On Valentine’s Day 2006, as an IATA meeting in Hong Kong was in full swing, mobile phones rang in unison as numerous general counsel were alerted to parallel, coordinated dawn raids being conducted on their respective carriers by, among other regulators, the US Department of Justice and the European Commission.
They had been tipped off about an alleged widespread cartel between participants in the global air cargo market.
Over the past 10 years, a mixture of criminal prosecutions, regulatory investigations, enforcement proceedings and class actions have hit carriers in practically every major jurisdiction across the globe for allegedly fixing the price of fuel and security surcharges. Six employees have done jail time, close to USD 2 billion in civil (and in some cases, criminal) penalties have been extracted by regulators in seven countries and, to date, over USD 1 billion in settlements have been paid out by carriers to shippers, plaintiff law firms and third party litigation funders (largely in the USA).
Surely it is nearly all over for the airlines involved, or are there more twists and turns to come even 16 years on from when the cartel conduct is alleged to have first started?
In November 2010, the Commission fined 10 airlines a total of nearly EUR 800 million, which hit the industry hard at a time when carriers were constantly battling to keep out of the red.
The GBP 1 billion follow-on action in the UK, brought by 500 or so shippers in the English High Court, initially proceeded at a snail’s pace (in parallel to another EUR 500 million class action brought in the Dutch courts) largely due to the Commission’s delay in publishing its decision, which generated criticism from far and wide.
In 2014, however, Mr Justice Peter Smith, ordered British Airways to disclose the confidential version of the Commission’s decision (within a confidentiality ring), eagerly awaited by the plaintiff lawyers. Finally, the proceedings in the Royal Courts of Justice looked set to get going in ernest.
With BA as the principal defendant and 23 other airlines joined as co-defendants, it was billed as the juggernaut commercial case of the year, involving the “Who’s Who” of the London Competition Bar and City law firms.
While it was indeed a juggernaut, it was one with various often surprising twists and turns. In July 2015, on application by BA, Peter Smith J. was forced to recuse himself as the sitting judge on account of perceived bias after complaining directly to the Chairman of BA about his lost luggage, mislaid somewhere between Florence and Gatwick, as well as raising the issue in open court.
October 2015 saw further success for the airlines. On 15 October, BA managed to persuade the English Court of Appeal to overturn Peter Smith J’s refusal to strike out two common law economic tort claims: interference and conspiracy to injure by unlawful means, both of which fall outside EU competition law rules.
The Court held that it could not be demonstrated that BA and the other airlines intended to injure the claimants (intent being a prerequisite element) as they could not have any idea at the relevant time where the loss would ultimately fall given the shippers could well have “passed on” the higher costs to indirect purchasers down the supply chain.
BA’s success on appeal reduced the size of the claim by 60% to GBP 400 million. The appellate bench also overturned Peter Smith J’s order for disclosure of the confidential decision of the Commission as it held that it contravened BA’s rights under EU law.
On October 27, BA was also successful before the English High Court in having a separate class action brought against it dismissed summarily, which had been purportedly brought on behalf of nearly 65,000 Chinese businesses by a plaintiff law firm. The key problem, was that none of those businesses had in fact authorised the law firm to bring the action on their behalf and, moreover, only a fraction of those claimants had in fact even used air cargo services. Industry chatter would suggest that this dismissal may be appealed.
Additionally, in December 2015, the General Court of the European Union annulled the Commission’s decision on account of it containing inconsistent descriptions of the cartel (the allegation of a “single and continuous infringement” by all cartel participants was not borne out by the evidence offered only in respect of a small group of carriers on specific routes) and ordered a refund of hefty fines that had been levied against the airlines.
If the Commission does not appeal to the ECJ, then conventional wisdom would suggest that this aboutface ought to have a significant impact on the follow-on litigation which was founded, at least in part, on the investigation and findings of the Commission. It would be a brave commentator to predict with any degree of certainty what may happen next.
Closer to home, in Australia in 2012, 13 airlines conceded liability and paid penalties to the ACCC amounting to AUD 98.5 million. Neither Air New Zealand nor Air Garuda adopted that position, both electing to proceed to trial, at which they successfully persuaded Justice Perram to dismiss the case on the technical point that the relevant air cargo services were not supplied in a “market in Australia” (a requirement of the Trade Practices Act 1974 (Cth) in force at the time). However, on 21 March 2016, the Full Federal Court (by a majority of two to one) overturned that ruling in favour of the ACCC, finding that the anti-competitive conduct had in fact occurred in a market in Australia.
In spite of the alleged conduct affecting surcharges on air cargo carried to and from Australia, the Full Federal Court held that all aspects of the market are relevant to the question of whether the market is in Australia, such as the presence of customers in Australia, and not simply the geographic dimension of the market. This decision has wider significance for other competition cases still on foot relating to pre-2009 conduct and also for other parts of Australian Consumer Law which include the same condition.
It remains to be seen whether Air New Zealand and Air Garuda will seek special leave to appeal to the High Court of Australia.
While the litigation still on foot is likely to yield further surprises, the one thing that can be said with certainty, is that, 10 years on, a large number of airlines are still facing the flow-on effects, including those that had only peripheral involvement of the alleged anti-competitive conduct. We are consistently reminded that the antibribery and corruption legal and policy landscape is evolving rapidly throughout Asia-Pacific. The air cargo case serves as a salutary reminder to all participants in the aviation industry (and in other sectors) to maintain and continually improve internal compliance frameworks and training across the board to avoid another decade of expensive, unpredictable turbulence.