ACCC v Air New Zealand Limited; ACCC v PT Garuda Indonesia Limited

APPEAL (HC): Air New Zealand Ltd v ACCC; Pt Garuda Indonesia Ltd v ACCC [2017] HCA 21 (14 June 2017)

APPEAL (FCC): ACCC v P T Garuda Indonesia Ltd [2016] FCAFC 42 (21 March 2016)

TRIAL: ACCC v Air New Zealand Limited [2014] FCA 1157 (31 October 2014)

PENALTY (Air NZ): ACCC v Air New Zealand Limited (No 15) [2018] FCA 1166 (27 June 2018)
PENALTY (Garuda): ACCC v P.T. Garuda Indonesia Ltd (Remedies) [2019] FCA 786 (30 May 2019)

Snapshot

australia-flag.png
 

High Court

Year
2017

Date of judgment
14 June 2017

Citation
[2017] HCA 21

Judges (unanimous)
Kiefel CJ
Bell J
Keane J
Nettle J
Gordon J

Special leave granted
[2016] HCATrans 245
(14 October 2016)

S110 of 2016 (Air NZ)
S112 of 2016 (PT Garuda)

 

Federal Court
(full court)

Year
2016

Date of judgment
21 March

Citation
[2016] FCAFC 42

JudgesDowsett J
Yates J
Edelman J

Issues
Price fixing
Markets

File numbers
NSD1330/2014 (Garuda)
NSD1331/2014 (Air NZ)

Registry
New South Wales

Counsel for Appellant
Mr J Halley SC
Mr J Clarke SC
Ms H Younan
Mr C Arnott

Solicitor for Appellant
Aust Government Solicitor

Counsel for Respondent
(NSD1330/2014 (Garuda))
Mr N Hutley SC
Mr T Brennan

Solicitor for Respondent
(NSD1330/2014 (Garuda))
Norton White

Counsel for Respondent
(NSD1331/2014 - Air NZ)
Mr B Walker SC
Mr R Smith SC
Mr N Owens
Mr R Yezerski

Solicitor for Respondent
(NSD1331/2014 - Air NZ)
Corrs Chambers Westgarth

Federal Court
(trial)

Year
2014

Citation
(2014) 319 ALR 388
[2014] FCA 1157

Judge
Justice Perram

Issues
Price fixing

Counsel for Applicant
Mr JA Halley SC
Ms E Collins SC
Mr JR Clarke SC
Mr J Clark
Mr C Arnott
Ms N Shaw
Ms V Bosnjak
Ms T Dinh

Solicitor for Applicant
Aust Government Solicitor

Counsel for Respondent
(NSD534/2010 - Air NZ)
Mr RM Smith SC
Mr NJ Owens
Mr R Yezerski

Solicitor for Respondent
(NSD534/2010 - Air NZ)
Corrs Chambers Westgarth

Counsel for Respondent
(NSD955/2009 )
Mr M Leeming SC
Mr T Brennan

Solicitor for Respondent
(NSD955/2009 )
Norton White

File numbers
NSD534/2010 (Air NZ)
NSD955/2009 (Garuda)

Registry
Sydney

 

Federal Court
Penalty (Air NZ)

Year
2018

Judge
Justice Gleeson

Citation
[2018] FCA 1166

Federal Court
Penalty (Garuda)

Year
2019

Judge
Justice Perram

Citation
[2019] FCA 786

Copyright

 
 

Overview

The ACCC claimed that Air NZ and Garuda had been involved in price fixing in relation to certain fuel surcharges. The trial judge held that there was no 'market in Australia' and dismissed the case. The ACCC appealed (press release). On 21 March 2016, the Full Federal Court, by majority, upheld the appeals (ACCC v P T Garuda Indonesia Ltd [2016] FCAFC 42). Air NZ and Garuda applied for, and were granted, special leave to appeal on 14 October 2016 ([2016] HCATrans 245).

On 14 June 2017 the High Court delivered its judgment, unanimously dismissing both appeals. On the issue of 'market in Australia', the summary of its judgment states:

'The plurality held that a market, within the meaning of the TPA, was a notional facility which accommodated rivalrous behaviour involving sellers and buyers, and that it was the substitutability of services as the driver of the rivalry between competitors to which s 4E looked to identify a market, rather than the circumstances of the act of substitution or the "switching decision" itself. In this case, the primary judge's findings established that Australia was not merely the "end of the line" for the air cargo services but was also a vital source of demand for those services from customers, namely, large shippers who were regarded as important to the profitability of the airlines' businesses. As a practical matter of business, the airlines' rivalrous pursuit of Australian customers, in the course of which the matching of supply with demand occurred, was in a market which included Australia; that was so even if the market might also have been said to include Singapore, Hong Kong or Indonesia'

Three members of the High Court (Kiefel CJ, Bell and Keane JJ) described the litigation in this case as 'epic', with the trial occupying 57 sitting days and the Full Federal court appeal six days, notwithstanding the fact that the principal issue (whether there was a market in Australia) was 'within short compass' (para 4)

Following penalty hearings Air NZ was ordered to pay $14m in penalties and Garuda was ordered to pay $19m.

Facts

The case relates to two claims

  • Against Air New Zealand Ltd

  • Against PT Garuda Indonesia Ltd

The ACCC alleged both companies engaged in collusive behaviour in the fixing of surcharges and fees on carriage of air cargo from overseas (specifically from Hong Kong, Singapore and Indonesia) to Australia. It was alleged this contravened s 45 (assisted by s 45A as a form of price fixing).

It was not in dispute on appeal that the 'airlines were parties to understandings that would have contravened s 45(2) of the TPA if they were in competition to supply services in a market in Australia' (Kiefel CJ, Bell & Keane JJ, para 11). The central point on appeal was, therefore, what was meant by market 'in Australia' and whether the conduct in this case occurred within such a market.

Nature of the market in this case

The High Court (per Kiefel CJ, Bell J and Keane J) described the market in this case as follows [footnotes omitted]:

[para 16] ... the activity of flying freight to ports in Australia involved: transporting cargo from a port of origin to a port of destination; ground handling services at both origin and destination airports; inquiry services for tracing delayed or lost shipments; and dealing with issues arising from damaged cargo at destination. These services were supplied and acquired as a single package, or suite, of services. ...

[para 17] In providing these services, the airlines took possession of the cargo to be transported from a freight forwarder at the airport of origin. The range of airlines available to be selected to provide the service was limited by the need for any such airline to have a presence in the port of origin. The service of taking possession of the cargo in the port of origin with a view to flying it to a destination port in Australia could not be performed anywhere but in the port of origin.

[para 18] The primary judge found that the markets in which Air New Zealand and Garuda competed were route specific markets for the service of flying cargo from individual origin ports in Singapore, Hong Kong or Indonesia to individual destination ports in Australia.

[para 19] The primary judge found that the participants in these markets were the airlines, freight forwarders, and shippers – being either exporters at origin or importers at destination – whose cargo volume was sufficiently significant to motivate the airlines to pursue their custom. These shippers often, but not always, made decisions about the choice of airline; and where the shipper was an importer in Australia, that decision was likely to be made in Australia. Where the choice of airline was not made by a shipper, it was usually made by a freight forwarder who also provided necessary ancillary services not provided by the airlines. Smaller shippers who left the choice of carrier to their freight forwarders were not regarded as participants in any of the markets identified by the primary judge.

[para 20] Apart from rare occurrences (typically involving live animals), airlines dealt directly only with freight forwarders situated in the port of origin or in nearby environs, and not with shippers. Local cargo sales offices of the airlines, at the port of origin, published from time to time standard rates as "tariff" or "rate" sheets or schedules. Contract and other rates (as opposed to standard rates) were negotiated between freight forwarders and staff of airlines at the local sales office, at the airport of origin.

[para 21] Importantly, the primary judge found that the airlines "tousled [sic] to obtain" the custom of those shippers in Australia who were substantial importers. His Honour said that "[a]lthough the contracts of carriage were entered into in Hong Kong by the freight forwarders … as a practical matter, substantial importers in Australia had the capacity to influence or even direct the decision as to which airline was to be used" to transport goods from the airport of origin to Australian airports. His Honour said that the evidence "strongly suggested" that the airlines regarded these shippers both as targets for their marketing activities and as the ultimate source of this business. A cursory examination of the cargo magazines produced by the airlines for the cargo trade showed that these larger shippers were regarded by the airlines as objects to be pursued. It was obvious, his Honour said, that the airlines would "compete for volumes of cargo directly from large shippers". The airlines' marketing magazines were directed to multiple markets. The marketing materials proceeded upon the basis that, regardless of the port of origin, the airlines were focused on shipper activity.

The law

Price fixing

The conduct in this case pre-dated the introduction of new cartel laws (and the name change to the Act; as a result it is referred to as the Trade Practices Act 1974, but is the same piece of legislation as the Competition and Consumer Act 2010). The relevant prohibition was contained in s 45(2):

"A corporation shall not:

(a)      … arrive at an understanding, if:

…      

(ii)      a provision of the proposed … 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 [an] … understanding … if that provision:

…

(ii)      has the purpose, or has or is likely to have the effect, of substantially lessening competition."

Price fixing conduct was deemed to constitute a substantial lessening of competition by s 45A (now repealed as a result of the introduction of separate cartel laws).

Market in Australia

At the relevant time section 4E of the Act defined market in the following way for purposes of s 45:

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

Relevantly, section 45(3) provided that, for purposes of s 45 and 45A, 'competition' meant 'competition in any market in which a corporation that is a party to the ... understanding ... supplies ... or is likely to supply ... services'.

Case links

High Court

High Court case pages

Judgment

Judgment summary

Special leave

Federal Court (appeal)

Federal Court (trial)

On costs

 

On 14 June 2017 the High Court delivered its judgment, unanimously dismissing both appeals. On the issue of 'market in Australia', the summary of its judgment states:

'The plurality held that a market, within the meaning of the TPA, was a notional facility which accommodated rivalrous behaviour involving sellers and buyers, and that it was the substitutability of services as the driver of the rivalry between competitors to which s 4E looked to identify a market, rather than the circumstances of the act of substitution or the "switching decision" itself. In this case, the primary judge's findings established that Australia was not merely the "end of the line" for the air cargo services but was also a vital source of demand for those services from customers, namely, large shippers who were regarded as important to the profitability of the airlines' businesses. As a practical matter of business, the airlines' rivalrous pursuit of Australian customers, in the course of which the matching of supply with demand occurred, was in a market which included Australia; that was so even if the market might also have been said to include Singapore, Hong Kong or Indonesia'

It was not in dispute on appeal that the 'airlines were parties to understandings that would have contravened s 45(2) of the TPA if they were in competition to supply services in a market in Australia' (Kiefel CJ, Bell & Keane JJ, para 11).

Chief Justice Kiefel, Justice Bell and Justice Keane

Conclusion

[para 5] ... the findings of fact made by the primary judge lead irresistibly to the conclusion that there was a market in Australia for the airlines' air cargo services, and that the appeals of the airlines should therefore be dismissed.

Meaning of market and 'market in Australia'

Quoting several earlier cases, their Honours confirmed that:

[para 12] ... a market, within the meaning of the TPA, is a notional facility which accommodates rivalrous behaviour involving sellers and buyers

[para 14] 'Section 4E of the TPA proceeds upon the express footing that, notwithstanding the abstract nature of the concept of a market, it is possible to locate the market where the competition protected by the TPA occurs in Australia.  Reconciling the abstract notion of a market with the concrete notion of location, so that they work coherently, presents something of a challenge.  Particularly is this so because "competition" describes a process rather than a situation.  But given that the TPA regulates the conduct of commerce, it is tolerably clear that the task of attributing to the abstract concept of a market a geographical location in Australia is to be approached as a practical matter of business.  It is important that any analysis of the competitive processes involved in the supply of a service is not divorced from the commercial context of the conduct in question' [footnotes omitted]

[para 15] 'It was common ground between the parties that a market in Australia does not cease to be so located because it encompasses other places as well.'

Having set out the meaning of market for purposes of the Act, their Honours identified the issue as being:

[para 15] ... whether the rivalrous behaviour – in the course of which suppliers and acquirers might be matched – occurred in Australia, whether or not it also occurred elsewhere.

Their Honours noted that the primary judge had 'treated the place where the ultimate choice of airline was effected (referred to in the courts below as "the switching decision") as the location of the market' (para 22) and that, as this occurred in Hong Kong, Singapore and Indonesia, there was not a relevant market in Australia, The place where the contracts of carriage were made was, in his Honour's view, decisive (para 22).

Their Honours considered that the primary judge's approach placed too much significance on the fact that 'substitution or switching may occur outside Australia' (para 23). The primary judge had relied on the Tribunal's decision in QCMA regarding substitutability; their Honours, however, considered that he had placed too much weight on the Tribunal's references to substitutability. In that case, the Tribunal stated that a market is:

'... the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution … if given a sufficient price incentive' (reproduced in para 24)

Their Honours noted, however, that the Tribunal 'did not say that substitutability will be the defining feature of a market in every case' (para 25).

[para 26] This is not to suggest that substitutability may not be an important, or even a decisive, factor in market definition in some cases, just as barriers to entry may be. It is rather that concepts such as market and cross-elasticity of supply and demand provide no complete solution to the definition of a market, as Dawson J observed in Queensland Wire Industries. 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. [footnotes omitted, emphasis added]

[para 27] 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. The place where that success is formalised by the signing of a contract may often, as a practical matter of business, say something significant about the location of the process of rivalry for the purposes of s 4E of the TPA. But it will not necessarily do so.

[para 28] The locations of the making of the contractual match and of the performance of the contract may be significant, not in themselves, but as (usually) reliable indicators of the location of the mechanism or facility which accommodates the process of rivalry and matching essential to the concept of a market. In this regard, it is the substitutability of services as the driver of the rivalry between competitors to which s 4E of the TPA looks to identify a market, not the circumstances of the act of substitution itself. The place where the act of substitution occurs does not necessarily locate the geographical area of the rivalry which precedes that act of substitution. Where the service being supplied is the transport of goods between two countries, the place at which the act of substitution is recorded or formalised may say little about where the interplay of supply and demand, driven by the conditions of substitutability, has occurred. Thus, for example, contracts for air freight from Hong Kong to Sydney may be signed at the head office of the airline based in Europe, but that does not locate the geographical dimension of the market in Europe. [emphasis added]

[para 29] In the present case, while the circumstance that contracts for supply of air cargo services were made and the performance of those services commenced at locations outside Australia may tend to suggest that suppliers were competing in a market of which these overseas locations are a feature, it does not, of itself, accurately describe the geographical dimension of the market; much less establish that Australia was not within that market. Given that the services to be supplied by the airlines were destined for ports in Australia in answer to demand generated in Australia, it does no violence to the language of s 4E of the TPA to say that, as a matter of commerce, the geographical dimension of the market that accommodates the interplay of that supply and demand includes Australia. [emphasis added]

Their Honours did not, however, consider that place where freight delivery terminated was necessarily determinative of the market in which the carrier competes:

[para 30] ... The place of delivery may simply be the "end of the line" of a service supplied from a market in which the ultimate destination has little bearing on the interplay of the forces of supply and demand which generate the service and fix its price. For example, the infrequent and irregular delivery of air freight to an Australian scientific research facility in Antarctica would not be regarded as the supply of services in a market in Antarctica. In this example, the interplay of the forces of supply and demand which generate the service and fix its price would take place, geographically speaking, entirely outside Antarctica

In this case, however, Australia was not 'merely the end of the line'; rather, 'shippers in Australia were a substantial source of demand for the airlines' services' and 'the airlines engaged in rivalrous behaviour seeking to match the supply of their services with that demand.' (para 31)

[para 31] ... the airlines appreciated that the large shippers who required air cargo services to ports in Australia were the "economic foundation of the market". ... the airlines tussled to obtain the custom of shippers in Australia who were substantial importers, and whom the airlines regarded as the ultimate source of their business. To speak of suppliers tussling to obtain orders is to describe the rivalrous behaviour which is the essence of competition. [footnotes omitted; emphasis added]

[para 32] The circumstance that the demand from Australian shippers was usually articulated to suppliers in Hong Kong by freight forwarders does not deny that, as a matter of commerce, the interplay of the forces of supply and demand encompassed Australia. That this was so is confirmed by the fact that, as the primary judge found, the airlines pursued sales and marketing strategies in Australia promoting their services to shippers in competition for orders to provide freight for their cargo. As McHugh J explained in Boral Besser, customer attitudes are relevant to market definition because they bear upon the substitutability of the services of a competitor. [footnotes omitted]

Conclusion on market definition in this case

[para 33] ... the primary judge's findings establish that the airlines conducted their businesses in a way which recognised the economic reality that Australia was not merely the end of the line for their air cargo services but was also a vital source of demand for those services from customers who were regarded as important to the profitability of their businesses. As a practical matter of business, the rivalrous behaviour in the course of which the matching of supply with demand occurred was in a market which, speaking geographically – as s 4E of the TPA requires – included Australia; and that was so even if the market might also have been said to be in Singapore, Hong Kong or Indonesia. [emphasis added]

[para 34] As noted above, a practical focus on the issue is required because the TPA operates upon those engaged in commerce. The airlines were actively engaged in attempting to capture the demand for services emanating from shippers in Australia as an integral part of their business. The airlines' deliberate and rivalrous pursuit of orders emanating from Australian shippers was compelling evidence that they were in competition with each other in a market that was in Australia.' [footnote omitted]

Their Honours therefore concluded that the price fixing conduct 'took place in a market in Australia' (para 35)

Justice Nettle

Agreed with Justice Gordon and added some additional comments.

On market definition generally

(Para 39): Noted, as the majority of the Full Court had, that 'market definition is a queestion of fact', involves 'a fact-intensive exercise centred on the commercial realities of the market and competition' (quoting du Pont) and, as a result, 'the definition of a market is liable to vary according to the purposes of the exercise undertaken'.

On geographic market definition as an economic concept

[para 40] In some cases, a geographic market may logically be understood as the area in which potential buyers look for sellers to supply goods and services, as opposed to the area in which sellers look for buyers to purchase goods and services. That may be so where sellers do not "market" their goods and services, or perceive themselves to be competing, outside the area in which they as sellers are located. The facts of Tampa Electric Co v Nashville Coal Co provide the paradigm. By contrast, 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. [footnotes omitted]

[para 41] In cases of the latter kind, it is accepted in United States anti-trust jurisprudence that the geographic market consists of the smallest area of overlap of sellers' and buyers' locations in which sellers are able to increase prices or reduce supply without purchasers turning to alternative suppliers beyond that area. A similar concept has been recognised in Europe. And despite differences between competition law in the Unites States, Europe and Australia, the area of a geographic market is essentially an economic concept and therefore logically to be determined according to similar considerations in each jurisdiction. [footnotes omitted]

The market in this case

In this case, 'the airlines marketed their services in Australia to potential customers in Australia, and perceived themselves to be competing for Australian customers in Australia' (para 43). Although the contracts in this case were entered into in Singapore or Hong Kong, in some cases at least, the decisions as to choice of airline ('switching decisions') were the 'result of determinations previously made by Australian customers in Australia in response to the airlines' marketing activities in Australia' (para 43).

[para 44] In international commerce, the place of entry into a contract of purchase and sale may be entirely fortuitous and, hence, essentially irrelevant to the location of the geographic market in which goods and services are offered and purchased.  Likewise here, at least in those instances where Australian customers were directly involved in making the so-called switching decisions, the place of execution of those decisions could not be determinative and was no more important than the rivalrous behaviour of the airlines to which the decision-makers were subject in Australia.

Justice Gordon

On market definition generally

Emphasis added throughout

[para 57] 'Market identification is not a task undertaken at large, or in a vacuum. The task, and the extent of the task, are tailored to the conduct at issue and the statutory terms governing the contravention. The need to identify the market arises only in the context of determining whether the conduct constitutes a particular contravention of the TPA. That is, the question of whether there is a market “in Australia” is to be asked and answered in the statutory context in which that question arises. It is not to be asked or answered in isolation from that context or by looking only at what appears in s 4E of the TPA.'

[para 58] 'The first step is to identify “precisely what it is that is said to have been done in contravention of the section”. As has been rightly said in the Federal Court of Australia, the court begins with the problem at hand and asks “what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes”. Identifying a market is a “focusing process” which is “to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis” …'

[para 59] 'That approach recognises that the concept of a “market” is “not susceptible of precise comprehensive definition”. It recognises that market identification is an economic tool, or instrumental concept, that uses and integrates those legal and economic concepts best adapted to analyse the asserted anticompetitive conduct. It recognises that market identification is “not an exact physical exercise to identify a physical feature of the world” and that there is often little or no utility in debating or identifying “the precise physical metes and bounds of a market”. It recognises that market identification is “not a physical thing, or essence, which can be identified in a manner divorced from the relevant context”. And it recognises that market identification depends upon the issues for determination – the impugned conduct and the statutory provision proscribing anti-competitive behaviour that the conduct is said to contravene.'

[para 60] 'That is not to say that a market can be identified arbitrarily. It must be based on findings of fact. "The premise of that proposition”, as the Full Court of the Federal Court said in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd, is that the identified market “has economic and commercial reality":

"It must accordingly not be artificial or contrived. Economists frequently construct economic models to analyse complex commercial or economic events or scenarios. But a model is unlikely to be a useful analytical tool if based on unrealistic assumptions that materially depart from the real world facts and circumstances involving commercial behaviour in which the events to be analysed occur."'

[para 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”.

[para 62] Embedded in the “focusing process” is the recognition that the substantive criteria for a particular contravention in issue will depend on the particular statutory provisions. That process “may lead to the drawing of different lines in different circumstances depending upon the purpose of the provision in question”. In turn, that process may “lead to different market definitions in relation to the same industry” or even different markets within the same case. That potential was recognised more than 25 years ago by Professor Brunt, who wrote that “[t]here can be more than one ‘relevant market’ for a particular case, in the sense of markets that will attract liability”. There is nothing odd about that conclusion. As Professor Brunt pointed out, it reflects the fact that market identification “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”.

[para 63] 'Recognising that market identification is an economic tool has other important consequences. Economics is a social science and “does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions”.'

[para 64] 'The nature of economics as a social science is often highlighted by the existence of conflicting expert opinions about the identification of a relevant market. Deane J acknowledged as much in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, when his Honour said:

“The economy is not divided into an identifiable number of discrete markets into one or other of which all trading activities can be neatly fitted. One overall market may overlap other markets and contain more narrowly defined markets which may, in their turn, overlap, the one with one or more others.”'

[para 65] 'When a court is required to draw its own conclusions about market identification, it is therefore inherent in that task – being one founded on economics as a social science – that the court will be required to make “value judgments about which there is some room for legitimate differences of opinion”. As a result, “[m]arket identification and definition is not an exact science. It is rooted in the analysis of commerce as an aspect of human behaviour”.'

 

Appeal upheld by majority.

Justices Dowsett and Edelman

Noting that the issues were not complex, their Honours stated that the central point raised on the appeal 'was a very short one:'

'what is the meaning of a market "in Australia"?' (para 1)

Their Honours indicated they would allow the appeal on this issue, concluding that:

[para 148] 'When all the dimensions of each market are taken into account (and since we have rejected the respondent airlines’ submission that shippers in Australia did not form part of the market), the proper identification of each of the markets in relation to Hong Kong (which were the focus of all submissions) is as follows. The services to each port in Australia, including transport, involved a market between airlines, freight forwarders, exporters and (at least) including some large shippers, for a suite of air cargo services between Hong Kong and that port in Australia.'

[para 149] 'We move then from the issues involved in the identification of a market to the connected issue of whether the market is in Australia.'

[para 150] 'In considering whether an identified market is “in Australia” for the purposes of s 4E, one must understand the nature of the concept which one seeks to locate. Although the issue of whether the market is in Australia is intimately connected to the identification of the market, as we have said it is not any single dimension of the market that must be considered in determining whether it is “in Australia” but the market itself. Unless the overall dimensions of the market (and perhaps the relevant content of the market) are known, it may be difficult to determine whether it is in Australia.'

[para 151] 'Our point, in short, is that one addresses the characterisation question by reference to a “market” not by reference only to some part of the market identification exercise. Market identification is part of an economic analysis. The characterisation question posed by s 4E serves quite a different purpose. It limits the extent to which Parliament has chosen to exercise its legislative power in relation to a market.'

..

[para 155] 'The text of s 4E provides that, “unless the contrary intention appears, market means a market in Australia” (emphasis added). The preposition “in” may have a wide variety of meanings. ...'

[para 156] 'Two points emerge from that definition. First, the superficially trite proposition that “in” is the opposite of “out”, and vice versa, supports the view that s 4E does not require proof that the market was only in Australia. It is only necessary that it be shown that the market is not “out of Australia”. The second point is that, as we have said, since the word “market” is used as a metaphor, it is difficult to see how the question can be purely geographical. Unless a metaphor can be geographically located in Australia, a broader approach should be taken to the meaning of the expression “in Australia”. The Trade Practices Act should be construed so as to facilitate achievement of its stated objective. It is difficult to see how a narrower interpretation of s 4E would assist in such achievement. The better approach is, in effect, 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”.'

[para 157] As part of the characterisation exercise, we therefore accept the Commission’s submission that the test for the market in Australia cannot focus exclusively upon matters such as the presence of the supplier at the origin of the service, and that among other factors it is necessary to identify where suppliers must operate in order to satisfy the relevant demand for the product (here, a suite of services).

[para 158] 'However we reject the Commission’s submission that the sphere of operation of a service is conclusive of the geographic dimension of the market. In other words, we reject the Commission’s submission that the geographic dimension of the market, in this case, includes Australia simply because part of the suite of services, even an important part, is provided in Australia. There need not be “one to one correspondence” of the product dimension and geographic dimension of the market, a concept rightly rejected by Professor Gilbert.'

[para 159] 'The fallacy of assimilating the product description with the geographic dimension of the market was also exposed by the Court of First Instance (third chamber) in Atlantic Container Line AB v Commission (TAA). Such assimilation is also inconsistent with the approach taken by French and Spender JJ in Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd. The geographic dimension of the market in Taprobane Tours was Australia. It was not Bali, Fiji, Tahiti, New Caledonia, Hawaii, Penang, the Philippines, the Solomon Islands, the Barrier Reef islands, Guam, and Mauritius. The submission is not supported by any Australian authority. And it is similar to the submission described as a “fallacy” by the Court of First Instance in the European Court of Justice.

[para 160] 'The central question posed by s 4E, read with ss 45 and 45A, is whether the Hong Kong to Australian port markets for the suite of air cargo services (and involving the participants to which we have referred) were markets “in Australia”. We identify seven overlapping reasons for concluding that the identified markets for the suite of air cargo services between Hong Kong and Australian ports should be characterised as being “in Australia”. These reasons apply even if the question is to be treated as one of locating the “geographic dimension” of the identified market. But, as we have explained, the proper construction of s 4E involves (i) identifying the relevant market including each of its dimensions; and (ii) characterising whether that market is in Australia.'

[para 161] 'In summary, our seven reasons are as follows.'

[para 162] 'First, as we have explained, a market could be “in Australia” even if the market were also in another country. Hence, the issue here is not a question of deciding between whether the market is in Australia or Hong Kong.'

[para 163] 'Secondly, neither the legislative text of s 4E of the Trade Practices Act, when read with ss 45 and 45A, nor the authorities, preclude the consideration of such factors as the presence of customers in Australia to whom the services were marketed, and the fact that the services involved performance in Australia. Rather, as we have explained, the legislative text assumes that any relevant aspect will be considered in the characterisation exercise.'

[para 164] 'Thirdly, a significant and important part of the operation of the “suite of services” being provided was in Australia. As we have explained in our discussion of QCMA, actual supply also occurs in the market. The cargo was transported to Australia, ground handling services were provided in Australia and there were enquiry services in Australia (which involved tracing delayed or lost shipments and identifying and dealing with damaged shipments). The airlines competed in the supply of these services. It cannot seriously be suggested that the freight forwarders in Hong Kong had no interest in the quality of the service provided to the customers in Australia.'

[para 165] 'No doubt the delivery of cargo to the airline in Hong Kong evidenced a choice between or amongst substitutable services, although the making of the contract to carry would also have done so. It is true that for the carriage of cargo from Hong Kong to an Australian destination, the cargo must be delivered to the airline in Hong Kong, unless the same airline has brought the cargo to Hong Kong, a fact situation which seems not to have been considered. However, as we have pointed out, the geographical aspect of the product dimension dictates use of an airline which flies between Hong Kong and the relevant Australian port. The whole of the suite of services is no more supplied in Hong Kong than it is at that Australian port. Taking delivery of the cargo in Hong Kong is no more important in the provision of that suite of services than is the flight itself, and the delivery of the cargo at the Australian port.'

[para 166] 'Fourthly, the suite of services provided by the airlines involved barriers to entry in Australia. Those barriers included matters such as availability of landing slots, licences to operate in Australia, permission to build or to use facilities for perishable cargo, permission to operate additional flights and so on.'

[para 167] 'Fifthly, the services were marketed in Australia to shippers who (as a matter of economic reality) were customers of the airlines. The airlines competed for business in Australia. Some shippers were in Australia and were capable of operating as a constraint on the fixing of cargo rates. Although the primary Judge did not need to decide whether the freight forwarders were agents for the importing shippers in Australia, he concluded that as a matter of economic substance they were intermediaries, having fluctuating control over the cargo the carriage of which they arranged.'

[para 168] 'Sixthly, the purpose of s 4E supports the evaluative conclusion that the market in this case is a market “in Australia”. That purpose must be applied to the context which involves (i) marketing to persons in Australia who, as a matter of economic reality are customers; and (ii) of a suite of services which include performance in Australia. The legislative purpose is, “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”.'

[para 169] 'Seventhly, the conclusion that the market is “in Australia” is consistent with the conclusion reached upon similar fact patterns in New Zealand and in Europe.'

[para 160] 'For these reasons we conclude that the markets for the suite of air cargo services from Hong Kong to Australian ports, involving airlines, freight forwarders, exporters and (at least) including some large shippers, were markets “in Australia”. It is common ground that the conclusion in relation to the market for air cargo services from Hong Kong also applies to the Singapore and Indonesia markets.'

Justice Yates (dissenting)

Justice Yates noted that the

'central issue in each appeal is the correctness of the primary Judge’s conclusion that none of the relevant markets was a market in Australia within the meaning of s 4E of the TPA.' (para 548)

His Honour made the following observations:

'... In my respectful view, the primary Judge focused, correctly, on the geographic area in which the market product - the suite of services - was bought and sold, and over which switching and substitution by and between buyers and sellers occurred. ...' (para 656)

...

'It seems to me that, after considering a large body of evidence directed to the relationship between airlines, freight forwarders and shippers, it was open to the primary Judge to define the market in a way which included all three as participants, without seeking to draw the “bright line” functional levels which the airlines urge.' (para 668)

'It also seems to me that it was open to the primary Judge to draw broad conclusions about the markets in question based on how, generally, airlines, freight forwarders and shippers interact in relation to the supply and acquisition of air cargo services. ...' (para 669)

...

'Finally, I should record my view that, on existing authority, there is no warrant for incorporating in the process of market definition an effects-based doctrine that would extend the geographic reach of a market to Australia on the basis that persons in Australia are or might be adversely affected by conduct outside Australia that is sought to be impugned.' (para 681)

'On the facts found by the primary Judge, none of the relevant markets was a market in Australia. In my respectful view, the primary Judge did not err in the conclusion to which he came, based on those facts. It follows that each appeal should be dismissed.' (para 681)

 

Justice Perram concluded that the conduct in this case would have contravened s 45(2) of the TPA if the makret had been a market in Australia; his Honour held that the relevant market in which the conduct occurred were Hong Kong, Singapore and Indonesia.

Justice Perram concluded that:

  • The ACCC did not succeed in demonstrating that Air NZ 'was involved in collusive practices with respect to the fuel surcharges in Singapore although it did engage in price fixing with respect to the ISS [Insurance and Security Surcharge]'

  • Garuda had engaged in price fixing in Indonesia

  • However, both actions dismissed because the case was limited to flights from airports outside Australia into airports inside Australia - 'no market in Australia was involved ... Prices may well have been affected in Australia by the conduct but that does not mean the market in which the airlines were competing was located here.' (para 20)

His Honour noted that 'the ‘market in Australia’ requirement is quite different to the effects doctrine in the United States under the Sherman Antitrust Act, 15 USC §§ 1 – 7 (1890) (USA) (‘the Sherman Act’), where a price effect in the United States will suffice to bring that legislation into play. That is not what the Trade Practices Act 1974 does.' (para 21)

 

Air NZ was penalised $14m and Gardua $19m

Air NZ

On 27 June 2018 the Federal Court (Justice Gleeson) ordered Air NZ to pay $14m in penalties:

Australian Competition and Consumer Commission v Air New Zealand Limited (No 15) [2018] FCA 1166

PT Garuda

On 30 May 2019 the Federal Court (Justice Perram) ordered PT Garuda to pay $19m in penalties:

Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (Remedies) [2019] FCA 786

ACCC, 'Garuda ordered to pay $19 million for price fixing' (Media Release, 30 May 2019).

 

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  • Cento Veljanovski, ‘Australian air freight cartel case crashes: why did the New Zealand and Australian courts differ’ (2015) 36(3) European Competition Law Review 104

Last updated: 8 August 2020