Regulator’s pleading struck out by court in cartel claim
In a setback for the ACCC the Federal Court has struck out its Statement of Claim in its action against Singapore Airlines. The decision has important implications both for this litigation and for any proceedings the ACCC may bring against other airlines.
A major focus of the ACCC’s activity in recent times has been alleged cartel behaviour and price fixing by international airlines concerning fuel and security surcharges on air cargo. The ACCC has brought proceedings against eight airlines including in six instances where the airlines have made admissions and agreed settlements subsequently approved by the Federal Court. In December 2008 the Court approved penalties of $20 million and $5 million against two airlines respectively. In February 2009, the Court approved penalties against another two airlines (jointly) of $6 million, and a further two airlines of $5 million.
Not all airlines have agreed to settle with the ACCC. In October 2008, the ACCC instituted proceedings in the Federal Court in Sydney against Singapore Airlines Cargo and in April 2009 instituted further proceedings against airline for alleged price fixing of air freight. The ACCC continues to investigate other airlines and has stated further actions are expected over the next few months.
Singapore Airlines mounted a challenge to the claims bringing an application in April this year to strikeout the Statement of Claim. Justice Jacobson delivered a judgment in Sydney on 20 May 2009 striking out the Statement of Claim against Singapore Airlines but at the same time giving leave to the ACCC to re-plead.
Singapore Airlines argued the Statement of Claim failed to identify a market in Australia within the meaning of section 4E of the Trade Practices Act 1975. For the purposes of the application, Singapore Airlines had to accept definitions for the alleged global market, Australian market and route-specific markets alleged by the ACCC. We understand the ACCC’s market definitions could well be subject to challenge by Singapore Airlines if the matter goes to a final hearing.
The Court acknowledged recent Australian cases (including the penalty decisions) which accepted the proposition that a global market was at least capable of constituting a market in Australia. One such case was the challenge brought by Emirates and Singapore Airlines to the validity of compulsory notices issued by the ACCC as part of the current investigations - these applications were dismissed by Justice Middleton in the Federal Court in Melbourne in early April 2009. Consistently, Justice Jacobson found (for the purposes of the strikeout application) Singapore Airlines could not succeed on its first objection because the pleaded markets were at least capable of amounting to markets in Australia.
The Court then considered whether the Statement of Claim pleaded the necessary material facts to establish the proscribed effects on competition in markets in Australia. Subject to one exception, Justice Jacobson found there were simply no material facts stated in the pleading which demonstrated that the alleged price fixing understandings in respect of international air freight services between destinations outside Australia have the proscribed effect on competition in a market in Australia. Justice Jacobson stated it was necessary to state facts which disclose how the parties to an understanding for the supply of air freight services from, for example, Jakarta to Paris, are in competition with each other in a market in Australia. It was not sufficient to simply assert that higher prices on routes between points outside Australia of themselves have an adverse price effect on consumers in Australia.
Justice Jacobson did not consider the defects incurable and has set a challenge to the ACCC to come up with a pleading which addresses the competition between the parties to the alleged understandings in a market in Australia and includes the necessary material facts demonstrating the required effect on competition in markets in Australia. The next version of the pleading should make for interesting reading. There are also some interesting observations in the judgment on the earlier cases including the penalty hearings for other airlines. His Honour was able to explain the broad approaches to issues of market definitions and the like in those judgments by reason of the admissions made by the airlines as part of their settlements with the ACCC.
Written by Steve Burns, Partner
