Final destination: High Court decides market ‘in Australia’ for the Air Cargo Cartel

What you need to know

• The High Court has provided clarity on when conduct is taking place in a market ‘in Australia’ for the purpose of certain prohibitions in Australia’s competition laws.
• The High Court’s decision:
  • emphasises the need when defining a market to examine all aspects of it, including the presence of customers in Australia, sales and marketing efforts directed to those customers, and sources of actual and perceived business;
  • reaffirms that internal documents of a company will be influential in determining where rivalrous behaviour takes place and thus market definition; and
  • clarifies that whether Australian consumers or businesses are the victims of the impugned conduct is relevant to the question of market definition.
• As a result, businesses may be operating in a market ‘in Australia’ for the purposes of Australia’s competition laws, if they are supplying Australian customers, directing sales and marketing activities to Australian consumers, or if any (anticompetitive) conduct impacts negatively on Australian consumers and businesses. This is so, even if their physical location is entirely offshore and all arrangements are entered into outside Australia.

Background

The High Court’s decision is the final (Australian) chapter in the long running Air Cargo Cartel matter. Between 2008 and 2010, the Australian Competition and Consumer Commission (ACCC) issued proceedings against many international airlines alleging price-fixing and other anti-competitive conduct in relation to certain surcharges on international air cargo services flying to Australia. Most airlines settled with the ACCC, with the Federal Court imposing penalties totalling $98.5 million.

Air New Zealand and Garuda did not settle. They claimed, among other things, that Australian courts had no jurisdiction because the relevant market for air cargo services in which the impugned conduct took place was not a market in Australia.

The airlines were successful at first instance with the primary judge (Perram J) finding that despite the airlines collusion with respect to fixing the price of surcharges, there was not a market in Australia for the relevant air cargo services the subject of the conduct. His Honour treated the place where the ultimate choice of airline was effected (referred to as ‘the switching decision’) as critical to the location of the market and so identified markets in Hong Kong, Singapore and Indonesia, but not Australia.

The ACCC appealed to the Full Federal Court, which held by a majority (Dowsett and Edelman JJ, Yates J dissenting) that the collusive conduct did take place in a market in Australia and that Air New Zealand and Garuda therefore contravened the price fixing provisions under the Trade Practices Act 1974 (TPA) (now the Competition and Consumer Act 2010 (CCA)). The majority said that defining a ‘market’ for the purposes of the TPA involved a “flexible assessment” of various matters that were not limited to questions of substitutability, and that an important part of market definition was whether at least part of the relevant services were provided in Australia.  

High Court Decision 

A unanimous High Court upheld the decision of the Full Federal Court, finding that the relevant markets were ‘markets’ in Australia. You can access the full judgment here.

Key findings of the Court included:

• To determine the market, you need to look at the interplay of forces of supply and demand which generate the service and fix its price.
• In this case, Australia was “not merely the end of the line” for the relevant air cargo services, but was also a vital source of demand for those services from customers important to the profitability of their businesses.
• As a practical matter of business, the rivalrous behaviour was in a market which included Australia, even if the market might also have been in Singapore, Hong Kong or Indonesia.
• The airlines were actively engaged in capturing the demand for services emanating from shippers in Australia as an integral part of their business. The deliberate and rivalrous pursuit of orders from Australian shippers was compelling evidence that they were in competition with each other in a market in Australia. In this regard, the High Court referred to various internal documents and marketing materials of the airlines, which highlighted their pursuit of Australian customers.   
• Where sellers are engaged in marketing their goods or services, or perceive themselves to be competing, in areas beyond where they are physically located or transactions completed, commercial reality is likely to dictate that the market includes those further areas.
• The approach of the primary judge accorded too much significance to the fact that substitution or switching may occur outside Australia. Although the issue is a relevant factor, such an approach can obscure the proper identification of the market and undermine the purpose of the relevant statutory provisions.
• Market identification is not a task undertaken at large, or in a vacuum. Rather, it is a ‘focussing process’ which is “to be undertaken with a view to assessing whether the substantive criteria for the particular contravention in issue are satisfied, in the commercial context the subject of analysis”. Such an approach invites consideration of the victims of the alleged conduct when defining the market, in light of the objects of the CCA.

Implication

If you compete to sell goods or services to Australian businesses or consumers, or acquire goods and services from Australian businesses, it is likely that you will be subject to Australian competition laws and accordingly you should obtain legal advice if your conduct may have an adverse effect on competition. This is so even if, on their face, all of your conduct and operations may take place outside Australia. 

Johnson Winter & Slattery represented Qantas in relation to the air cargo cartel investigation and related penalty proceedings.