The Full Federal Court has clarified the application of Australia's cartel laws to suppliers and their distributors in circumstances where suppliers deal both directly with customers, and indirectly through other distribution channels.
On Friday, the Full Federal Court delivered judgment in two matters involving allegations by the ACCC against Flight Centre and the ANZ Bank.
The Federal Court had found, in 2013, that Flight Centre engaged in attempted price fixing by demanding that three airlines cease offering discounted airfares if they were not also made available for Flight Centre to sell. The Federal Court initially found that both Flight Centre and the airlines supplied, in competition with each other, a 'booking and distribution' service, which was separate from the supply of international air travel. Flight Centre's conduct was found to be an attempt to prevent the airlines from discounting their 'price' for this service (described as the airlines' 'retail or distribution margin').
This followed the Federal Court's rejection, earlier in 2013, of the ACCC's claims that the ANZ Bank had engaged in price fixing by demanding that a mortgage broker limit the size of rebates offered to customers who took out an ANZ home loan through the broker.
Both decisions were appealed to the Full Federal Court, with the same bench hearing both matters. In both cases, the Full Court found against the ACCC.
In Flight Centre, the Full Court found that it was artificial to separate the supply of air travel from the booking and distribution of that air travel by the airlines – this was not a separate service provided by the airlines to itself or to their customers. Further, there was a relationship of agency between the airlines and the travel agents which, in this case, meant they were not supplying a product in competition with each other.
In ANZ Bank, the Full Court upheld the reasoning of the primary judge. Again, it was artificial to separate the provision of home lending by a bank from informing customers about the product and assisting them to apply for a loan though bank branches. As with Flight Centre, there was no competition between the bank and the mortgage broker.
What does this mean?
The initial decisions in ANZ Bank and Flight Centre caused a lot of confusion among businesses involved in the sale and distribution of a range of products such as travel, accommodation and financial services. The Flight Centre decision in particular cast doubt on the demands a supplier could lawfully make of its distributors and vice versa.
The decisions of the Full Court have clarified the law in this respect.
The key is to understand the services being offered by each of the parties to the distribution arrangement. For example, an airline offers air travel. When the airline sells that product direct to a customer it is not supplying a separate booking and distribution service. Booking and distribution is an essential and inseparable incident of the sale of air travel. The travel agent provides a service both to the airline and to the customer, but they are different services. The airlines and the travel agents are not in competition.
The existence of an agency relationship is relevant, but not essential. Where there is a genuine agency, it would support a conclusion that there is no competition. It is important to note, however, that the ANZ Bank was not in an agency relationship with the mortgage broker.
The ACCC has 28 days to apply for special leave to appeal to the High Court of Australia.