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

APPEAL: 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)

NOTE: On 14 October 2016 the High Court granted Special Leave to Appeal in this matter

 

Update: Appeal

On 14 October 2016 the High Court granted Special Leave to Appeal in this matter ([2016] HCATrans 245)

On 21 March 2016, the Full Federal Court, by majority, upheld the appeals (the two appeals - against PT Garuda Indonesia and Air New Zealand Limited - were heard together).

View: ACCC v P T Garuda Indonesia Ltd [2016] FCAFC 42

On 16 December 2014 the ACCC lodged a notice of appeal from the trial judgment (press release).

 

Summary (case at trial)

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).

The central point on appeal related to the meaning of market 'in Australia'.

Primary judge

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)

Appeal (Full Federal Court)

Appeal upheld by majority (details forthcoming)

Justice Dowsett and Justice 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)

 

Further reading

Appeal

Trial

ACCC releases

Commentary

Articles

  • 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

 

Appeal (High Court)

Air New Zealand v ACCC; PT Garuda Indonesia Ltd v ACCC [2016] HCATrans 245 (14 October 2016) (AustLII)
Special leave transcript

Air New Zealand v ACCC; PT Garuda Indonesia Ltd v ACCC [2016] HCATrans 245 (14 October 2016) (Jade)
Special leave transcript

Appeal (Federal Court)

Trial