Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd

The High Court has allowed an appeal against a decision of the Full Federal Court on the applicability of competition law to the airline booking industry. Flight Centre and several airlines reached an agreement under which the airlines would not offer fare prices directly to potential passengers that were lower than the prices offered by Flight Centre. The ACCC alleged that this constituted a breach of ss 45 and 45A of the Competition and Consumer Act 2010 (Cth). The trial judge agreed that the airlines and Flight Centre were in competition in a market to supply booking services to consumers and distribution services to airlines, and that the arrangements aimed to set a floor under the price of flights offered for sale and thus maintained or controlled the price of Flight Centre’s booking services. The FCAFC found in favour of Flight Centre, holding that there was no separate market for booking or distribution services (see at [168]), that Flight Centre operated within the market for flights, and that competition between Flight Centre and other airlines existed (at [173]ff). The FCAFC also held, however, that within this market Flight Centre and the airlines did not supply goods or services in competition with each other because only the airlines supplied flights, whereas Flight Centre, when issuing tickets, only acted as an agent for the airline (at [75]ff). Before the High Court, the ACCC sought to argue that the FCAFC erred in making these findings, and focused particularly on the agency relationship point (on arguments, see, eg, Kiefel and Gageler JJ at [61]–[64])

By majority, the Court allowed the appeal and ordered that the primary judge’s declaration of a contravention of s 45(2)(a)(ii) stands (with adjustments): see [94].

Kiefel and Gageler JJ held that the FCAFC was correct in rejecting the ACCC’s primary case that Flight Centre was in competition with each airline in a market for distribution services to airlines and booking services to customers. This argument essentially relied on the proposition that Flight Centre supplied at least one of these services in a market where the airlines supplied the same services, or services that could be substitutable for or competitive with Flight Centre’s services (see [72]). While a functional approach to defining the relevant market is the correct starting point, that analysis should not be divorced from the commercial reality of the transactions (see [65]–[71]). Here, while Flight Centre certainly provided distribution services in selling an airline’s ticket to a customer as the airline’s agent, it would be ‘quite artificial’ to describe the airline ‘as having provided those services (or any other services) to the airline itself when selling a ticket directly to a customer. Booking the flight, issuing the ticket and collecting the fare were part and parcel of the airline making the sale. They were inseparable concomitants of that sale’: at [73]. Kiefel and Gageler JJ accepted, however, the ACCC’s secondary case that Flight Centre’s agency relationship with the airlines did not preclude it from being in a market in competition with the airlines for two central reasons (at [89]). First, Flight Centre’s authority under the agency agreement was not only to decide whether to sell an airline’s tickets at all, but also to set its own price for those tickets. Secondly, Flight Centre was not constrained to prefer the interests of the airline to its own interests. Consequently, Flight Centre was free to act in its own interests in selling tickets: it thus competed in the market with the airlines, and its attempts to fix the airlines’ prices contravened the Act (at [90]–[92]).

Nettle J likewise held that the ACCC’s secondary case should be accepted and the appeal allowed. Nettle J agreed with the reasons given by Kiefel and Gageler JJ and the FCAFC that the supposed market for providing booking and distribution services did not reflect the commercial reality of the dealings such that Flight Centre and the airlines were not in competition there (at [123]). For Nettle J, the FCAFC erred, however, in finding that Flight Centre and the airlines were not in competition in selling airline tickets. Flight Centre’s position as agent for the airline ‘means no more than that Flight Centre was endowed by the relevant airline with authority to create in favour of the customer the right to be carried by the airline on the flight for which the airline ticket was provided’ (at [125]). Further, from the customer’s perspective a ticket, whether sold by Flight Centre or the airline directly, would be almost functionally identical and only really differing in price, thus indicating a high degree of competition within a market in which Flight Centre and the airlines competed (at [127]). Nettle J then turned to Flight Centre’s contentions that its agency relationship meant it was not in competition with the airlines, rejecting several submissions made in support of that point: firstly, that the airlines preferred to sell tickets directly to avoid paying a commission suggested competition between Flight Centre and the airlines (see [130]); secondly that Flight Centre could not be seen as an ‘in-house, captive, commission-based salesperson’ because here the airlines did not retain the power to set the prices of its products (see [131]–[132]); thirdly that a range of United States and Australian authorities did not support Flight Centre’s contentions, and were either distinguishable or, properly understood, contrary to Flight Centre’s arguments (see discussion at [133]–[147]). Nettle J concluded that Flight Centre was in competition with the airlines for the sale of airline tickets and thus the pricing arrangement contravened s 45, and agreed with the orders proposed by Kiefel and Gageler JJ.

Gordon J also agreed with the conclusions of Kiefel and Gageler JJ, but for different reasons. Rejecting Flight Centre’s central contention that as the agent of the airlines it could not be in competition with them, Gordon J held that Flight Centre was, factually, not the ‘agent’ of each airline at all. Flight Centre dealt with its own customers, in its own right, without reference to the interests of any airline: it competed against all sellers of airline tickets, including the airlines and other travel agents (at [152]). In dealing with customers, Flight Centre acted as principal in promising customers better deals than other rival travel agents or airlines, and seeking to make sales of tickets by offering a better deal than competitors: it was not an agent of the airlines, and was in competition with each of them for the purpose of s 45A (at [175]–[178]). Gordon J also held that the existence of the agency relationship was not the central statutory question in the appeal and would not resolve it. Section 45A proscribes restrictive trade practices and, agent or not, Flight Centre’s proposal to fix the airlines’ ticket prices and would have reduced competition in the market, contrary to the second condition in s 45A (at [180–[185]). Gordon J also agreed with the orders proposed by Kiefel and Gageler JJ.

French CJ, in dissent, held that the respondent was not in competition with the airlines because in selling tickets it was acting as an agent for the airlines themselves, not as their competitor (see at [15], [19]). The relevant market here was of airlines competing for the sale of their services (at [21]), and Flight Centre’s role was merely to create a contractual relationship between the airline and the customer (at [22]). While that might be read as ‘supplying’ a service, and while potential customers could deal directly with the airline rather than through Flight Centre, the agency/principal relationship meant Flight Centre’s conduct is effectively that of the airline and thus falls outside of competition under the Act (at [22]–[23]).

High Court Judgment [2016] HCA 49 14 December 2016
Result Appeal allowed
High Court Documents Flight Centre
Full Court Hearing [2016] HCATrans 167 27 July 2016
Amicus Curiae application [2016] HCATrans 134 8 June 2016
Special Leave Hearing [2016] HCATrans 59 11 March 2016
Appeal from FCAFC [2015] FCAFC 104 31 July 2015
Judgments, FCA
[2014] FCA 292 28 March 2014

[2013] FCA 1313 6 December 2013
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About Martin Clark

Martin Clark is an PhD Candidate and Judge Dame Rosalyn Higgins Scholar at the London School of Economics and Political Science and Research Fellow at Melbourne Law School. He holds honours degrees in law, history and philosophy from the University of Melbourne, and an MPhil in Law from MLS. While at MLS, he worked as a researcher for several senior faculty members, was a 2012 Editor of the Melbourne Journal of International Law, tutor in legal theory, a Jessie Legatt Scholar, and attended the Center for Transnational Legal Studies Program.

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