Last Friday, 28 March 2014, Justice Logan of the Federal Court of Australia ordered Flight Centre to pay a total of $11 million (in civil penalties) for attempted price fixing in ACCC v Flight Centre Limited (No 3)  FCA 292.
This decision on penalty follows his Honour’s findings in ACCC v Flight Centre Limited (No 2)  FCA 1313, where his Honour found Flight Centre engaged in conduct whichconstituted an illegal attempt to fix prices in relation to Flight Centre’s retail or distribution margin for air fares for international air travel in the period August 2005 to March 2009 with three airlines (Singapore Airlines, Emirates and Malaysia Airlines). For other articles authored on this case by Gilbert + Tobin click here.
Justice Logan imposed pecuniary penalties totalling $11 million dollars.
This total amount was made up of five separate individual penalties for attempting to induce the following airlines to enter into price-fixing agreements:
- Singapore Airlines (March 2006): $2 million;
- Emirates (May 2008): $2 million;
- Emirates (December 2008): $2 million;
- Malaysian Airlines (March 2009): $2 million; and
- Singapore Airlines (May 2009): $3 million.
The contravention in August 2005 (with respect to Singapore Airlines) was found to be outside the statute of limitation and therefore did not attract a direct penalty (the limitation period under the (Competition and Consumer Act) (CCA) is 6 years).
Penalties under the CCA
The factors that the Court is required to take into account when determining an appropriate penalty under Part IV of the CCA are well established. Factors referred to by the Courts include:
- the size of the contravening company;
- the deliberateness of the contraventions and the period over which it extended;
- whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;
- whether the contravener has shown a disposition to co-operate with the authorities; and
- the financial position of the contravener.
Relevantly, under the CCA, the maximum penalty may be the greater of $10 million or 10% of annual turnover per contravention.
In the penalty proceedings, the ACCC attempted to plead late (after judgment in the primary decision was handed down) that the penalty should be determined by reference to 10% of the annual turnover of Flight Centre and not the $10 million maximum (s 76(1A) of the former Trade Practices Act ). In which case, any penalties would be substantially greater than $10 million. His Honour decided that a turnover based penalty was not open to the ACCC due a defect in the ACCC’s pleading (see below).
Flight Centre suggested that no pecuniary penalty should be imposed because the undertaking offered by it during the penalty hearing were sufficient. His Honour did not accept this, and considered that in relation to Flight Centre, it was appropriate to impose a pecuniary penalty. To not do so would not make clear that “ the cost of courting a risk of contravention of the Act cannot be regarded as acceptable cost of doing business ” [sic].
His Honour considered that a total penalty of $11 million was appropriate having regard to the following factors:
- Per se prohibitions: The contraventions involved per se prohibitions (ie, price-fixing).
- Size of company/market share: His Honour noted that Flight Centre was a major public company, with at least 20% of the market in respect of the distribution and booking of international air travel from Australia, and that Flight Centre’s threats to the airlines carried the weight associated with that market power. In this sense, Flight Centre’s conduct was considered “ wholly mercenary, not altruistic in its purpose and of the very kind proscribed by Parliament ”.
- Character and pattern of conduct: Flight Centre’s conduct was part of a concerted pattern of reactive corporate conduct by Flight Centre. In addition, His Honour was clearly concerned by the essential character of the conduct, which he saw as being “… flagrant conduct by a major, profitable public company enjoying a significant market share ”.
- Senior management involvement: In imposing the penalty, for the sixth contravention he imposed a pecuniary penalty of $3 million (being an increase of $1 million over the other contraventions) reflecting the direct involvement of senior management in that contravention.
- Attempt: His Honour considered it is equally important to deter attempts as well as successful contraventions and noted that but for the fact that the conduct involved attempts, he would have imposed greater penalties.
- Deterrence: As was recently emphasised by the High Court in the TPG proceedings, deterrence plays a primary role in determining the penalty. In this case, the fact the conduct was engaged in to drive Flight Centre’s profits required his Honour to ensure others would be deterred from such conduct.
The key take-outs from His Honour’s decision are that:
- even attempts will be regarded as serious contraventions of the CCA;
- per se offences (eg price fixing and retail price maintenance) can give rise to very significant penalties;
- if senior management are involved, this will attract a more significant penalty than may otherwise be the case; and
- similarly, evidence that the conduct is concerted and deliberate will also attract a more significant penalty.
It should not be forgotten that penalties under the CCA are $10 million or 3 x the gain or 10% of the turnover. While many decisions under the CCA to date have focussed on the $10 million maximum, businesses should not be complacent that any penalties will be capped at $10 million, including because a significant number of cases will involve multiple contraventions of the CCA. This is particularly relevant for major profitable public companies.
Finally, the judgement confirm the trend of significant penalties for CCA contraventions, as shown in the table attached.