incentive to do anything about the development of the Port of Newcastle in the period between privatisation of Port Botany and Port Kembla and the proposed privatisation of the Port of Newcastle. While the State was prepared to allow the negotiations between NPC and NSC/MDC, which had been on foot for years, to run their course in respect of the multi-use cargo facility (not a container terminal), the advice it received in October 2013 was that it should not enter into any binding agreement with NSC/MDC on the eve of the proposed privatisation of the Port of Newcastle reflects this reality. 1090 The fact that the State recognised that the State policy might change in the future does not mean that it had an incentive to develop or facilitate development of a container terminal at the Port of Newcastle as at May 2013. That recognition explains the compensation and reimbursement provisions. But it is not rational to suggest that the State's recognition of the potential for a change of policy gave it an incentive to act contrary to its own policy. 1091 For these reasons, irrespective of the compensation provisions, there was in fact no incentive for the State to develop or facilitate development of a container terminal at the Port of Newcastle from July 2012 until the Port of Newcastle was privatised in May 2014. 1092 The prospect of any public operator of the Port of Newcastle having an incentive to develop or facilitate the development of a container terminal at the Port of Newcastle is subsumed into the prospect of the State having any incentive to do so. A public operator would be answerable to the State. Once the policy position of the State had crystallised by no later than July 2012, no entity answerable to the State had any incentive to facilitate the development of a container terminal at the Port of Newcastle contrary to that policy. This is confirmed by the fact that NPC was authorised to continue negotiations with NSC but only in respect of the multi-use cargo facility and not a container terminal. Whatever NPC might have thought or wanted, it was subject to the control and direction of the Treasurer and the intentions of the Treasurer were clear – to implement the policy of the State as it existed from July 2012. 1093 Further, on the evidence, it cannot be said that the compensation provisions had any effect on the State other than to make the reimbursement provisions likely. The ACCC's contrary submissions, to the effect that the compensation provisions had the likely effect (or would have the likely effect) of deterring the State from changing the State policy, are misconceived. 1094 As the State submitted: It is also instructive to conduct the thought experiment of contemplating a radical change in the State's assessment of the public interest, such that the State did come to support a container terminal at the Port of Newcastle (prior to Port Botany and Port Kembla reaching capacity). Given the state of the evidence about the infrastructure investment associated with the development of a container terminal at the Port of Newcastle, the Court would have to assume that in this scenario the State will have concluded that for some reason the case for a container terminal at development was so overwhelming (whether for financial reasons, non-financial policy reasons or some combination of the two) that it was appropriate to incur (and for the taxpayers and consumers of NSW ultimately to pay for) the multi-billion investments that this would involve. It is very difficult to imagine on the available evidence why any such conclusion would be reached, but if it were reached it is inconceivable that the State would conclude that the costs of paying compensation under the Compensation Provisions would be the reason not to proceed … at the time of the Port Commitment Deeds the estimate that was prepared of the State's potential exposure under the Compensation Provisions was only $44.5 million. 1095 The adjectival emphasis in this submission may be put to one side. The point remains good. If the NSW government decided to change the State policy it would had to have some good reason to do so and would be committing itself to substantial public investment to support a container terminal at the Port of Newcastle. Having so decided, potential liability under the compensation provisions would be immaterial. It could never be said that the compensation provisions had any effect on the incentives of the State. Those incentives were set by the State policy. 1096 PON submitted to the contrary based on the projected container volumes proposed by NPC for the NSC/MDC stage 2 container terminal. On the basis of those projected volumes, as opposed to the volume of 220,000 containers used by Morgan Stanley as the basis for the projected potential compensation of $44.5 million, the potential compensation under the PCDs to NSW Ports increases to $357 million. The problem with this submission is that neither Morgan Stanley nor the State accepted those projected volumes as remotely realistic. They considered them to be significant over-estimates. As such, the State would never had assessed its potential liability by reference to those volumes. 1097 Mr Smith's evidence to the contrary fails to have regard to the development and adoption of the policy of the State in July 2012 and the fact that the State policy exists and existed independently from and unaffected by the compensation provisions. 1098 The ACCC's submissions to the contrary fail to recognise the matters discussed above. They also fail to recognise that it cannot be maintained both that a likely effect of the making of the compensation provisions was the reimbursement provisions (which I accept) and that a likely effect of the compensation provisions was to deter the State from changing the State policy. Given that from the moment it conceived of the compensation provisions the State anticipated that it would impose the reimbursement provisions as part of the privatisation of the Port of Newcastle, the State could never had any concern that it would be liable under the compensation provisions. 1099 In reality, the effect of the compensation and reimbursement provisions is to enable a change in the State policy in the future on the basis that the person who receives the benefit of the change (which would be PON) would also have to pay for the value of that change, and the person who bears the burden of that change (which would be NSW Ports which had paid for the full existing monopoly rights) would receive that payment in recompense. There was and is no disincentive to the NSW government in respect of changing the State policy by reason of the compensation or reimbursement provisions. Those provisions, considered together as they should be, ensure that the State policy can be changed in the future without, from the State's perpective, an unfair gain to PON and an unfair loss to NSW Ports or the State. 1100 The incentives that the State does have not to change the State policy are unconnected to the impugned provisions. The incentives are that: (a) the State policy has been implemented in part by removing the cap on Port Botany and privatising Port Kembla with Port Botany on the basis of the terms of the State policy (that is, use all of Port Botany's capacity and develop the next container terminal at Port Kembla), (b) the State policy has been further implemented in part by privatising the Port of Newcastle on the terms of the State policy (that is, no container terminal at the Port of Newcastle until capacity is used at Port Botany and Port Kembla), (c) substantial public and private investment since May 2013/May 2014 has been on the basis of the terms of the State policy, and (d) nothing has emerged since the State policy was developed indicating that the foundations for its formulation are incorrect or unsound. 1101 The ACCC's submissions about aspects of the evidence of Dr Pleatsikas in this regard are beside the point. Dr Pleatsikas described the compensation provisions as a form of insurance of NSW Ports (which I agree is a fair characterisation). He said that the State received the money from NSW Ports paying for that policy (which is also correct) and thus the State, having received the insurance premium, would have no disincentive to avoid paying it back to NSW Ports. In common with the ACCC, it seems to me that any insurer wants to both obtain and retain the premium. But that point is moot in the present case because: (a) even if the reimbursement provisions were not a likely effect of the compensation provisions, the expected liability of the State under the compensation provisions was insignificant compared to the public infrastructure investments it would need to make to support any new container terminal, and (b) in my view, from the moment it conceived of the compensation provisions the State anticipated that a successful bidder for the privatised Port of Newcastle would indemnify the State for any liability under the compensation provisions. 1102 For these reasons also, which are objectively compelling, it also cannot be said that as at May 2013 the compensation provisions might have materially affected a private operator's view or perception of the possibility of the State policy changing. The State did not hesitate to let NSC/MDC know that it would have to meet any such liability and informed bidders for the Port of Newcastle to the same effect. Had any private operator been serious about proposing a container terminal development at the Port of Newcastle after the compensation provisions were made, the State no doubt would have informed them to the same effect. As such, the incentives of the State to continue or change the State policy were entirely unaffected by the compensation provisions. 1103 The ACCC's case, to the extent it depends on the contention that the compensation provisions (and thus the reimbursement provisions) would have any likely effect (in the sense of a real chance or real possibility) on the incentives of the State or any public authority of the State, must fail. This conclusion applies to: (a) the compensation provisions and prospective equivalent of the reimbursement provisions as at and from May 2013, (b) the compensation provisions alone as at and from May 2013, and (c) the reimbursement provisions as at and from May 2014. 1104 The ACCC's submission that the compensation provisions gave the State an incentive to include the reimbursement provisions in the privatisation of the Port of Newcastle must be accepted. So much is obvious. The contrary submissions that the privatisation of the Port of Newcastle had not yet been decided upon are untenable. But unless the compensation and/or reimbursement provisions would have had any likely effect on the incentives or actions of the successful bidder for the Port of Newcastle, PON, there cannot have been any likely effect (in the sense of a real chance or real possibility) of a substantial lessening of competition. That likely effect is considered below. 8.5 Likely effect on NSW Ports 1105 The ACCC submitted that, without the compensation provisions, Port Botany and Port Kembla would have had an incentive to innovate to deter entry by the Port of Newcastle. However, any incentive for these ports to innovate to deter entry by the Port of Newcastle would depend on the credibility of the threat of entry by the Port of Newcastle as at and from May 2013 and today's date into the reasonably foreseeable future. This, in turn, would depend on the following matters: (a) the ability of PON to make a good case for a container terminal at Port of Newcastle contrary to the State policy, (b) the prospect of the State changing its policy in response, (c) the prospect of container terminal in fact being constructed at the Port of Newcastle, and (d) the effect of the container terminal, if constructed, on competition in the market for Container Port Services in NSW. 1106 Apart from these considerations, the ACCC's submissions also assume that, with the compensation provisions, NSW Ports would not have the same incentive to compete as without the compensation provisions. This assumption is based on the case theory of the ACCC and PON that the compensation provisions enable NSW Ports to be idle in the face of a loss of containers to the Port of Newcastle because NSW Ports will be compensated for any such loss. I have already indicated above that, so far as the purpose case is concerned, this conclusion would involve attributing a large appetite for risk to NSW Ports because there are good arguments, apparent on the face of the compensation provisions, that these provisions require NSW Ports to do everything it reasonably can to minimise the loss of container volumes to the Port of Newcastle before it might be eligible for payment under the compensation provisions. 1107 The likely effect of the compensation provisions is an issue of fact involving an ultimately objective determination (to which subjective considerations of participants may be relevant). In ascertaining the likely effect of the compensation provisions, the better view is that the provisions should be properly construed and the likely effect of the provisions evaluated on the basis of that proper construction. Even if the ACCC is correct, and the potential for NSW Ports to misconstrue the provisions is relevant to their likely effect, nothing on any reasonable reading of the compensation provisions would have given NSW Ports the notion that it would be paid even if it did nothing or anything less than it reasonably could to minimise the loss of container volumes to the Port of Newcastle. 1108 As NSW Ports submitted, the terms of cll 3.3(d) and (e) of the compensation provisions involve two causation pre-conditions to payment to NSW Ports: (a) "the number of Containers imported or exported by Port Botany in the Relevant Support Period is less (Shortage) than it would have been had EXCESS been zero or less", which requires identification of volumes that would have come to Port Botany (or Port Kembla) if they had not gone to the Port of Newcastle, and (b) "that there is both a reasonable, and a material, causal connection and correlation between the amount of EXCESS and the amount of the prior Shortage", which requires a reasonable and material causal connection (not mere correlation) between the volumes at the Port of Newcastle that would otherwise have come to Port Botany. 1109 In these circumstances, if the cause of the shortage at Port Botany is its own conduct, then it is unlikely that NSW Ports could prove a reasonable, and a material, causal connection between the amount of EXCESS and the amount of the Shortage. The two volumes would be correlated but not causally connected. Clause 6(d), requiring NSW Ports to use reasonable endeavours to minimise any loss of revenue that may be the subject of a claim, is also relevant. Contrary to the ACCC's submissions, the fact that cl 6(d) arguably more readily accommodates a claim under cl 4 does not mean that it does not also qualify a claim under cl 3. It is sufficient to adopt the submissions of NSW Ports about that argument: (a) First, cl 3 also concerns revenue. Support is a function of a certain volume multiplied by a weighted average wharfage charge (WAWpb). It thus concerns the revenue per TEU that NSW Ports would otherwise have received but for the diversion to Newcastle. (b) Secondly, the suggestion that NSW Ports might nett off lost revenue by other means does not gainsay the proposition that it has lost revenue on the relevant TEUs. (c) Thirdly, cl 4 is not concerned merely with revenue but with a defined concept of Statutory Revenue Loss (cl 4.2). If cl 6(d) was directed solely to a cl 4 claim, the defined term would have been used. Indeed, the defined term already incorporates a notion of loss mitigation, suggesting that cl 6(d) is more strongly directed to a cl 3 claim. (d) Fourthly, the references in cl 6(a) and (b) to claims under cll 3, 4 or 5 strongly suggest that cl 6 is concerned with all those kinds of claim. (e) Fifthly, the ACCC's confined construction of cl 6(d) would render it inapplicable to a claim under cl 5 for no good reason. 1110 These submissions are persuasive. In using reasonable endeavours to minimise any loss of revenue that may be the subject of a claim under the PCDs, NSW Ports must do all it reasonably can in the circumstances to achieve the contractual object: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 64. In this regard, the relevant object to be achieved is for NSW Ports to minimise its claims under the PCDs. The relevant object, contrary to the ACCC's contentions, is not to compensate NSW Ports for any loss by any diversion of container volumes from it to the Port of Newcastle. 1111 The ACCC submitted that the commercial purpose or object to be secured by the PCDs was to ensure that NSW Ports would bid for and could operate Port Botany and Port Kembla as if it were unconstrained by competition; as a result, concluding that the PCDs require NSW Ports to engage in ordinary competitive behaviour is the antithesis of what the PCDs sought to achieve. In my view, the ACCC's premise and conclusion are both wrong. The object of the PCDs was not to enable NSW Ports to bid unconstrained by any prospect of competition. The object was for bidders to not discount their bids on account of the risk of a future container terminal at the Port of Newcastle. The obligation on NSW Ports to do all it reasonably can to minimise any claim for lost revenue under the PCDs effectively requires it to conduct itself in response to a container terminal at the Port of Newcastle as if it did not have the benefit of the compensation provisions. As such, the requirement for NSW Ports to seek to maximise its revenues is inherent within the compensation provisions. Ordinary competitive conduct is not the antithesis of the object of the compensation provisions. It is assumed and required by the compensation provisions. 1112 The fact that any compensation payable under the compensation provisions is calculated based on the weighted average per TEU of the wharfage charges actually imposed at Port Botany or Port Kembla rather than the wharfage charges that could have been earned had the ports engaged in competitive behaviour is immaterial. It is readily apparent that hypothetical charges that might have been imposed would be difficult to ascertain. Clauses 3.3 and 6(d) ensure that NSW Ports acts to minimise any loss of container volumes to the Port of Newcastle. On that basis, it was sensible to use actual wharfage charges as the basis for the calculation of any compensable revenue loss. 1113 The ACCC's submission that a more natural and likely construction of the PCD is that it seeks to ensure that NSW Ports only receives compensation in respect of volumes it actually loses to the Port of Newcastle ignores the obligation imposed on NSW Ports by cl 6(d). 1114 The ACCC submitted that: …even if the entitlement to compensation is not certain, the prospect of payment under the Compensation Provisions was still valuable – that is, there was a probability of compensation being paid and that probability was itself a valuable and anticompetitive incentive that could have a price-softening effect. 1115 However, if NSW Ports did not do all it reasonably could to minimise its loss of containers to the Port of Newcastle it would not have a prospect (let alone a probability) of payment under the compensation provisions. If there is any uncertainty about the operation of the compensation provisions (which I do not consider there is), then that uncertainty would also significantly devalue the worth of the compensation provisions. The prospect that NSW Ports might ultimately receive some payment under the compensation provisions, if it satisfied the State as to all the pre-conditions and the qualification in cl 6(d), provides no anti-competitive incentive at all. 1116 The ACCC submitted that NSW Ports' internal documents and the evidence of Ms Calfas, Mr Garcia and Mr Droga confirmed that NSW Ports perceived that the compensation provisions protected NSW Ports from competition by the Port of Newcastle. As discussed, this evidence must be understood as conveying NSW Ports' view that the provisions provide it with financial protection for a loss of container volumes above a certain organically increasing amount to the Port of Newcastle. The compensation provisions, for the reasons given, do not remove or affect any incentive that NSW Ports might otherwise have had to reduce prices, improve quality or otherwise innovate. 1117 The ACCC submitted that the compensation provisions are a disincentive to any reduction of wharfage fees by NSW Ports at Port Botany/Port Kembla because any price reduction would reduce the compensation payable which is calculated by reference to wharfage fees. This is a submission which can gain no traction in the real world. If NSW Ports could increase its profit by lowering wharfage fees (thereby attracting greater volumes), the idea (proposed by Mr Smith) that it would not do so in the hope of ultimately being able to obtain compensation under the compensation provisions for a loss of volume to the Port of Newcastle is perverse. The only reason to lower wharfage fees is to attract sufficiently increased volumes to make the price reduction profitable. NSW Ports would expect that, if anything, increased volumes would most likely be from the Port of Newcastle. In other words, if there was a profit incentive to lowering wharfage fees, a necessary predicate of that incentive is the reduction of compensation to NSW Ports. If, however, reducing wharfage fees would not increase profits, then there would be no incentive for NSW Ports to do so irrespective of the compensation provisions. The compensation provisions make no difference to NSW Ports' incentives. It is rational economic incentives which should be considered, not perverse and self-defeating economic incentives. 1118 The ACCC submitted that if a container terminal was developed at the Port of Newcastle despite the compensation provisions, the compensation provisions would give NSW Ports a measure of protection from any increased competition. For the reasons already given, I disagree with this proposition. There is no protection from increased competition because to be eligible for any compensation NSW Ports must do all it reasonably can to minimise any loss of revenue which, by cl 3 includes loss of revenue resulting from a loss of containers, to the Port of Newcastle. 1119 The ACCC submitted that because the compensation provisions would provide a subsidy to Port Botany/Port Kembla not available to the Port of Newcastle, this would enable Port Botany/Port Kembla "during the early years of the Newcastle Terminal, when the terminal had limited capacity and its customers were likely to be located close to the Port of Newcastle, to target the Port of Newcastle's early customers in order to inflict maximum damage on the nascent competitor". Again, this is a quite unreal submission. Port Botany has an existing monopoly over a large part of NSW for Container Port Services. If the Port of Newcastle enters that market it will have limited capacity and few customers, as the ACCC submitted. As a result, there will be only a limited loss of containers from Port Botany to the Port of Newcastle. The size of any subsidy NSW Ports receives, at best, will equal the loss it suffers. The idea that this limited subsidy will give NSW Ports some capacity that it does not already have to target the early customers of the Port of Newcastle is far-fetched. NSW Ports has that capacity irrespective of the compensation provisions because of Port Botany's existing dominance of the market. The compensation provisions make it no more and no less likely that NSW Ports would seek to target early customers of the Port of Newcastle's container terminal. 1120 The illogicality of the ACCC's submission (and Mr Smith's supporting evidence) is exposed in NSW Ports' response as follows: In order to qualify for compensation payments, container traffic has to have been diverted to Newcastle. But any successful strategy of targeting would, by design, prevent that diversion of traffic and so defeat any right to compensation under the PCDs. Far from enabling targeting, the Compensation Provisions are only engaged if the volume is already lost, and will not be engaged if the volume is regained. The alleged targeting strategy is unsupported by the evidence or any coherent economic or contractual justification. … A further, and independent, answer to the argument is that NSW Ports could engage in targeted pricing (assuming it had an incentive to do so) regardless of any compensation under the PCDs. (Original emphasis). 1121 In these circumstances, the threat that NSW Ports might engage in predatory pricing to crush the nascent Port of Newcastle container terminal is not affected one way or another by the compensation provisions. Those provisions do not give NSW Ports a capacity it did not already have. Nor do the provisions make it any more or less likely that NSW Ports will respond competitively to a container terminal at the Port of Newcastle. The argument to the contrary is self-defeating, as any successful predation would prevent the loss of container volumes to the Port of Newcastle and thereby defeat any claim for compensation under the compensation provisions. 1122 NSW Ports' submissions in response to PON's arguments should also be accepted. PON submitted that "the issue for the Court is not whether the Compensation Provisions had the purpose or effect of dispensing with competition altogether"; a real chance of a substantial lessening of competition is sufficient. This is correct. As NSW Ports responded, however: …the implication in the submission seems to be that there might be room in cl 6(d) to permit NSW Ports to do a little bit but not too much relaxing. That finds no support in the text. A little bit of relaxing (whatever that means) would break the requisite causal connection. And "reasonable endeavours" to minimise the loss of revenue that might be claimed requires nothing less than putting the prospect of compensation out of mind. PON also submits that cl 6(d) is "not a precondition" to the State's liability to pay compensation. That gives insufficient weight to the structure of cl 6, which is manifestly concerned with limits on claims for support. But even if cl 6(d) is not strictly a dependent obligation, even an independent obligation to minimise loss of revenue would, in effect, neutralise the entitlement to compensation. (Citations omitted). 1123 I also accept the submissions of NSW Ports as follows: (1) NSW Ports' construction is favoured by the rules of contractual construction. It is the more commercial or businesslike construction: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]; (2) NSW Ports' construction avoids the "capricious, unreasonable, inconvenient or unjust" consequences that inhere in the ACCC's and PON's approach: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 cited with approval in Software AG (Aust) Pty Ltd v Racing and Wagering Western Australia [2009] FCAFC 36; (2009) 175 FCR 121 at [33]; and (3) the structure of the compensation regime is such that compensation is paid, if at all, only after a Support Period in which diversion of container traffic may be measured and only upon a claim by NSW Ports demonstrating to the reasonable satisfaction of the State that compensation is payable. At any given time, NSW Ports would have no confidence that a lost container would be diverted to Newcastle (rather than another port, or no port at all) and no confidence that, over the relevant period of time, sufficient volume would be diverted to engage the right to compensation. As such, NSW Ports would have no incentive to relax its competitive behaviour. 1124 The State made submissions to a similar effect about the operation of the compensation provisions which I also accept. As the State additionally submitted: The loss of revenue that NSW Ports is obliged to minimise is the loss of revenue payable under the Compensation Provisions, calculated in accordance with the cl. 3 formula. That is consistent with the fact that the amount payable under those provisions is, in terms, a loss of revenue. It is also consistent with the contract when read as a whole and with a view to its commercial purpose. In particular, it is plain that the commercial purpose of clause 6(d) is to limit and constrain the payments that might be required to be made by the State under the Compensation Provisions. … PON makes the additional point that the right to compensation under the Compensation Provisions does not require satisfaction of clause 6(d): PONS [PON's closing submissions at] [96]. However, a failure by NSW Ports to act in accordance with the reasonable endeavours clause would be a breach of contract and entitle the State to such damages as arise from the breach. This would be quantified by the amount of money payable by the State that would otherwise have been saved had NSW Ports acted in accordance with its reasonable endeavours obligation. As such, in a practical sense, clause 6(d) conditions the amount payable under the Compensation Provisions. (Citations omitted). 1125 In response to Mr Smith's evidence that the compensation provisions could provide NSW Ports with an incentive not to lower wharfage fees to compete with PON or to increase its fees in response to PON, it is not necessary to decide whether or not Mr Smith was aware of cl 6(d) of the Port Botany and Port Kembla PCDs when he formed his opinions in this regard. Whether he did or not, I am not persuaded by his opinions. They conflict with the reasonably clear terms of the compensation provisions and rational economic behaviour, as discussed above. 1126 As a result, I am not persuaded that the compensation provisions involved or involve any real chance or real possibility of any anti-competitive effect on NSW Ports at Port Botany/Port Kembla in respect of the Port of Newcastle, let alone the possible effect of changing the incentives of NSW Ports at Port Botany/Port Kembla to compete with the Port of Newcastle and thereby substantially lessen competition between them. As at May 2013, the terms of the compensation provisions and the context in which they might operate in the future, involved no real chance or real possibility that NSW Ports at Port Botany/Port Kembla would not do everything they reasonably could, including innovation as may be appropriate, to ensure that any future loss of container volumes to the Port of Newcastle was minimised. The compensation provisions would have had no likely effect on the pricing strategies of NSW Ports at Port Botany/Port Kembla in response to whatever competitive threat the Port of Newcastle presented into the reasonably foreseeable future as at May 2013. The position remains the same today. 1127 However, I do not accept NSW Ports' submission that the compensation provisions assume that Port Botany/Port Kembla would be incapable of competing with a container terminal at the Port of Newcastle for container volumes from within that Port's catchment area over which it would exercise a separate monopoly. If that had been assumed, then there would be no need for the very aspects of the compensation provisions on which NSW Ports properly relies (that is, cll 3.3(d) and (e) and 6(d)) to support its case that the compensation provisions do not provide it with any incentive not to compete with the Port of Newcastle. 1128 For these reasons, the ACCC must fail on this aspect of the case which posits that the compensation provisions as at and from May 2013 had the likely effect of substantially lessening competition by changing the competitive incentives of NSW Ports relating to Port Botany/Port Kembla in response to a threatened or actual container terminal at the Port of Newcastle. There was no real chance or real possibility of any such effect of the compensation provisions as at and from May 2013. It also follows that there was no such likely effect of the reimbursement provisions. NSW Ports would be indifferent to the source of compensation. The fact that it would ultimately be the private operator of the Port of Newcastle (as at May 2013) or PON (as at May 2014) who would pay NSW Ports under the compensation provisions would have had no impact on the competitive incentives of Port Botany/Port Kembla one way or another. 1129 These conclusions apply to: (a) the compensation provisions and prospective equivalent of the reimbursement provisions from May 2013, (b) the compensation provisions alone from May 2013, and (c) the reimbursement provisions from May 2014. They apply also to the likely effect of the giving effect to the compensation provisions and reimbursement provisions as at and from today's date. 8.6 Likely effect on private operator/PON 8.6.1 Preliminary observations 1130 As noted above, the likely effect of the impugned provisions on a prospective private operator of the Port of Newcastle (at May 2013) and PON (at May 2014 and today's date), referred to together as PON below, involves these questions: (1) as at and from May 2013 and May 2014 and today's date, was or is the likely effect of either (or both), as may be relevant, of the impugned provisions to prevent or hinder the development of a container terminal at the Port of Newcastle, taking into account: (a) whether there was or is in fact a good case to be made to change State policy to enable the development of a container terminal at the Port of Newcastle before Port Botany reaches capacity; (b) if so, what was or is the likelihood of the NSW government changing the State policy and supporting that development; and (c) what was or is the likelihood of that development being undertaken; and (2) if so, would this involve a real chance or real possibility of a substantial lessening of competition in the market for Container Port Services in NSW? 1131 The issue as proposed by the ACCC is whether in all of the circumstances as they would have been known to exist in May 2013, a prospective private operator of the Port of Newcastle (for which PON is the proxy) or PON (as at May 2014) would have an incentive to establish a container terminal at the Port of Newcastle in the reasonably foreseeable future or, arguably, in the period between May 2013 and May 2063 (the term of the compensation provisions). 1132 The existence of an incentive is relevant. Without a real incentive, PON would not contemplate developing a container terminal. But commercial incentives do not exist in a vacuum. Commercial incentives arise from the prospect of making a profit. The prospect of making a profit depends on an assessment of the viability of developing a container terminal at the Port of Newcastle. The viability of a container terminal at the Port of Newcastle is part of the case which I have concluded would be required to be put by PON to the NSW government to obtain any change in the State policy so as to enable the construction of a container terminal at the Port of Newcastle contrary to the current policy of the State. 1133 It is appropriate to repeat that the proposal of NSC/MDC does not have the significance which the ACCC and PON seek to attach to it. The ACCC submitted that NSC/MDC remained "ready and willing to commit to developing the Port of Newcastle, including a container terminal with capacity to handle over one million TEU of containerised cargo per year" and considered that its proposal to do so remained viable. The evidence does not support these propositions. 1134 The NSC/MDC proposal indicates that it wished to reserve the right to develop a container terminal at the Port of Newcastle in the future and in accordance with State policy. Its proposal does not support an inference that NSC/MDC considered that developing a container terminal at the Port of Newcastle other than in accordance with the State policy would be viable. 1135 NSC/MDC did not propose any trigger (time or otherwise) for the development of a container terminal. It provided no information about funding for any such development. Every indication is that it was effectively warehousing a development option for itself rather than committing to in fact developing container terminal. Morgan Stanley, on behalf of the State, recognised this when it said on 24 July 2013 in an internal Treasury briefing that the only apparent rationale for the container terminal proposal in stage 2 was "to maintain the optionality for a container terminal as part of the development to address a perceived probity concern arising from the scope of the original procurement process (which included a container terminal)". 1136 In its letter of 22 August 2012 to the NSW Treasurer NSC/MDC said it stood ready to develop the container terminal "at a time decided by government in the future" and acknowledged this may not be for 20 years. NSC/MDC never suggested it was willing to develop a container terminal without the support of the NSW government. Further, the business plan of NSC/MDC indicates that it did not yet have funding to undertake the development (the business plan was in part to support any funding proposal). The business plan does not include a financial analysis of a container terminal. In the business plan, the possible future development of a container terminal was also predicated on the success of the multi-use cargo facility which itself was proposed to be developed in four stages. 1137 The ACCC further submitted that one likely effect of the compensation provisions was the reimbursement provisions which would increase the cost to PON of every container handled above the relevant threshold when NSW Ports would not face any such equivalent cost in respect of containers handles at Port Botany or Port Kembla. This is correct. But it does not mean that a likely effect of the compensation (or reimbursement) provisions was or is a substantial lessening of competition. Unless, without the impugned provisions, there was or is any real chance or real possibility of a container terminal being constructed at the Port of Newcastle while Port Botany has capacity, then the cost impost on PON for every container handled above the relevant threshold is a mere theoretical cost that there would be no real chance or real possibility of PON ever incurring. 1138 To the extent the ACCC suggested that the cost impost of the impugned provisions would dissuade or act as a disincentive to PON from investigating the prospects of a container terminal at the Port of Newcastle, the evidence is to the contrary. PON has investigated a container terminal development and continues to do so irrespective of the impugned provisions because it must consider it worthwhile to do so. As I have said, having not paid for the capacity to develop a container terminal at the Port of Newcastle before Port Botany reaches capacity or before Port Kembla is developed with a container terminal, it clearly would be worth it for PON to ascertain, even at significant expense, if such a container terminal would be viable and if PON could make a good case to achieve a change in the State policy (even if the change was confined to taking precedence for the next container terminal from Port Kembla). 1139 The fact that it may be inferred that bidders for the Port of Newcastle did not pay the State for the rights to develop a container terminal before Port Botany reaches capacity or before Port Kembla is developed with a container terminal is an effect of the State policy, not the impugned provisions. As Dr Pleatsikas said, if any bidder for the Port of Newcastle considered that a container terminal development would be viable and that they could persuade the NSW government to change the State policy to enable such a development, that bidder would rationally have paid for the net present value of those rights discounted to take into account the effect of the impugned provisions. Having done so it would not be rational to infer that the impugned provisions could have any likely effect on the future incentives of that bidder. Either way (no payment for rights to develop a container terminal or a payment for rights to develop a container terminal discounted to take into account the effect of the impugned provisions), the result is the same – there can be no rational disincentive to the bidder trying to establish that a container terminal would be viable and to persuade the NSW government to change the State policy and, if it succeeds on both fronts, to construct a container terminal. 1140 The ACCC's further submissions remain in the realm of theory and speculation. Accordingly, it may (or may not be) in theory correct that the potential cost impost on PON under the impugned provisions will: (a) give PON an incentive to charge customers more than it otherwise would, (b) lead to higher prices for port users, (c) make PON a weaker competitor to NSW Ports than it otherwise would be, or (d) enable NSW Ports to charge more without losing volumes to PON. All of this remains theoretical speculation unless there was and/or is any real chance or real possibility of a container terminal being constructed at the Port of Newcastle while Port Botany has capacity. 8.6.2 ACCC's 10 supporting propositions 1141 The ACCC's submissions identify other issues relevant to the viability of a container terminal at the Port of Newcastle, but consider those issues in isolation from their context and the other issues which would be an integral part of PON satisfying itself in that regard. The ACCC identified 10 matters which it said, as at May 2013, would have given PON a substantial incentive to pursue the development of a container terminal at the Port of Newcastle. 1142 My overall response to the way in which the ACCC puts this part of its case is that these matters, irrespective of the impugned provisions, could do no more than give PON an incentive to investigate whether it can make a good case (to its board, shareholders and the NSW government) for a container terminal at the Port of Newcastle. Any further incentive, to develop a container terminal while Port Botany has capacity, would depend on the outcome of the investigations. The ACCC and PON, however, wrongly assume that an incentive to investigate in order to ascertain potential viability and an incentive to develop are one and the same. These are altogether different incentives, involving entirely different commercial, legal and practical considerations, yet the ACCC and PON consistently conflate the two. 1143 As noted, the relevant development, given the terms of the compensation provisions, is one where Port Botany has capacity. The ACCC's 10 supporting propositions also need to be evaluated recognising that it is not merely a container terminal at the Port of Newcastle which is relevant; it is a container terminal at the Port of Newcastle while Port Botany has capacity which is relevant. 1144 Another point should be kept in mind. As the State submitted, the word "likely" in s 45 of the CCA ("likely to have the effect of, substantially lessening competition") applies to that circumstance alone (that is, the substantial lessening of competition). It does not apply to the intermediate facts. The overall assessment of likelihoods is "to be made on the basis of an overall evaluation of the evidence, taking account of the significance of the predicted facts and circumstances to competition and the likelihood of such facts and circumstances occurring in the future": Pacific National at [255]. The approach of the ACCC and PON implicitly builds posited real chances upon posited real chances, which is impermissible. 8.6.2.1 Increasing volumes of containers 1145 The ACCC's first matter is that the volume of containers globally and in NSW was and is increasing. Between 2005 and 2015, NSW container volumes increased from 1.4 million TEUs to 2.3 million TEUs, including because of the increased containerised shipment of products historically transported in bulk. 1146 The fact that container volumes in NSW are increasing is a given. Without that fact, it would not have been necessary to remove the 3.2 million TEU cap on Port Botany. The fact of growth in container volumes in NSW was and is a necessary but not a sufficient condition for an investigation of the viability of developing a container terminal at the Port of Newcastle. It would never be considered in isolation. Rather, the growth in container volumes in NSW would be one relevant component of an overall evaluation of the viability of developing a container terminal at the Port of Newcastle. 8.6.2.2 Port Botany's capacity 1147 The ACCC's second matter is that, once the artificial cap on its capacity was removed, Port Botany's capacity was expected to be exceeded before 2050. 1148 With the cap removed, IFM had forecast in March 2013 that Port Botany's capacity would be exceeded in 2039. In April 2013, SPC estimated that Port Botany's capacity would be exceeded in 2039/2040 (lower growth estimates) or 2034/2035 (higher growth estimates). Morgan Stanley's Port Botany Scoping Study of May 2012 estimated that Port Botany would reach it natural capacity in 2030. 1149 Again, it is clear that as at May 2013/May 2014 PON would have appreciated that it was probable that Port Botany would be approaching its container capacity in about 2030 to 2040. 1150 It is not in dispute that Port Botany is in an urban location and has a limited site area which means that it has a natural capacity beyond which it cannot increase. The fact that Port Botany has a natural capacity beyond which it cannot increase and which as at May 2013/May 2014 would have been expected to be reached between 2030 and 2040 is relevant. This fact, taken with the increasing volume of containers in NSW, would have provided PON with an incentive to investigate the viability of a container terminal at the Port of Newcastle. Again, however, this would be but one component of an overall evaluation of the viability of developing a container terminal at the Port of Newcastle. 1151 The subsequent evidence indicates that the period for which Port Botany will have sufficient capacity to handle the container volumes for NSW is longer than expected in May 2013/May 2014. 1152 The Mott MacDonald report of August 2015 prepared for NSW Ports indicates that Port Botany's existing capacity would be exceeded between 2037 and 2043. 1153 Ms Calfas considered that Port Botany has a capacity of 7.2 million TEU per year which would be sufficient to 2045. This significantly exceeds the 2.08 million TEUs Port Botany handles for the 2019/2020 financial year. 1154 The NSW Freight Commodity Demand Forecasts 2016-2056 published by the NSW Government in August 2018 forecast that container volumes in NSW will grow to 4.78 million TEUs in 2036, 6.1 million TEUs in 2046 and 7.34 million TEUs in 2056. The capacity of Port Botany to handle these volumes depends on a range of contingences including substantial investment in Port Botany by NSW Ports, the stevedores at NSW Ports, and the State in the future, as well as improved productivity at Port Botany. 1155 The extensive cross-examination of Ms Calfas about this issue confirmed: (a) the required satisfaction of these contingencies for Port Botany's capacity of 7.2 million TEUs per year to be achievable, (b) the difficulty of predicting whether this full capacity is ultimately achievable, and (c) whether Port Botany's capacity will be exceeded in 2030, 2040 or 2056, it had as at May 2013/May 2014 and continues to have ample capacity which is capable of being significantly increased by further investment. 1156 Mr Liu's contrary evidence that the current capacity at Port Botany is significantly lower than 7.2 million TEUs per year disregards the potential for Port Botany to increase its existing capacity by the methods identified above, that is, substantial investment in Port Botany by NSW Ports, the stevedores at NSW Ports, and the State in the future, as well as improved productivity at Port Botany. This also undermines his statement that because the development of new container handling capacity typically requires a lead time of at least three to five years, Port Botany could be at capacity within that period. As at May 2013/May 2014, no-one expected Port Botany would do other than take steps to increase its capacity as and when required and to the maximum extent possible. That objective probability remains. 1157 These conclusions also apply to Mr Dent's evidence about various constraints affecting Port Botany. Mr Dent also properly recognised that most of these constraints could be ameliorated through investment. 1158 The evidence of Mr van Duijn and Mr King about Port Botany's capacity is in no different position. Whether it be lower than Ms Calfas predicted (Mr van Duijn at perhaps 5.5 to 6 million TEUs per year if Port Botany is fully developed) or not, the basic propositions remain: (a) container volumes in NSW are increasing, (b) Port Botany has a natural physical capacity, and (c) as a result, there will be an opportunity for the development of another container terminal in NSW. These facts gave (and give) PON a clear incentive to pursue the possibility of that next container terminal being at the Port of Newcastle rather than Port Kembla. 1159 It follows that the finite capacity of Port Botany was and is a necessary but not a sufficient condition for PON to be willing to investigate the prospects that a container terminal at the Port of Newcastle while Port Botany has capacity will be viable and whether PON will be able to present a good case to the NSW government to change the State policy. 8.6.2.3 Port Botany road congestion 1160 The ACCC's third matter is the congestion of road transport networks around Port Botany. The ACCC relied on NSW Ports' internal assessment before its successful bid, "Project Cook: Investment Review – Investment Committee Paper 1", 25 January 2013, that "heavy reliance on road-based transport to service Port Botany poses potential constraints on the port's future growth" due to heavy congestion on the port's main road corridors, the M4 and M5. NSW Ports also noted, however, that the port was not the main contributor to this congestion, being only 2% of M5 traffic. Further, the NSW Treasury "Key Risks Register" for privatisation of Port Botany and Port Kembla dated 6 March 2013 identified lack of sufficient road/rail infrastructure as a high risk. The Transport for NSW Corporate Plan 2012-2017 identified the need for greater road freight capacity as a vital link in NSW's logistics chains. PWC's Mayfield Market Study Assessment of May 2012 recorded that there was some customer dissatisfaction with Port Botany in terms of landside congestion. PWC referred to the distribution chain beyond Port Botany being the "major bottleneck" given the port's proximity to the Sydney CBD and the population and traffic growth in the area. 1161 Port Botany's ultimate capacity may be constrained by (amongst other things) traffic congestion issues, but the issue has never been and is not of great significance. Relevant facts include that: (a) traffic congestion did not prevent the 3.2 million TEU cap on Port Botany being removed in October 2012 when, apparently, traffic impacts had prompted the imposition of the cap as a condition of development consent for the third terminal, (b) Port Botany is not the main contributor to road congestion, and (c) NSW Ports recorded in March 2013 that it did not see landside access as a key limitation for Port Botany's growth. This last conclusion is objectively reasonable. 1162 Accordingly, the fact that Port Botany is located within an area of traffic congestion was and is not particularly significant to any investigation of the viability of developing a container terminal at the Port of Newcastle. It was and is more in the nature of advocacy issue for PON. 8.6.2.4 Newcastle area container demand 1163 The ACCC's fourth matter is that as at May 2013 there was expected demand for exports and imports of containers from the Newcastle area justifying the investigation and potential development of a container terminal at the Port of Newcastle. The ACCC noted that: …the Port of Newcastle is located in the vicinity of producers of grain, wine, beef, cotton, wool, mineral concentrates, and aluminium products which could potentially export their products through a Newcastle Terminal. Further, the sizeable local population itself consumed material volumes of containerised imports and the relative proximity to Sydney meant that it was feasible to import goods destined for Sydney through the Port of Newcastle. Mr Kwiatkowski and Mr Liu gave evidence that they consider that demand from the Port of Newcastle's catchment area would support development of a Newcastle Terminal, and this evidence was not challenged in cross-examination. Mr Dent gave evidence, which was similarly unchallenged, that he regards the logic underlying the identification of the catchment area in the Preliminary Business Case as generally sound. 1164 The evidence of Mr Kwiatkowski and Mr Liu largely depended on the cogency of PON's PBC which is discussed below. Mr Dent's evidence was that the catchment area in PON's PBC is generally sound, but he noted that use of a container terminal at the Port of Newcastle would depend on the number and frequency of ships calling at the port. It is apparent that Mr Dent has never expressed an unequivocal and unqualified view that a container terminal at the Port of Newcastle while Port Botany has capacity would be viable. 1165 Further, these kinds of generalisations identified by the ACCC would be no substitute for the detailed viability analysis that PON's board and shareholders would require before committing to do anything more than investigating the prospect of the development of a container terminal at the Port of Newcastle. Nor could these generalisations satisfy a financier to provide financial support for such a development, or satisfy the State that such a development would be in the public interest. I also note that these kinds of generalisations have not been accepted to be sufficient in previous analyses of the potential for a container terminal at the Port of Newcastle while Port Botany has capacity. 1166 For example, the PWC Mayfield Market Study Assessment of May 2012 prepared for NSC/MDC is a measured and restrained assessment of the potential for a container terminal at the Port of Newcastle, despite having been prepared when the 3.2 million TEU per year cap on Port Botany was still in place. It includes statements such as: (1) "[t]he dominance of Port Botany and the landside logistics chains of the major importers were identified as issues that the Project would need to overcome"; (2) "[t]he propensity of customers to use Newcastle as a major import port would be assisted by changes to the logistics network so that customers could require that liners call at Newcastle and goods could be efficiently distributed to the natural hinterland. This is less likely to be the case while logistics chains remain focused on Port Botany and metropolitan Sydney unless NSC and its strategic partners such as SCT Logistics can ensure delivery of goods into the logistics chain in a time and cost effective manner i.e. as effectively as for goods landed at Botany"; (3) "[i]n the short term at least, market participants thought it more likely therefore that growth in container trade at Newcastle would be driven by push factors (e.g. further congestion at Port Botany) unless there is extensive upfront capital investment in the Newcastle area (e.g. new distribution centres or changes to the logistics chain) that will 'pull' customers to Newcastle"; (4) "[o]verall, the Strengths and Opportunities appear persuasive to the market supporting development of the Project and on balance would outweigh potential Weaknesses and Threats"; (5) "[m]uch of NSC's predicted growth is also dependent on its ability to attract significant share of contestable cargo from Port Botany and Port Kembla and to a small degree Port of Brisbane"; and (6) factors critical to NSC achieving forecast volumes include: ability to attract shipping lines, road and rail linkages between Newcastle and Sydney, intermodal and general inland logistical factors, intra-port competition, and government policy. 1167 The more optimistic draft NPC container terminal analysis of July 2010 pre-dates the removal of the 3.2 million TEU cap on Port Botany's capacity. As noted, it identifies that its purpose is to "confirm the need for Newcastle to be the site for the next NSW container facility, to be available when Port Botany reaches its 3.2 million TEU pa capacity". In other words, it is in part at least an advocacy document prepared for NPC to supports its preferred position at that time. It is also notable that while it advocates for a container terminal at the Port of Newcastle "at the earliest possible time", it proposes that a container terminal to be available at the Port of Newcastle when Port Botany reaches its capacity. 1168 Despite these considerations, I accept that expected export and import container volumes from the Newcastle area would provide an incentive to PON to investigate the viability of developing a container terminal at the Port of Newcastle. Again, that demand was and is a necessary but not a sufficient condition for PON to be willing to investigate the prospects that a container terminal at the Port of Newcastle while Port Botany has capacity will be viable and whether PON will be able to present a good case to the NSW government to change the State policy. 8.6.2.5 Suitability of the Port of Newcastle for a container terminal 1169 The ACCC's fifth matter is that the Port of Newcastle is a suitable location for a container terminal. 1170 It must be accepted that the Port of Newcastle is physically capable of accommodating and suitable for the construction of a container terminal. It has its own opportunities and constraints, but its physical suitability for this purpose should be a given. To the extent the State and NSW Ports submitted to the contrary, I disagree. The State's policy has always endorsed the ultimate development of a container terminal at the Port of Newcastle. In adopting this policy the State, since 2003, has accepted the physical suitability of the Port of Newcastle for a container terminal. The State also marketed the Port of Newcastle to bidders in March 2014 in the Information Memorandum on the basis that the "much larger land footprint at the Port of Newcastle makes it the logical next tranche of container capacity once other port capacity is approaching saturation" and "Newcastle has the greatest development opportunity of NSW's major ports with 190Ha of developable land, while Botany and Kembla have limited or no land currently available for development and would need to reclaim land to build additional terminal areas and berths". The Information Memorandum said a container terminal "may not be required until after 2040", but it accurately conveyed the State's policy that the Port of Newcastle had been identified for a future container terminal if and once both Port Botany and Port Kembla reached capacity. 1171 Accordingly, any suggestion in this proceeding that the Port of Newcastle is physically unsuitable for a container terminal should be rejected. However, it must also be inferred from the State policy and the analyses which led to it that Port Kembla is equally physically suitable for a container terminal. 8.6.2.6 Planning approvals 1172 The ACCC's sixth matter is that State planning approvals were in place that would facilitate the development of a container terminal at the Port of Newcastle. 1173 Neither the 2001 development consent nor the 2012 concept development consent authorise the development of a container terminal fit for purpose as at May 2013/May 2014 or today's date or, indeed, as proposed at any time by PON. The ACCC's point is that the mere existence of the earlier development consents would be a positive factor in favour of the development of a container terminal at the Port of Newcastle. I accept only that the earlier development consents indicate the physical suitability of the Port of Newcastle for a container terminal. 1174 There are two relevant State Environmental Planning Policies under the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act). The first is State Environmental Planning Policy (Port Botany and Port Kembla) 2013 (NSW) (the first SEPP) made on 31 May 2013 and the second is State Environmental Planning Policy (Three Ports) 2013 (NSW) made on 31 May 2014 (the second SEPP, replacing the first SEPP). These environmental planning instruments cannot be disregarded in any hypothetical circumstance as they would have been made irrespective of the impugned provisions. 1175 It is sufficient to note these matters about the SEPPs: (1) the first SEPP applied to the privatised Port Botany and Port Kembla; (2) the first SEPP authorised a port operator (which would include NSW Ports) to carry out development within the leased area of the ports without development consent for the purpose of port facilities and wharf facilities if the development had a capital investment value of more than $100 million (cll 4(1), 5, 18(1)) such development is State significant infrastructure (cl 28)); or (3) under Pt 5.1 of the EPA Act, the approval of the Minister is required for State significant infrastructure, but various other approvals as identified are not required and yet other approvals which are still required must be granted consistently with the Minister's approval under the EPA Act (currently, see ss 5.12, 5.14, 5.19, 5.23 and 5.24 of the EPA Act); and (4) the second SEPP included the privatised Port of Newcastle so it was subject to the same provisions as Port Botany and Port Kembla from 31 May 2014. 1176 While the provisions of the EPA Act have changed since May 2013/May 2014, there were equivalent provisions in the former version of the EPA Act to the same effect as the existing provisions. As such, at all relevant times, development of a new container terminal at the privatised Port of Newcastle became subject to Ministerial approval and, in effect, if approved, other State approvals would not be required or had to be granted consistent with the Minister's approval. 1177 Before May 2014, the Port of Newcastle was operated by a public authority and unless the NSW government wished the development to occur no development or planning application could have been made. It is only after the privatisation of the Port of Newcastle in May 2014 that PON had a capacity to make a development or planning application to the Minister. 1178 The State submitted that "any assessment of the notion that a container terminal could have been developed in May 2013, and may have been developed since, must take into account the need for planning approval and the improbability of that being granted". The State also said this: The development is inconsistent with State policy. Is it suggested that there is a real likelihood that the Minister would conclude that the development is in the public interest and grant approval for a container terminal at the Port of Newcastle (with all of the associated adverse environmental impacts and infrastructure implications) despite that being contrary to State policy? There is no real likelihood of such an outcome. The ACCC and PoN must therefore be driven to the alternative hypothesis – that the State might for unspecified reasons at some unknown point in the future abandon its settled ports policy, and the Minister in turn might conclude that the development is in the public interest. That does not present as any more realistic. 1179 Where this submission ends up is that planning approvals will be dictated by the State policy as it exists at the relevant time. I agree with this proposition. 1180 The evidence of Mr Kwiatkowski that the lack of relevant planning approvals for the proposed container terminal would be a "serious problem" fails to recognise the reality that planning approvals would follow from the State policy (in whatever form it exists at the time the application is determined). The "serious problem" that PON was and is confronting is not the need for planning approvals but the terms of the State policy. The planning regime confirms my view that no rational commercial body (including PON and its shareholders) would commit to the development of a container terminal without the support of the NSW government; without that support, the State policy will not change and there is no real chance of obtaining the necessary Minister's approval for the carrying out of the development. In this regard, as explained below, there is a critical difference between a consent or approval authorising the actual carrying out of a development and a concept development consent (such as the 2012 development consent) which does not authorise the carrying out of any development. 1181 The State's further reliance in its submissions on the adverse environmental impacts (in the sense of noise, congestion, pollution and the like) of a container terminal at the Port of Newcastle is misplaced. Adverse environmental impacts will not be determining issues. The determining issue will be the terms of the State policy. If the State policy remains as it is and has been since July 2012, I consider there was and is no real chance that PON will be granted the necessary Ministerial planning approvals to construct a container terminal. 1182 PON's submissions to the contrary are unpersuasive. PON submitted that the "independence" of the planning approval process is demonstrated by the concept development concept PON was granted in July 2012. PON noted that this consent was obtained despite the Treasury transaction team recommending that the State deny permission. PON said that there is "no evidence that planning approval decisions will be governed by the present policy, such that PON will not obtain the requisite approvals" and the State had not called any witness to say that approvals would be denied. PON's planning consultants, WSP, also had not advised PON that the State's policy would be a significant obstacle to obtaining the necessary approvals, and Mr Carmody did not understand that to be the case. 1183 These submissions are unrealistic and do not reflect the planning approvals process under the EPA Act. 1184 Mr Carmody's evidence was that he was optimistic that PON has good prospects of having a critical state significant infrastructure declaration made under the EPA Act if the PCDs are set aside. The desirability of such a declaration was raised by PON's planning consultants, WSP. However, no such declaration is required. The primary advantage of such a declaration for PON would be the exclusion of third party judicial review: see s 5.27 of the EPA Act. Accordingly, the prospects of PON obtaining a critical state significant infrastructure declaration are immaterial. The relevant issue is that Ministerial approval for the container terminal would be (and was always) required. The fact that PON's planning consultant has not identified the State policy as relevant to the obtaining of any such approval is not the issue. WSP's report does not purport to identify the considerations relevant to the obtaining of any such approval. The issue is whether the State policy will be relevant to the obtaining of any such approval. The answer is that it will be relevant and, in my view, will be determinative. 1185 The objects of the EPA Act in s 1.3 include: (a) to promote the social and economic welfare of the community and a better environment by the proper management, development and conservation of the State's natural and other resources, … (c) to promote the orderly and economic use and development of land, 1186 The State policy is relevant to both of these objects. The timing of major infrastructure development, and the impact it will have on other major infrastructure investments (private and public, existing and planned), are key considerations relating to the social and economic welfare of NSW and the orderly and economic use and development of land. 1187 As State significant infrastructure, an application to construct a container terminal at the Port of Newcastle will be subject to Div 5.2 of the EPA Act. Under s 5.16(1), the Planning Secretary must prepare environmental assessment requirements in respect of the infrastructure. Under s 5.16(3), in preparing these requirements, the Planning Secretary is "to consult relevant public authorities and have regard to the need for the requirements to assess any key issues raised by those public authorities". In this process, whether or not they are "public authorities" (defined in s 1.4), in practice, it is inevitable that Transport for NSW and Infrastructure NSW (as two relevant NSW agencies) will be consulted. Inevitably, they will require PON as the proponent to deal with the inconsistency of the proposal with the State policy as part of the necessary environmental impact statement. Alternatively, those agencies will make submissions about the proposal. One way or another, the State policy will be a key issue in the assessment of the proposal. 1188 PON's notion that the planning approvals process will be "independent" (presumably, independent from "political" issues) involves a fundamental misconception. While the State policy is ultimately an expression of the political will of the NSW government, at the core of the State policy is a planning issue. The planning issue is the timing and location of the next container terminal in NSW, which is a major infrastructure proposal impacting on the efficient use of existing infrastructure (public and private), the requirements for additional infrastructure (public and private) before it would otherwise be necessary, and the overall economic efficiency of the NSW freight task. These are planning issue and will be central to any planning assessment by the Minister under the EPA Act. 1189 PON's reliance on the 16 July 2012 concept development consent for a concept plan involving development of a container terminal at the Port of Newcastle as evidence of the "independence" of the planning assessment process involves another fundamental misconception. NPC, a government agency, was the proponent of that concept proposal. The concept development consent was granted on 16 July 2012 at the same time as the new State policy was being crystallised within the NSW government and its agencies. 1190 A concept development consent does not authorise the carrying out of any development. This is because a concept development application is an application "that sets out concept proposals for the development of a site, and for which detailed proposals for the site or for separate parts of the site are to be the subject of a subsequent development application or applications": s 4.22(1) of the EPA Act, previously s 83B. The consent authority, in assessing a concept development application, "need only consider the likely impact of the concept proposals (and any first stage of development included in the application) and does not need to consider the likely impact of the carrying out of development that may be the subject of subsequent development applications": s 4.22(5) of the EPA Act, previously s 83B. 1191 In other words, the likely impact of a container terminal being developed at the Port of Newcastle (including the impact on existing and future infrastructure investment and the cost of the freight task in NSW) while Port Botany had capacity was not a relevant consideration for the grant of the concept development consent in 2012. However, it would be a relevant (indeed, key) consideration for any proposal in fact to develop such a container terminal. Accordingly, given its nature, the 2012 concept development consent proves only the physical suitability of the Port of Newcastle for a container terminal in the future. 1192 Contrary to PON's submissions, Infrastructure Australia's Infrastructure Priority List for 2020 does not identify the need for a single deep-water port on the east coast of Australia. Infrastructure Australia's Infrastructure Priority List in fact identifies that over a 10 to 15 year timeframe there is a priority for east coast deep-water container capacity as: (a) the size of container ships is increasing, (b) as shipping companies tend to service all ports along a route the choice of vessel is linked to the capacity of all ports along the route, (c) currently, Sydney (Port Botany) can accommodate ships of 10,000 TEUs, but Melbourne is limited to approximately 8,000 TEUs, (d) currently, no Australian port can accommodate the more energy-efficient ships carrying more than 14,000 TEUs, (e) as such, Australia is unable to benefit from the potential cost reductions and efficiency improvements because of its container port constraints, (f) "[g]iven the preference of cargo ships to make multiple stops on a route, a network of deep water ports will likely be required, rather than a single port at a given location. This incentivises shipping lines to provide larger vessels to service Australia and maximises potential economic efficiencies", and (g) "[t]here may also be an opportunity to consider the development of a container port facility that can accommodate the largest ships as a transhipment port for other destinations within Australia". 1193 Infrastructure Australia's Infrastructure Priority List for 2020 identifies, in map form, the three ports where it expects this network of deep-water capacity ports will be provided as Melbourne, Sydney and Brisbane. Newcastle is not shown on this map. As discussed below, the evidence is to the effect that, with investment, Port Botany would be able to accommodate ULCVs and, with investment, the Port of Newcastle would be able to accommodate ULCVs. Accordingly, Infrastructure Australia's Infrastructure Priority List for 2020 in fact confirms the need for the three existing eastern seaboard container ports to increase their capacity to accommodate ULCVs. It does not suggest that the Port of Newcastle be developed as a container terminal. 1194 For these reasons, the approach of the ACCC and PON to the need for planning approvals for a container terminal at the Port of Newcastle is unconvincing. Unless and until PON can persuade the NSW government to change the State policy, there was and is no real chance or real possibility of PON constructing a container terminal at the Port of Newcastle because it will not obtain the necessary planning approvals to do so. 8.6.2.7 Capacity to accommodate larger vessels 1195 The ACCC's seventh matter is that the physical attributes of the Port of Newcastle enable it to accommodate larger vessels at a modern container terminal. This fact would have been relevant to PON, but it also would have known that the maximum size of any ship calling along the eastern coast of Australia would be dictated by the port with the smallest vessel capacity. 1196 The ACCC's submissions about the significance of this issue also disregards the evidence of Mr van Duijn to the effect that he does not expect ULCVs to call at Australia in the reasonably foreseeable future because Australia does not have the population to support the more infrequent visits of such vessels. Rather, Australia requires smaller more frequent visits by ships than would be possible using ULCVs because of the characteristics of this market. 1197 The evidence is also clear that, with expenditure, Port Botany would have the same vessel capacity as proposed for the Port of Newcastle. No doubt if such expenditure was required in the future, NSW Ports would ensure that Port Botany was able to accommodate such vessels. 1198 The ACCC's submissions that other ports will confront more difficulties that they will need to overcome to accommodate such vessels compared to the Port of Newcastle because those ports will be retro-fitting whereas the Port of Newcastle is a "greenfields" container terminal may be right, but there is no basis to infer that those ports will be incapable of overcoming those difficulties. 1199 Similarly, I do not place any material weight on the fact that the Port of Newcastle is on a river and may or will require extensive annual dredging to function as a container terminal. If the container terminal the Port of Newcastle would be viable and the NSW government supported it, then the need for maintenance dredging would be managed effectively. 1200 It follows that this issue of capacity to accommodate ULCVs was and is a necessary but not a sufficient condition for PON to be willing to investigate the prospect that a container terminal at the Port of Newcastle while Port Botany has capacity will be viable and whether PON will be able to present a good case to the NSW government to change the State policy. 8.6.2.8 Attitude of shipping lines 1201 The ACCC's eighth matter is that a new container terminal would be welcomed by shipping lines because it would introduce greater competition amongst stevedores. Mr Dent said that he expected shipping lines to be eager to support a container terminal at the Port of Newcastle as it may place downward pressure on stevedoring costs and pressure stevedores to improve service levels. Mr Smith noted that, consistent with PON's PBC, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX Container Port Services. 1202 The potential advantages of XXXX XXXX XXXX XXXX XXXX at the Port of Newcastle if developed as a container terminal would have been obvious and relevant to PON's investigation of the viability of a container terminal. Again, that potential was and is a necessary but not a sufficient condition for PON to be willing to investigate the prospects that a container terminal at the Port of Newcastle while Port Botany has capacity will be viable and whether PON will be able to present a good case to the NSW government to change the State policy. 8.6.2.9 PON's need to diversify 1203 The ACCC's ninth matter is that PON would have faced a strong commercial imperative to diversify its coal-focused business. 1204 The ACCC noted that NPC had recognised this imperative from 2009. There is no doubt that NPC supported the development of a container terminal at the Port of Newcastle, which is unsurprising given its statutory objectives under the SOC Act and the PAMA Act, including maximising the net worth of the State's investment in NPC and promoting and facilitating trade through its port facilities. NPC also recognised as at 2013 that an over-dependence on coal was a "medium risk" for the Port of Newcastle. But to suggest that, at that time, it considered there was a commercial imperative to diversify into a container port is an over-statement. At that time, on the evidence and as identified in its 2012-13 Annual Report, NPC considered that its market in coal would continue to grow towards its maximum capacity of 66 million tonnes per year. It had in place long-term contracts supplying exports to the Asian market. It had experienced 13 years of growth. Trade results for 2012-2013 were a "record" of 148.87 million tonnes, reflecting 16% yearly growth. 1205 Accordingly, it is accurate to say that NPC as at May 2013 recognised the desirability of future diversification, but did not consider that the lack of a container terminal until 2040 in accordance with the State policy was adverse in any way to the Port of Newcastle's viability. 1206 This is supported by the fact that the privatisation of the Port of Newcastle, on the basis of the then current State policy (which was disclosed in the bid documents) and the compensation provisions (also disclosed in the bid documents), generated $1.75 billion for the State. 1207 Further, in its Port Development Plan for 2015-2020, PON said that the Port of Newcastle was well positioned to capitalise on the established export supply chains of the Hunter Valley and beyond and that it expected strong growth in trade over the next five years. In other words, as at 2015, PON also considered that the Port of Newcastle was well placed as a viable business for the next five years. 1208 The lack of any commercial imperative on the part of PON as at May 2014 to pursue a container terminal development due to the need to diversify is also exposed by an internal PON document of April 2020 in another context (success fees for PON employees in getting the PCDs removed) which says that there was a "low probability ascribed to container terminal operations buy [sic] bidders in 2014". This low probability also confirms my view that it should be inferred that PON did not pay the State for its rights to the Port of Newcastle on the assumption that it would be able to develop a container terminal contrary to the State policy. 1209 The fact that Mr Kwiatkowski, Mr Liu and Mr Carmody now say that the Port of Newcastle has a commercial imperative to diversify is: (a) not reflective of the perception PON had in and after 2013 for the reasonably foreseeable future, (b) potentially a result of circumstances occurring more recently which were not reasonably foreseeable in 2013/2014, and (c) likely to be influenced, even if unconsciously, by their desire to see PON succeed in this case. 1210 This said, diversification and development optionality are always valuable. Further, I consider that PON always would have recognised the potential desirability of what the economists described as economies of scope or scale. A diversified port has increased potential for economies of scope or scale. This potential also would be an incentive for PON to investigate the prospects that a container terminal at the Port of Newcastle while Port Botany has capacity will be viable and whether PON will be able to present a good case to the NSW government to change the State policy. 8.6.2.10 NSC/MDC proposal 1211 The ACCC's tenth matter is the posited willingness of NSC/MDC to develop a container terminal at the Port of Newcastle as at May 2013 and thereafter. I have discussed this above. As noted, I do not consider any real weight can be placed on NSC/MDC's proposal as it is clear that: (a) NSC/MDC was not proposing to develop a container terminal as the Port of Newcastle other than in the future as supported by then current State policy (that is, after Port Botany and Port Kembla had reached capacity), and (b) there are good reasons to conclude that NSC/MDC was warehousing development optionality rather than in fact proposing to construct a container terminal at the Port of Newcastle in the reasonably foreseeable future. 8.6.2.11 ACCC's conclusions 1212 The ACCC submitted that in light of these 10 matters there was a significant prospect as at May 2013 that a private operator of the Port of Newcastle would develop (or procure the development of) a container terminal in the future and within the 50 year term of the PCDs. Given the terms of the PCDs and reflecting the discussion above, this must be understood as a submission that such a container terminal would be developed before Port Botany (and Port Kembla if it had a container terminal) had reached Full Capacity. Otherwise, the impugned provisions are irrelevant. As I have said, from the perspective of the capacity to address reasonably foreseeable possibilities, as at May 2013/May 2014 and today's date this must mean the development of a container terminal at the Port of Newcastle while Port Botany has capacity. 1213 The ACCC's submission is misconceived. The 10 matters would have given PON an incentive to investigate the viability of the development of a container terminal at the Port of Newcastle, but no more. They would also have given PON an incentive to investigate whether it could persuade the NSW government to change the State policy to facilitate the development of a container terminal at the Port of Newcastle while Port Botany has capacity and/or before any container terminal is developed at Port Kembla. 1214 However, these matters do not establish a significant prospect as at May 2013 or thereafter that the operator of the Port of Newcastle would develop (or procure the development of) a container terminal in the future and within the 50 year term of the PCDs and while Port Botany and Port Kembla have not reached Full Capacity. As discussed, there would be no prospect of a private operator (prospective or PON) in fact developing a container terminal at the Port of Newcastle in these relevant circumstances unless: (a) they were satisfied that such a container terminal would be viable, and (b) the NSW government had been persuaded to change the State policy. 1215 That these 10 circumstances would give PON an incentive to spend time and money on investigating the viability of the development of a container terminal at the Port of Newcastle and ascertaining the prospect of changing State policy is supported by the fact that, with the impugned provisions, this is precisely what PON has done. That PON might be doing so with the objective of removing the impugned provisions (or at least the reimbursement provisions, another issue in dispute) may be right, but it must be inferred that PON's representatives who are driving these investigations have an incentive to do so. In my view, for PON to continue the investigations is rational because it is, in effect, a "no risk" option. The only downside for PON is the expense of the investigations, but that downside is dwarfed by the potential upside. Even a small chance of obtaining the potential upside is worth the cost of the investigations. The potential upside includes a prospect that does not engage the impugned provisions at all – developing a container terminal at the Port of Newcastle next in line after Port Botany has reached capacity and before a container terminal is developed at Port Kembla. Objectively, this prospect alone must be inferred to be worth PON's while. 1216 The position to this point (investigating the viability of the development of a container terminal at the Port of Newcastle and ascertaining the prospect of changing the State policy) would have been precisely the same for PON with and without the impugned provisions because the two determining factors (viability and a change of the State policy) both would have been necessary pre-conditions to the development. 1217 PON has not finalised its assessment of the optimal form of container terminal development. Nor has it finalised its investigations of the viability of a container terminal while Port Botany has capacity. As such, it has not resolved to pursue any particular form of container terminal development, has not sought its shareholders' approval to pursue any particular form of container terminal development, and has not put forward any particular form of container terminal development as one which might support a change in the State policy. These facts cannot be attributed to the impugned provisions. Without the impugned provisions, PON would have had to undertake the same process and would be in the same position (because its investigations have assumed that at least the reimbursement provisions will be set aside). That is, with or without the impugned provisions, PON would still be confronting (as it currently is) the problem McKinsey & Co identified on 25 September 2020 and which no evidence suggests has been resolved – that there are "conflicting views about the destination for containers in NSW which has a significant impact on the investment case (since the destination for containers influences XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX)" (emphasis added). 1218 The evidence that the impugned provisions may have acted as a disincentive to third parties to undertake the project in partnership with PON, should not be accepted at face value. Even without the impugned provisions, the State policy would have necessitated the same kind of analysis as PON has been undertaking. The proposals of Anglo Ports and DP World Australia in 2016 never reached the stage of anything more than general unsolicited proposals. Had they done so, the issue of the viability of a container terminal at the Port of Newcastle while Port Botany has capacity would have been investigated and, it must be inferred, would have reached the same position as PON's investigations have reached. 1219 In any event, unless and until the NSW government can be persuaded to change the State policy neither PON nor any third party would be willing to commit to the development of a container terminal at the Port of Newcastle. Nor could they so commit because they would not have the necessary planning approvals to undertake such a development. 1220 PON's recognition of the need to establish the viability of a container terminal and to change the State policy is evident from its internal documents. While those documents, being PON minutes of Board meeting of 26 September 2018 and a document titled "Handling Strategy – Removal of Port Commitment Deed" dated 26 October 2018, are from 2018, they expose what has always been the case. They record PON's views that: (a) it needs to engage with "State and Federal politicians concerning the viability of a container terminal", (b) its strategy should include generating "media coverage in every major NSW town within the PON catchment: the economic and employment benefits to them using case studies", (c) the State policy is "not based on sound economic policy" and PON needs to persuade the NSW government of this, (d) "PON must shift tactics to make the NSW government say 'No'; not to PON, but 'No' to jobs and supporting cheaper freight for famers already doing it tough", and (e) PON's strategy needs to address "[l]inking regional development to improved port competitiveness leading to lower freight charges for farmers and regional exporters. This was picked up in the SMH. It is 'Why' port competitiveness is important at a local level". 1221 While some of these considerations are directed at resolving the issue of the PCDs, they are all equally relevant to the reality that it is the State policy that must first be changed. 8.6.3 ACCC's reliance on subsequent events 1222 The ACCC submitted that subsequent events demonstrate that a private operator as at May 2013 and PON as at May 2014 would have been likely to undertake the development of a container terminal at the Port of Newcastle in the reasonably foreseeable future without the compensation provisions. 1223 As will be apparent from the discussion above, I accept that subsequent events can be relevant because they can expose what would have been reasonably foreseeable at the time and can support inferences about what was and was not likely at the time. 1224 The ACCC again referred to NSC/MDC's proposal resulting from NPC's tender which was issued with the State's approval and included a proposed container terminal at the Port of Newcastle. My observations above to the contrary apply. 1225 The ACCC also again referred to the fact that Anglo Ports and DP World Australia made separate unsolicited proposals in 2016 to develop and operate a proposed container terminal at the Port of Newcastle. Neither proposal proceeded, the ACCC said, because of the impugned provisions. But the fact is that neither proposal advanced beyond a merely speculative stage and thus no assessment of the actual effect of the impugned provisions was undertaken. They were not willing to investigate further in the face of the impugned provisions but, as noted, this proves nothing if, on further investigation, the result would have been against any development of a container terminal while Port Botany has capacity irrespective of the impugned provisions. 8.7 The case for a container terminal at the Port of Newcastle 8.7.1 Preliminary observations 1226 As discussed, I consider that PON (at all times) would have to satisfy itself that there was a good case for a container terminal at the Port of Newcastle while Port Botany has capacity before it would commit to construction of a container terminal. PON would also require a good case to attempt to persuade the NSW government to change the State policy because it needed this to occur to secure the support of the NSW government for its development and to obtain the necessary Ministerial approvals under the EPA Act. Without both pre-conditions being satisfied, there was and is no real chance of a container terminal being developed at the Port of Newcastle while Port Botany has capacity, and thus no chance of any effect by the impugned provisions on competition. 1227 NSW Ports contended that PON's PBC is a proxy for PON's prospects of entry into the pleaded market, such that the question whether there is a "real chance" that PON will enter the pleaded market is, within these proceedings, primarily informed by whether the PON PBC discloses a commercially viable business case. As NSW Ports put it, the evidence in relation to potential entry by PON should be taken to be the best evidence that the ACCC could advance of the prospect of entry and puts the case for entry at its absolute highest. From this perspective, the case of the ACCC and PON rises or falls by reference to the cogency or otherwise of PON's PBC. 1228 The ACCC contended that this case is not concerned with whether PON's particular current plans for a container terminal are commercially astute or will be a success. The issue is whether the compensation provisions had the likely effect of delaying, deterring or diminishing the competition that Port Botany or Port Kembla would otherwise face given the potential that any container terminal might be developed at the Port of Newcastle over the fifty year term of the PCDs. On this basis, the ACCC said any submission by the respondents that PON's current plans to develop a container terminal at the Port of Newcastle are ill-conceived or ill-advised is largely an irrelevant distraction. 1229 Both submissions are too extreme. 1230 NSW Ports is right that it might reasonably be inferred that PON's PBC represents the best case for the viability of a container terminal at the Port of Newcastle that PON has managed to propose to date. But this does not mean that any divergence between PON's PBC and the expert evidence of, in particular, Mr van Duijn, means that PON's PBC is flawed and thereby demonstrates that a container terminal at the Port of Newcastle will not be viable. Mr van Duijn's views that PON's PBC needs to be reworked to ensure and maximise the viability of a container terminal at the Port of Newcastle are part of the assessment of viability. In other words, Mr van Duijn's evidence is also part of the relevant proxy. Inconsistency between the two does not prove that a container terminal at the Port of Newcastle would not be viable. To the extent that the submissions of NSW Ports and the State focus on such inconsistency, the submissions are misconceived. 1231 The ACCC is right that PON's particular current plans for a container terminal are not determinative of the issue of viability of a container terminal at the Port of Newcastle. But PON's PBC is also not an irrelevant distraction as the ACCC would have it. If PON's PBC is ill-conceived or ill-advised, that is relevant to the question whether, as at May 2013, the development of a container terminal at the port would be viable without the compensation provisions. 1232 The ACCC submitted that the ACCC does not need to establish that a container terminal will be built at the Port of Newcastle, or that any such terminal would be a commercial success, in order to prove its case. The ACCC said that it is sufficient for the ACCC's purposes that, as at May 2013, there was a real chance that the compensation provisions would deter or delay the development of a container terminal at the Port of Newcastle that would meaningfully compete with Port Botany and Port Kembla. 1233 However, the relevant likelihood for the ACCC's case (in the sense of real chance or real possibility) is whether the compensation provisions, as at May 2013 or today's date, have the likely effect of substantially lessening competition. The effect of deterring or delaying the development of a container terminal at the Port of Newcastle may or may not substantially lessen competition. If the ACCC cannot prove that, without the compensation provisions, a private operator as at May 2013 or today's date would have been able to satisfy itself that a container terminal constructed at the Port of Newcastle would be viable then there necessarily would be no real chance that the compensation provisions would deter or delay the development of a container terminal at the Port of Newcastle. The same conclusion applies to the prospect of obtaining a change in the State policy. If there was no real chance that would occur then there necessarily would be no real chance that the compensation provisions would deter or delay the development of a container terminal at the Port of Newcastle. 1234 In this regard, it is also important to recognise that as at May 2013 or today's date, a private operator of the Port of Newcastle, as with any commercial entity, would not assess the viability of a container terminal by reference to legal standards of proof. The only incentive for a private operator (and PON) to develop a container terminal at the Port of Newcastle is to make a profit over the long-term. The up-front capital involved is very substantial. The market is an existing market dominated by Port Botany. No private operator would assess the longer-term profit making potential of a container terminal at the Port of Newcastle by asking itself whether there was a real chance or even a probability (in the sense of merely greater than 50%) of the container terminal being profitable. A private operator may engage in sensitivity testing by assessing the profit making potential of the container terminal on a pessimistic, neutral and optimistic basis but, ultimately, it would need to satisfy itself that the container terminal would be profitable over the longer-term. If a private operator could not so satisfy itself, without the impugned provisions, then there would not be a credible threat of entry into the market for Container Port Services in NSW by the Port of Newcastle. 1235 The ACCC submitted that existence of the real chance that the compensation provisions deterred or delayed the development of a competing container terminal at the Port of Newcastle is proved by the Treasury's assessment that the compensation provisions would increase the bids for Port Botany and Port Kembla by XXXX XXXX XXXX. The ACCC said: The order of magnitude of that figure is at least a rough proxy for a central proposition of the ACCC's case: that there was perceived to be a realistic prospect of competition between a container terminal at the Port of Newcastle and Port Botany and Port Kembla as at May 2013 and that the Compensation Provisions had the purpose, effect and likely effect of substantially lessening that prospective competition. 1236 This submission wrongly equates the potential magnitude of the discount to bids for Port Botany and Port Kembla with the potential competitive threat presented by the risk of a container terminal at the Port of Newcastle. However: (1) the Treasury's assessment concerned the discount that would be applied by bidders for Port Botany and Port Kembla, not the amount that might be recouped by a bidder under the compensation provisions; (2) the Treasury's process of reasoning included that bidders would be conservative and discount their bids for Port Botany and Port Kembla as if the risk of a container terminal at the Port of Newcastle was high when, in fact, Treasury assessed that risk to be very low or a "straw man"; (3) the magnitude of the Treasury's bid discount assessment bears no logical relationship to the amount that might be recoverable under the compensation provisions; (4) Morgan Stanley modelled the potential bid discounts to the potential liability under the compensation provisions at the time (in March 2013) which showed the bid discount of XXXX XXXX XXXX compared to a potential liability under the provisions of only $44.5 million; and (5) accordingly, if the Treasury's assessment of the potential burden the compensation provisions might impose on the Port of Newcastle (via the reimbursement provisions) is relevant, that estimated burden was only $44.5 million (which would be insignificant in the context of the construction of a new container terminal). 8.7.2 Other evidence relevant to viability – before May 2014 1237 There is some evidence apart from PON's PBC and the expert evidence in this case relevant to the viability of a container terminal at the Port of Newcastle while Port Botany has capacity. To be relevant, the evidence needs to have been prepared on the basis of the removal of the cap on TEU per year on Port Botany. This occurred in October 2012 so evidence after this date is relevant and evidence before this date which does not assume removal of the cap requires caution. 1238 In the May 2012 Port Botany Scoping Study (which advocated the removal of the cap on Port Botany), the proposed container terminal at the Port of Newcastle was considered to present highly questionable viability given, as the State summarised it, "that containers calling at Newcastle were likely to be in small volumes and servicing a niche market, less than 10% of NSW container movements on NPC's management case were expected to flow through a container terminal at Port of Newcastle, international shipping lines were unlikely to call at both Port Botany and Port of Newcastle and that while Port of Newcastle might be competitive for imports bound for the Newcastle hinterland, it was highly unlikely that it would be cost competitive with Port Botany for imports destined for the Sydney region". 1239 By 25 January 2013, NSW Ports' internal assessment in its "Project Cook Investment Review for IFM – Investment Committee Paper 1" was that a container terminal at the Port of Newcastle was unlikely for 20 years and would have to overcome attracting shipping lines and landside logistics constraints. This remained NSW Ports' view in March 2013. It may be inferred that NSW Ports considered that three events, the change in the State policy, the removal of the cap on Port Botany, and the inclusion of Port Kembla in the privatisation, meant that there was no immediate competitive threat from a container terminal at the Port of Newcastle and such a threat was not likely for 20 years. 1240 In April 2014, the Treasury transaction team for privatisation of the Port of Newcastle advised the Treasurer of a low risk of the compensation provisions being engaged because, amongst other things, the landside logistics task is focused on Botany and south-western Sydney, meaning it was unlikely to be economic for large-scale container facilities to be developed in Newcastle before Port Botany and Port Kembla are at capacity. 1241 These assessments reinforce the effect of the evidence that PON itself understood that bidders for the Port of Newcastle in May 2014 ascribed a "low probability" to the prospect of the development of a container terminal at that Port. 8.7.3 Other relevant matters 1242 There were suggestions in the opening submissions for NSW Ports that PON's PBC: (a) might not be commercially genuine because it is a product of PON's motive to remove the impugned provisions, (b) had been abandoned by PON, and (c) might be the result of financial incentives of PON employees to achieve removal of the impugned provisions. 1243 These suggestions were not put to PON's witnesses. Propositions (a) and (c) fail to recognise that PON's representatives may have a range of reasons driving their decisions that PON investigate the viability of a container terminal at the Port of Newcastle including that they believe that the investigations ultimately will be worthwhile. Proposition (b) is not supported by the evidence. PON has not abandoned its PBC. It has amended the PBC and is continuing to assess the best options for a container terminal at the Port of Newcastle and its viability. 1244 NSW Ports and the State contended that because the ACCC and PON had not called the relevant decision-makers from PON's shareholders, TIF and CM Ports, about developing a container terminal at the Port of Newcastle, the evidence of the witnesses who were called on behalf of PON should not be taken to represent the position of the relevant decision-makers. 1245 The ACCC and PON relied on evidence to support an inference that without the impugned provisions there was at least a real chance or real possibility that PON, at May 2013/May 2014, would have proceeded with a container terminal, inferentially, with its shareholders' approval and that the effect of this not occurring involves a substantial lessening of competition. I disagree. 1246 It can and should be inferred that PON's board and shareholders would act rationally in their own commercial interests. They would not (and could not, given the need for planning approvals) rationally commit to the development of a container terminal at the Port of Newcastle unless satisfied that the container terminal would be viable and have the support of the NSW government, which would require a change in the State policy. They could rationally commit to investigating the viability of the development of a container terminal at the Port of Newcastle while Port Botany has capacity and the potential to make a good case to the NSW government to change the State policy, and have done so. The two commitments are entirely different. Willingness to commit to the latter does not prove willingness to commit to the former, a point the ACCC and PON appear to have overlooked. 1247 NSW Ports noted that the ACCC interviewed the Chairman of TIF for the purpose of giving a witness statement, but no witness statement was filed. I do not consider that any inference adverse to the ACCC and PON should be drawn from this fact. The issue does not seem to have been raised until closing submissions. There could be no expectation that the Chairman of TIF would be called to explain some or other matter. But for the disclosure that he had been interviewed in an internal document of PON, the issue would have been immaterial. Further, MIRA manages TIF's investment in PON and has the relevant expertise in port operations and management. Two MIRA appointed directors of PON have given evidence, Mr Kwiatkowski and Mr FitzSimons. 1248 It is also immaterial that there are two more senior MIRA representatives to whom Mr FitzSimons reports who sit on the board of TIF. It is part of Mr FitzSimons's responsibility to make recommendations to TIF. This is sufficient to make his evidence relevant. Nor can any inference be drawn against the ACCC and PON for not calling additional evidence from the two more senior MIRA representatives. In circumstances where PON's development of its case is continuing, there has been no occasion for Mr FitzSimons yet to make a relevant recommendation to TIF. 1249 The same considerations apply to the position of CM Ports. Mr Liu is a director of PON appointed by CM Ports. In common with Mr Fitzsimons, he is not a decision-maker at CM Ports but would report to those decision-makers (an investment committee and management committee within CM Ports). In circumstances where PON's development of its case is continuing, there has been no occasion for Mr Liu yet to make a relevant recommendation to CM Ports. 1250 These considerations apply also to the fact that the ACCC has called three only of PON's seven directors. NSW Ports submitted that an inference arises that a majority of board could not be called to give evidence even of a subjective belief in the viability of a container terminal at the Port of Newcastle. However, PON is continuing to develop its proposals for a container terminal. Accordingly, there has been no occasion for the whole of PON's board yet to assess a proposal and to decide whether to make a final recommendation to PON's shareholders. 1251 NSW Ports noted that it did not cavil with the fact that the PON representatives believe in the container terminal project. NSW Ports' point is that the largely unchallenged evidence of the PON representatives about the viability of a container terminal at the Port of Newcastle represents their subjective beliefs which should be given little, if any, weight for four reasons. 1252 First, NSW Ports noted that the PON representatives rely on the PON consultants' reports as the basis for their opinions. As such, their evidence rises no higher than those reports. The authors of those reports have not been called to give evidence. On their face, NSW Ports said, these reports are not entitled to any weight for various reasons, and the evidence of the PON representatives based on those reports should also be given no weight. 1253 I consider the substance of the consultants' reports separately. Leaving aside Mr Carmody, the PON representatives had extensive experience in ports, shipping and logistics. The fact that the long experience of Mr Kwiatkowski and Mr Liu does not relate to Australia is relevant to but not determinative of the weight which should be given to their evidence. The evidence overall supports the inference that this is an international industry and international experience is relevant. Specifically, as the ACCC submitted: (1) Mr Kwiatkowski has experience in the construction, development and operation of container terminals in Vostochny (Russia), Qingdao (China), Colombo (Sri Lanka), Callao (Peru), Gdansk (Poland) and Surabaya (Indonesia), in seagoing roles (including as a ship's captain) and operational roles at the Port of Melbourne and Port Botany, and in managing rail container services, and the interaction between rail and container ports. He has also been involved in considering PON's plans to develop a container terminal for two years; (2) Mr Liu has experience of over 30 years in the ports and logistics industries, including in the development and operation of container terminals. His experience includes six years working in logistics companies providing services within China and globally, seven years as a director of CM Ports, in which capacity he was involved in CM Ports' budgeting process, board presentations and business development, periods as chief executive officer, chairman and, later, director of the CICT container terminal in Sri Lanka, as chairman and, later, director of Hambantota Port in Sri Lanka, as director of the Terminal Link joint venture between China Merchant Holdings (International) Company Limited and the shipping line CMA CGM, and as director of other entities which operate container terminals in Turkey and Togo; and (3) Mr FitzSimons has experience in respect of port investments including experience in relation to the development and operation of DCT Gdansk (including as a director), preparation of bids to build and operate a container terminal at the Port of Melbourne and to acquire the Port of Melbourne. 1254 Otherwise, Mr Dent has experience in respect of the operation of shipping lines and ports in Australia. 1255 While the details of their evidence differs, the PON representatives are all of the view that, at the least, PON should continue with its investigations on the basis that there is a good case for doing so. The overall substantive effect of their evidence, leaving aside the impugned provisions, includes the following: (1) Mr Kwiatkowski: "[w]hile I am strongly of the view that building a container terminal at the Port of Newcastle is a good idea, as with any new container terminal, there are challenges that PON will face, in particular attracting a sufficient volume of business from shipping lines … The main challenge that PON will face is likely to be a marketing challenge. Namely, participants in the shipping industry will need to be convinced about the benefits of the new container terminal. I expect it will be straightforward to persuade the shipping lines of the benefits that they will receive from using a facility at Newcastle … However, it will still be necessary to convince the shipping lines of the concept of how the facility will work, including satisfying them as to the rail and connectivity issues. That marketing challenge is one that I have seen overcome in relation to many container terminals, particularly DPWC [DP World Callao] and DCT Gdansk, through steps such as engaging with the shipping lines as described"; (2) Mr Liu: "[i]n my view, Newcastle has the potential to develop a successful container terminal … While I will need to consider the studies that are currently being prepared and the work undertaking in the detailed design phase, at this stage I expect that there will be a compelling case for the PON board to approve … I consider that there is a very strong case for a container terminal at Newcastle, and I want PON to be able to move as quickly as possible once the PCD is removed"; (3) Mr FitzSimons: "[m]y view as a director of PON is that there is a solid early stage investment case. While the project requires more detailed work to be conducted on a demand study and a detailed technical study, that is typical at this stage of an infrastructure project. On that basis, I have provided strong directional support to the project at board meetings. When the issue has been discussed at board meetings, I have expressed the view that the project should continue to be pursued"; (4) Mr Dent: "I expect shipping lines would be eager to support the development of a competing terminal at Newcastle as the increased competition from that terminal may place downward pressure on stevedoring costs and pressure them to improve service levels … I regard the logic underlying the identification of the catchment area in the Preliminary Business Case as generally sound"; and (5) Mr Carmody: "I believe that a container terminal at the Port of Newcastle would be a commercial success if the Newcastle PCD was not in place. The proposed container terminal at the Port of Newcastle has a number of features which I believe would make it attractive to customers". 1256 Further: (1) Mr Kwiatkowski expects that he will be asked to provide a recommendation to MIRA as to whether it should support a container terminal at the Port of Newcastle. He also expects that he will need to decide whether to vote in favour of PON proceeding to construction of a container terminal at the Port of Newcastle; (2) Mr FitzSimons is one of three members of a management committee of the MIRA subsidiary which manages TIF's investment, reporting to the Gardior board. MIRA does not control the actions of TIF or PON. MIRA's role would be to make a recommendation to the board of Gardior, which would then decide how to commit TIF's funds; and (3) according to Mr Liu, CM Ports would have a two level decision-making process requiring approval of a detailed design of the container terminal by the investment committee and the board of CM Ports. Mr Liu is not a member of either body. To the extent NSW Ports suggested the evidence indicated a different procedure would be used, I accept Mr Liu's evidence that this different procedure only applies to projects solely controlled by CM Ports and this is not such a project. 1257 Mr Carmody also gave evidence as follows which I consider generally supportive of the conclusions I have reached above: (1) Mr Carmody was hired as PON's CEO in 2018 on the basis that a key responsibility would be to implement a sustainably profitable future for the Port of Newcastle including development of a container terminal; (2) Mr Carmody considers the impugned provisions to be a "political problem" requiring a "political solution"; and (3) PON's concept of the reasonably foreseeable future involved a horizon of a decade. 1258 The PON representatives are long-term participants in the industry. They would have no interest in seeing the Port of Newcastle developed with a container terminal which is a "white elephant". This said, it is also relevant that the PON representatives have not been called upon to do anything as yet other than recommending the investigations continue, albeit at not insignificant expense. As I have said, however, there is no comparison between deciding to investigate an opportunity which, if it exists, might vastly increase PON's profit potential and deciding in fact to construct a container terminal at exponentially greater expense and risk than the mere investigations. 1259 As noted, it should be inferred that PON did not pay the State for the potential value of constructing a container terminal at the Port of Newcastle contrary to the State policy. While the investigations may cost PON in the order of up to $8 million, this is insignificant compared to the potential upside for PON if it is satisfied that the container terminal will be viable and can persuade the NSW government to change the State policy. This explains why PON is doing what it is doing. Even if all PON achieves is to obtain precedence over Port Kembla to be the next container terminal in NSW after Port Botany reaches capacity, this alone would be of enormous potential value to PON. So PON can be expected to continue to do everything it can to satisfy itself that a container terminal will be viable and to persuade the NSW government to change the State policy. That does not mean that PON's representatives, PON's board or its shareholders could or would commit to the construction of a container terminal at the Port of Newcastle if they are not satisfied it would be viable and are not able to persuade the NSW government to change the State policy. 1260 Second, NSW Ports noted that the PON directors have limited expertise in Australia and Mr Carmody has no experience in container terminal development. I have already discussed the directors' expertise above. As to Mr Carmody, he does not have the long experience in the industry of other witnesses. However, he does have relevant experience in infrastructure and transport policy, Australian ports policy, and port operations. His opinions cannot be dismissed as irrelevant. As to Mr Dent, he was notably more circumspect in his affidavits than other PON representatives. He said that the Port of Newcastle would have a large catchment area where it would offer a land transport cost advantage and that it should be possible for the Port of Newcastle to attract shipping lines, but no more. 1261 As a result, the evidence of the PON representatives is relevant. It should not be dismissed as irrelevant because it is based on the consultants' reports. Even if the consultants' reports are flawed, the evidence of the PON representatives remains relevant given their industry experience. But the relevance of the evidence of the PON representatives must recognise the true effect and limits of their evidence. 1262 The true effect of their evidence is that, irrespective of the reimbursement provisions, it is worthwhile to continue investigating and they believe the case created so far is positive (to greater or lesser extents depending on the witness). That is not the same as evidence that, without the reimbursement provisions, PON would construct a container terminal while Port Botany has capacity. 1263 The limits on their evidence are that their opinions are largely dependent on consultants' reports without it being apparent that anyone within PON has subjected those reports to a critical review. 1264 Rather, as discussed below, PON's reviews of its consultants' reports appear to have been directed to reinforcing any positive conclusions and suppressing any negative suggestions. It is easy to infer why PON has taken this approach (that is, because PON's objectives include obtaining the support of the NSW government to regain precedence for the Port of Newcastle over Port Kembla after Port Botany has reached capacity), but it is not necessary to go so far for the purpose of assessing the evidence of the PON representatives. The effects and limits on the evidence of the PON representatives remains, according to the terms of that evidence. 1265 In particular: (a) the PON representatives did not say that they had decided to put a positive recommendation to PON's board about the development of a container terminal, (b) it was clear from the evidence of the PON representatives that they could not and would not make any such recommendation until they had satisfied themselves that they had the optimal proposal and it would be viable, and (c) the evidence of the PON representatives about their current views and expectations depended to a large extent on the consultants' reports. 1266 Third, NSW Ports noted that the PON representatives are not independent witnesses. This is true. It applies equally to the NSW Ports' representatives. Further, NSW Ports accepts that the opinions of the PON representatives are honestly held. The point thus goes nowhere. 1267 Fourth, NSW Ports noted that the evidence of the PON directors was unreasoned save to the extent that it referred to the PBC and consultants' reports. NSW Ports said: The cross-examiner was not required to elicit the reasoning in order to challenge it. If the witnesses expected to have an opportunity to respond to contrary opinions, and if the ACCC wished them to have such an opportunity for perceived fairness reasons, then the witnesses should have acceded to the expert witness code and participated in the industry experts' hot tub. … Cross-examination of the witnesses on their derivative views would have served no purpose relevant to the proceeding as those views rise no higher than the apparent, albeit untestable, opinions of the real witnesses who underpin the ACCC's case – OSC and the other consultants. (Citations omitted). 1268 The PON representatives did rely on the PON PBC and consultants' reports, but they have relevant experience and expertise. As I have said, the action to date of the PON representatives is rational because it reflects the reality that the continuing investigations are effectively a "no risk" option for PON in that the potential downside is confined to the costs of the investigations and the potential upside is enormous even if all PON can obtain is precedence over Port Kembla in the order of development. 1269 NSW Ports submitted that it could not be assumed that PON's shareholders would support a container terminal at the Port of Newcastle. As discussed, I agree. It can be assumed, however, that PON's shareholders will act in their own best interests. 1270 NSW Ports pointed to an email from Mr Kwiatkowski to Mr FitzSimons of 17 January 2019 which said: Business Case states that there will be a need for substantial shareholder equity in the project financing mix, who likes this? Even if shareholders were to be generous, the project would be non-bankable on the basis of such Business Case, 1271 This is relevant. Consistent with my view that continuing the investigations is a "no risk" option for PON, Mr Carmody sought $3-4 million in funding to move to a more detailed stage of business planning, terminal design and marketing. PON's board approved the preparation of a detailed business case at a cost of about $3.4 million. More recently, in April 2020, PON's board approved preparation of a full new business case with a budget of up to $3.8 million and obtained further reports. PON's April 2020 board papers record that: The 2018 preliminary business case is 18 months old and due to changes in macro-economic conditions, along with time, no longer carries currency. Consequently a new full MDT Business Case is required to support the ACCC v NSW Ports court proceedings, mediation, NSW State Deal and future financing. 1272 The multiple identified purposes identified in the board papers support the inference I drew above that PON's purposes include but extend beyond this case, and include attempting to present a case to the NSW government to change the State policy. PON would be in the same position with respect to the State policy (and future financing) without the impugned provisions. 1273 NSW Ports pointed to evidence that the ACCC informed PON that an investor willing to fund the development would be relevant, but no such investor has been identified. This is true. But it is unlikely that PON would be able to attract an investor before it had finalised its detailed business case, had approval from PON's board and shareholders for that case to be pursued, and had a good interest case to put to the NSW government to support a change of the State policy. The relevant point is that PON would be in the same position as it currently is without the impugned provisions in respect of each of these issues. 1274 NSW Ports noted that PON's Chairman, Mr Green, and the TIF/Gardior-appointed directors met with the TIF Board on 27 August 2018 and Mr Green recounted the meeting as follows: The Board was also interested in progress on the container terminal though it was interesting and somewhat disappointing to note that they were not themselves entirely convinced of the possibility or desirability of such a development, seemingly because of the risks involved. Again there was only scant evidence of familiarity with the operational impact of the PCD, the process required to remove it, and the significant implications of a favourable ACCC decision. However there were some reasonable questions about the logistics of unwinding the PCD for the government and NSW Ports, and how we should go about addressing these. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. (Emphasis added). 1275 This reflects the conclusions I have reached above. TIF and CM Ports need to see the detailed business case before they will make a decision. The detailed business case will need to satisfy TIF and CM Ports that the container terminal will be viable. They will also need to be satisfied that there is a good case to be put to the NSW government for a change of the State policy. Before these things occur, it is not surprising that TIF and CM Ports have not focused on the container terminal proposal and are not presently persuaded of the desirability of in fact developing a container terminal. This position would be the same without the impugned provisions. 1276 NSW Ports noted that the letters in support from CM Ports of 8 March, 30 May and 2 July 2018 indicate only support for feasibility studies. I agree. These letters do not add much, if anything, to the evidence and it may be inferred that they were written with an eye to the litigation. 1277 NSW Ports submitted that the evidence of the PON directors can prove only a likelihood of them giving certain advice and not the likelihood of the shareholders approving the project. I agree, and note that the content of the likely advice itself depends on the ultimate outcomes of the investigations which remain incomplete. 8.7.4 Ms Calfas's evidence 1278 NSW Ports and the State relied on Ms Calfas's evidence as a cogent explanation of why a container terminal is not feasible at the Port of Newcastle, despite Ms Calfas not having seen PON's PBC (which is a confidential document). 1279 NSW Ports highlighted the following aspects of Ms Calfas's evidence: (1) "the majority of the goods coming into a port at Newcastle would need to be transported to Sydney"; (2) import containers are packed with goods destined for multiple regions – "[y]ou don't get Newcastle-only containers"; (3) accordingly, a container of television screens cannot economically be distributed through Newcastle if 90% of them have to be delivered to Sydney at higher cost; (4) distribution centres are clustered in Sydney not because of their proximity to Port Botany, as was put to her in cross-examination, but because of their proximity to the population who are the ultimate consumers of containerised goods. As Ms Calfas said: the goods are destined for … the New South Wales population and businesses, the majority of which are in Greater Sydney. And so the location of the warehouses needs to be where you have the shortest transport journeys to and from those people and businesses and the retail outlets; (5) exporters require "enough shipping services that connect [a port] globally to different parts of the world"; (6) exporters will use PON if it provides a land transport cost advantage to the exporter and sufficient shipping connectivity and the Port of Botany if the Port of Newcastle does not offer sufficient shipping connectivity; and (7) as such, a container terminal at the Port of Newcastle will not capture all export containers from its hinterland (the area of its land transport cost advantage compared to Port Botany). 1280 I agree with NSW Ports that Ms Calfas has relevant expertise in the industry and her opinions are relevant. Ms Calfas, however, has not purported to assess the viability of a container terminal at the Port of Newcastle in detail or in any structured way. As a result, her evidence is relevant, but not of such weight as to be determinative. 8.7.5 PON - consultants' reports 8.7.5.1 Preparation of the PON consultants' reports 1281 The key consultants' reports for PON's PBC and proposed investment grade business case are: (1) the Deloitte report; (2) the Lycopodium; (3) the AlphaBeta report; and (4) the OSC report. 1282 NSW Ports and the State submitted that no weight could be placed on the reports as evidence of any likelihood that PON will develop a container terminal at the Port of Newcastle for four reasons: (1) lack of evidence of the knowledge, expertise or experience of the authors of the reports, unsupported by testimony to the effect that the opinions expressed are based on any such expertise, and without any opportunity to cross-examine the reports' authors, in circumstances where the authors have not acceded to the Court's code of expert conduct; (2) the reports were prepared in contemplation of litigation; (3) PON actively shaped the contents of the reports throughout their drafting, such that the appearance of independence which each report bears is misleading; and (4) objective evidence indicates some assertions of fact which take the form in the reports of hearsay representations of the views of "industry sources" actually comprise re-packaging of tendentious propositions put to the reports' authors by PON. 1283 NSW Ports' propositions about the problems arising from the consultants' reports are all sound, other than that I would infer the consultants' reports were prepared for multiple purposes, not just this litigation. 1284 It is clear that the consultants' reports for PON cannot be accepted to be the result of an independent assessment by the consultants. They exhibit, to a greater or lesser extent depending on the report, qualities which indicate they are in the nature of advocacy documents. They do not appear to be the kind of rigorous analysis which a port operator would obtain for its own internal decision-making process about whether to commit to a project such as the construction of a new container terminal. I infer that this is why PON has accepted that it needs to prepare an investment-grade business case. These reports were not prepared for that purpose and are not of that standard. 1285 Further, because it may be inferred that the reports were intended in part at least for advocacy purposes, it also may be inferred that they cast the best possible light on the relevant issues from PON's perspective. It follows that, if these reports lack apparent cogency, the inference should be drawn that it has not been possible to date to identify sound arguments to support the position of PON's representatives. 1286 One of the reports, the AlphaBeta report, is clearly for public consumption. It contains a foreword by Mr Carmody of PON which says: AlphaBeta's report clarifies for us that not only will Hunter and northern NSW businesses and households benefit from a container port at Newcastle, but so will Sydney in terms of pollution, congestion and freight costs, which will come down with competition from Newcastle. AlphaBeta also confirms our own internal assessment: that port-related freight costs are reduced when there is a shorter journey and more efficient operations. This creates significant points of difference for a new, modern large-scale container port. We welcome this independent report, which demonstrates that a container terminal at Port of Newcastle would be good for regional NSW consumers and businesses, and would represent a major economic boost to the state as a whole. 1287 PON's consideration of and dealings with its consultants disclose that: (a) PON's representatives see PON as in a campaign to undo the PCDs (and a broader campaign to obtain NSW government support for a change of the State policy), and (b) PON had no concern about pressuring its consultants to see to what extent they would accommodate PON's objectives. 1288 I do not suggest that any of the consultants acted inappropriately in response to the pressure from PON. 1289 The following matters should be noted about the preparation of the PON consultants' reports. Deloitte report 1290 I accept that PON's comments on this report were "carefully strategized internally". Comments by PON in the process of the Deloitte report being prepared included: (1) "[n]o pressure, but the Deloitte study could tip the balance"; (2) the purpose of the report was to "provide arguments for breaking the PCD"; (3) it was "crucial to show that much of the traffic is to and from outlying areas of Sydney which in the medium to long term may be more efficiently accessed by rail from Newcastle and PK than from congested PB"; (4) "…the summary should 'weaponise' the argument for deployment in our campaign. Maybe there are limits to how far Deloitte can go with this, but it would be good to see some standard counter arguments knocked on the head"; (5) expressing a concern that the consultant felt conflicted "by other work they have undertaken or plan to undertake for the State govt, so [are] soft pedalling our argument"; (6) "…we need a report which doesn't just set out the evidence but makes the case on the basis of the evidence. Container terminal at Newcastle is compelling from viewpoint of comparative cost benefit analysis (infrastructure investment, PB congestion) and also in terms of economic impact (investment, jobs) … ACCC case being run in parallel so you won't feel exposed"; and (7) Deloitte "have stretched themselves and have accommodated some change our way as discussed." AlphaBeta report 1291 The same kind of process as described above about the Deloitte report applies to the preparation of this report. The report also contains the foreword by Mr Carmody referred to above. Further: (1) PON recommended that AlphaBeta "align volume assumptions to those derived via the Deloittes report to provide both a consistent narrative and independence"; (2) a note outlining the "risks and sensitivities" of the report was prepared separately; and (3) a public relations firm was responsible for the final editing of the report, apparently without AlphaBeta's involvement. 1292 The "risks and sensitivities" document notes that: (1) the modelling start date of 2018 is not realistic and a delay in the start date would scale benefits back by about 3.5% a year; (2) the modelling sets out the value of the project at 100%, 75% and 50% market shares of the Port of Newcastle's catchment area (which, I note, is far greater than the market share estimates of Mr Ockerby and Mr Balchin); (3) AlphaBeta has not allowed for large investments in rail and road infrastructure around Newcastle; and (4) AlphaBeta reviewed previous work commissioned by the Port of Newcastle from Deloitte Access Economics and Lycopodium and aligned assumptions with the authors of this work where possible. Lycopodium report 1293 PON provided comments to Lycopodium about this report. OSC report 1294 Mr Dent took away from the OSC draft report that "Port Botany has ample capacity and that a subsidy is required if a terminal is to be established in Newcastle". This subsidy is to importers for which using a container terminal at the Port of Newcastle would involve an increased cost compared to using Port Botany. Mr Dent also said: (1) "[i]t is believed there may be sufficient 20' imports in the Newcastle catchment to cover the 20' export demand. This is an assumption based on the number of requests received from importers to return empty import containers to a depot in Newcastle. There is a need to check flows, hopefully the OSC study will shed some light on this"; and (2) "…ANL often receives request to return empty containers to Newcastle, which means there is already an existing import market, the size not known though". 1295 The OSC final report included Mr Dent's comments as "industry feedback" rather than investigating the existence of the demand. 1296 In further response to Mr Dent's comments, OSC added points about the likelihood of XXXX XXXX XXXX XXXX XXXX and relied on Mr Dent's comment that there would be "changes in import destinations in response to a container port at Newcastle, as supply chains respond to lower total logistics costs and take advantage of anticipated lower shipping costs at PON". 1297 NSW Ports submitted that OSC's re-packaging of PON's comments as "industry feedback" called for special caution when assessing the statements in its and other reports about the position of those in the industry, particularly shipping lines. I consider this caution appropriate in the circumstances. 8.7.5.2 Content of the PON consultants' reports 1298 The following matters should be noted about the content of the PON consultants' reports, recognising that: (a) the reports have been prepared by unknown persons, (b) the reports were not required to be prepared in accordance with the principles and requirements which apply to expert reports in litigation, and (c) NSW Ports and the State have not had any opportunity to cross-examine the authors of the reports. Deloitte report 1299 NSW Ports identified the key propositions of this report as follows: (1) "[c]onsidering where the freight inside the container ends up, aggregating all Sydney SA4s [Statistical Area Level 4 zones, which are more broad-scale than SA3 zones], modelling indicates that just over 61% of containerised imports remain in Sydney. The Port of Newcastle catchment, defined broadly as shown in [Figure i], is estimated to account for around 27% of containerised imports with the southern part of NSW accounting for the remaining 12% of containerised imports"; (2) "…a significant proportion – over a quarter – of the imports and an even larger share of the exports – 38% – that are currently moving through Port Botany are actually destined for use in parts of the state that are closer to the Port of Newcastle"; (3) "[c]urrently, there is likely to be almost 500,000 TEU of freight from the Port of Newcastle catchment generated each year" and that "transport to the further Port Botany ['rather than the closer Port of Newcastle'] results in increased costs for NSW exporters (reducing their international competitiveness) and higher costs for imports (hurting consumer's wellbeing)"; and (4) these estimates suggest that "the Port of Newcastle could play a role in more efficiently moving this freight into the supply chain". 1300 The Deloitte report also said that: (1) "[a]n expanded role for the PON in managing NSW port freight transport would support the future growth potential of NSW through a number of channels" particularly "[a]cting as a key economic asset in one of Australia's leading regional centres, ensuring the Hunter region stays an appealing employment location for a range of workers across industries, skill levels and ages" and "[s]upporting growth in NSW's industrial base by acting as a key enabler for existing economic clusters in the Hunter region"; (2) "[r]evitalising Newcastle, for example, is a NSW Government program focussed on attracting people and jobs to the city, particularly around the centre and waterfront where the port is located"; (3) "…port freight from PON's catchment area must travel to or from Port Botany for export. Much of this freight would travel a shorter distance if it were able to be exported from Port of Newcastle. In the long run, under current policy to have Port Kembla as the overflow container port for Port Botany, some of this freight may have to travel even further"; (4) "[f]reight moving from Port of Newcastle's catchment to Port Botany therefore places a potentially unneeded additional strain on the Sydney freight network"; (5) Lycopodium's analysis is that "the per tonne cost for transport could be around 32% lower for rail and 18% lower for road for locations within PON's catchment"; (6) "[c]ombining assumptions about the distances this freight moves with information from a Lycopodium report on freight costs indicates that landside transport costs for freight in PON's catchment could be reduced by around $60 million a year, a NPV of around $1.1 billion over the period to 2050. Standard values for transport externalities from TfNSW indicate that the externalities associate with these freight movements are likely around $12 million a year, or $209 million in NPV terms"; (7) "[m]inimal NSW Government investment is required to establish a container terminal at the Port of Newcastle, as the Port has the land, channel, and existing road and rail connections to develop a container terminal now. Much of the investment identified in NSW Government strategies is actually focussed on enhancing connections between Sydney and Newcastle with no significant planned or required direct investment in port infrastructure to enable an increase in container movements"; and (8) "[t]he investments that have been identified to support the Port of Newcastle would also most likely be needed regardless of the policy approach to port freight. These investments will support general freight movements between Sydney and Brisbane, and a growing number of passenger movements between Sydney, the Central Coast and the Hunter". 1301 The Deloitte report is not a container origin and destination study as proposed by Mr van Duijn. Transport for NSW commissioned a review of the Deloitte report by another consultant (Aurecon and NineSquared) which concluded that: (1) the Deloitte report over-estimated the potential market share for containerised freight at the Port of Newcastle; (2) the Deloitte report over-estimated the potential rate of take-up of containers through the Port of Newcastle; (3) a more realistic catchment size for containerised exports could be approximately 98,500 TEU (20% of NSW containerised freight exports). For imports, the estimate is approximately 136,300 TEU (10% of NSW containerised freight imports); (4) the Deloitte report over-estimated possible infrastructure savings from having a container terminal at the Port of Newcastle and there was "limited evidence provided in the Report to support the assertion that no Government investment would be required to establish a container terminal at the Port of Newcastle. This means that the economic benefits associated with a container terminal at PoN would be lower than implied". In particular: (a) "[a]ny meaningful containerised freight trade at Newcastle Port would be likely to have implications for landside transport networks including the rail network near the immediate vicinity of the Port itself which is heavily used for bulk freight movements"; (b) "[r]ail infrastructure upgrades to the Dubbo- Merrygoen-Ulan route would be required to enable any significant movement of rail freight from Central West NSW to PoN without needing to travel via Sydney"; (c) "[t]he main north line between Newcastle and Sydney (including the Northern Sydney Freight Corridor) which would be required for services to move some level of containers to and from the Sydney region and parts of Western NSW to accommodate levels of trade predicted"; and (d) "the timeframe for required capacity improvements key roads (e.g. Ml, Hexham, Raymond Terrace Upgrades) and other major roads may need to be brought forward to accommodate increased truck movements to and from the Port along with improvements are likely to be required to regional roads to support High Productivity Vehicles (HPVs)"; and (5) the Deloitte report "claims that a container terminal at PoN would stimulate regional economic activity. We believe that these benefits are also likely to be overstated given the size of the market. Additionally, the estimation of regional economic benefits does not account for activity that would be stimulated by Inland Rail, so additional impacts due to PoN are unlikely to be as large as predicted". Lycopodium report 1302 This report: (a) analysed the cost of transporting export containers from origins within a Port of Newcastle catchment to the Port of Newcastle and Port Botany; (b) estimated the cost of transporting import containers from the Port of Newcastle to actual and notional distribution centres in NSW, and (c) assessed "the potential volume of freight within the catchment that could be immediately attracted to Newcastle Port based on an assessment of the existing freight generated from within the catchment that currently transits through Port Botany". 1303 According to Lycopodium, a container terminal at the Port of Newcastle could attract 224,000 TEU per year, and an additional 126,000 TEU per year "if the Central West via Parkes volumes can be attracted to Newcastle". 1304 Lycopodium also recognised that without distribution and warehouse facilities in the Newcastle region it is most likely that containers destined for the Port of Newcastle's catchment would have to move through the existing Sydney distribution centres. Based on a series of assumptions Lycopodium estimated, as NSW Ports put it, that "a total of $25 million (assuming parity of train length for rail transfers) or $62 million (if longer trains are used to and from PON) may be saved by exporters even after accounting for increased costs for importers". 1305 Mr King's evidence about the Lycopodium report exposed the fact that the reasoning in the report is not transparent. Mr King's alternative analysis indicated that, contrary to the Lycopodium report, there would be an additional cost of $50 million per year to exports from using a container terminal at the Port of Newcastle. 1306 Lycopodium also said the "proposed Container Terminal at the Port of Newcastle aligns with a number of Transport for NSW (TfNSW) Strategic Action Programs as outlined in the NSW Freight and Ports Strategy" and would enable infrastructure investment savings by avoiding infrastructure expenditure necessary to support increased capacity at Port Botany and a container terminal at Port Kembla. 1307 As NSW Ports submitted, the Lycopodium report is expressly qualified in significant respects. Lycopodium said: (1) "[t]he volume of freight that could be attracted by rail to the Port of Newcastle through the establishment of a container terminal cannot reliably be estimated through a desk top assessment of transport cost" and "would need to be assessed on a more comprehensive demand assessment which would involve consultation with regional export/import businesses and freight forwarders"; (2) this "more comprehensive demand assessment" should "address the balancing of trade flows (import and export), the seasonality of rural exports and how the rail and logistics network can assist in managing the flow of imports into Sydney or the Central Coast via Newcastle Port"; (3) "[w]ithout a rigorous market study … the potential volume for a Newcastle terminal cannot be properly assessed"; (4) the mechanism for capturing and allocating the savings to exporters will need to be developed (recognising that Lycopodium identifies a net cost to importers from using a container terminal at the Port of Newcastle); and (5) "[f]or shipping services to make a call at Newcastle there would be a need to have reasonably balanced exchange volumes. With balanced exchange the shipping line may be able to include Newcastle into the East Coast schedule and possibly avoid Botany". 1308 AS NSW Ports also submitted, the implication of proposition (5) is that if shipping lines could not achieve a balance of exchange between import containers and export containers at the Port of Newcastle, shipping lines will not come to that port. Further, PON's PBC recognised this issue and assumed that the same "average mix" of exchange which is currently achieved at Port Botany would also be achieved at a future Port of Newcastle container terminal, saying: …there will be different benefits for some freight over others based on origin/destination or locations of services. It is assumed for this model that the average mix will be achieved by shipping lines acting rationally, wanting to maximise exchanges and balance the mix such that, if required, they may cross-subsidise where necessary. Shipping lines may cover or reduce the cost of transfers to Sydney of freight landing in Newcastle. 1309 In other words, the PON PBC assumes that the required import/export container mix will be achieved by shipping lines cross-subsidising the increased cost of imports from costs savings of exporters. Mr King identified problems with this assumption in that: (a) the practice of cross-subsidies of this kind has not occurred before in Australia, and (b) there is no basis to infer that it is rational for shipping lines to wish to implement a cross-subsidy of the order which will be required ($50 million per year as estimated by Mr King). Mr van Duijn agreed with this aspect of Mr King's evidence. No other evidence supports an inference of a willingness on the part of shipping lines to implement a cross-subsidy of the kind proposed in PON's PBC. AlphaBeta report 1310 This report estimated: (a) the potential catchment for a container terminal at the Port of Newcastle, (b) volumes of available containers from that catchment, (c) cost reductions to importers/exporters using the container terminal compared to use of Port Botany, and (d) avoided infrastructure costs, avoided externalities and induced economic activity which would be generated by the container terminal. 1311 AlphaBeta estimated that the Port of Newcastle's catchment area generates 16.5% of NSW full import container movements, 28.8% of full export container movements, and 20.5% of full container movements. PON's PBC adopted these estimates. 1312 AlphaBeta: (1) identified the potential market as regions of NSW that are more cost-effectively served from the Port of Newcastle than from alternative ports such as Port Botany, the Port of Brisbane, and the Port of Melbourne; (2) modelled the current cost of delivering freight to population centres across NSW from these ports; and (3) identified geographic areas in NSW that had freight transport links to the Port of Newcastle and were more cost effective to serve than from the Port of Brisbane or Port Botany. 1313 AlphaBeta's modelling of the cost of delivering freight to population centres across NSW from the ports was based on estimated journey length to key population centres from the different ports, the transport mode share for imports and exports, and the price per TEU for different modes and journey lengths. AlphaBeta used an assumed fixed charge of $2.70 per TEU-km for freight costs. The journey to Port Botany included diversion through intermodal/distribution centres in western Sydney. AlphaBeta also factored in the effect of an advantage to the Port of Newcastle from its assumed capacity to accommodate longer trains that Port Botany. AlphaBeta assumed the co-location of intermodal/distribution centres with the Port of Newcastle (which do not currently exist) but did not include any additional journey distance by reason of diversion through those centres for the Port of Newcastle. AlphaBeta further assumed the existence of an on-dock rail terminal at the Port of Newcastle. 1314 As NSW Ports noted, the AlphaBeta report is not a container origin and destination study. It also assumed certain critical facts, particularly the co-location of intermodal/distribution centres with the Port of Newcastle. Mr van Duijn explained that: (a) distribution centres close by the Port of Newcastle are crucial to its viability, (b) for the container terminal to be successful it needs these centres to be viable "fairly early in the piece", and (c) it is "very important … for a port to have distribution centres close by to the port and operating efficiently". 1315 The AlphaBeta report also recorded that: (1) Sydney and southern Sydney will save $1.2 billion in freight costs by 2050 from competitive pressure lowering prices at Port Botany; (2) Sydney will save $400 million in avoided infrastructure costs by 2050; (3) 750,000 truck trips will be removed from Sydney's roads by 2050 saving $130 million in congestion and pollution costs; (4) the Hunter and northern NSW will gain 4,600 new jobs by 2050; and (5) the Hunter and northern NSW exports will increase by $800 million by 2050. 1316 The supporting analysis in the AlphaBeta report for these propositions included the assumptions discussed above. 1317 The supporting analysis for these propositions otherwise included the following matters identified by AlphaBeta (in italics below), under which I record my observations. 1318 The "Port of Newcastle is less than 200 kilometres from Port Botany, meaning there is substantial overlap in the potential markets both ports can serve. This will create competitive pressure on Port Botany, which is likely to lead to lower prices and more productive operations". 1319 This, however, involves nothing more than an assertion as to likely lower prices without supporting reasoning. 1320 "Incumbent terminal operators and the incumbent port operator can be expected to respond to the entry of a competitor by cutting prices and intensifying their focus on productivity. While it is difficult to be precise about how strongly and when incumbents will respond, we assume customers will see current prices fall by 10 per cent by 2050 for terminal and port services, reflecting some erosion of margins in the short term, and improvements in productivity over time". 1321 Again, there is no reasoning supporting this assertion. 1322 "As [the] Port of Newcastle is already served by under-utilised rail and road infrastructure, moving container freight activity to Port of Newcastle could be achieved without triggering substantial public infrastructure investments". 1323 No analysis of the road, rail and other requirements for the Port of Newcastle is apparent. 1324 "Establishing a 1.2 million TEU container terminal at Port of Newcastle would relieve pressure on Sydney's road and rail networks by diverting a portion of Port Botany related freight traffic from the Sydney to the Newcastle region. This would defer the need for future infrastructure upgrades or new infrastructure to be constructed". 1325 The analysis of whether the infrastructure proposed would be required for purposes other than Port Botany is unclear. AlphaBeta also acknowledged that existing committed infrastructure investment will relieve pressure on Port Botany's capacity until the late 2030s, but said that new infrastructure investment would then be required to support Port Botany. According to AlphaBeta, a container terminal at the Port of Newcastle would enable that further round of infrastructure investment for Port Botany to be deferred for five years. AlphaBeta's view that this saving can be compared to the lack of any need for significant infrastructure investment to support a container terminal at the Port of Newcastle is inconsistent with the analyses of Infrastructure NSW and Transport for NSW. 1326 According to AlphaBeta, from a container terminal at the Port of Newcastle the "Hunter Region and Northern NSW will get a $6 billion economic uplift from a container terminal. Businesses and consumers will benefit from $2.8 billion in lower freight costs. Growth in the value of exports contributes $1 billion, while a further $300 million is a transfer of economic activity from Sydney to the Hunter Region and Northern NSW as some container port activity shifts from Port Botany to Port of Newcastle. There will also be an additional $2 billion of additional economic value … with a broad -based increase in economic activity stimulated by lower import prices, higher export returns, and greater activity around the container terminal and broader freight distribution system". 1327 This involves numerous assumptions which are not apparently justified. OSC report 1328 This report estimated the cost of voyage and port calls for ships, as well as the costs for terminal handling and inland transportation of containerised cargo to an intermodal or distribution centre (not the ultimate destination of the goods within any container). XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1329 The OSC report also assumed that for imports carried from the port to western Sydney by rail, the Port of Newcastle container terminal will be able to take a XXXX market share from Port Botany on the basis of XXXX XXXX XXXX XXXX between Port Botany to western Sydney and the Port of Newcastle to western Sydney. This has the effect of increasing the Port of Newcastle's potential market. As Mr Balchin noted, how this is to be achieved is not identified. Lycopodium calculated a $140 per TEU difference in cost as between the Port of Newcastle and Port Botany for moving import containers by rail from each port to western Sydney. 1330 There are other apparent concerns with the OSC report as identified by NSW Ports: (a) it allocated the entirety of the NSW market to either Port Botany or the Port of Newcastle when we know that the Port of Melbourne and the Port of Brisbane have parts of that market, (b) it applied a sliding scale to share volumes flowing to or from SA4s with cost differentials of less than 20% between the two ports. This also has the effect of increasing the Port of Newcastle's potential market. 1331 OSC then classed the prospects of shipping lines using the Port of Newcastle as high, medium or low based on a general proposition that "services which use multiple port operators and large vessels have the highest potential to shift their volumes to PON". OSC also noted that shipping lines responded positively to a container terminal at the Port of Newcastle, but as Mr King said "shipping line claims are always taken with a very large grain, if not a bucket, of salt". 1332 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1333 OSC also noted the following matters (in italics below), under which my responses are recorded. 1334 "NCT's [Newcastle Container Terminal's] market share will be strongly influenced by changes in import destinations in response to a container terminal in Newcastle, as supply chains respond to lower total logistics costs and take advantage of anticipated lower shipping costs at the Port of Newcastle. Strategic and collaborative effort should be undertaken to capitalise on XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX in Newcastle that will support further use of the terminal". 1335 In other words, intermodal and distribution centres co-locating with the Port of Newcastle will be critical for the viability of the terminal. 1336 "NSW's containerised freight transport road network connects Port Botany to the NSW hinterland. Major national highways serve as vital corridors for trucking imports to Sydney's western suburbs for onward distribution, and exports from the key towns and cities in the regional NSW hinterland" and "[t]he existing road infrastructure in NSW focuses on facilitating the connectivity of Sydney's western suburbs. The road network is marked by its high density of motorways in the metropolitan area, with only a few traversing through regional NSW". 1337 In other words, Port Botany is located in an area convenient to the main population centre of NSW which is already and is otherwise required to be serviced by major transport infrastructure. 1338 "[The Port of Melbourne] restricts the size ships calling at other Australian ports". 1339 This fact accords with the other evidence in the proceeding. 1340 "The Port of Newcastle's (PoN) 20-year port master plan 2040 released in 2018, sets out the establishment of a comparatively smaller greenfield container terminal of 2MTEUp.a. capacity on existing land within the Mayfield precinct as the alternative 2nd container port of NSW. The Newcastle Container Terminal (NCT) is proposed to be developed earlier than Port Kembla, with construction completing over 2020 and 2021, and operations commencing in 2022, based on the project timing in PoN's NCT Preliminary Business Case". 1341 This accords with and supports my inference that one aim of PON is to achieve precedence over Port Kembla in the order of container terminal construction. As discussed, if PON persuades the NSW government to change the State policy so that the next container terminal developed after Port Botany reaches capacity is the Port of Newcastle instead of Port Kembla then: (a) that itself will be of potential enormous value to PON, (b) the NSW government would not contemplate permitting two container terminal being developed simultaneously, so that no container terminal would be developed at Port Kembla, (c) nothing in the impugned provisions gives the NSW government a disincentive to change the State policy as between Port Kembla and the Port of Newcastle, (d) all of the disincentives to change the State policy are separate from the impugned provisions, and (e) the impugned provisions would be irrelevant to this hypothesised circumstance because Port Botany would be at Full Capacity and Port Kembla would not have a container terminal. 1342 "Port Kembla's position about 8km south of the CBD of the Wollongong suburb in NSW's Illawarra region, is closer than Port of Newcastle's location to the heart of Port Botany's existing hinterland in the Western Sydney metropolitan area, where NSW's urban population growth is largely centred". 1343 These are inescapable facts which support the State's analysis of Port Kembla as the best location for NSW's second container terminal. 1344 The "Port of Newcastle's location at about double the road distance (~180km) of Port Kembla (~90km) from Port Botany, is further away from existing main hubs of container shipping and logistics activity, given its annual container throughput of about 10,000 TEUs since its privatisation in 2014". 1345 These too are inescapable facts. 1346 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1347 This accords with most of the other evidence in this proceeding. 1348 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1349 This is correct. 1350 The Port of Newcastle does not have the potential to be a substantial transhipment hub. 1351 This effectively eliminates any potential need to take this possibility into consideration. 1352 It would cost shipping lines more in marine costs to use the Port of Newcastle as the second port in NSW and shipping lines would prefer a single NSW call only. 1353 This is consistent with all of the other evidence in this matter. 1354 In terms of TEU, NSW's containerised cargo volume is estimated to increase from 2.6 million TEU in FY18/19 to 6.9 million TEU in FY50/51. 1355 This is within Port Botany's maximum projected capacity. 1356 "When fully expanded, Port Botany has an operational capacity of 3.89 MTEU and a design capacity of 5.55 TEU. The estimates indicate that the port will reach operational capacity in FY30 and design capacity in FY41 if no new terminals are developed". 1357 These estimates do not accord with the current weight of the evidence in terms of Port Botany's TEU capacity. The 2030 to 2041 time estimates generally accord with the weight of the evidence up to May 2014. As noted, subsequent estimates provide for a longer period of time over which Port Botany will continue to have capacity. 1358 If no container terminal is developed at Port Kembla, a container terminal at the Port of Newcastle will capture increasing volumes from Port Botany as Port Botany approaches its capacity. 1359 This confirms my view that one objective of PON must be for its container terminal to take precedence over Port Kembla. 1360 "The logistics cost for a proportion of container shippers in NSW to use the Port of Newcastle is currently higher than Port Botany. The development of XXXX XXXX XXXX XXXX XXXX XXXX XXXX in Newcastle could change this dynamic. The establishment of NCT [Newcastle container terminal] may enable shippers to review their existing logistics arrangements for opportunities to reduce overall delivery costs, potentially with XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX over time. Overall logistics costs for using the terminal could be reduced in the long run, as existing supply chains evolve XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1361 This confirms that the viability of a container terminal at the Port of Newcastle depends on a number of contingencies being satisfied, particularly the co-location of distribution centres. McKinsey & Co Investment Case Update provided in August 2020 1362 As noted, this document included these propositions: (a) "[s]hips will not call at both PB and PON, so for shipping lines to call at PON there will need to be substantial import volumes for which PON is cost competitive based on end-to-end movement costs", (b) "[c]ost competitive freight delivery to western Sydney will be critical since it accounts for ~50-60% of container demand (vs. ~25% if container demand is assumed to be distributed in line with population)", (c) "[e]arly analysis suggests landside freight cost from PON would be XXXX/TEU more expensive into western Sydney vs road movements from PB, but competitive on rail (to be validated)", and (d) "[c]ritical driver for PON volumes likely to be whether significant amount of freight is forced onto rail out of PB due to congestion or policy, plus rail network and terminal (intermodal) capacity from PON to Sydney". These issues are not resolved in the update and are all left for subsequent resolution in the proposed investment grade business case. 1363 McKinsey & Co's comment about the Port of Newcastle being competitive by rail (that is, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX) is adopted from OSC's report. The questionability of this proposition has been discussed above. 8.7.5.3 McKinsey & Co September 2020 email 1364 As noted, on 25 September 2020 McKinsey & Co emailed Mr Dent at PON noting the existence of "conflicting views about the destination for containers in NSW which has a significant impact on the investment case (since the destination for containers influences the extent of XXXX XXXX XXXX XXXX XXXX XXXX XXXX)" (emphasis added). There is no further evidence of any resolution of this issue involving McKinsey & Co, PON, or any consultant to PON. 8.7.5.4 Conclusions about the PON consultants' reports 1365 Leaving aside the fact that the PON consultants' reports were prepared by unknown authors, were not prepared by reference to the principles and requirements for expert reports in litigation, and that NSW Ports and the State have had no opportunity to cross-examine the authors of the reports, the reports do not present a persuasive case for the development of a container terminal at the Port of Newcastle while Port Botany has capacity. This is clear from consideration of the other evidence in these proceedings. 1366 The PON consultants' reports do not present apparently effective resolutions of at least three key (and partly related) contingencies on which viability of the development of such a container terminal depends. These are: (1) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX; (2) the willingness of shipping lines to replace a call at Port Botany with a call at the Port of Newcastle given the principal container destination/source in NSW is metropolitan Sydney (and their associated willingness to implement a cross-subsidy from exporters to importers); and (3) the need for a subsidy arrangement between exporters and importers to facilitate shipping lines calling at the Port of Newcastle given the export/import imbalance in NSW and the destination of most import containers being Sydney. 1367 Had the PON consultants been able to present coherent proposals to address these key issues then they would have appeared in their reports. The fact that they have not done so indicates that there are no cogent solutions which have yet been identified. 1368 The PON consultants' reports are also less than persuasive in explaining why a container terminal at the Port of Newcastle would not require significant public infrastructure investment and would effectively enable infrastructure investment required to support Port Botany and/or Port Kembla to be deferred or avoided in whole or part. In particular, if infrastructure investment which will support Port Botany and/or Port Kembla is otherwise required because metropolitan Sydney is and is expected to continue to be the largest population centre in NSW, then there is no saving to the State if that infrastructure investment must be made in any event. 1369 Further, if the best that can be said is that a container terminal at the Port of Newcastle would defer public infrastructure investment required to support Port Botany by five years to the late 2030s (which itself would depend on the success of a container terminal at the Port of Newcastle), it does not present a particularly compelling case for a container terminal at the Port of Newcastle while Port Botany has capacity on the ground of efficiency in public infrastructure investment. The other public interest ground for a container terminal at the Port of Newcastle, the economic and employment opportunities it will bring to the Hunter region, it may be inferred, would also be dependent on the viability of the container terminal. 1370 Further, no consideration is given in the PON consultants' reports to the efficient use of the existing and planned public and private infrastructure which has been developed to support Port Botany and Port Kembla given that the State policy has been in place and guiding relevant investment decisions since July 2012. 1371 I have accepted that the ACCC is correct that it does not have to prove that PON's current plans for a container terminal are commercially astute or will be a success. I have not accepted the ACCC's further submission that whether PON's current plans to develop a container terminal at the Port of Newcastle are ill-conceived or ill-advised is largely an irrelevant distraction. PON has had since May 2014 to develop its proposal for a container terminal at the Port of Newcastle for its multiple purposes. It has focused on that issue since 2018. The issues with which PON has been grappling were all known to exist as at May 2013/May 2014. The fact that the PON consultants' reports indicate that PON has not been able to provide cogent potential solutions to those issues is relevant to the assessment of the likely effect of the impugned provisions because it bears upon the possibility or chance of a container terminal in fact being developed at the Port of Newcastle while Port Botany has capacity without the impugned provisions. 1372 In dealing with the NSW government PON will also have to contend with reports prepared for NSW Ports. The KPMG report is an example. As I have said, this is no more and no less an advocacy document than the PON consultants' reports. The KPMG report includes the following propositions and observations identified below in italics with my responses noted underneath. 1373 Each of the existing major Australian container ports has capacity to accommodate growth for many decades; but the very long-term nature of freight has seen a corresponding focus on long-term freight planning, across the Australian and state government. 1374 Insofar as Port Botany and the NSW government are concerned at least, these observations are accurate. 1375 Over the coming 30 years, Port Botany's container throughput will be almost as large as Australia's current total container trade volume; growing at 3.4 per cent per annum and reaching the mid-7 million TEUs by 2050. 1376 This is broadly consistent with other estimates of Port Botany's capacity other than those of or for PON. 1377 NSW transport policy and government planning designates Port Kembla as the location for future container capacity, because it is closer and better connected to Sydney's south west and west where much of the state's logistics and warehousing activity resides, as well as where the majority of the projected population growth will take place. 1378 This is accurate. 1379 The Port of Newcastle has recently sought to contest the established port and freight planning in NSW. For example, a recent Deloitte Access Economics Report [the Deloitte report] explored whether the Port of Newcastle could play a useful role in Australia's growing container task. 1380 This is accurate. 1381 More than 80 per cent of full import containers arriving at Port Botany will be consumed within 40 kilometres of the Port's gate. 1382 This is consistent with other evidence. 1383 As Sydney's population has grown and land values have increased, this has caused freight warehouses and distribution centres to move westwards – away from traditional industrial locations around Port Botany, in favour of new facilities in Western Sydney. This westward drift is being met by investment from companies in new, state of the art intermodal, logistics, delivery and distribution centres across Sydney's greater west and south west. 1384 This is consistent with other evidence. 1385 On the export side, the distribution of containers is more diverse than imports. It is in this market that the role of containers outside of Sydney, Newcastle and the Illawarra are more evident, accounting for a little over a quarter of all full export containers in both 2016 and 2046 … However, containerised trade in NSW is import-oriented. This is demonstrated by Port Botany's recent trade figures for 2017/18, with imports accounting for 75 per cent of total containerised trade in the port – importing 1.21 million TEUs in comparison to full exports of 0.41 million TEUs. 1386 This is broadly consistent with other evidence. 1387 An additional port may well lead to an increase in costs across the container supply chain. Compared to the "no new ports" scenario, costs across the container supply chain would be at least $21 million per year higher by 2046 if one additional container port was developed. This cost increases to $75 million per year by 2046 with two additional container ports … these costs do not include the broader impacts of higher costs on the economy, including the public cost of infrastructure that would be required to support any new container port. 1388 The potential for a new container terminal while Port Botany has capacity to increase the overall costs in the NSW supply chain has been identified in other evidence including the evidence of Mr Ockerby and Dr Pleatsikas. It also underpins part of the reasoning of the State agencies involved in making recommendations leading to the adoption of the State policy. 1389 Port Botany has three competing stevedores who moved 2.7 million TEUs in 2017/18, within a theoretical capacity of over 7 million TEUs per annum – meaning it is less than half full. 1390 Whatever the ultimate capacity of Port Botany, the weight of the evidence is that it was and is sufficient for decades. As discussed, when Port Botany nears capacity the NSW government will have a choice to make between a container terminal at Port Kembla and a container terminal at the Port of Newcastle. The impugned provisions are logically immaterial to that choice as, by the time any new container terminal is operational, Port Botany will be at Full Capacity and Port Kembla will not have a container terminal, meaning that the impugned provisions are irrelevant. 1391 User choice modelling shows that until Port Botany's stevedores near capacity, both Port Kembla and Port of Newcastle would struggle to attract enough users – because of their higher costs in recouping capital invested and higher landside transport costs to reach fewer users. Our modelling shows that under different scenarios where Port Kembla and/or Port of Newcastle are developed, by 2046, these ports will only account for circa 10 per cent and circa 6 per cent of total containerised trade respectively. 1392 This is consistent with the weight of the evidence which I accept. It explains: (a) why it is mere speculation to hypothesise any chance at all of the NSW government permitting a new container terminal while Port Botany has sufficient capacity, (b) why NSW Ports would not develop a container terminal at Port Kembla while Port Botany has sufficient capacity, and (c) why there is no chance of the NSW government permitting the development of container terminals at Port Kembla and the Port of Newcastle once Port Botany approaches capacity. This is and would be the case with and without the impugned provisions. 1393 80 per cent of import containers are consumed within 40 km of Port Botany. Less than 1 per cent of full import containers were destined for regional areas; and 2 per cent destined for the Central Coast, Newcastle and Hunter regions. This means that most containers will need to travel to or from Sydney; in turn requiring many tens of billions in public funding to upgrade road and rail capacity. 1394 This is consistent with the weight of the evidence which I accept. 1395 Port Kembla offers the lowest overall costs and highest overall benefits for an additional container port – but only when it is needed in several decades – because: (a) Sydney is home to 70 per cent of all transport, postal and warehousing jobs across the state, compared to 9 per cent collectively for the Central Coast, Newcastle and Hunter region. By 2046, this density is expected to increase in the Western Sydney Employment Area, west of Eastern Creek, (b) Port Kembla is circa half the distance relative to Newcastle from the five largest container consumption areas in 2046, as projected by TfNSW – which all reside in Western and South Western Sydney, (c) Port Kembla enjoys better existing and planned transport connections to customers in Sydney's south west and west, which are known and substantially less costly than similar connections to the Hunter, (d) Port Kembla supports consensus State and Australian Government planning involving the Western Sydney City Deals and the Aerotropolis, and (e) modelling shows that by 2046, Port Kembla would attract throughput of almost 700,000TEUs, around 70 per cent more than the Port of Newcastle. 1396 Whether all of these propositions are accurate or not, they are consistent with the reasoning which underlies the adoption of the State policy. PON will need cogent information to persuade the NSW government to a contrary view. No such information has been obtained by PON to date. 8.7.6 The PON PBC 8.7.6.1 Content of the PBC 1397 The PON PBC assumed the removal of the "PCD" (defined to mean "Port Commitment Deed – the contractual commitment of the NSW Government to pay NSW Ports for containers shipped through a future container terminal developed at the Port of Newcastle, for another 50 years"). Without removal of the "PCD" the PON PBC said that the project would have negative NPV at all times. With removal of the "PCD", the PBC confirmed a "prima facie case (Base Case) exists for PON to XXXX XXXX XXXX a highly automated, integrated and efficient container terminal". 1398 As the State submitted, the PBC "was not intended, and did not purport to be, an analysis that was in fact actionable". 1399 The proposed development considered in the PBC would be in three stages: (a) stage 1 – XXXX TEU capacity involving XXXX XXXX XXXX and the installation of XXXX XXXX cranes, at a cost of over XXXX XXXX, (b) stage 2 – XXXX TEU capacity involving the XXXX XXXX XXXX, the extension of the XXXX XXXX XXXX XXXX and the installation of an additional XXXX XXXX cranes, at a cost of over XXXX XXXX , and (c) stage 3 – XXXX TEU capacity involving a XXXX XXXX and the installation of an additional XXXX XXXX cranes and XXXX XXXX XXXX XXXX, at a cost of over XXXX XXXX. 1400 The PON PBC also noted that: (1) it was based in part on the work of Deloitte, AlphaBeta and Lycopodium; (2) initially containers may need to be transported to distribution centres in Sydney before being sent back to Newcastle as part of aggregated freight consignments; (3) supply chains will re-align over time and as future distribution centres are created near the Port of Newcastle imports will be deconsolidated and distributed locally and to the port's catchment; (4) it is envisaged that the establishment of distribution centres will follow to support a more efficient supply chain; (5) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX; (6) it is assumed that "the average mix will be achieved by shipping lines acting rationally, wanting to maximise exchanges and balance the mix such that, if required, they may cross-subsidise between exporters and importers where necessary" (specifically, shipping lines may cross-subsidise the cost of transfers to Sydney of freight landing in Newcastle via increased rates for exporters); (7) the first stage of the development would be able to be carried out under the existing planning approval from 2001; (8) the lack of existing infrastructure supporting the Port of Newcastle (intermodal and distribution centres) "is a weakness that needs to be addressed as quickly as possible"; and (9) it is assumed that the order of funds employed for Stage 1 will be equity, shareholder loans and external debt. 1401 Being based on the work of Deloitte, AlphaBeta and Lycopodium and depending as it does on a series of apparently unjustifiable assumptions, the PON PBC is also not a persuasive document on which PON's board or shareholders could reply to satisfy themselves the proposed container terminal would be viable. No doubt this is why PON recognised that the PBC could not be usefully taken any further and it needed to have an investment grade business case prepared. 8.7.6.2 Abandonment of the PBC? 1402 NSW Ports and the State contended that PON has abandoned the PBC which demonstrates the lack of viability of a container terminal at the Port of Newcastle in the reasonably foreseeable future. As discussed, this is an over-statement. PON has not abandoned its PBC. On the evidence it is progressing its proposal, which means that the proposed development in the PBC is out of date. This, of itself, does not establish that a container terminal at the Port of Newcastle in the reasonably foreseeable future will not be viable. It is nevertheless relevant that the next phase of PON's progress, the investment grade business case which was meant to be submitted to PON's board in November 2020, apparently was not submitted and is not in evidence. Taken with the other evidence referred to above in respect of the consultants' reports, this too is relevant to the question about the viability of a container terminal at the Port of Newcastle while Port Botany has capacity. 1403 The ACCC's attempts to minimise the significance of the fact that PON has not produced a cogent case supporting a conclusion that a container terminal at the Port of Newcastle would be viable and in the public interest while Port Botany has capacity (or, for that matter, before Port Kembla is developed with a container terminal) are unpersuasive. All of PON's work since 2018 assumes that "the PCDs" are removed. Yet in nearly three years PON has not managed to work up an apparently sound case for the viability of a container terminal to be put to PON's board and shareholders. Nor has it managed to work up an apparently sound case that a container terminal at the Port of Newcastle while Port Botany has capacity (or before a container terminal is developed at Port Kembla) would be in the public interest. 1404 The fact that PON's PBC is so manifestly flawed and that it has not managed to produce an apparently sound case that a container terminal at the Port of Newcastle would be viable while Port Botany has capacity (or before Port Kembla is developed with a container terminal), without the impugned provisions, is significant. 1405 The ACCC's submission that "PON is seriously investigating developing a container terminal" is unexceptionable. The ACCC said this fact supports the ACCC's case on the likely effect of the compensation provisions. This cannot be accepted. As discussed, a willingness to investigate in the circumstances is rational. A willingness to commit to construction if the impugned provisions did not exist would be impossible (there are not the required planning approvals) and irrational in the extreme (the container terminal has not been demonstrated to be viable and would not be supported by the NSW government because it is directly inconsistent with the State policy which has guided public and private investment decisions since July 2012). 1406 The ACCC submitted that "a number of the ACCC's lay witnesses gave evidence that they considered that the volumes able to be captured by PON would be sufficient to support the development of a Newcastle Terminal" and, with Mr van Duijn's evidence, this is the best and most reliable evidence on this topic. This, however, involves a mere hope that the other compelling evidence to the contrary might be disregarded. The lay witnesses are the PON representatives. Their evidence to this effect depended on numerous assumptions. Mr van Duijn's evidence is discussed further below. 1407 NSW Ports and the State described six other propositions or assumptions on which the PBC relied as illusory: (a) shipping lines subsidising transport to Sydney, (b) shipping lines will provide regular and sufficient connectivity, (c) new distribution centres will establish near the Port of Newcastle, (d) stage 1 can involve a single berth, (e) the first stage of the container terminal is authorised by the 2001 planning approval, and (h) the terminal development will be supported by substantial equity and debt from PON's shareholders. 8.7.6.3 Shipping lines subsidising transport to Sydney 1408 NSW Ports noted that, on the evidence, NSW container volumes are dominated by imports over exports at a ratio of about 3:1. Most import containers are destined for Sydney. As a ship will not call at both Port Botany and the Port of Newcastle, most import containers will need to be transported to Sydney for disaggregation. 1409 NSW Ports noted further that Mr Dent recognised this issue as early as July 2018 (when Mr Dent was with ANL), when he said that ANL made most of its money on imports and "it would be beneficial if PON could provide detail of proposed import transport network links to western Sydney and efficiencies and cost benefits to customers in comparison to Botany". In his affidavit Mr Dent said only the following in respect of this issue: On reading the Preliminary Business Case, I noted that PON had done some work on the import trade issue that had been of concern to me in 2018. The Preliminary Business Case specifically addressed the potential to capture import trade, noting that further work would be done on that topic (pages 10-11). Again, that work was preliminary in nature but I was pleased to see that it had been the subject of further consideration by PON and was a matter which PON had flagged for more study. 1410 NSW Ports submitted that there is insufficient evidence that there will be any cost saving to exporters large enough to provide a pool to partly defray the additional cost impost on importers for using the Port of Newcastle. 1411 This is correct. 1412 NSW Ports also submitted that there is insufficient evidence that shipping lines would be willing to implement any such cross-subsidy or how such a subsidy scheme will operate. 1413 This is also correct. Mr King considered that this would not be rational for shipping lines. Mr van Duijn agreed. As noted, Mr King considered that the claims of shipping lines needed to be taken with a "bucket of salt". Ms Calfas, it may be inferred, agreed with this saying: …shipping lines, by their nature, their – their habit is simply to always ask for cost reductions. Everyone is always too expensive and everybody is always not performing as well, and that is the general pattern of shipping lines. So it is the standard expectation when you go to meet a shipping line that you will get those questions and you will get those remarks about productivity and you will get the remarks about pricing, and they're always looking to have their prices dropped. So that is standard behaviour for shipping lines. And so it will be a constant discussion with all shipping lines. 1414 As NSW Ports proposed, it is not obviously rational for shipping lines to provide a subsidy for importers by passing on cost savings for exporters to enable use of a container terminal at the Port of Newcastle when Port Botany has capacity. There is scant evidence which supports any such inference. 1415 As NSW Ports also noted, there is evidence that this problem cannot be under-estimated. PON commissioned OSC to estimate the required subsidy on the basis that PON itself might offer it. OSC calculated that the subsidy would reduce revenue by XXXX XXXX XXXX XXXX XXXX. Mr Dent's view was that OSC's draft report showed that "Port Botany has ample capacity and that a subsidy is required if a terminal is to be established in Newcastle". However, the issue remains effectively unresolved in the consultants' reports. It was also unresolved as at 25 September 2020 when McKinsey & Co emailed Mr Dent at PON noting the existence of "conflicting views about the destination for containers in NSW which has a significant impact on the investment case (since the destination for containers influences the extent of XXXX XXXX XXXX XXXX XXXX XXXX XXXX)" (emphasis added). No further evidence of any resolution is apparent since this pessimistic communication from McKinsey & Co. 1416 The obvious inference to draw from these circumstances is that, for so long as Port Botany is not approaching its capacity, there is a real difficulty for the viability of a container terminal at the Port of Newcastle. This problem, moreover, has always been apparent for those willing to look. The problem is that most import containers are destined for Sydney so the most efficient transport route for them is from Port Botany to the existing distribution centres in western Sydney. The Port of Newcastle does not have existing distribution centres servicing it so, for so long as that remains the case, even imports destined for its catchment area will need to be transported to western Sydney for disaggregation. Further, without a subsidy, there will be an imbalance of import and export containers at the Port of Newcastle which will deter shipping lines from calling there instead of Port Botany. 1417 The ACCC's submission that Mr van Duijn considers the "the volume figures that the Preliminary Business Case outlines for stage 1 of the Proposal are 'realistic and achievable' in the first five years of the project, notwithstanding that he considers that shipping lines are unlikely to offer a cross-subsidy to importers", fails to confront the lack of cogent reasoning Mr van Duijn provided in support of this opinion (see further below). The numerous problems with the volume assumptions proposed by and for PON have been identified above. 8.7.6.4 Shipping lines providing regular and sufficient connectivity 1418 NSW Ports noted that no evidence has been called from any shipping line about the likelihood of ships calling at the Port of Newcastle instead of Port Botany. This is correct. 1419 NSW Ports went further, submitting that, as there is evidence that: (a) the ACCC recognised it would need to call evidence from shipping lines that they would divert ships from Port Botany to the Port of Newcastle, (b) OSC had spoken to shipping lines, but had not been called to verify evidence of the attitude of shipping lines, and (c) CM Ports is "closely aligned" with China Ocean Shipping (Group) Company (COSCO), but there is no evidence of COSCO's intention to call at the Port of Newcastle, it should be inferred that such evidence would not have assisted the ACCC's or PON's case. 1420 I do not consider it necessary to go so far. The fact is there is scant evidence that, while Port Botany has capacity, shipping lines would substitute calling at Port Botany for a container terminal at the Port of Newcastle. As Mr King said, shipping lines would be sensitive to the overall supply chain cost even though that is ultimately borne by the customer. The evidence discloses a key issue about the need for a subsidy as between exporters and importers to balance containers at the Port of Newcastle. It discloses a likely cost impost on importers for transporting containers from the Port of Newcastle to Sydney, either because there are no distribution centres near the Port of Newcastle or because most import containers are destined for the Sydney area in any event. 1421 The evidence about shipping lines calling at the Port of Newcastle and the potential to drive down stevedoring costs and wharfage charges is expressed at a very high level of generality. It does not confront or resolve the issues which formed part of the reasoning of Infrastructure NSW and Transport for NSW in retaining the State policy that Port Botany's capacity should be used before another container terminal is developed and changing the policy so that Port Kembla would be developed with a container terminal next after Port Botany. While Port Kembla has its own issues, its proximity to Sydney distribution networks (90 km distant compared to 160 km distant for the Port of Newcastle) was recognised to place it in a different position from the Port of Newcastle in the State's assessment of the public interest. The public interest considerations which had been repeatedly identified within the State included: (1) Transport for NSW on 8 March 2012: "the economics of containers coming into Newcastle and being railed or trucked down to Sydney [was] highly questionable" given that most containers are destined for within 40 km of Sydney and the State had invested heavily in port infrastructure at Botany which currently had excess capacity; (2) Morgan Stanley on 5 April 2012: Port Kembla should be the next logical container terminal after Port Botany as the two ports service the same hinterland and will both service the Moorebank Terminal. Further, stakeholder consultation (including with Shipping Australia) for Port Botany has clearly established that Port Kembla is seen as being the preferred location for a container terminal (in preference to Newcastle) once Port Botany becomes full; (3) Morgan Stanley in the Port Botany Scoping Study in May 2012: (a) provided a detailed explanation of why developing any container terminal before Port Botany reaches capacity would be inefficient for the State as it would impose a significant increase in the NSW transport task, additional costs to the economy and a negative impact on Gross State Product, as well as require significant investment required in associated road and rail infrastructure (and re-aligning the logistics supply chain) to service container trade going through a new more remote container port and transiting from/to metropolitan Sydney (which is the source of most container traffic); (b) recorded the view of most stakeholders who commented (other than NPC) to the effect that Port Kembla was the next logical container terminal as it is closer to the origin and destination of most containers in NSW, being Sydney, and closer to rail links to Sydney; (c) noted that less than 10% of NSW container movements according to the NPC management case are expected to flow via a dedicated NPC container terminal and while Newcastle may be competitive for imports bound for the Newcastle hinterland in the medium to long term it is highly unlikely that Newcastle will be cost competitive with Botany for imports destined to the Sydney region; (d) said Port Kembla will complete an arc of interconnected rail and intermodal terminals spanning south and south-west Sydney (e.g., Moorebank and Minto), is proximate to the high growth industrial area in the western suburbs of Sydney, is closest international port to Sydney, is closest to the proposed intermodal facilities in Moorebank and potentially Eastern Creek, and has direct access to the proposed South Sydney Freight Line; and (e) said for either Port Kembla or the Port of Newcastle it appears uneconomical for shipping lines to call two ports so close to each other. Shipping lines would rather make a single stop at Port Botany (which has excess capacity) where there is already existing and well established supporting infrastructure; (4) Transport for NSW on 16 July 2012: identified significantly lesser public infrastructure costs to support Port Kembla as a container terminal compared to the Port of Newcastle and that freight costs to and from Port Kembla to Sydney, where 94% of containers were going to and from, would be significantly less than to and from the Port of Newcastle; (5) State Infrastructure Strategy 2012-2032 in October 2012: said that as the vast majority of containers would be expected to be destined for the Greater Sydney area, and investments in WestConnex and the F6 Extension would support the development of Port Kembla, Port Kembla is the preferred next container terminal; (6) Draft NSW Freight and Ports Strategy in November 2012: included information consistent with the published information of Transport for NSW on 16 July 2012; and (7) NSW Long Term Transport Master Plan in December 2012: reflected the above considerations. 1422 The evidence for the ACCC and PON does not propose any workable resolution of these issues. It depends on generalised assumptions and expectations which, on analysis, are more in the nature of hopes. 1423 Mr Dent, for example, has not analysed whether there would be downward pressure on stevedoring prices. He has only said that he would "expect shipping lines would be eager to support the development of a competing terminal at Newcastle as the increased competition from that terminal may place downward pressure on stevedoring costs and pressure them to improve service levels" (emphasis added). It is unsurprising that shipping lines will ostensibly support optionality, but it may be inferred they will not use a container terminal at the Port of Newcastle unless there are good commercial reasons for it. The evidence of those commercial reasons while Port Botany has capacity is lacking. 1424 It is also relevant that while downward pressure on stevedoring prices is presented as a positive to attract shipping lines, the PON PBC assumed revenue to PON from stevedoring charges of XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. Mr King pointed out that "in reality the nominal per TEU revenue, across Australia has risen on average from 2010 to 2019 by 0.15%" per year and not XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX, as the PBC proposed. Mr King also exposed that the PBC's revenue estimates involve double counting of revenue streams by an average of 24% in the period from 2022 to 2025 which are then carried through by adding 2.5% increases to revenue per year from 2025 onwards. 1425 Further, while it may be accepted that, as Mr Kwiatkowski said, shipping lines will not pre-commit to use any container terminal, it is inconceivable that a port would commit to developing a container terminal without sound supporting commercial logic. Mr Kwiatkowski said that the expansion of DCT Gdansk in Poland occurred without any written commitment from shipping lines that they would use the expanded terminal, or commitments from producers in the hinterland that they would use the terminal, or any certainty that DCT Gdansk would be able to attract trade from other terminals such as Gdynia or Hamburg. Mr Kwiatkowski attempted to draw an analogy between DCT Gdansk and the position of the Port of Newcastle. 1426 However, DCT Gdansk is Poland's only deep sea terminal and a transhipment hub. The relationship between Maersk (the shipping line) and DCT Gdansk was described in an article in 2011 as part of a "Baltic revolution" in which Maersk and DCT Gdansk had established a "regular connection between the Far East and Gdansk served by 8,000 TEU vessels" with the proposed upgrade to 15,500 TEU vessels intended to establish the port as a major European hub. The article also disclosed the support DCT Gdansk had for expansion of its container capacity from the highest levels of the Polish government. 1427 The preliminary information memorandum for the raising of finance for the expansion of DCT Gdansk recorded that: (1) DCT Gdansk is the only deep water container handling facility in the Baltic Sea; (2) DCT Gdansk is a gateway to the Polish market of 40 million people, other Baltic countries as a transhipment hub, and the northern central and eastern European zone with a population of 130 million people; (3) in 2008 DCT Gdansk signed a terminal services agreement with Maersk Line which had provided increasing container volumes since; (4) DCT Gdansk's market size and market share of containers had been increasing since 2008; (5) DCT Gdansk had had to turn away new container customers because it lacked capacity to accommodate them; (6) stevedoring fees at DCT Gdansk were about half those at smaller competitor ports which could not accommodate large vessels which DCT Gdansk could accommodate; (7) the "economics of the Project are compelling given DCT's product position in the Baltic Sea container terminal market. No other port in that region can match DCT's combination of deep water, large primary hinterland and regional market access"; (8) DCT Gdansk "is a core national infrastructure asset. It acts as the point of entry or exit of 28.2% of Poland's containerised demand and 59.6% of all containers landed in Poland. The Port has the largest box exchange of any Maersk call in Europe and is currently serviced by the world's largest container vessels"; (9) "[t]he health and performance of the Port is a matter of national strategic importance for Poland and politically it will be important that the Project is a success"; (10) "[b]ecause the proximity of the Polish market delivers a critical mass which is sufficient to justify a deep sea call, Maersk (and others in the future) are/ will utilise OCT for additional volumes to be transhipped or transited to other central and eastern European countries"; (11) the project complies with regional, national and European Union spatial development plans; and (12) the project complies with the country's spatial development concept, national transport policy, sea ports development strategy and maritime policy assumptions. 1428 It will be apparent from this summary that DCT Gdansk cannot be meaningfully compared to the position of the Port of Newcastle which does not have an existing container terminal, has never been identified for a container terminal development before Port Botany reaches capacity, will not be a transhipment hub, has no unique access to its hinterland (the vast majority of which is currently serviced by Port Botany), has no partnership with a shipping line, is distant from the major population concentration in NSW, and the premature development of which for a container terminal is contrary to the State policy. 1429 PON's PBC, and the documents on which it is based, do not propose a persuasive case in favour of the assumption that shipping lines will provide regular calls and sufficient connectivity for a container terminal to be viable at the Port of Newcastle while Port Botany has capacity. 8.7.6.5 New distribution centres co-locating 1430 NSW Ports noted that the ACCC and PON had not called evidence from any logistics provider or importer/exporter about the prospect of new distribution centres being developed near the Port of Newcastle, despite PON's case for a container terminal expressly depending on such development occurring early in the operation of the container terminal. 1431 This is correct. 1432 It is not in dispute that distribution centres are clustered around Sydney, particularly western Sydney, which is proximate to Port Botany. This reflects the population and industrial centres of NSW. As Mr Balchin explained, those existing distribution and logistics networks represent substantial investments dictated not by any port related cost (be it stevedoring or wharfage) or otherwise but by total supply chain costs. As Mr Balchin said, "the shifting of core distribution functions … will mainly depend on the economics of logistical supply chains". As he further said: … while researchers may identify theoretical freight hinterland zones based on direct land transport costs analysis from port to final destination, in reality the majority of imports pass through major distribution centres using well established logistic chains. A realistic assessment of contestable cargo must take this reality into account. 1433 I have accepted that a port can do more than Mr Balchin, Mr Ockerby and Dr Pleatsikas would contemplate in the provision of Container Port Services to encourage the development of distribution centres. But PON's case for a container terminal at the Port of Newcastle remains in the realm of theory, based on an assumed, rather than likely, dynamic for the establishment of a new supply chain network around the Port of Newcastle. 1434 Mr Dent accepted that the establishment of a new supply chain network around the Port of Newcastle would take time but did not provide cogent reasons as to why the substantial private (and most likely government) investment in new supply chains would occur if Port Botany has capacity. 1435 Mr van Duijn stressed that a new supply chain network around the Port of Newcastle had to be operational as soon as possible for a container terminal to be viable (that is, either before the container terminal was established or within months of its establishment), but also did not explain why is was valid to assume that would occur. Mr van Duijn said: …as I said before, they have to have the distribution centres in place before, you know, the container terminal. Certainly, after a few months after start-up, they have to have them in place. Otherwise, that would occur, which would incur additional costs transporting them to Sydney. 1436 Mr van Duijn also gave this evidence, consistent with the views I have reached above: DR HIGGINS: Unless and until a future Newcastle terminal has its own distribution centres, the freight transport cost calculations made by AlphaBeta that you rely upon understate the actual cost of shipping freight via the Port of Newcastle? MR VAN DUIJN: Yes, yes. DR HIGGINS: That is because the cost of covering the total distance of the diversion of the relevant container to Western Sydney distribution centres is ignored in the AlphaBeta report? MR VAN DUIJN: Yes. That is correct. They have to go there and then unpack and then, you know, the freight has to be sent – some part of the freight has to be sent back again to Newcastle so, yes. … …a large part of the market [the Port of Newcastle's hinterland] is closer to the Port of Newcastle than Port Botany, so those supply chains will, obviously, seek their most cost effective and expedient matter of getting their goods to and from market via the port. 1437 What Mr van Duijn does not explain is why it is that the entire container task in NSW would be transformed to enable Newcastle hinterland specific containers only to be dealt with by the Port of Newcastle so as to make it cost effective and expedient for a new logistics supply chain to form around the Port of Newcastle when Port Botany has existing capacity. A fundamental assumption by Mr Van Duijn is that a container terminal at the Port of Newcastle will be able to attract Newcastle hinterland-specific containers. This, however, is not how the container trade operates. Containers are not packed assuming that all contents go to one or other location. This is why distribution centres are necessary, so containers can be unpacked (or unstuffed) and forwarded to different locations. 1438 Mr King gave this evidence: (1) "…about the development of distribution centres in the south and west of Sydney… the fundamental reason for that development of distribution centres south and west is the very good road and rail connections to the south and west of Sydney, but also that the population centres within the Sydney area are moving to the south and the west away from the coast. You can't expand into the water, but you can expand to the west of Sydney"; (2) "[t]here's a hell of a lot of green area between northern Sydney and Newcastle. There's not a lot of people that live there. So you want to have an efficient distribution system in the Sydney area, you're going to be going to where the population centres are, you're going to be going to where the available land and transport connection is, that is, to the south and the west of the Sydney area"; (3) "[w]e have also seen recently a consolidation strategy where major distribution like the cargo owners, who operate distribution centres, are now consolidating to a single point in the Sydney area. So we talk about the Moorebank area operated by Qube. Woolworths Australia have recently consolidated their operations from across New South Wales to a single point in the Moorebank terminal. And from that single distribution centre is where they supply goods that are containerised, imported to Australia and then supplied across New South Wales and other parts of Australia. And this seemed to be a trend in … where, again, like shipping operations, scale becomes important. Rapidity of service, the ability to turn over goods on a more frequent basis is becoming very, very important"; (4) "…the distribution – destination of containers in Sydney is to the south and west. The final destination may be all across the state, but the cargo owners have made the decision that their supply chain efficiency is optimised by having an operation through Port Botany to a single distribution centre in the south and the west"; (5) if "…you were transferring an existing service – shipping service, that is, the majority of that cargo is bound for Sydney. There is no two ways about it. It will have a Sydney destination. So any ship transferring operations from Sydney to Newcastle is going to have a significant proportion of its cargo which is required to be then moved back to the Sydney area"; (6) "Mr van Duijn has a point of view that, effectively, the shipping string which services the east Australian market –sorry –the east Asian market … It would only handle containerised cargo which has a destination of Newcastle or the Newcastle hinterland. I can't see that happening. I can't see a shipping service operating from Asia to Australia skipping Sydney or not carrying Sydney-based cargo. It just doesn't make sense … from an economic point of view, it would not make sense to optimise a vessel to call solely at Newcastle which would then be inefficient to operate cargo to – to Melbourne and Brisbane and other ports"; and (7) "[t]here's just no evidence to say that … there's going to be a rush of development for greenfield distribution centres in the Newcastle area". 1439 This evidence is consistent with the State's analyses in 2012 and 2013. It is consistent with conditions and circumstances as they have in fact existed since well before the impugned provisions. It is inherently logical and cogent. Nothing in the evidence in support of the prospect of a container terminal at the Port of Newcastle has effectively confronted the weight of this evidence which indicates serious problems for the development of such a terminal while Port Botany has capacity (or before a container terminal is developed at Port Kembla, which is to the south of Sydney and thus favoured by existing supply chains compared to the Port of Newcastle). 1440 Nor does Mr van Duijn explain why distribution centre operators would be willing to duplicate their existing investment to establish additional distribution centres around the Port of Newcastle. He speculated that major retailers may be willing to establish regional distribution centres but there is no evidence to support this willingness. Such evidence as there is indicates major retailers have established national distribution centres to meet their requirements based on existing supply chains at substantial cost. Mr van Duijn speculated that as existing distribution centres reach their useful life (15 to 20 years) they may relocate around the Port of Newcastle but, again, the incentive for them to do so while Port Botany has capacity (or while Port Kembla could develop a container terminal using the existing supply chain) is unclear. 1441 The reality remains that, as Mr van Duijn accepted, a "lot" of distribution centres would be required to establish quickly around a Port of Newcastle container terminal for it to be viable and avoid having to transport containers to western Sydney distribution centres for disaggregation (including goods which would then have to be transported back from Sydney to the Port of Newcastle's hinterland). As such, Mr van Duijn accepted that AlphaBeta's cost estimates for transporting containers from the Port of Newcastle was understated unless and until new distribution centres were established (as the containers would have to be transported to distribution centres in Sydney). 1442 Mr van Duijn also said that as a port landlord PON may operate its own distribution centres or facilitate private enterprise in so doing near the Port of Newcastle. I agree, but these possibilities remain speculative. He drew a comparison to the Port of Adelaide, but accepted that Port Adelaide had a lower TEU per head of population than other Australian ports for some six to eight years before the port established greater capacity distribution centres which Mr van Duijn expected would increase its TEU per head of population. Mr van Duijn accepted that if the TEU per head of population at the Port of Adelaide after it was privatised for some six to eight years was replicated at the Port of Newcastle (0.09 TEU per head), the Port of Newcastle container terminal would not have sufficient containers to be viable, but Mr van Duijn considered that to be speculation. It is not apparent why expectations favourable to the Port of Newcastle and inconsistent with existing circumstances are assumed by Mr van Duijn to be valid, and expectations unfavourable to the Port of Newcastle but consistent with actual Australian experience are considered by Mr van Duijn to be speculation. 1443 As discussed, ships are attracted to a port by cargo and cargo is attracted to a port by ships. PON's proposal involves speculation about both calls by ships and volume of cargo. NSW Ports noted this comment by Mr Dent about PON's draft PBC: With only XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX will customers (importers/exporters) change their supply chain arrangements? Most of their cargo will still be going via Port Botany and if now split over two ports they may find their transport (road/rail) costs via Port Botany going up as they now have reduced volume. The customers will have volumes related tariffs and possibly volume incentives as well. The saving for a smaller volume via PoN may be offset by additional costs/ loss of rebates via Port Botany. Was this tested when the preliminary business case was put together? 1444 This identifies the fundamental issue for a container terminal at the Port of Newcastle while Port Botany has capacity. It is difficult not to infer that the NSW government has always been aware of this dynamic which is why no NSW government has supported a container terminal at the Port of Newcastle while Port Botany has capacity despite the acknowledged need to support economic development and employment opportunities in the Hunter region. 1445 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. The evidence is thus immaterial. 1446 The ACCC submitted that while the PBC identifies that the new supply chains required for a container terminal at the Port of Newcastle are a risk, the PBC also provides strategies to mitigate the risk and the assumption is otherwise reasonable. The ACCC's supporting reasons, however, are not persuasive. 1447 The ACCC proposes that "users of the Port of Newcastle will have a positive incentive to develop distribution centres closer to the Port of Newcastle, in order to be able to take advantage of available and affordable industrial land in Newcastle, as well as the lower congestion, shorter transport distances, greater supply chain efficiencies, and cost and time-saving efficiencies offered by a Newcastle Terminal". This pre-supposes the existence of users when there will be no distribution centres near the Port of Newcastle. It also pre-supposes shorter transport distances, greater supply chain efficiencies, and cost and time-saving efficiencies when the evidence is that these will not exist even for containers going from and to the Port of Newcastle's hinterland unless and until local distribution centres are developed. It will also never be the case for the vast majority of NSW containers destined for the Sydney metropolitan area. It pre-supposes further that the users of the Port of Newcastle are not existing users of Port Botany (which cannot be right) and have not already sunk substantial costs into distribution centres convenient to Port Botany. None of these propositions are rational. 1448 Mr Carmody's evidence that Badgery's Creek airport might prompt a supply chain re-alignment favouring the Port of Newcastle is wholly speculative. The other evidence about XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1449 The fact that PON says it will implement strategies to facilitate the development of new distribution centres convenient to the Port of Newcastle may be accepted, but PON does not identify what it might do in this regard other than XXXX XXXX XXXX XXXX, adopting a pricing strategy that considers total supply chain cost (without identifying what this involves or how it might be done consistent with the need for certain revenue streams underlying the asserted viability of the container terminal), and bundling services and leveraging the reputation and relationships of PON and its shareholders (again, without identifying what this involves or how it might be done consistent with the need for certain revenue streams underlying the asserted viability of the container terminal). 1450 The ACCC's reliance on Mr van Duijn's evidence about distribution centres is misplaced. He knows they are essential to the viability of a container terminal, but his expectations about distribution centre development involved untestable assumptions. His oral evidence in support of his expectations, in my view, exposed the tenuous basis for them. Properly understood, his evidence was that fast-moving consumer goods facilities might or could potentially establish themselves near the Port of Newcastle if it had a container terminal. He said only that "Woolworths or Coles could potentially set up a regional distribution centre in the Port of Newcastle", but in doing so failed to consider the compelling evidence of Mr King and otherwise to the contrary. 1451 The ACCC's reliance on the ACFS interaction with PON has already been discussed above as immaterial. 1452 For these reasons, the prospect of the relocation of supply chains around the Port of Newcastle while Port Botany has capacity to support the development of a container terminal is not cogent. On the evidence, it is weak and speculative. 8.7.6.6 Initial single berth terminal 1453 PON's PBC proposed a XXXX XXXX terminal in stage 1. The evidence overwhelmingly indicates this will not be feasible. Mr Dent pointed out that a XXXX XXXX will not be sufficient to attract shipping lines. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1454 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX, and would require a new planning approval. 1455 Mr van Duijn said a single berth facility would not succeed XXXX XXXX XXXX. He said "[s]hipping lines are very hesitant of coming to terminals where there's only one berth available". He considered a container terminal would need 300,000 to 400,000 TEU per year to be viable, although the generally accepted commercial viability requirement is 500,000 TEU per year. This, he said, is because the Port of Newcastle would have additional benefits or revenue streams XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1456 Mr van Duijn accepted that the increased up-front cost of two berths meant that a greater volume of TEUs would be required to make the container terminal viable, but remained of the view that 300,000 to 400,000 TEUs per year would suffice (although why this is so remained unclear). Mr van Duijn's estimate of TEUs per year was that the a container terminal the Port of Newcastle could offer a cost advantage compared to Port Botany for 314,000 TEUs in total per year over a period of 5 to 10 years (representing 96% of the available container volumes from its hinterland). He also mentioned the possibility of the Port of Newcastle handling 50,000 empty containers, but this possibility was not developed in his evidence. 1457 This evidence of Mr van Duijn also does not confront the imbalance of export and import containers which the Port of Newcastle will face to a greater extent than Port Botany, and the need for a cross-subsidy scheme to be devised and implemented either by shipping lines or PON itself (see above). Nor does it confront the prospect of the container terminal at the Port of Newcastle not being able to establish sufficient shipping connectivity in which event it is common ground that exporters who might use the Port of Newcastle would continue to use Port Botany (which has 23 shipping services calling weekly and established supply chains). 1458 Assume Mr van Duijn is right and 300,000 to 400,000 TEUS per year are required for the PON container terminal to be viable. In this regard, for example: (1) Lycopodium (with its assumptions favourable to PON) estimated a PON container terminal could attract 224,000 TEUs per year, and an additional 126,000 TEUs per year "if the Central West via Parkes volumes can be attracted to Newcastle"; (2) Aurecon's review of the Deloitte report concluded that a realistic assessment was a total of about 235,000 TEUs per year (29% of total NSW exports or 98,500 TEUs per year and 10% of total NSW imports or 136,300 TEU per year); (3) PON's PBC estimated a PON container terminal could attract XXXX TEUs in 2022 increasing to XXXX TEUs by 2026; (4) AlphaBeta and OSC posited higher estimates with OSC estimating that PON could capture XXXX TEUs (or more) per year from commencement and AlphaBeta estimating that PON could capture 460,000 TEUs in 2020 or around 20.5% of full container movements; (5) KPMG estimated that a PON container terminal could attract 289,000 TEUs by 2031 rising to 379,000 TEUs by 2046; (6) Mr van Duijn considered that a PON container terminal could attract 200,000 TEUs of imports (provided that distribution centres and associated logistics facilities were established near the port), and over 114,000 TEUs of exports (provided that an on-dock rail terminal was established at Newcastle); (7) Mr Balchin's likely case scenario was for a PON container terminal to initially capture 7.5% of the imports and 28.1% of the exports in its hinterland (a total of 65,456 TEUs) in 2022, increasing to 35.8% (imports) and 100% (exports) by 2067 (a total of 600,248 TEUs); and (8) Mr Ockerby's likely case scenario was for a PON container terminal to initially capture 9% of imports (13,820 TEUs) in 2016, increasing to 40% (185,501 TEUs) in 2056. 1459 Given that the reports of PON's consultants, the analysis in its PBC and Mr van Duijn's estimates in this regard are based on unjustifiably optimistic (in fact, unrealistic) assumptions about container volumes a container terminal at the Port of Newcastle while Port Botany has capacity could attract, the evidence that such a container terminal would be viable is weak and unpersuasive. 8.7.6.7 Planning approvals required 1460 As discussed, it is clear that new planning approvals will be required for a modern, automated, container terminal at the Port of Newcastle. I have expressed the view above that planning approvals will follow the State policy, whatever its content at the time the planning applications are assessed. 1461 The relevance of the need for new planning approvals is that, as a result, PON does not have the option of proceeding with a development irrespective of the views of the State. PON needs the State to approve a new container terminal. For so long as the State policy remains as it is, PON will not be granted the required planning approvals. A change of the State policy would be required before PON would be granted the required planning approvals. The necessary change to engage the impugned provisions would not just be to give the Port of Newcastle precedence over Port Kembla, but to enable a container terminal to be developed at the Port of Newcastle while Port Botany has capacity (which has never been the policy of any NSW government). In any event, I do not accept that PON's board or shareholders would contemplate attempting to construct a container terminal at the Port of Newcastle unless they had obtained the support of the NSW government for doing so, which requires PON to persuade the NSW government to change the State policy. 1462 The ACCC's submission that the existing 2001 development consent is relevant because it provides an option for PON to develop the first stage of the container terminal is wrong. There is no such option. PON would not develop a container terminal as provided for in the 2001 development consent. It is out of date. The notion that PON could rely on the 2001 development consent to carry out "early works" when not intending to develop a container terminal in accordance with the 2001 development consent would be a high risk strategy for numerous reasons (including potential contravention of the EPA Act), not the least of which is that without obtaining a change in the State policy and further planning approvals PON could well be left not being able to complete what it had started. As noted, the 2012 concept development consent does not authorise the carrying out of any development. 8.7.6.8 Shareholder support required 1463 PON accepted that its proposal depends on shareholder support including financial support. As discussed above, I see no possibility of financial support being provided for a container terminal to be constructed contrary to the State policy. 1464 For these reasons, the present beliefs of the PON representatives are not presently supported by cogent independent evidence. 1465 The evidence exposes long-recognised difficulties of developing a container terminal at the Port of Newcastle while Port Botany has capacity. The information that existed in May 2013/May 2014 disclosed these difficulties. 1466 The case was heard in October-December 2020, many years after privatisation of the Port of Newcastle. The information brought into existence subsequently by PON, which was intended to dispel those difficulties, manifestly does not do so despite assuming that the reimbursement provisions do not exist. PON's investigations, which themselves are commercially rational, have not exposed a commercially rational case to in fact develop a container terminal at the Port of Newcastle while Port Botany has capacity. Its investigations also have not exposed any public interest case to develop a container terminal at the Port of Newcastle while Port Botany has capacity (or, for that matter, before a container terminal is developed at Port Kembla). This position would remain for all of the reasons identified above without the impugned provisions. 1467 The fact that PON has spent more than $2.5 million on its investigations and is willing to spend more establishes nothing more than the commercial rationality of investigating to see if a cogent case for a container terminal development while Port Botany has capacity can be formulated. As the State submitted, however, a willingness to fund investigations cannot be compared to a willingness to commit to development which will cost well in excess of $1 billion. As the State also submitted, on analysis, the evidence "was lukewarm and established no more than the possibility that a recommendation might be made to the ultimate decision-makers to construct such a terminal, if and when favourable conclusions are reached by those conducting the analysis". None of the conditions precedent to the making of a recommendation by PON's representatives to its board or shareholders have been satisfied. This positions would also remain for all of the reasons identified above without the impugned provisions. 1468 The ACCC made submissions about two other issues not discussed above which it anticipated that NSW Ports and the State may emphasise in their submissions. 1469 The first is the issue of the capacity on the Main North Line to transfer containers to and from the Port of Newcastle. I accept the ACCC's submission that there is insufficient evidence to conclude that this would be a material impediment to the development of a container terminal at the Port of Newcastle. NSW Ports and the State did not submit otherwise. But the issue of the Main North Line exposes the dependency of PON on the NSW government supporting a container terminal at the Port of Newcastle. PON itself recognised in its Port of Newcastle Port Master Plan 2040 that because the Main North Line is dominated by passenger trains planning for "the separation of freight from passenger services on key shared networks to optimise performance for both services must be a key focus of the Government's transport planning activities". 1470 The second is the issue of the location of the Port of Newcastle and Ms Calfas's evidence that 80% of full import containers at Port Botany have a destination within 40 km of Port Botany, whereas only 2% of such containers have a destination in the Newcastle, Hunter or Central Coast areas. This evidence was not challenged. The fact that Mr van Duijn still considered a container terminal at the Port of Newcastle to be viable does not confront the following facts: (a) the proposal is contrary to the State policy, and (b) as discussed above and further below, Mr van Duijn's volume estimations, based on his expectation of Newcastle hinterland only containers, are idiosyncratic and are based on numerous favourable assumptions including that Newcastle only containers would be imported to the Port of Newcastle. 8.7.7 The industrial and economic experts 1471 As discussed, the inconsistencies between Mr van Duijn's evidence and PON's PBC establish that the PBC is out of date and unsustainable, but do not establish that a container terminal is itself unsustainable. Mr van Duijn's evidence needs to be assessed as given. 1472 It is nevertheless still relevant to acknowledge that Mr van Duijn's ostensible endorsement of the container terminal as proposed in PON's PBC in fact discloses his fundamental disagreement with key assumption or expectations in the PBC. 1473 As NSW Ports pointed out, in contrast to the PBC, Mr van Duijn expects a container terminal at the Port of Newcastle will not service containers from outside PON's hinterland. If Mr van Duijn is right, the volume estimates in PON's PBC are meaningless. 1474 In contrast to the PBC, Mr van Duijn does not expect a container terminal at the Port of Newcastle will service ULCVs (greater than 14,000 TEU) as the other ports will not accommodate those vessels, Australia does not currently have the population to support such vessels and may never have such a population, Australia's total TEU volumes require more ship calls than would be necessary using ULCVs, and Australian demand could not fill such large vessels. 1475 Accordingly, on this evidence, the capacity of Port of Newcastle to accommodate ULCVs (which may require channel dredging in any event on Mr van Duijn's evidence) is not a valid distinction between the Port of Newcastle and Port Botany. For the reasons given above, I agree. 1476 As NSW Ports submitted, Mr van Duijn's evidence in fact undermines three pillars of PON's argument in favour of a container terminal at the Port of Newcastle, that ULCVs are coming to Australia (as they have to other international ports which, however, have vastly greater markets), that other ports cannot accommodate ULCVs, and the Port of Newcastle alone can accommodate ULCVs. 1477 For these reasons, Mr van Duijn's evidence provides no support for the proposal in PON's PBC. It also supports my conclusions that the consultants' reports underlying that PBC are unreliable. NSW Ports submitted that, as such, PON's PBC "represents yet another iteration in the lengthening series of failed proposals for a PON container terminal, underlining the continuing incapacity of industry experts to make an investment case for a container terminal at PON". There is weight in this submission. PON has not been able to formulate such a case since May 2014 despite being motivated and having attempted to do so. This position would remain for all of the reasons identified above without the impugned provisions. 1478 Mr van Duijn nevertheless expressed his ultimate view (irrespective of the PBC) that: I certainly believe there's enough, both import and export, volume in the hinterland or the catchment area of the Port of Newcastle for a container terminal to be started up. As normally is the case, it takes, you know, five to 10 years for it to establish itself. You know, it won't be, you know, viable on day 1 but I certainly believe that there is opportunity for – for that to grow and providing the right – the right decisions are made. And as I described in my report, it depends on the XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX, XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1479 This view depended on the assumptions and expectations of Mr van Duijn described above. These included the assumption or expectation that containers imported through the Port of Newcastle would contain goods destined for that port's hinterland only. As noted, this is an untested expectation, inconsistent with current arrangements, and considered to be entirely unrealistic by Mr King. It is difficult to envisage how this expectation might be practically implemented. As NSW Ports noted, single port calls by a ship are very rare on the evidence, so it is doubtful a ship would call only at the Port of Newcastle. Nor is there evidence to support an inference that a ship would not carry containers destined for parts of NSW other than the Port of Newcastle's hinterland. PON has never previously suggested that an expectation such as that of Mr van Duijn is reasonable or appropriate. Nor, on the evidence, has any other person who has considered the issues. Mr van Duijn's expectations in this regard are an outlier. As such, they are not persuasive. 1480 Mr van Duijn's evidence also did not consider that PON would have to bear the costs of actions to make the assumptions favourable to it even a remotely plausible prospect. As NSW Ports noted, the costs would include whatever PON was willing to do in respect of channel and berth dredging, establishing an on-dock rail terminal, improving the ARTC freight lines from the regions into Newcastle to accommodate 1800m trains, and establishing or facilitating distribution centres in Newcastle. While shipping lines would not bear these costs, the evidence is they would be sensitive to them as they would ultimately be borne by importers/exporters. These potential costs would thus contribute to the relevant determining factor (along with shipping connectivity), being the total supply chain cost. PON's capacity to reduce its own charges also would necessarily be affected by its need to recoup some or all of these costs. 1481 By contrast to Mr van Duijn's evidence, Mr King's evidence was consistent with current and historical circumstances and did not depend on unrealistically favourable assumptions in favour of a container terminal at the Port of Newcastle. Mr King did not accept that shipping lines would implement a cross-subsidy between exporters and importers. He did not accept that new supply chains would develop around the Port of Newcastle while Port Botany has capacity. He did not accept the concept of containers bound only for the Port of Newcastle's hinterland. His evidence was based on facts rather than hopes. 1482 For example, Mr King identified that the existing supply chains around Sydney represents an enormous investment. It cannot reasonably be inferred that this investment would be undermined by either the private sector or the State. While Mr King's written evidence was confined to the unreliability of PON's PBC, his oral evidence exposed the problems with a container terminal at the Port of Newcastle while Port Botany has capacity, as recognised to exist by all bar those representing the Port of Newcastle since before May 2013 (except, perhaps, Mr Dent who appears to have been more circumspect about a container terminal at the Port of Newcastle while Port Botany has capacity than other PON representatives). 1483 Mr Balchin's analysis of the viability of a container terminal at the Port of Newcastle while Port Botany has capacity, based on comparison to the experience at the Port of Adelaide, also resulted in a conclusion that the PON PBC proposal was not viable. Even reducing costs by 20% of the assumed costs did not result in a positive NPV given the lower demand estimates proposed by Mr Balchin. Mr Balchin's likely case scenario analysis does not have container volumes at the Port of Newcastle exceeding 300,000 TEU per year (Mr van Duijn's minimum volume for viability) until 2052, assuming a 2022 start date for operations. No doubt Mr Balchin's analysis may itself be subject to criticism, but the variables used in his model are based on real-life experience at the Port of Adelaide and not mere expectations or hopes. The strongly negative results which Mr Balchin obtained in respect of the viability of PON's project as set out in the PBC reinforces the views reached by Mr King and inherent within Mr van Duijn's evidence once it is stripped of unjustifiable assumptions. 1484 Mr Ockerby's analysis reached similar results to Mr Balchin, although his focus was not the viability of a container terminal at the Port of Newcastle while Port Botany has capacity. Mr Ockerby noted Mr Smith's view that the indicators were that a container terminal at the Port of Newcastle could have sufficient demand to be viable. Mr Smith's view was based on the PBC which, in my view, is unreliable. Mr Smith carried out no independent analysis to verify any aspect of the PBC or supporting reports. Mr Ockerby carried out his own "bottom up" analysis based on actual shares of import containers captured by Australian ports. As with Mr Balchin, this is a more reliable mode of analysis than anything PON has undertaken. Mr Ockerby calculated that the Port of Newcastle would capture only 9% of import containers from its catchment area initially (assumed to be 2016) rising to 40% over 40 years, to 2056. That is, import containers would rise from 13,820 TEUs per year to 185,501 TEUs per year over 40 years. This is nowhere near the estimates of PON's consultants and does not approach the import levels needed to make the container terminal viable. Mr Ockerby considered all of the PON estimates and those of its consultants to be unrealistically optimistic as they failed to reflect both the need for intermediate distribution centres and wrongly used the distance from the port to the final destination of the goods as an input when the relevant input is the distance from the port to the distribution centres. 1485 The ACCC submitted that "Mr Ockerby acknowledged the limited nature of the work he had done, saying it was 'not my best estimate' and that he 'would probably do it differently if I, you know, had more data from them'". The ACCC also noted that the "freight share growth identified by Mr Ockerby's model arises solely as a function of the population growth in the Port of Newcastle's catchment area combined with the observed relationship between population and freight share in postcodes across Australia. It does not consider variations in quality between competing ports, although Mr Ockerby suggested that this was 'implicit' in the population estimates". These submissions are tendentious. 1486 As Mr Ockerby explained, the purpose of this part of his report was to test the assumption in PON's PBC that a container terminal at the Port of Newcastle, while Port Botany has capacity, would capture XXXX of the import containers from within its catchment. As Mr Ockerby explained, this looked high as even the Port of Brisbane did not capture XXXX of import containers from within its catchment. His reference to his work not being his "best estimate" was in the context of explaining the difference between the work he would do to test the assumption in PON's PBC (which he had done) and the work he would do if he was retained to give advice to PON about the commerciality of its business case which he had not done. If he had been retained by PON, his point was that he would have access to more information and would have taken that information into account. He further confirmed that the work he had done, for the purpose he had done it, was a reasonable approach. 1487 The relevant point is that the work Mr Ockerby has done in relation to freight shares is far more convincing than any analysis by or on behalf of PON. As he explained, his modelling included the relationship between population and freight share and distance from the largest (not merely the nearest) port across every postcode in Australia. In creating his model he had also tested other variables. He also explained why he considered that population growth is a relevant proxy for the development of distribution centres, saying: …the sort of logic of the model is that – that there are potential economies of scale in having distribution centres. And they are based on population growth. So population growth allows – with a sufficient size, that's the sort of – one of the underlying reasons for including population of the catchment in the model, is that once a population within a catchment reaches – as it grows, it becomes more sustainable for there to be distribution centres that serve solely that catchment. Distribution centres have a fixed cost attached to them, so some might base themselves in Sydney and serve all of New South Wales or, indeed, all of New South Wales and Queensland conceivably. But when PONs catchment reaches a particular size there might be a sustainable business case for a distribution centre that I'm proxying via the population growth for that. 1488 Mr Ockerby's explanations of his approach were clear and convincing. There is no comparison which can be drawn between the work which Mr Ockerby and Mr Balchin have done in estimating the volume of containers that a container terminal at the Port of Newcastle (while Port Botany has capacity) would be likely to capture and the work which PON and its consultants have done. The work of Mr Balchin and Mr Ockerby about container volumes is detailed, well-reasoned, and based on real-life circumstances. The work of PON and its consultants about container volumes is based on numerous assumptions favourable to PON which appear to be unjustifiable. 1489 Accordingly, in common with the conclusions of Mr Balchin, the strongly negative conclusions of Mr Ockerby about the container volumes a container terminal at the Port of Newcastle would attract while Port Botany has capacity are based on cogent analysis rather than mere hope. They reinforce Mr King's views and, of course, the views of those advising the State (including Transport for NSW and Infrastructure NSW as well as Morgan Stanley) about the inherent problems for the viability of any container terminal at the Port of Newcastle while Port Botany has capacity. 8.7.8 PON's submissions 1490 The above discussion has dealt with many of the submissions PON made in support of the ACCC's case. I now provide responses to those submissions (set out below in italics), albeit in summary form where I have already discussed the issue above. 1491 PON's proposal to develop a container terminal at the Port is not a novel idea. 1492 This is true. As noted, however, it has never been NSW government policy to permit a container terminal at the Port of Newcastle while Port Botany has capacity. Further, no-one has in fact committed to developing a container terminal at the Port of Newcastle previously. 1493 NPC's deal with NSC. 1494 NSC never in fact committed to developing a container terminal at any time and made it clear it would only do so with the support of the NSW government and in accordance with the State policy. Its proposal for the "stage 2" container terminal has the hallmarks of warehousing an exclusive development option which might become valuable in the future, not in fact developing a container terminal. 1495 The 2016 proposals to PON. 1496 These proposals are in no different category from NSC's proposal. Neither was developed beyond a mere proposal. Neither proposal has subsequently re-emerged. While the PCDs were said to be the impediment, there was never sufficient analysis to ascertain if any proposal would be viable irrespective of the PCDs. 1497 Mr Carmody's mandate to remove the Newcastle PCD. 1498 It is in PON's interest to have the reimbursement provisions removed whether or not PON can satisfy itself that a container terminal at the Port of Newcastle would be viable. PON has also recognised in its internal documents that a barrier to development of a container terminal is the State policy which operates irrespective of the impugned provisions. 1499 PON's PBC is a significant exercise. 1500 The preparation of the PBC and all other investigations by PON (costing $3.4 million or more) are not comparable to the development of a container terminal. Committing to the former is rational. Committing to the latter is not rational unless PON can satisfy itself and its shareholders that the container terminal would be viable and can obtain a change of the State policy. Thus far, PON has not been able to create a cogent case to achieve either objective. 1501 PON thereafter undertook significant additional work. 1502 PON's submission is that it would not have undertaken this additional work unless it genuinely intended to develop a container terminal. However, PON's board has not had put to it or approved the development of any particular container terminal proposal. It has approved the investigatory work only. Approval and pursuit of investigatory work at not inconsiderable cost (which, however, is insignificant if compared to the cost of developing a container terminal) does not prove a genuine intention to develop a container terminal, specifically a container terminal contrary to the State policy. It proves only a genuine intention to ascertain if a proposal can be formulated which would satisfy PON and its shareholders that such a container terminal would be viable and to ascertain if an apparently sound case can be put to the NSW government to persuade it to change the State policy. 1503 The fact that PON's shareholders approved the establishment of a steering committee for the investigatory work and formulation of a proposal and the formation of a project management team thereafter takes the matter no further. Nor does the approval by PON's board in November 2019 of a budget of $3.4 million for the "project" or subsequent increase of that amount in February 2020 by $7.4 million. It is necessary to recognise that the "project" approved is not the development of a container terminal, but the development of a proposal for a container terminal which is suitable for consideration by PON's board and shareholders and the NSW government. 1504 PON noted that the McKinsey & Co investment grade business case was intended to be an "overarching investment proposal, taking into account the findings of the various technical workstreams related to the container terminal project, and is to be of a standard suitable to assure shareholders and potential investors of the benefits and risks of the development and operation of the terminal". As noted, no such investment grade business case is in evidence, despite the objective having been to present it to PON's board in November 2020. There is no evidence explaining the delay or the current status of the investment grade business case. 1505 Potential for "early works". 1506 PON referred to the evidence that it had identified approximately XXXX XXXX of expenditure on "early works" which would support the container terminal, and also benefit PON's broader port operations if the PCDs were not able to be removed and a container terminal not able to be developed, which could be progressed while planning approvals for the container terminal are being considered. 1507 Again, there is no apparent decision of PON's board or approval by its shareholders to carry out these works. The June 2020 planning report in respect of the early works package said that it is a desktop review and "the first step of package development should involve undertaking surveys, investigations, studies and consultation to confirm scope, approval pathway, cost and programme to a greater level of certainty". It is not apparent these steps have been taken. The proposed early works also include XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. The proposed early works also will confront the EPA Act issues discussed above. Accordingly, this prospect takes the matter no further. 1508 The project has the support of PON's board. 1509 If the "project" is understood to mean the investigation of the viability of the optimal container terminal design for consideration by PON's board and its shareholders and the presentation of a good case to the NSW government to try to change the State policy, then it is correct that PON's board supports that investigation being completed. If the "project" means the development of a container terminal, the contention is untenable. 1510 The fact that the PON representatives genuinely hold positive views about the prospects for a container terminal does not mean that their views are "likely to be acted upon" if, by that, PON means likely to result in the construction of a container terminal. Those views mean only that PON's representatives are likely to continue with the investigations until completion unless it becomes clear that the case for viability of the container terminal is not able to be demonstrated to their satisfaction. 1511 PON submitted that: It is not likely that these witnesses, the Board of PON as a whole, or PON's shareholders, would permit the expenditure of millions of dollars on consultant's reports and other technical investigations of the kind referred to … not to mention the management time involved, if they did not actually support and intend to pursue the development. And, as we have said, no alternative explanation for their actions was put to any of PON's officers when they came to give evidence. 1512 As discussed, it is plainly worth PON's while to investigate, even at considerable expense, its capacity to construct a viable container terminal while Port Botany has capacity and in any event to try to obtain precedence for its container terminal over Port Kembla even if it is unable to secure a change in the State policy enabling a container terminal to be developed at the Port of Newcastle while Port Botany has capacity. It was not necessary to put anything to PON's representatives about their reasons for pursuing investigations given that, as noted: (a) they did not say that they had decided to put a positive recommendation to PON's board about the development of a container terminal, (b) it was clear from their evidence that they could not and would not make any such recommendation until they had satisfied themselves that they had the optimal proposal and it would be viable, and (c) their evidence about their current views and expectations depended to a large extent on the consultants' reports. 1513 PON's willingness to permit the expenditure of millions of dollars on investigations does not mean that it intends to pursue the construction of a container terminal while it remains contrary to the State policy. It is only by formulating a good case for viability of its container terminal and a good case that it would be in the public interest to permit it to be developed that PON has any chance of persuading the NSW government to change the State policy. 1514 Evidence of Mr Kwiatkowski and Mr Liu. 1515 PON submitted that the "Court ought not to accept submissions to the effect that a container terminal at the Port of Newcastle is not a realistic or viable commercial proposition, when these experienced witnesses gave evidence to the opposite effect and were not challenged". 1516 Neither Mr Kwiatkowski nor Mr Liu gave evidence that they were presently satisfied that a container terminal at the Port of Newcastle while Port Botany has capacity would be viable. They could not do so because PON's investigations remained incomplete. They expected that a proposal could be formulated which would be viable based on the information available to date, but must also be taken to have accepted that more information was required, which is why the investment grade business case was to be prepared. Further, neither Mr Kwiatkowski nor Mr Liu provided cogent explanations for their apparent acceptance of the consultants' reports. Neither suggested that they have conducted any independent assessment of the assumptions underlying the analysis and financial modelling to date. 1517 The evidence of Mr Kwiatkowski and Mr Liu (and the other PON representatives) does not establish that a container terminal at the Port of Newcastle while Port Botany has capacity, which is contrary to State policy, is realistic or viable. 1518 PON has an interest in diversifying. 1519 As discussed, this interest was not identified as at May 2013/May 2014. On the evidence, it was not a reasonably foreseeable issue of concern at the date of the making of either the compensation or the reimbursement provisions. The issue emerged from 2018 onwards. In my view, irrespective of any perceived need to diversify, the position remains that PON's board and shareholders will not approve the construction of a container terminal at the Port of Newcastle while Port Botany has capacity unless they are satisfied that the NSW government supports the development and that the development will be viable. 1520 The position of PON's shareholders. 1521 It may be accepted that PON's shareholders approve of PON's investigations being conducted and completed. As discussed, this does not mean that it may be inferred that PON's shareholders would approve of the construction of a container terminal at the Port of Newcastle. Given this, I am unable to accept PON's submission that: …the support (including financial support) thus far provided by PON's shareholders, informed by their board nominees, makes it likely that a container terminal will be developed at the Port of Newcastle, in the absence of the impugned PCD provisions. 1522 The facts are that: (a) PON recognised that the PBC does not represent an optimised development proposal, (b) PON recognised that the PBC and reports which underlie it are not current, (c) the PBC and reports which underlie it depend on key assumptions which are not apparently justifiable, (d) PON recognised that it needed to optimise the proposed container terminal development, (e) PON recognised that it needed to formulate an investment grade business case, and (f) while it was intended the investment grade business case would be finalised by November 2020, it has not been finalised for reasons which remain unexplained. 1523 In these circumstances it cannot be said that it is likely that a container terminal while Port Botany has capacity will be developed at the Port of Newcastle. 1524 Expertise and resources of PON's directors and shareholders. 1525 PON submitted that it is unrealistic to infer that a container terminal which PON's shareholders will have funded in large part would fail given the expertise of PON's shareholders in the operation of container terminals. In fact, it is unrealistic to infer that, with their expertise, PON's shareholders would approve or partly finance the construction of a container terminal unless satisfied that it would be viable and had the support of the NSW government. 1526 CM Ports' relationships with shipping lines (COSCO, MSC, Maersk, Evergreen and CMA CGM) is a potential advantage to PON in respect of the development and operation of a container terminal at the Port of Newcastle. However, those strong relationships have not enabled PON to resolve the obvious problems for the viability of a container terminal at the Port of Newcastle while Port Botany has capacity. PON submitted these relationships will enable it to "arrange meetings [to] provide relevant introductions, which in turn will assist in bringing their [shipping lines'] business to PON". Given all of the problems discussed above for a container terminal operating at the Port of Newcastle while Port Botany has capacity, it is apparent that the potential to exploit PON's relationship with CM Ports remains in the realm of hopeful speculation. 1527 PON referred to Mr van Duijn's evidence that he expects that, if COSCO's use of a container terminal at the Port of Newcastle is successful, other lines will follow. His evidence was more circumspect. He said that if some of COSCO's current services to Port Botany switched to the Port of Newcastle then "it could assist in the start-up phase of the proposed container terminal" but he was not aware if COSCO intends to do so. He also said that if such a switch was successful "other shipping lines might follow provided that they are satisfied with the service level and price structure offered by the Port of Newcastle" (emphasis added). This evidence confirms that we are in the realm of hopeful speculation. 1528 Had CM Ports' relationships with shipping lines been capable of solving the problems with a proposed container terminal at the Port of Newcastle while Port Botany has capacity, then those solutions would be apparent in PON's investigatory reports. However, for the reasons given, no cogent solutions are apparent to date. 1529 PON submitted that CM Ports could also leverage the capacity of its parent company, China Merchants Group (CMG) which has $1.3 trillion assets under management. PON's PBC includes this statement: XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. … XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1530 Again, this evidence is speculative. It does not identify a sound commercial possibility for such a development while Port Botany has capacity. 1531 PON submitted that it also will benefit from the expertise of MIRA, the manager of TIF's interest, as MIRA is one of the world's leading infrastructure investors and managers, with extensive experience in container terminals, and $7.4 billion of equity under management in port assets globally. 1532 The involvement of MIRA in the management of the Port of Newcastle is an advantage to PON. Again, however, if MIRA had cogent solutions to the problems with a container terminal at the Port of Newcastle while Port Botany has capacity, then those solutions would be apparent in the various reports PON has created and commissioned. However, for the reasons given, no cogent solutions are apparent to date. 1533 PON submitted this: It is not likely that a container terminal in which CM Ports and TIF have invested hundreds of millions of dollars will fail. Success is not guaranteed. But the resources and expertise of PON's owners mean that any container terminal they decide to invest in and operate is likely to be, at least, a commercially viable undertaking. 1534 The problem with this submission is that it assumes that CM Ports and TIF, with all of their expertise and experience, will approve of the development of a container terminal at the Port of Newcastle while Port Botany has capacity when: (a) thus far there is not good evidence it will be viable in the longer-term, and (b) there is no good case as yet to persuade the NSW government to change the State policy to enable the development of a container terminal at the Port of Newcastle in these circumstances. 1535 It is the very expertise and experience of PON's shareholders, and the evidence of their limited commitments thus far to investigations of the proposal, which require the inference that they will not approve the proposal unless they are satisfied that it will be viable and will have the support of the NSW government. It is clear that neither they nor PON's board have been able to satisfy themselves of either matter to date. And, in my view, the reasons why they have not been able to do so are apparent on the evidence – there are complex and as yet insuperable problems for the viable operation of a container terminal at the Port of Newcastle while Port Botany has capacity and for the making of a good public interest case for a container terminal to be developed in those circumstances (or before a container terminal is developed at Port Kembla). 1536 Container volumes. 1537 PON submitted that the evidence establishes that "a container terminal at the Port of Newcastle is likely to attract demand from a significant proportion of exporters located in northern and north western NSW, who currently ship their goods through Port Botany". PON referred to the following evidence in respect of export containers: (1) Mr van Duijn estimated that approximately 115,000 export TEUs per year would be exported more cost-effectively and expediently via the Port of Newcastle, than through Port Botany; (2) Mr King accepted that around 114,000 TEUs per year of regional export containers came from areas to the north or north-west of Newcastle; and that almost all of them currently travel by rail within spitting distance of the Port of Newcastle on their way to Port Botany; (3) Mr King agreed that a further 58,000 or so TEUs per year come from the central west region, which takes in Parkes and Dubbo, and most are transported by rail; (4) Mr King "fully endorsed" the findings of the Lycopodium report that the cost of transporting containers, by road and rail, from Tamworth, Narrabri, Moree, Dubbo and the Central Coast was cheaper than the cost of transporting those containers to Port Botany; (5) Lycopodium found that the potential for larger trains (meaning 1,200m or 1,500m) at the Port of Newcastle eliminates Port Botany's cost advantage for transport from Parkes, with the result that in excess of 60,000 TEUs per annum could potentially be transferred to the Port of Newcastle; (6) Mr van Duijn's opinion is that the Inland Rail Project – especially the section between Parkes and Narrabri – could potentially lead to Parkes being in the contestable market for the Port of Newcastle; (7) Ms Calfas gave evidence that "some" containerised agricultural exports from northern NSW, which are currently contestable between Port Botany and Brisbane, would be handled by the Port of Newcastle; (8) Ms Calfas expressed the view that "the majority" of exports from northern New South Wales "would preferentially flow to Newcastle"; and (9) Messrs Carmody, Kwiatkowski and Liu all said that PON could attract business from many exporters in north and north-western New South Wales because a container terminal at Newcastle would offer substantial land transport cost savings. 1538 PON referred to the following evidence in respect of import containers: (1) Mr van Duijn considered that the Port of Newcastle would handle approximately 200,000 import TEUs per year; (2) according to PON, Mr Balchin agreed with Mr van Duijn's overall method and used a benchmark of 0.14 TEUs per person and a population of 1.65 million, which results in a figure of 231,000 import TEUs per year for the Port of Newcastle; (3) Deloitte calculated that 27% of containerised imports to NSW move to the natural catchment of the Port of Newcastle which amounts to over 352,000 TEUs per year; (4) XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX; (5) OSC's forecasts as to the likely volume of containers at the Port of Newcastle were informed by the views of shipping lines, at least two of which responded positively to the possible development; and (6) Mr van Duijn said he certainly believed that "there's enough, both import and export, volume in the hinterland or the catchment area of the Port of Newcastle for a container terminal to be started up". 1539 PON submitted that, accordingly, there is no "compelling reason to depart from Mr van Duijn's ultimate conclusion, let alone to find that a viable container terminal is not likely to be developed at Newcastle, within the next 43 years". 1540 The general problems with this tendentious and incomplete (even, in some cases, arguably inaccurate) selection of the evidence are exposed by the discussion above. In particular, all of the estimates and evidence on which PON relies depend on there being sufficient shipping services to and from the Port of Newcastle and PON has not solved numerous problems in that regard, including that: (1) there will be such an imbalance of export and import containers at the Port of Newcastle that there will be a significant cost impost on importers, the only apparent solution to which is a suggested cross-subsidy which appears unworkable; (2) import containers will not be Newcastle hinterland-specific so most containers and container contents will be destined for the Sydney metropolitan area and will have to be shipped to Sydney at additional cost; (3) for so long as the Port of Newcastle is not serviced by proximate distribution centres even container contents bound for the Port of Newcastle's hinterland will have to be shipped via western Sydney distribution centres at increased cost; (4) the estimates fail to recognise these increased costs and thus fail to recognise the sensitivity of shipping lines to the overall supply chain cost which will affect their willingness to use the Port of Newcastle; (5) the volume estimates of PON and its consultants are manifestly flawed for these and other reasons as identified; and (6) Mr van Duijn's estimates are flawed for the same reason and also depends on the concept of Newcastle hinterland only import containers which appears unworkable. 1541 Otherwise, the following additional matters should be noted: (1) Mr King relied on the figures in PON's PBC for his own analysis and concluded that the PBC estimates lacked validity. PON has failed to confront the cogency of Mr King's conclusions particularly concerning the relevance of total supply chain costs rather than (as PON's report focus on) landside transport costs alone; (2) Mr Balchin disagreed with Mr van Duijn that the freight bound for the Port of Newcastle's hinterland "could be captured by a container port located there given the economics of the inter-modal terminals and major distribution centres clustered in western Sydney, which serve the whole state"; (3) Mr Balchin explained why the assumption in PON's PBC and other reports and evidence that the Port of Newcastle would capture most of its hinterland freight within a few years was unrealistic given NSW's existing centralised supply chains through western Sydney proximate to the population centre of NSW which will not change; (4) Mr Balchin's actual estimates of import containers which could be captured by the Port of Newcastle was not 231,000 import TEUs per year. In the likely case scenario, it was 22,476 TEUs per year in the assumed starting year of 2022 increasing to 250,488 TEUs per year in 2067, with the first year exceeding 231,000 TEUs being between 2062 and 2067. This is far less than PON needs for the container terminal to be viable; and (5) Mr Ockerby's analysis yielded an estimate of only 13,820 TEUs per year rising over 40 years to 185,501 TEUs per year. This is far less than PON needs for the container terminal to be viable. 1542 Accordingly, there are compelling reasons not to accept Mr van Duijn's opinions which assume many matters in PON's favour without adequate justification or supporting reasoning, in contrast to the cogent opinions of Mr King, Mr Ockerby, Mr Balchin and, albeit to a lesser extent, Ms Calfas. 1543 Distribution centres. 1544 Contrary to the submissions for PON, the evidence is clear that distribution centres are located near Port Botany (mostly in western Sydney) not because that is where Port Botany is located, but because that is where the population centre of NSW is located. The vast majority of both containers and goods within containers are destined for the Sydney metropolitan area. Unless Mr van Duijn's evidence of containers packed with goods destined only for the Port of Newcastle hinterland is valid (and it is of doubtful validity given existing circumstances, practicalities and Mr King's evidence, as well as Ms Calfas's evidence), the real cost impost is: (1) while there are no distribution centres near the Port of Newcastle, import containers having to be transported from the Port of Newcastle to western Sydney for unstuffing, and then the small proportion of those goods destined for the Port of Newcastle hinterland would have to be transported back to that area and the majority of the goods would be transported to areas in or near metropolitan Sydney; and (2) if there are distribution centres developed near the Port of Newcastle, the majority of the goods would need to be transported to areas in or near metropolitan Sydney. It is obvious that if, as is the case, the ultimate destination of most goods unstuffed from containers is in or near metropolitan Sydney, which is why distribution centres have located proximate to that population, Port Botany must have a significant land transport cost advance on import containers compared to the Port of Newcastle. 1545 PON's proposition that it does not follow from the evidence about 80% of import containers being destined for western Sydney distribution centres that the same will be true of containers imported through the Port of Newcastle misses the fundamental point that distribution centres are located near western Sydney because that is where the population is generating the most demand for the imports. PON said that there is "no logic in transporting containers from Newcastle to Western Sydney if the ultimate destination of the goods inside is closer to Newcastle than Western Sydney". However, all of the evidence other than Mr Van Duijn is to the effect that for so long as there are not distribution centres near the Port of Newcastle it will be necessary for containers to be transported from the Port of Newcastle to distribution centres in western Sydney for unstuffing and then for the goods destined for the Port of Newcastle's hinterland to be transported back to that area. It is Mr van Duijn who posits the concept of the Port of Newcastle receiving import containers with goods destined solely for the Port of Newcastle's hinterland. PON's reports and its PBC do not contemplate that as a possibility which indicates that, as the other evidence would suggest, it is novel, untested and speculative. 1546 For these reasons, PON's submission that "the assumption that 80 per cent of cargo will have to be transported to Sydney or Western Sydney, is not correct" (leaving aside the exact percentage) is inconsistent with all of its investigatory work to date that only a relatively small proportion of imported goods shipped through the Port of Newcastle will be destined for its hinterland and the majority of the goods will destined for metropolitan Sydney. 1547 PON's other submissions that distribution centres will expeditiously co-locate with the Port of Newcastle if a container terminal is developed at the Port, based on Mr van Duijn's evidence and the discussions with ACFS, fail to confront the true effect of Mr van Duijn's evidence which was speculative at best (that is, that distribution centres might or could co-locate) or the geo-demographic circumstances of NSW as explained by Mr King and Mr Balchin in particular. It also fails to confront the substantial existing investment in distribution and supply chain logistics in western Sydney. As discussed, the ACFS emails are equally problematic. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1548 PON's capacity to compete on price. 1549 PON submitted that it could compete with Port Botany for container volumes on price. PON's submissions about shipping lines' dissatisfaction with prices charged by Port Botany and willingness to switch to the Port of Newcastle in response to reduced wharfage charges does not establish that, in fact, such a switch is a real chance or real possibility. PON relied on a selective reading of Mr King's evidence to support this submission. However, the effect of Mr King's evidence as a whole on this issue was: (1) it is a standard complaint of shipping lines that wharfage and stevedoring charges are too high; (2) the claims of shipping lines about price incentives are not reliable; (3) shipping lines have a strong commercial incentive to drive down wharfage and stevedoring charges; (4) if they could, shipping lines would seek to drive down wharfage and stevedoring charges at a Port of Newcastle container terminal and if the Port of Newcastle could reduce those charges it would be its key incentive to attract shipping lines; (5) however, the contingences described are not the major factor in a shipping lines' choice of port; (6) the major factor in a shipping lines' choice of port will be the availability of cargo; (7) accordingly, the reality (as opposed to the theory) is that "if there is cargo available and the container shipping lines can pass on the costs incurred, they will then call at that port"; and (8) differentials in quayside costs are not the major factor in the choice of port by a shipping line unless all other costs in the total supply chain are equal as shipping lines are sensitive to the total supply chain costs for their customers even though shipping lines directly pay quayside costs. 1550 Accordingly, considered as a whole, Mr King's evidence clearly does not support PON's proposition that the Port of Newcastle will be able to attract containers from Port Botany by lowering quayside costs. Nor does the evidence of Ms Calfas support this proposition. Ms Calfas said she did not know if Port Botany would reduce its wharfage charges generally in response to reduced charges by the Port of Newcastle, but it may do so for contestable cargo. Ms Calfas's evidence otherwise was to this effect: (a) there is some contestable cargo in NSW as between Port Botany and the Port of Melbourne and Port Botany and the Port of Brisbane, but the vast majority of NSW cargo is not contestable, and (b) Ms Calfas could not identify any contestable cargo as between Port Botany. This is not sound evidence for the proposition that shipping lines would switch from Port Botany to the Port of Newcastle in response to the Port of Newcastle offering lower quayside costs than Port Botany. 1551 OSC's report to the contrary, for the reasons given above, is not persuasive. Insofar as it identifies the potential effect of lower wharfage charges at the Port of Newcastle, as Mr Balchin noted, the OSC report contains errors and unjustifiable assumptions in favour of the Port of Newcastle. 1552 The weight of the evidence does not persuade me that PON will or is likely to be able to attract shipping lines to call at the Port of Newcastle as a result of potential to reduce quayside costs as, in Mr King's words, all other things will not be equal as between Port Botany and the Port of Newcastle. 1553 Shipping connectivity. 1554 I agree with PON that a port's connectivity can change. As Mr King said, the existence of a container terminal does not guarantee shipping connectivity and there are a number of examples of container terminal ports without such connectivity. I also agree that the issues faced by the Port of Adelaide are, in a number of but not all respects, different from the issues the Port of Newcastle will confront. 1555 However, PON inaccurately suggested that the Port of Newcastle has overall advantages compared to the Port of Adelaide. I consider that Mr Balchin is correct that, in fact, the Port of Newcastle is in a position of overall disadvantage compared to the Port of Adelaide. The Port of Adelaide, which has had a container terminal since 1972, is 726 km from the Port of Melbourne whereas the Port of Newcastle is 176 km from Port Botany in a context where land transport costs matter. The Port of Adelaide had some existing container logistics supply chain infrastructure including distribution centres which have increased over the years whereas the Port of Newcastle does not have any existing distribution centres and will be starting from scratch. The Port of Adelaide is close to a somewhat larger and a more dense population centre than the Port of Newcastle. 1556 Additional advantages of the Port of Newcastle. 1557 PON identified additional advantages for the Port of Newcastle. These include: (a) the fact that the Port of Newcastle is an existing port with existing road and rail connections, (b) the capacity of the port to accommodate ULCVs, (c) the capacity of PON to build a modern purpose-built terminal offering a better service, (d) alleged difficulties for Port Botany in accommodating larger ships, (e) the fact that Port Botany has a finite capacity due to limited available land and surrounding traffic congestion (f) the likely future growth in the container trade in NSW, (g) the lack of land near Port Botany for empty container storage, and (h) Port Kembla remaining a mere "vision". 1558 These issues have been discussed above other than (g) and (h). 1559 As to (g), the lack of land near Port Botany for empty container storage, Ms Calfas both identified the problem and the solutions to the problem for Port Botany. The solutions include increasing and more efficiently using container terminals to receive and store empty containers. Internal NSW Ports modelling shows this would deal with the problem effectively until after 2045. In other words, this (along with other purported issues for Port Botany reaching its physical capacity) are capable of resolution with investment. The case for such continuing investment both public and private, given the State policy, is compelling. 1560 As to (h), the notion that a container terminal at Port Kembla is a mere "vision" but that a container terminal at the Port of Newcastle is more than a mere "vision" is difficult to accept. Port Kembla is an existing port like the Port of Newcastle. It is located closer to the existing distribution and supply chains of Sydney and its population than the Port of Newcastle. It is identified as the next container terminal for NSW in the State's policy, as a result of an apparently sound analysis of the public interest. It was privatised on the basis of the State's policy. Significant infrastructure investments are being made to support Port Kembla's role in NSW's supply chains. It is subject to a long-term lease and operated by NSW Ports which is the long-term lessee and operator of Port Botany. It is leased on terms and conditions which the State summarised in these terms: Under clause 24.2 of the Port Kembla Lease, NSW Ports is obliged to develop Port Kembla to the extent "Feasible" and consistent with (amongst other things) the "actual and anticipated future growth in, and pattern of demand for, Core Port Infrastructure and Port Services" and "the Port Objective". The notion of whether it is "Feasible" to develop Port Kembla is addressed in clause 24.3 and includes matters such as whether approvals can be obtained, whether the development will optimise the use of the port, whether the development is consistent with growing trade through the port, and whether a reasonable commercial return can be obtained. The "Port Objective" is defined in clause 6.1 as being for Port Kembla to be a major seaborne trade gateway for NSW. In the event that NSW Ports does not comply with its obligations, the port lessor was is entitled to give notice requiring NSW Ports to provide an Upgrade Plan dealing with the development of the port. That plan was required to be given effect to, and if NSW Ports did not do so, the port lessor could step in at NSW Ports' costs. 1561 If a container terminal at Port Kembla is currently a mere "vision", then a container terminal at the Port of Newcastle while Port Botany has capacity (or before a container terminal is developed at Port Kembla) is a mere mirage. 1562 PON noted that in 2017 Infrastructure Australia did not approve funding for the Maldon-Dombarton Rail Link which NSW Ports considers important for the operation of Port Kembla as a container terminal. The relevant points, however, are that: (a) the funding proponent was the NSW government which clearly supports the proposal, (b) Infrastructure Australia accepted that "Port Kembla is a significant international gateway for NSW and Australia" and did not approve funding because, at that time, capacity constraints in rail freight from Port Kembla were not apparent and would not be required until 2031. Infrastructure Australia concluded that "in the short to medium term, there is no clear economic basis for the project to proceed, as there is sufficient capacity on the existing lines to meet projected rail freight demand". 1563 In other words, Infrastructure Australia's method of assessing the public interest for infrastructure investment reflects the approach the State applied to develop its policy in 2012 about port sequencing and development. Infrastructure Australia did not consider that funding could be justified when existing capacity would be sufficient until 2031. PON's proposal for its container terminal, insofar as it involves developing a container terminal while Port Botany has capacity, is in direct conflict with this kind of assessment of the public interest. 8.7.9 Some further evidence of Dr Pleatsikas 1564 Dr Pleatsikas gave some further evidence about which he was not cross-examined and which I consider is relevant. Dr Pleatsikas said that a fundamental reason for questioning the feasibility of container port plans advanced by the port operator/landlord at Newcastle is "overly optimistic attitudes and projections". This phenomenon, he explained, is well-known, citing D. Lovallo and D. Kahneman, "Delusions of Success: How Optimism Undermines Executives' Decisions," (July 2003) Harv Bus Rev. Three quarters of new business initiatives fail due to cognitive biases, summarised by Dr Pleatsikas (based on Kahneman) as follows:: (1) "Anchoring: Competing for limited funding, business executives (and their consultants) create project proposals that accentuate the positive. These initial forecasts skew subsequent analyses of market and financial information toward over-optimism. In other words, business executives and their consultants don't adjust original estimates enough to account for inevitable problems that will arise"; (2) "Competitor Neglect: Business executives and their consultants ignore competitors' capabilities and plans. Rushing to secure their marketplace sales, for example, they forget that incumbent producers may follow suit. As incumbents ramp up production and marketing and improve their facilities (improvements that may not be anticipated or adequately accounted for in new facilities' plans), diversion to new facilities is overestimated and/or supply may outstrip demand - rendering the new business facilities unprofitable"; (3) "Exaggerated Capabilities: Business executives (and their consultants) assume they can avoid or overcome all project problems"; (4) "Organisational pressures: Business executives tend to approve proposals with a high (or even the highest) probability of failure. Since only the most promising proposals attract investment dollars, they tend to make overoptimistic forecasts, with the results that highly overoptimistic proposals are approved. Furthermore, businesses tend to reward optimism and interpret pessimism as disloyalty. In addition, reinforcing one another's unrealistic views of the future, executives and their consultants tend to undermine critical thinking that may question the realism of forecasts". 1565 These considerations appear to me to be material to the preparation and content of the consultants' reports PON commissioned and the content of PON's PBC. 8.7.10 Other submissions by NSW Ports 8.7.10.1 Likely effect of the compensation provisions alone 1566 Other issues concerning the likely effect of the compensation and reimbursement provisions assume that, without these provisions, there would be a real chance or real possibility of PON developing a container terminal at the Port of Newcastle while Port Botany has capacity. It will be apparent from the discussion above that I am not persuaded that this is (or was as at May 2013/May 2014) the case. 1567 As noted, I consider that the reimbursement provisions were a likely effect of the compensation provisions. If I am incorrect in this regard, then a further issue arises as identified by NSW Ports. It is that, according to NSW Ports, the evidence indicates that it is the reimbursement provisions alone, not the compensation provisions, which have the arguable effect of deterring or delaying entry by PON into the market for container port services in NSW. This is because (excluding a second affidavit from Mr Liu) the evidence of PON's directors, Mr FitzSimons, Mr Kwiatkowski, and Mr Liu, is to the effect that they would not support the construction of a container terminal while, as Mr FitzSimons put it, the "PON PCD" remains in place as, under that PCD, PON would have to pay the State a penalty equivalent to the wharfage charges then in place at Port Botany, which is currently in the order of $85.43 per TEU; "applying a PCD payment of that order would reduce the possible margin available to PON to a level that does not support the considerable risk and capital investment required to construct a deep water container terminal". 1568 In his first affidavit Mr Liu also said that while the penalty payable by PON to the State is in place he would not be willing to recommend to CM Ports that it should make the investment required to build a container terminal, as the container terminal would not be profitable. 1569 In his second affidavit, however, Mr Liu was asked to consider a situation where the Newcastle PCD was removed but the Port Botany and Port Kembla PCDs remained in place. Mr Liu said he had not considered this issue before as he considered the PCDs to be part of the same deal. He said he would regard the payments by the State to NSW Ports under the Port Botany and Port Kembla PCDs as a State subsidy. NSW Ports could use this subsidy to lower its prices and improve service levels by investing in infrastructure. Mr Liu said this would make it more difficult for PON to compete and would dissuade CM Ports from investing in a container terminal at the Port of Newcastle. It would also make it difficult for PON to raise finance for the construction of a container terminal. 1570 NSW Ports submitted that Mr Liu's evidence to this effect should be rejected. In May 2019 directors of PON including Mr Liu and representatives of MIRA travelled to China to meet with the chairman of CM Ports. PON gave a presentation to CM Ports to "potentially resolve the PCD" which included XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. In December 2019, Mr FitzSimons sent Mr Liu a presentation describing a "PCD Resolution Option" XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. In April 2020 Mr FitzSimons sent Mr Liu a document proposing a success fee for PON management with a "stretch" case being identified as "PCD removed before the ACCC court case with no payment required by PON XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. 1571 These documents, as NSW Ports submitted, reflect other internal PON considerations in which PON's focus was on removal of the reimbursement provisions in the Newcastle PCD rather than the compensation provisions in the Port Botany and Port Kembla PCDs. The compensation provisions are referred to in PON's documents only insofar as they are seen as connected to the imposition of liability on PON under the reimbursement provisions. On this basis, NSW Ports put to Mr Liu that he had in fact considered the situation of the Newcastle PCD being removed and the Port Botany and Port Kembla PCDs remaining in place before his second affidavit. Mr Liu denied this proposition. NSW Ports submitted: Mr Liu's refusal to accede to the incontrovertible proposition that he had previously considered the scenario put to him in July 2020, and thereby to admit that his evidence was false, even when taken to documentary evidence, warrants a finding that Mr Liu was not a witness of credit. 1572 It is not necessary to go so far. Mr Liu's first language was not English. It is one thing to consider the substance of a proposal (remove PON's obligations under the Newcastle PCD by one means or another) and another to conceptualise a situation where the Newcastle PCD is declared invalid in litigation and the Port Botany and Port Kembla PCDs remain valid. Mr Liu also had not read any of the PCDs. 1573 Mr Liu's evidence as a whole belies the reliability of his second affidavit in respect of the removal of the reimbursement provisions and the continuation of the compensation provisions. Mr Liu gave evidence that: (a) a lawyer from the ACCC asked that he consider the situation if the Newcastle PCD was removed but the Port Botany and Port Kembla PCDs remained in place, (b) a lawyer from PON drafted his affidavits, (c) his focus and role as a director of PON at all times has been on removing the Port of Newcastle penalty imposed by the Newcastle PCD, (d) Mr Liu had said he would have been willing to recommend that CM Ports invest money in the container terminal if the Newcastle PCD was removed, (e) he nevertheless considered that a payment to NSW Ports under the Port Botany and Port Kembla PCDs would be an unfair State subsidy to the disadvantage of PON. 1574 I consider that the effect of Mr Liu's evidence is that the critical issue from PON's perspective was always the reimbursement provisions, not the compensation provisions. Until this litigation, PON would have been willing to accept a resolution by which it was not liable under the reimbursement provisions and any compensation to NSW Ports under the compensation provisions was paid by the industry generally or by port users. In other words, the compensation provisions alone had and will have no likely effect on PON in respect of the development of a container terminal at the Port of Newcastle. 1575 Mr Carmody's evidence to the same effect as that of Mr Liu is also unconvincing. It is clear that, until this litigation, Mr Carmody's focus was on the removal of the reimbursement provisions. The compensation provisions were relevant only to the extent that they were the reason for the reimbursement provisions. Mr Carmody's subsequent evidence that a subsidy to NSW Ports would undermine PON's capacity to compete lacked detail and cogency. As NSW Ports submitted, Mr Carmody's speculation that NSW Ports might thereby be able to fund a price war with PON would not be anti-competitive (unless it involved predatory pricing). 1576 The other reason all of this evidence about the alleged effect of the compensation provisions alone is unconvincing is that it assumes that NSW Ports' position in the market for Container Port Services in NSW would be materially improved by the compensation provisions. Given NSW Ports' existing position as the sole provider of Container Port Services across most of NSW, it is difficult to conceive of how the operation of the compensation provisions alone might materially affect the market. The possibility of any such effect is itself mere speculation. 1577 NSW Ports noted that the economists' evidence was that bidders for the Port of Newcastle, if they had considered that a container terminal was a viable proposition, would have discounted their bid price to account for the likely payments to be made under the reimbursement provisions. As such, it could not be said that the reimbursement provisions were or would be a disincentive to the development of a container terminal. As discussed, this is one way of looking at the issue but I consider it more likely that bidders, including PON, did not increase their bids for the low possibility of the development of a container terminal in the reasonably foreseeable future. The effect is the same – PON did not pay the State for rights to a part of the container market in while Port Botany has capacity (or before Port Kembla is developed with a container terminal). 1578 NSW Ports said: The ACCC has not sought to prove that PON did not discount its bid resulting in a lower cost base for any future container terminal development. PON might wish to have the windfall of a low purchase price and severance of its Reimbursement Provision, but it does not follow that the Reimbursement Provision is an economic barrier to entry. (Original emphasis). 1579 However, as discussed, it is commercially rational for PON to want something for nothing if there is any chance at all (real or merely speculative). This is why I have described PON investigating the possibility of a container terminal at the Port of Newcastle while Port Botany has capacity as a "no risk" option for it. Developing a container terminal, however, is high risk, which is why it will not happen unless PON, its shareholders and the NSW government are persuaded it will be viable and the NSW government is able to be persuaded that it will be in the public interest to facilitate that development (enabling it to change the State policy). 8.7.10.2 Port Kembla (again) 1580 NSW Ports made this submission: The ACCC has sued in relation to two distinct contracts: the Botany PCD and the Kembla PCD. It has failed to prove any case in relation to the Kembla PCD. Whether Port Kembla would supply container port services in the same market as Port of Newcastle is wholly unexplored in the evidence. Further, there is no evidence that the Kembla PCD has any effect or likely effect on the prospect of entry by PON and the inference is that it has no effect or likely effect. Given the ACCC's reliance on the effect of the clause to infer the purpose of the clause, the purpose case in relation to the Kembla PCD is also incomplete. On no view should relief be granted in respect of the Kembla PCD. (Original emphasis). 1581 For the reasons already given, I agree. There is insufficient evidence to establish that the Port Kembla PCD has affected or might affect any real chance or real possibility involving the development of a container terminal at the Port of Newcastle. It follows that this aspect of the ACCC's case must fail. 8.7.11 Key conclusions 1582 If the relevant circumstances are assessed as at May 2013 or May 2014, without reference to the information brought into existence after those dates, the overwhelming weight of the evidence is clear assuming the impugned provisions do not exist (or the compensation provisions alone do not exist). No private operator of the Port of Newcastle, acting rationally, could have satisfied itself that in the reasonably foreseeable future a container terminal at the Port of Newcastle would be viable for so long as Port Botany has capacity. No private operator of the Port of Newcastle, acting rationally, could have satisfied itself that it could mount an apparently sound case to the NSW government to change the State policy so as to enable a container terminal to be developed at the Port of Newcastle while Port Botany has capacity. This is the position without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1583 As to viability, the fact is the Port of Newcastle was not privatised on the basis that it could accommodate a container terminal while Port Botany has capacity (or before a container terminal is developed at Port Kembla). It was privatised on the basis that it would not be required (or, by implication, permitted by the State) for a container terminal until Port Botany and Port Kembla had reached capacity which may be after 40 years. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1584 PON knew what the State's policy was before it acquired its interest in the Port of Newcastle. As discussed, it should be inferred that PON did not pay for its rights at the Port of Newcastle on any assumption other than the State policy. There is no apparent mention of a container terminal being developed by PON before 2016, two years after privatisation. In its Port Development Plan 2015-2020 PON said "[t]here are no plans for the development of a major dedicated container terminal within the timeframe of this Port Development Plan". 1585 It may be inferred that PON's board and shareholders would not commit to constructing a container terminal at the Port of Newcastle while Port Botany has capacity unless they were able to be satisfied that the terminal would be viable. Nor would any financier provide funding to construct a container terminal at the Port of Newcastle while Port Botany has capacity unless they were able to be satisfied that the terminal would be viable. The mere chance or possibility of future viability would not be sufficient. The decision-makers would want a demonstrably sound case for future viability. There was no such case either existing or reasonably foreseeable as at May 2013 or May 2014. There is no such case today. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1586 As to the State policy, there has never been a policy to the effect that any new container terminal may be developed before Port Botany's capacity is exhausted. It may be inferred that this fact has always reflected the enormous public and private investment in and around Port Botany which is uniquely well placed to benefit from the population concentration in and around Sydney. The analysis within the State in 2012 and 2013 confirmed this to be so. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1587 As discussed, the notion that having adopted its new policy in July 2012, and having partly implemented that policy by removing the cap on Port Botany and privatising Port Kembla with Port Botany, there was a real chance that the NSW government would change the State policy to enable a container terminal to be developed at the Port of Newcastle while Port Botany has capacity is fanciful. As at May 2013 and May 2014 there was no chance at all of that occurring in the reasonably foreseeable future, at least not without a change in the NSW government. As I have said, relying on a potential change in the NSW government, without any supporting evidence (psephological or otherwise), is inherently speculative. What PON had as at May 2013 and May 2014 was a mere hope that the NSW government might change in future and a mere hope that a new NSW government might change the State policy. Such hopes do not involve a real chance or real possibility of the relevant circumstance occurring – a change of the State policy to enable a container terminal to be developed at the Port of Newcastle while Port Botany has capacity. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1588 In any event, irrespective of the NSW government of the day, the potential benefits from a container terminal at the Port of Newcastle (economic and employment opportunities for the Hunter region) which might be weighed against an evaluation of the system-wide costs of the overall NSW container freight task, depend on the container terminal being viable. As at May 2013 and May 2014, the clear weight of the evidence was that the viability of a container terminal at the Port of Newcastle while Port Botany has capacity was highly questionable. That remains the weight of the evidence today. In these circumstances also, it could not be said that there was a real chance or real possibility of a change in the State policy to facilitate the development of a container terminal at the Port of Newcastle while Port Botany has capacity. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1589 To the contrary, in my view, there has never been any chance at all of the NSW government permitting or supporting the development of a container terminal at the Port of Newcastle before Port Botany approaches its capacity. Such a chance as at May 2013/May 2014 was fanciful, far-fetched, infinitesimal or trivial and not a real chance or real possibility. Barring the possibility of a change in the NSW government at the next election, which in the context of this case cannot rise above mere speculation, this remains the position today. And as noted, even if there is a change in the NSW government, there would be many complex issues which would have to be weighed by the NSW government before the State policy might be changed. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1590 As at May 2013/May 2014, with the cap on Port Botany removed, the earliest expectation of Port Botany reaching capacity was 2030. While, in theory, anything might happen over 15 or more years, the issue is real chances and possibilities, and not mere theoretical or speculative chances and possibilities. In May 2013/May 2014, PON could not demonstrate that the posited economic and employment opportunities for the Hunter region would be realised by a container terminal at the Port of Newcastle while Port Botany has capacity, because it could not demonstrate the viability of the container terminal on a reasonable basis, irrespective of the impugned provisions. PON remains in that position today. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1591 If the relevant circumstances are assessed as at May 2013/May 2014 with reference to the information brought into existence after those dates or as at today's date assuming the impugned provisions do not exist (or the compensation provisions alone do not exist), the overwhelming weight of the evidence is also clear and to the same effect as discussed above for May 2013/May 2014. While PON now may perceive a greater need to diversify than in May 2013/May 2014, it is now also the case that Port Botany's perceived capacity has increased (in the sense that Port Botany will be able to deal with all of NSW's container handling needs for longer than previously believed), and public and private infrastructure investments have continued to be made on the basis of the State policy. In addition, PON has spent three years actively trying to formulate its business case, without that case coming to fruition in the form of an optimal plan to put to its board, its shareholders or the NSW government. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1592 PON has not managed to bring information into existence which demonstrates the viability of the container terminal on a reasonable basis. To the contrary, the subsequent information, on analysis, reinforces the apparent soundness of the view the State reached in 2012 and 2013 that it would not be in the public interest for a container terminal to be developed at the Port of Newcastle while Port Botany has capacity because its viability is highly doubtful. On this basis also, the current prospect of PON in fact in the reasonably foreseeable future developing a container terminal at the Port of Newcastle while Port Botany has capacity is fanciful, far-fetched, infinitesimal or trivial. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1593 Further, the subsequent facts are telling. PON has done what any rational commercial entity would do. It has investigated and developed options to see if it can persuade its board, its shareholders and the NSW government that a container terminal at the Port of Newcastle while Port Botany has capacity should proceed. But in nearly seven years since May 2014, PON has not formulated a definitive or cogent proposal capable of being put to its own board, its shareholders or the NSW government on the assumption (as all PON's investigations have been) that the compensation provisions do not exist. It is not the impugned provisions which have had this result. It is the reality of the location of the Port of Newcastle relative to the population centre of NSW and existing supply chains to and from that population centre compared to the location of Port Botany. This reality also underlies the content of the State policy. 1594 This reality and the State policy has also resulted in further substantial public (NSW and Commonwealth) and private investment in the existing supply chains servicing the Sydney region. It is apparent that this enormous investment since 2013 has taken place to support the maximisation of Port Botany's capacity and the facilitation of Port Kembla's efficient transport linkage to the Sydney metropolitan areas. In other words, over the past seven or so years, the NSW and Commonwealth governments, as well as the private sector, has focused investments into supporting the Port Botany as NSW's existing container port and Port Kembla as its next container port as provided for by the State policy. This would have been the case without the impugned provisions (or without the compensation provisions alone, as then the reimbursement provisions also would not exist). 1595 Accordingly, PON would have to grapple not only with all of the issues discussed above, but also the public interest in maximising the value from investments already made and providing consistency and predictability in government decision-making. While, in theory, any government policy can change at any time, as I have said, we are not dealing here with mere theoretical possibilities. We are dealing only with real chances and real possibilities. With so much already invested in maximising the capacity and efficiency of Port Botany (and Port Kembla's capacity to rely on those existing supply chains), it is not impossible for the State policy to change, but it could never be said to be a real chance or real possibility in the current circumstances. 1596 As NSW Ports submitted: If the court is not satisfied that there is a real chance that there would be developed at the Port of Newcastle, before Port Botany and Port Kembla reach their respective capacity, a container terminal capable of exerting any constraint on Port Botany or Port Kembla, it follows that the allegation that the PCDs substantially lessened competition cannot be made out. That is, if the Court is not satisfied that there is a "real chance" that a container terminal could be built at Newcastle, in a world without the PCD, the question whether the PCDs have had or could have the effect of substantially lessening competition does not arise, and the ACCC's claim must fail. 1597 As NSW Ports also submitted, referring to Pacific National at [253]-[257] about positive findings and possibilities not negatived: It is not for NSW Ports to negate the possibility that a viable container terminal at PON could be built at some point over a 50 year period. A positive finding that there is a real chance of entry by a Newcastle container terminal is an integer of the ACCC's case. A negative finding that entry by a PON terminal cannot be ruled out is not necessary for NSW Ports to defeat the ACCC's claim. (Original emphasis). 1598 On the evidence, I am unable to be reasonably satisfied that, without the impugned provisions (or without the compensation provisions alone), as at May 2013 or May 2014 there was a real chance that a container terminal would be developed at the Port of Newcastle while Port Botany has capacity. On the evidence, such a possibility was in the realm of mere speculation. The same conclusion applies to the circumstances considered prospectively from today. 1599 NSW Ports noted that the ACCC's submissions to the effect that "the manifest improbability of entry by PON on the evidence before the Court recedes into insignificance once the time horizon of the PCDs is recalled". I agree with NSW Ports that this approach, if adopted, would be incorrect. As a matter of logic, a speculative possibility looking forward from May 2013/May 2014 or from today's date does not become more probable by the prospective passage of 50 years. Further, there is no evidence that the matters that make the construction of a container terminal at the Port of Newcastle while Port Botany has capacity (or before Port Kembla is developed with a container terminal) a mere speculative possibility are amenable to change. On the evidence, the population centre of NSW will remain Sydney and its surrounds, particularly western Sydney. And the Port of Newcastle will remain where it is. 1600 As NSW Ports further submitted, s 45 of the CCA accommodates uncertainty. The provision provides four kinds of contraventions – "a purpose of making and a likely effect of making; and a purpose of giving effect to and a likely effect of giving effect to". I am dealing here with the likely effect of making and the likely effect of giving effect to the impugned provisions. My conclusions about the likely effect of making the impugned provisions are determinative (subject to appeal). My conclusions about the likely effect of giving effect to the impugned provisions are necessarily based on circumstances as they have existed and as they currently exist. If there is a material change of circumstances over the term of the PCDs, then it is possible that likely effect of giving effect to the impugned provisions itself may change. But that too is currently mere speculation. 1601 For present purposes, my conclusions are that the likely effects (in the sense of a real chance or real possibility) of the making of the impugned provisions as at May 2013/May 2014 have not impinged in any way upon the potential construction of a container terminal at the Port of Newcastle. Further, the likely effect (in the sense of a real chance or real possibility) of giving effect to the impugned provisions in the future, in the circumstances disclosed by the evidence, would also not impinge in any way upon the potential construction of a container terminal at the Port of Newcastle. That potential was and is no more than mere speculation. That is, there was (as at May 2013/May 2014) and is (currently) no credible threat of entry by the Port of Newcastle into the market for Container Port Services in NSW. 1602 Given these conclusions, it necessarily follows that neither the compensation provisions nor the reimbursement provisions (whether considered together or in isolation from one another) either as made or as provisions which may be given effect in the future, have a likely effect (in the sense of a real chance or real possibility) of substantially lessening competition. They do not do so because, on the evidence, as at May 2013/May 2014 and as at today's date there was and is no real chance or real possibility of any of numerous contingencies being satisfied, including: (1) PON persuading the State to change the State policy; (2) the NSW government otherwise deciding to change the State policy and/or support a container terminal at the Port of Newcastle while Port Botany has capacity; (3) PON's board or shareholders trying to construct a container terminal contrary to the State policy; (4) PON obtaining the necessary planning approvals from the State to construct a container terminal contrary to the State policy; (5) PON's board or shareholders being satisfied that a container terminal contrary to the State policy and without the support of the NSW government would be viable; (6) PON persuading any financier that either a container terminal should be constructed contrary to the State policy and without the support of the NSW government or that such a container terminal would be viable; or (7) PON persuading the NSW government that a container terminal contrary to the State policy would be viable and/or in the public interest. 1603 For the reasons given, these contingencies remain the same with and without the compensation provisions and the reimbursement provisions (whether considered together or in isolation from one another). In particular, the State policy had nothing to do with the impugned provisions and the impugned provisions are irrelevant to any consideration of changing the State policy in the future. There was and is no real chance of the NSW government changing the State policy to enable the development of a container terminal at the Port of Newcastle while Port Botany has capacity. To the extent that there might be a chance of the NSW government changing the State policy to enable the development of a container terminal at the Port of Newcastle after Port Botany has reached its capacity (which was and remains a mere speculative chance on the basis that the NSW government might change or might change its mind in the future, and not a real chance), it is clear that there is no real chance that the NSW government would permit the development of two new container terminals. The impugned provisions would be irrelevant to any such assessment by the NSW government of the location of the next container terminal because the provisions are not engaged if Port Botany has reached Full Capacity and Port Kembla has no container terminal. 1604 Without there being any real chance or real possibility of satisfaction of these numerous contingencies (which there was and is not), the notion of competition between the Port of Newcastle and Port Botany in the market for Container Port Services in NSW remains a mere intellectual exercise, unconnected to reality. 1605 I should also record my view that even if I am incorrect about a number of these contingencies I would have reached the same conclusions. In particular, if I had concluded that PON did not require planning approvals for a container terminal at the Port of Newcastle and/or that PON, its board and shareholders and financiers would be willing to and could construct a container terminal without the support of the NSW government and/or a consequential change in the State policy, the fact remains that the evidence does not support an inference that there was as at May 2013/May 2014 or is a real chance of PON, its board and shareholders and financiers being able to satisfy themselves that a container terminal at the Port of Newcastle while Port Botany has capacity would be viable. 1606 It follows that, contrary to the submissions of the ACCC and PON, neither of the impugned provisions had any impact on the incentives of the State or a private operator or PON to develop a container terminal at the Port of Newcastle as at May 2013/May 2014 or today's date. As such, they also had and have no impact on the incentives of NSW Ports. The only effect of the compensation provisions which I accept is that they made the imposition of the reimbursement provisions highly likely. However, and for the reasons given, the reimbursement provisions had no impact on any real chance or real possibility of development of a container terminal at the Port of Newcastle as at May 2013/May 2014 or today's date. 1607 For these reasons, the case theories of the ACCC and PON cannot be accepted. 1608 Contrary to the ACCC's submissions, it is not the case that "[w]hile PON (like its predecessors) perceives there to be a meaningful commercial opportunity to develop a container terminal at the Port of Newcastle, the effect of the Compensation Provisions is to impose a material obstacle to such a development". The compensation provisions did not lock in "a substantial financial disincentive to the State building or approving the development of a container terminal" at the Port of Newcastle. The compensation provisions did not and do not create an anti-competitive incentive for any person because there was and is no real chance, without the compensation provisions, of a container terminal being constructed at the Port of Newcastle while Port Botany has capacity. NSW Ports is doing what any rational monopolist would do in advocating against the development of a container terminal at the Port of Newcastle (in response to the advocacy of PON in favour of that development), but this does not mean that NSW Ports considers that there is a credible threat of entry. Nor, for the reasons given, does it mean PON considers that it will or could develop a container terminal at the Port of Newcastle while Port Botany has capacity. As such, the compensation provisions had and have no likely effect on competition by way of any disincentive, "softening" or otherwise. 1609 Further, informed industry participants do not, as the ACCC suggested, regard as "obvious the proposition that, if it developed a container terminal, the Port of Newcastle, would compete with Port Botany for some meaningful volume of cargo". They only regard that as likely if there is a sufficiently functional container terminal at the Port of Newcastle, an assumption which depends on numerous contingencies none of which have been satisfied and none of which involve a real chance of being satisfied in the reasonably foreseeable future. 1610 On analysis, there are no materially different incentives and outcomes for the State, any public authority, any proposed private operator of the Port of Newcastle, PON, or NSW Ports with and without either of the compensation provisions or the reimbursement provisions. Perceptions of PON or otherwise to that effect are unrealistic and based on numerous unjustifiable assumptions to suggest that, without either of the compensation provisions or the reimbursement provisions, there would have been or would be a real chance or real possibility of a container terminal being developed at the Port of Newcastle while Port Botany has capacity, when the evidence does not support the existence at any time of any such real chance or real possibility. 1611 Contrary to PON's submissions, the fact that the current views of the PON representatives are genuinely held does not mean that they are likely to be acted upon given the nature and number of the contingencies which must be satisfied before PON could or would act on those views (even assuming in PON's favour that those views will continue to be held once the McKinsey & Co investment grade business case is finalised). Nor does the evidence support the conclusion that "the support (including financial support) thus far provided by PON's shareholders, informed by their board nominees, makes it likely that a container terminal will be developed at the Port of Newcastle, in the absence of the impugned PCD provisions". The only real chance or real possibility at this time and into the reasonably foreseeable future is that PON will exhaust its investigations of the prospect of a viable container terminal at the Port of Newcastle while Port Botany has capacity and will also advocate for the Port of Newcastle to take precedence over Port Kembla for a container terminal development once Port Botany has reached capacity. 8.7.12 Further issues 1612 Having reached these conclusions, it is difficult to engage in further evaluation of the potential effects on competition between PON and NSW Ports assuming (contrary to my conclusions) that there is a real chance of a viable container terminal operating at the Port of Newcastle while Port Botany has capacity. 1613 In Stirling Harbour FCAFC the Full Court of the Federal Court observed that: (1) "[w]here there are competitive forces in a natural monopoly market, they derive from credible threats of entry, rather than from the number of actual contestants": at [16]; and (2) "…the invisible hand will only restrain the market incumbent if the existence of the threat of an entrant is credible. If the position is indeed 'easily contested', if 'entry is not impeded by fear of retaliatory price alterations' and exit is 'costless', the risk that entry may actually occur is real and will restrain a natural monopolist. But the threat must be real. Where the incumbent is known to be in a position to resist, so as to force an entrant to incur heavy costs and losses, especially if even a short-term profit from a 'hit-and-run' operation cannot be expected, the threat of intervention in the market will be unlikely to materialize until the level of monopoly profit becomes particularly high": [59]. 1614 One problem with the case theory of the ACCC and PON is that, leaving everything else aside, it does not confront the reality that NSW Ports, as the incumbent, is in a position to resist entry by the Port of Newcastle and PON would have to be willing to incur heavy costs and losses if it wished to enter the market while Port Botany has capacity. This is so irrespective of the impugned provisions. NSW Ports is also not making monopoly profits (for reasons discussed above). Even these circumstances alone indicate that, irrespective of the impugned provisions, there is no credible threat of actual entry into the market by PON. 1615 The State submitted that Mr Smith's evidence to the effect that that entry itself "is a substantial act of competition", and that "the very act of entry in that market is one of the most significant competitive acts that that market will ever have experienced" (which assumes a credible threat of entry) involves a fallacy that mere entry necessarily means that competitive processes will be affected in a meaningful and relevant way. This, the State submitted, explained why Mr Ockerby's evidence considered not just the prospect of entry into the market by the Port of Newcastle, but the effect of that entry on Port Botany's market power. 1616 As a matter of principle, I agree with the State. The problem in the present case is that the same evidence which requires the conclusion that a container terminal at the Port of Newcastle while Port Botany has capacity would not be viable is the evidence relevant to the question of the impact of the impugned provisions on competitive processes between Port Botany and the Port of Newcastle. On that evidence, the container terminal at the Port of Newcastle could not operate profitably and thus its capacity to continue operating would be in serious doubt. 1617 It is necessary to leave that reality aside to assess the potential impacts of a container terminal at the Port of Newcastle on Port Botany. Assume that (contrary to my conclusions) it can be satisfactorily demonstrated that a container terminal at the Port of Newcastle while Port Botany has capacity could operate profitably without the impugned provisions (which would involve a satisfactory resolution of all of the contingencies discussed above – including attracting distribution centres, attracting shipping lines, working out the imbalance of import and export containers, and working out how to deal with the increased cost to importers from using the Port of Newcastle). Assume further that (contrary to my conclusions) such a container terminal, while Port Botany has capacity, has the support of the NSW government which would mean that the State policy would change (which would involve the NSW government in accepting the economic inefficiency of duplicated infrastructure and a potential increase in the cost of the overall cost of the NSW container freight task), all necessary approvals can be obtained, and the NSW government would provide the necessary public infrastructure and would facilitate the provision of the necessary private infrastructure to support the container terminal. On these assumptions, PON's board and shareholders would presumably approve the construction of the container terminal and the necessary financing would be obtained. 1618 If all these assumptions are made in PON's favour, then I consider that there would be the potential for ongoing rivalrous behaviour between container terminals at the Port of Newcastle and Port Botany. The competitive processes would include the provision of all Container Port Services with a view to maximising the cargo handled by and shipping line services calling at the port. The competition would also involve rivalry for public and private investment to support the port. What I cannot say is that the competition might lead to longer-term reduced wharfage charges. To the contrary, as posited by Mr Ockerby and Dr Pleatsikas, the result may be increased wharfage charges over the longer term. But in any event this potential rivalry is dependent on so many contingencies which the evidence indicates either cannot be satisfied or involve speculation as to their potential satisfaction, that this potential is itself highly speculative. 1619 The State referred to Mr Ockerby's evidence that a container terminal at the Port of Newcastle while Port Botany has capacity would in fact increase the wharfage charges at Port Botany. Mr Ockerby said the real constraint on Port Botany's prices is the threat of price regulation under the PAMA Act. There is also scope for essential infrastructure to be declared under the National Access Regime in Part IIIA of the CCA. Mr Ockerby's analysis of Port Botany's prices indicated that its prices are consistent with the threat of formal regulation, rather than Port Botany acting as a monopolist. Dr Pleatsikas held the same view. If a container terminal is developed at the Port of Newcastle, Mr Ockerby considered that it would diminish NSW Ports' perception of the threat of price regulation, causing it to increase its wharfage charges. 1620 There are certain assumptions underlying this analysis. One assumption is that it is the threat of regulation which is keeping NSW Ports from raising wharfage charges at Port Botany when the evidence indicates that NSW Ports is also unwilling to lose any marginal container volumes to the Port of Melbourne or the Port of Brisbane XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX. No doubt, as Ms Calfas indicated, NSW Ports does wish to avoid price regulation. Further, the analysis assumes that entry by the Port of Newcastle will diminish the perceived threat of price regulation. The basis for this assumption remains theoretical. 1621 This said, I agree with a number of propositions of Mr Ockerby including the following: (1) Mr Smith unjustifiably posits that Port Botany is charging monopoly prices and that the Port of Newcastle will be able to offer substantial discounts upon entry. Neither proposition is correct; (2) when assessing the competitive effects of the compensation and reimbursement provisions, it is necessary to assess the change in market power as a result of the provisions; (3) there is no basis to conclude that the impugned provisions give NSW Ports more market power than it would have without the provisions; (4) there is no basis to conclude that the impugned provisions give PON less market power than it would have without the provisions; (5) the costs of serving container traffic through an existing container port are largely fixed and already sunk (i.e., they cannot be avoided), whereas the costs of a container terminal at the Port of Newcastle have not been sunk. If little if any costs are saved at Port Botany by PON entering the market (which is apparently the case on the evidence) then, without the impugned provisions, PON would have an incentive to inefficiently develop a container terminal (that is, a container terminal that may be privately profitable but will increase the cost of the overall container freight task for NSW). As Mr Ockerby explained: 308. The reason that an economically inefficient outcome can be privately profitable is because the customers remaining at PB "pick up the tab" for the contributions to sunk costs at PB that otherwise would have been made by the customers shifting to PoN. In doing so, those customers effectively would be providing a cross-subsidy to the development of PoN. 309. This is a problem that is common to infrastructure industries with large fixed sunk costs relative to the size of the market. In these industries, prices must be set materially above marginal cost (i.e., above the costs avoided when a customer leaves). This creates private incentives that do not match economically efficient incentives. 310. In this case, customers that leave PB can avoid paying for PB's fixed costs but those costs are not reduced when the customers leave. Rather, they just fall as a burden on the remaining customers. Consequently, there is an artificially strong (not an efficient, cost reflective) incentive for PoN to enter. 311. The prices that customers avoid paying PB when they leave do not reflect costs that are avoided when they are served by PoN (they reflect costs that will have to be borne by other customers when they leave). However, the prices charged by PoN do reflect, at least in part, real economic costs that have not yet been incurred but will be if PoN builds and operates a container terminal. 312. It is well understood in regulatory economics that the solution to this incentive problem is for the customers leaving the regulated entity to internalise, and thereby neutralise, the cross-subsidy that would otherwise have occurred. 313. The reimbursement and compensation provisions in combination do just this. Mr Ockerby was not cross-examined about these propositions. If I had concluded that there was any real chance or real possibility of PON entering the market while Port Botany has capacity, these and the other propositions of Mr Ockerby would have persuaded me in any event that the impugned provisions do not involve any real chance or real possibility of a substantial lessening of competition; (6) "[t]he compensation provisions and the reimbursement provisions therefore act together with the effect of protecting shippers using PB, that if the State did in the future decide to develop a container terminal at PoN it would not result in higher prices at PB. Then, having decided to privatise PoN but allow the operator to develop a container terminal, the State included the reimbursement provisions to ensure that any such development would not free-ride on the sunk investments made in creating capacity at PB"; and (7) "…the compensation and reimbursement provisions are variations on common commercial and regulatory schemes that aim to promote entry in services where there are large sunk investments and subject to regulatory controls. The effect of the provisions is to correct distortions in entry decisions which would otherwise be inefficient and to the detriment of consumers". 1622 These propositions further undermine the case theory of the ACCC and PON to the effect that the impugned provisions had or will have if given effect the likely effect of substantially lessening competition. Propositions (1) to (4) are sound on the evidence. Propositions (5) to (7) have not been undermined in any way by the ACCC or PON either by way of cross-examination or submission. 1623 I also agree with a number of propositions of Dr Pleatsikas about which he was not cross-examined as follows: (1) "[f]rom an economic perspective, the ultimate objective of competition policy is to promote economic efficiency. Greater efficiency, all else equal, brings price, product quality and product variety benefits to society (and consumers). By contrast, inefficient investments, even if privately profitable, work to the detriment of economic efficiency in general and ultimately harm consumers"; (2) "…documents and plans from NSW State entities specifically refer to this principle [of overall social efficiency] in developing its strategy for future port-related investments"; (3) "[i]n developing its strategy for socially efficient port investments, the State of NSW had, by 2012, determined that the most efficient path forward was to promote use of Port Botany as the focus of the State's container port activities and, only once Port Botany became capacity-constrained, develop a container operation at Port Kembla. The State's plans envisioned bulk commodities as the focus of operations at the Port of Newcastle. The State's infrastructure investment plans were consistent with these objectives"; (4) "…there are circumstances in which an investment by a private party may be profitable for that party, but that investment may not be socially optimal in the sense of promoting economic efficiency". For example, "political pressures may cause public authorities to invest in duplicative, socially inefficient investments (such as transportation links that are either not needed at all or not needed until some future date) that private parties can leverage to increase the profitability of their (private) assets"; (5) "[f]rom an economic perspective, the objective of achieving greater social efficiency is not anti-competitive … From an economic perspective, a counterfactual that achieves the objective of a more efficient outcome appears to be more consistent with the State's objectives" than simply assuming away the impugned provisions. "Other pro-competitive or competitively neutral counterfactuals are also possible given the State's interest in achieving a socially efficient outcome by discouraging container operations at Newcastle and encouraging them at Port Botany and Port Kembla. Such counterfactuals would likely have made it more difficult to develop a container port at Newcastle"; (6) "…given the focus on socially efficient outcomes that was a part of the State's concerns in regard to container port operations, a counterfactual that ensured that any container port development at Newcastle fully internalised any potential negative externalities … may have been economically efficient, pro-competitive and plausible. Under such a counterfactual, a pricing mechanism similar to the 'reimbursement' provision, but explicitly tied to the quantum of negative externalities expected, would have been appropriate"; and (7) "…from an economic perspective, to the extent that the State of New South Wales was concerned with promoting economic efficiency and to the extent that it determined that developing a major container operation in the near term at the Port of Newcastle would adversely impact economic efficiency, actions that would achieve an economically efficient outcome would not, from an economic perspective, be considered anti-competitive". (Citations omitted). 1624 Dr Pleatsikas also made these points with which I agree: (1) "…the 'compensation' provision does not protect 'monopoly' profits, because regulation would appear to prevent the port operator/landlord from charging monopoly prices … the effect of the 'compensation' provision on the bid price was, all else equal, to increase bids by the discounted value of the expected 'compensation' that would be paid"; (2) "…because the 'compensation' provision provided for a time-deferred repayment of funds already paid by the winning bidder to the State (adjusted by the discount rate), it should have no impact on conduct"; (3) to the extent that bidders for the Port of Newcastle considered a container terminal an attractive possibility, they would have "adjusted their bids to account for the 'reimbursement' provision (resulting in no adverse long-run incremental costs for developing a container port at Newcastle"; (4) "…the economic objectives of the antitrust laws is to promote competition, not to assist individual competitors that may … may be pursuing windfall gains"; (5) "[i]f one properly evaluates the consequences of the Port of Newcastle port operator/landlord contract (e.g., from the proper temporal perspective and mindful of the economic implications of the 'reimbursement' provision), one would conclude that it was not anti-competitive because bidders would have had full information about the possibilities of developing a container port at Newcastle and of the specifics of the 'reimbursement' provision and could adjust their bids according to their expectations as to their preferred plans for developing a container port there. Those adjustments would have allowed the bidders to develop a container port with no long run incremental cost penalty (at least based on ex ante expectations)"; (6) PON is in fact seeking a benefit it does not deserve. While Dr Pleatsikas sees the benefit as PON having received a discount on the offer price for the Port of Newcastle to account for the reimbursement payments PON might have to make in the future, and I see the benefit as PON not having paid for a container terminal while Port Botany has capacity and before a container terminal is developed at Port Kembla, the effect is the same. PON is now seeking "a subsidy to help underwrite its container port plans"; (7) given that the State considered that a container terminal at the Port of Newcastle while Port Botany has capacity would not be socially optimal and could result in negative externalities, "the 'reimbursement' provision may operate implicitly to assist in correcting the resulting negative externalities" including: (a) if the premature development of a container port at Newcastle resulted in under-utilisation of public and/or private assets at Port Botany (because some container traffic otherwise destined for Port Botany may be diverted to Newcastle); and/or (b) through wasteful use of transportation assets that could occur because, apparently, during the initial phase of the container port development at Newcastle, no local processing of containers would be available, necessitating transport to/from locations close to Port Botany; (8) "[t]o the extent that the 'reimbursement' provision operates to ameliorate or eliminate negative externalities that would reduce economic efficiency, the 'reimbursement' provision could not, as a matter of economic theory or principles, be viewed as anti-competitive no matter what product or geographic market definition is utilised (i.e., because the provision could operate to ensure that the Port of Newcastle pays all of the costs – private and social – that the Port's premature container operation plans may cause to be incurred)"; (9) "[b]y contrast, Mr Smith treats the 'reimbursement' provision as a 'tax' on any container operation at the Port of Newcastle. This implicitly does not take into account the savings in the bid price that would accrue as a direct result of the State including the 'reimbursement' provision in the contract"; and (10) [c]ompounding the problematic nature of Mr Smith's analysis, he implicitly treats the alleged 'tax' as an unforeseen factor in governing the decisions of the port operator/landlord at the Port of Newcastle … To the contrary, the discount the 'reimbursement' provision engenders in the bid price essentially means the winning port operator/landlord 'recovers' (in expected present value terms) its 'reimbursement' payments in an up-front discount on its bid price. Consequently, it should have no impact on the competitive conduct of the port operator/landlord at the Port of Newcastle". (Citations omitted). 1625 I consider that all of these propositions are sound other than that my conclusion is PON did not pay the State any sum for the potential to develop a container terminal the Port of Newcastle contrary to the State policy. The effect of this conclusion is the same as the conclusion reached by Dr Pleatsikas – PON is seeking a windfall. Even if PON can ultimately establish that its container terminal while Port Botany has capacity would be viable (which is itself not a real chance on the evidence to date), it would still need to persuade the NSW government that it would be in the public interest of NSW overall that it be permitted to construct the container terminal (that is, that existing investments in public and private infrastructure will not be undermined, that the cost of supporting a container terminal at the Port of Newcastle is the best option, and that such a container terminal will not undermine the overall cost and economic efficiency of the container freight handling task in NSW). 1626 The concerns which Dr Pleatsikas raised about the modelling undertaken by Mr Smith are also compelling. As Dr Pleatsikas explained Mr Smith's modelling (the results of which posited that the impugned provisions are anti-competitive) involves two fixed production locations (Port Botany and the Port of Newcastle), with customers arrayed linearly between them. The template for the model was developed by Harold Hotelling and was designed and constructed to investigate the profit-maximising location of undifferentiated producers (and consumers that are undifferentiated in their demands). However, Mr Smith has used the template to model pricing and profit conduct of highly differentiated producers and highly differentiated consumers. Such an exercise is unlikely to produce any useful output. 1627 Mr Smith's model also does not differentiate between the two ports other than by their position at the ends of a "linear road" between the two ports, despite the ports being highly differentiated in numerous respects. Mr Smith's distribution of customers is unrealistic as he has "arrayed customers (who he has assumed are non-differentiated in terms of their demand for port services (and non-differentiated in terms of the commodities they ship) on a one-dimensional straight line between the two ports, with uniform transport costs (no matter the mode) along the line, uniform demand and a uniform density of customers along the line". In the real world, "customers are highly differentiated and non-uniform in their demands (both as to volume and commodity) and are arrayed in a highly complex and likely non-random manner over a two-dimensional space (i.e., the geographic area of New South Wales)". Further, "the derivation of transport costs is much more complex, with multiple providers and both road and rail options". 1628 Further, as Dr Pleatsikas said: …transport costs directly to a port are not the only consideration in the choice by customers as to which port to utilise. Processing locations, processing costs and other considerations (e.g., shipping schedules) also affect choices. In this regard (as well as the other elements noted in the immediately preceding paragraphs), Mr Smith's model is so far abstracted from reality that it bears no useful relationship to what actually occurs or would occur in the real world. (Citations omitted). 1629 Further again, as Dr Pleatsikas said: …there are no pricing constraints in Mr Smith's model. In the real world, port operator/landlords are subject to regulation of port charges. Mr Smith, in some versions of his model even posits a pricing strategy of perfect price discrimination (which would allow each port to capture all of the consumer surplus of each user by charging them the maximum price they were willing to pay). A price regulator would not allow such a pricing strategy. The lack of pricing constraints is a serious shortcoming that, even in the absence of all the other problems, would undermine the validity of the models' results and render these results irrelevant and unrealistic in this context. (Citations omitted). 1630 And again, as Dr Pleatsikas said: Mr Smith's "base" version of the model assumes that the choice of port is influenced only by wharfage charges and local transportation charges. This directly contradicts statements by Mr Smith and by several witnesses for the Applicants that it is total costs (from origin to destination) that influence the choice of port by shippers, importers and exporters. (Citations omitted). 1631 I thus accept Dr Pleatsikas's conclusion about Mr Smith's modelling as follows: Mr Smith's "stylised" model is poorly designed, and so abstracted as to be so distant from real world circumstances that it cannot provide useful insight into the marketplace conduct (including, but by no means limited to, the pricing decisions) of port operator/landlords. Consequently, the results of the model are unsound as a matter of economic theory and the application of economic principles to real world issues, particularly in the context of the issues of concern in this case. 1632 I also accept other criticisms Dr Pleatsikas made of the work of Mr Smith, particularly relating to the feasibility of the operation of a container terminal at the Port of Newcastle while Port Botany has capacity. Mr Smith appears to have uncritically accepted all assumptions and comparisons most favourable to PON. For example: (1) Mr Smith refers to the advantages of the Port of Newcastle attracting larger container ships than can allegedly be accommodated by other ports, but as discussed, this is a largely illusory advantage as the other ports will also be able to accommodate larger ships if necessary; (2) Mr Smith compares the Port of Newcastle to Gdansk, Tauranga and two terminals in Columbo, Sri Lanka, which are all transhipment hubs. The evidence indicates no real prospect of the Port of Newcastle functioning as a transhipment hub; and (3) Mr Smith accepts PON's costs and revenue projections at face value when, as Dr Pleatsikas pointed out, "there are often systematic biases that tend to understate cost projections and/or overstate revenue projections for major infrastructure projects". 1633 The ACCC and PON have not confronted or overcome these fundamental difficulties for their case theory. 9. ORDERS 1634 For the reasons given, the ACCC's originating application must be dismissed. NSW Ports' cross-claim must also be dismissed. Given the involvement of the State and PON, and the cross-claim of NSW Ports, I will give the parties an opportunity to propose costs orders. I certify that the preceding one thousand six hundred and thirty four (1634) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jagot. Associate: Dated: 19 July 2021 Schedule 1 – EXTRACTS FROM COMPENSATION AND REIMBURSEMENT PROVISIONS Port Botany and Port Kembla PCDs 3.3 Support Subject to clause 3.8, if all of the conditions in paragraphs (a) to (e) are satisfied in respect of a Support Period (Relevant Support Period): (a) the Botany Port Manager demonstrates to the reasonable satisfaction of the State that at least one of Port Botany nor Port Kembla was not at Full Capacity during the whole of the Relevant Support Period; (b) the EXCESS as calculated in accordance with clause 3.4 in respect of the Relevant Support Period is greater than zero; (c) the EXCESS as calculated in accordance with 3.4 in respect of the Support Year (if any) immediately prior to the Relevant Support Year was also greater than zero (Previous Support Period); (d) the Botany Port Manager demonstrates to the reasonable satisfaction of the State that the number of Containers imported or exported by Port Botany in the Relevant Support Period is less (Shortage) than it would have been had EXCESS been zero or less, and that there is both a reasonable, and a material, causal connection and correlation between the amount of EXCESS and the amount of the Shortage; and (e) the Botany Port Manager demonstrates to the reasonable satisfaction of the State that the number of Containers imported or exported by Port Botany in the Previous Support Period (if any) is less (Prior Shortage) than it would have been had EXCESS for that Previous Support Period been zero or less and that there is both a reasonable, and a material, causal connection and correlation between the amount of EXCESS and the amount of the Prior Shortage, then the State must pay to the Botany Port Manager in accordance with this clause 3 the amount ofNSupport as calculated under clause 3.4. … 3.5 Botany Port Manager may make a submission If all the conditions in clause 3.3 were satisfied in respect of a Support Period, then within 20 Business Days after the end of that Support Period the Botany Port Manager may make a written submission to the State which: (a) provides evidence that all of the conditions of clause 3.3 were satisfied; (b) provides a calculation ofNSupport; and (c) provides reasonable written details of and supporting evidence for that calculation. … 3.7 Payment of agreed support or dispute (a) If under clause 3.6 the State accepts a submission by the Botany Port Manager, it must pay the amount of NSupport to the Botany Port Manager within 60 days after notifYing the Botany Port Manager of that acceptance. (b) If the State rejects a submission made by the Botany Port Manager, either party may take such action including legal proceedings in relation to the matters the subject of the submission as it sees fit. (c) The Botany Port Manager must not bring legal proceedings, or otherwise seek to enforce clause 3.3, in respect of any alleged EXCESS referred to in clause 3.4 unless it has complied with clauses 3.5 and 3.6 in respect of that alleged EXCESS. … 6. Limits on claims for support … (d) Each of Botany Port Manager, Port Lessee and the Purchaser must procure use their respective reasonable endeavours to minimise any loss of revenue that may be the subject of a claim by Port Manager under this Deed. Port of Newcastle PCD … 3.3 Acknowledgement Newcastle Port Manager, Newcastle Port Lessee and the Purchaser each acknowledge that the State has entered into the Port Commitment Deeds, under which the State may be required to make certain payments to the Other Port Managers under clause 3 of the respective Port Commitment Deeds. … 3.6 State may give PC Notice (a) If after Completion the State becomes obliged to make a payment to an Other Port Manager under clause 3 of a Port Commitment Deed in respect of a Relevant Support Period (as defined in the Port Commitment Deeds), the State may give written notice (PC Notice) to Newcastle Port Manager stating: (i) the amount of the payment which the State is obliged to make to the Other PortManager under clause 3 of the Port Commitment Deed (PC Payment); and (ii) providing all material details of the calculation of that payment. (b) The State may give a PC Notice before the PC Payment is due. (c) This clause 3.6 applies in respect of each and every payment that the State is required to make on or after the Completion Date, under clause 3 of a Port Commitment Deed. 3.7 Payment to the State by Newcastle Port Manager Newcastle Port Manager must, within 40 days after receipt of a PC Notice under clause 3.6 of this Deed in respect of a PC Payment, pay the amount of the PC Payment to the State without deduction or set-off.