29 June, 2017
The High Court of Australia has unanimously dismissed an appeal by PT Garuda Indonesia Ltd (Garuda) and Air New Zealand Ltd (Air NZ) against price fixing allegations in the air cargo industry, bringing the long running and far reaching cartel saga to an end in favour of the Australian Competition and Consumer Commission (ACCC).
Background
Australia's competition regulator, the Australian Competition and Consumer Commission (ACCC), brought proceedings against Garuda (on 2 September 2009) and Air NZ (17 May 2010) alleging breaches of the Trade Practices Act 1974 (Cth) (TPA)[1]. The allegations concerned the fixing of surcharges and fees for the carriage of air cargo from origin ports outside Australia (Hong Kong, Singapore and Indonesia) to destination ports in Australia. The airlines both argued that the relevant market for the air cargo services was not in Australia, but in the departure ports, and therefore the TPA did not apply.
Central to the issues in dispute in the proceedings, both at first instance and on appeal, was how to define the concept of a market in Australia for the purposes of Australia's competition laws.
Decisions of the lower courts
At first instance in the Federal Court of Australia, Justice Perram found that the two airlines had each been a party to an understanding involving the imposition of surcharges on air cargo services from the named foreign ports into Australia and that such understandings constituted price fixing. Nevertheless, the trial judge ruled in favour of the airlines on the basis that there had been no actionable contravention of the TPA because the airlines were not competing in a market 'in Australia' in the provision of those services, thus the relevant conduct fell outside the scope of the TPA.
The ACCC appealed to the Full Court of the Federal Court of Australia. In a majority decision, the ACCC's appeal was allowed.
The majority adopted a broad interpretation of a market 'in Australia'. They held that the appropriate test was, 'to "visualise" the metaphorical market, having regard to all of its dimensions and its content, and then to consider whether it is within Australia, in the sense that at least part (perhaps a substantial or significant part) of it must be in that "location"'.[2] Adopting that analysis, the majority considered that the market for the suite of air cargo services between the foreign origin ports and the Australian destination ports should be characterised as being 'in Australia'.
High Court of Australia decision
The airlines were granted leave to appeal to the High Court of Australia. The principal issue was whether there was a market 'in Australia' for the air cargo services for which Garuda and Air NZ competed?
In answering that question in the affirmative and dismissing the airlines' appeal, the High Court made the following observations:
- The concept of 'market' is a "notional facility which accommodates rivalrous behaviour involving sellers and buyers";
- Market identification is not concerned with establishing some artificial physical location or boundary. It requires a practical assessment of the conduct in question viewed in commercial context and properly reflecting the actual or potential interactions between the participants in the market and other economic factors;
- While the relevant air carriage contracts were made, and the performance of services commenced at locations, outside Australia, the findings of fact at trial pointed to the existence of a market 'in Australia' for those services. This was so even if a market also existed at the ports of origin. Of note:
- the air cargo services comprised a suite of services, a significant part of which were provided in Australia such as ground handling services and other airport services;
- among those entities participating in, or providing, and affecting, the demand for the air cargo services were freight forwarders, importers and shippers in Australia; and
- the airlines regarded and actively approached large Australian-based shippers / importers as customers and were effectively competing for that business locally.
- It followed that Australia was not merely the end of the line for the airlines' air cargo services but formed an integral part of the market in which the airlines were operating.
The High Court also rejected the airlines' argument that they were compelled to enter into the understandings on surcharges because of the regulatory requirements in Hong Kong. The Court found that it was the airlines' own decision to act in the way they did.
Comment
Since 2008, the ACCC has pursued 15 international airlines for making, and giving effect to, price fixing agreements imposing surcharges on air cargo sent to Australia. The ACCC actions were part of a global investigation into this type of behaviour and similar actions have been commenced against most major international carriers including by the US, Europe, Canada and New Zealand. While 13 airlines settled and paid penalties in Australia totalling AUD 98.5 million, Air NZ and Garuda continued to defend the allegations. With the handing down of the High Court's final determination, the matter will now return to the lower court for assessment of penalties for those two airlines. Penalties imposed on the other 13 airlines range from AUD 5 to AUD 20 million.
It should be noted that, subsequent amendments to Australia's cartel laws, mean that there is no longer a requirement that price fixing occur in a market 'in Australia'. The cartel laws now apply to offshore cartel conduct provided the parties conduct business in Australia.
Nevertheless, the market 'in Australia' issue remains relevant for some of the other non-cartel provisions in the Competition and Consumer Act 2010 (Cth). Therefore, the High Court's approach to market identification, and the wider conduct that it may capture in Australia, should be considered closely by companies with global operations who are assessing their compliance and potential exposure under Australian competition law.
[1] The TPA has since been superseded in Australia by the Competition and Consumer Act 2010 (Cth).
[2] Australian Competition and Consumer Commission v PT Garuda Ltd (2016) 244 FCAFC 42 at [156].
For further information, please contact:
Avryl Lattin, Partner, Clyde & Co
avryl.lattin@clydeco.com
