Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd
[2016] FCAFC 42
•21 March 2016
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v P T Garuda Indonesia Ltd [2016] FCAFC 42
Appeal from: Australian Competition and Consumer Commission v Air New Zealand Limited (2014) 319 ALR 388; [2014] FCA 1157 File numbers: NSD 1330 of 2014
NSD 1331 of 2014Judges: DOWSETT, YATES AND EDELMAN JJ Date of judgment: 21 March 2016 Catchwords: TRADE PRACTICES – price fixing – meaning of a market “in Australia” – whether markets for airborne cargo out of Hong Kong, Singapore and Indonesia to ports in Australia were markets “in Australia” within s 4E of the Trade Practices Act 1974 (Cth)
STATUTORY INTERPRETATION – whether inconsistency exists between Trade Practices Act 1974 (Cth) and Air Navigation Act 1920 (Cth)
Legislation: Acts Interpretation Act (1901) (Cth) s 15B
Air Navigation Act 1920 (Cth) ss 12, 12(2), 13, 13(b), 22(1)
Air Navigation Amendment Regulations 2000(No 3) (Cth)
Air Navigation Regulations 1947 (Cth) reg 106A, 258
Commerce Act 1986 (NZ) ss 3(1), 3(1A)
Commonwealth of Australia Constitution Act 1901 (Cth) s 109
Competition and Consumer Act 2010 (Cth)
Competition Policy Reform Act 1995 (Cth)
Crown Suits Act 1898 (WA) ss 33, 37
Evidence Act 1995 (Cth) s 63(2)
Extradition Act 1988 (Cth)
Federal Aviation Act of 1958, 49 USC 1301 (1958)
Industrial Relations Act 1996 (NSW) s 84(1)
Limitation of Actions Act 1958 (VIC) s 5(6)
Police Act 1990 (NSW) s 80(3)
Sherman Antitrust Act 15 USC (1890)
Trade Practices (Misuse of Trans–Tasman Market Power) Act 1990 (Cth)
Trade Practices Act 1974 (Cth) ss 2, 4, 4(1), 4E, 45, 45(2), 45(3), 45(2)(a)(ii), 45(2)(b)(ii), 45A, 45A(1), 46, 50(1), 51, 51(1), 51(1A), 51(1C), 51(1C)(a), 76, 77, 77(1), 77(2), 82, 82(1), 82(2), 88, 88(1)(c)-(e); Pt IV
Trade Practices Amendment Act 1977 (Cth)
Trade Practices Bill 1974 (Cth)
Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Indonesia for Air Services Between and Beyond their Respective Territories. 7 March 1969. Australia–Indonesia. [1969] ATS 4 Arts 2, 6, 6(2), 6(3), 6(4)
Consolidated Version of the Treaty on the Functioning of the European Union. 13 December 2007. European Union. 2008 O.J. C 115/47 Art 102
Convention on International Civil Aviation. Signed 7 December 1944. 15 UNTS 295 (entered into force 4 April 1947) (Chicago Convention)
Trans–Atlantic Conference Agreement [1959–1962] O.J. Spec. Ed. 87
Treaty Establishing the European Community (Consolidated Version), Rome Treaty. 25 March 1957. European Union Art 82
Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community. Signed 13 December 2007. European Union. 2006 O.J. C 321 E/37 (entered into force 1 December 2009)
Cases cited: Application by Services Sydney Pty Ltd [2005] ACompT 7; (2005) 227 ALR 140
Associated Minerals Consolidated Ltd v Wyong Shire Council [1975] AC 538
Atlantic Container Line AB v Commission (TAA) [2005] 4 CMLR 20
Atlantic Container Line AB v European Commission [2002] All ER (EC) 684
Australian Competition and Consumer Commission v Air New Zealand Limited (2014) 319 ALR 388; [2014] FCA 1157
Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd (No 7) [2010] FCA 902
Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 324 ALR 392; [2015] FCAFC 103
Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909; (2013) 310 ALR 165
Australian Competition and Consumer Commission v Eurong Beach Resort Ltd [2005] FCA 1134
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 1844
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] ATPR 42-123; [2006] FCA 826
Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151
Australian Competition and Consumer Commission v The Australian Medical Association Western Australia Branch Inc [2003] FCA 686; (2003) 199 ALR 423
Australian Consumer and Competition Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375
Australian Meat Holdings Pty Limited v Trace Practices Commission [1989] ATPR 40-932; [1989] FCA 25
Cabal v United Mexican States (No 3) [2000] FCA 1204; (2000) 186 ALR 188
Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103
Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103,318; [2011] NZHC 1285
Commerce Commission v Ophthalmological Society of NZ Inc (2010) TCLR 994
Commissioner of Police for New South Wales v Eaton [2013] HCA 2; (2013) 252 CLR 1
Cook v Pasminco Limited (2000) 99 FCR 548; [2000] FCA 677
CPCF v Minister for Immigration and Border Protection [2015] HCA 1; 316 ALR 1; 143 ALD 443, 449; (2015) 89 ALJR 207
Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238
Davids Holdings Pty Ltd v Attorney General of the Commonwealth (1994) 49 FCR 211
Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No. 2) [1987] ATPR 40-795; (1987) 16 FCR 410
Emirates v Australian Competition and Consumer Commission [2009] FCA 312; (2009) 255 ALR 35
Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43; (2015) 326 ALR 396
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
GTK Trading Pty Ltd v Export Development Grants Board (1981) 4 ALD 389; 40 ALR 375
International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co [1958] HCA 16; (1958) 100 CLR 644
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Jumbunna Coal Mine NL v Victorian Coal Miners’ Association [1908] HCA 95; (1908) 6 CLR 309
Kish Glass v Commission [2000] ECR II‑1885
Maloney v The Queen [2013] HCA 28; (2013) 252 CLR 168
Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd & Ors [2001] FCA 1620; (2001) 114 FCR 108
Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332
Minister of State for Immigration & Ethnic Affairs v Teoh [1995] HCA 20; (1995) 183 CLR 273
Pearce v The Queen [1998] HCA 57; (1998) 194 CLR 610
Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554
QIW Retailers Limited v Davids Holdings Pty Limited (No 3) (1993) 42 FCR 255; [1993] FCA 287
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1989] HCA 6; (1989) 167 CLR 177
R v Halton; Ex parte AUS Student Travel Pty Ltd [1978] HCA 26; (1978) 138 CLR 201
Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd [1983] ATPR 40-367; (1983) 68 FLR 70
Re Application by Concrete Carters Association (Victoria) (1977) 31 FLR 193; (1977) 16 ALR 387
Re Fortescue Metals Group Ltd (2010) 271 ALR 256; [2010] ACompT 2
Re Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs [2013] NSWSC 106; (2013) 93 ACSR 421
Re Ku‑ring‑gai Co‑operative Building Society (No 12) Ltd (1978) 36 FLR 134
Re Queensland Co‑operative Milling Association Ltd (1976) 8 ALR 481
Re Tooth & Co Ltd (1979) 39 FLR 1
Schellenberg v Tunnel Holdings [2000] HCA 18; (2000) 200 CLR 121
Sent v Jet Corporation of Australia Proprietary Limited [1986] HCA 35; (1986) 160 CLR 540
Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160
Singapore Airlines Limited v Taprobane Tours WA Pty Ltd [1991] FCA 808; (1991) 104 ALR 633
State of Western Australia v Wardley Australia Limited& Ors [1991] ATPR 41-131; (1991) 30 FCR 245
Taylor v Owners – Strata Plan No 11564 [2014] HCA 9; (2014) 253 CLR 531
The Commonwealth of Australia v Verwayen [1990] HCA 39; (1990) 170 CLR 394
TheCrown v McNeil [1922] HCA 33; (1922) 31 CLR 76
Trade Practices Commission v Parkfield Operations Pty Ltd [1985] ATPR 40-526; (1985) 5 FCR 140
Trade Practices Commission v Parkfield Operations Pty Ltd [1985] ATPR 40-639; (1985) 7 FCR 534
Trade Practices Commission v Service Station Association Ltd (1992) ATPR 41-179; (1992) 109 ALR 465
Trade Practices Commission v Service Station Association Ltd [1993] ATPR 41-260; (1993) 44 FCR 206
United Brands v Commission [1978] ECR 207
United States v Aluminum Co of America 8 F 2d 416 (2d Cir 1945)
Australian Competition and Consumer Commission, Merger Guidelines–November 2008 (Commonwealth of Australia, Canberra, 2011)
Commonwealth, Parliamentary Debates, House of Representatives, 8 December 1976
Dal Pont GE, Law of Agency (3rd ed, LexisNexis Butterworths, 2014)
Heydon JD, Trade Practices Law (Lawbook Co., subscription service)
Jennings R and Watts R, Oppenheim’s International Law (9th ed, Oxford University Press, 1992) Vol 1
Macquarie Dictionary (6th ed, Macquarie Dictionary Publishers, 2013)
Oxford English Dictionary (2nd ed, Oxford University Press, 1989)
Trade Practice Act Review Committee, Report to the Minister for Business and Consumer Affairs (Australian Government Publishing Service, Canberra, 1976)
Breyer S, “Five Questions About Australian Antitrust Law” (1977) 51 Australian Law Journal 28
Brown GW, “Relevant Geographic Market Delineation: The Interchangeability of Standards in Cases arising under Section 2 of the Sherman Act and Section 7 of the Clayton Act” (1979) Duke Law Journal 1152
Harris RG and Jorde TM, “Market Definition in the Merger Guidelines: Implications for Antitrust Enforcement” (1983) 71(2) California Law Review 464
Stigler GJ and Sherwin RA, “The Extent of the Market” (1985) 28(3) Journal of Law and Economics 555
Date of hearing: 17 to 24 August 2015 Registry: New South Wales Division: General Division Category: Catchwords National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Number of paragraphs: 684 Counsel for the Appellant (NSD 1330 of 2014 and NSD 1331 of 2014): Mr J Halley SC and Mr J Clarke SC with Ms H Younan and Mr C Arnott Solicitor for the Appellant (NSD 1330 of 2014 and NSD 1331 of 2014): Australian Government Solicitor Counsel for the Respondent (NSD 1330 of 2014): Mr N Hutley SC with Mr T Brennan Solicitor for the Respondent (NSD 1330 of 2014): Norton White Counsel for the Respondent (NSD 1331 of 2014): Mr B Walker SC and Mr R Smith SC with Mr N Owens and Mr R Yezerski Solicitor for the Respondent (NSD 1331 of 2014): Corrs Chambers Westgarth ORDERS
NSD 1330 of 2014 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Appellant
AND: P T GARUDA INDONESIA LTD (ARBN 000 861 165)
Respondent
JUDGES:
DOWSETT, YATES AND EDELMAN JJ
DATE OF ORDER:
21 MARCH 2016
THE COURT ORDERS THAT:
1.By 24 March 2016, the parties file a minute of proposed orders to give effect to these reasons.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
NSD 1331 of 2014 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Appellant
AND: AIR NEW ZEALAND LIMITED (ARBN 000 312 685)
Respondent
JUDGE:
DOWSETT, YATES AND EDELMAN JJ
DATE OF ORDER:
21 MARCH 2016
THE COURT ORDERS THAT:
1.By 24 March 2016, the parties file a minute of proposed orders to give effect to these reasons.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DOWSETT AND EDELMAN JJ:
TABLE OF ABBREVIATIONS 2002 Hong Kong Lufthansa Methodology
A tariff unilaterally created by Lufthansa when it altered its worldwide fuel index. The index could go down as well as up and had multiple trigger points.
2002 Hong Kong Lufthansa Methodology Understanding
An allegation by the Commission of an understanding reached between a number of airlines on 23 July 2002 containing provisions to replace the pre‑2002 Hong Kong methodology with a revised methodology based on the Lufthansa Methodology.
ACRB
Air Cargo Representative Board in Indonesia. Committee of the industry representative body for the airlines in Indonesia.
Air Navigation Act
Air Navigation Act 1920 (Cth)
Air Navigation Regulations
Air Navigation Regulations 1947 (Cth)
Air NZ
Air New Zealand Ltd
Airlines or The Airlines
Air NZ and Garuda
ASA
Air Services Agreement
Australia‑Indonesia ASA
An Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Indonesia for Air Services Between and Beyond their Respective Territories, 7 March 1969, [1969] ATS 4.
Commission
Australia Competition and Consumer Commission
December 2002 Hong Kong Insurance Understanding
An allegation by the Commission that on 16 December 2002 Air NZ and Garuda reached an arrangement or understanding with other airlines that they would impose a reduced insurance surcharge of HKD.025/kg from 11 January 2003.
Extension Understandings
The First Hong Kong Surcharge Extension Understanding through to the Eighth Hong Kong Extension Understanding.
First Hong Kong Extension Understanding
The arrangement that Garuda made on or about 12 June 2003 containing provisions that the HK BAR‑CSC should apply to the CAD to extend the approval for the Hong Kong Lufthansa Methodology, and those international airlines would continue to apply surcharges in accordance with that methodology.
Garuda
P T Garuda Indonesia Ltd
HK CAD
Hong Kong Civil Aviation Department
HK BAR CSC
Hong Kong Board of Airline Representatives Cargo Sub‑Committee. Committee of the industry representative body for the airlines in Hong Kong.
Hong Kong Imposition Understanding
The understanding reached between BAR CSC and its member airlines, or some of them including Garuda, that the airlines in question would impose fuel surcharges fixed in accordance with the methodology approved by HK CAD.
IATA
International Air Transport Association. This is the international trade association for airlines, and an association to which many airlines belong.
Imposition Provision
The provision to impose surcharges in accordance with the revised Hong Kong Lufthansa methodology.
ISPs
Implemented Selling Prices
ISS
Insurance and security surcharge
October 2001 Hong Kong Insurance Understanding
The alleged understanding or arrangement made between Air NZ, Garuda and other HK BAR CSC member airlines on 3 October 2001. The understanding was that they would all impose an insurance surcharge from 11 October 2001 at the level of HKD0.50/kg.
QCMA
Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481
Replacement Provision
The replacement of the pre‑2002 Hong Kong Lufthansa Methodology with a revised methodology.
RSPs
Recommended Selling Prices
Singapore BAR CSC
Singapore Board of Airline Representatives Cargo Sub‑Committee. Committee of the industry representative body for the airlines in Hong Kong.
Singapore ISS Understanding
An understanding alleged by the Commission that Air NZ made an arrangement with other airlines containing a provision that the parties would continue to charge (and would not reduce) the amount that they were currently charging their customers for the ISS on the supply of air freight services from Singapore including Australia.
SSNIP
Small but Significant Non-Transitory Increase in Price
TACT
The Air Cargo Tariff
TC1
IATA Cargo Tariff Conferences – Area 1
TC2
IATA Cargo Tariff Conferences – Area 2
TC3
IATA Cargo Tariff Conferences – Area 3
INTRODUCTION
[1]
THE COMMISSION’S APPEAL
[8]
The “market in Australia” issue
[8]
The Commission’s pleaded case
[8]
The relevant provisions of the Trade Practices Act
[9]
The primary Judge’s reasons, grounds of appeal and notices of contention
[15]
The grounds of appeal
[49]
The respondent airlines’ challenge to the finding that large importing shippers were part of the market
[52]
The submissions concerning the market issues
[67]
The proper approach to whether a market is “in Australia”
[72]
(1) Legislative background
[76]
(2) The flexibility of the concept of a “market in Australia” and purposive considerations
[82]
(3) The proper approach to the words “market in Australia”
[88]
(4) Difficulties with the approach of the primary Judge
[92]
(5) Identification of the market: authority and application
[110]
Australian authority
[112]
The position in New Zealand: Commerce Commission v Air New Zealand Ltd
[132]
The approach in Europe
[138]
The identified market in this case
[148]
(6) Characterisation of whether the identified market is “in Australia”
[149]
THE RESPONDENT AIRLINES’ NOTICES OF CONTENTION
[171]
Alleged inconsistency between the Trade Practices Act 1974 (Cth) and the Air Navigation Act 1920 (Cth)
[172]
The reasoning of the primary Judge
[182]
The respondent airlines’ submissions
[185]
There is no inconsistency in the terms of the Trade Practices Act 1974 (Cth) and Air Navigation Act 1920 (Cth)
[188]
There is no inconsistency in the practical effect of the statutes due to Article 6, ASA
[198]
There is no inconsistency in the practical effect of the statutes due to the terms of Garuda’s licence
[210]
Part IV of the Trade Practices Act cannot be read down to exclude international commercial aviation
[219]
Foreign State Compulsion: Hong Kong and Singapore
[231]
Hong Kong law and Hong Kong domestic practice: the primary Judge’s findings
[236]
Hong Kong law and Hong Kong domestic practice: the respondent airlines’ submissions
[239]
Reasons why no foreign State compulsion was involved
[242]
An extension of compelled foreign conduct to permitted foreign conduct?
[252]
Foreign State Compulsion: Indonesia
[258]
The issues at trial
[258]
The issues on appeal
[264]
Alleged compulsion by Indonesian State practice
[277]
The Hong Kong Understandings
[289]
The 2002 Hong Kong Lufthansa Methodology Understanding
[289]
(i) The primary judge’s findings
[291]
(ii) The pleading point
[292]
(iii) Did an Air NZ representative attend the 23 July 2002 meeting?
[298]
(iv) The alleged improbability of the 23 July 2002 Understanding
[311]
(v) Whether the eight extensions of the 2002 Hong Kong Lufthansa Methodology Understanding “overtook” the Methodology Understanding
[325]
The Hong Kong Extension Understandings: Garuda
[330]
The Hong Kong Imposition Understanding
[353]
Air NZ
[354]
Garuda
[362]
The October 2001 and December 2002 Hong Kong Insurance Understandings
[377]
The October 2001 Hong Kong Insurance Understanding
[378]
The December 2002 Hong Kong Insurance Understanding
[385]
Other matters raised by Garuda in relation to Hong Kong
[397]
The Singapore Understandings
[399]
The Indonesian Understandings
[418]
Five categories of alleged understandings
[420]
The October 2001 Fuel and Security Surcharge Understandings
[421]
Second and subsequent Indonesian Fuel and Security Surcharge Understandings
[460]
The September 2005 Fuel Surcharge Understanding
[469]
The 2001 Indonesian Price Understanding
[470]
The May 2004 Customs Fee Understanding
[477]
Garuda’s submission concerning the IATA Authorisation
[483]
Garuda’s submission concerning the Qantas Authorization
[500]
Garuda’s submission that the proceedings were out of time
[515]
The “component of a price” contention
[548]
Conclusion
[571]
INTRODUCTION
This is an appeal from a trial which ran for fifty-seven days. The issues were not complex but the parties raised every imaginable point and tendered huge volumes of material. The central point raised by the Australian Competition and Consumer Commission (the “Commission”) on the appeal was a very short one: what is the meaning of a market “in Australia”? But the respondent airlines to the appeal continued a scorched earth policy. The notice of contention filed by P T Garuda Indonesia Ltd (“Garuda”) raised 94 issues. And almost the entire record of the trial proceedings was electronically reproduced on appeal. A handful of issues in the notices of contention were abandoned, but there were others which were not abandoned but about which no submissions were made. Some of the other issues raised in the notices of contention depended upon factual findings by the primary Judge about which we were referred to only a snapshot of the evidence. This introduction focusses upon the main issue on the appeal. As we explain, we would allow the appeal on that issue.
One matter in Garuda’s notice of contention was conceded, although it is unclear whether it will have any substantial effect, and another (concerning limitation) may require further submissions in light of these reasons. Otherwise, we reject the issues raised in contention by the respondent airlines.
At first instance in these proceedings, the central issue arose in the context that the Commission sought to establish that Air New Zealand Ltd (“Air NZ”) and Garuda had engaged in collusive behaviour. The Commission asserted that Air NZ and Garuda’s collusive behaviour consisted of fixing surcharges and fees on the carriage of air cargo from Hong Kong, Singapore and Indonesia into Australia. That conduct was said to be unlawful because it was contrary to s 45 (read with s 45A) of the Trade Practices Act 1974 (Cth) (the “Trade Practices Act”) (as it was named before being rebadged as the Competition and Consumer Act 2010 (Cth)). The primary Judge rejected that case. The Commission now appeals against that decision.
The primary Judge found that the markets for airborne cargo out of Hong Kong, Singapore and Indonesia were not markets “in Australia” within s 4E of the Trade Practices Act. At some stage a party or freight forwarder wishing to send cargo to Australia by air would have to choose the airline which would carry that cargo. The market in question was that in which air cargo services were supplied and acquired. His Honour concluded that the market was located at the point at which the choice of airline (a “switching decision”) took effect. That point was, in his Honour’s view, the point at which the cargo was delivered to the airline for carriage.
For the reasons below, and with genuine respect to his Honour’s meticulous judgment, we would allow the appeal on this point. The question to be asked is not whether a switching decision is given effect in Australia but whether a market is in Australia. All aspects of the market are relevant in determining whether it is in Australia. For instance, the presence of importers (customers) in Australia is not, as the primary Judge concluded at [263]‑[264], irrelevant to the determination of whether the market is in Australia.
Both the text and purpose of s 4E require identification of whether a market is in Australia by (i) identification of the market; and (ii) location of that market. It has been customary to identify the market by reference to its “product dimension”, “geographic dimension”, and “functional dimension”. These dimensions are not independent of one another, nor are they unrelated to the location of the market. This is particularly so because the “market” concept does not refer to only a physical marketplace or market square where buyers come to purchase from sellers.
Ultimately, the determination of whether a market is “in Australia” is an evaluative exercise, which should not exclude any aspect of the market from consideration. In this case, Air NZ and Garuda supplied a suite of air cargo services to each port in Australia, commencing the provision of those services outside Australia. But (i) the suite of services they provided included important components which were provided in Australia; (ii) the services were marketed and ultimately supplied to customers, including significant customers in Australia; and (iii) there were Australian barriers to entry into the market. Wherever else the market might also have been located, the market was “in Australia”. This conclusion is based on the legislative text of s 4E of the Trade Practices Act when read with ss 45 and 45A. It is a conclusion which is consistent with the purpose of s 4E and the overarching purpose of the Trade Practices Act, being “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”. It is also consistent with Australian authorities to which we refer later in these reasons. Those authorities emphasise matters other than the physical location of a supplier, or where any substitution is given effect, as relevant factors in the identification of the market. It is also consistent with the conclusions which have been reached upon similar fact patterns in New Zealand and in Europe.
THE COMMISSION’S APPEAL
The “market in Australia” issue
The Commission’s pleaded case
The Commission’s pleaded case against Air NZ and Garuda was that each airline contravened ss 45(2)(a)(ii) and 45(2)(b)(ii) of the Trade Practices Act in various ways. Alternatively, the Commission said that each contravention occurred, “only insofar as the provisions of the pleaded arrangements and understandings applied to the supply of air freight services on direct and indirect services to and from Australia, and on all substitutes for those services or any sector of those services”. Although the air freight services supplied by Air NZ and Garuda involved different points of origin (Hong Kong, Singapore and Indonesia), it was common ground in this appeal that the application of legal principle would lead to the same result in both cases (app ts 125).
The relevant provisions of the Trade Practices Act
At the relevant times, s 45(2) of the Trade Practices Act provided as follows:
45.Contracts, arrangements or understandings that restrict dealings or affect competition
(2)A corporation shall not:
(a)make a contract or arrangement, or arrive at an understanding, if:
(i)the proposed contract, arrangement or understanding contains an exclusionary provision; or
(ii)a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b)give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i)is an exclusionary provision; or
(ii)has the purpose, or has or is likely to have the effect, of substantially lessening competition.
In its case against Air NZ and Garuda concerning ss 45(2)(a)(ii) and 45(2)(b)(ii), the Commission relied upon the deeming provision in s 45A(1):
45A. Contracts, arrangements or understandings in relation to prices
(1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.
The effect of s 45A is to deem a provision of a contract, arrangement or understanding (or one that is proposed) to satisfy the s 45 requirement (purpose, effect, likely effect etc) in relation to substantially lessening competition. Relevantly to this case, the deeming will occur where the provision has the purpose, effect, or is likely to have the effect of, “fixing, controlling or maintaining … the price for … goods or services supplied … by the parties to the contract, arrangement or understanding … in competition with each other”.
The Commission fastened upon the words of s 45A “in competition with each other” and then directed attention to the definition of “competition” in s 45(3):
For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.
The reference to “competition in any market” then invites attention to the definition of “market” in s 4E which we consider in detail below. It provides that the term “market” means a “market in Australia”.
Air NZ and Garuda submitted that the Commission was required to prove that they had engaged in the relevant conduct including “fixing, controlling or maintaining” the prices of their air cargo services. The Commission did not dispute that the definition in s 4E was engaged. In particular, the Commission did not submit that the words “in competition with each other” in s 45A(1) did not engage s 4E because those words concern the competition between the parties to the contract, arrangement or understanding rather than competition in relation to a provision of a contract, arrangement or understanding. Such a submission would have required attention to be given to whether the deeming provision could have been intended to travel beyond the geographical restriction upon the concept of market in s 45, or whether ss 45 or 45A had provided for a “contrary intention” within s 4E. It suffices to proceed on the basis, which was common ground, that the Commission was required to prove that the relevant conduct occurred in a “market in Australia”.
The primary Judge’s reasons, grounds of appeal and notices of contention
In Pt 4 of his judgment, the primary Judge considered the identification of the market, under the heading, “Was there a market in Australia?”. His Honour’s detailed reasons for concluding that there was no relevant market in Australia focus on cargo services out of Hong Kong, upon the basis that the relevant circumstances are the same as those in Singapore and Indonesia. His Honour noted that the respondent airlines argued for a narrow construction of s 4E, asserting that such an approach would observe the requirements of international comity. As we consider that the meaning of s 4E is clear, that consideration has no real weight with respect to the construction question. However we do not see that our approach to s 4E offends against any aspect of international comity.
His Honour also noted that the operation of the requirement that a market be in Australia had not been authoritatively settled, although some cases had suggested that the whole of a market need not be in Australia. His Honour observed that these cases may not authoritatively state the law in this regard. In Emirates v Australian Competition and Consumer Commission [2009] FCA 312; (2009) 255 ALR 35 at 50‑53 [55]‑[74] Middleton J discussed the question, having regard to earlier decisions of Hill and Lindgren JJ. That discussion, and his Honour’s conclusions closely resemble our own approach to s 4E.
At [212]‑[219], the primary Judge considered the content of the relevant market or “field of rivalry”. At [212], his Honour’s conclusion was that, “In this field or area substitution in response to competitive pressures occurs”. His Honour also observed that:
Movements in price or the standard of goods or services which take place outside the field or area will induce no significant competitive consequences inside it.
This proposition tacitly assumes that relevant movements in price or the standard of goods and services supplied are located within the relevant market. We agree with that proposition. However it seems to be inconsistent with his Honour’s conclusions concerning the location of a market.
His Honour then discussed substitution, observing that it was basic to the process of market definition, and that it was necessary to consider both demand side and supply side substitution. He next asked, “How strong must the substitution effect be?”. At [214] his Honour considered that it must be “strong” and that:
Underlying these notions is the idea that the existence of substitutes operates to restrain the market power of those who are in the market.
At [217] the primary Judge said:
The product dimension is the ‘what’ question; the geographical dimension is the ‘where’ question; and the functional dimension is concerned with the location of market participants along the supply chain.
Under the heading, “The product dimension”, his Honour considered the following matters:
(1)the relevant routes;
(2)whether mail was included in the relevant markets;
(3)whether chartered flights were included in those markets; and
(4)whether the use of integrators was included in those relevant markets.
We need not consider any of those matters.
At [252] his Honour said:
I conclude that the product dimension for each market consisted of the services of flying cargo from Hong Kong to individual ports in Australia. None of these markets included mail carriers, charter flight operators or integrators.
At [253]‑[265] the primary Judge considered the geographical dimension, by first examining the services provided by the airlines, namely:
(1)transport services, including special handling requirements, timetabling and also whether or not delivery was by direct or indirect flight;
(2)ground handling services at points of origin and destination; and
(3)enquiry services at airports, noting that the airlines might supply the services themselves, or contract them out to third parties, possibly using an airline based at the airport in question.
His Honour observed that each of these services had a geographical element. Payment was generally made at the point of origin, that is, Hong Kong. Payment at the destination was rare and therefore not included in the analysis.
Concerning the identification of market participants, his Honour said that the primary issue was whether or not the market included as participants, only the airlines and freight forwarders, or also included some shippers. This issue involved two aspects, namely:
(1)how persons might choose to switch patronage in the face of a small but significant and non-transitory increase in price (“SSNIP”) in a relevant market; and
(2)who made the switching decisions, and where they were made.
His Honour explained the SSNIP at [220]. His explanation of the concept was not in dispute. In 1977, Professor (now Justice) Breyer summarised an early version of what is now the SSNIP test as “the notion of drawing a circle around a set of sales. Within the circle one should find sales with the following characteristic: were all those sales in the hands of a single seller, that seller would have the power to raise price significantly above the competitive level [and maximise profits]”: Breyer S, “Five Questions About Australian Antitrust Law” (1977) 51 Australian Law Journal 28, 34. The SSNIP approach has been traced to the United States Justice Department 1892 Merger Guidelines, based on the work of Mr Werden. It has not been without controversy: Stigler GJ and Sherwin RA, “The Extent of the Market” (1985) 28(3) Journal of Law and Economics 555; Harris RG and Jorde TM, “Market Definition in the Merger Guidelines: Implications for Antitrust Enforcement” (1983) 71(2) California Law Review 464 cited in Re Fortescue Metals Group Ltd [2010] ACompT 2; (2010) 271 ALR 256, 421 [1033] (Full Tribunal).
Concerning the first aspect at (1) above, the respondent airlines asserted that only airlines and freight forwarders based in Hong Kong were within the market, on the basis that, “any withdrawal [of] patronage from one airline to another had to occur necessarily in Hong Kong”. As to the second issue, the Commission submitted that in the case of large importers to Australia, the choice of carrier might be made by the importer rather than by the freight forwarder. In such a case, the Commission contended, the switching decision occurred where the importer was located, which location might well be in Australia. Such importers might be characterised as market participants because of their capacity to impose discipline on the upstream air cargo market. His Honour accepted that in some cases, decisions as to choice of airline might be made by persons other than freight forwarders in Hong Kong, including large importers (who might be in Australia) or large exporters (who would generally not be in Australia). Such shippers might continue to use freight forwarders, notwithstanding the fact that the latter would not be involved in choosing relevant airlines. His Honour concluded at [263] that:
The market participants in the various markets into Australia therefore included air carriers, freight forwarders and some large importers in Australia and exporters in Hong Kong.
The primary Judge considered that although some importers might have been located in Australia, others might well have been located at international headquarters in Europe or, presumably, elsewhere in the world. His Honour said at [264]:
I accept that it is quite possible in the case of significant shippers that the actual decisions about importation, including when it arises, the issue of which carrier to use, need not occur at the origin.
His Honour went on to say:
Because it will be relevant when examining the functional aspects of the relevant markets it is to be observed, however, that regardless of where the event consisting of the subjective decision to switch from one airline to another might be made, the only place in which it could be given effect would be Hong Kong. The range of choices from amongst which a person might choose an airline to fly cargo from Hong Kong to Sydney is inherently limited to those firms having operations in Hong Kong. Even if there were a supply side substitute it would still have to be provided in Hong Kong.
Thus his Honour accepted that a decision as to choice of airline might be made somewhere other than Hong Kong, but considered that such a decision could only be given effect in Hong Kong. This conclusion led his Honour to the proposition that the only airlines which could be chosen were airlines having operations in Hong Kong. Having regard to the evidence concerning regulation of air services entering Australia, one might equally have said that it was necessary to use an airline “having operations in” the relevant destination ports as well as in Hong Kong. In our view that proposition was mandated by the geographical aspect of the product dimension. His Honour seems to have attributed significance to the airlines being present in Hong Kong and not to their necessary presence in Australia. This approach reflected his Honour’s view that a switching decision could only be made in Hong Kong.
The primary Judge seems not to have drawn any general conclusions as to the geographical dimension of the market, save for identifying the services provided and their geographical locations, and the market participants and their geographical locations. His Honour seems rather to have deferred further consideration of the matter until his consideration of the question as to whether the market was a market in Australia. On the evidence, and having regard to his Honour’s observations concerning it, we infer that the geographical dimensions were as follows:
(1)the suppliers of air cargo services were airlines presently providing cargo services between Hong Kong and Australia;
(2)the purchasers of such services were freight forwarders in Hong Kong, some large importers in Australia and exporters in Hong Kong; and
(3)the services were provided in Hong Kong, at the relevant ports in Australia and on the routes flown between those locations.
As we understand the respondent airlines’ submissions, they would exclude the third proposition from any consideration of the geographical dimension on the basis that it adds nothing to the economic analysis. However, in this case, geographical considerations are closely linked to the other dimensions. The product dimension involves the delivery of goods in Australia from Hong Kong. Similarly, the functional dimension reflects geographical considerations. Geographical considerations are also concerned with the right to fly into, out of and over various places. These issues loom large in this case. That geographical considerations arise in connection with the product and functional dimensions demonstrates that the consideration of each dimension cannot be undertaken in isolation.
His Honour then turned to the functional dimension. In effect, his Honour sought to identify those entities in the supply chain, between manufacturer and ultimate consumer, which might be sufficiently able to influence switching behaviour in connection with the supply of the relevant cargo services. He identified the “vertical structure” of the industry as:
(1)Consignor;
(2)Origin freight forwarder;
(3)Airline;
(4)Destination freight forwarder; and
(5)Consignee.
His Honour recognised that either the consignor (an exporter of goods) or the consignee (an importer of goods) might be the instigator of the shipment, and that the services provided by freight forwarders were necessary accompaniments to the services provided by the airlines.
The primary Judge noted that the “nature” of consignors and consignees might “vary significantly”. Some might be involved in single exportation or importation transactions, involving individual chattels, such persons having only transitory connection with the international air cargo system. Others might be “significant” exporters and importers of chattels in size and volume. The evidence indicated that airlines, in general, regarded significant importers and exporters as targets for marketing activities, and as the ultimate source of business. His Honour considered that it was obvious that airlines would compete to obtain volumes of cargo directly from large shippers. At [287] his Honour concluded that:
[A]cross the Asia Pacific area the airlines recognised that shippers had demand for capacity. Indeed, they actively followed the position of shippers, recognising that these were the economic foundations of the market.
At [309] his Honour said:
Accordingly, I draw the following conclusions about the functional dimensions of the market:
(a)the participants in the relevant markets were airlines, freight forwarders and shippers (be they exporters at origin or importers at destination) whose cargo volume was sufficiently significant for the airlines to be commercially motivated to pursue it;
(b)shippers of that kind often (but not always) made decisions about which airlines they would use. Where the shipper was an importer in Australia this decision was likely to be made in Australia;
(c)shippers of that kind continued (aside from the situation of integrators) to use freight forwarders who provided an indispensable set of services for dealing with the ancillary transport issues which the airlines themselves would not deal with. Relationships erected in the case of shippers of this kind were often tripartite. In some cases the tripartite nature of what was taking place was consummated with a contract but this was not a necessary nor even particularly common feature;
(d)shippers of that kind, wherever located were therefore capable, at least in theory, of operating as a constraint on airlines’ cargo rates because of their ability, again in theory, to switch to alternate sources of supply and to outflank any exercises of market power at the relevant origin airport; and
(e)smaller shippers who had no view about which airline to use and who left matters entirely to their freight forwarders were not participants in any of these markets.
The primary Judge then addressed the specific question of “Market in Australia?” At [311] his Honour identified the economic issues for determination as:
(a)whether the fact that the airlines competed against each other in Australia in the provision of:
(i) carriage through Australian airspace;
(ii) ground handling services in Australia; and
(iii) handling enquiries about lost and damaged cargo in Australia;
was sufficient to locate the markets in Australia;
(b)whether the fact that the source of some of the demand for the services was ultimately in Australia was sufficient to locate part of each market in Australia;
(c)whether the market in Hong Kong was constrained by the abilities of importers in downstream markets in Australia to switch to alternate sources of supply, and if so, whether it was appropriate to characterise the downstream markets as part of the upstream market; and
(d)whether, in light of the foregoing, the market was in Australia.
Issues (a) and (b) are framed so as to suggest that the question is whether the relevant factor, alone, would be sufficient to locate the markets in Australia. We note that issue (a) is distinguished from issue (b) in that the former addresses the location of the markets, whilst the latter addresses the locations of parts of the markets.
His Honour dealt with issues (a) and (b) together, under the heading “Source of demand in Australia”. At [313]‑[314], his Honour said:
313As I have already said I accept that a separate market for air cargo services existed for the carriage of cargo between Hong Kong and each airport in Australia. Part of the service provided was provided in Australia in the form of carriage through Australian airspace, ground handling services at destination airports and the service of handling enquiries about lost and damaged cargo. There is no doubt that the airlines competed against each other in providing these services and that the competition physically took place in Australia. Further there were substantial importers in Australia whose custom the airlines tousled to obtain.
314Although the contracts of carriage were entered into in Hong Kong by the freight forwarders with each airline, as a practical matter, substantial importers in Australia had the capacity to influence or even direct the decision as to which airline was to be used. On the other hand, less substantial importers had no such influence.
At first instance the Commission submitted that the area of close competition or the field of rivalry extended to Australia where destination services were provided, “in a competitive environment”. In contrast, the respondent airlines submitted that the relevant activity within a market was substitution, the market being the area in which sellers of the product operate, and to which purchasers may practicably turn for such product.
The primary Judge considered that the central thrust of “QCMA” concerned substitution, and “through that prism”, the present problem was to be analysed. The reference to “QCMA” is to the decision of the Trade Practices Tribunal in Re Queensland Co‑operative Milling Association Ltd (1976) 8 ALR 481. Below, we discuss that decision in some detail.
His Honour had previously rejected the existence of any supply side substitutes. With respect to demand side substitution, he considered that the choice would have to be from amongst airlines which had a presence in Hong Kong where possession of the cargo would be transferred. This view reflects the proposition that such transfer for carriage to an Australian port could not occur at any place other than Hong Kong. One might also say that because the purpose for which the service is acquired is delivery of the cargo to an identified port in Australia, that service could not be delivered anywhere other than at that port, so that service could only be supplied by an airline which could fly into that port. The Commission submitted that the relevant service was provided, not only at Hong Kong, but also along all points on the route between Hong Kong and the relevant Australian airport including, we infer, the services provided at that airport. The Commission submitted that a repeat customer might decide to switch airlines in order to obtain superior ground handling services at the relevant Australian destination airport. His Honour accepted at [320] that there was competition in respect of ground handling, “although of a somewhat constrained nature given that ground handling was very often only provided by the home carrier in a particular port”.
Paragraphs [321]‑[326] contain the major thrust of his Honour’s reasoning concerning s 4E. Given his satisfaction that there was competition in respect of ground handling, his Honour said at [321] that the relevant enquiry was:
… not about switching in some loose sense but rather, as the text of section 4E requires, substitution. The correct question is where are the relevant substitutable services provided to consumers of those services.
His Honour then pointed out that ground handling services provided in Sydney were not, themselves, a substitute for air cargo services from Hong Kong to Sydney, a proposition which we accept. However, acceptance of cargo by the airline in Hong Kong would not, in itself, be a substitute for such air cargo services. His Honour went on to observe that if there were “true substitutes” in Sydney, namely ground handling services, this would lead to the proposition that a person wishing to move cargo from Hong Kong to Sydney could do so by giving possession of the cargo to the airline at Sydney, an obviously absurd proposition. We understand this proposition to mean that if ground handling services in Sydney were a true substitute for the supply of the whole suite of cargo services, the result would be that the customer could move cargo to Hong Kong by delivering it to the airlines in Sydney. We agree that the result is absurd. However we do not understand the Commission to submit that the fact that the airlines compete in the supply of ground services in Australia leads, of itself, to the finding that the market is in Australia, and only in Australia. His Honour’s approach seems to be that for the purposes of s 4E, a market must be either entirely in Australia or not in Australia at all. He then sought to identify one incident in the overall provision of cargo services which might be the single factor which determined that location. The apparent anomaly referred to at [322] is based on the same approach.
At [323] the primary Judge queried the “analytical significance” of the Commission’s submission that there was a market participant in Australia. By this, his Honour seems to have meant that the location of market participants in Australia had no significance in the analysis required by ss 45, 45A and 4E. His Honour understood the Commission to have submitted that if switching decisions were made in Australia by such a participant, then those decisions would not be made in Hong Kong “where the airplanes were”. His Honour observed that:
However, the question is not where the switching decision is subjectively made as an act of cognition but, instead and in contradistinction, where it is given effect. If that be correct, the location of some importers in Australia is irrelevant … .
His Honour then proceeded on the basis that the proposition was correct, and that the Commission’s reliance on the presence of market participants in Australia was of no assistance in establishing the location of the market. His Honour’s view as to such correctness seems to be based upon his observations at [319]‑[321] as follows:
·the range of airlines available to be selected in a relevant, route‑specific market is limited by the need that such airlines have a presence in Hong Kong where they will take possession of the cargo from a freight forwarder;
·in every cargo transaction there is a “legal moment” when possession is transferred, and that event can only occur in Hong Kong;
·the place where a customer chooses between airlines is “strictly limited to Hong Kong”;
·the relevant inquiry is as to where the relevant substitutable services are provided to the consumers of those services; and
·that question is not to be answered by reference to the location at which some of the services are delivered.
We suspect that two assumptions underlie this reasoning. They are:
·that the relevant market cannot be partly in Australia; and
·that delivery of the cargo to the airlines in Hong Kong in some way affects supply by the airlines of the whole suite of services which comprises the product.
At [211] his Honour seemed to doubt the correctness of the assumption made in various cases that a market may be partially in Australia for the purposes of s 4E, and that such partial presence is sufficient to satisfy the requirements of that section. However we do not discern, in his Honour’s reasons, any justification for the apparent rejection of that possibility. As to the second assumption, we accept that delivery of possession of the cargo may have legal consequences as between the parties but so, too, may the making of the contract for the provision of cargo services, wherever that event occurs. It is difficult to see why the delivery of possession, rather than the making of the contract should be identified as the effective delivery of the whole suite of services, assuming that it is necessary to identify one discrete location as being the location of the market.
His Honour also rejected the proposition that the “ultimate demand” for cargo services was in Australia, or that such proposition was sufficient to locate the market in Australia. His Honour acknowledged that Professor Church, an economist who gave expert evidence at trial, had accepted that demand for air cargo services to Australia was driven by a demand for imported goods in this country. The primary Judge accepted Professor Church’s comment that:
the demand in the market for air cargo is located in large part in Australia and there will be economic effects of an increase in the price of air cargo to Australia in Australia.
However his Honour did not understand Professor Church to be locating the relevant markets in Australia.
The remaining point concerned the extent to which the Hong Kong market might be constrained by importers in downstream markets in Australia. His Honour dismissed this proposition on the basis that there was no evidence to support it.
At [335] and [336]‑[338] his Honour concluded that the relevant Hong Kong markets were not in Australia. His Honour also concluded that, for the same reasons, the Singapore and Indonesian markets were not in Australia.
Concerning the primary Judge’s reasoning, we make a number of points. First, his Honour seems to have moved from the proposition at [212] that substitution occurs in a market to the proposition or assumption that the market contains only substitution decisions, and not the circumstances on which such decisions are based. Secondly, his Honour has chosen the point at which effect is given to a “switching decision” as alone governing the question of whether the relevant market was in Australia for the purposes of s 4E. This choice presumably reflects the view that the market consists only of such decisions. The reason for selecting the location at which the decision is given effect as answering the s 4E question, rather than the place at which the decision was made, appears to be that it is the latest time at which the decision can be changed. At one level his Honour’s reasons seem to treat the question concerning the geographical dimension of the market as being the same question as is posed by s 4E. However, at another level, his Honour seems to treat it as a narrower question. Whilst the locations at which services are supplied, and customers are located are treated as relevant matters in connection with the geographical dimension, they are completely discounted in considering whether the market is in Australia. This outcome seems to be the result of his Honour’s view that the only content of the market is substitution.
The grounds of appeal
The primary Judge’s decision concerning “market issues” was the subject of four of the Commission’s grounds of appeal against both Air NZ and Garuda, Air NZ’s notice of contention grounds 1‑5; and Garuda’s notice of contention, grounds 1‑5. Grounds 6‑9 of Garuda’s notice of contention were abandoned.
Put briefly, the Commission challenged the primary Judge’s finding that:
(1)although parts of the service were performed in Australia (flying through Australian air space, ground handling services in Australian cities, and handling enquiries) and although there was constrained competition in respect of ground handling, these matters only formed part of a suite of services ([313], [320]‑[321]); and
(2)the relevant question is where a switching decision is given effect ([323]); the only place where a decision to switch from one airline to another could be given effect would be Hong Kong ([264]); that is the place where the airline takes possession of the cargo from the freight forwarder ([319]).
However an important aspect of the Commission’s case, at trial and on appeal, was and is that there were, as his Honour found, major shippers in Australia which dealt directly with the airlines, although they may also have retained their freight forwarders. By their notices of contention, the respondent airlines challenge that finding. As it is of some importance to the Commission’s case, we should deal with it before considering that case.
The respondent airlines’ challenge to the finding that large importing shippers were part of the market
The respondent airlines challenged the finding by the primary Judge that some large importers (shippers) in Australia were market participants in the relevant markets. They submitted that the relevant markets should have been limited to transactions between airlines and freight forwarders. There are five difficulties with this submission.
The first difficulty is that it did not engage to any extent with questions of agency. We did not receive any submissions from the respondent airlines concerning the proper characterisation of the relationship between the freight forwarders and the shippers in Australia and, in particular, why the freight forwarders could not be characterised as agents for the shippers. If the freight forwarders were the agents of the shippers in Australia for the purpose of the relevant transactions then the market could not be limited to transactions between the airline and an agent, excluding the principal. The same point could be made if they were agents of the airlines.
Although the primary Judge did not reach a conclusion concerning agency, he did conclude that (i) as a matter of economic substance the freight forwarders were intermediaries having fluctuating control over the cargo whose carriage they arranged at [299]; and (ii) the airlines regarded the goods that they carried as belonging to the shippers at [300]. These findings were not challenged by the respondent airlines.
The term “agent” can be slippery but it is usually used to “connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties”: International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co [1958] HCA 16; (1958) 100 CLR 644, 652 (the Court). In this sense, an intermediary is not necessarily an agent: Dal Pont GE, Law of Agency (3rd ed, LexisNexis Butterworths, 2014) 55 [2.23].
It is impossible to generalise from the evidence in this case to reach a conclusion as to whether every shipper engaged a freight forwarder as an agent. Questions of agency fall to be considered in the context of particular relationships. Indeed there was evidence that suggested that some airlines described the freight forwarders as agents for the airlines in the airlines’ relationship with the customer importers. Ultimately, although some relationships between shippers and freight forwarders may properly have been characterised as relationships of agency, others might not. Nevertheless, there was significant evidence, at least in some cases, of relationships of agency within the market. For instance, evidence from one freight forwarder (Mr Chan for National Freight Corporation, trading as Exel) described how the freight forwarder would receive blank master air waybills from the air cargo carriers prior to delivering the cargo with space left blank for the signature of the “shipper”. The freight forwarder (Exel) often listed itself as, and signed as, the shipper only because it had consolidated shipments from a number of shippers ( [51]).
The second difficulty with the respondent airlines’ submission is the finding of the primary Judge that airlines took note of the shippers’ businesses, even if the airlines denied doing so. As the primary Judge said at [283]:
Oral testimony given during the trial suggested that airlines were interested in what the shippers were doing even if they denied that there was any direct contact with them. Mr Gregg’s evidence was to this effect in relation to Air NZ, and Mr Haddad gave similar evidence for Garuda.
Mr Gregg’s evidence was that he paid close regard to the weekly and monthly reports he received from his cargo managers. And Mr Haddad, the Australian Cargo Manager for Garuda Indonesia, agreed in cross‑examination that it was a “fairly commonplace occurrence for [him] to have discussion with freight agents in relation to the flight that the shipper wanted their cargo on”.
The third difficulty with the respondent airlines’ submission is the evidence that in some significant cases the airlines did not merely take note of the shippers’ business but dealt directly with shippers, and not merely with freight forwarders. Although this was not always the case, and although the shippers would often defer to the freight forwarders, as long as the requirements of the shippers were met, the desire of some airlines to establish and maintain relationships with the shippers is a strong indicator of the participation of the shippers in the market.
There was evidence from the Customs and Shipping Manager of Robert Bosch (Australia) Pty Ltd who was responsible for monitoring the performance of Robert Bosch’s freight forwarders. He said that where perishables needed to be shipped within a tight timeframe, Robert Bosch would enter into tri‑partite arrangements with its freight forwarder and the airline in the form of a memorandum of understanding which would guarantee Robert Bosch its required capacity on a particular airline and priority over other shippers’ cargo (affidavit of Gunther Ressig at [106]‑[107]).
The former Group General Manager (Freight) at Qantas, also described the existence of some tri‑partite arrangements between Qantas, freight forwarders and shippers (affidavit of Stephen Michael Cleary at [53], [61]‑[70], [78]‑[81]). These arrangements were usually recorded in memoranda of understanding after face‑to‑face meetings attended by all three parties ([61]‑[62]). Negotiations related to price, capacity and service standards ([62]). The Group General Manager (Freight) observed that the memorandum of understanding allowed Qantas to, “establish a relationship directly with a shipper. Qantas Freight would then be in a position to use its relationship with the shipper to reduce the risk of the freight forwarder taking the shipper’s freight to another airline” ([68]).
Evidence from one freight forwarder, Burlington Northern Air Freight (subsequently BAX Global), by the State Manager of its Perth, Adelaide and Sydney offices, (affidavit of Dennis Ian Nelson at [62]), was also that:
BAX Global’s major multi‑national customers would regularly hold meetings with employees of BAX Global and representatives of the airlines to review our performance against these KPI’s and to ensure that there was sufficient airline capacity available. In order to maintain the relationship, it was necessary for there to be dialogue between all three parties, so that the airline knew when the customer was likely to require capacity and so the customer knew of any expected capacity constraints on the airline.
There was also evidence from Ms Cluff who was employed by Toshiba (Australia) Pty Ltd as a Logistics Import Specialist. In her affidavit, at [126], she said that, “On occasions, there have been tri‑partite discussions between Toshiba Australia, the freight forwarder and Qantas”. She also said that on numerous occasions she liaised with Qantas directly. Ms Cluff said ([99]) that on occasions Toshiba even considered bypassing the freight forwarder altogether. The reason this never eventuated was that Toshiba Australia decided it would be difficult to handle all of the services provided by the freight forwarder, and Toshiba Australia thought it would be able to obtain a better price from the airline when it contracted a freight forwarder, given the greater total volume of goods when Toshiba Australia’s goods were combined with those of the freight forwarder.
The fourth difficulty with the respondent airlines’ submission is the conclusion of the primary Judge at [269], described above, that the functional dimension of the market was not a strictly vertical one, and that in some cases the consignee as importer would instigate the transaction. This finding was not challenged. Where the consignee was a large shipper who was a “significant economic actor” (to use the phrase of the primary Judge at [305]) the inference drawn by the primary Judge is irresistible. That inference is that it is hard to imagine a universe of discourse in which a rational business would ignore the role of such a shipper.
The fifth difficulty with the respondent airlines’ submission is that it was essentially based upon an assertion of a lack of evidence to support a conclusion that large shippers imposed a real constraint on airlines operating out of Hong Kong and Singapore. The primary Judge’s conclusion on this point was by inference based upon the evidence before him. He referred to documentary evidence and testimony that airlines regarded significant importers and exporters as targets for their marketing activities; he referred to direct contact that airlines had with customers; he referred to the tri‑partite arrangements made by airlines not bi‑partite arrangements with freight forwarders which excluded importers; he referred to internal Air NZ emails which recognise price pressure from exporters; he referred to internal reports of airlines about losing the custom of particular shippers ([272]‑[308]). On appeal there was very little analysis by the respondent airlines of this considerable body of evidence which was before the primary Judge. This is an excellent example of a circumstance where, “the appellate court does not typically get taken to, or read, all of the evidence taken at the trial” and where the primary Judge, “has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole”: Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 126 [23] (Gleeson CJ, Gummow and Kirby JJ).
We reject these grounds of contention.
The submissions concerning the market issues
Senior counsel for the Commission orally summarised his market submissions as involving two issues (app ts 4). First, the primary Judge used an incorrect test to determine whether the relevant markets were markets in Australia. Secondly, the findings by the primary Judge in respect of (i) the product dimension; (ii) the locus of competition; and (iii) the functional dimension of the relevant markets, established that the relevant markets were markets in Australia for the purposes of the relevant sections of the Trade Practices Act.
The Commission alleged that the primary Judge focussed erroneously upon where the switching decision was given effect (app ts 8). At [24]‑[32] it submitted that this approach was erroneous because:
(1)it erroneously focussed upon one aspect of the transaction, the transfer of possession or the place of contracting;
(2)it erroneously assumed that there is a demand for mere commencement of the service at origin;
(3)it was falsely premised upon the availability of the airlines in Hong Kong, where there is also a need for supply of the service at destinations in Australia;
(4)contrary to the decision in Re Fortescue Metals Group Ltd, the test erroneously excluded factors relevant to the location of the market including the place where the customers are located, the place where the airlines direct their marketing, and the place where the airlines maintain their operations; and the test erroneously excluded the temporal dimension of the market and that competition is a “process and not an outcome”, when the competition was for the carriage of air cargo on multiple flights over periods of time.
On numerous occasions, the Commission submitted that the place where the services were provided to consumers was relevant in determining whether the market was in Australia (eg [4.4], [29], [34], [36]‑[38]). Senior counsel submitted (app ts 8) that by focussing on the place where switching decisions were given effect, the test ignores the location of customers. He gave the example of a situation where all customers for a product were located in Australia but the product was supplied from overseas. He submitted that such a situation would surely be a market in Australia. He submitted that this was the situation in the present case because all the shippers could be in Australia (ie the consignees requesting the carriage of cargo to them) and, “the freight forwarder would be entering into the contractual arrangement with the shipper at origin, but the demand would be solely located in Australia”.
The Commission submitted that whether or not a switching decision was given effect in Australia, the market must be a market in Australia, since the product dimension of the market was the supply of air cargo services from an overseas port to a port in Australia ([4.1], [8]). Senior counsel for the Commission submitted that the service of carrying the cargo from an origin to a destination has no meaning in economics if it is focussed solely at the origin (app ts 10). He submitted that the expert evidence of Professor Church (on a point where Professor Gilbert disagreed), should be accepted as supporting the conclusion that wherever the product description includes a geographic place (app ts 23‑27), the geographic dimension of the market will be located at that place.
In support of this submission, the Commission also submitted that the services which made up the product involved geographic elements so that there was a “one to one” correspondence between the product (or “price‑product‑service”) dimension of the market and the geographic dimension ([16]) and that competition physically took place in Australia ([17]). These geographic elements of the product description included: (i) delivery to a destination port; (ii) ground handling services at destination ports; and (iii) enquiry services at destination. The Commission observed that an exercise of market power might occur in Australia by an airline withdrawing those services provided in Australia, diminishing their quality or introducing collection charges ([23]).
The proper approach to whether a market is “in Australia”
In broad summary, our approach to whether a market is “in Australia” involves two related issues. The first issue involves defining the market. As we have explained, the established approach to market definition is to consider three “dimensions” of the market: the product, geographic, and functional dimensions. This approach is simply a heuristic tool to assist in understanding the market. The Trade Practices Act does not divide the market in this way, and in the exercise of market definition the three dimensions are not mutually independent.
The second issue involves characterising whether the defined market is “in Australia”. In many cases, a determination of the geographic dimension of the market will reveal whether the market is “in Australia”. But the question is not whether the “geographic dimension of the market” is in Australia. Nor is it whether the effect of a switching decision is in Australia. The question is whether, as a matter of characterisation, the market is in Australia. For this reason, all of the matters identified by the Commission should properly be considered.
This approach is textual. It is supported by the legislative background to s 4E. It is also contextual and purposive. And it is supported by authority. Our consideration of the issue below is divided into the following sections:
(1)legislative background;
(2)the flexibility of the concept of a “market in Australia” and purposive considerations;
(3)difficulties with the primary Judge’s approach;
(4)the proper approach to the words “market in Australia”;
(5)identification of the market; and
(6)characterisation of whether the identified market is “in Australia”.
One significant area of authority which is not considered below is the body of antitrust decisions from the United States. The primary Judge held that United States authorities were not of any assistance because there is a substantial difference in the “effects doctrine” under the Sherman Antitrust Act 15 USC (1890), a doctrine which was developed as early as the decision of Learned Hand J in United States v Aluminum Co of America 8 F 2d 416 (2d Cir 1945). The Commission did not challenge this. Neither at trial nor on this appeal did the Commission submit that the appropriate approach to whether a market was “in Australia” was to test whether the relevant effect of anti‑competitive conduct was felt in Australia. The parties all avoided any reference to, or discussion of, the copious United States authority on this issue. That authority is, however, not uniform: Brown GW, “Relevant Geographic Market Delineation: The Interchangeability of Standards in Cases arising under Section 2 of the Sherman Act and Section 7 of the Clayton Act” (1979) Duke Law Journal 1152.
(1) Legislative background
Section 4E provides:
For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.
When the Trade Practices Act was first enacted, the term “market” was defined in s 4 as follows:
“market” means a market in Australia.
According to the explanatory memorandum which accompanied the draft Bill at [87]:
The extent to which the legislation will operate extra‑territorially is indicated in clause 5. The definition of market in clause 4 is also relevant in this regard.
The Trade Practices Amendment Act 1977 (Cth) repealed that definition and inserted s 4E in its present form, save that the words, “unless the contrary intention appears”, were not present. Those words were inserted by the Trade Practices (Misuse of Trans–Tasman Market Power) Act 1990 (Cth) to allow for the existence of trans‑Tasman markets.
At [4] of the explanatory memorandum which accompanied the 1977 Bill, it was said that:
A “market” for goods and services has been defined to include substitutable or competitive goods or services … .
In the second reading speech, the Hon John Howard MP, as he then was, referred to an earlier Bill introduced in 1976. It had lapsed when Parliament was prorogued: see Commonwealth, Parliamentary Debates, House of Representatives, 8 December 1976, 1476 (John Howard). In the second reading speech in connection with the 1976 bill, Mr Howard referred to a committee report, saying that the bill would implement some of its recommendations. The report in question was the Swanson Report: see Trade Practice Act Review Committee, Report to the Minister for Business and Consumer Affairs (Australian Government Publishing Service, Canberra, 1976). Concerning the meaning of the term “competition”, the committee adopted the language used by the Trade Practices Tribunal in QCMA. The committee said:
4.20The concept of market involves the performance of a function in relation to a product, being goods or services, within a geographical area. Markets within the chain of distribution, from manufacturing to wholesaling and retailing, depend upon factors internal to the industry concerned, and distinction may in particular cases be blurred or non–existent. Product and geographic markets, on the other hand, depend upon factors extraneous to the industry. Their boundaries are determined by the relationship between such factors as price, product substitutability, desired use and distance from supply, to name some. Because of the variable nature of such factors, the boundaries of product and geographic markets are necessarily flexible.
4.21The Committee considers that no advantage would be gained by attempting to define exhaustively the term ‘market’. No definition could produce a formula capable of certainty, having regard to the variable nature of the factors discussed in the paragraph above. Importantly also, the Committee has regard to the fact that persons involved with particular cases wish the matters in dispute to be judged on the particular facts, as they may present them, and not by artificial rules designed to achieve what we would suggest is an illusory certainty.
4.22There is, however, one aspect of the definition of ‘market’ about which we consider the Act should give useful legislative guidance; namely, in relation to product substitution. The Committee therefore recommends that the Act should require that, in the determination of a ‘market’ for particular purposes, regard shall be had to substitute products, being products which have a reasonable interchangeability of use and which have high cross‑elasticity of demand, i.e. where a small decrease in the price of a particular product would cause a significant quantum of demand for a similar product to switch to the product in question.
We have set out the history of the definition of the word “market” in order to demonstrate that the enactment in 1977 of s 4E was not intended to change the meaning of the term “a market in Australia”, save to the extent that the amendment may have extended the concept of “market” by the addition of the inclusory provision which requires that regard be had to substitute products as one of the factors to be considered in the flexible assessment of the factors comprising a market. In other words, the amendment seems to have been intended to extend the range of goods or services to be taken into account in the market identification exercise.
(2) The flexibility of the concept of a “market in Australia” and purposive considerations
The reference to a “market” in s 4E is to an abstract concept, not to a physical place. In one sense the description is a metaphor. It conjures an image of a “marketplace” involving a single location where buyers and sellers meet. But the legislation is plainly not limited to this narrow conception which developed well before the era of global commerce in which the Trade Practices Act was enacted. Moreover, the history of s 4E, and its purpose, manifest Parliament’s intention that the section be interpreted flexibly and in light of the purposes of the Trade Practices Act.
The Swanson Committee recognised the flexibility of the boundaries of product and geographic dimensions of a market due to the variable nature of factors such as price, product substitutability, desired use and distance from supply ([4.20]). One reason why the evaluative exercise contemplated by the Swanson Committee was intended to be flexible is that the Committee was conscious of the dangers of definitions that are too wide or too narrow. At [4.19] the Committee said:
If the market is too widely defined it may be that the requisite effect upon competition cannot ever be shown, to the detriment of those seeking relief from a restrictive agreement or practice. Alternatively, if the market is too narrowly defined it may result in hardship to and unnecessary limitations upon business actions … .
Air NZ submitted ([26]) that defining a market too widely would have the result that the requisite effect upon competition would never be shown, citing French, Spender and O’Loughlin JJ agreeing in Singapore Airlines Limited v Taprobane Tours WA Pty Ltd [1991] FCA 808 [167]; (1991) 104 ALR 633, 642. This can be accepted. But, equally, the narrower the approach that is taken to whether a market is “in Australia”, the less likely it will be that any effect on competition, no matter how significant to Australians, would fall within ss 45 and 45A.
The primary Judge found that the understandings were arrived at in meetings held, or through conduct occurring, at the port of origin, whether that was in Hong Kong, Singapore or Indonesia. None of the price-fixing conduct occurred in Australia. It was appropriate for the primary Judge to focus attention, firstly, on the port of origin because this was the place where the impugned conduct occurred. As Allsop J observed in Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] ATPR 42-123; [2006] FCA 826 at [437]:
… Market definition is to be approached by beginning with the problem at hand and asking what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes…
For the purposes of present analysis, the product dimension of each relevant market is not in dispute. Once again, I emphasise that it concerns a suite of services that is only demanded and supplied as a suite. This is the market “product”.
As I have noted (at [605] above), the primary Judge found that the participants in the relevant markets were airlines, freight forwarders and shippers (either exporters at origin or importers at destination) whose cargo volume was sufficiently significant for airlines to be commercially motivated to pursue it.
With respect to the supply side, the primary Judge found that there would be no airlines seeking to enter the relevant markets if the incumbents imposed a SSNIP.
With respect to the demand side, the primary Judge made the following findings. The range of airlines available to be selected was limited by the need to have a presence in the port of origin where possession of the cargo to be transported was taken from the freight forwarder. The service of taking possession of the cargo in the port of origin with a view to flying it to a port of destination in Australia could not be performed anywhere but in the port of origin. Each local cargo sales office of Air NZ and Garuda at the port of origin published from time to time standard rates as “tariff” or “rate” sheets or schedules. Contract rates (as opposed to standard rates) were negotiated between freight forwarders and staff of the airlines at the local sales office. Even though shippers were market participants, and some may have made, in Australia, decisions about which airlines they would use, the shippers nevertheless continued to use freight forwarders who provided indispensable services in respect of transport issues with which the airlines would not deal. Leaving aside extremely rare occurrences (typically involving live animals), airlines carrying cargo from a port of origin such as Hong Kong (and, by implication, the other ports of origin relevant to the present question) generally dealt directly only with freight forwarders situated in Hong Kong (or the other ports of origin) or in nearby environs. The contractual relationship was between the airline and the freight forwarder, who “cut” or “raised” the air waybill at the port of origin. The airline and the freight forwarder were the parties to the air waybill whose terms governed the carriage of the cargo. In most cases, the freight forwarder at the port of origin was obliged to pay the airline for air cargo transport charges in the local currency of the port of origin, although some shipments may be “charges collect”, in which case the freight forwarder at the port of destination paid the charges on delivery. The freight forwarder’s obligation to pay the charges was not conditional on it receiving payment from the consignor or consignee.
These findings show that all the sources of supply of the market product (the suite of services) are located at the port of origin, not the port of destination. This is where the prices for the product are set and where the product is bought and sold. It is, as I have said, the place where the impugned conduct occurred. These findings thus point persuasively to the field of actual or potential transactions between buyers and sellers being the port of origin in respect of each relevant market, not some other place. Indeed, the Commission does not dispute that there was, in each case, a market at the port of origin. The Commission’s case is that there was also, correspondingly, a market in Australia because part of the suite of services was physically provided or delivered in Australia and that the manner in which this part was physically provided or delivered is an aspect of the way in which airlines compete with each other. For the reasons given in [636]-[642] above, I do not accept that these considerations demonstrate that there is a market in Australia. They conflate and confuse the product and geographical dimensions of the markets under consideration.
When s 45(2) of the TPA refers to the purpose, effect or likely effect of substantially lessening competition, it means competition “in any market” in which a relevant party supplies or acquires, or is likely to supply or acquire, or would (but for a provision in the contract, arrangement or understanding) supply or acquire or be likely to supply or acquire, goods or services. The inquiry is not simply: Where does the party supply or acquire goods or services or where is the party likely to supply and acquire, or would, or would be likely to supply or acquire, goods and services? It is not enough to attract the operation of s 45 of the TPA to do no more than point to the fact that goods or services are supplied or acquired in Australia. Rather, the provision is directed to “the market” in which the goods or services are supplied or acquired, and to competition in that “market”. Thus, the setting of “the market” is crucial. This then becomes the point of reference to which questions concerning the supply or acquisition of goods or services are then directed.
Here, the “goods or services” is the suite of services supplied by airlines in transporting cargo from a port of origin to a port of destination. The word “supply” is defined in the TPA to include, in relation to services, “provide, grant or confer”: s 4(1) of the TPA. The word “acquire” is defined to include, in relation to services, “accept”: s 4(1) of the TPA. In Cook v Pasminco Limited (2000) 99 FCR 548; [2000] FCA 677, Lindgren J remarked (at [26]) that the definitions of “supply” and “acquire” are symmetrical, such that a supply of goods must occur as part of a bilateral transaction or dealing under which the other party acquires them. These remarks are apposite when one is speaking of a market for goods. They also hold true when one is speaking of services and a market for services. It is appropriate and correct to speak, in the present case, of the suite of services being “supplied or acquired” in a market that is circumscribed as the port of origin, even though part of the services are to be physically provided or delivered at a port of destination, such as Sydney. It is also appropriate and correct to speak of “competition in a market” whose geographic area is a port of origin, even though the competition may be played out in the manner in which an aspect of the services is physically provided or delivered at a port of destination. This is because the sum of the activities engaged in by competitors in promoting the sale and supply of the goods or services with which the market is concerned, wherever those activities take place, is properly aligned to “the market” itself, in which the opportunities for substitution and switching are to be found. In the present case, when dealing with the suite of services, those opportunities are not found at the port of destination; on the findings of fact made by the primary Judge, they are only found at the port of origin where the suite, as such, is supplied and acquired, even though, having been supplied and acquired—which, on any view, can be no later than the point of departure of the aircraft from the port of origin—elements of the acquired suite are physically provided or delivered at a distant place.
The same framework applies when considering barriers to entry—yet another metaphor in the world of abstractions. Accepting that facilities, permits and authorisations (and the like) are required so that the suite can be supplied, and may constitute barriers to entry, it does not follow that the geographical dimension of the market is defined by the location of the facilities and/or the sources from which the permits and authorisations are acquired. In other words, if, for example, the requirement for cargo handling facilities at a port of destination is a barrier to entry, this does not mean that the geographical dimension of the market then becomes a place or includes one of a number of places where the barrier is, metaphorically speaking, perceived to have been erected. It is important to appreciate that, in order to participate in the market, suppliers have already surmounted the barrier (they have, for example, acquired the facilities) and stand in the market (here, at the port of origin) with their competitors to supply the suite of services to buyers who seek to buy that suite. To take the primary Judge’s example of the tour bus in Europe (see [607] and [641] above), various and different licences may be necessary to operate the tour bus on its journey through Europe. The need to obtain these licences may be a barrier to entry. But the market in Australia for packaged tours in Europe does not then become also a market in each of those other places.
I return to consider the Commission’s submissions I have summarised at [612]-[622].
With respect to the Commission’s first submission (see [617] above), I do not read the primary Judge’s reasons for judgment as seeking to establish some new “test”, still less a “test” not supported by authority. In my respectful view, the primary Judge focused, correctly, on the geographic area in which the market product—the suite of services—was bought and sold, and over which switching and substitution by and between buyers and sellers occurred. Further, I do not think that the Commission’s submissions accurately represent the primary Judge’s reasoning by arguing that his Honour determined the locus of the market by reference to a single aspect of the transaction between buyers and sellers, namely the place where possession of the cargo for transport is taken. The primary Judge plainly placed some significance on the fact that the service of taking possession at the port of origin, with a view to flying the cargo to the port of destination, cannot be performed anywhere but at the port of origin. But his Honour’s reference to that consideration was in connection with the airlines’ broader submission that the geographical dimension of the market is the area in which sellers of the product operate and to which buyers can practicably turn for such goods or services. The primary Judge’s reference to the place where possession of the cargo is taken was part of his Honour’s acceptance that the range of airlines which are available to be selected in any route specific market is limited by the need to have a physical presence in the port of origin for that purpose.
With respect to the Commission’s second submission (see [618] above), it may be accepted that, in the markets in question, there is no demand “for the mere commencement of a transport service at the port of origin”. But the primary Judge’s reasoning did not proceed on the flawed basis that there was such demand.
With respect to the Commission’s third submission (see [619] above), the primary Judge’s reasoning did not involve the inconsistency alleged. Plainly, the competing airlines supplying the suite of services had to supply services at the port of destination. This fact was not lost on the primary Judge who accepted and recognised that the product was a suite of services. Thus, the airlines supplying the services at the port of destination (which were part of the suite) were necessarily the same airlines supplying the services at the port of origin (which were also part of the suite). The Commission’s submission raises a false dichotomy.
With respect to the Commission’s fourth submission (see [620] above), the primary Judge’s conclusion on the geographical dimension of the market is not inconsistent with the general observations made in Fortescue Metals Group about markets, which are quoted by the Commission. Fortescue Metals Group does not stand for the proposition that the geographical dimension of the market is determined merely by the fact that the product dimension of the market is characterised, in part, by a geographical element. In that case, the Tribunal did refer (at [1022]) to actual sales patterns, the location of customers and the place where sales take place, as relevant considerations for determining the geographic market. The Tribunal’s reference to the location of customers must be considered having regard to the circumstances of the particular case. In the present case, it is to be remembered that, on the primary Judge’s findings of fact, customers (shippers) generally acted through intermediaries in Hong Kong and the other ports of origin. Thus, for all relevantly practical purposes, the customers (shippers) were, through their intermediaries, located at the port of origin in the markets in question.
With respect to the Commission’s fifth submission (see [621] above), there is nothing to suggest that the primary Judge’s consideration of the geographic dimension of the market was informed only by short-run considerations.
It is necessary for me to say something more about the shippers. Air NZ and Garuda each contended that the primary Judge erred in failing to find that the relevant markets were limited to transactions between airlines and freight forwarders, and in finding that some large importers in Australia were participants in the relevant markets.
The gravamen of Air NZ’s submission was that the primary Judge’s finding that shippers were participants in the relevant markets was based on theoretical considerations and not on evidence. Air NZ pointed, in particular, to the primary Judge’s finding (at [309(d)]) that shippers with significant cargo volume, wherever located, were capable, at least in theory, of operating as a constraint on airlines’ cargo rates because of their ability, again in theory, to switch to alternate sources of supply and to outflank any exercise of market power at the relevant origin airport.
Air NZ also pointed to what it said was an absence of evidence that large shippers imposed a real constraint on airlines operating out of Hong Kong and Singapore. Moreover, it submitted that, to the extent that there was evidence on the question, it tended to demonstrate that large shippers did not exert a substantial constraining effect on airlines.
Garuda’s submissions were to the same effect. It submitted that the primary Judge’s finding that a number of shippers controlled significant volumes of cargo (to the extent that the finding was made in respect of cargo on routes from Hong Kong or Indonesia to ports in Australia) was not open on the evidence. Garuda submitted that there was no evidence of the existence of such shippers and that the primary Judge made no finding or reference to evidence that a shipper actually made a switching decision. Thus, Garuda submitted, it was not open to the primary Judge to find that shippers (of the kind the primary Judge had in mind) made decisions, including decisions in Australia, about which airlines they would use. Further, the economic significance of any such decision could not be assessed. Garuda submitted that the primary Judge should have held that the Commission had not established that there were any switching decisions of significance to market definition that had been made in Australia in respect of any of the routes in issue.
Garuda’s submissions referred to evidence concerning a particular dealing between itself and an importer from the Sunshine Coast who wished to ship watches from Jakarta to Brisbane. Garuda submitted that this evidence showed that freight forwarders and shippers were not in the same market. Garuda also referred to a number of general findings made by the primary Judge concerning the role and function of freight forwarders. The thrust of these submissions was that the services supplied by airlines to freight forwarders, and the services supplied by freight forwarders to consignors or consignees, were in different markets having regard to differences in the scope of services provided and in their pricing.
The primary Judge’s finding was that the participants in the relevant markets were airlines, freight forwarders and shippers (be they exporters at origin or importers at destination) whose cargo volume was sufficiently significant for the airlines to be commercially motivated to pursue it. The cases recognise that the behaviour of participants at one functional level may have a constraining effect on the behaviour of participants at another functional level that is sufficient to warrant the inclusion of all those activities in the market the subject of attention: see, for example, the discussion in Metcash at [252]-[268]. However, I do not think that the primary Judge’s conception of the relevant markets in the present case was one in which two distinct functional levels—one between airlines and freight forwarders and the other between freight forwarders and shippers—should be combined (or “collapsed”) into the one market. After depicting the “vertical structure of the industry” with the progression Consignor à Origin freight forwarder à Airline à Destination freight forwarder à Consignee, the primary Judge said (at [269]):
This arrangement may not be so vertical as it appears. It is true that goods travel from the top to the bottom but often enough the consignee (as importer) may be the instigator of the particular shipment which will create the situation of importation. The services provided by the freight forwarders are necessary accompaniments to the services provided by the airlines themselves and neither makes much sense without the other.
Later, the primary Judge described (at [299]) the freight forwarders as intermediaries having fluctuating control over the cargo whose carriage they arranged. His Honour saw this characteristic as reflecting “economic substance”. The primary Judge also reasoned that the shippers were “significant economic actors”. His Honour said that he could not imagine a universe of discourse in which a rational business would ignore the role of shippers.
It seems to me that, after considering a large body of evidence directed to the relationship between airlines, freight forwarders and shippers, it was open to the primary Judge to define the market in a way which included all three as participants, without seeking to draw the “bright line” functional levels which the airlines urge.
It also seems to me that it was open to the primary Judge to draw broad conclusions about the markets in question based on how, generally, airlines, freight forwarders and shippers interact in relation to the supply and acquisition of air cargo services. The primary Judge noted, on a number of occasions in the reasons for judgment, the airlines’ submissions that the Commission had not established with respect to each relevant market, that shippers played the role that the primary Judge found them to play in other corresponding air cargo markets. But, having been alive to this issue, the primary Judge rejected the airlines’ submissions. He considered the airlines’ view as contrary to common sense. The primary Judge also reasoned (at [307]):
… There is no reason to think that the structural features of the air cargo business on different routes are different. In particular, there is no reason to think that the airlines on significant routes are not involved in the giving effect to international trade nor that international trade involves importers and exporters.
Air NZ and Garuda each referred to aspects of the evidence which, they argued, showed that the primary Judge erred in concluding that shippers were participants in the relevant markets. While an appellate court can draw its own inferences from primary facts, the cautionary observations of Davies J in Australian Meat Holdings Pty Limited v Trace Practices Commission [1989] ATPR 40-932; [1989] FCA 25 should be borne in mind. There, his Honour referred to an appeal court being taken to “snatches of the evidence only”. His Honour observed (at 50,091):
The Court must be careful not to draw inferences from evidence which is disputed by other evidence and which forms only part of the material before the Court.
That observation is applicable to the present appeals. The primary Judge’s discussion and findings on the functional dimension of the relevant markets at [266]-[309] of the reasons show that his Honour gave careful consideration to a very large body of evidence concerning the role of shippers. His Honour was able to conclude that across the Asia Pacific area the airlines recognised that shippers had demand for capacity and that airlines actively followed the position of shippers, recognising that they were “the economic foundation of the market”.
I am not persuaded that the broad conclusions reached by the primary Judge about the participation of shippers in the relevant markets (see the quotation at [605] above) were not open to be made in light of the evidence to which his Honour specifically referred.
But even if the primary Judge was in error in this respect, the error is without significance to the central issue in the appeals. The appeals are not about the functional dimension of the relevant markets, but their geographical dimension. Air NZ expressly conceded that the primary Judge’s findings as to the functional dimension of the relevant markets do not affect the result in the case. This concession was properly made. The airlines’ respective cases in support of the primary Judge’s conclusion that each market was not a market in Australia did not rely on the absence of shippers as relevant market participants. Equally, the Commission’s case on appeal did not rely on the inclusion of shippers as market participants. As I have noted on a number of occasions, the Commission’s case on appeal rested on the twin propositions that services were physically provided or delivered at the port of destination in Australia and that it was at these locations, amongst others, that the airlines were able to express or manifest rivalrous behaviour.
In making this observation, I do not wish to be taken as indicating that, under other circumstances, the finding that shippers were market participants would be of no significance. Once again, the case under appeal is one involving specific findings of fact. Here, the primary Judge was at pains to stress that, notwithstanding the participation of shippers, the market was not as “vertical” as might otherwise be suggested by the fact of that participation. This, no doubt, was because the shippers acted through freight forwarders who were intermediaries. I refer, again, to the primary Judge’s finding that airlines carrying cargo from a port of origin, such as Hong Kong (and, by implication, the other ports of origin relevant to the present question) generally dealt directly only with freight forwarders situated in Hong Kong (or the other ports of origin) or in nearby environs.
In support of the primary Judge’s finding that shippers were participants in the relevant markets, the Commission, in the course of oral submissions in reply, referred to some evidence (specifically, the evidence of Glenna Frances Cluff who was employed by Toshiba (Australia) Pty Limited as a Logistics Import Specialist) to support the proposition that a switching decision could be made in Australia. With respect to this evidence, it is important to understand that the question is not so much where the person who makes a switching decision is located, but where and how a switching decision, once made, is implemented. Here, the effect of the primary Judge’s findings was that the relevant switching decisions were implemented by intermediaries at the port of origin, not at the port of destination.
The Commission also referred to some evidence given by Dennis Ian Nelson who had worked for BAX Global in the “freight forwarding industry” in Australia. This evidence was to the effect that, for major inbound routes (for example, from the USA to Sydney), Mr Nelson and his staff could negotiate a price and service standards for freight forwarding services with local consignees in Australia without reference to BAX Global at the port of origin. This evidence was given at a high level of generality. It was not directed to the markets in question. I do not accept that snippets of evidence of this kind seriously call into question the correctness of the primary Judge’s overall evaluation of how, on the evidence before him, the markets in question functioned.
I should also briefly refer to the decision of the High Court of New Zealand in Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103,318; [2011] NZHC 1285 (Commerce Commission v Air New Zealand). In that case, which concerned price-fixing in relation to inbound and outbound air cargo services to New Zealand, it was found that there was a “market in New Zealand”. Section 3(1A) of the Commerce Act 1986 (NZ) defines a “market” as a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them. The hearing in that case proceeded on the basis of agreed facts. It is clear that the court’s finding that there was a market in New Zealand was informed by its findings on the facts before it concerning the influence of downstream market effects. In the present case, the primary Judge observed (at [334]) that, in Commerce Commission v Air New Zealand, the court was willing to infer a number of matters concerning downstream effects which he could not embrace having had the benefit of a trial. Thus, the present case is immediately distinguishable on the facts.
The finding on market definition in Commerce Commission v Air New Zealand was also informed by the approach of the New Zealand Court of Appeal in Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554 in which it was said (at 560):
Generally a market will be identified by reference to the activities of those engaged in commerce, the structures underlying their activities and the perceived susceptibility to change in the medium-term future.
In Commerce Commission v Air New Zealand, the court expressed its preference (at [189]) for this general approach to market definition rather than “prescriptive definitions limiting a market to the outer geographic boundary of the immediately substitutable products”. This general approach places less emphasis on substitutability as the cornerstone of market definition than is accorded by s 4E of the TPA as interpreted by the Australian case law.
Finally, I should record my view that, on existing authority, there is no warrant for incorporating in the process of market definition an effects-based doctrine that would extend the geographic reach of a market to Australia on the basis that persons in Australia are or might be adversely affected by conduct outside Australia that is sought to be impugned.
On the facts found by the primary Judge, none of the relevant markets was a market in Australia. In my respectful view, the primary Judge did not err in the conclusion to which he came, based on those facts. It follows that each appeal should be dismissed.
THE NOTICES OF CONTENTION
Having reached this conclusion, it is not necessary for me to reach a conclusion on the other matters raised by the airlines in their notices of contention.
The notices of contention raise a number of significant and, in some cases complex, legal questions. As, in my view, these questions do not arise for determination, I express no view on them.
The notices of contention also raise a number of challenges to the factual findings made by the primary Judge. These stand in a somewhat different position. I agree with Dowsett and Edelman JJ that the airlines have not shown error in the findings and conclusions to which the primary Judge came. I refer, in particular, to [289]-[482] of the majority reasons, with which I respectfully agree.
I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 21 March 2016
35
11
26