Airlines challenge the reach of the ACCC as it fails in alleged cargo cartel saga
Background
The Federal Court of Australia has recently handed down its decision in the challenge by two airlines with regards to notices issued by the Australian Competition and Consumer Commission’s (ACCC) under section 155(1) of the Trade Practices Act 1974 (Cth) (TPA).
Section 155 of the TPA relevantly provides that if the ACCC has reason to believe that a person is capable of producing documents relating to a matter that constitutes, or may constitute, a contravention of the TPA, the ACCC may, by notice in writing require that person to produce to the ACCC any such documents.
The notices primarily sought documents and information relating to an alleged price fixing arrangement or understanding in relation to international air cargo services, purportedly contravening section 45 of the TPA.
The TPA in this case had the effect that a corporation must not make or give effect to an arrangement if a provision of the arrangement has the purpose, or has or is likely to have the effect, of fixing the price for international air cargo services supplied by the parties to the arrangement or by any of them in competition with each other in any market in Australia in which a corporation that is a party to the arrangement supplies those services.
The Court rejected all the airlines’ arguments and held the motives were valid. The most significant part of the decision in the Court’s discussion was the concept of “market in Australia”.
Market in Australia
The airlines accepted that services on routes from Australia in respect of outbound flights are supplied in a market in Australia, but argued that there was no market in Australia for:
- the supply of inbound international air cargo services; or
- for the supply of air cargo services between two points wholly outside Australia;
because the marketing, competition, negotiation, and contracting for such services, and particularly the setting of rates, occurs entirely outside of Australia.
The Court held that the place of contracting was not determinative of the geographic locality of the relevant market and rejected the airlines’ argument as the evidence did not prove that no marketing or negotiating occurs in Australia in respect of all international air cargo services or that there is no possibility of competitive activity in a market in Australia in relation to inbound services to Australia.
The Court held that the airlines’ evidence did not eliminate any reasonable hypothesis that was inconsistent with the contention that the market is wholly outside Australia. The Court noted a number of reasons for this including:
- the possibility of customers in Australia booking space on an aircraft over the internet;
- charter flights are organised by the airlines at the destination point;
- inbound and outbound services may be sufficiently connected to be at least possibly complimentary; and
- the airlines’ evidence was inadequate in a number of aspects relating to the market definition.
The Court noted that a price fixing arrangement between two destinations outside Australia may be capable of controlling the prices of outbound flights. The example given by the Court was where there was no direct flight to the ultimate destination, say Bangalore. Price fixing arrangements between an enroute destination and Bangalore will affect the price offered in Sydney, on the Sydney to Bangalore route.
Similarly, the Court considered that price fixing arrangements for inbound cargo could affect the prices offered in Sydney, for a customer in Sydney who wanted to arrange a round trip air shipment. The hypothetical example given was a shipment of computers from Sydney to Bangalore for repair and back to Sydney.
The judgment does not define the boundaries of the relevant “market in Australia” but it does provide insight into how a Court will examine this issue. The Court and the parties will have to address this issue in any substantive proceedings in relation to alleged price fixing.
Implications of the decision
The airlines’ challenge to the notices was defeated and they now have to produce the documents sought by the ACCC (subject to any appeal).
The construction given to the notices by the Court demonstrates the Court’s desire to give the notices a reasonable and sensible construction facilitating their validity and just how hard it is for the recipient of a section 155 notice to have it set aside.
For the ACCC to issue such a notice it only has to have reason to believe that a person is capable of producing documents relating to a matter that may constitute, a contravention of the TPA (after allowing for undiscovered facts).
The Court agreed with the airlines that services on routes from Australia are supplied in a market in Australia. No definitive findings were made as to the market in question. However, the Court was not prepared to accept that inbound services or services between two points wholly outside Australia did not involve markets in Australia.
The definition of the relevant market will have to be decided in any substantive proceedings in which contraventions of section 45 of the TPA are alleged against the airlines.
Written by Robert McGregor, Partner and Simon Liddy, Partner
