Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (Remedies)
[2019] FCA 786
•30 May 2019
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (Remedies) [2019] FCA 786
File number: NSD 955 of 2009 Judge: PERRAM J Date of judgment: 30 May 2019 Catchwords: COMPETITION – collusive arrangement – exclusive dealing – respondent found to have contravened s 45 of the Trade Practices Act 1974 (Cth) – enforcement and remedies – application for declarations, injunctions and pecuniary penalties – consideration of relevant principles
PUBLIC INTERNATIONAL LAW – act of state doctrine – distinction between foreign state immunity and act of state doctrine – whether commercial acts of respondent airline had sovereign aspect to them
PUBLIC INTERNATIONAL LAW – where respondent submitted injunctions and pecuniary penalties would be contrary to customary international law – where respondent argued customary international law relevant to Court’s discretion and power to grant remedies – where respondent argued relevance of principles of ‘accommodation, mutuality and proportionality’
STATUTORY INTERPRETATION – factors relevant to imposition of pecuniary penalty – loss or damage flowing from contravention of competition law – consideration of deeming provision in s 45A of the Trade Practices Act 1974 (Cth) – whether s 45A can inform assessment of loss or damage under s 76 or limited to establishing breach of s 45 – consideration of Federal Commissioner of Taxation v Comber [1986] FCA 92; 10 FCR 88 and Re Levy; Ex parte Walton (1881) 17 Ch D 746
Legislation: Acts Interpretation Act 1901 (Cth) s 8
Competition and Consumer Act 2010 (Cth) ss 76, 80
Evidence Act 1995 (Cth) s 55
Federal Court of Australia Act 1976 (Cth) s 21
Trade Practices Act 1974 (Cth) ss 4E, 5, 45, 45A, 45DA
Agreement between the Government of Australia and the Government of the Republic of Indonesia (7 February 2013) 2016 ATS 25 (entered into force 30 December 2016)
Cases cited: Australian Competition and Consumer Commission v Air New Zealand [2014] FCA 1157
Australian Competition and Consumer Commission v Air New Zealand (No 15) [2018] FCA 1166
Australian Competition and Consumer Commission v British Airways PLC [2008] FCA 1977
Australian Competition and Consumer Commission v Cargolux Airlines International SA [2009] FCA 342
Australian Competition and Consumer Commission v Cathay Pacific Airways Ltd [2012] FCA 1392
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; 327 ALR 540
Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] FCA 1730; ATPR 42-140
Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liquidation) [2007] FCAFC 146; 161 FCR 513
Australian Competition and Consumer Commission v Emirates [2012] FCA 1108
Australian Competition and Consumer Commission v Gullyside Pty Ltd [2005] FCA 1727; (2006) ATPR 42-097
Australian Competition and Consumer Commission v Leahy Petroleum (No 2) [2005] FCA 254; 215 ALR 281
Australian Competition and Consumer Commission v J McPhee & Son (Aust) Pty Ltd (No 5) [1998] FCA 310; ATPR 41-628
Australian Competition and Consumer Commission v Koninklijke Luchtvaart Maatschappij NV (KLM) [2009] FCA 341
Australian Competition and Consumer Commission v Korean Air Lines Co Ltd [2011] FCA 1360
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 683; ATPR 42-070
Australian Competition and Consumer Commission v Malaysia Airline System Berhad (No 2) [2012] FCA 767
Australian Competition and Consumer Commission v Martinair Holland NV [2009] FCA 340
Australian Competition and Consumer Commission v McMahon Services Pty Ltd [2004] FCA 1425; ATPR 42-031
Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd [2004] FCA 693; 207 ALR 329
Australian Competition and Consumer Commission v Qantas Airways Limited [2008] FCA 1976; 253 ALR 89
Australian Competition and Consumer Commission v Singapore Airlines Cargo Pte Ltd [2012] FCA 1395
Australian Competition and Consumer Commission v Société Air France [2009] FCA 341
Australian Competition and Consumer Commission v Telstra Corporation Ltd [2010] FCA 790; 188 FCR 238
Australian Competition and Consumer Commission v Thai Airways [2012] FCA 1434
Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; 357 ALR 55
Australian Competition and Consumer Commissioner v Japan Airlines International Co Ltd [2011] FCA 365
BMW Australia Limited v Australian Competition and Consumer Commission [2004] FCAFC 167; 207 ALR 452
Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482
Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 194 IR 461
Federal Commissioner of Taxation v Comber [1986] FCA 92; 10 FCR 88
Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43; 258 CLR 31
Flight Centre Ltd v Australian Competition Commission (No 2) [2018] FCAFC 53; 356 ALR 389
Hunter Douglas Australia Pty Ltd v Perma Blinds (1968) 122 CLR 49
International Association of Machinists and Aerospace Workers v Organization of Petroleum Exporting Countries 649 F2d 1354 (9th Cir 1981)
Markarian v The Queen [2005] HCA 25; 228 CLR 357
Mill v The Queen (1988) 166 CLR 59
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70; 168 FCR 383
Muller v Dalgety & Co Ltd [1909] HCA 67; 9 CLR 693
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; 71 FCR 285
PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52; 192 FCR 393
PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2012] HCA 33; 247 CLR 240
R v Kilic [2016] HCA 48; 259 CLR 256
Re Levy; Ex parte Walton (1881) 17 Ch D 746
Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481
Rural Press v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53
Singtel Optus v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249
Spectrum Stores Inc v Citgo Petroleum 632 F3d 935 (5th Cir 2011)
Tax Practitioners Board v Su [2014] FCA 731
Trade Practices Commission v CSR Ltd [1990] FCA 762; (1991) ATPR 41-076
Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2003] HCA 59; 216 CLR 1
Date of hearing: 22 and 25 June 2018 Date of last submissions: 16 May 2019 (Applicant)
23 May 2019 (Respondent)Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Category: Catchwords Number of paragraphs: 267 Counsel for the Applicant: Mr J A Halley SC, Ms H Younan and Mr J L Clark Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr J Gleeson SC and Mr T Brennan Solicitor for the Respondent: Norton White ORDERS
NSD 955 of 2009 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant
AND: PT GARUDA INDONESIA LTD (ABRN 000 861 165)
Respondent
JUDGE:
PERRAM J
DATE OF ORDER:
30 MAY 2019
THE COURT ORDERS THAT:
1.The Respondent pay the Commonwealth of Australia, within 28 days, pecuniary penalties of $19 million.
2.The Respondent pay the Applicant’s costs as taxed or agreed.
3.The parties provide an agreed minute of order to give effect to the Court’s conclusions on declaratory relief within 21 days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
PERRAM J:
1 INTRODUCTION
After more than nine years of litigation including, at least to this stage, a six month trial, two appeals to the Full Court of the Federal Court and two appeals to the High Court, the Australian Competition and Consumer Commission (‘the Commission’) has succeeded in demonstrating that PT Garuda Indonesia Ltd (‘Garuda’) contravened ss 45(2)(a)(ii) and 45(2)(b)(ii) of the then Trade Practices Act 1974 (Cth) (‘the TPA’), now the Competition and Consumer Act 2010 (Cth), by reaching and implementing a number of understandings with other international airlines to impose various pre-determined surcharges on the supply of air cargo services from overseas ports to ports in Australia. Those contraventions occurred variously between October 2001 and October 2006. The question which now arises is one of remedy. These reasons assume a familiarity with the primary judgment: Australian Competition and Consumer Commission v Air New Zealand [2014] FCA 1157 (‘Trial Reasons’).
At the relevant time s 45(2) of the TPA provided:
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.
The reference in s 45(2) to an understanding which has the purpose, effect or likely effect of substantially lessening competition must be read in light of s 45A(1) which at the relevant time provided:
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.
Taken together, ss 45(2) and 45A had the effect that an understanding by the airlines to impose predetermined air freight fuel surcharges infringed s 45(2)(a)(ii).
The Commission’s case against Garuda concerned its activities in Hong Kong and Indonesia; that is to say, the understandings to fix fuel surcharges at predetermined levels physically took place at meetings at which Garuda was represented in Hong Kong or Indonesia. The Commission also succeeded in showing not only that Garuda reached understandings with other international airlines to set fuel surcharges at predetermined levels but that in a number of instances it gave effect to those understandings too. These acts of implementation constituted a set of distinct contraventions of s 45(2)(b)(ii).
In addition to its case about the fuel surcharges, the Commission also succeeded in demonstrating that Garuda had entered into, and implemented, understandings with other international airlines to impose certain security charges, a customs fee and, in one instance, an actual air freight rate.
The Commission was not wholly successful. Certain aspects of its case were rejected (for example, its case that the relevant market was the market for air freight services on routes out of Hong Kong or Indonesia to routes to places other than Australia). Because Garuda contends that this consideration is relevant to penalty I will deal, later in these reasons, with the extent of the Commission’s failures. One can say even at this early stage, however, that by and large it was Garuda which was unsuccessful rather than the Commission.
The Commission now seeks the imposition upon Garuda of remedial orders for its contraventions. It asks the Court to declare that Garuda’s conduct was unlawful, to restrain it from engaging in the conduct again, to impose upon it a civil penalty in the range of somewhere between $20 and $28 million, and to order that it pay the Commission’s costs at first instance (it already has costs orders in its favour in all four of Garuda’s unsuccessful appeals).
These reasons are set out as follows:
1 INTRODUCTION [1] 2 THE CONTRAVENTIONS [10] 2.1 The Indonesian contraventions [10] 2.2 The Hong Kong contraventions [12] 3 THE ACT OF STATE DOCTRINE [14] 4 OTHER INTERNATIONAL LAW CONSIDERATIONS [25] 4.1 Discretion and power [25] 4.2 Accommodation, mutuality and proportionality [36] 4.3 Additional arguments [42] 5 GARUDA’S FACTUAL CONTENTIONS [43] 5.1 The basis for Garuda’s inculpation [44] 5.2 Passage of time [67] 5.3 Risk of repetition [75] 5.4 Garuda’s cargo business [78] 5.5 The Indonesian understandings [81] 5.6 The Hong Kong understandings [94] 5.7 Effect in Australia [99] 5.8 Garuda’s status [104] 6 PRINCIPLES RELEVANT TO PECUNIARY PENALTIES [112] 6.1 Primacy of deterrence [113] 6.2 Maximum penalties [116] 6.3 Penalty factors [118] 7 APPLICATION OF PENALTY PRINCIPLES TO GARUDA’S CONDUCT [122] 7.1 Penalty factors [122] 7.1.1 Nature and extent of the contravening conduct [122] 7.1.2 The circumstances in which the contraventions took place [127] 7.1.2.1 Indonesia [127] 7.1.2.2 Hong Kong [154] 7.1.3 Size, financial position and market power of the contravening company [167] 7.1.4 Loss or damage [171] 7.1.5 Involvement of senior management [173] 7.1.6 Whether the conduct was systematic, deliberate or covert [179] 7.1.7 Culture of compliance and previous conduct [180] 7.1.8 Cooperation and contrition [201] 7.1.9 Costs incurred to date [202] 7.2 Course of conduct [206] 7.3 Parity and comparable decisions [214] 7.4 Totality principle [229] 8 DECLARATORY RELIEF [234] 9 INJUNCTIONS [241] 10 COSTS [252] 11 EVIDENTIARY RULINGS [255] 2 THE CONTRAVENTIONS
2.1 The Indonesian contraventions
Insofar as Garuda’s activities in Indonesia are concerned at trial I found that Garuda had engaged in a number of contraventions in relation to the fuel surcharges, the security surcharges, an air freight rate and the customs fee. Some of these contraventions occurred before a time at which the relevant limitation period permits the imposition of a penalty. That does not prevent, however, the grant of other remedies relating to these contraventions.
The contraventions are set out in the table below. The form of the contraventions often involved the fixing of the surcharges across whole regions including Australia. The table reflects this. However, the contraventions were only unlawful to the extent that they applied to routes into Australia. For convenience, I have included a column indicating the extent to which each contravention is within time for the imposition of a penalty and the relevant parts of the Trial Reasons where the contraventions were dealt with.
No Summary of contraventions Penalty Period Trial Reasons FUEL SURCHARGES 1 October 2001 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [1146]-[1148] 2 April 2002 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [1157], [1165], [1175] 3 June 2002 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [1177] 4 & 5 September 2002 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) Not in time for penalty [1178] 6 & 7 January 2003 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) Not in time for penalty [1179] 8 & 9 May 2003 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): not in time for penalty
s 45(2)(b)(ii): in time insofar as conduct occurred between 2 September 2003 and 30 June 2004[1182]-[1184], [1187], [1189] 10 & 11 September 2004 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 29 September 2004
s 45(2)(b)(ii): 16 October 2004 to 30 April 2005[1207]-[1208] 12 & 13 April 2005 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 4 April 2005
s 45(2)(b)(ii): 1 May 2005 to 14 July 2005[1210]-[1213] 14 & 15 July 2005 Indonesia Fuel Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 15 July 2005
s 45(2)(b)(ii): 16 July 2005 to 30 September 2005[1214]-[1215] SECURITY SURCHARGES 16 & 17 October 2001 Indonesia Security Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) Not in time for penalty [1229] 18 & 19 January 2003 Indonesia Security Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) Not in time for penalty [1230] 20 & 21 May 2003 Indonesia Security Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): not in time for penalty
s 45(2)(b)(ii): in time for penalty insofar as the conduct occurred between 2 September 2003 and 15 October 2004[1231]-[1232] 22 & 23 September 2004 Indonesia Security Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 29 September 2014
s 45(2)(b)(ii): 16 October 2004 to 14 July 2005[1233]-[1234] 24 & 25 July 2005 Indonesia Security Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 15 July 2005
s 45(2)(b)(ii): 1 August 2005 to at least October 2005[1235]-[1236] AIR FREIGHT RATES AND CUSTOMS FEE 26 October 2001 Indonesia Air Freight Rate Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [1149]-[1155] 27 & 28 May 2004 Indonesia Customs Fee Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): 6 May 2004
s 45(2)(b)(ii): 16 May 2004 to at least October 2005[1197], [1204] 2.2 The Hong Kong contraventions
The equivalent table for Garuda’s activities in Hong Kong is as follows:
No Summary of contraventions Penalty Period Trial Reasons FUEL SURCHARGES 29 Hong Kong Imposition Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [650]-[658], [704] 30 Hong Kong Imposition Understanding: implementation of HKD1.20/kg fuel surcharge (s 45(2)(b)(ii)) Not in time for penalty [634], [658], [704] 31 Hong Kong Imposition Understanding: implementation of HKD1.60/kg fuel surcharge (s 45(2)(b)(ii)) Not in time for penalty [637], [658], [704] 32 Hong Kong Imposition Understanding: implementation of HKD1.20/kg fuel surcharge (s 45(2)(b)(ii)) Not in time for penalty [640], [658], [704] 33 Hong Kong Imposition Understanding: implementation of HKD0.80/kg fuel surcharge (s 45(2)(b)(ii)) In time for penalty insofar as the conduct occurred between 2 September 2003 and 18 December 2003 [641], [658], [704] 34 Hong Kong Imposition Understanding: implementation of HKD1.20/kg fuel surcharge (s 45(2)(b)(ii)) 19 December 2003 to 10 May 2004 [643], [658], [704] 35 Hong Kong Imposition Understanding: implementation of HKD1.60/kg fuel surcharge (s 45(2)(b)(ii)) 11 May 2004 to 8 August 2004 [644], [658], [704] 36 Hong Kong Imposition Understanding: implementation of HKD2.00/kg fuel surcharge (s 45(2)(b)(ii)) 9 August 2004 to 15 September 2004 [646], [658], [704] 37 Hong Kong Imposition Understanding: implementation of HKD2.40/kg fuel surcharge (s 45(2)(b)(ii)) 16 September 2004 to 5 November 2004 [646], [658], [704] 38 Hong Kong Imposition Understanding: implementation of HKD2.80/kg fuel surcharge (s 45(2)(b)(ii)) 6 November 2004 to 15 November 2004 [646], [658], [704] 39 Hong Kong Imposition Understanding: implementation of HKD3.20/kg fuel surcharge (s 45(2)(b)(ii)) 16 November 2004 to 6 December 2004 [646], [658], [704] 40 Hong Kong Imposition Understanding: implementation of HKD2.80/kg fuel surcharge (s 45(2)(b)(ii)) 7 December 2004 to 3 January 2005 [646], [658], [704] 41 Hong Kong Imposition Understanding: implementation of HKD2.40/kg fuel surcharge (s 45(2)(b)(ii)) 4 January 2005 to 21 March 2005 [646], [658], [704] 42 Hong Kong Imposition Understanding: implementation of HKD2.80/kg fuel surcharge (s 45(2)(b)(ii)) 22 March 2005 to 4 April 2005 [646], [658], [704] 43 Hong Kong Imposition Understanding: implementation of HKD3.20/kg fuel surcharge (s 45(2)(b)(ii)) 5 April 2005 to 11 July 2005 [646], [658], [704] 44 Hong Kong Imposition Understanding: implementation of HKD3.60/kg fuel surcharge (s 45(2)(b)(ii)) 12 July 2005 to 5 September 2005 [646], [658], [704] 45 Hong Kong Imposition Understanding: implementation of HKD4.00/kg fuel surcharge (s 45(2)(b)(ii)) 6 September 2005 to 26 September 2005 [646], [658], [704] 46 Hong Kong Imposition Understanding: implementation of HKD4.40/kg fuel surcharge (s 45(2)(b)(ii)) 27 September 2005 to 27 October 2005 [646], [658], [704] 47 Hong Kong Imposition Understanding: implementation of HKD4.80/kg fuel surcharge (s 45(2)(b)(ii)) 28 October 2005 to 21 November 2005 [646], [658], [704] 48 Hong Kong Imposition Understanding: implementation of HKD4.40/kg fuel surcharge (s 45(2)(b)(ii)) 22 November 2005 to 28 November 2005 [646], [658], [704] 49 Hong Kong Imposition Understanding: implementation of HKD4.00/kg fuel surcharge (s 45(2)(b)(ii)) 29 November 2005 to 5 December 2005 [646], [658], [704] 50 Hong Kong Imposition Understanding: implementation of HKD3.60/kg fuel surcharge (s 45(2)(b)(ii)) 6 December 2005 to 20 February 2006 [646], [658], [704] 51 Hong Kong Imposition Understanding: implementation of HKD4.00/kg fuel surcharge (s 45(2)(b)(ii)) 21 February 2006 to 8 May 2006 [646], [658], [704] 52 Hong Kong Imposition Understanding: implementation of HKD4.40/kg fuel surcharge (s 45(2)(b)(ii)) 9 May 2006 to 15 May 2006 [646], [658], [704] 53 Hong Kong Imposition Understanding: implementation of HKD4.80/kg fuel surcharge (s 45(2)(b)(ii)) 16 May 2006 to 9 October 2006 [646], [658], [704] 54 Hong Kong Imposition Understanding: implementation of HKD4.40/kg fuel surcharge (s 45(2)(b)(ii)) 10 October 2006 to 17 October 2006 [646], [658], [704] 55 First Hong Kong Surcharge Extension Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) Not in time for penalty [665] 56 First Hong Kong Surcharge Extension Understanding: implementation of HKD0.80/kg fuel surcharge (s 45(2)(b)(ii)) In time for penalty insofar as conduct occurred between 2 September 2003 and 18 December 2003 [667] 57 First Hong Kong Surcharge Extension Understanding: implementation of HKD1.20/kg fuel surcharge (s 45(2)(b)(ii)) 19 December 2003 to 18 January 2004 [667] INSURANCE SURCHARGES 58 & 59 October 2001 Hong Kong Insurance Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) Not in time for penalty [697] 60 & 61 December 2002 Hong Kong Insurance Surcharge Understanding: making or arriving at the understanding (s 45(2)(a)(ii)) and implementation (s 45(2)(b)(ii)) s 45(2)(a)(ii): not in time for penalty
s 45(2)(b)(ii): in time insofar as conduct occurred between 2 September 2003 and 21 January 2004[700]-[701]
It is useful then to begin with Garuda’s principal submission that the Court should forbear from granting some of the relief because of the act of state doctrine.
3 THE ACT OF STATE DOCTRINE
Garuda submitted that the act of state doctrine requires the Court not to impose the remedies of injunction or civil penalty upon it. It accepted, however, that the doctrine does not prevent the Court from making findings on the ‘bare question of liability’; that is, finding that contraventions occurred and making declarations to that effect.
The argument in relation to the injunctions and penalties went as follows: first, the conduct of a commercial airline can constitute the sovereign act of a foreign state. In this case, the Full Court had already held that Garuda was an emanation of the Republic of Indonesia and, further, that it was the means by which Indonesia carried on the business of an airline: PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52; 192 FCR 393 (‘FC1’) at 430 [170] per Rares J (Lander and Greenwood JJ agreeing at 404 [49]). Secondly, purely commercial conduct, such as price fixing, if engaged in for the purpose of performing a public function of a state, could be subject to the doctrine. In this case, Garuda’s price fixing conduct took place in the course of its business, which was the fulfilment of its statutory purpose of ‘benefitting the public by providing high quality and satisfactory services fulfilling the needs of the people’. That purpose was stipulated by Indonesian Law No 19 of 2003 (‘Law No 19’) Art 2(1)(a): FC1 at 430 [169]. Garuda was owned as to at least 95.5% by Indonesia and the state had ultimate control over Garuda’s board of commissioners (the other 4.5% was owned by a state owned limited liability enterprise, BUMN Persero). Four out of the five members of its board of commissioners were senior members of the Executive Government of Indonesia.
I do not accept the submission that Art 2(1)(a) of Law No 19 required that the activities of Garuda be directed to the advancement of the interests of the Indonesian state. What it says, in fact, is that Garuda is to benefit the public by providing services and thereby fulfil the needs of the Indonesian people. These are not the same. I do not accept, therefore, that Garuda’s actions in conducting a commercial airline are, per se, acts of state of the Republic of Indonesia.
It is not difficult to imagine scenarios in which actions by Garuda might be protected by the act of state doctrine. For example, if Indonesia utilised Garuda to bring aid to the victims of a tsunami in some outlying reach of the archipelago this activity might well involve Garuda aiding in the performance of state acts. In such a case, Garuda’s operations would more closely resemble the facts in International Association of Machinists and Aerospace Workers v Organization of Petroleum Exporting Countries 649 F2d 1354 (9th Cir 1981) to which Garuda pointed. In that case, the plaintiffs claimed that the member states of the Organisation of the Petroleum Exporting Countries (‘OPEC’) had violated US anti-trust laws through the use of mechanisms to stabilise the price of oil in light of a natural disaster. A plea of sovereign immunity was problematic in that case due to a reservation in the Foreign State Immunity Act (28 USC §1608) which made the plea unavailable in respect of the commercial activities of a foreign state. The Court of Appeal for the Ninth Circuit nevertheless concluded that the act of state doctrine was applicable. At 1360 Circuit Judge Choy said this:
The act of state doctrine is not diluted by the commercial activity exception which limits the doctrine of sovereign immunity. While purely commercial activity may not rise to the level of an act of state, certain seemingly commercial activity will trigger act of state considerations. As the district court noted, OPEC’s “price-fixing” activity has a significant sovereign component. While the FSIA ignores the underlying purpose of a state’s action, the act of state doctrine does not. This court has stated that the motivations of the sovereign must be examined for a public interest basis … When the state qua state acts in the public interest, its sovereignty is asserted. The courts must proceed cautiously to avoid an affront to that sovereignty. Because the act of state doctrine and the doctrine of sovereign immunity address different concerns and apply in different circumstances, we find that the act of state doctrine remains available when such caution is appropriate, regardless of any commercial component of the activity involved.
(footnotes omitted)
So even if an activity is commercial it may, at least in principle, yet have a sovereign element to it such that it is protected by the doctrine. The Court of Appeals for the Fifth Circuit accepted that proposition in Spectrum Stores Inc v Citgo Petroleum 632 F3d 935 (5th Cir 2011), another OPEC case: at 951. The High Court referred to these statements in PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2012] HCA 33; 247 CLR 240 at 252-253 [35]-[36] per French CJ, Gummow, Hayne and Crennan JJ without apparent disapproval. I accept therefore that the act of state doctrine can apply even where a plea of foreign state immunity is not otherwise available because of the commercial activities exception.
It remains nevertheless necessary for the Court to be satisfied that the activity in question has a sovereign element to it. That a commercial activity may have a sovereign element to it does not seem to be especially controversial. The decisions of the Fifth and Ninth Circuits to which I have referred show as much. In a different context, the High Court seems to have accepted a similar point in Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43; 258 CLR 31.
The difficulty for Garuda lies in establishing what the sovereign element in Garuda’s conduct actually was. I do not think that it is enough that Garuda’s purposes included being operated for the benefit of the people in Indonesia or that that purpose was provided for by legislation. Mr Gleeson SC, who with Mr Brennan of junior counsel appeared for Garuda, also sought to underscore the sovereign nature of Garuda’s activities by reference to its precarious financial position and the Indonesian Government’s role in addressing that issue. The first of these matters was to be found in Garuda’s 2005 Annual Report. The relevant passage appeared in the section headed ‘Corporate Information’:
Throughout the year, we also made important progress in our financial restructuring efforts. However, due to various negative factors affecting Garuda’s performance that include record fuel prices, the weakening of the Rupia, increased interest rates and intensified competition, in December 2005 Garuda Indonesia announced that it will declare a standstill on payments of principal on certain financial indebtedness due at the end of December 2005. Garuda Indonesia will continue to pay interest on its financial indebtedness and will continue to make required payments to aircraft lessors. The decision has been discussed with and agreed by the Government of Indonesia, Garuda’s shareholder. We will continue to work with the Government and our creditors to find the best solutions to the carrier and its stakeholders. I want to stress that Garuda Indonesia remains committed to following international debt restructuring principles in Indonesia and to deal with its stakeholders in a fair and transparent manner.
This showed, so it was submitted, that Garuda was in a difficult situation. It was said that the financial statements for that year also showed that its operating expenses exceeded operating income (which appears to be correct) and that there was a deficit of current assets over liabilities (which does not appear to be correct but which I will assume in its favour). By 2006, the situation had deteriorated. The report for that year revealed that Garuda had stopped making repayments of principal on its facilities and obtained support from the Government ‘to rescue the company’.
Consequently, Indonesia had appointed a new board of management and board of commissioners and had given Garuda an equity injection of 500 billion Rupia (about $48 million). Garuda submitted that this showed that the decision as to whether Indonesia would even continue to have an airline had been made at the governmental level.
I do not accept that these matters show any more than that Garuda, like many other international commercial airlines, was unprofitable (particularly in 2006 when fuel prices started to increase) and that its shareholders were obliged to inject further funds to keep it going.
Whilst I accept therefore that, in principle, it is possible that Garuda’s activities could fall within the act of state doctrine if they were pursued for sovereign ends, I do not accept that all of its activities necessarily bear that character. In that regard, fixing surcharges on air freight services is not like a state-owned company fixing the price of oil for an OPEC nation. Consequently, the conduct of Garuda, as a commercial airline, is not in itself an act of state. I do not accept therefore that the imposition of a penalty upon Garuda would impinge upon the sovereignty of Indonesia. For completeness, I reject the submission that Garuda’s conduct in fixing the price of surcharges on cargo is to be seen as an act of the Republic of Indonesia designed to help bail out Garuda for state ends. There was simply no evidence to this effect.
4 OTHER INTERNATIONAL LAW CONSIDERATIONS
4.1 Discretion and power
Although at the hearing Garuda indicated that the bulk of what it wished to say on international law issues was encompassed in its oral and written submissions on the act of state doctrine, it is useful to address the balance of its submissions lest that position shift on appeal. Garuda’s first submission was that the Court should decline to grant the relief sought by the Commission in the exercise of its discretion. Why? Because each of the remedies sought (declarations, injunctions and civil penalties) was exorbitant under customary international law; because the provision enabling the Court to grant the remedies (s 21 of the Federal Court of Australia Act 1976 (Cth)) would be construed so as not to authorise the granting of remedies which would put Australia in breach of its obligations under customary international law; and because the grant of injunctions or civil penalties would require the Court to inquire into activities which were properly to be seen as acts of the Republic of Indonesia and hence falling within the act of state doctrine.
Although most of Garuda’s submissions on this cluster of issues were framed as going to the Court’s discretion, at times they seemed perhaps to slide towards the Court’s power (for example, ‘the Court should construe its powers to grant the requested remedies as confined, as a matter of discretion, to…’). I will proceed on the basis that both submissions were advanced.
In the Trial Reasons I considered extensively identical submissions made on behalf of Garuda (and, at that time, Air New Zealand). At [359]-[386] I discussed the submission then made by Garuda that the TPA would not be interpreted in such a way as would result in the Commonwealth being in breach of its obligations under customary international law. I accepted that there was such a principle of statutory interpretation: at [386]. However, I did not accept that the extra-territorial reach of the TPA involved Australia in any breach of customary international law (at [381]-[384]) because, as a matter of customary international law, there was nothing unlawful in legislating with extra-territorial effect so long as there was a proper nexus with the legislating state: at [382]. There were several different kinds of nexus which could justify this kind of extra-territorial legislative activity but the existence of a territorial nexus was a well-established justification in customary international law.
At [350] I concluded that s 5(1) of the TPA provided a sufficient territorial nexus. That section provided:
Part IV, Part IVA, Part V (other than Division 1AA), Part VB and Part VC extend to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia.
I was explicit at [347]-[350] that the ‘market in Australia’ requirement in s 4E did not give the TPA an extraterritorial operation and that that work was instead done by s 5(1). That conclusion was not reversed on appeal.
The submission that Garuda then made at the penalty hearing was that the reasoning on these issues no longer has any currency because the High Court reversed the conclusion that there was no market in Australia. That reasoning was said to be pivotal to my conclusions on whether the TPA should be read so as not to place the Commonwealth in breach of its obligations under customary international law.
However, that is not correct. My reasoning about territorial nexus was based on s 5(1) and explicitly not s 4E. I therefore reject the argument whether it be one of power or discretion.
Next it was submitted that since the time of the trial a new air services agreement between Australia and Indonesia had come into force. This was the Agreement between the Government of Australia and the Government of the Republic of Indonesia (7 February 2013) 2016 ATS 25 (‘the 2013 ASA’). It came into force on 30 December 2016.
As I understood the argument advanced at the hearing, the 2013 ASA was said to form part of a reason not to grant a remedy as a matter of discretion. This was because Art 14.1 required Australia not to apply its competition laws to activities in Indonesia (or Hong Kong). Article 14.1 provides:
The competition laws of each Party, as amended from time to time, shall apply to the operation of the airlines within the jurisdiction of the respective Party.
Assuming in Garuda’s favour that as a matter of public international law this imposes an obligation on the Commonwealth not to apply its competition laws in Indonesia, it has nothing to say in this case. The present proceeding is concerned with the application of the TPA in Indonesia in the period 2001-2006. As I have said, Art 14.1 came into force on 30 December 2016.
Garuda then submitted that the Court would exercise restraint in enquiring into the conduct of Garuda’s business because it was an emanation of the Republic of Indonesia and the means by which Indonesia carried on an airline. This submission is separate to Garuda’s submission considered above that it is entitled to rely upon the act of state doctrine. However, I reject the argument on the same basis. Garuda was not engaged in any sovereign activity when it engaged in the impugned conduct.
4.2 Accommodation, mutuality and proportionality
Garuda next submitted that there was a competition law in Indonesia at the relevant time which was being enforced. That enforcement extended to proceedings against airlines for price fixing in relation to fuel surcharges. It also submitted that the Supreme Court of Indonesia had held that agreements to fix surcharges did not contravene Indonesian competition law. The point of these submissions was that this Court would exercise its discretion in accordance ‘with the principles of accommodation, mutuality and proportionality’. The submission did not identify the source or content of those principles.
I reject the submission. As I explain below at [118]-[121], the Supreme Court of Indonesia did not hold that an agreement to fix fuel surcharges did not infringe Indonesian competition law and accordingly Garuda’s submission is wrong. Garuda has not, therefore, proven that Indonesian competition law did not proscribe the reaching of an understanding to set fuel surcharges at predetermined levels. The premise for its submission is not established.
Garuda also submitted that it was a fact that its conduct in Hong Kong had been reported to the regulator in Hong Kong. This was said to be relevant to the exercise of the discretions involved. I take it into account.
Next it was submitted that the power in s 80 to grant an injunction does not have extra-territorial operation. This was because it was contained in Pt VI and Pt VI was not mentioned in s 5(1). I reject this argument. Section 5(1) extends the operation of the TPA to conduct outside Australia in certain circumstances. Part VI does not proscribe conduct but instead provides remedies. When there is a contravention by extra-territorial conduct, Pt VI permits a remedy.
It was also submitted that the Court would take into account in granting any civil penalty under s 76 that the order would result in the judicial power of the Commonwealth being extended into an area of jurisdiction which according to the comity of nations belongs to another sovereign. I reject this submission because as I explained in the Trial Reasons at [382] the only jurisdictional requirement is that there be a territorial nexus which is present in this case in the form of s 5(1). The comity of nations has no effect on the present issue.
I therefore reject the submission that the granting of remedies in this case would ‘exceed the accepted bounds of prescriptive jurisdiction under international law’. There is no principle of customary international law which makes unlawful the regulation of extra-territorial affairs involving (as here) persons with a proper nexus to the state just because that regulation is superimposed on another state’s domestic legislation. After extensive debate that was what I held in the Trial Reasons at [338] from which there has been no successful appeal. I also reject the related submission that the same approach should be applied to the Court’s powers of enforcement. The suggested overreach as a matter of customary international law does not exist, Garuda has already lost this point in the Trial Reasons and, in any event, it would not, even if established, provide an independent discretionary ground because notions of comity are dealt with under the act of state doctrine (which also has no application).
4.3 Additional arguments
Some other arguments may be briefly dispatched. First, I do not accept the relevance of Garuda’s submission that there is a lack of internationally agreed standards by which to judge the acts of Indonesia. Garuda is not Indonesia. The question of agreed international standards by which a state might be sanctioned does not therefore arise. Secondly, I do not accept that Garuda’s role as the chair of the ACRB in Jakarta has any sovereign element to it. It chaired the ACRB because it was the local carrier. Its activities as such had nothing to do with assertions of sovereignty by the Indonesian state. Thirdly, I reject the submission that the conduct had no Australian dimension. As discussed below, Garuda operates a substantial business in Australia employing hundreds of people. It flies between Australia and Indonesia and through Australian airspace under a licence issued by the Commonwealth Government. Its contraventions took place in a market in Australia and, further, its conduct is taken to have been likely substantially to lessen competition in that Australian market.
5 GARUDA’S FACTUAL CONTENTIONS
Garuda sought 23 additional findings of fact which it contended were relevant to the question of relief.
5.1 The basis for Garuda’s inculpation
First, Garuda submitted that I should find as a fact on the penalty hearing that it had not engaged in any of the conduct which had been held by the High Court to give rise to a market in Australia under s 4E. It also submitted that I should find that it did not know that the other airlines were engaging in such conduct.
It is necessary first to put the issues about the market in Australia in context.
Part of the Commission’s case on whether there was a market in Australia for the purposes of s 4E involved a factual contention that the airlines in the TC3 area actively pursued larger shippers. This was part of a case that the market participants included not only airlines and freight forwarders but also these larger shippers. Although I rejected the Commission’s case on whether there was a market in Australia I accepted its factual contentions on this issue. The findings at first instance included that:
·the airlines were interested in what shippers were doing: Trial Reasons at [283]-[284];
·the marketing operations of the airlines in the Asian market were focussed in large part on the activities of the larger shippers who were perceived by them to be the source of demand: at [284];
·the airlines recognised that the shippers had demand for capacity: at [287];
·the airlines recognised that the shippers were the economic foundation of the market: at [287];
·there were consignees who were actively considered as revenue sources by the airlines: at [288];
·some shippers were able to influence the choice of airline or flight: at [290];
·the airlines had direct contact with some shippers on price and service: at [291];
·the airlines sales and marketing activities were directed at shippers: at [293];
·in the general Asian market, airlines, freight forwarders and shippers sometimes entered into tripartite contractual arrangements: at [297]; and
·the airlines competed with each other in relation to particular shippers: at [298].
Each of these findings was the result of a submission made by the Commission. Although there are a number of distinct findings it is convenient in the interests of economy to refer to all of these findings collectively as the shipper demand issues. At trial, Garuda made almost no submissions, either in writing or orally, on the shipper demand issues. This was surprising because Garuda had in fact called two witnesses on these issues: Mr Haddad and Mr Mandala. However, in its written and oral submissions at trial it made almost no mention of either of these gentlemen. Indeed, its entire answer to the Commission’s case on the shipper demand issues was confined to one paragraph of its written submissions. And of that paragraph only a single sub-paragraph dealt with the role of the shippers as market participants. That paragraph simply said this:
Thirdly, it is said that airlines marketed to the demands of shippers: CS D paragraph 239.2. So too Kellogs’ markets to consumers of breakfast cereal, yet it participates in a wholesale market.
No oral submission was made on this point at all. Thus was Garuda’s case on the pivotal factual issues which would ultimately underpin the High Court’s conclusion that there was a market in Australia. On the current penalty hearing, Garuda sought to imply that in some ways the High Court’s conclusion was surprising, and perhaps even unforeseeable. But this is not so. The case the High Court embraced was the case the Commission vigorously ran. Large quantities of documents were involved and many witnesses were cross-examined by its counsel on this precise issue including, as I have said, Mr Haddad and Mr Mandala. It was for that reason that even though I favoured the airlines’ theory that the market was located where the switching decisions were made (at the ports of origin) I was careful to make findings in the alternative on the shipper demand issues lest my view prove, as it ultimately did, erroneous. Both Air New Zealand and the Commission exchanged detailed submissions on the issue. But Garuda was content to let Air New Zealand do its work for it on the shipper demand issues. In doing so, Garuda overlooked the significance of its own witnesses, Mr Haddad and Mr Mandala. Since Air New Zealand was not involved in the Indonesian aspects of the case this evidence fell into a gap which Garuda, at the heel of the hunt, now seeks to plug.
In that regard, no attempt was made by Garuda at trial to submit that the Commission’s case on the shipper demand issues was contradicted by the evidence of Mr Haddad or Mr Mandala. No submission was developed that on its routes from Indonesia to Australia it did not seek to market to shippers and dealt only with freight forwarders. This was surprising as there was evidence to support that proposition in the form of Mr Mandala’s affidavit evidence which was to the effect that as the cargo manager in Jakarta he did not deal with shippers in Australia. The Commission’s cross-examination of Mr Mandala did not result in him resiling from that evidence. Similar evidence by Mr Haddad that, as the cargo manager in Sydney, he did not seek to deal with shippers was exposed under cross-examination to be incorrect and I did not ultimately accept his affidavit evidence about it: Trial Reasons at [283].
So it was quite open to Garuda to make this point at the trial but it did not do so. I proceeded to make the findings set out above which were couched at an industry wide level. That reflected the fact that the shipper demand issues were industry wide issues. The Commission did not need to prove what Garuda and Air New Zealand in particular were doing. It had to prove a much larger proposition about the existence of the market in which the price-fixing behaviour of the airlines was alleged to have occurred. Its submissions were pitched at that level of abstraction as were my findings.
In the Commission’s successful appeal from my determination that there was no market in Australia Garuda filed a notice of contention challenging a large number of the factual findings made at trial. It is not clear to me whether any of those challenges extended to this issue but it does not matter because all of Garuda’s factual challenges were rejected by the Full Court. The subsequent appeal to the High Court did not disturb any of the findings made at the trial.
In that circumstance, I accept the Commission’s submission that it is not open to Garuda now to seek to ventilate this issue which was determined adversely to it at trial and not subsequently overturned on appeal.
Even it were now open to entertain this issue I would have rejected Garuda’s attempts to prove that it did not pursue shippers in Australia from Jakarta and was not, therefore, aware either of the facts which gave rise to a market in Australia or of the fact that other airlines were pursuing shippers in Australia.
Garuda sought to prove these matters in two ways. It first submitted that the way the High Court had dealt with the matter left it procedurally open for Garuda to prove that its Jakarta operations had no dealings with shippers and dealt exclusively with freight forwarders. The basis of this submission was that the High Court had not expressly adverted to any of the evidence about Garuda’s activities in Jakarta vis-a-vis shippers. The short answer to this submission is that the facts about airlines and shippers as found at trial (and set out above) extended to all airlines operating in Asia on all routes. This included Garuda and its activities in Jakarta. I referred to the evidence of Mr Haddad in the Trial Reasons at [283] in these terms:
Oral testimony given the 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.
Neither my general findings about the relationship between the shippers and the airlines nor my specific finding about Mr Haddad were reversed on appeal. Garuda submitted that my finding at [283] had not formed any part of the High Court’s reasoning. However, again, as was very often the case with Garuda’s submissions, this is simply not factually correct. Gordon J expressly referred to [283] in her Honour’s reasons at [113] in footnote 149 to make good the proposition that the airlines pursued some shippers. The plurality expressly stated their agreement with Gordon J on her Honour’s analysis of the facts: see [1] per Kiefel CJ, Keane and Bell JJ.
So the issue is not that the High Court did not have regard to Mr Haddad. The issue is that Garuda did not do so at trial. That Garuda itself decided to ignore the shipper demand issues at trial (apart from a largely unhelpful reference to cornflakes) provides no warrant for now permitting it to agitate what everyone else in this litigation dealt with some years ago.
Garuda secondly pointed to evidence at trial (and fresh evidence filed at the penalty hearing) which suggested that in Jakarta Garuda’s cargo manager did not deal with shippers but only with freight forwarders. There was evidence from Mr Mandala at both hearings which supported this. I made no findings about Mr Mandala on the market evidence because Garuda did not refer to him on the shipper demand issues and because the Commission’s submissions about him were very minor in nature. The way the case was framed in final submissions was such that Mr Mandala’s evidence on his dealing with shippers was not germane to any issue that Garuda then sought to ventilate.
On the assumption (contrary to my view) that this issue should now be considered, I would not in any event be disposed to accept Mr Mandala’s evidence about shippers. He was cross-examined before me on this issue at the trial. His more recent affidavit expanded on his earlier affidavit in much greater detail. The gist of this evidence was that Mr Mandala did not know that importers of goods in Australia could influence the selection of carriers; that Garuda in Jakarta did not seek to approach shippers directly or to influence shippers in that way; that its only dealings were with freight forwarders; and that Garuda knew nothing about its exposure under Australian law.
This evidence is inconsistent with the evidence of Mr Haddad who was the Sydney cargo manager at the relevant time. Although in his affidavit he gave similar evidence to Mr Mandala he was cross-examined and it was obvious after that cross-examination that Garuda’s Sydney operations were focussed on shippers. Mr Haddad also gave evidence of being aware of the practices of other airlines. The question then becomes why, if the rest of the airline industry in Asia operated with an eye on what shippers were doing (including Garuda in its operations from Australia to Indonesia), there would be any reason for Garuda’s head office plausibly to remain ignorant of these matters. It is true that the documentary evidence for Jakarta’s involvement with shippers or its knowledge of standard industry practice was very thin. But I do not derive from that matter much assistance beyond the fact that the documentary record is incomplete. Responsibility for that does not self-evidently lie with the Commission.
Ultimately I do not accept Mr Mandala’s evidence because it is literally unbelievable. Garuda pointed to the fact that it had a poor reputation in the cargo market. Two freight forwarders gave evidence that they would not have used Garuda to ship cargo because of a perception to that effect. This submission went, I suppose, to add credibility to the otherwise striking notion that Garuda’s head office could be engaged in the international cargo business without having the slightest degree of knowledge about how that business operated (even though its subordinate Sydney office plainly did). However, even accepting Garuda’s cargo business is as hopeless as it alleges, this is not enough to permit me to embrace the deep ignorance of the industry which Mr Mandala’s evidence necessarily implies.
In that circumstance, had it been necessary or appropriate to make findings about this matter I would have concluded that across its network Garuda was conscious of the role of shippers and their significance to Garuda’s business. Just like all of the other airlines and its own Sydney office, Garuda in Jakarta understood that shippers were significant market participants. Further, it understood that this was the attitude of the entire industry in Asia.
I therefore reject Garuda’s submission that I should find as a fact that the Commission failed to prove that Garuda had engaged in any of the conduct which gave rise to there being a market in Australia, or that the Commission had failed to prove that Garuda knew that other airlines were engaging in that conduct. I should add for completeness that the question of whether Garuda engaged in the behaviour which gave rise to the existence of a market in Australia is, in all likelihood, something of a red herring. It has no relevance to its liability for the contraventions. It was only put as going to the issue of penalty. Since what is to be penalised is the contravention rather than the conduct which gave rise to the market, its relevance is not at once obvious.
Secondly, Garuda pursued a finding that it was not aware that there was any prospect that its conduct in Hong Kong and Indonesia could give rise to a contravention of Australian domestic law. Mr Mandala has now given evidence to this effect in his most recent affidavit. Knowledge of the provisions of Australian domestic law is beside the point. Garuda knew it was price fixing on routes into Australia. As I discuss later, its Vice President, Cargo, Mr Poeloengan, knew that Garuda was engaging in agreements to fix the surcharges in Hong Kong and Indonesia.
To the extent that Mr Mandala’s evidence suggests that he had no idea that there might be legal risk associated with price fixing in the international cargo market, I reject it. Again, it is implausible. More importantly, Mr Mandala is not the right person to give this evidence. Garuda has never called the persons who engaged in the conduct or those who knew about it at the upper reaches of the airline (such as Mr Poeloengan).
Thirdly, Garuda sought a finding that prior to the conduct in question there was no court decision or statement by the Commission that indicated that such conduct meant that Garuda was operating in a market in Australia and was thereby in breach of the TPA. I accept this is so.
The fourth factual matter for which Garuda contended was that it was not put to Mr Haddad or Mr Mandala that they should have appreciated that there was a market in Australia. This is true but there was no reason for the Commission to do so as it was not part of its case which did not have as any of its elements subjective awareness on Garuda’s part. In fact, the whole issue of whether Garuda was aware of the market in Australia is a defence case pursued by Garuda to lessen its liability on penalty.
5.2 Passage of time
The fifth factual finding sought was that the conduct all occurred between (at that time) 12 and 16 years ago. I accept this.
The sixth matter is Garuda’s contention that the statute which it has been found to have contravened was repealed 10 years ago and has not been replaced in like terms in the current statute. To the extent that this involves a suggestion that Garuda’s actions would no longer be unlawful today I reject it. Garuda itself accepted in its supplementary submissions that ‘its conduct which constituted contraventions of the [TPA] prior to the amendments of 24 July 2009 would again constitute contraventions of the [TPA] if engaged in on or after 6 November 2017’.
That does not dispose of the submission in its entirety. It is therefore necessary to attend to the relevant provisions. The provision which Garuda was found to have contravened was the former s 45(2) read with s 45A. Those sections are laid out above at [2]-[3].
These provisions were accompanied by other provisions affecting their jurisdictional reach. Section 4E imposed the requirement that a reference to a ‘market’ was a reference to a market in Australia. Also relevant was s 5(1) which extended the operation of the TPA to conduct engaged in by bodies corporate carrying on business within Australia.
On 24 July 2009 amendments were made to the TPA by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth). Relevantly, it removed the requirement that there be a market in Australia. Since that requirement was a restriction on liability the effect of these amendments was only to expand liability.
On 6 November 2017, a new s 45DA was inserted into the TPA (more precisely, an earlier provision, s 44ZZRD, was amended and renumbered). There is no need to set it out. Relevantly for present purposes, it is not in dispute that it thereafter required a territorial connection consisting of the rival parties to the relevant agreement competing in relation to the supply of goods or services in trade or commerce within Australia or between Australia and another country.
It is therefore correct of Garuda to say that ss 45(2) and 45A have been long repealed. But in their place are provisions whose content is essentially the same and underneath which lies an even broader touchstone of extra-territorial operation.
The upshot of this is that if Garuda repeated its conduct under the current regime it would be acting in contravention of what is now the Competition and Consumer Act 2010 (Cth) (‘the CCA’). As I have said, Garuda accepted that this was so in its oral submissions and supplementary written submissions although it was denied in its initial written submissions.
5.3 Risk of repetition
The seventh matter which Garuda wished to be found was that there was no evidence that it had engaged in like conduct before or after the period in question. That seems uncontroversial and I am content so to find. Garuda also sought a finding that its conduct in Indonesia ‘was found to have ended before the period in question’. This was referenced to [1226] of the Trial Reasons. That was the final paragraph of a section dealing with the September 2005 Fuel Surcharge Understanding. It said:
Apart, therefore, from the absence of a market in Australia I would have found contraventions of s 45(2)(a)(ii) and s 45(2)(b)(ii) with respect to this understanding in relation only to TC1/2.
This does not establish that the conduct was found to have ended before the period in question. Indeed, as far as I understand it the contraventions were all found to have occurred during the period in which they were alleged. This submission by Garuda does not really make sense. I decline to make such a finding.
Of more substance was Garuda’s submission that there was no evidence that it was threatening to repeat the conduct. I accept there is no direct evidence that Garuda is threatening to repeat the conduct and I find that Garuda is presently making no such threat.
5.4 Garuda’s cargo business
The eighth finding for which Garuda contended was that throughout the period 2003-2006 and in 2016 it operated at a loss. The evidence for this was a document entitled ‘Garuda Information Response’. This was in fact a letter from Garuda’s solicitors to the Commission’s solicitors setting out Garuda’s response to a request for information sent by the Commission. It contains assertions by Garuda about its profitability across the period 2003-2006 and in 2016. I propose to accept this evidence which I have no reason to doubt. It shows that in 2003-2006 Garuda had a profit margin across its whole business of -0.07%, -8.00%, -7.75% and -4.97% respectively whilst in 2016 it had a profit margin of 0.04%. I therefore accept that across the period Garuda as a whole operated at a loss.
However, the overall profitability of Garuda is of less relevance than the profitability of its cargo division. It is necessary for the Court, in setting a penalty, to ensure that it is pitched at a level sufficient to ensure that the penalty is not just seen as a ‘cost of doing business’: see below at [125]. The business here was the business of commercial airfreight and it would therefore be more useful to know how profitable that part of the business was. Unfortunately, Garuda has not provided any evidence about that. I would not go so far as to accept the Commission’s submission that the overall profitability of Garuda is entirely irrelevant. It may, for example, have some bearing on the capacity of the organisation to pay a penalty.
The ninth finding sought by Garuda was that across the period 2003-2006 and in 2016, Garuda’s cargo operations accounted for between 6.30% and 6.80% of Garuda’s overall revenues, the vast bulk coming from passenger operations. Of that, the international cargo division accounted for around 25%. I accept this and the consequent submission that this means that the business in which the contraventions occurred was around 2% of Garuda’s overall business.
5.5 The Indonesian understandings
The tenth finding sought by Garuda was that the Indonesian contraventions affected only a very small field of commerce and were not shown to have resulted in any increase in revenue for Garuda. It submitted that the total revenue on the cargo carried from Indonesia to Australia in 2003-2006 was US$3.8 million.
Dealing first with the submission that only a small field of commerce was affected by Garuda’s conduct, the Commission submitted that it was wrong to focus only on the carriage of cargo from Indonesia (or Hong Kong) to Australia. The understandings were all couched in terms which did not distinguish routes from Indonesia to any particular port in TC1, TC2 or TC3 (including Australian ports). On this view, the relevant measure of field of commerce was concerned with all outward bound air cargo operations originating in Indonesia or Hong Kong.
The resolution of this debate turns on the text of s 45(2) (set out above at [2]). Recourse to it shows that the prohibition it contains is on a corporation reaching a contract arrangement or understanding if ‘a provision’ of that contract, arrangement or understanding ‘has the purpose or would have or would be likely to have the effect of substantially lessening competition’. A similar requirement exists when an understanding is implemented: s 45(2)(b).
It follows that it is not the understanding which must satisfy the requirements of s 45(2); it is a provision of the understanding. From this it would appear that the understanding may include matters apart from the ‘provision’. Further, the word ‘competition’ in s 45(2) is defined in s 45(3) to mean ‘competition in a market’ and ‘market’ is defined in s 4E to mean a market in Australia. Unpacked in that way, the contravening consists of reaching an understanding which contains a ‘provision’ (not the understanding itself) which has the proscribed qualities in s 45(2).
It is true, as the Commission submits, that many of the understandings reached by Garuda related to freight rates or routes going to places other than Australia. Almost all of the Indonesian understandings took the explicit form of an agreement to impose a particular fuel surcharge across TC1, TC2 or TC3. And, whilst a more elaborate methodology was utilised in Hong Kong, nevertheless that methodology still operated to produce a rate to be applied in the various tariff conference areas. The actual form of the various understandings was therefore about routes generally rather than any particular route between Hong Kong or Indonesia, on the one hand, and Australia, on the other.
The effect of s 45(2) therefore is that entry by Garuda into an understanding with other airlines to impose a fuel surcharge at a predetermined rate in TC3 is not the relevant contravention. Instead, one must identify within that understanding a ‘provision’ which has the qualities proscribed by s 45(2).
What was that provision in this case? As a matter of form, of course, the understandings reached did not explicitly refer to routes into Australia. However, the provision of an understanding may be textually separate from the understanding of which it is part: Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2003] HCA 59; 216 CLR 1 (‘Visy’) at 12-13 [32]-[33] per Gleeson CJ, McHugh, Gummow and Hayne JJ (a case concerned with s 45(6)). Consequently, in this case it seems to me that the relevant provisions of the various understandings must concern only air freight on unidirectional routes to individual ports in Australia (see Trial Reasons at [235] and [336]) originating in Hong Kong or Indonesia. Whilst I accept therefore the submission of Mr Halley SC on behalf of the Commission that there is a degree of artificiality about this approach, I do not accept that this (relevantly lawful) conduct of Garuda can be used to seek to increase the penalty imposed on it by bringing in the much larger quantities of cargo being carried on these other routes. As I note below at [136], there are some first instance decisions where single judges of this Court have taken into account routes not terminating in Australia in assessing civil penalties for other airlines who were involved in related cartel conduct. However, since they were cases in which the penalty was agreed and there was no dispute about the matter, I do not think they provide any useful guidance where the issue is in dispute.
Returning then to Garuda’s factual contention which gave rise to this—that the field of commerce affected by its conduct was small—it seems that I should to some extent accept it. The collection of markets in Australia for air freight services on unidirectional routes to Australia from Indonesia or Hong Kong is much smaller than the collection of markets for air freight services on unidirectional routes originating in Hong Kong and Indonesia to any international airport in TC1-3. On the other hand, whilst I accept the former collection of markets is smaller than the latter, I hesitate to say that that collection is, in absolute terms, ‘small’. Neither party took me to any evidence at this hearing about the absolute size of these markets. The consequence is that I cannot determine how large they are. As a matter of common sense, whilst I might be willing to infer that the market for the carriage of goods by air freight from Denpasar to Hobart is likely to be small I do not think I can plausibly say that about the air freight market from Jakarta to Sydney or from Hong Kong to Sydney.
The second aspect of this factual contention was Garuda’s submission that it had not been shown that the conduct had increased its revenues. I do not accept this submission. The effect of the fuel surcharges and the customs fee was to increase the overall freight rates. At trial Garuda argued that these imposts would have been competed away by reducing freight rates to lessen the impact of the surcharges. I rejected this argument at [1174] in the Trial Reasons and the Full Court did not disturb that finding. It is not open to Garuda now to run this argument again. Even if it were, for the reasons I gave at [1174] it was not established on the evidence.
The eleventh additional finding sought by Garuda was that the revenue that Garuda derived from the Indonesian understandings was the total of the surcharges and fees charged by Garuda between September 2003 and October 2005, which totalled US$366,000. I accept this submission. For the reasons I have already given I reject the Commission’s submission that the correct revenue figure should have focussed on Garuda’s revenues on outward-bound flights originating in Hong Kong and Indonesia across TC1-3. The relevant contravening conduct was confined to Garuda’s activities in the port specific markets on Australia-bound flights out of Indonesia and Hong Kong.
Garuda made a submission that the surcharges had been set at 10 cents per kilo and that its freight rates had fluctuated by more than that amount. In circumstances where it has not been demonstrated that the various fees were competed away by events in the underlying freight market, this is not relevant.
The twelfth finding for which Garuda contended was that no profits could be attributed to Garuda’s carriage of cargo from Indonesia to Australia in the relevant period. This submission was unsupported by any evidence. As it was ultimately pressed the submission was only that Garuda’s air cargo operations ‘cannot be disaggregated from [its] principal business of carrying passengers’. However, no evidence was led to prove that any such disaggregation was impossible and it is far from a self-evident proposition. The Commission submitted that, as Garuda’s cargo business is incremental to its passenger business (in that it relies on taking advantage of available hold space on scheduled passenger flights which would otherwise be unused), as a matter of commercial common sense, Garuda would have no incentive to continue to operate a cargo business unless it positively contributed to revenue. However, this may not necessarily be so. There can sometimes be sound commercial reasons to run a business at a loss for a period (i.e. increasing market share). I decline to make the finding.
The thirteenth additional finding sought by Garuda was that its conduct (and that of the other international airlines) in making and giving effect to the Indonesian understandings was ‘overt, transparent and documented’ so that ‘there was no difficulty in regulators detecting and establishing that the conduct occurred’. In the Trial Reasons I noted that the understandings had frequently been reduced to writing in the form of minutes of the meetings. In practical terms this made it easier to prove the conduct. I would not, however, call that behaviour overt or transparent. In particular, it was not so overt or transparent that any of Garuda’s cargo customers were aware that it was going on. Further, to the extent that expressions such as ‘overt’ and ‘transparent’ carry with them a connotation that somehow Garuda’s conduct is to be perceived as having some positive aspect to it, this needs to be balanced against the fact that the structure of holding meetings and keeping minutes had the effect of promoting compliance by the cartelists with the understandings.
5.6 The Hong Kong understandings
The fourteenth additional finding sought by Garuda was that Garuda’s market share from Hong Kong to Australian ports was less than one half of a percent. This is so.
The fifteenth additional finding sought was that the maximum benefit that it could have derived from the Hong Kong understandings was US$328,500 comprising US$320,000 of fuel surcharges and US$8,500 in insurance surcharges. I accept that this is the direct revenue derived from the conduct and I reject the Commission’s related submission that the analysis should instead be TC1-3-wide.
The sixteenth additional finding sought by Garuda was that there was no profit attributable to Garuda’s carriage of cargo from Hong Kong to Australia. As I have already explained in the case of Indonesia, there is no evidence for this contention.
The seventeenth additional finding sought by Garuda was that its conduct with the other airlines in Hong Kong was overt, transparent and documented. I accept this. The airlines used the local aeronautical regulator as the medium through which they were able to collude and the freight forwarders were aware it was taking place. It was the transparency of the arrangement which allowed the cartel to develop. Although transparent in that sense, the conduct by reason of being open had a tendency to increase adherence to the cartel.
The eighteenth additional finding sought by Garuda was that the other airlines joined in the Hong Kong fuel surcharge understandings before Garuda did so and without reference to whether Garuda would do so. I assume this a reference to the fact that I concluded in the Trial Reasons at [594] that there was insufficient evidence to find that Garuda was represented at the meeting held on 23 July 2002 at which other airlines reached the first understanding alleged by the Commission, the 2002 Hong Kong Lufthansa Methodology Understanding. Given that, I propose to make this finding.
5.7 Effect in Australia
The nineteenth finding of fact for which Garuda contended was that there was no allegation, finding or evidence supporting a finding that any of Garuda’s conduct affected any person in Australia. It is correct that I made no such finding in the Trial Reasons. Nonetheless, it seems to me that two kinds of effects may have been involved, being competitive and non-competitive. As to competitive effects, leaving aside the terms of the statute, this would devolve into an inquiry into the effect the price fix had upon the competitive state of the market. As a matter of fact, it has not been proven that there was any negative effect upon the competitive state of the relevant markets. However, the Commission never sought to demonstrate such a case since it relied upon the statutory deeming in s 45A.
Garuda first submitted that I should ignore s 45A in this analysis. This was because, as noted already, s 45A was repealed on 24 July 2009. Prima facie, the repeal of s 45A on 9 July 2009 has no impact on Garuda’s liability because s 8 of the Acts Interpretation Act 1901 (Cth) had the effect of preserving Garuda’s liabilities incurred in respect of conduct between 2001 and 2006 under s 45A despite it having been repealed in 2009. Garuda submitted that its repeal remained nevertheless relevant to the assessment of the penalty. Here the argument was that I should not approach the imposition of the penalty on the basis that Garuda’s conduct was taken to have the effect of substantially lessening competition in the market or to have had that purpose (presumably because s 45A had been repealed). I do not accept this. I concluded that s 45 was breached because Garuda had engaged in conduct which had the qualities specified in s 45(2). I did so because of s 45A. Garuda’s submission invites me to impose a penalty on a basis which would be inconsistent with the basis upon which its liability has been determined.
Garuda secondly submitted that the Court could not infer from s 45A that any persons in Australia were affected by Garuda’s conduct or that there was any adverse impact on the competitive state of the relevant markets. The Commission submitted the opposite. The various agreements reached by Garuda were agreements deemed by s 45A for the purposes of s 45(2) ‘to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition’. It therefore includes three concepts which qualify the substantial lessening of competition: purpose, effect and likely effect. It is true that s 45A operates as a deeming provision but it is unusual in that it deems three alternative states to be the case. Analytically, this makes it impossible to know precisely what has been deemed. This oddity does not matter so far as s 45(2) is concerned because it is expressed in the same terms. The same unusual structure can be seen in these two laws:
(1) It is an offence to bring a cat or dog into a hotel.
(2) A ferret is deemed to be a cat or dog for the purposes of s 1.
Seeking to understand whether the effect of s 2 is to deem a ferret to be a cat or, instead, a dog is an arid exercise. So too is the case with s 45A. One cannot know whether a contract, arrangement or understanding to which it applies is one with the purpose of substantially lessening competition or with that effect or with that likely effect. The interstices of the deeming wrought by s 45A are forever unknowable.
That suggests that the deeming brought about s 45A occurs only for the purposes of s 45(2) and is not to be seen as informing any factual state of affairs. That observation is consistent with the text of s 45(2) which, as I have already observed, explicitly refers to the deeming as being ‘for the purposes of s 45’. Consequently, I do not think it is practically or legally possible to use the deemed state of affairs flowing from s 45A for any purpose beyond apprehending that a contravention of s 45(2) has occurred.
I do not need to say any more about the practical problems involved. So far as the legal problems are concerned, apart from the explicit terms of s 45A requiring the deeming to be for the purposes of s 45(2), there is authority for the proposition that deeming clauses are to be used only for the purpose for which they operate: see, e.g., Federal Commissioner of Taxation v Comber [1986] FCA 92; 10 FCR 88 at 96 per Bowen CJ; Re Levy; Ex parte Walton (1881) 17 CH D 746 at 756 per James LJ. Where a law includes a deeming clause (even if the word ‘deem’ is not used) it often creates a statutory fiction (although not invariably). Where it does create a statutory fiction ‘it becomes very important to consider the purpose for which the statutory fiction is introduced’: Muller v Dalgety & Co Ltd [1909] HCA 67; 9 CLR 693 at 696 per Griffiths CJ. There is a rich jurisprudence about the meaning of deeming clauses and their operation. Windeyer J traced much of it in Hunter Douglas Australia Pty Ltd v Perma Blinds (1968) 122 CLR 49 at 65-67 in terms which are enlightening. There is no need to rehearse these cases. This is because s 45A is explicit in the purposes for which it operates and that is only for the purposes of s 45. Thus, even if it were practically feasible, it would not be appropriate to use s 45A for any purposes other than the purposes of s 45.
It follows that it is not permissible to use s 45A to reach any conclusions about the effect that Garuda’s conduct had on the competitive state of the relevant markets or whether any consumers were affected by the conduct. Consequently, I must accept Garuda’s submission that it has not been shown that the competitive condition of the relevant markets was deleteriously affected or that any consumers were affected either.
That is not the end of the issue, however. In this case, because the Commission relied on s 45A the facts as found at trial never needed to assay what kind of contraventions of s 45(2) had taken place. It was never necessary to ask which of the three separate prohibitions in s 45(2) had been contravened. Thus, at no point, did any party at trial seek to prove or disprove that Garuda had reached agreements with the other airlines with the purpose of substantially lessening competition, the likely effect of doing so, or even the effect of doing so. It will be apparent from the three-pronged nature of the prohibition that only one prong concerns itself with the actual effect of substantially lessening competition. Although the Commission did not do so, it would have been open to it to seek to demonstrate that Garuda had contravened s 45(2) because it reached the impugned agreements with the purpose of substantially lessening competition and without any allegation about actual effect. Had it taken this course, it would have been no part of its case to prove that there had been any negative impact on competition.
I make that observation because Garuda submitted that it was to its benefit that the Commission had not shown in the present case that there had been any negative impacts on the competitive state of the relevant markets. This is no doubt true and is a result which largely, although not entirely, derives from the fact that the Commission relied on the deeming brought about by s 45A to further its case. The Commission, on the other hand, submitted that the absence of evidence of adverse competitive effects was not a matter which was to Garuda’s benefit but was instead merely neutral.
I accept the Commission’s submission. Once it is appreciated that an adverse impact on the competitive state of a market is not actually an element in a contravention of s 45(2) except when the Commission actually seeks to prove directly that an agreement had that effect (as to which see below), it becomes apparent that it would denude the provision of much of its operation if it were to be accepted that an absence of any proof of competitive detriment was to be seen as a mitigating factor. For example, in a case based on an agreement alleged to have the purpose of substantially lessening competition, it could scarcely be to the point when it came to assessing how serious that breach was to submit that there had been no actual substantial lessening of competition resulting from the conduct. In a similar vein, it would not be a mitigating factor on being sentenced on conviction for murder to point out that the murder had been committed without anyone being robbed. The fact that no-one was robbed is neutral in that context because it is irrelevant. Actual substantial lessening of competition stands in the same position in relation to a breach of s 45(2) based only on the purpose limb; it is irrelevant to the contravention.
Garuda submitted that general deterrence did not require a penalty to be imposed on Garuda because the other airlines had been penalised in the 14 other cases arising from the cartel. In effect, everyone had already been punished. I do not accept this submission. Those 14 airlines do not exhaust the universe of airlines. Even in relation to those 14 there are lessons to be learnt from the spectacle of what is shortly to happen to Garuda. The trial has exposed the internal heights to which knowledge of its conduct extended and it will expose what the possible penalties are for this kind of conduct. The capacity of the penalty to be imposed on Garuda to deter other airlines from such conduct in the future remains in my view substantial. Further, it is not just other airlines who are to be deterred. The onlookers at Garuda’s penalty include all persons or entities who might contemplate price-fixing or other contraventions of competition law.
The Commission submitted that four of these decisions were useful as comparators. It was submitted that the decision in Air New Zealand involved the same cartel operating in the air freight services market on routes from Hong Kong to Australia and Air New Zealand was the only other airline which, like Garuda, had contested its liability. The Commission also submitted that the decisions in Cathay Pacific, Singapore Airlines and Thai Airways were of some relevance on the basis that those airlines had only admitted liability just before, or shortly after, the commencement of the hearing.
I agree with the observation of the Commission that little may be gained from Cathay Pacific with respect to the Hong Kong contraventions. The contravention in that case involved a single unsuccessful attempt by a middle ranking employee to reach an understanding with Qantas about air freight rates. It did not involve fuel surcharges, fuel surcharge indexes, meetings of the HK BAR CSC nor did it proceed from the upper echelons of Cathay Pacific.
Some use may be made of Singapore Airlines for the Indonesian contraventions. Relevantly it was found that the airline had reached three sets of price fixing understandings. Two of these were alleged to have occurred in markets for air freight in unidirectional routes from Indonesia to Australia. One understanding was reached, however, in a market consisting of routes between Australia and Indonesia (i.e. not unidirectional). The contraventions occurred across the period October 2001 to October 2005. It agreed that it had entered into price fixing understandings with respect to fuel surcharges, the security charge and the customs fee. It also admitted to having implemented these understandings. Although Singapore Airlines is a much larger airline than Garuda, the Commission submitted, and I accept, that Garuda had the largest market share of any of the airlines on air freight operations out of Indonesia. I have already rejected the Commission’s submission that Garuda was the ‘ringleader’ of the cartel in Indonesia although I have accepted that it did have a more tepid role as its administrative organiser. Unlike Garuda, Singapore Airlines’ conduct was not found to have been known at the level of upper management. There is, in that circumstance, much to be said for the view that Garuda’s conduct is more serious than that of Singapore Airlines. For its Indonesian contraventions Singapore Airlines was penalised $8 million.
Thai Airways is also instructive for the Indonesian contraventions. It was penalised for engaging in similar conduct to Garuda’s on routes from Indonesia to Australia over a two year period in relation to fuel and security surcharges and 1.5 years in relation to the customs fee. The penalty was $7.5 million. Although Thai Airways’ conduct was similar, it was found to have occurred in a broader market than merely the route specific markets I concluded existed in the case before me. Garuda submitted this was a material distinction. However, the fact that Thai Airways’ conduct took place in a larger market tends to suggest that its conduct was a smaller proportion of the overall market than it would have been in smaller route specific markets. On this view, Thai Airway’s conduct might be seen as being less serious because of the larger market in which it had happened. Arguments are available in the opposite direction—it is more serious to engage in price fixing behaviour in larger markets because the economic impact may be more widespread. Ultimately, I think both views are speculative without economic evidence and propose to treat the matter as neutral. Like Singapore Airlines, it was not found that the conduct was known about by upper management.
In relation to Hong Kong, there is a good comparator in the case of Air New Zealand. It was penalised for very similar conduct in Hong Kong by Gleeson J. Her Honour imposed a civil penalty of $11.5 million for Air New Zealand’s giving effect to the Hong Kong Lufthansa Methodology Understanding and the Hong Kong Imposition Understanding. This involved the market for air freight from Hong Kong to Australia. The conduct alleged against Air New Zealand in Hong Kong is essentially the same as that found against Garuda with the exception that one of the contraventions (relating to the 23 June 2002 meeting) was not made out against Garuda. However, unlike the present case, there was no finding that upper management was aware of the conduct. I take into account too the fact that while the two understandings operated in the same way at a factual level, Garuda was not a party to the former.
It is useful to compare the position of the two airlines in Hong Kong. Information provided by Garuda in its Information Response under the heading ‘Gross Revenue – Cargo figures’ suggested its international cargo business constituted about one quarter of its overall cargo business. On this basis the Commission suggested, and I agree, that the best one can do is to divide the cargo business figures by four. Garuda did not submit this was inappropriate. Using that approach the Commission submitted the following:
(a)in 2003-2006 Garuda generated estimated annual revenues of between $USD17 and US$20 million from the carriage of international air cargo;
(b)between September 2003 and September 2005 Garuda generated US$3.8 million in revenue from the carriage of air cargo from Indonesia to Australia. Of this $366,000 (around 10%) was made up of fuel surcharges, security surcharges and customs fees; and
(c)between September 2003 and October 2006 the total revenue generated by Garuda on cargo carried from Hong Kong to Australia was approximately US$1.3 million. The revenue generated from the fuel and insurance surcharges over the period was about US$208,000, i.e., about 15% of the overall revenue.
In Air New Zealand Gleeson J found that the airline had generated NZ$11,997,141 in revenue on cargo carried from Hong Kong to Australia across the period 17 May 2004 to 31 October 2006. This may be contrasted with the figure for Garuda in (c) above of US$1.3 million across the slightly longer period September 2003 to 31 October 2006. It is apparent on those routes that Air New Zealand had a much larger operation.
I take into account the full range of penalties imposed in the suite of cases constituting the fuel surcharge litigation. As I have noted, that range runs from $3 million to $20 million. In relation to Indonesia, I find most useful the decisions involving Singapore Airlines ($11.75 million, of which $8 million concerned its Indonesian contraventions) and Thai Airways ($7.5 million). In relation to Hong Kong the most useful is Air New Zealand ($11.5 million). A key feature distinguishing Garuda from all of the other airlines is the knowledge of its Vice President, Cargo, Mr Poeloengan, that the conduct was occurring.
Whilst it would be possible to assess a penalty for each contravention which occurred in Hong Kong and Indonesia I do not think in light of the comments I have made about course of conduct above that would be a fruitful endeavour. I propose to treat the contraventions which are within the penalty period in a global fashion and to impose a single penalty per jurisdiction. To adopt a contravention by contravention analysis would involve a degree of arithmetic which would be artificial and would carry the risk of obscuring the actual decision-making process: see Yazaki Corporation at 106 [234]-[235].
An important matter to be considered is the fact that Garuda was the participant in the markets in Indonesia with the largest market share but these markets were small. It had around 25% of the markets which in 2004-2006 involved 3,600-3,750 tonnes of cargo, i.e. around 900 tonnes. On the other hand, it was a tiny player in the much larger markets in Hong Kong. As I have noted elsewhere, it had 0.5% of a market which in 2004-2006 involved 90,000 to 110,000 tonnes, i.e., around 500 tonnes in that period. More revenue was involved in Hong Kong because the surcharges were higher but more cargo was involved in Indonesia.
In Indonesia, Singapore Airlines was penalised $8 million and Thai Airways $7.5 million. Given Garuda’s role in Indonesia it seems to me that one must conclude that its conduct was more serious than that of Singapore Airlines and Thai Airways. Further, they obtained a substantial discount for co-operation and senior management was not aware of the conduct. I accept that the circumstances of the contraventions are not identical.
In Hong Kong, Air New Zealand was penalised $11.5 million. It received no discount for cooperation. On the other hand, its operations in Hong Kong seem to have been much larger than those of Garuda. Senior management did not know of the conduct.
In principle, I have concluded that it would be appropriate to impose a penalty of $15 million for Garuda’s conduct in Indonesia and $4 million for its conduct in Hong Kong.
7.4 Totality principle
Because the penalties are the result of aggregating a number of penalties which are related it is necessary to stand back and ask whether the total penalty of $19 million is unjust or out of proportion to the circumstances of the case. The need to do so derives from the totality principle which was explained in a criminal context by the High Court in Mill v The Queen (1988) 166 CLR 59 at 62-63. The application of the principle to the imposition of civil penalties is well established in the jurisprudence of this Court: see, e.g., Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70; 168 FCR 383 at 397 [42]-[43] per Stone and Buchanan JJ.
The aggregate penalty proposed above is striking in that it is the second largest penalty imposed on any of the airlines involved the Australian fuel surcharge cartel litigation. It is just short of the $20 million penalty imposed on Qantas. It exceeds Garuda’s annual cargo revenue in the period 2003-2006 on all routes. Given that Garuda’s operations are so much smaller than most of the other airlines who were sued, this immediately requires one to ask whether the penalty is proportionate. However, the initial impression that the penalty is very large for a relatively small airline is dispelled somewhat when one brings to account, as one must, three critical features.
First, unlike all of the other airlines, it is only Garuda and Air New Zealand which defended the matter at a trial. The $20 million penalty imposed on Qantas has to be seen in a context where it reported itself to the Commission, made admissions when it need not have done so, cooperated with the investigation (including against the other airlines by the provision of 37 witnesses) and agreed to a penalty almost immediately. Further, it had paid a substantial fine in the United States of US$61 million arising from the same cartel and expected to have to pay a similar fine in Europe. Lindgren J discounted the $40 million penalty he was otherwise minded to impose by 50%: Qantas at [69]. Secondly, unlike any of the other airlines it was shown in Garuda’s case that the cartel conduct was known about at a very high level within the company. This is a significant aggravating matter which was not demonstrated in any of the other cases. Deliberate price fixing known about at the senior management level is a very serious matter and the requirements of deterrence are naturally engaged. Thirdly, Garuda’s conduct of the penalty hearing where it solemnly invited the Court to impose no penalty whatsoever well shows that it is in no way contrite and does not accept that it bears any responsibility for its conduct. Garuda’s pugnacious position is best captured by ¶13 of its written submissions on penalty:
The related consideration, which hardly needs stating, is that everything which Garuda has done in these proceedings, including these submissions, is done without prejudice to such rights as Garuda may have against the Commonwealth of Australia under international law and enforceable before international dispute resolution Courts or tribunals.
This posture of Garuda brings to the fore, more than might otherwise have been the case, the requirements of individual deterrence.
Whilst I accept that the aggregate penalty is high I do not think in light of these matters that the aggregate penalty is disproportionate or unjust.
8 DECLARATORY RELIEF
I have rejected all of Garuda’s arguments as to why no penalty should be imposed upon it. These were also advanced against the making of the declarations. I reject them for the same reasons. The Commission is entitled to declaratory relief in order to:
(a)set out what the penalty relates to;
(b)record the Court’s disapproval of the conduct;
(c)vindicate the Commission’s claims about Garuda;
(d)assist the ACCC to carry out its functions;
(e)inform the public about the harm arising from Garuda’s conduct; and
(f)deter other corporations from the conduct.
See as to (a), Rural Press v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53 (‘Rural Press’) at 92 [95] per Gummow, Hayne and Heydon JJ; as to (b)-(e), Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] FCA 1730; ATPR 42-140 per Nicholson J.
The declarations the Commission has proposed are not acceptable, however, in their current form. At the moment, they refer to carriage on routes to places other than Australia which will need to be addressed to comply with these reasons, i.e., they should refer to routes from ports in Indonesia and Hong Kong to ports in Australia only. Although the declarations are long this reflects the complex nature of the proceeding. I am satisfied that they capture the ‘gist’ of findings: Rural Press at [89]-[90].
Garuda submitted that the proposed declaratory relief was inappropriate for a number of reasons. First, it submitted that the way the case had been pleaded and the way the Trial Reasons dealt with the contraventions meant that there was only a single contravention of giving effect to each of the understandings. In the Trial Reasons, I dealt with each allegation of implementation alongside the corresponding arrangement or understanding. The way the Commission has approached the matter is correct.
Secondly, Garuda denied that the declarations should be made at all because it submitted that no person in Australia was affected by the contraventions. The presence of affected persons in the jurisdiction is not, however, the touchstone by which this issue is to be assessed. The critical matter is that markets in Australia were involved. This is a sufficient reason to make the declarations.
Thirdly, in its written submissions Garuda pursued an argument that the granting of the declaratory relief should be withheld because the conduct had occurred between (at that time) 12 and 16 years ago under a law which was repealed eight years prior. Much of the 12 to 16 years to which Garuda points was taken up by Garuda’s wholly unsuccessful and tenacious defence of the proceeding. Certainly the period between November 2011 and the present has been occupied by Garuda’s litigious endeavours. In that circumstance, I am disinclined to think that the age of the contraventions provides any good reason not to grant relief when at least half that delay has been brought about by Garuda’s own conduct. So far as the repeal of s 45A is concerned, as I understood it, by the end of the hearing Garuda had explicitly withdrawn its earlier contention that the conduct which it had been found to have engaged in was no longer unlawful.
Fourthly, I do not accept Garuda’s submission that the declarations need to identify the market in which the conduct occurred. Whilst the conduct must occur in a market in Australia before a contravention can be found to have occurred, this requirement is jurisdictional and is not an element of the contravention itself. In this case, subject to the clarification that the conduct occurred on routes from Hong and Indonesia to ports in Australia, that identification of the routes sufficiently shows that the conduct was within jurisdiction.
Fifthly, I also reject Garuda’s submission that in some cases the declarations sought by the Commission do not correctly disclose the ‘gist’ of the contraventions. It illustrated this argument by pointing to the fuel surcharge understandings in Indonesia. In fact, across the relevant period whilst there were nine contraventions by Garuda agreeing the level of the surcharge with other airlines, the decision was always to impose the same surcharge of 5 cents. Consequently, so the submission went, the gist of the contravention was that Garuda had reached understandings and imposed a 5 cent surcharge across the period September 2002 to August 2005. I do not agree. Whilst it is not irrelevant to the penalty issue that the surcharge agreed upon and then imposed was always 5 cents, this does not mean each agreement and implementation was not a separate contravention. I see no reason why the Commission’s contention that there were nine separate contraventions involved should not be vindicated.
9 INJUNCTIONS
The Commission sought the making of the following two injunctions:
THE COURT ORDERS THAT:
…
Injunctions
62.The Respondent be restrained for a period of five years from the date of this order from making, arriving at, or giving effect to, any contract, arrangement or understanding with any of its competitors for the supply of air cargo services containing provisions which have the purpose, effect or likely effect of fixing, controlling or maintaining the price or any part of the price at which it or any of them will supply those services unless:
(a)the said contract, arrangement or understanding does not involve or relate to the carriage of goods to or from Australia;
(b)the said contract, arrangement or understanding is necessary for the purpose of interlining between two or more carriers in the course of supplying services of the carriage of international air cargo; or
(c)the respondent is specifically authorized to do so under section 88 of the Act or any other Australian statute in accordance with section 51 of the Act.
63.The Respondent be restrained for a period of five years from the date of this order, from entering into, or giving effect to, any contract, arrangement or understanding with any of its competitors for the supply of air cargo services containing provisions that any of them will propose, develop, prepare, follow, implement, adopt or otherwise use any index, model, methodology or formula for the change of prices or any part of prices to be charged by any of them for the supply or those services unless:
(a)the said contract, arrangement or understanding does not involve or relate to the carriage of goods to or from Australia;
(b)the said contract, arrangement or understanding is necessary for the purpose of interlining between two or more carriers in the course of supplying services of the carriage of international air cargo; or
(c)the respondent is specifically authorized to do so under section 88 of the Act or any other Australian statute in accordance with section 51 of the Act.
The Court’s power to grant such relief comes from s 80(1) of the CCA. Subsection (4) is also relevant. Together they provide:
80 Injunctions
(1)Subject to subsections (1A), (1AAA) and (1B), where, on the application of the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:
(a) a contravention of any of the following provisions:
(i) a provision of Part IV;
(ii) a provision of Division 2 or 5 of Part IVB;
(iii) section 55B;
(iv) section 60C;
(v) section 60K; or
(b) attempting to contravene such a provision; or
(c)aiding, abetting, counselling or procuring a person to contravene such a provision; or
(d)inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision; or
(e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or
(f)conspiring with others to contravene such a provision;
the Court may grant an injunction in such terms as the Court determines to be appropriate.
Note:Section 87AA provides that, if boycott conduct is involved in proceedings, the Court must have regard to certain matters in exercising its powers under this Part. (Boycott conduct is defined in subsection 87AA(2).)
…
(4)The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:
(a)whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;
(b)whether or not the person has previously engaged in conduct of that kind; and
(c)whether or not there is an imminent danger of substantial damage to any person if the first‑mentioned person engages in conduct of that kind.
Garuda resisted the granting of these injunctions. It submitted that the conduct captured by the injunctions would, in any event, be contrary to the CCA and would expose it to the risk of civil penalties if engaged in. There was no need, in that circumstance, to require Garuda in substance to comply with the CCA. This submission has a pedigree. In BMW Australia Limited v Australian Competition and Consumer Commission [2004] FCAFC 167; 207 ALR 452 at 466 [39] the Full Court (Gray, Goldberg and Weinberg JJ) noted that it was a relevant to the grant of an injunction under s 80 to consider whether:
… the existing sanctions for the conduct to be the subject of the injunction, found in the Trade Practices Act itself, require to be supplemented by the availability of the range of sanctions applicable to contempt of court. The purpose of granting an injunction to restrain conduct already prohibited by legislation can only be to add to whatever consequences the legislation attaches to that conduct the additional consequences of a possible finding of contempt of court by failure to comply with an injunction. In each case, it is a question whether the conduct concerned warrants the application of those more stringent consequences.
It is possible the Full Court’s more recent decision in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liquidation) [2007] FCAFC 146; 161 FCR 513 (‘Dataline’) takes the matter further. At 543 [110] the Full Court (Moore, Dowsett and Greenwood JJ) accepted that the grant of an injunction could add the possibility of imprisonment as a consequence of a contravention where the Act itself did not provide for such a remedy. The Court continued:
… However, if Parliament has not provided for imprisonment in connection with a contravention, it may not be appropriate for a court to enjoin such conduct simply in order to create the possibility of imprisonment. While Parliament has provided for an injunction as a possible remedy, it may be doubted that it intended that an injunction would be a remedy granted in the ordinary course in the face of the statutory sanctions Parliament has itself provided. Moreover, a Court has an interest in maintaining the efficacy of injunctive relief which requires that orders be respected. They will only be respected if they consistently serve a useful purpose and if breaches are discovered and punished. It may also be doubted that a court order requiring conduct which a statute otherwise requires will be seen to have some greater or different significance to the statutory requirement.
Their Honours continued at 544 [114]:
The experience of the law is that unlawful or illegal conduct does not lead to an injunction against repetition of such conduct being sought or granted. A range of other remedies exist in the civil and criminal law which are treated as adequate and appropriate sanctions for such conduct. Normally, it is only where there is a real risk of further misconduct that injunctive relief is contemplated. It is, we think, no answer to this experience to say that subss (4) and (5) provide that absence of any threat of further contravention is no longer a bar to the grant of such relief. An injunction should not be seen as a necessary vindication of the applicant’s conduct in bringing the proceedings. Other relief may better serve that purpose. Nor should an injunction be sought primarily for public relations purposes, however worthy such purposes may be.
I read this paragraph as indicating that there should be no injunction granted where the conduct to be restrained is, in any event, subject to penalty under the CCA unless there is a ‘real risk of further misconduct’. The Commission submitted that injunctive relief was appropriate in this case because: first, Garuda’s submissions showed that it exhibited no contrition and regarded its contraventions of Australian law as merely technical or happenstance. This was so because of Garuda’s submission that it had not taken part in the activities which showed there was a market in Australia for the purposes of s 4E; secondly, because Garuda had submitted that any further conduct would not be unlawful; and, thirdly, there was a significant public interest in preventing any repetition of the conduct in view of the harm it would cause.
Whilst I acknowledge the force of this submission, I do not accept it. The conduct which the Commission seeks to have restrained is already unlawful and would expose Garuda to substantial civil penalties. These penalties would be augmented by the fact that it would not be the first time that Garuda had been found to have breached the CCA. That fact is not to be ignored in assessing what Garuda is likely to do in the future.
Whilst it may be possible to grant an injunction where there is a real risk that the conduct might be repeated, it is not possible to describe the risk which Garuda presents as a ‘real risk’ in the sense discussed in Dataline. Whilst it is true that Garuda did initially pursue an argument that if the conduct were repeated under the CCA as it now stands it would not be unlawful, that submission was ultimately withdrawn. So too, whilst I accept that its approach to the question of penalties reveals that it is not in any meaningful sense contrite, I do not think it shows that it is lawless either and will breach the CCA unless restrained. Garuda’s position has always been that it rejects the application to it of the TPA and now the CCA because the conduct was outside of Australia and because it is an emanation of the Republic of Indonesia.
Whilst both of those contentions has failed, one cannot fairly infer from the fact that Garuda made such submissions that it would now propose simply to ignore the statute. Another relevant fact to take into account in assessing this matter is the $19 million penalty the Court has imposed on Garuda. I think it highly likely that the effect of that penalty will be to deter Garuda from future price fixing behaviour in markets in Australia. The penalty was set with that end in mind and it is legitimate to assume that the penalty will be efficacious in that regard.
The Commission also submitted that injunctions had been granted in a number of the other Australian fuel surcharge cartel cases (i.e. Cathay Pacific, Singapore Airlines and Thai Airways). However, these were all consented to. None of those cases says anything where an injunction is opposed.
Consequently, I decline to grant injunctive relief under s 80.
10 COSTS
The Full Court remitted to me the question of the costs of the trial. The Commission was largely successful at trial other than on the market in Australia point, although as outlined above at [7] and [216] it did lose on some other discrete issues too. I accept Garuda’s submission that it succeeded at trial to the extent that the Court did not accept the broader market suggested by the Commission at trial. I rejected the Commission’s case that the relevant markets were those for air freight services from origin ports in Hong Kong and Indonesia to ports in other countries including Australia: see Trial Reasons at [234]-[235]. However, in the scheme of the trial this was a minor victory. Nor am I persuaded that the fact that the Commission dropped its global market allegation shortly before the trial commenced alters this outcome.
Despite that, there is no doubt in my opinion that the Commission was substantially successful and is entitled to costs of the proceeding (which will include the costs of this hearing as well as those of the trial). Both of those outcomes will be encompassed by an order that Garuda pay the Commission’s costs of the proceedings at first instance as taxed or agreed. Garuda submitted that I should also make an order that the Commission not be permitted to recover costs where it had already recovered the same cost from one of the other airlines. The most significant aspect of that I imagine is Air New Zealand’s agreement to pay $2 million towards the Commission’s cost of the proceeding against it. Such an order is unnecessary. Any taxation will be governed by the indemnity principle and the Commission will not receive more than it is entitled to.
The orders I will make now will impose the fine and require Garuda to pay the Commission’s costs. The parties are to bring in a minute of order giving effect to my conclusions on declaratory relief within 21 days.
11 EVIDENTIARY RULINGS
There was an issue between the parties as to the extent to which Garuda could seek to demonstrate that it was not involved in the conduct which gave rise to a market in Australia. The Commission submitted that it was not open to Garuda to pursue that argument in light of the procedural history of the matter and that all of this material was accordingly irrelevant. However, there was an issue before me at the hearing to which this evidence went, viz, whether Garuda was involved in the circumstances giving rise to a market in Australia if it were held that it was open to Garuda to pursue the matter. That was a fact in issue at the hearing and the evidence was accordingly relevant in the sense of s 55 of the Evidence Act 1995 (Cth). That I have concluded in these reasons for judgment that it is not procedurally open to Garuda to pursue this argument does not alter that conclusion. The evidence will be admitted. The objections to [15] and [18] of Mr Mandala’s affidavit sworn 14 March 2018 will be overruled. The remaining objections to Mr Mandala’s evidence were dealt with at the hearing.
In its written objections, the Commission also objected to reliance by Garuda upon a list of enumerated documents beginning with ACCC.020.002.0017. The objection was on the same basis as in the case of Mr Mandala. I admit the documents.
I certify that the preceding two hundred and sixty-seven (267) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate:
Dated: 30 May 2019
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