Commerce Commission v Korean Air Lines Co Ltd - [2012] NZHC 1851

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
COMMERCIAL LIST

CIV 2008-404-8351 [2012] NZHC 1851

BETWEEN THE COMMERCE COMMISSION Plaintiff

ANDKOREAN AIR LINES CO LIMITED Defendant

Hearing: 25 July 2012

Appearances: J C L Dixon and K C Francis for plaintiff
A M Callinan and A E Murray 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:
Crown Solicitor Auckland john.dixon@meredithconnell.co.nz
Simpson Grierson: Auckland, anne.callinan@simpsongrierson.com

COMMERCE COMMISSION V KOREAN AIR LINES CO LIMITED HC AK CIV 2008-404-8351 [27 July
2012]

Introduction

[1] The defendant, Korean Air Lines Co., Limited (Korean Air) has admitted breaches of Part 2 of the Commerce Act 1986 (the Act). The plaintiff asks the Court to impose a pecuniary penalty under the Act. The Commission and Korean Air are agreed that an aggregate penalty of $3.5 million is appropriate, together with costs totalling $259,079.18.

Background

[2] Korean Air is registered as an overseas company in New Zealand, pursuant to the Companies Act 1993. Its parent headquarters are in Seoul, South Korea. Throughout the relevant period it carried on business in New Zealand and elsewhere as a carrier by air of both passengers and cargo. In 2000 it was the 14th largest airline in the world, ranked in terms of revenue passenger kilometres. During the
2005-2006 period it was ranked 17th. As at January 2010 it operated in 116 cities

and 39 countries.

[3] Korean Air is a participant in the international freight industry which involves the movement of goods by air on passenger aircraft, using available air space capacity, and on dedicated air freighters. Throughout the period with which this case is concerned, Korean Air maintained scheduled services between Seoul and Auckland, using its own aircraft.

[4] For the purposes of this proceeding, Korean Air and the Commission are agreed that during the relevant period separate markets existed, including in New Zealand, for air cargo services between Hong Kong, Japan and Malaysia respectively, and New Zealand. A number of airlines competed with each other to supply air cargo services in these markets.

[5] The conduct with which this case is concerned relates to a series of Fuel Surcharge Understandings (FSU) and Security Surcharge Understandings (SSU) respectively.

[6] The Hong Kong FSU commenced in or about January 2000. In that month Korean Air and a number of other airlines entered into an arrangement or understanding to approach the Hong Kong Civil Aviation Department, jointly seeking approval to apply an IATA Fuel Price Index, in order to determine the imposition of fuel charges on air cargo services from Hong Kong to various destinations, including New Zealand. If approved, the parties intended to apply and vary the proposed fuel surcharges on Air Cargo Services from Hong Kong to New Zealand from about mid-February 2000.

[7] Upon approval, Korean Air gave effect to the Hong Kong FSUs from January

2000 to February…

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 1851
Decision Date: 27 July 2012

CaseChat Overview and Summary

The matter before the court involved a claim by the Commerce Commission against Korean Air Lines Co. Limited for breaches of the Commerce Act 1986. The plaintiff sought a pecuniary penalty for Korean Air's participation in Fuel Surcharge Understandings (FSUs) and Security Surcharge Understandings (SSUs) that involved price fixing and restricting competition in air cargo services markets. The legal issues centred on the appropriate penalty under the Commerce Act, considering the nature and extent of the breaches, the commercial gain, and other relevant factors. The court found that the admitted conduct constituted a price-fixing arrangement that was anti-competitive per se. Given the seriousness of the breaches, the duration of the conduct, and the need for deterrence, the court determined an appropriate starting point for the penalty within the range proposed by the Commission. The court considered various mitigating factors, including Korean Air's admission of liability, its cooperation with the Commission, and the penalties it had already paid in other jurisdictions. The court accepted the agreed penalty of $3.5 million, which fell within the calculated range after applying the discounts for mitigating factors. The court ordered Korean Air to pay the penalty and additional costs to the Commission.

Orders