FEDERAL COURT OF AUSTRALIA

Flight Centre Limited v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53

ORDERS

THE COURT ORDERS THAT:

1.    The appeal and cross-appeal in so far as they relate to penalty remitted to the Court by order 3 of the orders of the High Court of Australia each be allowed.

2.    Set aside order 2(a) made by the primary judge on 28 March 2014 and in lieu thereof make the following order:

Flight Centre be ordered to pay to the Commonwealth of Australia by way of pecuniary penalty the following amounts in the total sum of $12.5 million in respect of contraventions of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010) respectively specified below:

(i)    Second contravention        $2.5 million

(ii)    Third contravention        $2.5 million

(iii)    Fourth contravention        $2.5 million

(iv)    Fifth contravention        $2 million

(v)    Sixth contravention        $3 million

3.    Each party file and serve short submissions (of no more than three pages) on costs within 14 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    This is an appeal and cross-appeal from orders imposing a civil penalty upon the appellant, Flight Centre Limited (Flight Centre), for contraventions of s 45(2)(a)(ii) of the Trade Practices Act (Cth) (the Act). The task of the Court arises from the procedural history outlined below.

2    The facts, which were substantially not in dispute, have been set out extensively in judgments by the primary judge, in liability and penalty judgments (Australian Competition and Consumer Commission v Flight Centre Limited (No 2) [2013] FCA 1313; 307 ALR 209 (liability judgment); Australian Competition and Consumer Commission v Flight Centre Limited (No 3) [2014] FCA 292; 234 FCR 325 (penalty judgment)), by this Court on the appeal (Flight Centre Limited v Australian Competition and Consumer Commission [2015] FCAFC 104; 234 FCR 367 (Full Court judgment)), and by the High Court in the appeal from this Court (Australian Competition and Consumer Commission v Flight Centre Travel Group Limited [2016] HCA 49; 91 ALJR 143 (the High Court judgment)). We will not repeat those facts and background circumstances in detail, beyond what is necessary to explain our views as to the appropriate penalty.

3    Flight Centre is a travel agency. In undertaking that business it entered contractual arrangements with international airlines, including relevantly here, Singapore Airlines, Malaysia Airlines and Emirates, for the sale of tickets on their behalf. Those agreements were in standard form. The commission arrangements for acting as the agent of the airlines under such agreements were based on a percentage of a published price set by the airline. Flight Centre did not have to sell tickets at that price – it could sell for more (and make a greater effective margin) or for less (and make a lesser effective margin). Other commissions were earned by entering into so-called “preferred airline agreements” under which incentive-based payments were made by the airlines to Flight Centre for given volumes of tickets sold on behalf of the airline. Under such agreements Flight Centre would undertake promotional activity on behalf of the airlines.

4    As part of its business strategy, Flight Centre advertised a “price beat guarantee” to customers, whereby it would better the price for an airline ticket quoted, not only by another travel agent, but also by any airline.

5    The three airlines in question, on websites run by them, sold tickets directly to the public at a price lower than the fare published to travel agents, including Flight Centre. This required Flight Centre, if it were to beat that price, to sell the ticket, on behalf of the airline, at a price which either reduced or eliminated its commission or margin, depending upon the extent of the difference. Thus, by this pricing, the principal airline could erode the agreed commission and margin of its agent, at least in so far as the agent gave the public its guarantee to beat the price of anyone else. Further, the publication of this price on the airline website might well encourage a customer to deal directly with the airline and, perhaps, not even approach, or thereafter return to, a travel agent such as Flight Centre.

6    Flight Centre took exception to this conduct, and on six occasions sought to persuade the three airlines to cease the practice, or at least, as other airlines apparently did, give it the benefit of the same effective price so that its business margins were not degraded. The conduct took place from August 2005 to May 2009. It was evidenced by emails which were discussed in our earlier reasons (Full Court judgment at [33]-[40]). The emails were sent in the context of the negotiations for the renewal of preferred airline agreements. It will be necessary to examine the conduct in more detail in due course. The following extracts from some of the emails set out at [35], [38] and [40] of the Full Court judgment give the flavour of the exchanges:

March 2006:     

A commitment to allowing us a margin to operate. Last year there were many instances where SQ [Singapore Airlines] either undercut or allowed us an insignificant margin. Whilst you have every right to expore [sic] different distribution channels, there must be acknowledgment that these excursions eat into the available market, not too [sic] mention alienate our consultants. As you know, our consultants are paid 50% based on commission on profit. The less margin, the less likely a consultant will want to sell it, it stands to reason.

These reduced margins this year have made it difficult at times for us to push the agreement from a head office perspective and recognition of this issue will help us to achieve our collective goals.

March 2009:     

Following please find another example of online fares being significantly cheaper than we have available, see attached - and this time it is against your so called expo special.

I can assure you that if this practice continues MH [Malaysia Airlines] will not be invited to participate in any future events as I am sure you will understand — this situation is clearly now hurting our brand.

May 2009:     

An agreement that we will not be undercut on the web. (This works against you and means we cannot get any even indicative volume targets as consultants cross sell when they feel they cant [sic] compete.)…

The web is an issue and may be the clincher why may be best to go our separate ways. In this case we may allow consultants to book anything they have to through the SQ [Singapore Airlines] web site.

7    Flight Centre’s case at trial was that the purpose of the emails was to demand that it have access to the discounted fares that the airlines were offering to the public. The primary judge rejected that case. He found (and there has never been an appeal on this point) that Flight Centre did not just want access to the fares; it wanted the airlines to stop undercutting the published fares. These findings were based in significant part on his Honour’s evaluation of oral evidence. So, the purpose found was, to use the words of s 45A(1): “fixing, controlling or maintaining … the price … for goods or services supplied … or to be supplied … [by any of the parties to the arrangement]”, viz, the airlines.

8    At [82] of the liability reasons, the primary judge described the conduct of Flight Centre as a “concerted pattern of reactive corporate conduct”, being conduct “reactive to a threat it perceived to be presented by the direct retail offering by airlines of air travel at fares it could not offer to retail customers …”. There was no appeal from this finding.

9    With these findings made, Flight Centre’s liability turned on whether it and the airlines were in competition with each other in any relevant market. This requirement stems from the terms of s 45(2) and (3): “in any [relevant] market”.

10    The ACCC put forward a number of possible markets. In our earlier judgment at [45] we described the ACCC’s amended statement of claim as “complex and convoluted in the definition of the relevant market.” We see no reason to alter our language upon renewal of acquaintance with the document. The primary case alleged a market, or two separate markets, in respect of “booking” and “distribution” services. That is, Flight Centre competed in a market with the internal booking and sales divisions of airlines. The distribution services included solicitation of customers, reservation, booking and ticketing services, and the collection of payment from customers. It is unnecessary to discuss the refinements of this asserted market and its variations, as to “booking services”. (See generally our previous judgment at [46]-[52] for the discussion of these as two separate markets.)

11    A third market was propounded at trial: a market for international passenger travel services; that is, effectively for international flights. (See Full Court judgment at [53].)

12    A fourth market, similar to the third, again pleaded in the alternative was a wholesale market in which international airlines supplied international passenger air travel services to travel agents. Travel agents then supplied international passenger air travel services to customers in a retail market for travel services. (See the Full Court judgment at [55].)

13    The primary judge concluded that Flight Centre and the airlines were in competition in the market for the provision of distribution and booking services for international passenger air travel.

14    The primary judge rejected the case put on the basis of other markets for the provision of airline services on the basis that Flight Centre as the agent of the airline was not in competition with its principals, the airlines, in selling tickets on their behalf.

15    The primary judge imposed penalties for the second to fifth contraventions (the first being time barred) of $2 million each, and of $3 million for the sixth. A senior employee had been involved in the first five, and the chief executive in the sixth, this being the feature that led to the increase in penalty for the final contravention. Thus, a total penalty was imposed of $11 million.

16    On appeal, this Court rejected the market which had been found by the primary judge. The reasons for that conclusion were set out in our previous judgment at [124]-[170]. In the Full Court judgment we then discussed the apparently rivalrous conduct reflected in the emails in question. We concluded that this took place in another market – the supply of international passenger air travel services. In the Full Court judgment at [175] we said:

It is not difficult to see how such commercial concerns or considerations could be construed as giving rise to rivalrous or competitive sentiment or action on the part of Flight Centre. But that rivalry or competition concerned the supply of international passenger air travel services to consumers, not the supply of distribution services to the airlines or booking services to consumers. The rivalry or competition that existed was not in a market in which both Flight Centre and the airlines supplied goods or services in competition with each other. That was because, as the primary judge found, only the airlines supplied international passenger air travel services. Flight Centre operated in the market for such services, but only as an agent for the airlines.

17    It should be noted that no argument was put by the ACCC before the Court on appeal from the primary judge to propound the market referred to in [175]. The case for the market, or markets, that had been rejected by his Honour was not renewed on appeal to this Court.

18    On appeal to the High Court, the market for distribution and booking services that had been accepted by the primary judge and rejected by this Court was once again rejected by the High Court: see especially the High Court judgment at [7], [71]-[75], [123]. The relevant market identified before the High Court during argument and upon which the High Court decided the appeal was a market for the sale of international airline tickets, a market similar to those that had been propounded before the primary judge, but not before this Court on appeal.

19    The orders of the High Court remitted the matter to the Federal Court for the determination of the appeal and cross-appeal in so far as they relate to penalty.

20    The above history is set out at this stage to explain the task of this Court now. The appeal and cross-appeal against penalty must be decided. But it is evident from the above background that the primary judge’s orders as to penalty must be set aside. Both sides accept this. The penalties imposed on Flight Centre were imposed for contraventions of a market found not to exist. For that reason alone, the orders of the primary judge as to penalty must be set aside. The primary judge also erred in refusing (albeit in accordance with the then prevailing Full Court authority) to consider the parties’ submissions as to the appropriate penalty range. Thus, the task of the Court is to fix, by way of resentencing, the penalties for the contraventions in respect of the market in question. In argument, the ACCC and Flight Centre agreed that this was the task of the Court. That said, it will be convenient to approach the matter, from time to time, by reference to the treatment given to it by the primary judge. Nevertheless, the task in which we are engaged in is the resentencing of Flight Centre.

The findings as to contravention

21    It is appropriate to commence with the found contraventions.

22    The primary judge made findings about the six attempts. This Court summarised those matters in the Full Court judgment. The facts as found by the primary judge were largely uncontroversial. It would be a work of supererogation to draft another summary of the detail of the contraventions. The detailed elucidation of the facts can be read at the paragraphs below of the liability judgment: Attempt 1: First Singapore Airlines Conduct of Mr Burgess – August 2005: at [81]-[161]; Attempt 2: Second Singapore Airlines Conduct of Mr Burgess – March 2006: at [162]-[166]; Attempt 3: First Emirates Conduct of Mr Burgess – May 2008: at [167]-[171]; Attempt 4: Second Emirates Conduct of Mr Burgess – December 2008: at [172]-[178]; Attempt 5: Malaysia Airlines Conduct of Mr Burgess – February/March 2009: at [179]-[189]; Attempt 6: Third Singapore Airlines Conduct of Mr Turner – May 2009: at [190]-[197].

23    We adopt the relevant passages of our earlier judgment which are to be read in the light of the reasons of the primary judge which (with the exception of his conclusions on market) were not the subject of challenge. Thus the six attempts can be understood as follows:

Attempt 1: First Singapore Airlines Conduct of Mr Burgess – August 2005

33    It would appear that in 2005 Singapore Airlines advertised discounted fares on flights to various destinations. The fares were only available directly from Singapore Airlines’ website. Flight Centre had been required to match these fares in accordance with its price beat guarantee. This apparently caused some consternation. On 16 August 2005, an employee of Flight Centre sent an email to an officer of Singapore Airlines asking if he could “help us with price beats”. The Singapore Airlines officer replied the next day, saying “these online fares are a short term initiative associated with our major sponsorship of the City to Surf in Sydney and the launch of our new website.” Following on from this email exchange, on 19 August 2005, a senior employee of Flight Centre, Mr Darren Burgess, sent an email to Singapore Airlines in the following terms:

I would like to formally express our opposition & concern at the recent Singapore Airlines internet initiative.

At a time where we are going out of our way to sell SQ [Singapore Airlines], we are faced with being uncompetitive to the effect of some AUD150-200 per person to a wide range of destinations.

Whilst you may not be seeing a significant increase in web sales the main problem with these initiatives is the enquiry they generate to our stores - more and more consumers use the internet to shop then bring to us to match. The losses we are incurring matching this offer are significant.

As I am sure you are aware a carrier of SQ’s [Singapore Airlines’] size commands significant market power and the precedent this sets for other carriers is of great concern. We have already seen MH [Malaysia Airlines] come out with something similar using SQ [Singapore Airlines] as their justification. If these initiatives continue no doubt all major carriers would follow.

Whilst our current initiatives have not met our sales expectations to date, they should be seen in the light of an overall slowing in the outbound international market. We have both committed significant money to these initiatives and I am frankly at a loss as to why SQ [Singapore Airlines] would want to undermine these initiatives not to mention alienate our front-line consultants at a time of significant SQ [Singapore Airlines] focus and when we are about to begin a major campaign. The other question is why you would go out of your way to undercut travel agents in general by such a large amount – is a nett nett [sic] not enough?

As you know we are not growing at the same rate as we have historically and therefore need to be more strategic in our control of distribution so it is important for us to know SQ’s [Singapore Airlines’] future intentions here and be assured of your commitment to the agency distribution network. It is difficult to be both friend and foe.

I look forward to your response.

34    The ACCC’s case, and the primary judge’s findings, concerning the purpose and effect (or likely effect) of this email are considered in detail later. Suffice it to say at this stage that the primary judge found that Flight Centre was seeking to stop Singapore Airlines undercutting it by directly offering fares that were lower than the published fares made available to it (and other agents) on the GDS. Similar findings were made in relation to the other emails or series of emails.

Attempt No 2: Second Singapore Airlines Conduct of Mr Burgess – March 2006:

35    This conduct occurred in the context of negotiations between Singapore Airlines and Flight Centre in relation to a preferred airline agreement for 2006-2007. On 17 March 2006, Mr Burgess of Flight Centre sent an email to Singapore Airlines in the followings terms:

Thank you, Dale and Jonathan for taking the time to see us last week and to outlining [sic] your plans for the coming year.

Following please find a few comments we have in relation to the proposed agreement as well as a few other issues we would like to table as part of this year’s discussions.

…

The Internet

A commitment to allowing us a margin to operate. Last year there were many instances where SQ [Singapore Airlines] either undercut or allowed us an insignificant margin. Whilst you have every right to expore [sic] different distribution channels, there must be acknowledgment that these excursions eat into the available market, not too [sic] mention alienate our consultants. As you know, our consultants are paid 50% based on commission on profit. The less margin, the less likely a consultant will want to sell it, it stands to reason.

These reduced margins this year have made it difficult at times for us to push the agreement from a head office perspective and recognition of this issue will help us to achieve our collective goals.

…

As already expressed, we are committed to meeting your deadline of 31 March to sign-off. I await a reply in relation to whether Wednesday at 1430 is convenient to meet again at your office.

I look forward to your reply.

Attempt No 3: First Emirates Conduct of Mr Burgess – May 2008:

36    This conduct occurred in the context of negotiations between Flight Centre and Emirates in relation to a preferred airline agreement for 2008-2009. On 30 May 2008, Mr Burgess of Flight Centre sent an email to Emirates in the following terms:

Following please find a brief summary (as brief as possible!) of our recent discussions. Let me know if there is anything I have misunderstood.

…

Bonus points through the website

As discussed, this is becoming a major issue with our guys in the frontline as they are not able to match the offer. Whilst I agree that travel agents offer far more than what a consumer gets from an airline online, if a customer only wants a ticket it is a difficult sell. As I am sure you are aware, points are a very powerful tool with some consumers willing to pay more just to get points.

As explained, some of our consultants have lost long term clients to this offer and obviously feel aggrieved that they cannot at least match the offer from the airline direct. These consultants will also be much less likely to offer EK to future clients as a consequence, for fear the same thing will happen again. This must have an effect on the business that we are able to give to EK and is effectively working against what we are collectively trying to achieve.

In the absence of allowing customers to receive the same bonus through travel agents that is offered online, are we able to purchase points?

Website specials

Like the frequent flyer issue above, these specials serve to undermine our ability to drive the agreement. As explained in our meeting, no other airline does this. Where there is a need to put a special in place presumably this is also where your load factors are a bit soft. Surely widening your distribution would have the effect of selling more seats?

…

I look forward to your reply.

Attempt 4: Second Emirates Conduct of Mr Burgess – December 2008:

37    This conduct occurred in the context of Flight Centre preparing to negotiate a preferred airline agreement with Emirates for the 2009-2010 year. On 31 December 2008, Mr Burgess sent an email to Emirates as follows:

I wanted to see if you would be available to meet on either the 19th or 20th of January for a catch up? There are a number of issues I wanted to discuss, below is a brief summary.

Commission

Given our front-end commission was reduced solely due to oil prices being at record levels, when can we expect our commission to be reinstated from 7 to 9% given fuel is now back to mid-2004 levels?

Additional mileage offers/offers online

This issue is largely related to the above. Even though EK [Emirates] have reduced commission from 9 to 7%, you are still discounting 4% on the web. This leaves our consultants a margin of 3%, not a lot I am sure you agree. With the additional rewards you give to book online why is it necessary to also discount the fare? You say we earn 7% but in fact in many instances now we are only able to earn 3% because of this offer.

For your information, we are currently paying out some AUD50K per month to consultants in order for them to make a margin on fares that are matched from the EK [Emirates] website.

Additional mileage offers online are also continuing to cause great difficulties for us in retaining customers. As I have said before, even QF make the same offers available to us as they do direct to the consumer.

Why would a consumer book through us if you can earn more points online AND receive a 4% discount if booked online (direct) AND receive a discount of 10% on their accom in DXB by paying with mastercard (direct)?

I know I have said it before, but the above does nothing to help us to achieve our collective goals – consultants who have lost clients to EK [Emirates] direct will do everything they can to steer future clients away from EK [Emirates], no matter what we do from a head office level, for fear that they will lose the client direct.

EK Dubai Stopover brochure

EK [Emirates] can’t really be serious putting an area on the brochure for a travel agents stamp when inside there is an offer to save 10% if you pay by mastercard, AND direct! Obviously we will not be distributing this brochure to our customers.

…

Stephen, I would very much like to get to a situation next year (2009) where we are working proactively together to drive the EK [Emirates] product. The issues above must be addressed before this can happen.

I look forward to your reply.

Attempt 5: Malaysia Airlines Conduct of Mr Burgess – February/March 2009:

38    This conduct occurred in the context of Flight Centre’s negotiations concerning the terms of a proposed preferred airline agreement with Malaysia Airlines for 2009. It would appear that during February and March 2009 there were a number of meetings between Mr Burgess and an officer of Malaysia Airlines. In this context, Mr Burgess sent a number of emails to the Malaysia Airlines officer either foreshadowing what he would like to discuss, or recording what had been discussed. Ignoring salutations and pleasantries, the emails included the following relevant statements:

Following please find another example of online fares being significantly cheaper than we have available, see attached – and this time it is against your so called expo special.

I can assure you that if this practice continues MH [Malaysia Airlines] will not be invited to participate in any future events as I am sure you will understand – this situation is clearly now hurting our brand.

…

Online fears

Whilst I appreciate that MH [Malaysia Airlines] is finally looking at giving us acess [sic] to these fares, we do require a margin in order to be able to operate. As I am sure you can appreciate, we do what we do to make money.

As you are aware, half of our consultants [sic] wage is based on commission, so if they are continually being put in a situation wh[ere] they are not able to make money they will stop offering the product which again will effect [sic] the amount of business we can gi[ve] you this year.

…

As discussed, I have no doubt that if you (MH) [Malaysia Airlines] change your pricing policies as discussed, 2009 could be a relatively good year for you in Australia. I do however fear that unless this happens now, the damage that will be done to the MH [Malaysia Airlines] brand, certainly within Flight Centre, will take some time to repair.

Continuing offers online such as the one outlined below only serve to alienate MH [Malaysia Airlines] with our consultants.

…

I will send a summary in more detail about our meeting shortly. Prior to that however I do need to get a commitment from you in relation to your current online offers. These offers a [sic] continuing to cause us great pain financially with literally dozens of requests coming in each day for differences of between AUD400-500 per person.

As discussed with you these offers are also doing you a great deal of harm when it comes to our front line consultants.

A few questions:

Will these offers contunue [sic]?

When will your fares be the same online as through the GDS?

When will your fuel be the same online as through the GDS?

What do we do with the current bookings we are holding – there is some AUD500 difference between our fare to LON and the fare online at present for example and we have a number of bookings that we are holding off on ticketeing [sic].

[J]ulia, if you really want us to help you with the various promotions you have planned in the coming months, i.e. the 2 for 1 offer, swithching [sic] groups, “Preferred Rewards” etc. then this activity MUST stop. Until this happens we will not be able to commit to any activity.

I look forward to your urgent reply.

…

Online fears

Whilst it is great that you will commonrate [sic] fares on the internet with GDS fares from 17 March I must again impress on you that we are not a charity and need a margin to operate.

I would like to suggest a margin of AUD30 on your cheapest (internet) fares.

This will ensure that you (MH) [Malaysia Airlines] do not alienate our frontline consultants by not providing any margin and therefore no earn for them personally. As explained, if our consultants are consistently not earning money by selling any given product, they will stop offering it as an option to potential clients. It is then very difficult to break this habit and get them selling the product again.

Attempt 6: Third Singapore Airlines Conduct of Mr Turner – May 2009

39    In May 2009, Flight Centre was negotiating a potential preferred airline agreement with Singapore Airlines. In the course of the negotiations, Mr Graham Turner, the Chief Executive Officer and Managing Director of Flight Centre, sent three emails to an officer of Singapore Airlines. The emails were lengthy and in some cases dealt with a number of different topics. It is unnecessary to set them out in full. The tenor of them was that Mr Turner was identifying a number of matters of concern to Flight Centre and making it plain that, if agreement could not be reached in relation to those matters, Flight Centre and Singapore Airlines would “go our separate ways”.

40    The matters of concern that Mr Turner required to be dealt with in the agreement included the following:

An agreement that we will not be undercut on the web. (This works against you and means we cannot get any even indicative volume targets as consultants cross sell when they feel they cant [sic] compete.)

…

The web is an issue and may be the clincher why may be best to go our separate ways. In this case we may allow consultants to book anything they have to through the SQ [Singapore Airlines] web site.

…

These are the rates and conditions we will need to have SQ [Singapore Airlines] as a preferred carrier …

1. FULL PREFERRED CARRIER STATUS

…

f. Web Fares-the same conditions in the GDS as in the SQ [Singapore Airlines] web.

The submissions of Flight Centre

24    Flight Centre described the conduct, being the six attempts, in neutral commercial terms of reactively attempting to persuade the airline to cease offering the fares lower than those published to its agents (such as Flight Centre) in order to obtain parity or price neutrality with the airlines. It was emphasised that no loss was alleged or proved from the conduct; nor was there any benefit to Flight Centre from the conduct; nor was there any finding as to the quantum of the impact on consumers had the attempt succeeded.

25    Flight Centre submitted that it had held a belief (through its chief executive and managing director, Mr Turner) that its conduct was not a contravention of the Act. The reasonableness of that belief was not challenged. The ACCC had not asserted negligence, carelessness or a lack of genuineness in that belief. That submission was sought to be bolstered by aspects of the litigation: the primary judge’s reference to the “degree of novelty” in the claim (liability judgment at [51]); the ACCC’s inability to identify the correct market; the ACCC’s non-pressing on appeal to the Full Court of the markets the closest to that upon which the High Court based its decision; the view of French CJ (in dissent) that the notion of a principal and agent in competition for the sale of the services of the principal “does not command ready assent”. Flight Centre submitted that its contravention was not covert, but open and undertaken on the innocently mistaken basis now shown to be wrong; it was contravening conduct not undertaken in the face of a known risk of contravention. Thus, although the conduct was deliberate, it was not intended to breach the Act.

26    Flight Centre had no prior record of engaging in similar conduct.

27    Accepting that very senior officers were involved, they, in particular the chief executive and managing director, Mr Turner, did not believe that Flight Centre was contravening the Act.

28    Flight Centre pointed to a culture of compliance, with training for staff. Between November 2006 and October 2009, the company instituted a compliance program developed by solicitors, Blake Dawson. There was no challenge to the adequacy and implementation of this program; nor did the ACCC seek undertakings in relation to improvements to that program.

29    Flight Centre co-operated with the investigation.

30    Flight Centre emphasised that no significant penalty was required for specific deterrence because of the novelty of the claim, the innocent belief of the company, and the finding by the primary judge (penalty judgment at [64]) that Flight Centre will not seek to repeat the conduct.

31    As to general deterrence, Flight Centre called further in aid the novelty of the claim and its belief about its innocence. It posited a person in a “like position” as the focus of the general deterrence and identified a person with a similar belief as to innocence. Emphasis was placed on what it was said Kiefel J said in Australasian Meat Industry Employees’ Union v Australia Meat Holdings Pty Ltd [1998] FCA 664; 82 IR 76 that a penalty was not appropriate for a breach of the Industrial Relations Act 1988 (Cth) where the breach arose by reason of a genuinely held and arguable, but incorrect, interpretation of an industrial agreement. For a proposition of like effect reliance was placed on the decision of Gordon J in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Telstra Corporation Limited [2007] FCA 1607 at [18].

32    Flight Centre also pointed to the public notoriety of the case and its legal costs as relevant to the amount of penalty.

33    In putting submissions as to the amount of the penalty, Flight Centre recognised that $10 million for each of the second to sixth contraventions was the maximum penalty. It described the contraventions as part of a course of conduct that should be viewed in its totality.

34    The primary submission was that no penalty should be imposed, relying on the Meat Holdings case and the Telstra case referred to above. In the alternative, Flight Centre submitted that no more than $500,000 for each contravention, with a total of $2.5 million, was appropriate and just, where the contraventions were unintentional and without aggravating circumstances. Reference was made to a number of cases of contravention to justify this submission: Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) [2004] FCA 1471; 212 ALR 564; affirmed Visy Paper Pty Ltd v Australian Competition and Consumer Commission [2005] FCAFC 236; 224 ALR 390; Australian Competition and Consumer Commission v Mitsubishi Electric Australia Pty Ltd [2013] FCA 1413; Australian Competition and Consumer Commission v George Weston Foods Ltd [2000] FCA 690; ATPR 41-763; Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd [2016] FCA 1516; 118 ACSR 124; Australian Competition and Consumer Commission v Ticketek Pty Ltd [2011] FCA 1489.

The submissions of the ACCC

35    It should be noted that the ACCC did not appeal the imposition of a penalty of $2 million for the fifth attempt because this had been within the range put to the primary judge at the original penalty hearing. The parties are agreed that the task of the Court is to resentence. The ACCC does not, however, suggest that the figure of $2 million was other than proper.

36    The ACCC rejected the notion of innocence in Flight Centre’s approach. It submitted that the conduct was a deliberate, serious and substantial attempt to contravene a central provision of the Act; and that the innocence was based on the conclusory assertion of the chief executive officer as the foundation for leniency.

37    The ACCC rejected as a matter of principle the relevance of any belief that unlawful conduct is innocent. Of course a recognition that the conduct is unlawful is a serious aggravating factor; but the converse is not correct as a matter of principle – that innocence is an ameliorating factor. In this regard, reference was made to Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; 131 FCR 529 at 598-599 [308]-[310] and Visy Paper Pty Ltd v Australian Competition and Consumer Commission 224 ALR at 403 [49] in aid of the proposition that an innocent belief was irrelevant. To appreciate the submission (its strength and its limits) the following passage from the Court’s reasons in Universal Music should be noted:

308    As we have said, the contravening conduct was plainly and deliberately anti-competitive in its intent. It was conduct which, at least, ran a serious risk of being in breach of the Act. If this was appreciated, then the fact that the risk came home against expectations does not entitle the perpetrator to a discount. If the existence of the risk was not appreciated, then the company concerned misunderstood the law applicable to an important area of commerce and would not be entitled to any discount.

309    The fact that legal advice was obtained by one of the parties is also of little consequence. It illustrates that risk was appreciated. However, legal advice is obtained for the benefit of the company and only for the benefit of the company. It is not a discounting factor. If legal advice is wrong, that is a matter between the company and the legal adviser.

310    In our opinion, to give a substantial discount for these factors sends the wrong signal to the commercial community. It will encourage risk-taking and pushing the boundaries of anti-competitive conduct. If, nonetheless, a proceeding is instituted, it will encourage the most vigorous possible defence, in an endeavour to demonstrate the supposed complexity and uncertainty of the law. Many cases of contravening conduct can be described as complex and uncertain as to result. As submitted for ACCC, the Court has recognised in many cases that the difficulty of detecting and proving contraventions of Pt IV of the Act requires adequate penalties to be imposed when contravening conduct is detected and established ... If a company ‘takes the odds’, it must expect serious consequences if it miscalculates. As was said by the Full Court in NW Frozen Foods Pty Ltd v ACCC 71 FCR 285 at 294-295:

‘The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay …’

38    The ACCC submitted that it was a mischaracterisation of the facts to elevate Mr Turner’s evidence that he did not believe Flight Centre’s conduct involved a contravention to a conclusion that he had a reasonable belief. No such finding was made; the primary judge was explaining the lack of contrition of Flight Centre. The ACCC emphasised that the statement of Mr Turner upon which the innocence case is put was unsubstantiated and made without context. No legal advice or other surrounding consideration was explained. The evidence, it was submitted, was “thin and conclusory” and not such as to require exploration in cross-examination.

39    In dealing with the cases relied upon by Flight Centre (Meat Holdings, Telstra and ACCC v Visy) the ACCC rejected their relevance and comparability.

40    The ACCC emphasised other factors in seeking to show (on resentencing) that the total penalties of $11 million imposed by the primary judge were outside a proper range and manifestly inadequate.

41    The ACCC submitted that the proper range (bearing in mind a maximum penalty for each contravention was $10 million) for the five attempts was:

Second Contravention                $3 to 4 million

Third Contravention                $3 to 4 million

Fourth Contravention                $3 to 4 million

Fifth Contravention                $2 million    (unappealed)

Sixth Contravention                $6 to 8 million

                        ______________

                        $17 to $22 million

42    The ACCC submitted that the higher end of the range was appropriate, but if the Court was of the view that a heavier penalty was necessary for deterrence such should be imposed.

43    The ACCC submitted that there were three matters of principle that warranted specific attention in this case. First, the purpose of the penalty is deterrence, specific and general. Secondly, the size and financial resources of the contravenor do not alone justify a higher penalty than might otherwise be imposed, but it may be relevant to the achievement of specific or general deterrence. Further, and related to the question of deterrence, it was submitted that major corporate citizens should be expected to act appropriately in corporate life: Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd [2016] FCA 1516 at [89]. Thirdly, attempts to contravene Part IV have always been viewed as very serious. Attempts that are unsuccessful do not cause loss; rather the focus should be on what the consequences would have been had the attempt succeeded.

44    In the context of these three questions of principle, the ACCC stressed the following factors.

45    The behaviour took place on six occasions over four years.

46    The behaviour was said to be deliberate, calculated to contravene the law to protect Flight Centre’s profits. The primary judge found the conduct “wholly mercenary” and deliberate.

47    Each attempt was accompanied by serious threats to the airlines. The threat was to use such market power as Flight Centre had to direct customers to other airlines.

48    The conduct was an attack on market innovation and if successful would have reduced competition in a significant market development to maintain the margin for Flight Centre’s existing retail business, denying lower fares to every would-be passenger of the targeted airlines.

49    The value of commerce in the market for international airline tickets that would have been affected was very significant, and though difficult to quantify exceeded $200 million. This figure was relevant to the second, third, fourth and sixth attempts. In relation to each of these attempts the evidence disclosed the annual value of tickets sold by Flight Centre for each of Singapore Airlines or Emirates was over $200 million. As to the fifth attempt concerning Malaysia Airlines (for which the $2 million penalty is not the subject of appeal) the annual value of tickets sold by Flight Centre was $79 million. The value of tickets sold directly by these airlines from their websites was not quantified, but was estimated by the primary judge as 15-20% of fares sold in the material period (liability judgment at [37]). Thus, the conduct was aimed at a growing threat. This significant level of commerce affected called for a heavy penalty.

50    If the attempts had been successful, Flight Centre would have protected its annual commission at the expense of consumers. Those annual commissions were in the order of $20 million on ticket sales for Singapore Airlines and Emirates. Thus there was the potential for significant benefit to be derived from the success of its conduct.

51    Flight Centre is a major public company and one of the world’s largest travel agency groups. Its annual revenue over the four year period of the contraventions grew from $900 million to $1.7 billion. The penalties totalling $11 million thus represented only 0.64% of annual revenue. This prominent position and apparent financial strength requires a substantial penalty in order that general deterrence not be undermined.

52    The involvement of very senior management elevates the seriousness of the conduct. The chief executive officer and managing director of Flight Centre was the actor in the sixth attempt. The conduct involved here was said to be egregious. This was the third attempt to influence Singapore Airlines. The matter was elevated from Mr Burgess (a senior employee) to Mr Turner (the chief executive officer and managing director) after Singapore Airlines refused to desist undercutting Flight Centre here. The repetition and escalation indicated that the conduct was of the utmost seriousness to Flight Centre and how significant was the perceived competition.

53    Whilst the ACCC accepted that caution was to be exhibited in the use of comparable penalties, it relied on the penalties in the range of $3 to 4 million for the attempts in the air cargo cases of Australian Competition and Consumer Commission v Cathay Pacific Airways Ltd (No 3) [2012] FCA 1392; ATPR 42-425; Australian Competition and Consumer Commission v Singapore Airlines Cargo Pte Ltd [2012] FCA 1395; Australian Competition and Consumer Commission v Emirates [2012] FCA 1108; ATPR 42-422.

54    The ACCC summarised the essence of the matter as follows:

The penalty in this case is to be imposed based on a widely recognised and significant Australian public company for repeated attempts to engage in price fixing conduct. Flight Centre’s conduct was considered permissible by the highest levels of its management. Its market power rendered its threats credible, and its conduct, if successful, would have, as Flight Centre intended, affected hundreds of millions of dollars of commerce and eliminated price competition between Flight Centre and three international airlines. It is entitled to no discount for co-operation or admissions.

Consideration

55    The Court has on a number of recent occasions discussed the operation of s 76 of the Act: see Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159 and Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (the Agreed Penalties Decision) [2017] FCAFC 113. No substantive question of principle was raised by the parties in submissions. The factors to be taken into account have been canvassed by the parties. There is no requirement for any introductory discussion of principle, other than to say that the task is one that is evaluative, taking into account all the circumstances of the case, not to be reached mechanically or by some illusory process of exactitude, but rather by evaluation that is articulated to a point (but no further) that is useful and meaningful. One starts the process by giving proper weight to the statutory maximum as referable to the most serious kind of contravention. We have given particular regard to the maximum penalty here under s 76: $10 million.

56    Section 76 is relevantly in the following terms:

76 Pecuniary penalties

(1) If the Court is satisfied that a person:

(a) has contravened any of the following provisions:

(i) a provision of Part IV;

…

(b) has attempted to contravene such a provision; …

…

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.

(1A) The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed:

…

(b) for each act or omission to which this section applies that relates to any other provision of Part IV—the greatest of the following:

(i) $10,000,000;

        …

57    The five contraventions that are subject to imposition of a penalty (the first being statute barred) were acts each in the nature of an attempt to fix or control prices offered by the airlines in question. Though the five occasions of acting were motivated by a common complaint, they were individual instances of conduct. This is not the occasion to discuss the notion of course of conduct that has been discussed recently in Cement Australia and the Agreed Penalties Decision. It suffices to say here that the imposition of civil penalties is the application of the statute, here, s 76. Upon the Court being satisfied that a person has contravened or attempted to contravene a provision it may order the person to pay a penalty in respect of each act or omission in an amount that the Court determines to be appropriate.

58    Here, there were various acts which were and are properly characterised as five attempts to fix, control or maintain the price for services supplied or to be supplied by the airlines.

59    Section 76 provides for a penalty in respect of each act; that is, each attempt that was a contravention. Questions of the relationship of the acts, their motivation and the appropriate totality of the penalties arise in the overall evaluative consideration of all relevant matters.

60    The spectrum of relevant considerations can be seen in the submissions of the parties. We will deal with the parties’ submissions principally by setting out our articulation of the evaluative process to reach what we consider to be the appropriate imposition of penalty.

61    It can be accepted that Mr Turner did not believe that Flight Centre (or he) was contravening the statute by seeking to persuade the airlines by the commercial pressure to act as Flight Centre wished. We reject the ACCC’s submission that there was a deliberate contravention of the Act. The conduct was, of course, deliberate, but it was done apparently believing in its lawfulness. But that “innocence” should not be overstated. The precise basis of this belief in innocence (over an extended period of four years) was unexplained. There are, however, at least two matters which might give the conduct an innocent hue. First, if the conduct was for the purpose of persuading the airlines to make the discounted fare available to Flight Centre that would undermine any notion that the purpose or attempt was to fix or control the price to consumers. Secondly, an intuitive or analytical view might have been taken that agents and principals do not compete with one another. Whilst there was some contemporaneous force in the second of these matters (vide the views of French CJ), the first matter cannot be taken into account. The unappealed finding was that the purpose (and so the attempt) was to have the airlines not sell at such reduced prices. Thus, the conduct was purposely seeking to have the airlines deny to consumers a price benefit that would or may inure for the benefit of Flight Centre.

62    Thus the “innocence” is not entirely lacking in considerations that require deterrence. Flight Centre engaged in conduct, on this hypothesis, that it must have known, would or could deny to consumers the benefit of a price reduction. The innocence of it was that this feature may not have been in a legally recognised market. The degree of novelty of the conclusion that as agent it was in competition in a relevant market with its principals, can be taken into account. But so can the essential nature of the price fixing conduct.

63    Once the above is appreciated, the approach of Flight Centre to no, or a very light, penalty should be rejected. The circumstances are quite unlike those faced by Kiefel J in the Meat Holdings case and by Gordon J in the Telstra case. In the former case, there was a reasonable construction of a clause in an award that led to underpayment of wages of $431.97. This led Kiefel J not to impose a penalty. It is a decision (and an entirely explicable and apparently just one) on its own facts. It is misconceived to extrapolate from it, as Flight Centre does in its submissions, a proposition that if one reasonably misunderstands one’s liability position in circumstances that give rise to a civil penalty, one should be relieved of the penalty or one should receive a light penalty. No principle arises out of the case; to seek to draw legal principle from a factual evaluative conclusion of this kind is misconceived. The decision of Gordon J in Telstra and the language used in [2007] FCA 1607 at [18] should be viewed no differently.

64    Nor is there an inflexible legal rule arising out of Universal Music 131 FCR at 598-99 [308]-[310] or Visy Paper 224 ALR at 403 [49]. Usually a belief in the innocence of conduct that is a contravention of the statute is not an ameliorating factor. Nevertheless the object of the imposition of a penalty is substantially deterrence – specific and general. It is relevant to know that the conduct was done believing it to be innocent and knowing that the party, now disabused of its belief, will not, or is likely not to, reoffend. Specific deterrence in such circumstances is of less significance.

65    The lack of covertness of the conduct is important. This was not an attempted surreptitious undermining of the Act and its important public policy. It was conduct in robust engagement between commercial counterparties, one of which believed that it was being done a commercial disservice by its counterparty. These are not ameliorative factors, but they do show that, although the conduct was serious and sustained, it was neither covert, nor arrogant.

66    The conduct concerned large volumes of commercial business and, if successful, could have affected consumers in not insignificant amounts of money.

67    Flight Centre had a compliance policy and does not appear on the findings to require persuasion to maintain a culture of compliance or to avoid repetition of the conduct. Nevertheless, general deterrence is important. The commercial community should understand the seriousness, whatever the surrounding circumstances, of seeking to fix or control prices – even where the relevant market has a degree of novelty in its identification.

68    We take into account that Flight Centre has incurred large legal fees in the defence of a position where the contrary view involved a degree of novelty.

69    There is little utility in reference to the other cases with different facts. One does not work back or forward from other more or less serious cases. One evaluates all the circumstances of the case at hand. Comparables may give some broad guidance. None of the cases to which we were referred requires particular consideration.

70    Sometimes the phrase “parity” is used. That is an inapposite use of criminal sentencing conceptions apt for co-offenders: see generally Green v The Queen [2011] HCA 49; 244 CLR 462.

71    Sentencing in crime and fixing the appropriate civil penalties are both evaluative processes linked to the circumstances of the offending or contravention. The differences between the two fields of criminal sentencing and imposition of civil penalties may be necessary to recognise in individual cases and may sometimes be important. The overwhelming relevance of deterrence (specific and general) in the imposition of civil penalties may exclude such factors as denunciation and retribution. But the flagrancy or other feature of conduct which may be seen to be relevant to the seriousness of the contravention will find its place in understanding the degree of deterrence that is necessary to be reflected in the size of the penalty.

72    Here, taking the above factors into account, together with the submissions of the parties, we are of the view that there should be a penalty imposed of $2.5 million for each of the second to fourth attempts and $3 million for the sixth attempt. We would increase the penalty for the sixth attempt because of the involvement of the chief executive and because of the repetition of the conduct on the one commercial party for a third time. This is not to be viewed, in any ameliorative sense, as a course of conduct, but rather part of the sustained attempt by Flight Centre to get its way by the use of its most senior executive. In all the circumstances, including having regard to the totality of the penalties, we consider that an increase of $500,000 is sufficient to reflect a meaningful statement of additional deterrence. We would fix the penalty for the second to fourth attempts higher than the unappealed $2 million for the fifth attempt because of the greater volume of affected business that is discussed at [49] above. This is not to approach the matter mechanically by reference only to the amount of business for each airline in the relevant year; rather it is to recognise that the magnitude of the possible consequences of the conduct if it had been successful is relevant to general deterrence. If the fifth attempt had been the subject of appeal, we would have imposed a penalty of $2 million. These impositions come to a total penalty of $12.5 million. We do not consider that in totality that is excessive. We consider the penalties individually and the total of them to be appropriate.

73    One further factor should be mentioned.

74    We have differed from the primary judge, not because we think there was any error in his approach to penalty (other than that originally identified which required us to fix the penalties ourselves), but because we are coming to our own view of the appropriate figures. We do not consider that the total of $11 million would have been inadequate or inappropriate or outside the proper range. Thus, our own views should not be seen as implying error on the part of the primary judge in the sums he reached.

75    There is a question whether we should recognise that in the particular circumstances of this case, we should not impose a figure higher than that imposed by the primary judge. On balance, we do not think such a course should be followed. To approach the matter thus might be seen to import a notion akin to double jeopardy in criminal sentencing (as to which see R v JW [2010] NSWCCA 49; 77 NSWLR 7 at 20-23 [65]-[84]) which we think is inapposite in civil penalties. Considerations of humanity that touch the sentencing of people to prison such as discussed in R v JW and R v Carroll [2010] NSWCCA 55; 77 NSWLR 45 at 60-61 [65]-[67] do not usually attend the imposition of a civil penalty for contravention of laws governing commerce. On balance, taking into account all the circumstances in which the acts took place, the factors raised by the parties and the matters to which we have referred, we would make the following orders:

1.    The appeal and cross-appeal in so far as they relate to penalty, remitted to the Court by order 3 of the orders of the High Court of Australia each be allowed.

2.    Set aside order 2(a) made by the primary judge on 28 March 2014 and in lieu thereof make the following order:

Flight Centre be ordered to pay to the Commonwealth of Australia by way of pecuniary penalty the following amounts in the total sum of $12.5 million in respect of contraventions of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010) respectively specified below:

(i)    Second contravention        $2.5 million

(ii)    Third contravention        $2.5 million

(iii)    Fourth contravention        $2.5 million

(iv)    Fifth contravention        $2 million

(vi)    Sixth contravention        $3 million

76    Given our views, we would hear the parties on costs.

Associate:

Dated:    4 April 2018