Emirates V Accc Summary

The case is a challenge to notices issued by the ACCC under section 155 of the Trade Practices Act 1974 (Cth) (TPA). The notices requested the parties to provide documents and information about an alleged price fixing agreement in relation to international air cargo services. The agreement is alleged to contravene section 45 of the TPA, and the Notices employ the language of the deeming provision of section 45A, of the TPA. Various heads of relief were sort. The primary ground was that the subject of the “matters” listed in the Notices extend beyond conduct that could ever constitute a contravention of the TPA. There were also challenges on administrative law grounds.

The airlines, the applicants, led evidence that was intended to “support the argument that the Court could be satisfied that international air cargo services on routes into Australia, and between two points outside Australia, are not competitively provided in a market in Australia.”1

Before dealing with the arguments of the applicants Justice Middleton helpfully summarises how to read section 45 of the TPA. He takes in account the facts of the case, the wording of the Notices which rely upon section 45A, and the arguments of the applicants. He interprets it as: A corporation shall not make or give effect to an arrangement if a provision of the arrangement has the purpose, or has or is likely to have the effect, of fixing the price for international air cargo services supplied by the parties to the arrangement or by any of them in competition with each other in any market in Australia in which a corporation that is a party to the arrangement supplies those services.2

Justice Middleton then turns to some of the key concepts raised.

Concept of Market •

Market is a key concept in section 453

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There is a lot of case law on what a market is; however the HCA has cautioned that attempts to define market too precisely are dangerous – NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 904 •

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Certain provisions of the Act, particularly in Pt IV, necessarily turn to a significant degree on expressions which are not precise or formally exact. One example is “market": there can be overlapping markets with blurred limits and disagreements between bona fide and reasonable experts about their definition, as in this case

Considers Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174 Note 1 at 24

1

Note 1 at 17.

2

Note 1 at 21.

3

Note 1 at 23.

4

Note 1 at 23.

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Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 198-99 Note 1 at 25 •

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The concept of a “market” is a metaphor used to describe a range of competitive activities by reference to function, product and geography.

Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1979) 40 FLR 83 at 111 Note 1 at 27 •

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Important as they are, elasticities and the notion of substitution provide no complete solution to the definition of a market. A question of degree is involved — at what point do different goods become closely enough linked in supply or demand to be included in the one market — which precludes any dogmatic answer

Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at 545 Note 1 at 26 •

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It involves a choice of the relevant range of activity by reference to economic and commercial realities and the policy of the statute…the identification will be evaluative and purposive as well as descriptive.

market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive

“It is significant to note that consideration must be given to both actual and potential transactions between buyers and seller in identifying the ‘field of rivalry’ between competitors’ Note 1 at 28

Applicants’ general arguments •

Notices relate to matters that cannot constitute a contravention of s 45(2) of the TPA. “Those matters concern alleged agreements or understandings relating to the supply of air cargo services on route into Australia and routes between two or more points outside Australia. Such services are not supplied in competition in a market in Australia.” Note 1 at 39

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The supply of those services outside Australia to acquirers outside Australia cannot occur in a market in Australia within the meaning of the TPA; Note 1 at 40

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If the alleged arrangement contained price fixing provisions for services provided outside Australia to acquirers outside Australia, it does not satisfy s 45A, as only services supplied in competition in a market in Australia would contravene the TPA. Note 1 at 40

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The applicants conceded that outbound services would attract the TPA. However they maintained a Notice would be valid if it defines a matter in such a way so as to include things that do not/cannot contravene the TPA. Note 1 at 41.

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What the applicants must prove •

In relation to inbound services and overseas destinations, the supply of services only involves the supply of services outside Australia to acquirers outside Australia, and not in a market in Australia.

Applicants’ submissions •

That all marketing, competition, negotiation and contracting for such services, and particularly the setting of rates, occurs outside Australia. OR: “competitive activity between airlines offering cargo service takes place at the ponit of origin of the cargo.” Note 1 at 55

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They relied on a definition of market from Heydon J D, Trade Practices Law that for a market to be in Australia “the buyers and sellers must engage in transactions in Australia”. Underpinning the submission was that a market must be taken to be located at the place of contracting, as opposed to the place/s where the services are provided, and that place is where the air way bill is cut – ie the port of origin. Note 1 at 56.

Dismissed •

Accepting that apart from outbound services, the place of contracting is not Australia, this does not mean no marketing or negotiating or marketing occurs in Australia in respect of all international air cargo services. Note 1 at 58. The applicants also fail to eliminate any reasonable hypothesis which is inconsistent with the market being wholly outside of Australia, even when focussing solely on inbound services. Several reasons (Note 1 at 61): •

Part of the business of an international airline is unloading at the destination

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Customers in Australia can book space on an aircraft over the Internet, allowing them to make a booking at the destination port.

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Large freight forwarders have operations all over the world, as do airlines

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It is an obligation of airline staff at the destination port to take enquiries from customers about inbound shipments, deal with complaints and trace lost shipments

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Further, it is not possible to conclude that the market for air cargo services into Australia is not part of the international air cargo market, of which the Australia market is, or may be, a part. Note 1 at 62

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Further it is possible that inbound and outbound services are sufficiently connected to be complements. Note 1 at 63

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Market in Australia – s4E •

Referred to by Lindgren J in ACCC v Qantas Airways Limited [2008] FCA 1976 at [33]-[34]. Lindgren J notes that only two cases in Australia have considered it: •

Riverstone Computer Services Pty Ltd v IBM Global Financing Australia Ltd [2002] FCA 1608 at [21] per Hill J

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Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (2008) ATPR 42-256 at [19].

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Justice Middleton examines what was said in those cases and makes sure that statements that could be considered inconsistent with his conclusions are explained.

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In Riverstone Hill J rejected that a market must be wholly in Australia

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Lindgren J makes the point the market cannot be entirely outside Australia, with which Middleton J agrees.

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In Riverstone the fact that there is a global market does not mean there could not be a market in Australia for the same good or service.

Therefore… Once it is accepted that the geographic location for a market is not confined to the place where the contracts are entered, it is plain to see that the Notices do not relate to a subject matter that extends beyond conduct that is capable of constituting a contravention of the TPA, note 1 at 74.

Other grounds for invalidity Failure to consider the burden, especially time frame Passing comment about the Notices The notices •

One ground of attack raised by the airlines was that the notices failed to describe the market in Australia. His Honour accepted that “just because services cover the movement of goods in or out of Australia, does not necessarily indicate that there is a relevant market located in Australia in respect of those services.”5 However, ultimately his Honour found that proper construction of the notices do refer to a market in Australia.

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Should not be read in a overly technical or precious way – Melbourne Home of Ford Pty Ltd v Trade Practices Commission (No 3) (1980) 47 FLR 163 at 17576. Note 1 at 47

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There is no need for the Notices to ‘plead’ the elements of the market in Australia Note 1 at 51.

5

Note 1 at 36.

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Extraterritoriality “It has long been accepted in the United States that a court may assert jurisdiction under the Sherman Act 15 USC § 1 for anticompetitive conduct occurring wholly outside the territory of the United States, provided that the conduct has effect felt in the United States…That s 45 of the Act should be read similarly, at least with respect to corporations carrying on business in Australia, was considered by Merkel J in Bray v Hoffman-La Roche Ltd (2002) 118 FCR at 15-16, and affirmed by the Full Court in Bray v Hoffmann-La Roche Ltd (2003) 130 FCR 317.”6 “It can be readily appreciated that pricing arrangements with respect to wholly international flights and inbound flights may be capable of having the likely effect of controlling the prices for outbound flights.”7 This is explained by way of hypothetical. Shipping computers from Sydney to Bangalore using Singapore Airlines requires the computer to go from Sydney to Singapore, and from Singapore to Bangalore as there are no direct flights to Bangalore. If there is a pricing agreement on the SingaporeBangalore leg, that will affect the price of the outbound service. “It must be accepted that goods being shipped out of Australia can, and will, travel through multiple intermediate ports before reaching their final destination. Therefore, the price for each intermediate leg of the journey will affect the whole price quoted at the point of origin in Australia. It follows, then, that price fixing between two international points in relation to the supply of international air cargo services, wherever engaged in, may have the likely effect of fixing the price of outbound international services in Australia.”8 His Honour explains how inbound services are also affected by the hypothetical of wanting to arrange for the return shipment of a computer from Sydney to Bangalore, perhaps for repairs. Again, any agreement fixing prices from Bangalore-Singapore, or Singapore-Sydney will affect the price that is paid at the port of origin, that is Sydney.

This line of reasoning is not pursued further, as this point is not in contention by Emirates. It confines the challenge to “the validity of the instant Notices on the discrete basis that the “matters” the subject of them extend beyond conduct that could ever constitute a contravention of the Act.”9

6

Emirates v Australian Competition and Consumer Commission [2009] FCA 312 at 4.

7

Note 1 at 5.

8

Note 1 at 8.

9

Note 1 at 10.

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