Commerce Commission v Japan Airlines Co Ltd - [2012] NZHC 1683

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-8348 [2012] NZHC 1683

BETWEEN THE COMMERCE COMMISSION Plaintiff

ANDJAPAN AIRLINES CO LIMITED Defendant

Hearing: 29 June 2012

Appearances: J C L Dixon and F J Cuncannon for plaintiff
D S Alderslade and J W J Graham for defendant

Judgment: 29 June 2012

Reasons: 6 July 2012

REASONS FOR JUDGMENT OF ALLAN J

Solicitors:
B W F Brown QC, Wellington Brendan.brown@xtra.co.nz
Meredith Connell, Auckland J C L Dixon, john.dixon@meredithconnell.co.nz Chapman Tripp, Auckland justin.graham@chapmantripp.com Doug.alderslade@chapmantripp.com

THE COMMERCE COMMISSION V JAPAN AIRLINES CO LIMITED HC AK CIV 2008-404-8348 [29 June
2012]

Introduction

[1] The defendant, formerly Japan Airlines International Co Ltd (JAL), has admitted breaches of Part 2 of the Commerce Act 1986 (the Act). The plaintiff accordingly asks the Court to impose a pecuniary penalty. The Commission and JAL are agreed that an aggregate penalty of $2.275 million is appropriate, together with costs totalling $259,079.18.

[2] At the hearing on 29 June 2012 I indicated to counsel that I was satisfied that the orders sought were appropriate, made the orders accordingly, and advised that these reasons would follow in due course.

Background

[3] JAL is a company incorporated in Japan. During the relevant period it carried on business in New Zealand and elsewhere, as a carrier by air of both passengers and cargo. It was approximately the 12th largest airline in the world in terms of revenue passenger kilometres. It had about 15,000 staff and operated in some 34 countries.

[4] JAL is a participant 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.

[5] During the period with which this case is concerned, JAL did not fly its own aircraft to or from New Zealand on scheduled flights, but it offered air cargo services to and from New Zealand using Air New Zealand aircraft, pursuant to a joint services agreement with Air NZ signed on 31 March 1993.

[6] For the purposes of this proceeding, JAL and the Commissioner are agreed that during the relevant period markets existed, including in New Zealand, for air cargo services between New Zealand and individual regions throughout the world.

During all or part of the relevant period, JAL provided air cargo services in a number of those markets either directly or indirectly by interlining in the air cargo markets between New Zealand and:

(a) United States of America;

(b) Europe, including the European Union and Norway, but not

Switzerland (Europe); and

(c) Asia.

[7] More than a dozen airlines competed with each other to supply air cargo services in these markets.

[8] The impugned conduct in this case concerns what have been termed the Fuel Surcharge Understandings (FSU) and the Security Surcharge Understanding (SSU) respectively.

[9] The FSU commenced in about January 2000, and involved competitors in a number of regions where cargo was flown to and from New Zealand, including the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] NZHC 1683
Decision Date: 29 June 2012

CaseChat Overview and Summary

The defendant, Japan Airlines Co Ltd (JAL), admitted to breaches of Part 2 of the Commerce Act 1986 (the Act) through entering into and giving effect to the Fuel Surcharge Understandings (FSU) and the Security Surcharge Understanding (SSU) respectively. These understandings involved the coordination of fuel and security surcharges on air cargo services to and from New Zealand. The plaintiff, the Commerce Commission, sought a pecuniary penalty for these breaches. The court was required to decide the appropriate penalty under section 80 of the Act, considering factors such as the nature and seriousness of the conduct, the duration, the extent of any commercial gain, and the mitigating factors including JAL's cooperation with the Commission.

The court found the contravening conduct to be serious, deliberate, and part of a sustained course of conduct, significantly impacting competitive dynamics and efficiency in the market. The court noted that while JAL's conduct was not sophisticated or rigorously enforced, it was deliberate and part of a worldwide agreement among competitors. The court considered the commercial gain derived from the surcharges, noting that while precise calculation was difficult, it was likely in the low six-figure sum. The court also took into account mitigating factors such as JAL's willingness to resolve the proceeding promptly, its cooperation with the Commission, and its implementation of compliance programs. The court concluded that a starting point of $3.1 to $3.9 million was appropriate, and a discount of 35% for mitigating factors was justified. The agreed penalty of $2.275 million fell within this range, and the court approved the penalty and ordered JAL to pay a pecuniary penalty of $2.275 million, along with costs totaling $259,079.18.

Orders