Commerce Commission v Emirates
[2012] NZHC 1858
•27 July 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
COMMERCIAL LIST
CIV 2008-404-8349 [2012] NZHC 1858
BETWEEN THE COMMERCE COMMISSION Plaintiff
ANDEMIRATES Defendant
Hearing: 26 July 2012
Appearances: J C L Dixon and F J Cuncannon for plaintiff
M R Dean QC and A Birkinshaw for defendant
Judgment: 27 July 2012
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3.30 pm on Friday 27 July 2012
Solicitors/counsel :
Crown Solicitor Auckland [email protected]
Buddle Findlay, Auckland [email protected] [email protected]
COMMERCE COMMISSION V EMIRATES HC AK CIV 2008-404-8349 [27 July 2012]
[1] The defendant (Emirates) having admitted breaches of Part 2 of the Commerce Act 1986 (the Act), the plaintiff asks the Court to impose a pecuniary penalty. The Commission and Emirates are agreed that an aggregate penalty of $1.5 million is appropriate, together with costs totalling $259,079.18.
Background
[2] Emirates is a Dubai corporation established by decree of the Ruler of the Emirate of Dubai in 1985. During the relevant period it carried on business in New Zealand and elsewhere as a carrier by air of both passengers and cargo. In 2006, it was the ninth largest airline in the world in terms of freight volume carried. It has about 18,000 staff, and operates in some 82 countries in the international air freight industry, which involves all facets of the movement of goods by air on passenger aircraft, using available belly air space capacity and on dedicated air freighters.
[3] Emirates commenced operations to New Zealand in August 2003. Between October 2001 (at the earliest), and August 2003 (at the latest), Emirates reached an understanding with PT Guruda Indonesia and other members of the Air Cargo Representative Board Indonesia, regarding the imposition of a fuel surcharge on cargo carried by air from Indonesia to New Zealand (the FSU). Under the FSU, Emirates and other participants would:
(a) exchange information as to their fuel surcharge intentions on Air
Cargo Services from Indonesia to New Zealand;
(b) charge a fuel surcharge on Air Cargo Services from Indonesia to New
Zealand in accordance with those expressed intentions;
(c) adjust or maintain the fuel surcharges on Air Cargo Services from Indonesia to New Zealand, as agreed at meetings between the participants.
[4] Fuel surcharges were imposed in order to meet the rising cost of aviation fuel. Similar arrangements were made between participating carriers in respect of the imposition of a security surcharge on cargo carried by air from Indonesia to New Zealand (participants entered into a Security Surcharge Understanding (SSU) in order to recover, at least in part, the cost of taking certain security initiatives following terrorist activities in the USA in September 2001). Participants in the SSU reached materially the same understandings as participants to the FSU.
[5] Between August 2003 and February 2006, Emirates and other participants gave effect to both the FSU and the SSU, in respect of the carriage of freight from Indonesia to New Zealand by:
(a) giving and receiving assurances that particular surcharges would be mutually imposed on the carriage of such freight; and
(b)each increasing or maintaining its fuel and security surcharge levels on the carriage of freight from Indonesia to New Zealand, in accordance with those assurances.
[6] The conduct ceased in about February 2006, when allegations concerning similar surcharges were publicised following raids undertaken by competition agencies in the USA and Europe.
The breaches
[7] For the purposes of this proceeding only, Emirates accepts that it committed breaches of the Act by entering into the FSU and SSU respectively (in breach of s 27(1) of the Act via s 30), and by giving effect to the FSU and the SSU (in breach of s 27(2) via s 30 of the Act).
Legislation
[8] Section 27 of the Act relevantly provides:
27Contracts, 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.
…
[9] Section 30 of the Act provides:
30Certain 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.
(2) The reference in subsection (1)(a) of this section to the supply or acquisition of goods or services by persons in competition with each other includes a reference to the supply or acquisition of goods or services by persons who, but for a provision of any contract, arrangement, or understanding would be, or would be likely to be, in competition with each other in relation to the supply or acquisition of the goods or services.
[10] Under s 30 of the Act, the admitted conduct is per se illegal because price fixing agreements restrict competition and are detrimental to economic welfare without any beneficial effects. By co-ordinating behaviour, competitors can achieve monopolistic outcomes in a market that would otherwise be subject to market forces.
[11] It is often said that, where cartel behaviour is identified, punishments must be condign. That is because it is necessary both to ensure that the participant is stripped of any profits derived from the illegal behaviour, and to serve as an appropriate deterrent in a class of case where, because illegal behaviour is often covert, detection will sometimes be avoided.
[12] Those considerations are reflected to some extent in s 80 of the Act, which confers on the Court jurisdiction to impose pecuniary penalties for breaches of Part 2. Section 80, as now constituted, provides:
80 Pecuniary penalties
(1) If the Court is satisfied on the application of the Commission that a person—
(a) Has contravened any of the provisions of Part 2 of this Act;
or
(b) Has attempted to contravene such a provision; or
(c) Has aided, abetted, counselled, or procured any other person to contravene such a provision; or
(d) Has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene such a provision; or
(e) Has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of such a provision; or
(f) Has conspired with any other person to contravene such a provision,—
the Court may order the person to pay to the Crown such pecuniary penalty
as the Court determines to be appropriate ….
(2) The Court must order an individual who has engaged in any conduct referred to in subsection (1) to pay a pecuniary penalty, unless the Court considers that there is good reason for not making that order.
(2A) In determining an appropriate penalty under this section, the Court must have regard to all relevant matters, in particular,—
(a) any exemplary damages awarded under section 82A; and
(b) in the case of a body corporate, the nature and extent of any commercial gain.
(2B) The amount of any pecuniary penalty must not, in respect of each act or omission, exceed,—
(a) in the case of an individual, $500,000; or
(b) in the case of a body corporate, the greater of—
(i) $10,000,000; or
(ii) either—
(A) if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing a commercial gain, 3 times the value of any commercial gain resulting from the contravention; or
(B) if the commercial gain cannot be readily ascertained, 10% of the turnover of the body corporate and all of its interconnected bodies corporate (if any).
(3) Repealed.
(4) Repealed.
(5) Proceedings under this section may be commenced within 3 years after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered. However, no proceedings under this section may be commenced 10 years or more after the matter giving rise to the contravention.
(6) Where conduct by any person constitutes a contravention of 2 or more provisions of Part 2 of this Act, proceedings may be instituted under this Act against that person in relation to the contravention of any one or more of the provisions; but no person shall be liable to more than one pecuniary penalty under this section in respect of the same conduct.
[13] Prior to its amendment in May 2001, the section required the Court to determine an appropriate penalty, subject to the statutory maximum, by having regard to all relevant matters, including:
(a) the nature and extent of the act or omission;
(b)the nature and extent of any loss or damage suffered by any person as a result of the act or omission;
(c) the circumstances in which the act or omission took place; and
(d)whether or not the person had previously been found by the court in proceedings under Part 6 of the Act, to have engaged in any similar conduct.
[14] Since May 2001, s 80 has required the Court to determine an appropriate penalty subject to the statutory maximum by:
(a) having regard to all relevant factors;
(b)having particular regard to the nature and extent of any commercial gain.
[15] It is well established that the reference to “all relevant factors” will bring to
account all those factors previously set out in s 80.1
Sentencing principles
[16] In Alstom, Rodney Hansen J discussed the significant public interest in bringing about the prompt resolution of penalty proceedings, and the role of the Court in ensuring the efficacy of negotiated resolutions.2 His Honour stated that:
[18] Finally, in discussing the general approach to fixing penalty, I acknowledge the submission that the task of the Court in cases where penalty has been agreed between the parties is not to embark on its own enquiry of what would be an appropriate figure but to consider whether the proposed penalty is within the proper range – see the judgment of the Full Federal Court in NW Frozen Foods v ACCC (1996) 71 FCR 285. As noted by the Court in that case and by Williams J in Commerce Commission v Koppers, there is a significant public benefit when corporations acknowledge wrongdoing, thereby avoiding time-consuming and costly investigation and litigation. The Court should play its part in promoting such resolutions by accepting a penalty within the proposed range. A defendant should not be deterred from a negotiated resolution by fears that a settlement will be rejected on insubstantial grounds or because the proposed penalty does not precisely coincide with the penalty the Court might have imposed.
1 Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [19].
2 Ibid at [18].
[17] In Commerce Commission v Geologistics International (Bermuda) Ltd, I noted also His Honour’s analysis of the place of ordinary criminal sentencing principles in the context of cases under the Act.3 There I said:
[18] In Commerce Commission v Alstom Holdings SA,4 Rodney Hansen J confirmed that criminal sentencing principles provide an appropriate framework for the assessment of a proposed penalty under the Commerce Act. His Honour said:
[14] The parties invite me to consider the proposed penalty, broadly by reference to orthodox sentencing principles. That requires assessing the seriousness of the offending, identifying relevant aggravating and mitigating factors to determine an appropriate starting point and, finally, having regard to any factors specific to the defendant that may warrant an uplift in, or reduction from, the starting point. I accept that approach is appropriate. It is consistent with the statute and is endorsed by practice in New Zealand and other jurisdictions.
[19] I agree with that approach.5 But while the analogy with sentencing in the ordinary criminal jurisdiction provides broad assistance, a degree of caution is advisable, as Rodney Hansen J pointed out in Commerce Commission v EGL Inc.6 The two jurisdictions serve markedly different ends. The primary purpose of pecuniary penalties for anti-competitive conduct is deterrence, but a range of other factors will be relevant as well. The identification of those factors and the weighting to be accorded them when fixing pecuniary penalties must, as Rodney Hansen J observed,7 be informed by the distinctive character and consequences of anti-competitive conduct.
[20] Among the factors which will be relevant are:
a. The duration of the contravening conduct;
b.The seniority of the employees or officers involved in the contravention;
c.The extent of any benefit derived from the contravening conduct;
d. The degree of market power held by the defendant;
e. The role of the defendant in the impugned conduct;
f. The size and resources of the defendant;
3 Commerce Commission v Geologistics International (Bermuda) Ltd HC Auckland CIV-2010-404-
5490, 22 December 2010.
4 Alstom Holdings SA above fn 1.
5 New Zealand Bus Ltd v Commerce Commission [2008] 3 NZLR 433 (CA) at [197]; Commerce Commission v Koppers Arch Wood ( NZ) Ltd (2006) 11 TCLR 581 (HC) at [18]; and Commerce Commission v New Zealand Diagnostic Group Ltd HC Auckland CIV-2008-404-4321, 19 July 2010 at [15].
6 Commerce Commission v EGL Inc HC Auckland CIV-2010-404-5474, 16 December 2010 at [13].
7 Alstom Holdings at [14].
g. The degree of co-operation by the defendant with the
Commission;
h. The fact that liability is admitted;
i. The extent to which a defendant has developed and implemented a compliance programme.
[18] I continued:
[37] Ultimately, it is the final figure which the Court is asked to approve. The identification of appropriate starting points and discounts for mitigating factors are simply tools aimed at producing a result which is in accordance with the ends of justice and which properly reflects the aims and objectives of the Act.
[19] It follows that, provided I am satisfied that the ultimate penalty falls within the appropriate available range, the Court ought to accept the penalty proposed by the parties.
[20] In Commerce Commission v New Zealand Diagnostic Group Ltd, I noted that:8
The general approach of the Court is to accept and impose a penalty which has been agreed between the parties, so long as it is within the Court determined permissible range: Australian Competition & Consumer Commission v ABB Power Transmission Pty Ltd;9 NW Frozen Foods v Australian Competition & Consumer Commission.10 That approach is also adopted in this country. In the Gas Insulated Switchgear case [Alstom] Rodney Hansen J said at [18]:
… there is a significant public benefit when corporations acknowledge wrongdoing, thereby avoiding time-consuming and costly investigation and litigation. The Court should play its part in promoting such resolutions by accepting a penalty within the proposed range. A defendant should not be deterred from a negotiated resolution by fears that a settlement will be rejected on insubstantial grounds, or because the proposed penalty does not precisely coincide with the penalty the Court might have imposed.
Penalty assessment
[21] The proper approach to penalty assessment under s 80 is to:
8 Commerce Commission v New Zealand Diagnostic Group Ltd at [45]
9 Australian Competition & Consumer Commission v ABB Power Transmission Pty Ltd; (2004) ATPR
48,848 at 48,855.
10 NW Frozen Foods v Australian Competition & Consumer Commission (1996) 71 FCR 285.
(a) determine the maximum penalty;
(b)establish an appropriate starting point aimed at achieving the principal object of deterrence in the light of relevant factors, including available information about commercial gain; and
(c) adjust the starting point for defendant specific factors.
[22] It is common ground that the whole of Emirates’ conduct is to be considered under the amended s 80, which provides that the statutory maximum for each breach is the greater of:
(a) $10 million; or
(b) either
(i)three times the commercial gain from the breach if it can be readily ascertained; or
(ii)10% of turnover from trading within New Zealand if the commercial gain from the breach cannot be readily ascertained.
[23] Here, it is agreed that the actual commercial gain is not readily ascertainable. Indeed, total surcharge revenue in respect of in-bound flights from Indonesia to New Zealand (the only market of relevance in the present case), was less than $1000.
10% of Emirates’ annual turnover from trading within New Zealand during the period of the contravening conduct, is less than $10 million. Consequently, the parties are content to proceed on the basis that the maximum penalty for each breach was $10 million.
[24] Under s 80(6) of the Act, no person is liable to more than one pecuniary penalty in respect of the same conduct. But it is agreed that the FSU and the SSU arose from separate agreements, so they are plainly different conduct. Moreover, entry into and giving effect to the understandings also constitute distinct conduct and
are separate offences under ss 27(1) and (2) of the Act respectively. Consequently, as Emirates is liable for entering into and giving effect to each of the surcharge understandings, the maximum available penalty in this case is $40 million.
[25] While general and specific deterrence is of primary importance, other matters will be relevant in determining the starting point. They have been summarised in several recent judgments of this Court, and will normally include:11
(a) the nature and seriousness of the contravening conduct; (b) whether it was deliberate or not;
(c) the duration of the conduct;
(d)the seniority of the employees or officers involved in the contravention;
(e) the extent of any benefit derived from the conduct;
(f) the extent of any loss of damage suffered by any person as a result of the conduct;
(g) the degree of market power held by the defendant; (h) the role of the defendant in the impugned conduct; (i) the size and resources of the defendant;
(j) the degree of co-operation by the defendant with the Commission;
(k) the fact that liability is admitted;
11 Alstom at [20]; Commerce Commission v Carter Holt Harvey Building Products (2009) 9 TCLR
636 at [15]; Commerce Commission v Ophthalmological Society [2004] 3 NZLR 689 (HC) at [17]
and Commerce Commission v New Zealand Bus Limited (No 2) (2006) 3 NZCCLR 854 (HC) at [20].
(l)the extent to which the defendant has developed and implemented a compliance programme.
[26] Where a defendant has admitted a number of separate breaches of the Act, it will generally be convenient to view the contravening behaviour as a single related course of conduct. Adopting that course facilitates the determination of penalty and enables the Court to maintain consistency between cases. That course has been adopted in most recent cases including those involving airline defendants in cargo
cases.12
[27] It is convenient to consider together, Emirates’ contravening conduct in respect of both the FSU and the SSU. The only significant difference between them was that security surcharges were always imposed on in-bound Air Cargo Services from Indonesia to New Zealand, while this was not always the case for the fuel surcharges under the SSU.
[28] It is common ground that the defendant’s conduct was at the serious end of the spectrum. As a price fixing arrangement, it is deemed to be anti-competitive per se. The surcharges comprised only part of the total charges to customers for Air Cargo Services, but the understandings must inevitably have affected price competition and so impacted upon competitive dynamics in the relevant market.
[29] International cargo services generally are an important input for goods and services supplied throughout the New Zealand economy, but it is to be borne in mind that the in-bound market for air cargo between Indonesia and New Zealand is not especially large. Total surcharge revenue was very limited, and so to that extent this case may be distinguished from some of those in which such revenues were very substantial indeed.
[30] I accept that this was not a “one-off” transgression, but part of a sustained
course of action. Moreover, the understandings were the result of a planned and
12 Commerce Commission v Cargolux Airlines International SA HC Auckland CIV-2008-404-8355, 5
April 2011; Commerce Commission v British Airways Plc HC Auckland CIV-2008-404-8347, 5 April
2011; Commerce Commission v Qantas Airways Ltd HC Auckland CIV-2008-404-8366, 11 May
2011.
methodical initiative involving senior employees of Emirates in Indonesia, which ceased only when search warrants were executed by regulatory bodies in the USA and Europe in 2006.
[31] But the defendant’s conduct was neither sophisticated nor particularly covert, nor indeed rigorously enforced or implemented. Airlines were not forced to join the understandings and the conduct was not designed to eliminate all competition between them. There is no suggestion that Emirates coerced any other airline in any way in respect of the understandings.
[32] It is appropriate to say something more about the question of commercial gain, accepted in this case to have been no more than minimal at best. Despite that, it is important to take account of the overall potential and actual harm caused by any cartel arrangement. The Court is not confined to an analysis of the direct harm or loss caused by the conduct of a particular defendant.
[33] In Commerce Commission v Japan Airlines,13 I noted that:
[44] It is likely that JAL derived some commercial benefit, and equally likely that customers and consumers who imported and exported goods suffered a corresponding detriment. Moreover, in cases like this, it is proper to infer that there will have been a degree of softening of competition overall, particularly in respect of prices, in that JAL and other participants were able to impose a surcharge without the need to consider the likely commercial response of competitors.
[34] Further, I accept that even where, as here, commercial gain is difficult to quantify, the Court must bear in mind the need for deterrence, both specific and general. Deterrence is a factor which must be placed at the forefront of any penalty assessment.14
[35] I accept also that it will be relevant to take into account the size and resources of the contravening company when considering the extent to which deterrence ought
to be reflected in the ultimate pecuniary penalty..
13 Commerce Commission v Japan Airlines [2012] NZHC 1683, 6 July 2012.
14 Commerce Commission v Telecom Corporation of New Zealand Ltd (2011) 13 TCLR 270 at [57];
Qantas at [49].
[36] Against that factual background, the Commission considers an appropriate starting point to lie in the range between $1.8 and $2.3 million for entering into and giving effect to both the Indonesia FSU and the Indonesia SSU. Counsel are agreed that this range is consistent with recent decisions of this Court. I turn therefore to a brief review of some of those cases.
[37] In British Airways.15 Potter J approved a pecuniary penalty of $1.6 million after discounting from a starting point of $2.5 to $3 million. Some aspects of British Airways’ conduct were more serious than that of Emirates. British Airways had reached a covert agreement with Lufthansa with respect to worldwide fuel charges, rather than only out of certain hubs. British Airways also gave effect to the FSU in which it was involved for a slightly longer period than Emirates. Its relevant surcharge revenue was also higher. But British Airways was a smaller participant in New Zealand in terms of overall cargo revenue, and for at least some of the period, it did not fly to New Zealand. It interlined with Qantas instead. Importantly, British Airways did not enter into any SSUs.
[38] In Cargolux,16 Potter J approved a pecuniary penalty of $6 million, after discounting from a starting point of $8.5 million to $14.5 million. Cargolux was involved in a worldwide agreement to impose fuel surcharges as well as a second worldwide agreement to impose security surcharges. Its conduct extended over a longer period than that of Emirates, and its cargo revenue was significantly higher than Emirates. Its combined surcharge revenue was $12.5 million. That case was substantially more serious than this one.
[39] In Japan Airlines I approved a pecuniary penalty of $2.275 million after discounting from a starting point of $3.1 to $3.9 million. Japan Airlines had entered into agreements to impose fuel and security surcharges in a number of different markets. The agreements operated for some years. Japan Airlines’ combined surcharge revenue was $823,718. Against that case was significantly more serious
than this one.
15 British Airways Plc.
16 Cargolux Airlines International SA.
[40] In Qantas, I approved a pecuniary penalty of $6.5 million after discounting from a starting point of $13 million. Qantas was involved in a worldwide agreement to impose fuel surcharges, but it did not enter into any understandings in respect of security surcharges. Its surcharge revenue was of the order of $31 million. It was a proper inference that there had been substantial commercial gain. That case was plainly worse than the present case.
[41] Finally, in a judgment being delivered contemporaneously with the present judgment, I have approved a pecuniary penalty of $3.5 million in respect of Korean Air.17 Korean Air had entered into both an FSU and an SSU. For the purposes of that case, it was agreed that the impugned behaviour was confined to in-bound traffic on routes from Hong Kong, Japan and Malaysia respectively to New Zealand. The understandings operated for periods of six and four years respectively. Total surcharge revenue was of the order of $300,000 over that period. Again, that case was more serious than this. The understandings affected a greater number of markets. Surcharge revenue was higher and the offending period was significantly
longer.
[42] Four other cases may usefully be considered. In Alstom a penalty of $1.05 million was imposed after discounting from a starting range of $1.25 to $1.75 million, in relation to a worldwide price fixing understanding for a key component in electrical substations, even though there was no pecuniary gain associated with the conduct. The cartel in Alstom sought to fix “budget inquiries” for possible purchases, but none eventuated. That was a case under the former s 80 regime, with a maximum penalty of $5 million.
[43] In EGL, a starting range of $2.3 to $2.8 million was adopted for entering into and giving effect to a price fixing agreement, on a fee charged by freight forwarders for all freight forwarding services for cargo shipped between New Zealand and the United Kingdom, from about October 2002 until no later than October 2007. As here, the price fixing arrangement related to only one component of the service price. Commercial gain was thought to be something over NZ$100,000. All of the conduct fell under the new penalty regime.
[44] In Geologistics a starting range of $3.75 to $4.25 million was adopted for entering into and giving effect to a price fixing agreement on a fee charged by freight forwarders for all freight forwarding services for cargo shipped to and from New Zealand via the USA between about 2003 and 2007. Accordingly, like EGL and this case, the price fixing arrangement related only to a component of the price of the service. Commercial gain was acknowledged to be substantial. All of the conduct occurred under the new penalty regime. A higher starting point than in EGL was appropriate by reason of Geologistics’ larger New Zealand operation and turnover.
[45] Finally, in Commerce Commission v Whirlpool SA, the Court was concerned with the markets in New Zealand for domestic and light commercial hermetic compressors under one horsepower.18 The two largest suppliers in the New Zealand market entered into an understanding that each would increase prices during the relevant period, and for that purpose met and exchanged information and market intelligence. The parties to the understanding did substantially increase their prices to New Zealand customers during the currency of the understanding, although it was accepted that the defendant’s input costs increased at a greater rate than its prices to
New Zealand customers. The defendant enjoyed about a one-fifth share of the New Zealand market. The value of its sales here was of the order of about $3 million per annum. No actual commercial gain was established. I adopted the starting point of
$4 to $6 million suggested by the counsel for the Commission (counsel for the defendant advocated a slightly lower starting point).
[46] A comparison of starting points in other cases can provide only general assistance. The extent of the established commercial gain will be of significant importance. Here, the direct gain was minimal because surcharge revenue itself was minimal.
[47] Counsel are agreed that the greatest assistance for comparison purposes, is to be derived from Alstom, British Airways, and Japan Airlines. Alstom, although decided under the old penalty regime, sets something of a tariff for egregious cartel conduct with a de minimus effect in New Zealand. In that case a cartel was in existence but no customers were affected by it during the relevant period, because no
purchases occurred. In comparing Alstom with more recent cases, it is however necessary to bear in mind the significant increase in maximum penalties that occurred in 2001. Having said that, I accept that Emirates’ conduct was far removed from the highly sophisticated and covert price fixing and market sharing that occurred in Alstom, which was a particularly bad case.
[48] British Airways is useful because the starting point chosen there ($2.5 to $3 million), was a little higher than the present proposed starting point. That is because the British Airways case was on balance, slightly more serious, having regard to the worldwide character of the understandings in which British Airways participated, the higher surcharge revenue derived there and the longer period of infringing behaviour.
[49] Japan Airlines is also helpful, although again, the starting point was higher there than in the present case. That is because the scope of the conduct was broader, the period of the relevant conduct longer, and surcharge revenue significantly greater.
[50] Having carefully reviewed the judgments in the earlier cases, I am satisfied that the initial starting range of $1.8 to $2.3 million proposed by the Commission is appropriate.
[51] I turn therefore to factors specific to the defendant. First there is the admission of liability. Although Emirates defended the proceedings for some time (they were filed on 15 December 2008), it promptly sought to resolve matters following the delivery of the recent judgment on the preliminary jurisdictional argument, in respect of these associated proceedings (the so-called stage one hearing).
[52] Emirates has co-operated with the Commission during the course of the air cargo investigation and provided it with information not held in New Zealand. It will not be providing assistance at the same level as has been proffered by certain other airline defendants, simply because it has nothing more to offer. Its participation in the Indonesian arrangements was relatively limited, and it was not a
participant at all in any of the worldwide cartels which have come to light since the authorities took their first investigatory steps early in 2006.
[53] Further, to the extent that a corporate defendant is able to demonstrate remorse, I am satisfied Emirates has done so. One particular feature is that the defendant has made a contribution of $400,000 to the Commission’s investigation costs, beyond the costs of the proceeding which are to be the subject of Court order. I infer that the additional payment was, in effect, voluntary. That suggests to me that Emirates is, as befits a major international corporate entity, conscious of its reputation and of the need to make amends so far as it can.
[54] In that context, it is important to mention the fact that, beyond proceedings in Australia not yet resolved, Emirates has not been involved in any other criminal or regulatory proceedings elsewhere arising out of its corporate behaviour. Its position is therefore to be distinguished from that of many of the other defendants in the New Zealand litigation, where in several instances, very significant penalties have been imposed in other jurisdictions.
[55] The Court is advised that Emirates has taken major steps to strengthen its compliance training, including the preparation of a substantially revised compliance manual, together with face to face training sessions for staff.
[56] It is relevant also to note that Emirates’ entry into the FSU and the SSU occurred on the initiative of management in Indonesia. It is not suggested that senior company officers in Dubai or any staff in New Zealand, had any knowledge of the understandings until after they came to an end.
[57] Finally, I note that Emirates is a very substantial company which has the resources to pay the recommended penalty.
[58] Counsel are agreed that in the light of all of the mitigating factors set out above, a discount of 25% is appropriate. That produces a final penalty in the range of $1.35 to $1.725 million. The recommended penalty sits at about the middle of that range. I agree that the proposed discount is in order. It is lower than has been
permitted in some other airline cases, but that is explicable by reason of the fact that in those other instances, airlines were able to proffer additional co-operation to the Commission, which Emirates is unable to supply by reason of the limited character of its breaches of the legislation.
Result
[59] The proposed pecuniary penalty is approved. There will accordingly be an order directing Emirates to pay to the Commission the sum of $1.5 million. Emirates is further ordered to pay costs to the Commission of:
(a) $159,079.18 for the stage one hearing; and
(b) $100,000 for the Commission’s other Court costs.
C J Allan J
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