Australian Competition and Consumer Commission v Cargolux Airlines International SA

[2009] FCA 342

FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Cargolux Airlines International SA [2009] FCA 342

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CARGOLUX AIRLINES INTERNATIONAL SA (ARBN 089 702 447)

NSD 106 of 2009

LINDGREN J
14 APRIL 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 106 of 2009

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	CARGOLUX AIRLINES INTERNATIONAL SA (ARBN 089 702 447) Respondent

JUDGE:	LINDGREN J
DATE OF ORDER:	16 FEBRUARY 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The respondent pay the Commonwealth of Australia within 14 days of this order a pecuniary penalty in the sum of $5,000,000 in respect of contraventions of section 45(2)(a)(ii) and 45(2)(b)(ii) of the Trade Practices Act 1974 (the Act) in that:

1.1.the respondent, in about April 2003, arrived at an understanding with certain of its competitors including Lufthansa Cargo Aktiengesellschaft (Lufthansa), Societe Air France, and Koninklijke Luchtvaart Maatschaapij N.V, for the supply of services for the international carriage of air cargo (air cargo services) containing a provision that they would each impose a charge, described as a fuel surcharge, in respect of the air cargo services supplied by each of them throughout the world, according to a methodology published by Lufthansa, except where conditions in a particular port or in a particular geographic area prevented the imposition, or full imposition, of the charge;

1.2.that provision had the purpose, effect and likely effect of fixing, maintaining or controlling a component of the price charged by each of them for the said services within the meaning of section 45A of the Act, and is therefore deemed to substantially lessen competition within the meaning of section 45(2)(a)(ii) of the Act; and

1.3.the respondent gave effect to that provision of the understanding, including on air cargo services from other countries to Australia, between April 2003 and February 2006 by inter alia:

1.3.1.increasing or decreasing on 18 occasions the amount of the fuel surcharge it imposed per kilogram of cargo in accordance with the said understanding; and

1.3.2.imposing the fuel surcharge on its international air cargo services, including to Australia.

2.The respondent be restrained, for a period of five years from the date of this order from making, arriving at, or giving effect to, any contract, arrangement or understanding with any of its competitors for the supply of air cargo services, containing provisions which have the effect of fixing, controlling or maintaining the price or any part of the price at which it or any of them will supply those services in competition with each other unless:

2.1.the said contract, arrangement or understanding does not involve or relate to the carriage of goods to or from Australia;

2.2.the said contract, arrangement or understanding is necessary for the purpose of interlining between two or more carriers in the course of supplying air cargo services; or

2.3.the respondent is specifically authorised to do so under section 88 of the Act.

3.The respondent pay the applicant within 14 days of this order a contribution towards its costs of and incidental to these proceedings in the sum of $200,000. 

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 106 of 2009

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	CARGOLUX AIRLINES INTERNATIONAL SA (ARBN 089 702 447) Respondent

JUDGE:	LINDGREN J
DATE:	14 APRIL 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

1. These are my reasons for orders that I made in this proceeding on 16 February 2009. On that day I heard three proceedings, including the present one, in which the Australian Competition and Consumer Commission (Commission) sought against four airlines the imposition of pecuniary penalties pursuant to s 76 of the Trade Practices Act1974 (Cth) (the Act) and injunctive relief pursuant to s 80 of the Act.

2. The three proceedings related to the airlines’ conduct in arriving at and giving effect to collusive understandings in respect of an element (a fuel surcharge) in the price for the carriage of international air cargo.  The three proceedings were heard in sequence.  My reasons for judgment in the other two proceedings are being published contemporaneously with these reasons for judgment: see Australian Competition and Consumer Commission v Martinair Holland NV [2009] FCA 340 and Australian Competition and Consumer Commission v Société Air France [2009] FCA 341.

3. Late last year I heard and determined proceedings brought by the Commission against Qantas Airways Limited (Qantas) and British Airways PLC (British Airways), which arose out of generally similar collusive understandings in respect of the same element in the price for the international carriage of cargo by air: see Australian Competition and Consumer Commission v Qantas Limited [2008] FCA 1976 (Qantas Proceeding); Australian Competition and Consumer Commission v British Airways PLC [2008] FCA 1977 (British Airways Proceeding).

4. In each of the present three proceedings, as in the Qantas Proceeding and the British Airways Proceeding, the Commission and the particular respondent airline or airlines supplied a Statement of Agreed Facts (and Admissions by the respondent) pursuant to s 191 of the Evidence Act 1995 (Cth), and Joint Written Submissions.

5. Many issues are common to all five proceedings.  I dealt with them comprehensively in my reasons for judgment of the Qantas Proceeding (Qantas Reasons), and adopted certain paragraphs from the Qantas Reasons in my reasons for judgment in the British Airways proceeding (British Airways Reasons).  I incorporate the Qantas Reasons and the British Airways Reasons as part of my reasons for judgment in this proceeding.

6. The present application relates to a collusive understanding entered into in about April 2003 between the respondent, Cargolux Airlines International SA (Cargolux) and certain of its competitors including Lufthansa Cargo Aktiengesellschaft (Lufthansa), Société Air France (Air France) and Koninklijke Luchtvaart Maatschappij NV (KLM), for the supply of services for the international carriage of cargo by air, and implemented between about April 2003 and February 2006 (Relevant Period).

7. After Air France launched a successful exchange offer for KLM common stock in May 2004, those two entities then became merged as Air France-KLM which is the holding company of the two subsidiaries, Air France and KLM.  In substance, since 1 October 2005 when a Joint Cargo Team (JCT) was established, the cargo divisions of Air France and KLM have been proposing to their clients a single commercial offer.  The JCT has been responsible for the networks, marketing offers and sales of both subsidiaries, although each is responsible for its own operations.  It will be noted that of the Relevant Period, the period from April 2003 to May 2004 pre-dated the merger, and the period from May 2004 to February 2006 post-dated the merger.

8. Cargolux, Lufthansa, Air France and KLM arrived at an understanding in relation to a fuel surcharge on the international carriage of cargo by air over certain international cargo routes, including Australian routes (the Fuel Surcharge Understanding).

9. The Commission and Cargolux jointly submit that a penalty of $5 million is appropriate, as is the granting of an injunction for a period of five years. The financial penalty is the same as that imposed on British Airways in the British Airways Proceeding.  As well the parties request the Court to order Cargolux to pay a contribution to the Commission’s costs in a sum of $200,000.

10. For the purpose of this proceeding only, Cargolux has admitted that its conduct in arriving at and giving effect to the Fuel Surcharge Understanding constituted conduct in contravention of s 45 of the Act.

11. The parties acknowledge that it is for the Court to be satisfied that Cargolux did contravene s 45 of the Act and to determine the amount of any pecuniary penalty and the nature of any other relief to be ordered.

    FACTS

12. The following account of the facts is taken from the Statement of Agreed Facts and Admissions.

    The respondent

    7.Cargolux:

    7.1.throughout the relevant period carried on business in Australia and elsewhere as a carrier of air cargo;

    7.2.in the financial year ending 31 December 2007 employed approximately 1,527 staff and operated flights to 66 destinations in 46 countries, excluding code-sharing and interline arrangements;

    7.3.in its annual report for the financial year ending 31 December 2007, reported that it had a 4% share of global freight sales; 

    7.4.throughout the relevant period was approximately the 9^th largest freight airline in the world measured by freight tonne kilometres (FTK), which represents the transportation of one tonne of freight one kilometre;

    7.5.in the year ended 31 December 2007 transported cargo 5.5 billion FTKs;

    7.6.is, and was throughout the relevant period, a company incorporated in the Grand Duchy of Luxembourg and a foreign corporation in Australia within the meaning of section 4 of the Act.

    8.As at 31 December 2007, Cargolux had total assets of approximately US$1,613 million, with net assets of approximately US$616 million.  For the year ending 31 December 2007, it reported total revenues of approximately US$1,680 million that relate to the carriage of air cargo, and net loss before tax for that year of approximately US$49 million.  Absent an exceptional provision for anti-trust proceedings Cargolux would have achieved earnings before interest and tax of US$121.8 million for the year ending 31 December 2007. 

    9.In the financial years ending 31 December 2003 to 31 December 2006, the following table sets out Cargolux’s gross revenue from the global carriage of airfreight, and carriage of airfreight to Australia:

Global revenue from airfreight	Airfreight revenue from routes to Australia
2003	US$938,877,570	US$14,981,415
2004	US$1,186,149,739	US$15,708,599
2005	US$1,403,147,126	US$15,179,669
2006	US$1,484,766,084	US$16,988,713

Cargolux carried during the relevant period, and still does, between 1 and 2% of the aggregate of all air cargo to Australia based on weight. 

10.In the same period, the revenue derived from fuel surcharges imposed on air cargo by Cargolux was as set out in the following table:

Global cargo fuel surcharge revenue	Revenue from cargo fuel surcharges on routes to Australia
2003	US$45,658,419	US$583,585
2004	US$114,247,116	US$1,273,648
2005	US$222,468,548	US$1,963,212
2006	US$291,019,599	US$1,140,835

11.Cargo fuel surcharges were implemented by Cargolux and certain of its competitors pursuant to the Fuel Surcharge Understanding in various countries and regions including on carriage of air cargo to Australia.

Description of the Market

12.International air cargo is carried both on passenger aircraft, using available belly space capacity, and on dedicated air freighters. Air cargo services are provided “one way” from origin to destination, either directly or using an indirect route via one or more midpoints. Most carriers provide air cargo services on a network-wide basis. Through interline and other arrangements with other carriers they also offer air cargo services to or from airports which their own aircraft do not serve directly. The networks of carriers extensively overlap such that there are various carriers operating to and from any international airport.

13.Carriers issue a document known as an air waybill for the carriage of air cargo. The air waybill sets out various matters relating to the cargo, including the price of carriage from origin to destination, and any surcharges including the fuel surcharge.

14.Airlines predominantly provide international air cargo services to freight forwarders although individual shippers also acquire their services. Freight forwarders generally organise the integrated transport of goods on behalf of a range of shippers. In doing so, they purchase air cargo services from carriers. Shippers may be the purchasers or the sellers of goods or the owners of goods that need to be moved rapidly over relatively long distances. The cost of air cargo services is usually passed on, in whole or in part, to a shipper by their freight forwarder and is ultimately borne by the shipper or their customers.

15.The Commission considers that, for the purposes of section 45 of the Act, the most appropriate market for analysing the conduct that is the subject of these proceedings is and has been at all material times a world wide market for air cargo services, including services to and from Australia, hereinafter referred to as the Air Cargo Market. In other jurisdictions and in other proceeding[s] Cargolux has argued for narrower markets and will seek to maintain that position there but does not seek to be heard on the question of market in these proceedings.

16.The parties agree in any case that, given the conduct admitted in these proceedings, the penalty proposed to the Court would be within the range whether the conduct occurred in the Air Cargo Market or in a narrower market to and from Australia and nothing would turn in this case on defining its outer boundaries.

17.International air cargo carriers, including Cargolux, Lufthansa Cargo Aktiengesellschaft (Lufthansa), Société Air France (Air France) and Koninklijke Luchtvaart Maatschappij (KLM), are, and at all material times have been, actual or potential competitors in the supply of air cargo services in the Air Cargo Market.  Further, at all material times, there have always been at least two airlines, including Cargolux, Lufthansa, Air France and KLM, that were parties to the Fuel Surcharge Understanding and which were in competition in any relevant market in Australia.

Resolution 116ss and the IATA Index

18.In 1997, the members of the International Air Transport Association (IATA) passed a resolution (Resolution 116ss) that IATA prepare and publish a fuel price index for its members, and providing for the imposition of fuel surcharges in accordance with a methodology linked to the index.  IATA was at the time (and remains) the peak airline industry body of which major international airlines (including Cargolux, Lufthansa, Air France and KLM) are members. 

19.The IATA fuel price index measured movements in the price of aviation fuel against a base of the average of prices in 5 ports in June 1996 (index = 100).  The methodology provided that when the index reached 130 for two consecutive weeks, airlines would impose the local currency equivalent of USD0.10 per kilogram of air cargo as a "fuel surcharge", and also that this surcharge would be removed when the index fell below 110 for two consecutive weeks.  The methodology provided details for imposing the surcharge such as the means of including the surcharge on air waybills and the freight forwarders' eligibility for commission. 

20.The fuel cost structure of each member of the IATA was not the same.  Each airline flew different types of aircraft, purchased fuel in different places and many had hedging arrangements in respect of their fuel costs.  The surcharge was also charged by weight regardless of the distance carried and did not take any account of the degree to which movements in cargo rates had otherwise taken account of the changes in fuel costs. 

21.In the period 1997 to 1999, the IATA fuel price index remained below 130, being the trigger point for the first level of the fuel surcharge under Resolution 116ss.  Nevertheless, IATA continued to publish its index.

1999/2000: Implementing the IATA fuel price index

22.In November 1999, for the first time since its publication in 1997, the index exceeded 130. 

23.In January 2000, IATA sought regulatory approval of Resolution 116ss from the US Department of Transportation (DoT) but this was refused in March 2000.  As a consequence of regulatory rejection of Resolution 116ss, IATA ceased publishing its fuel price index. 

24.On 7 April 2000, IATA sent a memorandum to the members of the Cargo Tariff Co-ordinating Conferences stating the following:

“As previously advised, Resolution 116ss has not received the requisite government approvals and will not be declared effective. Accordingly, no purpose would be served by its continued circulation of this index and practice of doing so is being discontinued.”

25.On 14 April 2000 IATA sent another memorandum to the members of the IATA Cargo Committee as follows:

“Dear Colleagues,

We have had a significant number of appeals to maintain and continue to publish the IATA Fuel Index and have been examining how this could be done following the disapproval of Resolution 116ss by the US DoT. Our legal advisors’ strong view is that IATA Members could be exposed to serious antitrust liability if we were to continue to publish the Index or to approach PLATTS or any other entity with a request to provide the Index, or if it was suggested to one or more carriers that they approach PLATTS in this regard. While it is recognised we cannot prevent carriers from doing so on their own initiative, we have to affirmatively advise against taking any such action, for the reasons stated below.

The Index has now become tainted by the DoT order finding Resolution 116ss, to which the Index was linked, to be adverse to the public interest and in violation of the law. If the carriers were to co-ordinate pricing by reference to the Index, whether pursuant to this disapproved Resolution or simply through de facto parallel pricing actions, that could be regarded as an illegal conspiracy in violation of applicable Competition laws, whether the Index is published by IATA, PLATTS, or indeed, simply calculated by each of the carriers independently. Against that background, IATA has no choice but to discontinue all activity associated with the disapproved Resolution, including calculation and dissemination of the Fuel Price Index, and it has done so. Because any further pricing actions linked to the now tainted Index could expose the carriers engaging in such pricing actions to serious antitrust liability, we must advise that carriers not engage in any pricing actions tied to the Index. As there is no further legitimate or lawful use to be made of the Index, we also recommend that carriers refrain from approaching any third party requesting them to calculate and publish the Index.

While we acknowledge the desire of many Members to have the Fuel Index published, we do believe the foregoing reflects a correct analysis of the situation. For the reasons expressed, the position being taken is designed to protect both Members and IATA from serious legal liability risk.

This message is being sent to all the members of the Cargo Tariff Steering Group. A similar message is being sent to the Cargo Tariff Coordinating Conference.

If anyone wishes to pursue this matter further they are advised to contact their Legal Department.

Tom Murphy, Secretary, Cargo Committee”

26.This correspondence was sent to the heads of cargo operations (members of the IATA Cargo Committee) at over 60 airlines, including Cargolux, along with their tariff co-ordinators (members of the Cargo Tariff Coordinating Conference).

2000: The Lufthansa Fuel Price Index

27.Notwithstanding IATA’s correspondence, either before or almost immediately following the cessation of the publication of the IATA fuel price index, Lufthansa commenced publishing its own fuel price index on its website which effectively replicated the IATA fuel price index (the Lufthansa Fuel Price Index). Lufthansa also commenced publishing a methodology which stated that the surcharge of €0.10 (or the equivalent in local currency) would be imposed when the Lufthansa Fuel Price Index exceeded 130 for two consecutive weeks, and would be removed when the fuel price index fell below 110 for two consecutive weeks. Lufthansa’s methodology was otherwise the same as the methodology of Resolution 116ss.

28.Lufthansa later added a further level to its methodology, stating that the surcharge would increase to €0.17 (or the equivalent in local currency) when the fuel price index exceeded 170 for two consecutive weeks, and would reduce to €0.10 when the fuel price index fell below 150 for two consecutive weeks.

29.In or about late September 2000, Lufthansa announced that it would increase its fuel surcharge to €0.17/kg or the equivalent in local currency with effect from 1 November 2000. Other airlines, including Cargolux, also announced this increased surcharge at about this time.

30.On or about 16 January 2001, Lufthansa announced that it would decrease its fuel surcharge back to €0.10/kg or the equivalent in local currency with effect from 1 February 2001.  Other airlines, including Cargolux, also announced this decreased surcharge at about this time.

31.By late 2001, the price of aviation fuel had fallen. In December 2001, airlines which had imposed a fuel surcharge announced the withdrawal of that surcharge with effect from December 2001 or January 2002.

2002: New Methodology

32.In or about January 2002, Lufthansa publicly announced a new fuel surcharge methodology with smaller increments at more frequent intervals. The new methodology was as follows (the Lufthansa Methodology):

Level	Fuel Surcharge	Imposition – index	Removal – index
1	0.05 euro / kg	115	100
2	0.10 euro / kg	135	120
3	0.15 euro / kg	165	145
4	0.20 euro / kg	190	170

33.Similar to Resolution 116ss, the Lufthansa Methodology calculated the fuel surcharges based on the actual per kilogram weight of international air cargo and used a two week period for an index threshold to trigger a fuel surcharge increase or decrease.  The fuel surcharge was imposed in euros or the equivalent in local currency.

34.Several other airlines announced and charged fuel surcharges in accordance with the Lufthansa Methodology. A few airlines (such as British Airways, Air France and KLM) adopted their own fuel surcharge methodology which led to substantially the same outcome as application of the Lufthansa Methodology.

35.At various times between January 2002 and October 2005, Lufthansa added additional levels to its methodology as the fuel index approached the highest level on the existing methodology (Additional Levels). The following table records the Lufthansa Methodology, incorporating the Additional Levels:

Level	Fuel Surcharge	Imposition – index	Removal – index
1	0.05 euro / kg	115	100
2	0.10 euro / kg	135	120
3	0.15 euro / kg	165	145
4	0.20 euro / kg	190	170
5	0.25 euro / kg[1]	215	195
6	0.30 euro / kg	240	220
7	0.35 euro / kg[2]	265	245
8	0.40 euro / kg	290	270
9	0.45 euro / kg[3]	315	295
10	0.50 euro / kg	340	320
11	0.55 euro / kg[4]	365	345
12	0.60 euro / kg	390	370
13	0.65 euro / kg[5]	415	395
14	0.70 euro / kg	440	420

[1]Lufthansa announced additional trigger points for levels 5 and 6 on 14 May 2004. 

[2]Lufthansa announced additional trigger points for levels 7 and 8 on 20 September 2004.

[3]Lufthansa announced additional trigger points for levels 9 and 10 on 21 March 2005.

[4]Lufthansa announced additional trigger points for levels 11 and 12 on 22 August 2005.

[5]Lufthansa announced additional trigger points for levels 13 and 14 on 4 October 2005.

36.In this Statement of Agreed Facts, a reference to the “Surcharge Methodology” is a reference to the Lufthansa Methodology, or to a methodology which led to substantially the same outcome as application of the Lufthansa Methodology.

37.During the period in which Lufthansa was publishing its index, senior Cargolux employees had discussions with their competitors including Lufthansa, Air France and KLM concerning the application of surcharges in accordance with the Surcharge Methodology.

The Fuel Surcharge Understanding

38.Cargolux admits that during the relevant period, it arrived at an understanding with each of Lufthansa, Air France and KLM containing a provision that each of them would impose a fuel surcharge from time to time in accordance with the Surcharge Methodology on cargo carried internationally by air across their networks, except where local conditions in a particular port or in a particular geographic area prevented the imposition, or full imposition, of the fuel surcharge (the Fuel Surcharge Understanding) which provision had the purpose and likely effect of fixing a component of the price each charged for air cargo services.

39.Cargolux, Lufthansa, Air France and KLM gave effect to the Fuel Surcharge Understanding by:

39.1.giving and receiving assurances as to the proposed imposition of fuel surcharges in accordance with the Surcharge Methodology, as further detailed below;

39.2.each increasing and decreasing its fuel surcharge levels in accordance with the Surcharge Methodology, in response to changes in the fuel price index;

39.3.each imposing surcharges in accordance with the Surcharge Methodology by including such surcharges in its air waybills on the carriage of air cargo; and

39.4.in cases where local conditions prevented the imposition, or full imposition, of a fuel surcharge from a particular port or in a particular geographic area, taking steps to impose the surcharge to the extent possible.

40.Cargolux engaged in activity, with the knowledge of its senior staff, to confirm and promote the ongoing operation of the Fuel Surcharge Understanding and to ensure it was given effect. Cargolux senior employees communicated with employees in the freight divisions of other airlines to give and receive assurances that a relevant fuel surcharge increase or decrease in accordance with the Surcharge Methodology would be imposed. The purpose and effect of these communications was to confirm and ensure that competitors imposed fuel surcharges in the same amount at approximately the same time in accordance with the Surcharge Methodology.

41.Examples of such activities between 2003 and 2006 by senior Cargolux employees include:

41.1.communicating by telephone with senior Lufthansa employees to give and receive assurances that a relevant fuel surcharge increase or decrease in accordance with the Surcharge Methodology would be imposed;

41.2.understanding that senior Lufthansa employees in turn exchanged such information with other airlines; and

41.3.themselves exchanging such information directly with representatives of KLM and Air France.

42.The purpose and effect of these communications was to confirm and ensure that the airlines moved in the same amount at around the same time in accordance with the Surcharge Methodology, thereby giving effect to the Fuel Surcharge Understanding. 

43.During the period April 2003 to February 2006, and pursuant to the Fuel Surcharge Understanding, Cargolux imposed surcharges in accordance with the Surcharge Methodology including the Additional Levels to the extent possible on routes to and from Australia.  In the case of freight carried ex-Australia, market conditions during the relevant period often did not allow the full surcharge to be imposed. 

44.Attached to this statement of agreed facts as Attachment A is a table recording the surcharges imposed by Cargolux. [Attachment A is not reproduced in these reasons.]  Implementation of changes in the fuel surcharge generally lagged behind the Lufthansa Fuel Price Index reaching an index threshold by approximately 2 -3 weeks to give airlines time to notify customers of the new charges. 

45.Cargolux admits that arriving at the Fuel Surcharge Understanding and giving effect to its provisions constituted the arriving at and giving effect to an understanding containing provisions to which section 45A of the Act applies in that it had the purpose, effect and likely effect, of fixing, controlling or maintaining the price charged by competitors for the carriage of cargo internationally by air, and that such conduct also had the purpose, effect and likely effect of substantially lessening competition between Cargolux and its competitors for the carriage of cargo internationally by air, including to Australia.

46.The conduct ceased in February 2006, when raids were undertaken by competition regulators in the United States and Europe. 

47.In the relevant period Cargolux issued air waybills in which a fuel surcharge was imposed by it pursuant to the Fuel Surcharge Understanding. 

48.Cargolux admits that by arriving at the Fuel Surcharge Understanding and by giving effect to its provisions by charging on air waybills issued by it surcharges in accordance with the Surcharge Methodology, it has contravened sections 45(2)(a)(ii) and (b)(ii) of the Act.

1. The Relevant Period was a little under 3 years.  The conduct ceased in February 2006 when allegations concerning the Fuel Surcharge Understanding received publicity following  “raids” undertaken by regulatory bodies in the United States and Europe.

LEGAL PRINCIPLES RELEVANT TO LEVEL OF PENALTY

1. Paragraphs 11 to 39 of the Joint Written Submissions set out the factors and applicable legal principles relevant to the level of penalty. At [16] to [27] of the Qantas Reasons under the heading “Legal Principles Relevant to Level of Penalty”, I summarised those principles and will not repeat them here (see too the British Airways Reasons at [16]).

   THE PARTIES’ SUBMISSIONS ON FACTS RELEVANT TO LEVEL OF PENALTY IN THE PRESENT CASE

2. What follows under this heading is paras 41-71 of the Joint Written Submissions made by the Commission and Cargolux.

   Nature and extent of the contravening conduct, including its deliberateness

   41.The conduct subject to penalty was engaged in by Cargolux throughout the world and was deliberate.  Unlike many of its competitors which operate both passenger and dedicated freight aircraft, Cargolux operates solely as an air freight carrier and does not have passenger aircraft.  It accordingly did not have revenue from passengers as part of its income.

   42.The understanding was to implement the Fuel Surcharge Understanding as widely and as fully as possible but, in some locations when giving effect to the Fuel Surcharge Understanding, the amount of the fuel surcharge varied according to what the participants thought was profitably achievable, but in some locations when giving effect no surcharge was maintainable. 

   43.In many jurisdictions prior to the investigations of this conduct, the local representatives of airlines did not consider their discussions particularly secret.  In some locations, airline representatives including Cargolux representatives met with competitors to jointly propose a particular surcharge or level and minuted their meetings.  In Europe, no formal records of the understanding were made.

   44.The conduct ceased in February 2006, when “raids” were undertaken by regulatory bodies in the United States and Europe.  The cartel could have been defeated at any time in most localities by any major carrier in that locality declining to impose the surcharge.

   The amount of loss or damage caused

   45.The revenue generated by Cargolux as a result of the fuel surcharges to Australia during the relevant period was approximate US$5 million. Cargolux carried between 1 and 2% of the cargo carried to Australia.  This however does not demonstrate the actual loss to shippers or their customers because, absent the Fuel Surcharge Understanding, some price increases would have occurred to cover the increased costs of fuel, which did increase over the relevant period.  It may have also been that some carriers would have been forced to exit certain routes, allowing the remainder to impose other increases with less constraint.  These competitive outcomes cannot be known.  It is the case that the parties to the Fuel Surcharge Understanding had different arrangements for the acquisition of fuel and acquired it in different places: many also had hedging arrangements.  Accordingly, the Fuel Surcharge Understanding did not fully or precisely reflect any of the parties' actual costs.  Further, a surcharge increase could stay in place even after the price increase that triggered it had gone: different trigger steps were used in the Surcharge Methodology when it was reducing from when it was increasing. 

   46.Neither the Commission nor Cargolux are aware as to what proportion of the surcharge was ultimately borne by any particular consumer or business in Australia.  As a general rule, the ultimate consumer will bear most if not all of the transport cost, in the price paid for the cargo: others in the supply chain, such as a wholesaler or retailer will absorb some part of the cost some part of the time.  These others involve persons both in Australia and overseas.  They will be more likely to absorb the loss if the goods comprising the cargo have been sold prior to the transport cost increase but may also have to do so if their competitors do not have the same costs. Nevertheless it may be assumed that the cost of surcharges on cargo comprising imported goods would be largely borne by Australians whereas the same costs on cargo comprising exported goods would be largely borne by overseas buyers.

   47.Businesses in Australia importing cargo on which a surcharge was paid, even if they passed it on totally to their customers, would also be negatively impacted if they competed with domestic goods, but again the effect on any particular consumer or business cannot be known or quantified.   

   The size of the contravener

   48.As noted in the statement of agreed facts and admissions, Cargolux has total assets of about US$2 billion and during the relevant period was the 9^th largest carrier of freight in the world and had commanded approximately 4% of global air cargo sales.  Over the relevant period Cargolux carried between 1 and 2% of the air freight to Australia.  Qantas and Singapore Airlines carried about 24% and 14% respectively.  Cargolux' total profits before interest and tax for the year ended 30 December 2007 was approximately US$120 million excluding provision for anticipated anti trust liabilities.  It derived revenue of approximately US$1.5 billion from the carriage of air freight in the calendar year 2006.  Many of Cargolux’ principal competitors are of a similar or even larger size although many of them also derive most of their revenue from the carriage of passengers. 

   The period over which the contravening conduct extended

   49.Cargolux’ contravening conduct for which penalties can be imposed extended over approximately a 3 year period from April 2003 to February 2006 inclusive.

   Degree of power it has, as evidenced by its market share and ease of entry into the market

   50.Cargolux has about 4% of all worldwide sales of air cargo services.

   51.In the segment to Australia, Cargolux carried 1 to 2%.  Apart from Qantas and Singapore Airlines there are at least ten other significant competitors which are major international carriers and which have market shares to Australia of between about 2% and 10%.  Cargolux was unable to act without being constrained by its competitors and was a constraint on its competitors. 

   The circumstances in which the conduct took place

   52.Whilst the volatility of jet fuel prices certainly sparked the conduct, and some price adjustment would have been implemented by participants unilaterally to reflect this, the fuel surcharge timing and amount did not precisely reflect the actual changes in costs of the competing airlines or the degree to which general price rises accounted for movements in fuel costs.  The conduct substantially reduced competition for the carriage of air cargo. The parties were aware that the US Department of Transportation had rejected the conduct as anticompetitive. The conduct required the participation of all major carriers in each port or region to be successful.  Senior staff at Cargolux participated in, or were aware of, the arriving at and giving effect to the Fuel Surcharge Understanding. 

   Culture of compliance with the Trade Practices Act

   53.Cargolux did have a program of trade practices compliance in place during the period of the contravening conduct.  That program proved to be inadequate in identifying, preventing or even limiting the extent of the conduct.

   54.Cargolux has substantially upgraded its compliance program since the relevant period.

   Co-operation and Contrition

   55.Cargolux has co-operated with the Commission’s investigations and made frank admissions of its participation in the understandings.  

   56.Cargolux through its solicitors participated in a series of discussions with the Commission to bring an agreed resolution of the matter before the Court.  As a result of those discussions Cargolux and the Commission have reached agreement as to the appropriate penalty to be suggested to the Court.  Cargolux has also assisted the Commission in the preparation of the relevant settlement documents including the admissions.

   57.As already mentioned, Cargolux has reviewed and upgraded its current trade practices compliance program.

   58.The Commission accepts that Cargolux is entitled to credit for having admitted contravening the Act, upgrading its compliance program and agreeing with the Commission on the appropriate penalty to put to the Court ([…]). Cargolux’ co-operation with the Commission has saved the Commission and the Court (and ultimately the community) the cost and burden of litigating a lengthy and expensive case.

   59.It is obviously of benefit to the Commission’s investigations that respondents are encouraged to co-operate in appropriate cases.  In these circumstances the parties submit Cargolux is entitled to a substantial discount on the penalty that otherwise would have been appropriate, which, given the regularity of the contravening conduct over the 3 year period and the maximum applicable penalty per contravention of $10 million, could have been very much higher.  This discount reflects the timely and appropriate admission and the substantial savings from a full investigation and litigation. 

   60.The discount proposed by the Commission is 30%. This is less than the 50% recommended for Qantas and the 40% recommended for British Airways. This reflects that, while Cargolux has been full, frank and timely concerning its own conduct, the evidence provided by it concerning others has been as a result of its compliance with notices under section 155 of the Act.

   61.Unlike Qantas and British Airways before it, Cargolux has not been in a position to provide witnesses or volunteered to provide other assistance with the case against others.

   Similar conduct in the past

   62.The Court has not previously found contraventions against Cargolux in relation to the Act.

   Other regulators

   63.The Commission notes that Cargolux is under investigation in the United States in respect of its conduct.  Cargolux expects very substantial penalties in Europe and the USA will be sought at the conclusion of the EU and US investigations. Cargolux is co-operating with regulators in both jurisdictions.

   Conclusion on appropriate penalty

   64.The Federal Court has previously ordered penalties against:

   64.1.Qantas in the amount of $20 million in [the Qantas Proceeding];

   64.2.British Airways in the amount of $5 million in [the British Airways Proceeding];

   in respect of their associated conduct.  They had respective shares in the Australian segment of the market of approximately 24% and 3%.  Their penalties included allowances for co-operation and assistance of 50% and 40% respectively.

   65.As noted in the judgements of Lindgren J ([in the Qantas Reasons] at [58] [sic – [59]], [and in the British Airways Reasons] at [28]) the Commission  recommended to the Court that a base penalty of $7 million is appropriate for cartel participants with a 2% share or less of the Australian segment of the market that participated for all or substantially all of the period eligible for penalty.  This recommendation reflects the basic need for effective deterrence regardless of the actual benefit that was gained.  It also reflects the size and economic strength of the contravenors and the fact that they have paid and will be likely to pay very substantial penalties in other jurisdictions.  From the base penalty, the Commission proposed and recommended to the Court in those cases that a discount of approximately 30% was appropriate for airlines that admitted their involvement substantially in advance of the Commission being able to prove it.  The Commission maintains that submission and has adopted that approach in its recommendations to the Court in these proceedings.

   66.The parties submit that the respondent meets the circumstances set out in the preceding paragraph and that the penalty for Cargolux ought be $5 million. 

   67.The Commission and Cargolux submit that, when all the factors and circumstances referred to above are taken fully into account, a pecuniary penalty of $5 million is appropriate, in that the parties consider that the suggested amount falls within the range that the Court, unaided by the parties’ agreement, would have considered appropriate. 

   Other orders

   68.The short minutes of order agreed between the Commission and Cargolux provide for an injunction against Cargolux for a period of five years, and costs in an agreed amount.

   CONCLUSION

   69.In summary, the Commission regards the Fuel Surcharge Understanding made and given effect to by Cargolux as involving very serious contraventions of the Act. In the case of Cargolux, the conduct involved senior levels of the company and the conduct in which it engaged involved the global operations of extremely large international airlines. Further, the Commission also regards the effect of the conduct on competition in Australia as being clearly very substantial. Insofar as the Fuel Surcharge Understanding concerned the carriage of goods to Australia, Cargolux was not one of the larger participants and the revenue derived was substantially lower than some of its competitors; nevertheless, large multinational companies must be deterred from making and giving effect to a cartel concerning Australia regardless of the revenue derived from Australians.

   70.Cargolux’ cooperation has greatly assisted the Commission in concluding its investigation of it and in bringing the matter before the Court. The savings to the Court and the community are substantial.

   71.In light of all these circumstances, the Commission and Cargolux submit that the order for the payment of a penalty and the other orders set out in the short minutes of order are appropriate and should be made by the Court.

   CONSIDERATION

1. Because of my adoption, mutatis mutandis, of the Qantas Reasons and the British Airways Reasons (see especially [31]-[80] of the Qantas Reasons), it seems to me that the appropriateness of the penalty and other orders sought by Cargolux and the Commission turns largely on the issue of parity.

2. Throughout the Relevant Period, Cargolux carried on business in Australia (and elsewhere) and was registered as a foreign corporation in Australia.  Cargolux’s business is solely that of a freight carrier.  It is a very substantial freight airline with substantial revenue from the global carriage of freight.  Based on weight, during the Relevant Period it carried between 1% and 2% of all Australian international air cargo.  Its global surcharge revenue was of the same order as that of each of Air France and KLM and certainly greater than that of Qantas and British Airways.  In relation to its revenue from cargo fuel surcharges on Australian routes, it is broadly comparable to British Airways in magnitude.

3. The Commission has applied its approach of a base penalty of $7 million for an international airline that participated in a Fuel Surcharge Understanding and has a 2% or less share of the Australian segment of the market, discounted by 30% for co-operation with the Commission’s investigations.

4. The solicitor for Cargolux acknowledged that his client’s conduct was extremely serious but submitted that it was no more serious than that in the British Airways Proceeding (or, for that matter, in the Martinair proceeding or the Air France and KLM proceeding). 

5. Cargolux has not, so far as the Court record shows, previously contravened the Act.

6. Cargolux expects to suffer substantial penalties in the United States and Europe and is cooperating with the authorities there.

7. I accept that the circumstances are broadly comparable to those in the British Airways Proceeding.

8. For the above reasons it seemed to me appropriate on 16 February 2009 to impose a penalty of $5 million, to make an order in the nature of an injunction for five years, and to order Cargolux to pay $200,000 as a contribution towards the Commission’s costs.  It will be noted that this contribution to costs is higher than the $100,000 ordered in each of the Martinair, and KLM and Air France proceedings. Counsel explained that this is because those three airlines are now part of the same corporate group and thus the standard costs amount was divided between Martinair on the one hand ($100,000), and KLM and Air France on the other ($100,000).

   CONCLUSION

9. The reasons set out above were my reasons for making the orders on 16 February 2009.

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:
Dated:        14 April 2009

Counsel for the Applicant:		Mr CA Moore
Solicitor for the Applicant:		Australian Government Solicitor
Solicitor for the Respondent:		Mr P Armitage of Blake Dawson

Date of Hearing:	16 February 2009
Date of Judgment:	16 February 2009
Date of Publication of Reasons:	14 April 2009