Home Page / Hot Topics / Cartels and agency arrangements

Hot topic

Cartels and agency arrangements

Travel agencyIn 2013 two decisions of the Federal Court were delivered which both related to agency-type arrangements:

Both cases alleged price fixing under the old s 45A price fixing provision; however, the issues involved (particularly those relating to market and whether parties should be considered competitors) would apply equally to the current cartel laws.

The ACCC was successful in the Flight Centre case and unsuccessful in the ANZ case. Both were appealed. On Friday 31 July 2015 the Full Federal Court ruled in both cases; Flight Centre succeeded in their appeal and the ACCC failed in its appeal against the ANZ ruling.

On 28 August the ACCC announced it had applied for special leave to appeal the Full Federal Court's decision in Flight Centre. Special leave was granted on 11 March 2016.

The Appeal was heard on 27 July 2016 and judgment was delivered on 14 December 2016; the High Court, by 4-1 majoirty held in favour of the ACCC, finding the parties did compete in a relevant market (albeit a different market than that identified by the trial judge) with the result that an attempt to reach agreement on price contravened Act. See External linkHigh Court case page.

 

The ANZ case

The ACCC alleged that, in 2004, ANZ had required Mortgage Refunds Pty Ltd to agree to limit the amount of refund it could provide in respect of arranging ANZ home loans and that, as a result, 'ANZ made and gave effect to an agreement where it would only allow Mortgage Refunds to continue to be accredited to offer ANZ mortgage products if it agreed to limit any refund it paid to its customers to $600, which would allow ANZ branches to match the deal if they chose to waive the ANZ loan establishment fee.' This, the ACCC alleged, constituted price fixing under s 45 (with aid of s 45A) of the then Trade Practices Act 1974 (now Competition and Consumer Act 2010), because 'ANZ and Mortgage Refunds were competitors in the market for the provision of loan arrangement services.' (see ACCC press release)

The Federal Court dismissed this claim, finding that ANZ and Mortgage Refunds were not competitors and, as a result, the conduct did not constitute price fixing. The ACCC failed in its appeal against this decision.

Flight Centre

The ACCC alleged that Flight Centre attempted to induce three airlines to enter into a contract, arrangement or understanding to fix, control or maintain prices for air travel and that this contravened the law against price fixing.

Justice Logan held that Flight Centre was in competition with airlines for distribution and booking services. Flight Centre had attempted to induce the making of a contract, arrangement or understanding which would remove 'air fare differentiation so as to eliminate or reduce competition by a substitute, an airline, for the retail or distribution margin for distribution and booking services.' [para 197] In so doing, Flight Centre 'sought at least to maintain or control that margin and that was the likely effect of its attempts. Its conduct was an attempt to induce a contravention of s 45 of the TPA, as that section is read with s 45A' [para 197]

Flight Centre succeeded in its appeal against Justice Logan's decision.

The ACCC succeeded in a further appeal to the High Court on 14 December 2016.

View my Australian Competition Law blog discussing this decision. See also my Competition Policy blog discussing this decision.

Inconsistencies and the agency problem

The divergent outcomes in these cases led to some uncertainty about whether and when an agent may be 'in competition' with its principal for purposes of the cartel laws. There is no 'agency' defence under Australian law. The Federal Court appeal decisions removed some of this uncertainty, although the ANZ decision left open the possibility that agency arrangements may still, in some cases, be found to have occurred between 'competitors'. The success in the High Court appeal has again raised concerns of inconsistencies; however, these may be shortlived if recommendations made by the Harper Panel in relation to exempting vertical supply transactions from the cartel laws (so that prohibition would depend on proof of anticompetitive purpose, effect or likely effect) are implemented (they form part of exposure draft legislation but have not yet been introduced into Parliament).

Further reading

On the High Court judgment

On the High Court appeal

On the Federal Court appeals

On the decision at first instance

 

Images copyright: Image courtesy of Stuart Miles (Image ID: 10091676) from FreeDigitalPhotos.net.