In a judgment handed down today in the Federal Court, Perram J dismissed allegations brought by the ACCC that Air New Zealand and Garuda had colluded between 2001 and 2006 with other airlines to fix surcharges and fees for air cargo services in contravention of the Trade Practices Act 1974 (TPA) (now the Competition and Consumer Act 2010).  Perram J dismissed all the allegations on the basis that the conduct did not have the purpose or likely effect of substantially lessening competition in a market in Australia, as required under s 45 of the TPA.

The alleged anti-competitive conduct

The ACCC alleged that anti-competitive conduct including price fixing had occurred in markets in which cargo was flown from Hong Kong, Singapore and Indonesia into Australia. Through industry bodies in each of those overseas jurisdictions, the ACCC alleged that airline representatives had met to fix fees and surcharges related to aviation fuel fluctuations and increased insurance costs.  

In Hong Kong, the ACCC alleged that a published index of fuel surcharges (the Lufthansa Index) had been used as the basis for making joint applications to the Hong Kong government’s Civil Aviation Department.  The government department’s approval was necessary to impose any surcharge on flights out of Hong Kong.  The ACCC alleged that this constituted price fixing, while Air NZ and Garuda submitted they were obliged by Hong Kong law to lodge joint applications to the Civil Aviation Department.

In Singapore, Air NZ was alleged to have engaged in anticompetitive conduct by participating in discussions through the local industry body as to proposed fees and surcharges relating to fuel and insurance.  The ACCC alleged that this amounted to price fixing, or alternatively substantially lessened competition.  

In Indonesia, the ACCC alleged that Garuda used the Lufthansa Index as a basis for determining fuel surcharges and agreed customs fees at meetings of the local industry body.  It was alleged that this amounted to price fixing.  Garuda submitted that it was required to act as it did by Indonesian law and practice.

Perram J's findings

(a) Rejection of certain defences

Perram J rejected a number of defences raised, including submissions that international commercial aviation was not regulated under the TPA, that the TPA did not apply extraterritorially to capture the alleged conduct and that the application of the price fixing provision in the TPA in the present case would interfere with the sovereign authority of Hong Kong and Indonesia, which Air NZ and Garuda submitted had required or permitted the alleged anticompetitive conduct.  

In respect of the latter argument, Perram J held that neither the law nor the administrative practices of Hong Kong and Indonesia had required airlines to collude on fuel or insurance surcharges, such that the question of any defence of foreign state compulsion did not arise.  Although the laws of those States may have permitted the alleged conduct (in the sense that the conduct was not forbidden under domestic law), it did not follow that any principle of comity, customary international law or statutory interpretation prevented the alleged interference with sovereign rights arising from the TPA’s extraterritorial application.  Although statutes should be read to avoid as far as possible any breach of customary international law, Australia is fully entitled under customary international law to regulate extraterritorial affairs where there was a proper nexus.  The Court found that the nexus was satisfied  given that the extraterritorial application of the TPA’s cartel provisions was limited to extraterritorial conduct by bodies corporate incorporated in or conducting business in Australia, with respect only to markets in Australia.

(b) No market in Australia

Perram J dismissed all the allegations on the basis that no ‘market in Australia’ was involved, which is a required element of the prohibition in s 45 of the TPA.  

‘Market’ is defined in s 4E as meaning ‘a market in Australia’.  As noted by Perram J, in order to succeed the ACCC had to show that fixing the levels of the various surcharges had the purpose, or was likely to have the effect, of substantially lessening competition in a ‘market in Australia’ as required by s 4E.  The Court also noted that the operation of s 4E in respect of markets not wholly located in Australia had not yet been authoritatively settled in Australia.

In concluding that no market in Australia was involved in the present case, the Court considered that the ACCC’s case was limited (save for one alleged understanding in respect of flights from Australia into Indonesia, which was rejected on the facts) to flights from airports outside of Australia in Hong Kong, Singapore and Indonesia into airports inside Australia.  The Court stated that the demand side substitution occurred at these ports of origin and that the relevant competition affected by surcharges (which were imposed and collected at the origin airports) was the competition between airlines in markets in these foreign locations, not competition in any market in Australia.  Specifically, Perram J found that even if prices in Australia were affected by the relevant conduct, that did not establish that the market in which the airlines were competing was located in Australia.

(c) Where to next?

The ACCC indicated that it will carefully consider today’s judgment dismissing the proceedings.  It remains to be seen whether the ACCC will seek to appeal the decision to the Full Federal Court.

While this is an important decision, we note that it may be of limited application to cartel conduct cases under the current Competition and Consumer Act 2010 since price fixing is now picked up by the new cartel prohibitions which do not have the same requirement in relation to a market in Australia as the previous provisions under the TPA did.