Australian Competition and Consumer Commission v Air New Zealand Limited (No 9)
[2013] FCA 168
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Air New Zealand Limited (No 9) [2013] FCA 168
Citation: Australian Competition and Consumer Commission v Air New Zealand Limited (No 9) [2013] FCA 168 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v AIR NEW ZEALAND LIMITED (ARBN 000 312 685)
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v P. T. GARUDA INDONESIA (ARBN 000 861 165)
File numbers: NSD 534 of 2010
NSD 955 of 2009Judge: PERRAM J Date of judgment: 14 March 2013 Catchwords: EVIDENCE – Discretion to limit use of evidence – Evidence Act 1995 (Cth) s 136 – Whether expert evidence testimony outside the pleaded case – Whether expert qualified to assert factual claims Legislation: Evidence Act 1995 (Cth) s 136 Date of hearing: 4 March 2013 Date of last submissions: 5, 6 March 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant: J Halley SC, CG Arnott Solicitor for the Applicant: Australian Government Solicitor
Counsel for Air New Zealand: R Smith SC, N Owens Solicitor for Air New Zealand: Corrs Chambers Westgarth Counsel for Garuda: M Leeming SC, T Brennan Solicitor for Garuda: Norton White
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 534 of 2010
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: AIR NEW ZEALAND LIMITED (ARBN 000 312 685)
Respondent
JUDGE:
PERRAM J
DATE OF ORDER:
14 MARCH 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties are to bring in agreed orders giving effect to these reasons.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 955 of 2009
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: P. T. GARUDA INDONESIA (ARBN 000 861 165)
Respondent
JUDGE:
PERRAM J
DATE OF ORDER:
14 MARCH 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties are to bring in agreed orders giving effect to these reasons.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 534 of 2010
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: AIR NEW ZEALAND LIMITED (ARBN 000 312 685)
Respondent
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 955 of 2009
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: P. T. GARUDA INDONESIA (ARBN 000 861 165)
Respondent
JUDGE:
PERRAM J
DATE:
14 MARCH 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
On day 38 of the trial the parties took extensive objection to the admission into evidence of the written reports of their respective economic experts. On the morning of day 39 I delivered rulings on those objections. These are my reasons for those rulings.
The report of Professor Jeffrey Robert Church dated 22 December 2011
Professor Church is to be called by the Commission. Air New Zealand (supported by Garuda) raised four sets of objections:
(i)Professor Church’s evidence on the product dimension of the relevant markets was outside the Commission’s pleaded case and was, therefore, inadmissible;
(ii)Professor Church’s evidence as to the Australian dimension of the markets identified by him was outside the Commission’s pleaded case and was, therefore, inadmissible;
(iii)Professor Church’s functional analysis of the markets included claims about particular markets for which there was not, and would not be, any evidence; and
(iv)Professor Church’s report contained various factual claims which he was not qualified to assert.
It is convenient to deal with these sequentially.
Product dimension of the relevant market
The success or otherwise of this objection turns on the state of the pleadings. Air New Zealand’s contention is that the product markets pleaded by the Commission are limited to markets for the provision of airfreight services between airports internationally. If the pleaded case is so limited then I accept that Professor Church’s general evidence to the following effect (and other similar passages) would be irrelevant:
The relevant product markets will consist of transport of freight from an origination point outside of Australia to a destination point in Australia where the transport over at least part of the path taken by the freight could be provided by a Respondent and at least one other airline party to the information exchange. The paths that define the relevant product dimension could differ by origination port, destination port, route, and mode, reflecting the possibility of substitution across direct and indirect routes, modes or both.
Plainly, Professor Church’s view of the product markets is broader than the one Air New Zealand alleges is disclosed by the Commission’s pleadings. Air New Zealand’s contentions in that regard rest principally, although not solely, upon the following paragraphs of the Further Amended Statement of Claim (‘the FASOC’):
2. The Respondent (“Air New Zealand”) at all material times:
….
2.2. provided services by way of the international transport of goods including mail by air (“air freight services”), including to and from Australia;
…
31. If there is a SSNIP imposed by an international airline for its air freight services between two ports, then, other things being equal, that price increase will either:
31.1.cause customers to use other international airlines presently supplying air freight services between those two ports, to the extent excess capacity on the route exists;
31.2.cause customers to use air freight services between those two ports provided in response to the price increase by international airlines:
31.2.1. rearranging their schedules;
31.2.2. relocating their aircraft;
31.2.3. acquiring additional aircraft;
31.2.4. operating dedicated air freighter aircraft; or
31.2.5.entering into or using the type of arrangements or the means alleged in paragraphs 16, 18 and 19; or
31.3. cause customers to use ports which are substitutes for one or both of those two ports. (emphasis added)
(emphasis in original unless indicated otherwise)
The reader will forgive me if I do not encumber him or her with an explanation of the SSNIP. The point of the two paragraphs, as I understood the submission, was that airfreight services, as defined, were limited (in their provision) to activities carried on by airlines between airports.
The difficulty with this submission is its failure to attend to the pleadings as a whole. As Mr Halley SC for the Commission was quick to point out, paragraph 2.6 of the FASOC explicitly extended the definition of airfreight services to include, in terms, ground transport:
[Air New Zealand] as part of its air freight services, on some occasions, also transported or arranged the transport of the goods by ground transport within Australia.
Several other parts of the FASOC likewise reveal a pleading directed to a broader market than the one implied by Air New Zealand’s interpretation. The following are examples:
10.Where an international airline agrees to provide air freight services in respect of particular goods, it is ordinarily the responsibility of that airline, unless it has arranged for another international airline to carry the goods for it, to arrange for freight handling (that is, loading the goods on an off the aircraft) at the origin port, the destination port and (where applicable) any intermediate port.
19.International airlines which supply air freight services between ports compete with, and are constrained by, all other international airlines which:
19.1.offer direct services between those ports on their own aircraft;
…
19.5.offer direct or indirect services between ports which are geographically close to the particular ports such that goods may be transported competitively between the particular ports by a combination of air and land transport; and
…
22.Further, the means by which Air New Zealand and other international airlines compete also include by offering:
22.1.a larger number of flights between particular origin ports and/or destination ports at times or on days that are particularly attractive to customers;
22.2.superior service, for example, on-time delivery or by avoiding items being misdirected, lost, damaged or stolen;
22.3.loading, unloading and storage services, including services at the destination port;
22.4.specialised loading and/or receiving systems for particular goods, such as cold storage for perishable goods (“perishables”) (emphasis in original), warm rooms for live animals and secure storage for valuable goods;
22.5.flights that are direct or more direct such that they are both quicker and reduce the risk of loss or damage to the goods;
22.6.lower prices;
22.7.a better and more extensive network, such that goods are mostly able to be carried by a single international airline, regardless of the origin port or destination port; and
22.8.services of international airline staff or agents at the destination port to take enquiries about inbound shipments, deal with complaints from customers and trace lost shipments.
23.Further, some international airlines enter into global and/or regional arrangements with freight forwarders and/or trucking companies and/or themselves provide land transport to compete more effectively with other international airlines and integrators.
…
27.Further, depending upon the goods involved, either or both of the origin or the destination ports can be substituted by an international airline, a freight forwarder or a customer with another port, whether in the same country as the original port or not.
Particulars
By way of example, Qantas may be contracted to provide air freight services in respect of goods from Dublin to Canberra. As it does not fly from Dublin, it might arrange instead for the surface transportation of the goods to Heathrow. It might then fly the goods to Sydney, Melbourne, or Brisbane and then tranship them by domestic flight to Canberra from Brisbane, or by road transport from Sydney. Similar or alternate legs could be arranged by the customer or the freight forwarder.
(emphasis added unless indicated otherwise)
The same point is made by paragraph 1 of the Commission’s reply:
1.In answer to paragraph 2(b), 19, 21A and 45 of the Further Amended Defence, the Applicant says that insofar as it is alleged that the Respondent provided services by way of the international transport of goods by air, alternatively air cargo transport services or, alternatively, air freight services including to and from airports in Australia, such services were not limited to services provided or otherwise supplied by the Respondent from the origin airport to the destination airport (either directory or via one or more intermediate airports), but also included:
1.1.services provided or otherwise supplied by the Respondent at destination ports, including at destination ports located in Australia, in competition with one or more other international airlines including integrators, that included the following services:
1.1.1.the international transport of goods from the origin port, through Australian air space, to the destination port in Australia, where they are unloaded;
1.1.2.flights to the destination port in Australia at times or on dates that are particularly attractive to customers or freight forwarders in Australia;
1.1.3.receiving, unloading and storage services at the destination port in Australia;
1.1.4.specialised receiving systems for particular goods at the destination port in Australia, for example, cold storage for perishables, warm rooms for live animals and secure storage for valuable goods;
1.1.5.superior services at and to the destination port in Australia, for example:
1.1.5.1.flights that are more direct to the destination port in Australia and therefore quicker;
1.1.5.2.on-time delivery to the destination port in Australia;
1.1.5.3.avoiding shipments of goods being misdirected, lost, damaged or stolen;
1.1.5.4.arrangements with freight forwarders and/or trucking companies or themselves for land transport in Australia; and
1.1.6.services of airline staff or agents at destination ports in Australia to take enquiries or deal with complaints about inbound shipments of goods (including via freight forwarders), facilitate the collection or delivery of goods (including via freight forwarders) and trace lost shipments of goods;
1.2.services provided or otherwise supplied by the Respondent at origin ports, including at origin ports located in Australia, in competition with one or more other international airlines including integrators, that included the following services:
1.2.1.the international transport of goods from the origin port in Australia where they are loaded to the destination port;
1.2.2.flights from the origin port in Australia at times or on dates that are particularly attractive to customers or freight forwarders;
1.2.3.sending, loading and storage services at the origin port in Australia;
1.2.4.specialised systems for particular goods at the origin port in Australia, for example, cold storage for perishables, warm rooms for live animals and secure storage for valuable goods;
1.2.5.superior services at and from the origin port in Australia, for example:
1.2.5.1.flights that are more direct from the origin port in Australia to the destination port and therefore quicker;
1.2.5.2.on-time departure from the origin port in Australia;
1.2.5.3.avoiding shipments of goods being misdirected, lost, damaged or stolen;
1.2.5.4.arrangements with freight forwarders and/or trucking companies or themselves for land transport in Australia; and
1.2.6.services of airline staff or agents at origin ports in Australia to take enquiries or deal with complaints about outbound shipments of goods (including via freight forwarders), facilitate the collection or delivery of goods (including via freight forwarders) and trace lost shipments of goods; and
1.3. otherwise denies the allegations.
(emphasis added)
On 15 February 2012 the Commission delivered further particulars of paragraphs 39, 42 and 44 which are in similar terms and about which the same observation may be made.
In those circumstances, I do not accept that Professor Church’s treatment of product dimension lies outside the pleadings when those pleadings are read as a whole.
Geographic dimension of the relevant market
Professor Church’s report describes the product and functional markets as having an Australian dimension. He did not say, it should be noted, that the relevant geographic markets included Australia. His reasons for saying that the markets had an Australian dimension was essentially because the product paths he identified included elements which were in Australia.
If one were to accept Mr Owens’ pleading objection to Professor Church’s definition of the relevant product market as being defined by paths from the location at origin to the location to destination then I would readily accept his objection to the Professor’s evidence about the Australian dimension to the market. In circumstances where I have not accepted that objection, however, this objection must fail for correlative reasons.
Claims about particular markets unsupported by evidence
Professor Church acknowledges at least one exception to his approach to the product markets. He explains this at paragraph 167:
Whether the functional dimension extends either backwards into production and sale of the good from an origination point or forward into sales of the good at the destination point will depend on the supply and demand conditions for each good transported from A to B. It is possible that some products may have demand and supply conditions such that:
(i)demand for transport and related services between A and B for that product will be sufficiently elastic to make a SSNIP non profit maximizing because buyers at B substitute to local supply, supply form other origination points, or other products.
(ii)demand for transport and related services between A and B for that product will be sufficiently elastic to make a SSNIP non profit maximizing because exporters/sellers at A will substitute to other export markets or reduce production.
(iii)both (i) and (ii).
Mr Owens submitted that an example of this situation might readily be afforded by flowers which were airfreighted from Singapore to Australia. Because there are local firms in fact selling flowers in the Australian market, an increase in airfreight rates from Singapore may have the effect of making Singaporean grown flowers uncompetitive and hence causing their exit from the Australian market. Even if the airline in question has a monopoly on the Singapore to Australia air freight route it will be unable to exercise that monopoly power because of this effect.
Mr Owens submitted that the Commission had failed to prove the existence of any such product market. The Commission did not deny this and indeed was quite clear it was not pursuing a case based on any such market. Instead, Mr Halley SC submitted that Professor Church was merely explaining a theoretical limitation of his approach to the product market. I agree.
Factual assertions beyond Professor Church’s expertise
At various parts of his report, Professor Church repeats the assumptions he was asked to make. Plainly, these will not be evidence of the truth of the assumptions and a direction under s 136 of the Evidence Act 1995 (Cth) to that effect should be made. The Commission accepted this was, in principle, correct in relation to the paragraphs (or parts of paragraphs) nominated in Air New Zealand’s objections, save in relation to paragraphs 135 and 136 where it submitted that an opinion was being expressed. (An objection to paragraph 175 was not pressed.) Paragraphs 135 and 136 are as follows:
135.Demand for air freight shipments (either separately or as part of a bundle of complementary services) to point B from point A is often a derived demand. The underlying need for the service arises from the demands of exporters in Point A or importers at Point B. Of course most of the demand for exporters from A is based on the expectation of sales of their products at B, i.e., they expect demand for their products at B. Most cargo is sold and imported or exported with the expectation of being sold at the destination. The chief exceptions are mail and cargo transported for personal reasons.
136.Suppose that the transport in our U.K.-Australia example is between London and Melbourne. If the cargo is ultimately delivered to Los Angeles, or Tokyo, or even Perth or Sydney (with no forwarding arrangements made), the service has no value to either the consignor or the consignee. An airline that does not have adequate arrangements for shipping cargo between London and Melbourne does not supply a product that is a close substitute or any kind of substitute for the service supplied by Qantas or another airline that does bring cargo from London to Melbourne.
These paragraphs are expressions of opinion. There is no need for a limitation order.
Report in reply by Professor Church dated 16 August 2012
Mr Owens submitted that paragraphs 14, 31, 33, 34, 36, 46 and 67 of the reply ought be rejected, as the reply ‘just confirms the construction of Professor Church’s view.’ Paragraph 14 defines the relevant set of product markets. The relevant products defined in the report did not fall outside the pleaded case, and neither does the reiteration in paragraph 14 of the reply.
Paragraphs 31, 33, 34 and 36 cumulatively deal with defining the patterns of substitution in the relevant market. Mr Owens submitted that Air New Zealand accepted that patterns of substitution were indeed broader than simply origin to destination ports, but that such substitution patterns were not available to Professor Church based on the Commission’s pleaded case. The objection fails for the same reasons given in respect of the report in chief.
The functional dimension of the relevant market is dealt with in Professor Church’s original report at paragraph 167. Paragraph 46 expresses the content of paragraph 167 in different terms, explaining upstream and downstream markets rather than local substitutability between points A and B. The explanation in paragraph 46 goes further than paragraph 167 by stating that where ‘substitution downstream is sufficient to discipline the extent of market power by a hypothetical monopolist of an input market … , then that input market is not a relevant market’. Despite this conclusion, the functional dimension definition in this paragraph is a only further explanation of the theoretical limitation of his approach to the product market, which I accepted in relation to the original report.
In paragraph 67 of the reply Professor Church quotes his original report (at paragraph 47) in relation to the geographic dimension of the relevant product. As with his treatment of the geographic market in the original report, if the relevant product market was accepted as being defined by origin to destination paths, then the paragraph would be rejected. However, for reasons already given this is not the case.
Report of Dr Philip Williams dated 23 December 2011
The Commission will also call Dr Williams. He, too, will testify as to an Australian dimension to the relevant markets. Paragraph 138 of his evidence is as follows:
My second reason for concluding that the relevant markets extend to Australia is that the preferences and switching behaviour of Australian importers and destination freight forwarders have a substantial effect on patterns of competition in these markets. Importers will make consumption decisions in relation to the amount of air freight services they purchase based on the price and quality of these services. This is consistent with the evidence that importers can exercise an influence on the airlines used and be involved in the negotiation of prices paid by freight forwarders for air freight services. Destination freight forwarders are also required to undertake a number of activities either of their own at destination, or by dealing with the freight forwarder at origin. To the extent that the alleged arrangements affect the shipment of goods to Australia, their effects on competition can only be analysed if the activities (including the location and preferences) of importers and destination freight forwarders in Australia are considered.
(footnotes omitted)
Air New Zealand submits that this proposition lies outside any pleaded or particularised case.
This complaint by Air New Zealand is not new. When Dr Williams’ report was first served, Air New Zealand submitted to Jacobson J (then the docket Judge) that the paragraph appeared to be premised on facts which the Commission did not allege. It was said that the sentence including the reference to switching behaviour and the substantial effects it might have on patterns of competition in markets was not a fact alleged in any of paragraphs 3 to 37 of the FASOC. A similar deficiency was said to arise from the sentence involving consumption decisions. Mr Smith SC put the matter to Jacobson J this way:
Now, all I’m putting is that if that’s what the ACCC wishes to assert as a fact which gives rise to the geographic dimension, that’s fine, but let them say it now. And give us a list so that we don’t have at some point in submissions, final submissions, we don’t have cases moving around and attempting to be made in effect through the conduct of the case. We all know that happens in litigation and it’s important for us now as a matter of fairness so we can say we will respond to each of the facts the ACCC says gives rise to the geographic dimension. For the Commission to leave the pleading at paragraph 39 is to really leave this critical issue in a fog. A fog might help them but it doesn’t help your Honour.
Ultimately, and so as to the head off Air New Zealand’s complaint, the Commission agreed to give further particulars of paragraphs 32, 39 and 44 of the FASOC. Paragraph 32 pleads a connection with Australia. Paragraphs 39 and 44 plead that the markets alleged by the Commission are markets in Australia.
On 15 February 2012, the Commission provided the promised particulars. These included the following:
Particulars to Air New Zealand FASOC
Particulars of paragraphs 39 and 421.Insofar as the markets are alleged to have a product dimension that includes Australia, it is alleged that they are markets in Australia within the meaning of section 4E of the TPA, because there is an inherent geographic component in Australia to the air freight services acquired and supplied in each market, namely at all material times:
1.1.the routes flown by international airlines included routes that terminated at a destination port in Australia because of demand by persons to consume imports (that is, goods internationally transported by air to Australia) in Australia or who otherwise have a demand for the transport of imports to them in Australia;
1.2.further, or in the alternative, the air freight services supplied have included the transport of goods by an international airline from an origin port, on routes through Australian air space, to a destination port in Australia where they are unloaded.
2.Insofar as the markets are alleged to have a geographic dimension that includes Australia, it is alleged that they are markets in Australia within the meaning of section 4E of the TPA, because at all material times:
2.1.in each market there has been a demand in Australia for air freight services to Australia from:
2.1.1.persons who arrange for goods to be delivered to themselves in Australia, including because:
2.1.1.1.they arrange for the goods to be carried to them from the supplier of the goods; or
2.1.1.2.they arrange for the goods to be carried from themselves to themselves (for example. in the case of a company operating in more than one country);
2.1.2.the persons referred to in paragraph 2.1.1 include persons who negotiate or arrange for air freight services by utilising a freight forwarder;
2.1.3.further, or in the alternative, persons who consume imports in Australia or otherwise have a demand for the transport of imports to them in Australia;
2.2.further, or in the alternative, in each market, productive activity has occurred in Australia, namely the supply of air freight services by international airlines, by offering, in competition with one or more other international airlines, including integrators, the following services:
2.2.1.the international transport of goods from an origin port to a destination port in Australia, where they are unloaded;
2.2.2.flights to destination ports in Australia at times or on dates that are particularly attractive to customers or freight forwarders in Australia;
2.2.3.receiving, unloading and storage services at destination ports in Australia;
2.2.4.specialised receiving systems for particular goods at destination ports in Australia, for example, cold storage for perishables, warm rooms for live animals and secure storage for valuable goods;
2.2.5.superior air freight services to a destination port in Australia, for example:
2.2.5.1.flights that are more direct to a destination port in Australia and therefore quicker;
2.2.5.2.on-time delivery to a destination port in Australia;
2.2.5.3.avoiding shipments of goods being misdirected, lost, damaged or stolen;
2.2.5.4.arrangements with freight forwarders and/or trucking companies or themselves for land transport in Australia;
2.2.6.services of airline staff or agents at destination ports in Australia to take enquiries or deal with complaints about inbound shipments of goods (including via freight forwarders). Facilitate the collection or delivery of goods (including via freight forwarders) and trace lost shipments of goods.
I was initially disposed to think that Dr Williams’ report did fall within these particulars but close reading of them caused me to entertain doubts. Accordingly, I heard further argument on day 39 of the trial.
At that time, Mr Halley SC submitted that the switching behaviour statement could be seen to fall within the pleading because:
·switching behaviour was simply another expression referring to substitutability;
·of the clarification provided by paragraphs 3, 4 and 25 of the FASOC;
·paragraphs 2.1., 2.2., 2.1.1., 2.1.2. and 2.1.3. of the particulars;
·paragraph 25 of the pleading (which equated switching behaviour with substitutability).
I am anxious not peremptorily to foreclose any of the economic arguments the resolution of which seems more suited to the reflective calm of final submissions.
Nevertheless, the objection has been taken and the respondents are entitled to have it ruled upon. Ultimately, I have not found it possible to locate any allegation of material fact about the substantial effects switching behaviour might have on the markets in question in the pleading or the particulars. A similar deficiency on my part arises in relation to the question of consumption decisions. For that reason, I ultimately excluded paragraph 138 of Dr Williams’ report.
The parties are to bring in agreed orders giving effect to these reasons.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate:
Dated: 14 March 2013
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