What you need to know

The Full Federal Court has delivered two landmark decisions which clarify the circumstances in which suppliers and their distributors / agents will be taken to be actual or potential competitors for the purposes of Australian competition law. The Full Court reaffirmed that:

  • whether two parties are in competition with each other is a question of fact;
  • the internal documents of one party (or the views of individuals within the business) will generally be influential in determining whether another party is a competitor, but any statements or views must be considered in the context of the party’s overall business operation and strategy and the nature of the markets in which it operates;
  • although market definition is an economic construct, the parameters of a market and the goods or services supplied or acquired within that market must not be an artificial creation – rather, those matters must reflect commercial reality; and
  • the mere fact that a supplier chooses to supply goods or services directly as well as through an agent does not automatically mean the goods or services provided by the agent are similar or substitutable – independent consideration of demand and supply side substitution in response to price movements remain critical in determining the level of competition in a market.

Although the Full Court emphasised that its decisions do not establish a general principle that there can never be competition between the internal and external distribution channels for a particular product, or between a principal and agent in an agency relationship, we think such circumstances are likely to be rare (other than where one party’s customer is also a clear competitor). Ultimately, the issue will depend on the facts of each case.


The facts

ANZ’s banking business included the provision of mortgage products to customers who sought to acquire residential properties. ANZ marketed and distributed its mortgage products to customers through a number of internal channels (branches, managers and specialist business units) and external channels, primarily independent brokers.

ANZ’s internal channels only distributed ANZ products, while the external channels offered customers advice and assistance in relation to loan products from a wide range of providers, including ANZ. Brokers would receive a commission from the lender, if a mortgage application introduced by the broker was approved by the lender.

Mortgage Refunds was an independent broking firm accredited to distribute ANZ mortgages. Mortgage Refunds offered to refund to customers part of its commission if their mortgage applications were approved by ANZ. ANZ subsequently informed Mortgage Refunds that it was in breach of its agreement but agreed that Mortgage Refunds could provide a refund not greater than the loan approval fee ANZ charged customers internally for successful applications, to establish a “level playing field” between the parties (the Agreement).

The ACCC’s case

The ACCC claimed that through its internal channels, ANZ provided “loan arrangement services” to customers, similar to independent brokers. Accordingly, the ACCC alleged that ANZ’s internal channels were in competition with brokers in the market for the supply of loan arrangements services and relied on ANZ’s internal documents (which referred to brokers as “competitors”; real examples of customers switching between lenders and brokers; and ANZ’s desire to restrict business sourced via brokers) in support of its claim. As a result, the ACCC alleged that the Agreement involved price fixing between competitors because it fixed the level of rebate offered by Mortgage Refunds to customers.

Primary judgement

At first instance, Dowsett J held that ANZ did not provide loan arrangement services in any market and only supplied mortgage products in competition with other lenders for the following reasons:

  • the oral testimony and documentary evidence, in the context of all of the evidence and ANZ’s business model, only suggested that ANZ competed in the lending market and that brokers only treated other brokers as competitors, not lenders;
  • services provided by brokers and lenders were fundamentally different as customers went to brokers for independent advice about a range of borrowing options, but went to lenders once that decision was made;
  • lenders and brokers collaborated rather than competed, as evidenced from the accreditation and training of brokers by lenders;
  • channel conflict and cannibalisation did not imply that the channels were in competition with each other; and
  • real life examples of customers switching between a lender and a broker was not in itself evidence of competition between the lender and broker because the reasons for switching were unclear.

Accordingly, Dowsett J found that ANZ and brokers such as Mortgage Refunds were not in competition with each other in the supply of loan arrangement services and the ACCC’s claim of price fixing failed.

ACCC’s appeal

The ACCC appealed the Federal Court’s decision and in particular, challenged the finding by the primary judge that ANZ and Mortgage Refunds did not compete in a market for the supply of loan arrangement services. As a result, the appeal concerned the proper characterisation of the activities of and interaction between participants in the market for mortgage loans.

The Full Court dismissed the appeal. In doing so, it found no error in the primary judge’s findings about the market and the nature of competition. In particular, the primary judge had correctly characterised ANZ employee activities as part of the process of selling an ANZ mortgage loan. They did notamount to the separate provision of services in a market for loan arrangement services

Characterisation of ANZ’s activities

The Full Court held that although ANZ’s internal and external distribution channels occasionally provided some of the services said to comprise of “loan arrangement services”, this market definition (as advanced by the ACCC) had an element of artificiality as it did not accurately or realistically reflect the interactions between the relevant participants. Firstly, the Full Court accepted that there was no evidence that prospective ANZ loan applicants received all, or even any, of the advice or assistance said to make up the loan arrangement services. Secondly, loan providers such as ANZ only provided advice and assistance in relation to their own products and not in relation to loan products generally.

In such circumstances, the Full Court found that the advice and assistance provided by loan providers like ANZ, was no more than conduct ancillary to the sale or distribution of their loan products. Therefore, it was artificial to characterise the provision of advice and assistance by bank officers in relation to loan products as a provision of services in a market separate and distinct from the market for the supply of loan products themselves.

Characterisation of broker’s activities

The Full Court accepted that there were two key differences between the services provided by the bank branches and brokers. Firstly, brokers were seen to be independent of particular loan providers, including banks. Secondly, brokers could and did give comparative advice concerning many different loan products offered by many different loan providers. Consequently, the Full Court agreed that brokers generally supplied broking services, including advice, information and assistance to potential borrowers.

However, as the nature of the relationship between Mortgage Refunds and individual brokers and ANZ was unclear, characterisation of Mortgage Refunds’ activities as also providing broking services was inconclusive. Nonetheless, the key differences between the services provided by ANZ’s employees and brokers operating under the Mortgage Refunds banner were sufficient to determine that the parties did not provide, nor did they compete, in the provision of loan arrangement services.

ACCC v Flight Centre

The facts

Flight Centre, a travel agency, stood as an intermediary between airlines and customers. It supplied customers with booking services for international air travel and received payment from customers for airfares on behalf of the airlines. Flight Centre was also paid a commission by the airlines for making a booking. The relationship between an airline and travel agent was held to be one of principal and agent.

Customers could make bookings for air travel either directly with airlines or through travel agents like Flight Centre. Flight Centre did not provide international air passenger transport services to customers, nor did it acquire the airfares for resupply to customers. Flight Centre simply had access to airfares for the purpose of selling on behalf of the airlines. However, Flight Centre could determine the price at which it sold the airfares to customers.

At the time of the relevant conduct, Flight Centre:

  • had “preferred airline agreements” with Singapore Airlines, Malaysian Airlines and Emirates (the Carriers), pursuant to which Flight Centre would receive an additional commission payment if it achieved revenue targets within the year through the sales of the airline’s targets;
  • advertised a “Price Beat Guarantee” which meant it would better the price of any other airfare in the market shown to it by a customer; and
  • staff were remunerated on a commission basis subject to the margin made on a sale.

During the relevant period, the Carriers were offering airfares on their websites at prices lower than those offered by Flight Centre, which had adverse effects on Flight Centre’s sales and commission due its “Price Beat Guarantee”.

As a result, on a number of occasions, Flight Centre suggested to the Carriers that Flight Centre’s staff would be reluctant to sell their airfares and it may not renew its preferred agreements unless the Carriers did not undercut Flight Centre’s advertised prices on their websites, such that Flight Centre’s commission would be preserved.

The ACCC’s case

The ACCC alleged that Flight Centre and the Carriers were in competition with each other in the supply of distribution and booking services for international air travel. The ACCC argued that Flight Centre and the Carriers competed for the retail commission paid to Flight Centre because Flight Centre would obtain the commission if it made a sale, whereas the Carriers would keep the commission if they made the sale.

It was claimed that Flight Centre’s threats not to sell the airfares or enter into preferred agreements unless the Carriers ceased undercutting Flight Centre’s prices, amounted to attempts to make price fixing agreements. This was because those threats had the purpose or effect of fixing, controlling or maintaining Flight Centre’s commissions when selling airfares of the Carriers.

Primary judgement

Logan J at first instance found that the Carriers supplied booking services for international air travel in competition with Flight Centre.

It was held that because customers could book air travel with either the Carriers directly or via travel agents, the booking services provided by each were substitutable. His Honour held that where a supplier cut out the “middle man” to supply directly, it was in competition with the middle man.

In concluding that the competition between the Carriers and Flight Centre related to the retail commission offered to agents, Logan J relied upon oral evidence of two travel agents who considered themselves to be in competition with airlines in booking international air travel, Flight Centre’s internal documents and Flight Centre’s practice of monitoring direct sales made by the Carriers.

It was held that by making the relevant communications to the Carriers, Flight Centre was seeking to ensure that the Carriers would only sell airfares to customers at prices that preserved Flight Centre’s commission. Logan J found that this conduct amounted to attempted price fixing with the Carriers as Flight Centre was attempting to fix, control or maintain its margins, being the commission, where this was the source of the competition. Consequently, pecuniary penalties totalling $11 million were ordered against Flight Centre.

Flight Centre’s appeal

Flight Centre appealed the primary judgment on a number of grounds, all of which related to the characterisation of the services supplied by the Carriers and Flight Centre and the finding that the Carriers and Flight Centre competed in the market for the supply of distribution and booking services.

The Full Federal Court found that the primary judge erred in finding that Flight Centre and the Carriers competed in a market for distribution and booking services. Their Honours held that the impugned conduct in fact took place in the market for the supply of international passenger air travel, a market in which Flight Centre acted as agent for, and not in competition with, the Carriers. The Full Court reached this conclusion for the following reasons:

  • the characterisation of the market by the primary judge as being a “market for  distribution and booking services in respect of available international air travel” lacked precision and clarity about what distribution and booking services Flight Centre and the Carriers exactly supplied;
  • it was artificial to characterise the activities of an airline in selling a flight directly to a customer (including ancillary activities such advertising the flight to the consumer on its website and booking the flight) as the provision of a service by the airline to itself on one hand and to the consumer on the other;
  • it was artificial to regard offers or provision of services by the Carriers as being competitive with agency services that the Carriers had retained its agents, such as Flight Centre, to provide;
  • there was no evidence to suggest the Carriers organised themselves in a manner that they had separate divisions that could be considered as independent suppliers of services to other divisions or sections of the Carriers;
  • the primary judge’s finding that the distribution services supplied internally by the Carriers were substitutable for the agency services supplied by Flight Centre and other agents, was based on the fact that the Carriers could choose to cut out the middle man, but gave no consideration to whether that choice was in any way driven or motivated by price considerations;
  • there could be no single market for distribution services to the Carriers because while Flight Centre supplied flights offered by multiple airlines, the Carriers could only supply distribution services with respect to their own flights;
  • booking services were essential and inseparable incidents or actions involved in selling international passenger air travel services and there was no separate supply of a booking service; and
  • booking and ticketing services, including any ancillary services, were supplied by Flight Centre for and on behalf of the Carriers under their agency agreement.

Accordingly, the Full Court concluded there was no market for distribution and booking services and no competition between Flight Centre and the Carriers in relation to the supply of such services to consumers. Consequently, there was no attempted price fixing.


If you are a supplier that operates a multi-channel distribution system (including direct supply), you may wish to consider establishing an agency relationship with external distributors.  This is more likely to enable you to control the price of your product through all channels without contravening price fixing or resale price maintenance laws.

Internal documents will be critical in establishing who your competitors are but they must be viewed from the perspective of your business operations as a whole and the commercial realities of the market.  Likewise, views of individuals within your business regarding competitors may not necessarily withstand scrutiny when tested in the same context.