Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21: Airline Cartel Conduct

Wednesday 14 June 2017 @ 11.52 a.m. | Trade & Commerce

Today (14 June 2017) in the case of Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21, the High Court has unanimously dismissed two appeals from a decision of the Full Court of the Federal Court of Australia, holding that price fixing agreements entered into between Air New Zealand Ltd (Air NZ), PT Garuda Indonesia Ltd (Garuda), and other international airlines, which occurred between 2002 and 2006, breached Australia’s competition law.

Background to the Case

Between 2008 and 2010, the ACCC took proceedings against 15 international airlines. 13 airlines settled, with Federal Court judges imposing penalties totalling $98.5 million on these airlines.

The proceedings against Air New Zealand and Garuda concerned alleged arrangements or understandings with other international air cargo carriers in the period between 2001 and 2006, to fix fuel, security and insurance surcharges on air cargo services. The principal issue on appeal was whether there was a market "in Australia" for the air cargo services for which the airlines competed for the purposes of the Trade Practices Act 1974 (Cth) ("the TPA").

At Trial

At trial, the airlines were found to have been parties to understandings that amounted to price fixing.  The understandings involved the imposition of surcharges and fees on the supply of the air cargo services.  The primary judge found that this conduct would have contravened s 45(2) of the TPA, as each understanding had the purpose, effect, or likely effect, of substantially lessening competition.  But s 4E of the TPA required that the relevant competition for the purposes of s 45(2) was competition in a market in Australia and his Honour found that the market for the air cargo services for which the airlines competed was not in Australia:  it was in the place where the "switching decision" – the choice of airline – was given effect, namely, where the cargo was delivered to the airlines at the port of origin.

On Appeal to the Full Federal Court

The ACCC appealed to the Full Court of the Federal Court.  By majority, the Full Court found that price fixing conduct engaged in by Garuda and Air NZ relating to the imposition of agreed surcharges on the carriage of air cargo from ports outside Australia to destinations within Australia took place in a “market in Australia”, and consequently breached Australia’s price fixing laws.  The majority held that defining a market for the purposes of the TPA involved a "flexible assessment" of various matters, not limited to questions of substitutability, and that the better approach for determining whether a market was in Australia for the purposes of s 4E was to "visualise" the metaphorical market, and then to consider whether it was within Australia, in the sense that at least part of it was in Australia.

High Court Appeal

By grant of special leave, the airlines appealed to the High Court where the High Court unanimously dismissed the appeals by each airline and held that all aspects of the market, including the presence of customers in Australia, need to be considered in deciding whether a market is ‘in Australia’.

"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."

ACCC Commissioner Sarah Court said:

“How a market is defined, including considerations of whether conduct occurs in Australia, are critical issues to the understanding and interpretation of Australian competition law...Today’s judgment sends a clear message that the ACCC is committed to pursuing cartel conduct that impacts on Australian business and consumers."

The matters against Air NZ and Garuda will be remitted to the Federal Court for a hearing as to relief, including penalty.

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Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21 and summary judgment details

ACCC Media Release - 14 June 2017

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