Key Points:

It won't affect new cartel cases, but the air cargo cartel case is important for understanding what is a market in Australia.

The Australian Competition and Consumer Commission has successfully appealed the decision of the Federal Court in relation to price fixing allegations against PT Garuda and Air New Zealand. The key issue decided by the Full Court was whether Australian price fixing law (as it was before the 2009 cartel amendments) applied to collusion over freight charges for cargo shipped into Australia.

Prior to 2009 the Act required showing that the collusive conduct occurred in a market "in Australia". The primary judge held this element was not satisfied for freight rates set in Hong King and Indonesia for cargo shipped to Australia, because that conduct occurred outside an Australian market. On appeal however, a 2-1 majority of the Full Court adopted a much broader approach to defining the relevant market and found that Australian law applied to conduct at the point of shipment.

While this decision is of limited significance for the new cartel provisions (which appear not to include any requirement to show the cartel conduct occurred in an Australian market), the Air Cargo decision is of significance for other parts of the Act which continue to require showing a connection to an Australian market, as well as other investigations on foot which concern pre-2009 conduct affecting cargo and freight arrangements into Australia. The case is also relevant to the latest Harper Committee reform proposals for the cartel laws (which the Federal Government supports) to require an effect on trade within, to or from Australia.

The ACCC brings a case against 15 airlines

In 2008 and 2009 the ACCC commenced proceedings against 15 international airlines alleging that they had engaged in price fixing in relation to surcharges on air cargo carried to Australia. While 13 of the airlines settled with the ACCC and paid substantial penalties amounting to $98.5 million in total, Garuda and Air New Zealand proceeded to trial, where the trial judge dismissed the ACCC case solely because of the alleged conduct not being in a "market in Australia".

The primary judge found that the markets for airborne cargo out of Hong Kong, Singapore and Indonesia were not markets "in Australia". The court found that the relevant market in which air cargo services were supplied and acquired was located at the geographic point at which a shipper made a choice as to which airline to engage (a "switching decision"). Those choices were not made in Australia, but overseas.

What is a market in Australia?

On appeal, the Full Federal Court overturned the first instance decision 2 to 1, finding that the price fixing conduct had occurred in a market in Australia.

Air New Zealand and Garuda advanced the argument that market definition relied on a geographical dimension. The ACCC in contrast argued that both the product dimension and the geographical dimension of a market needed to be considered.

The majority found that neither of these approaches accorded with the text or purpose of the Act. Rather, the market test is two-fold.

  1. Identification of the relevant market: the identified market will include, “a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first mentioned goods or services.”
  2. Characterisation of whether the identified market is in Australia: While geographical dimensions may easily resolve this issue, the Full Court thought it would be an error to approach the question of characterisation simply by asking if one dimension of the market (eg. the geographic dimension) was in Australia. The entire market must be considered and the other dimensions may be relevant to the question.

In this particular case all aspects of the market were relevant, including the fact that the services were partially supplied in Australia and that some shippers who, as a matter of economic reality were customers of the airlines, were located in Australia.

The Full Court majority thought this broader interpretation of the provision was consistent with the overarching purpose of the TPA being “to enhance the welfare of Australians through the promotion of competition and fait trading and provision for consumer protection”. A narrow interpretation of the Act which focused only on one aspect of a market, such as the location of the supplier or the identification of substitutable services was found by the majority to “lack any textual foundation".

Ultimately, the court held that whether a market is “in Australia” is an evaluative exercise which should not exclude any aspect of the market from consideration. This approach was observed to be consistent with Australian authorities that emphasise various factors other than the location of a supplier, and also consistent with conclusions reached upon similar fact patterns in New Zealand and in the European Union.

Impact of decision on new cartel laws

The Full Court majority's decision may not affect cases pursued under the new cartel laws. Those laws were framed very broadly to apply to any offshore collusive conduct if the parties conduct business in Australia, irrespective of how the market was defined.

Harper Review reforms

The Full Court majority's decision is consistent in a policy sense with the recent recommendation of the Harper Committee to retain the requirement that the Act define "markets" as markets "in Australia" but ensure that competition in Australian markets is understood and applied broadly to include competition from goods and services imported or capable of being imported into Australia. The Government has indicated that it supports that recommendation.

In addition, the Harper Committee also recommended that for cartel conduct to be an offence in Australia, it should have an effect "on trade or commerce within, to or from Australia". If that recommendation is implemented (and it has government backing) it is likely that it would have captured the conduct in the case of Air New Zealand and Garuda.

To the High Court?

It may not end here. Garuda and Air New Zealand may seek special leave to appeal, buoyed by the dissent of Justice Yates who agreed with the trial judge on the market definition question and who would have dismissed the ACCC case. We will be watching this matter for further developments.