ACCC granted special leave to appeal Flight Centre decision

On 11 March 2016, the High Court granted the ACCC special leave to appeal the Full Federal Court’s decision of 31 July 2015 in the Flight Centre Limited v ACCC1  appeal proceedings.

Background

This special leave continues the saga which commenced when the ACCC instituted proceedings against Flight Centre in March 2012, alleging that on six occasions between 2005 and 2009, Flight Centre attempted to enter into anti-competitive arrangements with its competitors, being Singapore Airlines, Malaysian Airlines and Emirates, by attempting to fix the prices at which the airlines would sell their international airfares on their websites. Flight Centre had sought the airlines’ agreement that they would not supply their respective air fares to consumers at prices that undercut Flight Centre’s prices; that is, at a price that was less than the price provided by the airlines to Flight Centre plus an amount equating to Flight Centre’s distribution margin or commission. The Court held that although Flight Centre and the airlines were not competitors in the market for the supply of the air travel itself, they were competitors in the market for the supply of air travel distribution and booking services and therefore Flight Centre’s actions were in breach of the relevant competition laws (s45 and s45A of the former Trade Practices Act(now s44ZZRD(4) of the Competition and Consumer Act)). The Court ordered Flight Centre to pay $11 million in civil penalties.

This decision, however, was subsequently overturned in appeal proceedings brought by Flight Centre before the Full Federal Court, in a judgment handed down on 31 July 2015. The Full Court held that there was no such market as one for the supply of air travel distribution and booking services as these services were a necessary ancillary component of the market for the supply of air travel and, in relation to this broader market, Flight Centre was simply acting as an agent of the airlines and not in competition (although the Full Court did note that the existence of an agency relationship does not always mean the parties cannot be in competition with each other). The ACCC then applied for special leave to appeal this decision to the High Court on 28 August 2015.

Interestingly, the ACCC did not apply for special leave to appeal the same Federal Court appellate bench’s decision in relation to its case against ANZ, which involved similar issues and was handed down on the same day as the Flight Centre decision. The Full Court in this decision upheld the decision of the first instance judge dismissing the ACCC’s claims that ANZ had fixed prices with a mortgage broker that distributed ANZ home loans. Both the first instance and appeal decision found that ANZ was not in competition with the mortgage broker in the ACCC’s pleaded market of supply of loan arrangement services, because only the mortgage broker provided these services (e.g. impartial advice to a customer as to which of a number of possible loans would best suit it) while ANZ branches supplied the loan products (through performing a sales service to ANZ Mortgage Group/ANZ). 

Application for Special Leave

The application for special leave to appeal was heard last Friday and was based on two alternative arguments:

  1. that having accepted that Flight Centre and the airlines “engaged in rivalry or competition for the sale to consumers of international passenger air travel services”, the Full Court erred in finding that (a) there was no separate market for booking and/or distribution services and (b) that the agency relationship between Flight Centre and the airlines precluded them from being in competition with each other in this market; or
  2. alternatively, if the Full Court was correct in concluding there was no separate market for supply of booking or distribution services, the Full Court erred in finding that Flight Centre was not in competition with the airlines in the broader market (i.e. supply of international air travel) by reason of the agency agreements between Flight Centre and each of the airlines.

ACCC submitted that the Full Court’s judgment raised significant questions of law about the application of market definition, with the Full Court’s approach posing a “conundrum”. The ACCC submitted that the Full Court’s approach suggests that even if it is clear that parties are in rivalry or competition with each other (e.g. as shown by Flight Centre’s attempt to “price fix” with the airlines), once it is seen that the contractual arrangement between the parties has an agency relationship attached to it, it is not necessary to look any further as to whether the parties are competitors in the same market and “you ignore the rivalry which otherwise is what brings the whole matter to court.” It asserted that this was a legal error which coloured the Full Court’s analysis of the relevant market and led to its failure to find that the parties were in competition with each other in the market for the supply of air travel. 

The High Court granted special leave to appeal on all of the ACCC’s grounds. 

Incidentally, it is interesting to note that Flight Centre revived its alternative market definition, i.e. the market for the supply of air travel, in its grounds for appeal and that this was the market in which the High Court appeared to be most interested during the special leave hearing. This was a market submitted in the alternative by the ACCC at first instance but rejected by the first instance judge and not contended for further by the ACCC in the subsequent appeal proceedings. Conversely, in the ANZ case the ACCC only ever pleaded a market for the supply of loan arrangement services (rather than a broader market of supply of home loans) and one could speculate that this may be one of the distinguishing factors that caused the ACCC to appeal the Flight Centre appeal decision but not the ANZ appeal decision. 

Watch this space 

The High Court’s ultimate decision could have ramifications for all industries that use an intermediary to distribute their product or service while also itself directly selling its product or services to consumers. It will hopefully clarify (i) when an intermediary is to be considered an agent within a competition law context so as to fall outside the ambit of section 45 (regardless of the how the parties themselves view the relationship) and (ii) the approach to market definition, and the relevant suppliers within that market, in an industry utilising both direct and indirect distribution channels.

It will be interesting to see how closely this decision is viewed internationally and, conversely, whether the parties look to overseas practices in informing their appeal arguments. Competition authorities in other countries have approached similar scenarios in differing ways: in the UK, the competition authority has previously rejected the notion that an online travel agent could be considered an agent so as to fall outside the UK’s similar prohibition on anti-competitive agreements, despite the agency nomenclature attributed to the relationship.2  In relation to the same investigation, the UK authority also appeared to accept the existence of a separate market for booking services.3  Additionally, while both the UK and EU appear to accept that suppliers and distributors compete with each other at the ‘downstream’ retail/distribution level, both also appear to have accepted that often the pro-competitive benefits of restricting this competition will outweigh any negative effects.4  

Intermediaries provide a benefit to consumers which usually the supplier itself is not able to provide. While the extent of these differ between sectors, they will usually enable an easier comparison of prices over a number of different suppliers, added pre- or after- sales service and advice, and a logistics benefit (e.g. by enabling consumers to purchase a number of different products from the one place, cheaper delivery costs through having more established delivery networks, or providing a storage/warehousing benefit for the supplier). These added services will usually enhance inter-brand competition and provide a convenience factor for consumers.

It will be interesting to see how, or to what extent, the pro-competitive benefits provided by intermediaries (which arguably would be undermined by an ability on the part of suppliers to undercut their distributors’ prices) feature in the High Court proceedings or inform the High Court’s ultimate decision in relation to the questions of law – i.e. agency and market definition – on which the appeal is based.