Commerce Commission v Malaysia Airlines System Berhad Ltd - [2013] NZHC 845

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
COMMERCIAL LIST

CIV-2008-404-8350 [2013] N ZHC 845

UNDER Sections 27, 30 and 80 of the Commerce
Act 1986

BETWEEN THE COMMERCE COMMISSION Plaintiff

ANDMALAYSIA AIRLINES SYSTEM BERHAD LIMITED
First Defendant

AND MASKARGO SDN. BHD.
Second Defendant

Hearing: 21 February 2013

Appearances: Mr J C L Dixon and Mr L M Mills for the plaintiff
Mr J Land and Ms I-R Sheerin for the defendants

Judgment: 22 April 2013

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 Monday 22 April 2013.

Solicitors:
Meredith Connell, Auckland john.dixon@meredithconnell.co.nz lewis.mills@meredithconnell.co.nz
Kensington Swan, Auckland david.campbell@kensingtonswan.com
Imelda-rose.sheerin@kensingtonswan.com

THE COMMERCE COMMISSION V MALAYSIA AIRLINES SYSTEM BERHAD LIMITED HC AK CIV-
2008-404-8350 [22 April 2013]

Introduction

[1] The defendant, MASkargo Sdn. Bhd. (MAS), has admitted certain breaches of Part 2 of the Commerce Act 1986 (the Act). The Court is asked to impose a pecuniary penalty under the Act. The Commerce Commission (the Commission) and MASkargo are agreed that, subject to the view of the Court, an aggregate penalty of
$2.6 million is appropriate, together with costs of the proceeding of $259,079.18 and a further contribution of $400,000 towards the Commission’s investigation costs.

Background

[2] MASkargo is a company registered in Malaysia and is a wholly owned subsidiary of Malaysia Airline System Berhad (MAS). MASkargo has operated the cargo business of the Malaysia Airlines Group since 1994, using its own freighters and the bellyhold space on passenger aircraft operated by MAS.

[3] During the relevant period, MASkargo carried on business as a carrier of air cargo, having an average market share of approximately 3.5% for all cargo carried from overseas points of origins to New Zealand and a market share of approximately
2.3% for all cargo carried from New Zealand to points of destination overseas. It employs about a thousand staff and currently operates in 25 countries.

[4] Throughout the period with which this case is concerned, MAS maintained scheduled air services between Kuala Lumpur and Auckland using its own aircraft. At all material times, MASkargo, and indeed other airlines, charged their customers a price for air cargo services that consisted of a base rate and various surcharges and fees, including a fuel surcharge, and from late October 2001, a security surcharge.

[5] For the purposes of this proceeding MASkargo and the Commission are agreed that separate markets existed during the relevant period for air cargo services

between Indonesia and Switzerland respectively, and New Zealand.1 A number of airlines competed with each other to supply air cargo services in these markets.

[6] The Commission’s allegations related to fuel surcharge agreements (FSA) and security surcharge agreements (SSA) entered into with a number of other airlines in respect of the carriage of air cargo from Indonesia and Switzerland respectively to New Zealand.

Fuel surcharge agreements

[7] In April 2002, MASkargo and other international airlines, including in particular Garuda Indonesia, reached an agreement as members…

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: [2013] NZHC 845
Decision Date: 22 April 2013

CaseChat Overview and Summary

The case before the High Court of New Zealand was an action brought by the Commerce Commission against Malaysia Airlines System Berhad Limited (MAS) and its subsidiary, MASkargo Sdn. Bhd. The Commission alleged that MASkargo had breached sections 27 and 30 of the Commerce Act 1986 through agreements with other airlines to impose fuel and security surcharges on air cargo services to and from New Zealand. The primary legal issue was whether the agreements in question substantially lessened competition in the relevant markets, and if so, what penalty should be imposed for the breaches.

The court found that MASkargo had indeed breached the Act by entering into and giving effect to the fuel and security surcharge agreements. These agreements were considered to be per se illegal price-fixing arrangements that restricted competition. The court assessed the penalty under the amended provisions of the Act, which required particular regard to the nature and extent of any commercial gain, with deterrence being the primary consideration. The court determined that the maximum penalty for each breach post-May 2001 was the greater of $10 million or 10% of MASkargo's relevant turnover, which amounted to $10 million per breach.

Considering the totality of the mitigating factors, such as MASkargo's cooperation with the Commission and its efforts to enhance compliance policies post-discovery, the court agreed with the parties' proposal for a penalty of $2.6 million. The court also ordered MASkargo to pay costs and investigation expenses, with payment terms allowing the defendant time to settle the amounts in four equal installments.

The final orders included approval of the recommended penalty of $2.6 million, with payment terms allowing MASkargo to settle the amount in four equal installments, and orders for MASkargo to pay additional costs and investigation expenses.

Orders