Australian Competition & Consumer Commission v Flight Centre Travel Group Limited

[2016] HCATrans 59

[2016] HCATrans 059

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B51 of 2015

B e t w e e n -

AUSTRALIAN COMPETITION & CONSUMER COMMISSION

Applicant

and

FLIGHT CENTRE TRAVEL GROUP LIMITED ACN 003 377 188

Respondent

Application for special leave to appeal

KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON FRIDAY, 11 MARCH 2016, AT 11.07 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC, Solicitor‑General of the Commonwealth of Australia:   May it please the Court, in that matter I appear with MR M.R. HODGE, for the applicant.  (instructed by Australian Government Solicitor)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR M.I. BORSKY, for the respondent.  (instructed by King & Wood Mallesons)

KIEFEL J:   Yes, Mr Solicitor.

MR GLEESON:   Your Honours, the application raises a very significant question about the application of market definition under the Trade Practices Act and now the Australian consumer and competition law and it arises from the conundrum which is posed by the Full Court’s judgment that there are concurrent findings of two independent, economic actors, Flight Centre on the one hand, airlines on the other hand, who are in rivalry and competition ‑ that is established ‑ and where one of those actors, Flight Centre, seeks to shut down that competition by attempting to induce the airlines to price fix and yet the Court says there is no market in which those economic actors are in competition.

Now, that conundrum is nowhere explained by the – or resolved by the Court or even addressed and the respondent does not address it.  That is at the heart of our application, your Honour, that very important question of whether this can be a proper approach to market definition.  That is the essence of it. 

GAGELER J:   Well, the Full Court’s judgment, as you put it, I think, turned entirely on the relationship of agency being an answer to the parties being in competition.

MR GLEESON:   Almost entirely, that is the lynchpin of it.  There are a few subsidiary planks which have their own error in them, but the essence of it seems to be because legally the contractual arrangement between Flight Centre and the airline has an agency relationship attached to it and in the end, of course, the promise to carry the passenger will only be a promise by the airline that once you see that what you do is ignore the rivalry.  You ignore the rivalry which otherwise is what brings the whole matter to court.

KIEFEL J:   Mr Solicitor, we might call upon the respondent at this point.

MR GLEESON:   May it please the Court.

MR WALKER:   Your Honours, as we say in paragraph 7 at application book 231, the footing of the argument in the Full Court following the diverse outcomes at trial was that the regulator accepted:

that only the airlines supplied international passenger air travel services and that Flight Centre accordingly did not compete in the market –

that is, did not compete with the airlines.  It is, in our submission, a striking and completely unexplained circumstance that it is proposed there be an appeal based upon the supposed error of the Full Court in proceeding on that very foundation, a foundation asserted by the regulator.  It is said in writing that that is a matter which can simply be dealt with by an appreciation that Suttor v Gundowda would not be such as to preclude a reversal of position to which, in our submission, appropriately tart answer is but with a regulator and with these penal proceedings Coulton v Holcombe is surely a discipline that would be of interest to this Court and at a special leave point.  The argument has to be addressed, in any event, as one based in error and it cannot be said that the Full Court was in error in proceeding upon the assertion by the regulator that Flight Centre and the airlines did not compete with each other, to adapt the language of the statutory definition, in a relevant market. 

Now, my learned friend mutters at the Bar table that that is wrong, but in anticipation, perhaps, of that position we have given the citations both to written submissions and to exchanges in address in the footnote on page 231, not a syllable of which is addressed in the written reply in this Court from the regulator.  So, in our submission ‑ ‑ ‑

KIEFEL J:   But the identification of the point about the agency which I see in respect for which you rely upon paragraph 163 in your written submissions paragraph 8 last sentence, you say that:

the Full Court did not reason on the basis of . . . [the] agency relationship –

precluding “a finding of competition” and you point to paragraph 163.  Well, as I read paragraph 163, the Full Court might have said that in some circumstances that might not be the case, but in this case where the agent has particular power and authority it is precluded and that is the point. 

MR WALKER:   Your Honour, that is a point, I accept.  But the point that we made in paragraph 8, the last sentence of paragraph 8 of our submissions, is entirely made good by paragraph 163.  Now, it may be that this is the difference between an overstated proposition by the applicant for special leave and a proposition which is nonetheless true.  The overstated one is that the Full Court purported to promulgate a rule that agency is, as it were, a universal solvent.  Paragraph 163 shows that they did do no such thing in terms which are unmistakably clear and emphatic – explicitly emphatic, they held that:

the existence of an agency relationship . . . does not always mean that those two parties cannot be in competition with each other –

et cetera.  However, I accept, as Justice Kiefel raises, that that does not mean that there is not a point worthy to be considered in the abstract, that is, in relation to how it proceeded in this case because, as Justice Gageler noted when my friend commenced, unquestionably agency is at the heart of the reasoning by which we succeeded in the Full Court.  Yes, that is true.

In our submission, that only makes all the more important appreciating if you are going to have an agent competing with a principal, that is, competing against a principal, it makes all the more significant identification of the market.  The statutory provisions require there to be competition with each other in a specified market.  As your Honours know, there has been toing‑and‑froing by the regulator as to where they would take their stand in this litigation as to what the market was.  There is nothing wrong with alternative arguments.  At least you can say about alternative arguments they are both presented but there was no presentation in the Full Court of an argument of a kind that they now seek special leave to run. 

They did not argue that the parties were in competition with each other for the supply of international air travel services.  They avowedly withdrew that contention by the way they ran the appeal.  There was no notice of contention to challenge the trial judge’s correct rejection of that proposition as well.  It is for those reasons, in our submission, that it cannot realistically be said that error is committed by the Full Court of a kind which includes that as a critical step.

The whole argument against us, at least as it is adumbrated in writing at this stage, has as a critical step that there was an error in failing to find that these parties were in competition with each other in the market for the supply of international air travel services.  One sees that, in our submission, by the way in which ‑ no doubt with what might be called “care” ‑ the draft notice of appeal addresses that issue; see page 188.  Just extracting the material language:

The Full Court, having accepted that Flight Centre Travel Group Ltd . . . 

and the airlines ‑

engaged in rivalry or competition for the sale to consumers of international passenger air travel services –

Well, the question of course is what did the Full Court find and the Full Court did not find that there was competition with each other in a market in which they were both engaged because the sales by my client were sales on behalf of the airlines.  Every sale by my client was a sale by the airlines.  That is the whole point.

GAGELER J:   That is the agency point.

MR WALKER:   I do not hide from the fact that we ran and won on an argument of agency.  I am not saying ‑ ‑ ‑

KIEFEL J:   But it is colouring everything.

MR WALKER:   Of course it is.

KIEFEL J:   It is colouring competition.  Take the agency away and we have got competition. 

MR WALKER:   No, because then you would have to ask – when you say take the agent away, if we are a principal, if we are an airline, of course we are in competition with another airline but we are a million miles away from being an airline.  Whether you call it “agency”, whether you call it “employee”, whether you call it “contractor”, it does not matter.  If what we are doing is selling the services that they offer to consumers but selling on their behalf as the agency, we are not in competition with them in that market, in that market.

As you know, there were ingenious attempts to posit other kinds of market.  They, one could be forgiven for thinking, are no longer at the forefront of the regulator’s ambitions forensically.  Real weight now is sought to be given to this idea of the competitors with them in a market for the selling of international air travel services in which we sell theirs.  Now, one sees in the second ground at the foot of page 188 there is a reference to:

in a market for international passenger air travel services where they were engaged in rivalry or competition concerning the supply –

of those services to consumers.  Again, entirely eliding reference to the fact that they accepted below, and surely should be held still to accept here, that we simply were not in a position to supply the services which were the services that could be made available only by our principals and, therefore, we were not competitors in that market.  Now, it means that at a rather more homely level this is very similar to what happens when there are commission incentivised salesmen, both employees, of the same business. 

Of course, there is rival misconduct between them, and if one posits as well fully salaried salesmen as opposed to commissioned salesmen no doubt there will also be competition, as it were, between what the establishment may sell and what the person who eats only what he catches may sell.  Rival misconduct unquestionably, but they are not competitors, that is, persons who compete with each other in the market for the sale of the goods or services in question.  The salesmen does not supply the motor car, the dealer does.  In our submission, there is for the reasons the Full Court has entirely orthodox reasoning, that is, identify the market and the participants in the market and then ask are they in competition with each other.  There is, as to the pricing question ‑ which is what drives all of this ‑ as to the pricing question, it is the price for services which we supply on behalf of the airlines. 

In our submission, there is nothing unsatisfying about agency being deployed in this fashion, it is recognising the genuine substantive nature of an agency relationship whereby what I do are the actions of my principal and for the benefit of my principal.  There is nothing, whatever, in any previous case law, let alone in this Court, which suggests that one ought to somehow ignore the realities, not an artifice, the reality of agency.  In our submission, any attention, factually, case by case, to the definitions in question, which are the supply of goods or services in a market in which they compete with each other, will naturally always involve attention to the significance of a relationship of agency with respect to the activities to which questions of price may be relevant. 

It is for those reasons, in our submission, that there is a highly special circumstance which ought to prevent a grant of special leave, namely, that there cannot be an allegation seriously made of error in the Full Court on acting on the basis that the regulator invited, that is, a most untoward position for a regulator to adopt and, second, in our submission, there cannot be any doubt that there is nothing unorthodox, nothing novel introduced by the way in which the Full Court reasoned this.

In our submission, apart from the notion that there was a straw man idea of agency as a universal solvent, apart from that notion, nothing is identified in the Full Court’s reasons that demonstrates departure from what this Court has said, or more to the point demonstrates departure from simply a step by step, integer by integer, satisfaction or not, as to the application of the statutory requirements. 

It is for those reasons, in our submission, that notwithstanding the obvious commercial significance of any allegation that one should ignore

agency, in our submission, agency in this case was taken into account in a perfectly ordinary fashion, in a way which will be applicable, case by case, depending upon its facts, and for those reasons there is not the general principle that the submissions against us suggest justify the grant of special leave.  May it please ‑ ‑ ‑

GAGELER J:   Sorry, Mr Walker, your complaint that the ACCC has changed its case, I think goes to the second ground, not the first.

MR WALKER:   No, it goes to the second ground which, as I say, would appear now to be their spearhead.  There are real problems, in our submission ‑ I am tempted to say perhaps an undertaking should be extracted from them as to how they argue the case ‑ there is a real difficulty with a regulator blandly saying, well, this is something that we did at appellate level, therefore Suttor v Gundowda evidentiary opportunities had all gone, nothing to worry about, we can simply take an opposite position.  That, in our submission, is deplorable by anyone, but by a regulator this is not an issue which had anything other than to do with a forensic judgment made by them concerning whether they would allege error below in a case where, as a respondent, they had the opportunity to put on a notice of contention.  They did not do that. 

In our submission, they should not be permitted now to depart on the quixotic task of saying the Full Court was wrong to proceed in a way that ‑ on that issue, in a way that the ACCC urged the Full Court was appropriate.  It is for those reasons, in our submission, that that is not an issue for which there should be special leave even if the Court were otherwise minded by reason of the agency issue to see a general importance.  They should be, in our submission, restricted in their arguments so as not to be permitted to address that position.  May it please the Court.

KIEFEL J:   Mr Solicitor.

MR GLEESON:   Your Honours, Mr Walker has made a personal attack on the regulator and he has done that on a false basis.  Let me show that, first of all, he should not have done what he did.  If your Honours go to the draft ‑ ‑ ‑

KIEFEL J:   Let us just go to the pleading point.

MR GLEESON:   Yes, well, the draft notice of appeal, your Honours, at page 188, as Mr Gageler put to Mr Walker, the regulator’s primary case is paragraph 2.  That is the case that was made in those terms in the Full Court.  That is the case of error that is the regulator’s primary case.  There can be no suggestion that that involves any shift of position and for Mr ‑ ‑ ‑

GAGELER J:   Mr Solicitor, the real question in my mind is why you should be granted special leave to appeal on ground 3.

MR GLEESON:   Your Honour, I accept that is a question.  I would submit, first of all, it is a separate question.  If we do not get ground 3, ground 2 of itself merits a grant of special leave, and if there is any suggestion by Mr Walker which he did make that ground 2 somehow involves a change of position, ground 2 has ‑ ‑ ‑

KIEFEL J:   I think Mr Walker conceded that that was not the case.

MR GLEESON:   All right, we have done that.  Let us come then to ground 3.  Ground 3 is pressed only in the alternative.  I accept, as our written submissions accepted, that point was not taken in those terms in the Full Court.  There was no notice of contention.  That has always been accepted.  This was put at first instance as the ACCC’s alternative case.  Therefore, it was on the pleadings and it was run and all the facts were dealt with on that case.  So, there is no suggestion that it involves any new facts.

Ground 3 arises from paragraph 175 and 176 of the Full Court’s judgment on page 180 to 181.  It arises as a question of law.  If one accepts the Full Court’s premise which we reject on ground 2 that the only market here is what I will call the “big market”, the market for the supply of international air passenger travel services, so if one takes that premise which we reject, there is an error of law seen most particularly in the last two sentences at paragraph 175 where the Court says:

That was because, as the primary judge found, only the airlines supplied international passenger air travel services.  Flight Centre operated in the market for such services, but only as an agent for the airlines.

So, what has happened is the very same legal point which is whether the agency disqualifies competition in a market is the lynchpin of the court’s ruling.  So, not only is a matter of law but the question that would be erased by it is the same legal question, namely, can you see there is rivalry and competition, can you find what you think is the relevant market and can you then say because of agency I ignore that rivalry and competition and instead I find that there are no competing supply of services.  So, it is the very same legal error. 

KIEFEL J:   Mr Solicitor, the reference at paragraph 175, that was because the primary judge found in relation to the wider market.

MR GLEESON:   Yes.

KIEFEL J:   Does that indicate that the primary judge found on the issue joined in relation to that market that you referred to on the ‑ ‑ ‑

MR GLEESON:   Yes, I accept that, he found on that issue against the ACCC, the ACCC did not put on a notice of contention.  They should have.  What has happened is that is the basis upon which the Full Court has decided.  As I say, one, it is a question of law, two, it is the identical point, namely, if you see agency do you then ignore the rivalry and competition you see in front of you?  So, for the Court to grant leave on ground 2 may be sufficient, if our analysis of the booking and the distribution market is correct, but may be insufficient if the Court is persuaded that our agency point is correct but for some reason preferred what I am calling the bigger market.  In that event, it would be (a) I would submit, inappropriate not to allow 3 to travel to with 2. 

Your Honours, what I am calling the “big market” is really only another way of analysing the same forces at work and that the point that was being made by the ACCC’s expert, the only expert in the case, that was Dr Fitzgerald, which you have at page 40 of the book, is that if you are trying to capture the rivalry which is occurring because the airlines and Flight Centre are competing for the retail or the distribution margin, he says you have to do a market analysis which allows you to capture that rivalry.  The way he thinks that is most appropriate ‑ and this is what the trial judge accepted ‑ was to regard there as being a retail or downstream end of what is a larger international travel market. 

That is the primary case the judge found.  That is the primary case we embrace.  But one can even see from Dr Fitzgerald’s analysis that if you take the Full Court’s approach and say there is simply one big market, one big market, you still have to be able to capture the rivalry and the competition that is there and the Full Court did not do that because it made the agency error so it circles back to the same point.

As we all know from markets, they are analytical tools to enable one to capture the rivalry and to take account of the impugned conduct.  In one sense, you could perhaps look at the big market as well as the more specific markets.  They all allow you to capture the rivalry.  So, we would ask the Court (a) to grant leave and we would press while recognising it is a separate ground, we would press ground 3 as well as ground 2. 

KIEFEL J:   There will be a grant of special leave on all grounds.  Time estimates, Mr Solicitor?

MR GLEESON:   One day, your Honour.

KIEFEL J:   Thank you.  Would you ensure that your instructing solicitors obtain a copy of the relevant directions from the Registrar before ‑ ‑ ‑

MR GLEESON:   May it please the Court.

MR WALKER:   May it please the Court.

KIEFEL J:   The Court will now adjourn to reconstitute and establish a video link.

AT 11.31 AM THE MATTER WAS CONCLUDED