The Full Court of the Federal Court has recently brought the long running saga between the ACCC and Flight Centre to an end. The dispute, which went on tour up and down the federal court system (including to the High Court) on multiple appeals on both liability and penalties, centred around allegations that Flight Centre engaged in conduct that was prohibited by Australia’s competition laws.
The conduct in question, which took place between 2005 and 2009, was Flight Centre seeking to induce three international airlines to enter into arrangements by which they would not price airline tickets below that which Flight Centre offered. The High Court found Flight Centre committed five breaches of competition law in 2016: one for each attempt to get an airline to engage in price fixing.
The matter was remitted to the Federal Court to determine the appropriate penalty, which was found to be $11 million. Flight Centre appealed, and the ACCC cross appealed, against this sentence. This month the Full Court of the Federal Court has found that the penalty should actually be increased to $12.5 million.
The sentencing appeal
Flight Centre sought to argue that it should be liable to pay no more than $2.5 million in penalties. In support of this, Flight Centre submitted that:
- The contravention of the relevant competition law was not covert, rather it was open and undertaken under a mistaken understanding that it was not unlawful. In particular, the senior officers involved did not believe that Flight Centre was breaking the law.
- It had an otherwise clean record with respect to similar conduct.
- It had cooperated with the investigation.
- There was no need to deter future conduct because the primary judge found that Flight Centre had established it would not seek to repeat the conduct.
- The public interest in the case and the substantial legal costs incurred should be taken into account.
The ACCC, on the other hand, argued that Flight Centre’s conduct was deliberate and serious, took place over four years, involved senior officers, would have seriously damaged competition in the market, and that the conduct involved threats from Flight Centre to the airlines. The ACCC submitted that an $11 million penalty represented a fraction of Flight Centre’s annual revenue, and once this is all taken into account, the penalty should be increased.
What penalty should be imposed?
The Full Court accepted that Flight Centre believed the conduct was innocent. On this point, the Court commented on one of the more controversial legal aspects of the earlier High Court case that found Flight Centre had committed the relevant breaches. Readers might recall that in that case Flight Centre argued that it could not have broken the law, because travel agents were not in competition with airlines. This was not accepted, and the High Court found that Flight Centre did compete with airlines for the sale of tickets.
In the present case, the Full Court said that Flight Centre believed its conduct was innocent because it was not in competition with the airlines, however the novelty in determining that airlines and agents competed against each other should not detract from the seriousness of price fixing.
The Full Court accepted that the lack of covertness and the existence of policies to ensure future compliance was relevant, but noted that there was a strong need for general deterrence due to the severity of the breaches. So important was this notion of deterrence that the Court decided to increase the total penalties from $11 million to $12.5 million.
Beyond the public interest in the high profile nature of the case, the recent appeal offers useful guidance on the Court’s thinking on how to impose penalties for breaches of competition law.
Firstly, the Full Court was quick to remind the parties that referring to other cases with different facts has limited utility in seeking a sentencing yard stick:
“One does not work back or forward from other more or less serious cases. One evaluates all the circumstances of the case at hand.”
Secondly, Full Court made it clear that simply because a party innocently misunderstands the illegality of its conduct does not mean that no civil penalty, or a light civil penalty, should be imposed.
Finally, the Full Court found nothing wrong with imposing a higher sentence on the appeal. The Full Court stated the human consequences of sentencing found in criminal proceedings that militate against such orders would ordinarily not apply in the context of civil penalties for breaches of the laws governing commerce. This serves as an important reminder of the consequences of appealing against the severity of a penalty.