Air New Zealand v Australian Competition and Consumer Commission; PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission

The High Court has dismissed two appeals against a decision of the Full Federal Court on restrictive trade practices law and the location of markets, specifically the meaning of a market ‘in Australia’. Section 4E of the Competition and Consumer Act 2010 (Cth) provides that for the purposes of the Act ‘market’ means, absent a contrary intention, a ‘market in Australia’. The ACCC brought proceedings against the two appellant airlines, who are both involved in transporting cargo from other countries into Australia, claiming that the airlines had engaged in collusive behaviour by fixing surcharges and fees on air cargo arriving into Australia from Hong Kong, Singapore and Indonesia. The airlines claimed that the markets for that cargo were located in the departure nations, not Australia, and thus the provisions of the Act did not apply to their dealings there. The primary judge agreed with the airlines, holding that the markets were located in those countries because they were where the decision to choose an airline to carry freight into Australia took effect (the ‘switching decision’), and that decision was made when the cargo was delivered to the airline. A majority of the FCAFC allowed the ACCC’s appeal, holding that determining whether a market was in Australia required examination of more than just the switching decision or the fact that the service commenced outside Australia, but rather all aspects of the market. Those aspects included that several components important for the service were located in Australia, that the services were marketed and supplied to significant customers in Australia, and that there were Australian barriers to entry into this market.

The High Court unanimously dismissed the appeals. Kiefel CJ, Bell and Keane JJ held that the primary judge’s findings of fact ‘lead irresistably’ to the conclusion that there was a market in Australia (at [5]). Among those findings of fact, the plurality judges emphasised that the primary judge found that ‘the airlines “tousled [sic] to obtain” the custom of those shippers in Australia who were substantial importers’, and that their marketing materials reflected the airlines’ focus on marketing to shipper activity, regardless of ports of origin ([21] and see at [16]–[20]). But the primary judge’s approach to locating the market, which treated the place where the ultimate choice of airline was effected, was in error: it placed too much significance on the fact that substitution and switching could take place outside of Australia, and misinterpreted an earlier Trade Practices Tribunal decision as making substitutability the sole defining feature of a market in every case (see at [22]–[25]). The plurality stated, at [26]:

This is not to suggest that substitutability may not be an important, or even a decisive, factor in market definition in some cases, just as barriers to entry may be. It is rather that concepts such as market and cross-elasticity of supply and demand provide no complete solution to the definition of a market, as Dawson J observed in Queensland Wire Industries [1989] HCA 6. Much will depend upon the context in which the question arises. The exercise of market definition needs to take into account the conduct in question and its effects, and the statutory terms governing the question.

Section 4E takes substitutability as the principal driver of rivalry between firms: while the act of substitution indicates the conclusion of that rivalry in favour of one competitor, the place in which that conclusion is formalised by a contract may be significant for locating the process of rivalry, ‘[b]ut it will not necessarily do so’ (at [27], and see [28]). Here, the fact that the contracts were made and services commenced outside Australia suggests that suppliers were competing overseas, but these facts do not accurately describe the geographic dimensions of the market or show that Australia was not part of it: ‘Given that the services to be supplied by the airlines were destined for ports in Australia in answer to demand generated in Australia, it does no violence to the language of s 4E of the TPA to say that, as a matter of commerce, the geographical dimension of the market that accommodates the interplay of that supply and demand includes Australia.’ (at [29]). But the plurality also noted that not too much should be made of the fact that the destination ports were in Australia: the delivery point may simply be the ‘end of the line’ , and that destination may have ‘little bearing’ on a market and its forces of supply and demand (at [30]). Here, however, on the primary judge’s evidence Australia was not just an ‘end of the line’ but rather a substantial source of demand for airlines’ services, and the airlines competed to supply that demand, tried to obtain the custom of importers, and saw major importers as the ultimate source of their business: ‘to speak of suppliers tussling to obtain orders is to describe the rivalrous behaviour which is the essence of competition.’ (at [31], and see [32]ff). Consequently the price fixing took place in a market in Australia, and the appeal should be dismissed. The plurality judges also agreed with the reasons of Gordon J on the questions of foreign state compulsion and alleged inconsistency (at [36]).

Gordon J likewise held that there was a market in Australia, and also dealt with and rejected both of the airlines’ subsidiary arguments on foreign state compulsion and inconsistency between the TPA and the Air Navigation Act 1920 (Cth) read with the Air Services Agreement between Australia and Indonesia.

On the issue of a market in Australia, Gordon J emphasised that the question was not to be considered in isolation from the statutory context, or by looking only at the text of s 4E of the TPA: instead, it is a concept that is not susceptible to a precise or comprehensive definition, but rather an economic tool used to assess alleged anti-competitive conduct by reference to findings of facts (at [57]ff). Because the concept is founded on economics as a social science, involving value judgments, differences of opinion, and a degree of inexactitude, the approach can be considered a ‘functional’, ‘purposive’ or ‘instrumental’ one (at [65]–[66]).After covering the statutory provisions and context (see [67]ff), Gordon J stated that the task of the Court here was to identify the ‘area of space’ in which the airlines’ admittedly anti-competitive behaviour had occurred (at [84]). Before turning to that question, Gordon J, like the plurality, noted that the existence of substitutes was not ‘the‘ defining feature of every market, and should not be too closely focused on, lest that focus undermine the purpose of the statutory provisions (at [87], emphasis in original). Her Honour also rejected the ACCC’s ‘two-stage’ approach to identifying a market (at [91]–[93]) and noted the differences between the ‘functional’, ‘purposive’ or ‘instrumental approach from the ‘effects doctrine’ applied in the US (at [94]–[95]).

After reviewing the primary judge’s findings of fact (see [96]ff), Gordon J summarised this evidence as showing that the airlines dealt directly with some Australian shippers, sought to maintain relationships with them, and physically competed to obtain their custom by marketing to them in Australia (at [116]). Gordon J then listed five considerations indicating the existence of this market in Australia: an economically significant demand illustrated by the large shippers in Australia; the airlines met, negotiated and partnered directly with these shippers; tracked their activities; marketed their services to them because they considered them as the ‘ultimate source of business’; and designed their products to meet various needs of the shippers (at [121]). While this list was not exhaustive, it was sufficient to show that they were in competition in Australia (at [121], and dealing with subsidiary arguments at [123]–[135]).

Turning to the airlines’ argument that their otherwise anti-competitive conduct was compelled by the laws and administrative practices of Hong Kong and thus outside the scope of s 45(2), Gordon J held that these were rightly rejected by the lower courts: the primary judge made an unchallenged finding of fact that the laws and administrative practices of Hong Kong did not impose requirements of fuel surcharges and approvals that were part of the TPA contravention (at [137]ff). Addressing Garuda’s final argument that there was an inconsistency between sections of the Air Navigation Act 1920 (Cth) read with the 1969 Australia–Indonesia Air Services Agreement and the TPA, Gordon J held that no inconsistency arose (see [160]ff): the ASA was concerned with setting minimum tariffs, rather than imposing fixed tariffs, and thus the provisions dealt with different subject matters (at [179]), and, in any case, Garuda’s price-fixing conduct occurred in meetings that were not under any air services agreement, but rather at industry representative body meetings in Hong Kong and Indonesia (see at [175]–[178]). Having dealt with these two additional issues, Gordon J concluded the appeal should be dismissed.

Nettle J agreed with the reasons and conclusions of Gordon J, adding some observations on market definition in the US and Europe. Nettle J noted that, despite the differences in competitions laws between those jurisdictions and Australia, because the geographic area of a market is essentially an economic concept, it is determined by similar considerations throughout these jurisdictions (at [40]–[41]). Nettle J concluded with remarks on the idea of substitution in the arguments of counsel, emphasising that the marketing of services in Australia overrode the significance of the fact that suppliers and the ‘possibilities’ for substitution were located outside Australia (at [43]). Similarly, that the contracts were entered into outside of Australia was not determinative because Australian customers were directly involved in making those switching decisions (at [44]).

High Court Judgment [2017] HCA 21 14 June 2017
Result Appeals dismissed
High Court Documents Air New Zealand
PT Garuda
Full Court Hearings [2017] HCATrans 46 3 March 2017
[2017] HCATrans 44 2 March 2017
Special Leave Hearing [2016] HCATrans 245 14 October 2016
Appeal from FCAFC [2016] FCAFC 42 21 March 2016
Trial Judgment, FCA
[2014] FCA 1157
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About Martin Clark

Martin Clark is a 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 at MLS and various colleges, a Jessie Legatt Scholar, and attended the Center for Transnational Legal Studies Program.

2 thoughts on “Air New Zealand v Australian Competition and Consumer Commission; PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission

  1. I wonder if the result in these cases would have been different if there were no services provided by the airlines in Australia.It was admitted that they provided customs clearance and transport(albeit provided by subcontractors)

    • That’s s a good question Malcolm; I get the feeling from the judgments that trying to gain and keep customers in Australia, and competing against each other to do so, largely via advertising, was the major indicator of operating in a market, and that most of the specific factors were variations on that theme. While arranging clearances and transport is both meeting the apparent needs of Australian importers (again, gaining and keeping customers) it also seems like, as you point out, it forms a closer geographical connection to Australia. But I’d say the judges would still have been comfortable finding that the airlines were in the Australian market even if importers had to arrange their own clearances and transport: with their focus on supply and demand ideas, their Honours might have just noted that if Australian-side aspects of the service aren’t being offered, but presumably because the market doesn’t really value it, it wasn’t something on which the airlines were trying to differentiate themselves, or that it could be done more cheaply by local firms.

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