Commerce Commission v Air New Zealand Ltd HC Auckland CIV 2008-404-8352

Case •

[2011] NZHC 1285

•

24 August 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-008352

BETWEEN  COMMERCE COMMISSION

Plaintiff

AND  AIR NEW ZEALAND LIMITED

Defendant

CIV-2008-404-008348

AND BETWEEN               COMMERCE COMMISSION

Plaintiff

AND  JAPAN AIRLINES INTERNATIONAL

CO LIMITED Defendant

CIV-2008-404-008349

AND BETWEEN               COMMERCE COMMISSION

Plaintiff

AND  EMIRATES

Defendant

CIV-2008-404-008350

AND BETWEEN               COMMERCE COMMISSION

Plaintiff

AND  MALAYSIAN AIRLINES SYSTEM

BERHAD LIMITED Defendant

CIV-2008-404-008351

AND BETWEEN               COMMERCE COMMISSION

Plaintiff

AND  KOREAN AIR LINES CO LIMITED

Defendant

CIV-2008-404-0008354

AND BETWEEN             COMMERCE COMMISSION

Plaintiff

AND  THAI AIRWAYS INTERNATIONAL

PUBLIC COMPANY LIMITED Defendant

CIV-2008-404-008356

AND BETWEEN            COMMERCE COMMISSION

Plaintiff

AND  SINGAPORE AIRLINES LIMITED &

SINGAPORE AIRLINES CARGO PTE LIMITED

Defendants

CIV-2008-404-008357

AND BETWEEN            COMMERCE COMMISSION

Plaintiff

AND  CATHAY PACIFIC AIRWAYS LIMITED

Defendant

11 May - 10 June 2011

Asher J

Professor M Richardson (lay member)

Counsel:        BWF Brown QC, JCL Dixon, KC Francis and LCA Farmer for

Plaintiff

AR Galbraith QC, DJ Cooper and SJP Ladd for Air New Zealand

JA Farmer QC and IJ Thain for Cathay Pacific

MR Dean QC, GW Hall and AN Birkinshaw for Emirates

DS Alderslade, JWJ Graham and RM Irvine-Shanks for Japan Airlines

AM Callinan and AE Murray for Korean Airlines

JL Land and I-RL Sheerin for Malaysia Airlines

MD O'Brien, JH Stevens and KJ Dobbs for Singapore Airlines TC Weston QC, AW Lear and MW McCarthy for Thai Airways

Judgment:      24 August 2011

JUDGMENT OF ASHER J

AND PROFESSOR M RICHARDSON

This judgment was delivered by me on Wednesday, 24 August 2011 at 2.30pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Table of Contents

Introduction

Key agreed facts

Pleadings
Is the Commission required to prove a market in New Zealand

(issues 2(a) and (b))?

The respective positions

Argument as to the use of extraneous materials

The relevant sections in the Commerce Act

The presumption that Parliament did not intend to assert extraterritorial

jurisdiction

A purposive interpretation
The effect of the deeming words in s 30 on s 27
The requirement that the parties be "in competition with each other"

Authority

Conclusion on interpretation of s 30

Do the airlines supply inbound air cargo services in competition with

each other in New Zealand (issue 3(a))?

Is there a "market in New Zealand" for inbound air cargo services

(issue 3(b))?

Background

The air cargo services

The purposes of market definition

Judicial definitions of market

Guidelines

Our analysis

The economists

Factual considerations relating to the market

Demand for the service — the product market

The role of the freight forwarders

[164]
Application of the SSNIP test [171]
The geographic market [183]
Supply of the service [192]
Bi-directional market [195]
Authority [199]
Market wholly or partly in New Zealand?
Background to the issue [212]
What the Act says [214]  
Section 3(3) [215]  
Section 36A [220]

An approach that limits the consideration of overseas conduct to those acts that occur in New Zealand

[225]
Authority [236]
Conclusion on issue 3(b) [241]
The s 4 interpretation question (issue 4) [245]
The parties ' submissions [248]
Analysis [250]
Purposive interpretation [256]
The limitation defence [263]
Result [273]
Costs [275]

Introduction

  1. On 15 December 2008 the Commerce Commission issued these proceedings, claiming that the defendants with others had fixed elements of the price of inbound and outbound air cargo services to New Zealand. The essential allegation is that there have been arrangements to impose fuel and security surcharges at certain agreed rates. All the defendants filed statements of defence. Some have since withdrawn their defences, admitting liability. Eight defendants remain.

  2. Harrison J heard an application to formulate a preliminary question before trial on 3 May 2010. That hearing developed into a conference where it was agreed by counsel and accepted by the Court that there would be a two-stage trial. The issues that were to be determined in the first stage were defined in a memorandum of counsel that was annexed to a Minute of 6 May 2010. This first stage hearing has proceeded on the basis of these issues which were further refined and added to during the hearing.

  1. The parties have agreed a statement of facts. The statement of facts comprises a summary of 131 pages and various appendices. Two of the appendices contain written responses by the defendants to questions posed by the Commerce Commission ("the Commission"), and responses to questions from a sample of freight forwarders and exporters/importers. These are referred to as the schedules. The terms of the admission of the statement of facts and an accompanying agreed bundle of documents are set out in a joint memorandum, referred to as the protocol. The parties agree that the statement of facts has the status of evidence in both stages of the trial in accordance with s 9 of the Evidence Act 2006 and r 9.57 of the High Court Rules. In the event of any material inconsistency between the summary contained therein and the schedules, the evidence in the summary prevails. If there is any inconsistency between any document within the agreed bundle of documents and the statement of facts, the statement of facts prevails. The protocol also records the parties' consent position on various market issues.

  2. The level of agreement meant that it was not necessary for the parties to call any evidence, save for expert economic evidence. Ultimately the Commission called two economists and the defendants three. The experts gave their evidence over a period of five days in a process known in New Zealand as the hot tub process. They presented summaries of their evidence, brief comments on the evidence of each other, and then during cross-examination any of the experts could be called upon by counsel to respond to, or comment on, an answer. The Bench asked further questions at the end.

[5]      The final version of the statement of issues was as follows:

1.There is no dispute that the Court has jurisdiction to determine claims relating to air cargo services from New Zealand to an overseas country or region. The Stage 1 trial is intended to determine whether the Court also has jurisdiction in relation to alleged fixing of prices for air cargo services from an overseas country or region to New Zealand.

2.Section 30 Issue: For the purposes of its claims under section 27 via section 30, is it:

(a) sufficient for the Commission to prove that the defendants supply services the subject of the alleged price fixing arrangement in competition with each other in New Zealand; or

(b) necessary for the Commission to prove that each of the pleaded services subject to the alleged price fixing arrangement were supplied by the defendants in competition with each other in a market in New Zealand?

Follow-on Issues:

(a)Do the activities described in the evidence undertaken by the defendants with respect to inbound air cargo services constitute the supply by them of air cargo services in competition with each other in New Zealand.

[The defendants accept that they supply inbound air cargo services in competition with each other but deny that they do so in New Zealand.']

(b)Are the relevant pleaded markets (i.e. the pleaded markets listed in the attached Schedule) markets in New Zealand?

4. Section 4 issue:

Does the Act apply to the engaging in conduct outside New Zealand by

any person resident or carrying on business in New Zealand where:

(a)as the Commission says, that conduct comprises any act (or refusal to act) to the extent that such an act (or refusal to act) has some impact or influence on any market in New Zealand; or

(b)as the Defendants say, the conduct:

(i)    would be prohibited by a substantive provision of the Act if it occurred in New Zealand; and

(ii)     "affects a market in New Zealand" by affecting competition in the market in New Zealand in respect of which that substantive provision is alleged to have been breached.

Bi-directional Market Limitation issue: Are the amendments in the Commission's Fourth Amended Statements of Claim to introduce a pleading of "bidirectional markets" for air cargo services statute barred under section 80(5) of the Act because they were first introduced more than three years after the matters giving rise to that pleading were discovered or ought reasonably to have been discovered?

  1. It was also hoped that the parties could agree on the consequential orders that

would follow findings on the various issues, but understandably the definition of such consequences has proved too difficult.

  1. In this judgment the lay member has not participated in the determination of the s 30 issue as this is a determination for a High Court Judge sitting alone under s 78(4)(b) of the Commerce Act 1986 ("the Act") (although we make no decision as to whether it is impermissible for a lay member to participate in such a determination).

  2. The summary contained in the statement of facts is voluminous, as are the accompanying schedules and the bundle of documents. Given that the essential facts are not in contention they can be set out in a relatively short compass, adopting in the main the exact words used in the summary.

Key agreed facts

  1. The defendant airlines all transport freight by air to and from New Zealand. The freight is transported in the belly hold of passenger aircraft, and on some occasions in relation to some defendants or associated companies in specialist cargo aircraft.

  2. The main participants in the international air freight industry are:

    a)exporters and importers who need to have goods transported internationally by air;

    b)freight forwarders2 providing various logistical and other services relating to the movement of goods from origin to destination;

    c)airlines providing air cargo transport and related services, from a particular origin airport to a destination airport;

  3. While there are approximately 300 freight forwarders in New Zealand the 10 New Zealand‑

    based freight forwarders who are the largest purchasers of air cargo services from New Zealand account for a very considerable proportion of the volume of shipments from New Zealand. The 10 overseas-based freight forwarders who are the largest purchasers of air cargo services to New Zealand account for a significant number of the volume of shipments to New Zealand. An appendix to the agreed statement of facts contains responses by a sample of New Zealand-based freight forwards to questionnaires put to them in interviews conducted by the Commission. The sample included at least three of the 10 largest New Zealand-based freight forwarders (possibly four, as the identity of one of the interviewees is anonymous).

forwarders providing both air cargo services and freight forwarding services; and

e)       other service providers, such as ground handlers providing loading

and unloading and other related services, general sales agents acting as sales agents on behalf of the airlines, customs brokers providing customs clearance related services and airports providing various ground facilities for the airlines' operations.

[11] The transport of goods by air is initiated by an exporter or importer who needs to move goods from a specific place of origin (eg the exporter's factory) to a specific place of destination (eg the importer's warehouse) by air. In airline terminology, the exporter may be referred to as the "consignor" or "shipper" and the importer as the "consignee".

[12] Whether it is an exporter or an importer who initiates the cargo arrangements (by contacting a freight forwarder) and pays for the transport depends on a number of factors including:

a)the nature of the relationship between the exporter and importer;

b)whether one of them can obtain more favourable terms than the other;

c)the nature of the goods and/or service levels required (eg an importer may wish to have more control over the transport logistics where goods are required urgently and/or special handling is required); and

d)the relevant terms of sale.

[13] Freight forwarders offer and provide all or some of the logistical and other related services required to meet the cargo transport needs of exporters and importers. The services freight forwarders typically offer to exporters and importers include advising on the most appropriate mode of transport, advising on the most

and arranging security and insurance, completing necessary documentation, arranging for the collection of goods from the place of origin and delivery of them to the origin airport, assembling and packaging of goods at origin, warehousing of goods at the origin airport and ensuring goods that require special treatment are attended to. They include arranging for customs clearance at the origin and destination airports. For inbound air cargo they include arranging the appropriate certification, collecting the goods from the destination airport, warehousing goods at the destination airport, arranging for the delivery of goods to the importer's designated destination and tracking and monitoring the progress of cargo from origin to destination. In arranging and acquiring these services the freight forwarder's standard conditions of contract generally (but not always) provide that the freight forwarder is the "agent" of its customer.3

  1. Depending on the nature of the goods to be shipped and the requirements of the exporter/importer, freight forwarders will endeavour to combine different shipments on a route into one larger shipment, a process known as "consolidation".

  2. The international standard document typically required for the transport of all cargo by air is the air waybill ("the waybill"). The waybill includes the shipper details, being the name and address for the person or entities sending cargo from the point of origin. A shipper is also known as a consignor. Where cargo is consolidated the shipper named on the waybill will always be the freight forwarder. The waybill also includes the issuing agent or the issuing carrier's agent details, being the person authorised to hold the airline's waybill stock and therefore to authenticate and issue the waybill on the airline's behalf. The issuing agent will almost always be the freight forwarder.

  3. The consignee is the recipient of the cargo at destination. This can either be a freight forwarder (and always will be when the cargo is consolidated) or the ultimate recipient of the cargo.

  4. Subject to certain exceptions, in particular when an airline enters into an arrangement directly with an exporter or multi-national corporation, airlines'

customers are the origin freight forwarders to whom airlines sell outbound air cargo services. Airlines do not sell air cargo services to destination freight forwarders or importers (or anyone else at the destination). Thus, the New Zealand offices of the airlines sell outbound air cargo services to New Zealand freight forwarders but not inbound capacity to destination freight forwarders or importers or anyone else based in New Zealand. Similarly, none of the airlines' overseas cargo offices sell air cargo services to freight forwarders based in New Zealand for shipments to New Zealand from any of the relevant points of origin pleaded in the amended statements of claim.

  1. Notwithstanding that airlines do not commonly sell air cargo services directly to exporters (indeed, freight forwarders generally discourage it), there is nevertheless a degree of direct contact between airlines and New Zealand exporters and importers. The practice and the extent of contact during the relevant period varied between the defendant airlines. Most of the defendant airlines had occasional direct contact with New Zealand exporters. Air New Zealand Ltd, as the national carrier, had more frequent direct contact with New Zealand exporters. To a much lesser extent, some airlines (including one defendant airline) had occasional direct contact with New Zealand importers.

  2. Three of the defendant airlines during the relevant period provided an online booking service available to New Zealand based freight forwarders registered with the particular airline to request capacity for cargo being transported from New Zealand (Singapore Airlines Ltd, Korean Air Lines Co Ltd and Emirates). Since February 2006, one airline (Thai Airways International Public Co Ltd, in late 2008) has added an online service available to approved New Zealand based freight forwarders. Exporters/importers could not then, or now, use these online services to buy cargo space (in the way that passenger online booking services function). Rather, they could only be used by freight forwarders at origin and only then for requests for capacity.

  3. The process for setting general air cargo rates (as opposed to surcharges) varies widely between the defendant airlines, depending on their internal policies and procedures. Rates are generally set by local cargo managers at the point of origin for air cargo services from that point of origin to various points of destination

(ie rates are quoted and set one-way only). Local rate setting is subject to varying degrees of head office or regional office involvement. All the defendant airlines take into account "market-related factors", with the differences amongst them lying primarily in the extent to which "cost-related factors" are also considered (ranging from not at all, for one defendant airline, through "playing a lesser role" than market-related factors for five, to being considered alongside market-related factors for the remaining two).

  1. Once an exporter and importer have agreed on the international sale of goods, the onus then falls on either the exporter or importer to organise the transport of the goods from origin to destination. Exporters/importers use freight forwarders to arrange some or all of the logistics associated with the transport of their goods by air, including acquiring air cargo services from an airline to transport the goods from the origin airport to the destination airport. Decisions made by exporters or importers regarding freight forwarding services will often have an impact on the decisions that freight forwarders make regarding the purchase of air cargo services.

  2. It is difficult to estimate precisely the percentage of imports carried into New Zealand by air where the importer initiates the transaction with the destination freight forwarder and pays for all the associated costs. However, estimates for their own businesses provided by freight forwarders range from 27 to 70-75 per cent of imports by weight.

  3. In choosing an airline considerations for the freight forwarder regarding the suitability of an airline for the particular shipment include the price of the air cargo services; availability of capacity; the location of the airport from which the airline flies and its proximity to, and ease and cost of transport from, the original location of the cargo; the routes flown by the airline; frequency of flights; landing times at destination; the quality and reliability of the airline's services; any specific instructions from the exporter or importer (eg dangerous goods, special handling requirements); and occasionally, any preference of the exporter or importer for a particular airline. In many cases the airlines will not know the identity of the exporter, particularly when the freight forwarder has consolidated shipments.

  1. Once the airline and freight forwarder have agreed all terms of shipment, the (origin) freight forwarder (or its contracted trucking company) will deliver the shipments (where consolidated in unit load devices or pallets) and relevant documents to the warehouse of the ground handler. The ground handler will check the shipments against the relevant documents (including the waybill) and load the shipments. These documents will be sent electronically or faxed to the airline's load controller.

  1. Once the airline has flown the goods to the destination airport, the airline's ground handler (more specifically, the ramp handler) is responsible for unloading the cargo from the aircraft. The destination freight forwarder will collect the shipments and pay a cargo terminal fee to the ground handler for the release of the cargo.

  2. Airlines carry cargo on passenger planes or dedicated freighters internationally from a point of origin to a point of destination, often via one or more other airports along the route. In contrast to passenger services, air cargo services involve the transport of cargo in one direction only.

  3. Airlines' customers for air cargo services are usually origin freight forwarders. There are exceptions. For example Air New Zealand, in New Zealand, regards some exporters as its customers as well as freight forwarders.

  4. The air cargo services provided by airlines include:

    a)the physical transport of air cargo internationally from the origin airport to the destination airport, including any special handling requirements (eg refrigeration for live seafood, fruit, vegetables or flowers, or temperature control for pharmaceutical products, edible products or live animals);

    b)ground handling services at origin and destination airports (ie loading and unloading of the aircraft), which are usually subcontracted to third

or damaged shipments).

  1. In some jurisdictions there has been active government involvement in the setting of the surcharges that are the subject of this proceeding. In Hong Kong the government has been involved as a regulator. In Dubai a common airport-wide fuel surcharge was agreed with the Dubai Department of Civil Aviation, which is a government department.

  2. The rates for a route and the type and volume of cargo almost always differ in each direction, reflecting specific supply and demand characteristics. The freight forwarders with whom the airlines deal are different at each point of origin.

  3. The defendant airlines have local offices which sell outbound air cargo services only. They do not sell inbound air cargo services. Airlines sell air cargo services to origin freight forwarders (and very occasionally to exporters directly). There is only a degree of direct contact between airlines and exporters, and to a much less extent between airlines and importers.

  4. All the defendant airlines that provide inbound air cargo services also provide outbound air cargo services. Most aircraft flying to and from New Zealand are passenger planes and so the majority of air cargo carried to and from New Zealand is transported in the belly-hold of passenger aircraft. In such instances air cargo services are offered as an ancillary to passenger services. Generally for belly-hold cargo, routes, schedules and capacity will in almost all cases be primarily determined by passenger considerations.

  5. From this overview of the facts the following key facts can be isolated:

    a)                  The demand for air cargo services is derived from the demands of

    importers and exporters.  Four of the six freight forwarders

    interviewed by the Commission estimated that at least half of transactions were initiated by importers. Exporters and importers provide information to freight forwarders which may include the route

or timing required, and occasionally a preference for a particular airline. These are then considered by the freight forwarder who then makes the choice of airline (and may dictate that choice).

b)Ultimately the exporter or importer makes the decision whether to
proceed with a transaction and may, for instance, elect not to if the air cargo cost is too high.

c)Airlines most commonly sell air cargo services to origin freight
forwarders. Airlines do not sell air cargo services to destination freight forwarders or importers. Airlines occasionally sell air cargo services direct to exporters.

d)The airlines' offices in the various jurisdictions sell outbound air
cargo services only. Payment is most commonly, in over 99 per cent of cases, collected at origin. Where collected at destination ("charge collect" shipments) payment is nonetheless credited to origin.

e)In some cases the airline may know the identity of the exporter
(especially where the freight forwarder is acting for a key exporter or the exporter is shown as the "shipper" on the waybill). In many cases, however, the airline will not know the identity of the exporter, particularly when the freight forwarder has consolidated shipments. Generally airlines negotiate and deal with freight forwarders at origin, and are paid by freight forwarders at origin. Thus, it is the freight forwarders who practically and contractually facilitate the carriage of the goods with the airlines.

f)Sometimes a New Zealand entity with a presence overseas will send
cargo from itself in another country to New Zealand. In that situation the New Zealand entity will be both the consignor and consignee.

g)Air cargo services involve the transport of cargo in one direction only.
The waybill is also one-way. The nature, volume and value of goods

sent inbound to and outbound from any particular country are different.

Pleadings

  1. Given the discrete nature of the issues that are to be determined in this hearing, there has been less emphasis on the pleadings than there would usually be in a full trial. However, it is necessary to make some reference to the statements of claim, which are in their fourth gestation.

  2. The Commission alleges three interlinked sets of price fixing behaviour: a global conspiracy with regional variations to apply and fix the price of fuel surcharges, a number of regional conspiracies to apply and fix the price of fuel surcharges and a global conspiracy with regional variations to apply and fix the price

of security surcharges.         Each cause of action alleges an arrangement or
understanding that had the purpose of fixing, controlling or maintaining prices for the supply of air cargo services to and/or from New Zealand and/or had or was likely to have the effect of fixing, controlling or maintaining the prices for the supply of such services.

  1. While the Commission takes the view that an action under s 30 does not require market definition, it has nevertheless elected to plead a number of markets. Each market is defined as a market for the provision of air cargo services. The Commission pleads first a single market in respect of each region for air cargo services (that is, both to and from) New Zealand and that region. In the alternative, it pleads separate markets in respect of each region for air cargo services from New Zealand to each region and to New Zealand from each region. It alleges the markets for air cargo services in respect of any region are located both in New Zealand and in that region.

  2. The defendants ("the airlines") in their pleadings accept there are separate inbound and outbound markets for air cargo services to and from New Zealand and each region, but state that the markets are located only at the point of origin. They deny the existence of the two-way market between New Zealand and each region.

They plead various affirmative defences including a pleading that the Commission's amendment asserting a two-way market as an alternative amounts to a new cause of action, and is therefore time-barred.

Is the Commission required to prove a market in New Zealand (issues 2(a) and (b))?

The respective positions

  1. The Commission submitted that it is sufficient, in order to establish a breach of s 27 via s 30, to prove the airlines supplied the services the subject of the alleged price fixing arrangement in competition with each other in New Zealand. It is not necessary that it prove the airlines supplied those services in competition with each other in a market in New Zealand. That is, it need not plead and prove a market for the purposes of its claim and it is irrelevant whether the market is in or out of New Zealand. The Commission submitted that this is consistent with the section's natural wording, its intended meaning and effect, and the approach to per se offences in some other jurisdictions. It submitted that such an interpretation is necessary to give s 30 its intended efficacy. It suggested that if the Commission's approach to s 30 is accepted it will mean that price fixing cases will be directed at the core issue, namely whether there was a prohibited arrangement between competitors.

  2. The airlines submitted that a claim brought under s 27 via s 30 requires the plaintiff to prove that the arrangement in question concerned the supply of services in a market in New Zealand. The Commission's approach, they submitted, would have the effect of proscribing arrangements concerning the supply of services in markets outside New Zealand, contrary to the purpose of the Act (the promotion of competition in markets in New Zealand) and the presumption that Parliament did not intend to assert extraterritorial jurisdiction. They submitted that if the Commission's submission is accepted, s 30 deems something which exists and occurs overseas to exist and occur in New Zealand for the purpose of conferring jurisdiction. Rather, they submitted, the requirement in s 27 that there be a market in New Zealand survives the effect of the s 30 deeming provision.

Argument as to the use of extraneous materials

  1. In the course of argument on this point, the Commission asked us to consider a report from the Department of Trade and Industry addressed to the Chairman of the Parliamentary Select Committee considering the Commerce Bill, which it wished to refer to, to support its argument. The airlines objected submitting that the document presented a departmental perspective and was of no assistance in ascertaining the intention of the legislature.

  2. The airlines' objection is upheld. The report is from the Assistant Secretary (Commerce) and while it is explaining draft amendments prepared by Parliamentary Counsel there is no way of ascertaining the actual status of the paper and the consideration of it by the Committee, or indeed whether it had any relevance in the Committee's consideration. It offers no reliable guide to legislative intention. It is in a different category from a White Paper, committee report or other document that can confidently said to have been instrumental in the drafting of the Act in final form. It is not a statement by a minister or other promoter of the Bill that can be seen as a reliable guide to Parliament's intention.4

The relevant sections in the Commerce Act

  1. Guidance to the meaning of the terms "competition" and "market" is provided by s 3:

    3     Certain terms defined in relation to competition

(1) In this Act competition means workable or effective competition.

(1A) Every reference in this Act, except the reference in section 36A[2](b) and (c) of this Act, to the term "market" is a reference to a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.

Section 3(1A) is expressed in terms that are exegetical rather than strictly definitional, a point considered later.5

  1. Pepper (Inspector of Taxes) v Hart [1993] AC 593 (HL).

  2. At [121].

[43] Section 4 describes the circumstances in which the Act applies to conduct outside New Zealand:

Application of Act to conduct outside New Zealand

(1)This Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct affects a market in New Zealand.

(2)Without limiting subsection (1) of this section, section 36A of this Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in Australia to the extent that such conduct affects a market, not being a market exclusively for services, in New Zealand.

(3)Without limiting subsection (1) of this section, section 47 of this Act extends to the acquisition outside New Zealand by a person (whether or not the person is resident or carries on business in New Zealand) of the assets of a business or shares to the extent that the acquisition affects a market in New Zealand.

[44] The critical sections for the purposes of these proceedings are ss 27 and 30, which form the basis of the Commission's causes of action. It is alleged that the airlines breached s 27(1) and (2) via s 30 of the Commerce Act. Subsections (1) and (2) of s 27 provide:

27 Contracts, arrangements, or understandings substantially lessening competition prohibited

(1)No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

(2)No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

[45] Section 30(1) provides:

30 Certain provisions of contracts, etc, with respect to prices deemed to substantially lessen competition

(1) Without limiting the generality of section 27 of this Act, a provision of a 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 in a market if the provision has the purpose, or has or is likely to have the effect of fixing,

controlling, or maintaining, or providing for the fixing, controlling, or maintaining, of the price for goods or services, or any discount, allowance, rebate, or credit in relation to goods or services, that are—

(a)   Supplied or acquired by the parties to the contract, arrangement, or understanding, or by any of them, or by any bodies corporate that are interconnected with any of them, in competition with each other; or

(b)   Resupplied by persons to whom the goods are supplied by the parties to the contract, arrangement, or understanding, or by any of them, or by any bodies corporate that are interconnected with any of them in competition with each other.

...

  1. The determination of the s 30 issue is an exercise in statutory interpretation. Two interpretive principles framed the parties' analyses. The first is the principle that Parliament did not intend to assert extraterritorial jurisdiction. The second is that the meaning of an enactment must be ascertained in light of its purpose.

The presumption that Parliament did not intend to assert extraterritorial jurisdiction

  1. The airlines submitted the Commission's interpretation of s 30 seeks to "cut section 27 adrift from its fundamental jurisdictional constraint of application 'in a market in New Zealand' in violation of the principle that statutes are presumed not to have extraterritorial effect.

  2. This principle was recently considered in the context of the Act by the Supreme Court in Poynter v Commerce Commission.6 Tipping J, giving the reasons of Blanchard, Tipping, McGrath and Wilson JJ, observed:7

    Bennion on Statutory Interpretation states, as a general proposition, that an enactment is to be treated as not having extraterritorial effect unless a contrary intention appears and subject to any relevant rules of private international law. Craies on Legislation states, to the same effect, that, in the absence of contrary evidence, a legislative proposition is addressed to anyone who is within the territory to which the proposition extends. An enactment will generally apply to things done and people in the territory to which it extends, and no further. There is a presumption that Parliament does not intend to assert extraterritorial jurisdiction, which can be rebutted only by clear words or necessary implication.

  3. Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300.

  4. At [36].

(Footnotes omitted.)

The principle is underpinned by considerations of international comity.8

  1. The Court expressly rejected the suggestion that in modern times this approach had been relaxed.9 It reaffirmed that Parliament should not be taken to have legislated with extraterritorial effect unless its enactment signals that purpose by express words or necessary implication.

  2. Section 4 of the Act is expressly directed at conduct outside New Zealand. There is no other express language providing for extraterritorial reach. The Court considered whether additional extraterritorial effect could be discerned as a matter of necessary implication from other provisions of the Act. Tipping J observed:1°

    It is important to recognise that the Act is a code and, for extraterritoriality purposes, the court should confine itself to the express terms of the Act and any additional extraterritorial effect which flows as a matter of inevitable logic from those express terms read contextually in the light of the purposes of the Act. That is what necessary implication means. A necessary implication is not something judicially engrafted on to legislation as a judicial value or policy judgment, however reasonable that judgment may appear to be.

  3. The Court held s 4 was exhaustive of the circumstances in which the Act applied to conduct outside New Zealand." Elias CJ stated:12

    It is clear that the Act proceeds on the basis that it does not have extraterritorial effect because that is the assumption on which s 4 is drafted. As the heading to the section suggests, it describes the only circumstances in which the Act applies to conduct outside New Zealand.

  4. In Poynter the anti-competitive conduct alleged against the appellant occurred outside of New Zealand. The appellant did not reside or carry on business in New Zealand. The Court held accordingly that the Act did not apply. That is not the position here. While the alleged anti-competitive conduct was engaged in outside New Zealand (the entering into and giving effect to the proscribed arrangement) it will be argued that the airlines were carrying on business in New

  5. At [37].

  6. At [41]-[45].

  7. At [46].

  8. At [15] and [62].

  9. At [15].

Zealand and that their conduct affected a market in New Zealand, so that the Act applies in terms of s 4. That is a matter for the second stage hearing. The airlines, however, argued that the presumption that Parliament did not intend to assert extraterritorial jurisdiction applies in the interpretation of s 30. The Commission's interpretation, the airlines submitted, confers extraterritorial effect contrary to the presumption and to the decision of the Supreme Court in Poynter.

  1. It is necessary to consider the reach of s 30 against this background. A purposive interpretation

  2. Section 5 of the Interpretation Act 1999 provides that the meaning of an enactment must be ascertained from its text and in light of its purpose. Even if the meaning of the text may appear plain in isolation of purpose, that meaning should always be cross checked against purpose in order to observe the dual requirements of s 5.13 In determining purpose the court must have regard to both the immediate and the general legislative context and may also consider the social, commercial or other objective of the enactment.

  3. The purpose of the Act is set out at s 1A. Read alongside s 3(1A) it provides that the purpose of the Act is to promote competition in markets in New Zealand for the long-term benefit of consumers within New Zealand. In the course of the parties' submissions on the interpretation of ss 27 and 30 there has been debate about the relevance of this section.

[56] Richardson J said in Tru Tone Ltd v Festival Records Retail Marketing Ltd:'4

In terms of the long title the Commerce Act is an Act to promote competition in markets in New Zealand. It is based on the premise that society's resources are best allocated in a competitive market where rivalry between firms ensures maximum efficiency in the use of resources.

  1. This statement referred to the original long title of the Act which did not contain the words "for the long-term benefit of consumers within New Zealand".

13 Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22].

14 Tru Tone Ltd v Festival Records Retail Marketing Ltd [1988] 2 NZLR 352 (CA) at 358.

The long title was replaced in 2001 with the purpose statement now contained in s 1A.15 However, the Commerce Committee in proposing the change considered the addition of the purpose statement would not fundamentally change the interpretation of the Act, but rather confirm the existing approach that competition was a means to an end, not an end in itself.16 During the consideration by Parliament of the report of that Committee the Minister of Commerce stated to a similar effect:17

[The new purpose statement] makes clear that competition is not an end in itself, but a means to promote the welfare of New Zealanders. Consumers are given special mention as they are the ultimate beneficiaries of competition.

  1. The Act is not concerned with the promotion of the welfare of consumers on a case by case basis. It is not in the same category as legislation having as its immediate goal consumer welfare, such as the Fair Trading Act 1986. Rather its immediate goal is the promotion of competition in markets in New Zealand, of which it is assumed consumers will be the ultimate beneficiaries. We interpret ss 27 and 30 against this purpose.

The effect of the deeming words in s 30 on s 27

  1. The first issue concerns the effect of the s 30 deeming provision and, in particular, whether the requirement in s 27 that there be a market in New Zealand "survives" the effect of that provision.

  2. Sections 27 and 30 refer to contracts, arrangements and understandings. Each is treated in the same manner in the two sections. For simplicity, reference is made in this judgment simply to arrangements. Reference is also made in this part to "fixing the price for goods and services" in place of "fixing, controlling, or maintaining, or providing for the fixing, controlling, or maintaining of the price for goods or services, or any discount, allowance, rebate, or credit in relation to goods and services" as it appears in s 30. Elsewhere in the judgment the shorthand "price fixing" is used.

15 Commerce Amendment Act 2001, ss 3 and 4.

16 Commerce Amendment Bill 2001 (296-2) (select committee report) at 7.

17 (27 February 2001) 590 NZPD 7972.

[61] Section 27 specifically requires proof of a market in New Zealand, as there must be shown to be a substantial lessening of competition in such a market. Subsections (1) and (2) of s 27 contain two ingredients:

a)Persons entering into an arrangement containing, or giving effect to;

b)A provision having the purpose, effect or likely effect of substantially lessening competition in a market in New Zealand.

The words "in New Zealand" are added because that is required by s 3(1A).

[62] The ingredients of s 30 when read with s 27 are as follows:

a)Persons entering into an arrangement containing, or giving effect to;

b)A provision having the purpose, effect or likely effect of fixing the price for goods or services;

c)Where those goods or services are supplied or acquired by the parties to the arrangement, or by any of them;

d)Where the parties to the arrangement are in competition with each other for the supply or acquisition of those goods or services.

[63] If ingredients (b)-(d) are established, the deemed consequence is that the provision has the purpose, effect or likely effect of substantially lessening competition in a market for the purposes of s 27. It is obvious from this breakdown that the market in which a substantial lessening of competition is deemed is the market in which the parties compete for the supply or acquisition of the goods or services the subject of the arrangement.

[64] The Commission submits that the deemed consequence extends to the second limb of s 27(1) and (2), as identified above,18 in its entirety. That is, the deemed consequence is that the provision has the purpose, effect or likely effect of

substantially lessening competition in a market "in New Zealand". Provided that the relevant competition takes place in New Zealand, if the market in which the parties compete for the supply or acquisition of the goods or services the subject of the arrangement happens to be outside New Zealand it is nonetheless deemed for the purposes of s 27 to be a market in New Zealand. Such situations, the Commission submits, will be rare and "a consequence of Parliament's choice to impose per se liability for the pernicious evil that is price-fixing".

  1. The reach of a deeming provision is in the end an exercise in statutory construction.19 Acts often deem things to be what they are not.20 The fact that the reality may not match the deemed position is irrelevant. Any other conclusion would defeat the purpose of the deeming. However, in construing a deeming provision it is necessary to bear in mind the legislative purpose.21 Francis Bennion in Bennion on Statutory Interpretation stated:22

    The intention of a deeming provision, in laying down a hypothesis, is that the hypothesis shall be carried as far as necessary to achieve the legislative purpose, but no further.

  2. This proposition was confirmed in Szoma v Secretary of State for Work and Pensions.23 As Megarry VC stated in Polydor Ltd and RSO Records Inc v Harlequin Record Shop Ltd and Simons Records Ltd commenting on Szoma:24

    The hypothetical must not be allowed to oust the real further than obedience to the statute compels.

  3. In assessing the reach of the deeming provision it is significant that the market is not expressly deemed to be a market in New Zealand by operation of s 30. Rather, only through s 3(1A) could the words "in New Zealand" be added to the word "market" as it appears in s 30. Section 3(1A) serves two ends. It provides an exegesis of the word "market" and has the consequence of confining the scope of the

19 See the observations in John Burrows, Jeremy Finn and Stephen Todd Statute Law in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at 431.

20 Francis Bennion Bennion on Statutory Interpretation (5th ed, LexisNexis, London, 2008) at 949.

  1. Ibid.

  2. At 950.

23 Szoma v Secretary of State for Work and Pensions [2005] UKHL 64, [2006] 1 AC 564 at [25].

24 Polydor Ltd and RSO Records Inc v Harlequin Record Shop Ltd and Simons Records Ltd [1980] 1 CMLR 669 (Ch) at [11], quoted in Bennion on Statutory Interpretation at 950. This statement was made in relation to the remarks of Lord Asquith in East End Dwellings Co Ltd v Finsbury

Borough Council [1952] AC 109 (HL) at 132.

Act to markets in New Zealand.25 Viewed thus it would appear anomalous that s 3(1A) might operate to extend the scope of the Act to markets outside of New Zealand by operation of s 30.

  1. The relationship between s 27 and s 30 is relevant in this regard. Section 30 does not itself constitute a prohibition or create a cause of action. Rather it is an adjunct to s 27 "for the purposes of that section". In s 27 there must be a New Zealand market. It would be going beyond the purposes of s 27 to deem a market to be a market in New Zealand that is in fact overseas. The goal of s 30 appears to be restricted to obviating the need to prove a substantial lessening of competition in a market, not to extending the Act's territorial reach.

  2. Section 30 begins "Without limiting the generality of section 27". This is a further indication that s 30 is intended as an adjunct to s 27. It makes special provision for a subset of the anticompetitive arrangements with which s 27 is concerned. It would be inconsistent with this aspect of the relationship between the two provisions to interpret s 30 as possessing greater geographical reach than s 27, extending further than that latter provision can ever extend, to markets wholly outside New Zealand. That would mean that s 30 would not only not be limiting the generality of s 27. It would be extending the scope of that provision beyond the territory of New Zealand.

  3. Earlier, reference has been made to the airlines calling in aid the presumption that Parliament did not intend to assert extraterritorial jurisdiction to support their argument that s 30 still requires that there be a market in New Zealand and the consideration of the presumption in Poynter.26 Poynter was concerned with conduct outside New Zealand. Similarly s 4 is concerned with "engaging in conduct outside New Zealand", indeed as the Supreme Court held is exhaustive of the circumstances in which the Act applies to conduct outside New Zealand.27 It is necessary to consider these principles in relation to s 30.

  4. See [121].

  5. At [47]—[53].

  6. At [15] and [62].

[71] Guidance to the interpretation of the term "engaging in conduct" is afforded by s 2(2)(a):

2 Interpretation

(2) In this Act,

(a) A reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including‑

(i)The entering into, or the giving effect to a provision of, a contract or arrangement; or

(ii)The arriving at, or the giving effect to a provision of, an understanding; or

(iii)The requiring of the giving of, or the giving of, a covenant:

The relevant conduct here is the airlines' entering into or giving effect to the alleged arrangement. The presumption as it was applied in Poynter requires that the arrangement be entered into or given effect to in New Zealand, or, to the extent only that s 4 applies, outside New Zealand. The conduct in that case was engaged in by the appellant in Sydney, and as the domicile requirements of s 4 were not met the Act was held not to apply. In the present case the remaining elements of s 30 in issue, that the parties supplied the services the subject of the alleged arrangement in competition with each other and any requirement that they did so in a market, are not elements to which s 4 is directed or to which the presumption as it was applied in Poynter naturally attach.

[72] However, the presumption that Parliament did not intend to assert extraterritorial jurisdiction may be understood more broadly. Consistent with the principle of comity an Act is taken to be for the governance of the territory to which it extends, that is the territory throughout which it is law.28 The Act may be presumed not to extend to the governance of a market outside of New Zealand. The presumption that Parliament did not intend to assert extraterritorial jurisdiction therefore supports an interpretation that the s 30 deeming provision should not be

28 See Bennion on Statutory Interpretation at 361.

read as removing the need to prove that the relevant services were supplied in a market in New Zealand. To interpret the Act as governing competition in markets wholly outside of New Zealand would be to confer on it extraterritorial jurisdiction.

  1. The presumption is therefore a further reason not to allow the hypothetical, in Megarry VC's words, to oust the real.

  2. The services the subject of the alleged arrangement must therefore have been supplied by the parties in a market in New Zealand. Obedience to the statute does not in our view compel a contrary result. In particular, this requirement does not defeat the purpose of the deeming provision. The substantial lessening of competition in a market is assumed, but s 3(1A) applies and the market must despite the deeming be in New Zealand. In the ordinary run of cases it may be unnecessary to plead and prove a market as it may be clear that it is in New Zealand. However, the s 3(1A) requirement that a reference to a market is a reference to a market in New Zealand remains, and if there is no market in New Zealand there is nothing on which the deemed substantial lessening of competition can bite.

  3. This is consistent with the purpose of the Act. The Commission's interpretation would see s 30 reach beyond the regulation (and, it is to be assumed, promotion) of competition in markets in New Zealand, to markets wholly outside New Zealand. This would be to exceed the statutory purpose of the Act. The Act is only concerned with competition in markets in New Zealand. Conversely the airlines' interpretation, requiring that the services the subject of the alleged arrangement be supplied by the parties in a market in New Zealand, is consistent with that purpose.

  4. The conclusion is reached, therefore, that as a matter of statutory interpretation, the requirement in s 27 that there be a market in New Zealand survives the effect of the s 30 deeming provision. It will be an answer to a claim under s 27 via s 30 to establish that the market for the goods or services the subject of a price fixing arrangement are supplied or acquired by the parties to the arrangement in a market wholly outside New Zealand. This does not of itself suggest the Commission must plead and prove a market in every claim under s 27

via s 30. If the s 30 deeming provision applies and there is no suggestion that the market is outside New Zealand, it will be deemed that the relevant provision has the purpose, effect or likely effect of substantially lessening competition in a market for the purposes of s 27, and likely be assumed that the market is in New Zealand.

The requirement that the parties be "in competition with each other"

  1. The airlines go further. They submit that a requirement to plead and prove a market is inherent in the requirement to plead and prove that the parties supplied the goods or services "in competition with each other". Competition and markets, they submit, are not severable concepts. "Competition" should be read as "competition in a market [in New Zealand]".

  2. The strong tenor of the evidence of the airlines' experts was that competition must always occur in markets. The proposition is well supported by authority. It was observed in Re Queensland Co-operative Milling Association Ltd29 in an often quoted statement that:

    Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. ...

    " •

    It follows that the identification of markets must be the essential first step in assessment of present competition and likely competitive effects. In our view the usefulness of the "market" concept goes beyond the determination of market concentration to the identification of rivalrous relationships between sellers.

In Tru Tone Ltd v Festival Records Ltd Richardson J stated:3°

These two inter-related elements of competition in markets are crucial considerations under both s 36 and s 27.

... The identification of the relevant market is the first step towards the
assessment of the current state of competition and of the nature and extent of

29 Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 (TPT) at 516.

30 Tru Tone Ltd v Festival Records Ltd [1988] 2 NZLR 352 (CA) at 358. See also Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd (1987) 2 TCLR 141 (HC) at 64.

any inhibition of competition. At each step it is a practical jury question of fact and degree.

  1. It was observed by Barker J in Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd that "competition must always be understood as existing within the context of a market".31 This concept is also acknowledged in the Commission's guidelines, which at the beginning of the discussion of markets contained the statement "[m]arket definition is an integral part of competition analysis as it identifies the relevant area of competition".32 The Commission in its closing submissions accepted that any competition will occur in a market.

  2. While accepting that proposition, the Commission submitted "competition" and "market" are nonetheless distinct concepts. The Commission is required only to establish parties are in competition with each other, in which any aspect of market analysis is merely incidental. In support of its submission it drew a distinction of some force between two senses in which the word "competition" is used in s 30 (and the Act). The first is evaluative. This is the sense in which the word is used in "substantial lessening of competition in a market". Market definition is integral to assessing the impact on competition in this first sense. It can only be understood by reference to the structure and components of a particular market. The second sense is variously described as descriptive or relational. It describes the fact that persons in a market engage in rivalrous behaviour with each other. Market definition is not required where the word "competition" is used in this sense. It is this latter sense, the Commission submitted, in which the word "competition" is used in s 30(1)(a).

  3. The Commission submitted that thus understood it is clear that market definition is not required in order to establish for the purposes of s 30 that the parties supplied the services the subject of the alleged arrangement in competition with each other. The Commission relied on the legislative history and purpose of the provision and certain authority.

31 Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd at 64.

32 Commerce Commission "Mergers and Acquisitions Guideline" (2004) at [2.5].

  1. The Commission pointed to a change in the drafting of the Bill containing the definition of "competition" now contained in s 3(1).33 The original clause had read "'competition', in relation to a market, means workable or effective competition". This was changed by the Commerce and Marketing Committee to the current wording: "'competition' means workable or effective competition". The words "in relation to a market" were deleted.

  2. The deletion of the words "in relation to a market" is consistent with a legislative intention not to bind proof of competition to proof of markets. In s 29(1)(a), for example, or s 39(1)(a), where parties are required to be "in competition with each other", a market is not an element required to be proven. Competition is to be understood in its descriptive or relational sense.

  3. The Commission's interpretation is consistent with the purpose of the s 30

deeming provision.        Section 30 deems price fixing arrangements between
competitors per se illegal. Per se provisions establish a "bright line" providing certainty for the commercial community and enable relatively straightforward and inexpensive enforcement proceedings. Market definition is a complex and therefore costly exercise. The airlines' interpretation, as the Commission submitted, would rob s 30 of much of its clarity and intended efficacy.

  1. We accept, therefore, the Commission's argument that it is not necessary to imply after the word "competition" at the end of s 30(1)(a) and (b) the words "in a market" making it necessary to plead and prove a market in every case. Nevertheless, in a s 30 case the parties will, in fact, be competing in a market. The market will be the market for the supply or acquisition of goods or services the subject of the price fixing arrangement. That will be the market in which a substantial lessening of competition is deemed for the purposes of s 27. It is an underlying requirement that that market, for the reasons earlier outlined, must be in New Zealand.

Authority

  1. Academic authority is split on the general question of whether market definition is required for a claim under s 27 via s 30. The authors of Gault on Commercial Law stated in addressing the question whether a market definition exercise is required to determine whether two or more parties are "in competition with each other":34

    In contrast to s 29 which contains no reference to "market", s 30, via the deeming provision, inter-links to the s 27 "substantially lessening competition in a market" test. The Courts are likely, therefore, to read "in competition with each other" as meaning "in competition with each other in a market". Thus, a limited market identification exercise is likely to be called for.

The authors continued:

As long as the parties compete with each other for existing or potential customers within the market, the requirement will be satisfied.

163 Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300 at [15] and [62].

should not be read down to refer to a certain type of effect or a particular market. It pleads the alleged conduct affected both the market for air cargo services (the market in respect of which s 27 is alleged to have been breached via s 30) and the market for freight forwarding services. In the latter respect, it submitted that the freight forwarding services market was affected by the conduct because the higher fuel surcharge would have flowed through to higher prices in that market.

[249] The airlines submitted that for s 4 to apply the conduct must have been conduct that would have been prohibited by a substantive provision of the Act if it occurred in New Zealand, and must affect competition in the market in New Zealand in respect of which the substantive provision is alleged to have been breached. Any effect on the freight forwarding services market in New Zealand would therefore be irrelevant to the application of s 4.

Analysis

[250] Section 2(2)(a) provides:

2       Interpretation

...

(2)     In this Act,—

(a)     A reference to engaging in conduct shall be read as a

reference to doing or refusing to do any act, including‑

(i)The entering into, or the giving effect to a provision of, a contract or arrangement; or

(ii)The arriving at, or the giving effect to a provision of, an understanding; or

(iii)The requiring of the giving of, or the giving of, a covenant:

[251] Section 4 does not create any new prohibitions or offences. It cannot itself sustain a cause of action. Rather it operates extraneously to the substantive provisions of the Act. Like s 7 of the Crimes Act 1961, it is a section to be applied in conjunction with the substantive provisions of the Act to extend the reach of those

provisions, in certain circumstances, to conduct outside New Zealand. As was observed by Elias CJ in Poynter, the Act otherwise proceeds on the basis that it does not have extraterritorial effect because that is the assumption on which s 4 is drafted.164 Section 4 must therefore be read against the substantive provisions of the Act, and applied in conjunction with those provisions. An indication of this is afforded by s 2(2)(a)(i)-(iii) which are clearly referable to the substantive provisions of the Act.

  1. Section 4 requires that the overseas conduct affect "a market" in New Zealand. No assistance is given by the definition of market in s 3(1A). The indefinite article "a" in s 4 suggests that any market in New Zealand will do, rather than s 4 being confined to the market in respect of which the substantive provision is alleged to have been breached. Parliament might otherwise have used the words "the relevant" or a phrase to similar effect. Nevertheless, the meaning is not unambiguous. The indefinite article "a" has a certain neutrality in the context in which it appears. Section 4 is of general application. It is a conjunct to each of the substantive provisions of the Act. It can be read, if a purposive interpretation requires it, to refer to the market the subject of the substantive provision alongside which it is invoked.

  2. In certain other provisions the pronoun "that" is used. Section 3(5), for example, provides that for the purposes of s 27 a provision shall be deemed to have the effect of substantially lessening competition in a market if that provision and others taken together have the effect of substantially lessening competition in "that market". However, the substitution of the word "that" (or "the") would be meaningless in s 4, as s 4 is not referable to a specific provision.

  3. The Commission points out that if the conduct the subject of s 4 is to be construed as co-extensive with the conduct the subject of the relevant substantive provision, then it would appear to follow that every substantive provision requires proof of a market. In fact there are sections, such as s 37 (resale price maintenance by suppliers), that do not. However, where a market is not a specific ingredient of an offence, such as under s 37, there will nevertheless be a market in which the goods

164 Poynter v Commerce Commission at [15].

subject to retail price maintenance are sold, and that will be the relevant market for s 4 purposes, should s 4 be invoked. In a s 37 case, if this market was not a New Zealand market, it would not be expected that the Act would apply. The Act's purpose is to promote competition in New Zealand markets, not overseas markets, a point to which we return.

  1. In Commerce Commission v British American Tobacco Holdings (New Zealand) Ltd165 where the Court considered the inter-relationship between ss 4(1) and (3) in the context of a global merger agreement, it was argued that as the parties to the global merger agreement were overseas companies neither resident nor carrying on business in New Zealand, s 4(1) excluded the Act's application to the merger. The High Court in rejecting the argument observed:166

    Section 4(1) and (3) extend the operation of s 47 to the foreign acquisition of shares or assets in New Zealand businesses to the extent the acquisition affects New Zealand markets. Any affecting suffices. That plainly catches the transaction agreement and the 31 May, 20 July, and 26 August deeds to the extent that they affected the New Zealand tobacco products markets as, it is clear, they did. The Commerce Act 1986 therefore extends to those transactions ...

This statement was referred to by the Commission, but there is no suggestion in the judgment that the affected market can be different from that in which the breach occurred. Indeed, Williams J assumed that it was the same market in which the prohibition was allegedly breached that was relevant.

A purposive interpretation

  1. If parties enter into or give effect to a prohibited arrangement outside of New Zealand in relation to a market for goods or services outside of New Zealand, it would be somewhat surprising if a derivative effect on another different market in New Zealand had the consequence by virtue of s 4 of bringing that conduct within the purview of the Act. The substantive provisions are referable (expressly or by implication) to particular markets, except where this is otherwise made clear (for

165 Commerce Commission v British American Tobacco Holdings (New Zealand) Ltd (2001) 10

TCLR 320.

166 At [73].

example in s 36, "that or any other market"). It could be expected that the prohibited conduct would need to directly rather than derivatively affect a New Zealand market.

  1. The purpose of the Act, when s IA and s 31A are read together, is to promote competition in markets in New Zealand. If overseas anticompetitive conduct affects a different market (in New Zealand) from that in which the competition took place, a prohibition utilising s 4 is not promoting competition in a New Zealand market but rather an overseas market. That is beyond the express purpose of the Act. If the competition and the market in which it occurs are outside of New Zealand, the statutory purpose is not served in prohibiting it. As Jacobson J said at first instance in ACCC v Singapore Airlines Cargo Pte Ltd167 in relation to s 45 of the ATPA:

    It is not sufficient to assert that higher prices on routes between points outside Australia of themselves have an adverse price effect on consumers in Australia. What s 45(2) is concerned with is the effect on competition in a market in Australia, not the effect on consumers residing in Australia.

  2. Of course, not all sections in the Act require proof of a market, or indeed any express proof of an effect on competition. Nevertheless, the Act's purpose is to promote competition in New Zealand. An interpretation of the reach of s 4 which does not affect New Zealand competition, but rather may impact on competitive behaviour of protagonists outside of New Zealand in different markets, is inconsistent with the Act's purpose.

  3. The word "a" while not specific as to the market in question, is open to interpretation in accord with the Act's purpose. Essentially the Commission argues for an interpretation of s 4 whereby it can be invoked where there is an effect on any downstream market in New Zealand, no matter how distant. Even if a de minimis qualification is applied to such an argument so that the effect must be significant, that conclusion seems implausible. It would give the Act worldwide reach whenever effects were felt in New Zealand, and it happened that a protagonist was resident or carrying on business in New Zealand, albeit in a possibly completely unrelated business. We do not think that was the intention behind s 4.

  1. When s 4(1) is juxtaposed with s 27 it seems likely that the term "affects a market in New Zealand" is intended to refer to the market in which the proscribed effect (the substantial lessening in competition) occurs. If not, it would mean that price fixing which took place overseas which had the effect of substantially lessening competition in a market wholly out of New Zealand would be prohibited and could be the basis of a claim, even though it had no relevance to competition in New Zealand. This is not in accord with the Act's purpose. It would be a result driven by what might be the fluke of residence or place of business in New Zealand. The fact that New Zealand consumers were affected because of an effect on a New Zealand market is not relevant when set against the purpose. The purpose is not to stop ripple down effects from overseas price fixing which might indirectly affect a New Zealand market. It is to stop anti-competitive behaviour in this country. This conclusion does not change when the s 30 deeming applies, as the mischief the section is aimed at is the same, although of a specific type.

  2. We conclude in the words of issue 4, that the Act applies to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand where the conduct would be prohibited by a substantive provision of the Act if it occurred in New Zealand, and "affects a market in New Zealand" by affecting competition in the market in New Zealand in respect of which that substantive provision is alleged to have been breached.

  3. Therefore, in relation to issue 4, (b) is correct. The limitation defence

  4. The Commission's fourth amended statements of claim introduced an alternative formulation of the relevant market. The Commission's earlier pleadings alleged uni-directional markets to each region from New Zealand and from New Zealand to each region. Those pleaded markets were retained but an additional alternative pleaded market was introduced to cover all air cargo services between New Zealand and each region. That is, a two-way market including services in both directions. The airlines argued that this amounts to a new cause of action and is therefore time barred.

  1. Rule 7.77(2)(a) of the High Court Rules provides: 7.77 Filing of amended pleading

    (2) An amended pleading may introduce, as an alternative or otherwise,— (a) [relief in respect of] a fresh cause of action, which is not statute barred; or

    (Emphasis added.)

  2. Section 80(5) of the Act provides that proceedings seeking pecuniary penalties may be commenced within three years after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered. The Commission accepts that it discovered or ought reasonably to have discovered the matters giving rise to the alleged contraventions more than three years before the amended pleadings were filed.

  3. The question is whether the amended market pleadings raise fresh causes of action. The relevant principles were considered in Ophthalmological Society of New Zealand Inc v Commerce Commission168 and Transpower New Zealand Ltd v Todd Energy Ltd169 and are not in dispute. A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another. An amended pleading raises a fresh cause of action if it is something essentially different from that which was pleaded earlier. Whether there is such a change is a question of degree. A plaintiff will not be permitted to set up a new case varying so substantially from the previous pleadings that it would involve investigation of factual or legal matters, or both, different from what have already been raised and of which no fair warning has been given.

  4. In the Ophthalmological case the Commission had earlier pleaded that the defendants entered into an arrangement or understanding having the purpose or effect of substantially lessening competition in the market for the supply of routine

168 Ophthalmological Society of New Zealand Inc v Commerce Commission CA168/01, 26 September 2001 at [24]-[24].

169 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61].

cataract surgery in Southland. It proposed an amended pleading extending the market from Southland to a national market. The majority considered the change to the pleading of the market from one pertaining to the region of Southland only to the national market created a "new case" and therefore the proposed amendment amounted to a new cause of action:17°

It is a question of fact and degree when a proposed change to the pleading of a market will produce a new case. If, for example, the proposed pleading sought only to extend the market from Southland to Otago and Southland that might, in relation to ophthalmology, be a relatively insignificant change. It is to be supposed that an analysis of a Southland market would require consideration of services available to Southlanders in Dunedin and perhaps even somewhat further afield. Now, however, the survey of competition must encompass the whole country. That, it seems to us, would be a very different proposition, particularly when coupled with a different and more wide-ranging allegation concerning the nature of the proposed arrangement or understanding.

[268] Gault J, in dissent, observed that where conduct contravenes a statutory provision only in certain factual contexts the context that makes the conduct unlawful is to be pleaded.171 Under s 27 of the Act conduct is only unlawful where it has the purpose or effect of substantially lessening competition in a market.'72 Accordingly the market is generally the subject of a pleaded definition. The ultimate finding on market definition involves an analysis of business rivalry and a full review of the competitive process, calling for mixed legal and economic analysis. He observed:

[44]      In my view it is not appropriate to adopt the same approach to the context or consequence elements of the cause of action as for the alleged contravening conduct. ... The Judge was merely saying that a widened market definition did not alter the cause of action so as to set up a new one. ...

[45]      I have not been persuaded that was wrong.

[269] A market can be a difficult and elusive concept to delineate. In a case such as this, attended by particular conceptual difficulties, it is not at all surprising that the market pleadings will be reconsidered and may undergo some modification. The fourth amended market pleading is not something wholly different from that which

170 At [32].

  1. At [38].

172 Ibid.

was pleaded earlier. The Commission had earlier pleaded that there were separate markets in respect of each region for air cargo services from New Zealand to each region and to New Zealand from each region. The amended market pleading aggregates these two markets. There is no new or substantially different factual or legal inquiry required of the airlines, although there is the new economic concept of the aggregated market. The position can be distinguished from that in the Ophthalmological case where the amended market pleading was of a market greatly different in nature and geographic extent, requiring a redirected and more burdensome competitive analysis Here we do not accept that the addition of the aggregated market constitutes a change of the same moment as that in the Ophthalmological case.

  1. We note also that the complementarities in supply between inbound and outbound routes which lie at the heart of the amended market pleading were addressed in both the initial briefs of Professor Williams and Dr Niels. Although the question whether the amended market pleadings raise fresh causes of action does not turn on the question of prejudice, the raising of this material when the earlier pleadings applied indicates the limited nature of the change.

  2. The question is in the end one of degree. We conclude that the amended market pleadings do not raise any significant new factual or legal issues. At most the amended pleadings may have required some further expressions of opinion from the airlines' experts. We conclude that the amended market pleadings do not raise fresh causes of action and therefore are not time barred under s 80(5) of the Act.

  3. The answer to question 5 is "no", the amendments are not statute barred. Result

  4. In conclusion we answer the questions following the headings set out in the statement of issues as follows:

    (a)      Section 30 issue: 2(b) is correct. For the purposes of its claims under

the pleaded services subject to the alleged price fixing arrangement were supplied by the defendants in competition with each other in a market in New Zealand.

(b)     Follow-on issues in the questions posed: 3(a) and 3(b) are both

answered "yes". The activities described in the evidence undertaken by the defendants with respect to inbound air cargo services constitute the supply by them of air cargo services in competition with each other in New Zealand. There is a market in New Zealand for air cargo services from an overseas country or region to New Zealand.

(c)      Section 4 issue: 4(b) is correct. The Act applies to the engaging in

conduct outside New Zealand by any person resident or carrying on business in New Zealand where the conduct:

(i)would be prohibited by a substantive provision of the Act if it occurred in New Zealand; and

(ii)"affects a market in New Zealand" by affecting competition in the market in New Zealand in respect of which that substantive provision is alleged to have been breached.

(d)    Bi-directional market limitation issue: The amendments in the

Commission's fourth amended statements of claim to introduce a pleading of "bi-directional markets" for air cargo services are not statute barred under s 80(5) of the Act.

[274] No consequential orders have been sought. As the case is part-heard and this is a judgment on particular issues, leave is reserved for the parties to apply for further orders.

Costs

[275] Costs are reserved. If the parties wish to pursue the issue of costs at this point it will be necessary to convene a telephone conference to set a timetable.

AsherLi

Professor MIC)-'ichardson

Solicitors/Counsel:

Meredith Connell (Auckland) for Commerce Commission

Bell Gully (Auckland/Wellington) for Air New Zealand & Singapore Airlines

Wilson Harle (Auckland) for Messrs Elmsly, Gregg & Turner

Gilbert Walker (Auckland) for Mr Lawless

Chapman Tripp (Auckland) for Japan Airlines & Cargolux Airlines International SA

Buddle Findlay (Auckland) for Emirates

Kensington Swan (Auckland) for Malaysian Airlines

Simpson Grierson (Auckland) for Korean Air Lines

Lowndes Associates (Auckland) for Thai Airways

DLA Phillips Fox (Auckland) for Cathay Pacific

Miriam Dean QC; TC Weston QC; AR Galbraith QC; Alan Lear

Actions
Download as PDF Download as Word Document
Cases Cited

1

Statutory Material Cited

1

Poynter v Commerce Commission [2010] NZSC 38