On 6 December 2013, Justice Logan of the Federal Court found that Flight Centre Travel Group Limited (Flight Centre) had engaged in six contraventions of the Trade Practices Act 1974 (TPA) (now the Competition and Consumer Act 2011(CCA)) by attempting to induce various international airlines to enter into unlawful price-fixing arrangements. On 28 March 2014, the Court handed down a total pecuniary penalty of $11 million – the largest ever in respect of attempted contraventions.

The Court’s decision and penalty serve as a potent reminder that:

  • Complex competition law issues can arise in the context of upstream supplier/downstream distributor and principal/agent relationships where the upstream supplier and/or principal is vertically integrated and sells direct to end consumers.
  • In determining whether a supplier and a distributor are competitors for the purposes of the CCA (and thus whether they are capable of reaching an unlawful price-fixing or other cartel arrangement), market definition is critical.  The courts will give careful consideration to the nature of the goods and services being provided by each party and the nature of their commercial relationship, including whether or not they consider each other their competitor.
  • The ACCC will aggressively seek large penalties for contravening conduct, and the courts appear more willing than ever to seek to deter contravening conduct by ordering such large penalties.
  • Parties within a vertical supply chain need to be very careful when discussing any aspect of downstream pricing, even where the relevant relationship is one of principal and agent.


Flight Centre supplies a range of travel-related services, including the booking of international airfares on behalf of airlines.  Flight Centre performs this function as an agent of the airlines (it is not a reseller of airfares) and when it makes a booking it remits the consumer’s payment to the airline, less a commission.  Airlines also sell airfares directly to consumers (for example, through their respective websites and call centre booking services) and through other travel agents.

The ACCC’s allegations

The ACCC claimed that on six occasions between 2005 and 2009 Flight Centre emailed Singapore Airlines, Malaysian Airlines and Emirates and attempted to induce them (by way of threats that it would stop selling airfares on their behalf) to agree that any airfare that the airlines offered directly to consumers:

  • would not be sold at a price below an amount equivalent to the amount Flight Centre would remit to the airline if it had sold the airfare plus its commission (i.e. the airlines’ direct price would not be below the price at which Flight Centre would ordinarily be able to book an airfare); and
  • would also be made available through Flight Centre (i.e. Flight Centre would be given an equal opportunity to book the fare at the airlines’ direct price).

The ACCC alleged that, notwithstanding their relationship as agent and principal, Flight Centre competed with the airlines.  The ACCC alleged that, accordingly, Flight Centre’s communications amounted to an attempt to induce the making of a contract, arrangement or understanding that had the purpose or likely effect of fixing, controlling or maintaining the price for goods or services (i.e. price fixing), which is a per se or automatic breach of the TPA.  A similar per se price-fixing prohibition is now contained in the cartel conduct provisions of the CCA.

Justice Logan’s decision

Justice Logan agreed with the ACCC.  In particular, Justice Logan found as follows:

  • Flight Centre sold airfares on behalf of airlines in its capacity as agent and accordingly did not itself supply airfares in competition with the airlines.
  • However, Flight Centre and the airlines’ internal sales functions competed in the market for the supply of distinct airfare booking and distribution services to consumers, represented by the “retail or distribution margin” in respect of booked airfares (in the case of Flight Centre this margin took the form of its commission and in the case of the airlines was retained).
  • There was evidence showing that Flight Centre considered the airlines competitive and was worried that they would “undercut” Flight Centre, which was critical in establishing that Flight Centre and the airlines were competitors.
  • Given the way in which the retail or distribution margin was calculated, an attempt to fix, control or maintain a fare for air travel so that it is price neutral for a consumer whether purchased directly from an airline or via an intermediary such as Flight Centre is inherently likely to fix, control or maintain that margin (the margin being the relevant “price” for the purposes of price-fixing prohibition).                                                                                           


Justice Logan imposed an aggregate penalty of $11 million in respect of five contraventions (the sixth contravention occurred more than six years before the ACCC commenced proceedings and thus could not be subject to a penalty).  The penalty is notable in a number of respects:

  • First, it is very high for a “mere” attempt to engage in conduct that contravenes the TPA/CCA (indeed, it is largest ever penalty in respect of attempts and one of the highest in respect of any ACCC enforcement action).  Justice Logan made it clear that, although there is a “qualitative difference” between an unsuccessful attempt to induce a contravention and a successful inducement, the penalty regime made no distinction between the two and was squarely aimed at deterring attempts.  It may be that the Court’s decision in this case heralds an increased willingness to impose large penalties on corporations found to have engaged in attempted breaches of the CCA.
  • Second, the ACCC appears to have sought, and the Court was clearly prepared to entertain, substantially higher penalties.  Ordinarily, where the value of the benefit from the contravening conduct cannot be ascertained, the maximum penalty is the greater of $10 million and 10% of annual turnover.  However, for technical reasons relating to the way in which the ACCC framed its pleadings, Justice Logan felt that the maximum penalty he could impose was just $10 million, notwithstanding that 10% of Flight Centre’s annual turnover was many multiples of that figure (we note that the ACCC may choose to appeal this aspect of Justice Logan’s decision).

Implications and next steps

The decision confirms that parties in a vertical supply chain should take great care when communicating with one another in respect of pricing to end consumers – any suggestion that retail prices should be equalised may give rise to significant compliance risks.  Further, the case demonstrates that, if there is frequent contact (such as the routine exchange of emails), multiple potential contraventions can accumulate relatively quickly.

More broadly, the decision introduces significant new uncertainties about how supplier-distributor relationships are treated under Australia’s cartel laws where the upstream supplier also sells directly to consumers.  For instance, the decision raises the following questions:

  • How should market definition be approached where a sector is characterised by vertically integrated suppliers and third-party distributors (including, in particular, agents)?
  • To what extent can an upstream principal and a downstream agent agree a commission or other benefit?  These are obviously essential to the parties’ relationship and any suggestion that they may inherently involve price-fixing is at odds with widespread commercial practice.

Still more uncertainty arises from the fact that, in a separate recent case with similar facts, another judge of the Federal Court took a different (and more conventional) approach.  In the ACCC’s proceedings against Australian and New Zealand Banking Group Limited (ANZ) in respect of an arrangement between it and a third-party agent mortgage broker (an arrangement which limited discounts on ANZ loan products) the Court found that the parties did not compete.  The difference in approach may be partly explained by Justice Logan’s determination to focus in detail on whether there was any good or service for which, in truth, the parties could in any sense be said to be rivals.  Although it is difficult to reconcile the two cases, they are now both subject to appeals which will provide the Full Federal Court with an opportunity to clarify the position and achieve some consistency in this area.