FEDERAL COURT OF AUSTRALIA

 

Australian Competition and Consumer Commission v Martinair Holland NV [2009] FCA 340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v MARTINAIR HOLLAND NV (ARBN 069 862 862)

NSD 104 of 2009

 

LINDGREN J

14 April 2009

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 104 of 2009

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	MARTINAIR HOLLAND NV (ARBN 069 862 862) Respondent

 

JUDGE:	LINDGREN J
DATE OF ORDER:	16 February 2009
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.             The respondent pay the Commonwealth of Australia within 14 days of this order a pecuniary penalty in the sum of $5 million in respect of contraventions of section 45(2)(b)(ii) of the Trade Practices Act 1974 (the Act) in that:

1.1.       by no later than early 2003, the respondent arrived at an understanding with Cargolux Airlines International SA (Cargolux) and Koninklijke Luchtvaart Maatschappij NV (KLM), competitors of the respondent for the supply of services for the international carriage of air cargo, which understanding contained a provision which had the purpose and likely effect of fixing or maintaining a component of the price charged by each of them for the said services, called a fuel surcharge, and is thereby deemed, pursuant to section 45A of the Act, to substantially lessen competition within the meaning of section 45(2)(a)(ii) of the Act; 

1.2.       the respondent gave effect to the said provision of the understanding between early 2003 and February 2006 by, inter alia:

1.2.1.          exchanging information with KLM and Cargolux in relation to the fuel surcharge that each airline intended to impose in accordance with the understanding; and

1.2.2.          increasing or decreasing its fuel surcharge levels charged to customers in accordance with the understanding.

2.             The respondent be restrained, for a period of five years from the date of this order from making, arriving at, or giving effect to, any contract, arrangement or understanding with any of its competitors for the supply of the services of the carriage of international air cargo, containing provisions which have the effect of fixing, controlling or maintaining the price or any part of the price at which it or any of them will supply those services in competition with each other unless:

2.1.       the said contract, arrangement or understanding does not involve or relate to the carriage of goods to or from Australia;

2.2.       the said contract, arrangement or understanding is necessary for the purpose of interlining between two or more carriers in the course of supplying services of the carriage of international air cargo; or

2.3.       the respondent is specifically authorised to do so under section 88 of the Act.

3.             The respondent pay the applicant within 14 days of this order a contribution towards its costs of and incidental to these proceedings in the sum of $100,000.

 

 

 

 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 104 of 2009

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	MARTINAIR HOLLAND NV (ARBN 069 862 862) Respondent

 

JUDGE:	LINDGREN J
DATE:	14 APRIL 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

INTRODUCTION

1                     These are my reasons for orders that I made in this proceeding on 16 February 2009. On that day I heard three proceedings, including the present one, in which the Australian Competition and Consumer Commission (Commission) sought against four airlines the imposition of pecuniary penalties pursuant to s 76 of the Trade Practices Act 1974 (Cth) (the Act) and injunctive relief pursuant to s 80 of the Act.

2                     The three proceedings related to the airlines’ conduct in arriving at and giving effect to collusive understandings in respect of an element (a fuel surcharge) in the price for the carriage of international air cargo.  The three proceedings were heard in sequence.  My reasons for judgment in the other two proceedings are being published contemporaneously with these reasons for judgment: see Australian Competition and Consumer Commission v Société Air France [2009] FCA 341 and Australian Competition and Consumer Commission v Cargolux Airlines International SA [2009] FCA 342.

3                     Late last year I heard and determined proceedings brought by the Commission against Qantas Airways Limited (Qantas) and British Airways PLC (British Airways), which arose out of generally similar collusive understandings in respect of the same element in the price for the international carriage of cargo by air: see Australian Competition and Consumer Commission v Qantas Airways Limited [2008] FCA 1976 (Qantas Proceeding); Australian Competition and Consumer Commission v British Airways PLC [2008] FCA 1977 (British Airways Proceeding).

4                     In each of the present three proceedings, as in the Qantas Proceeding and British Airways Proceeding, the Commission and the particular respondent airline or airlines supplied a Statement of Agreed Facts (and Admissions by the respondent) pursuant to s 191 of the Evidence Act 1995 (Cth), and Joint Written Submissions.

5                     Many issues are common to all five proceedings.  I dealt with them comprehensively in my reasons for judgment in the Qantas Proceeding (Qantas Reasons), and adopted certain paragraphs of the Qantas Reasons in my reasons for judgment in the British Airways Proceeding (British Airways Reasons).  I incorporate the Qantas Reasons and the British Airways Reasons as part of my reasons for judgment in this proceeding.

6                     The present application relates to a collusive understanding entered into in early 2003 between the respondent, Martinair Holland NV (Martinair), and Cargolux Airlines International SA and Koninklijke Luchtvaart Maatschappij NV (KLM), competitors of Martinair in the supply of services for the international carriage of air cargo, and the implementation of that understanding between early 2003 and February 2006 (Relevant Period).

7                     After Air France launched a successful exchange offer for KLM common stock in May 2004, those two entities then became merged as Air France-KLM which is the holding company of the two subsidiaries, Air France and KLM.  In substance, since 1 October 2005 when a Joint Cargo Team (JCT) was established, the cargo divisions of Air France and KLM have been proposing to their clients a single commercial offer.  The JCT has been responsible for the networks, marketing offers and sales of both subsidiaries, although each is responsible for its own operations.  It will be noted that of the Relevant Period, the period from early 2003 to May 2004 pre-dated the merger, while the period from May 2004 to February 2006 post-dated the merger.

8                     Martinair, Cargolux and KLM arrived at an understanding in relation to a fuel surcharge on the international carriage of cargo by air over certain international cargo routes including Australian routes (the Fuel Surcharge Understanding).

9                     The Commission and Martinair jointly submit that a penalty of $5 million is appropriate, as is the granting of particular injunctive relief over a period of five years.  The pecuniary penalty of $5 million is the same as the penalty that was imposed on British Airways in the British Airways Proceeding. Additionally, the parties asked the Court to order Martinair to pay a contribution to the Commission’s costs in the sum of $100,000. 

10                  For the purpose of this proceeding only, Martinair has admitted that its conduct in arriving at and giving effect to the Fuel Surcharge Understanding constituted conduct in contravention of s 45 of the Act by reason of s 45A of the Act.

11                  The parties acknowledge that it is for the Court to be satisfied that Martinair did contravene s 45 of the Act and to determine the amount of any pecuniary penalty and the nature of any other relief to be ordered.

facts

12                  The following account of the facts is taken from the Statement of Agreed Facts and Admissions.

The respondent

7.              Martinair was at all material times half owned by KLM.  On or about 31 December 2008, KLM acquired the balance of the shares in Martinair and Martinair has accordingly been, since that date, a wholly owned subsidiary of KLM.

8.              Martinair:

8.1.         throughout the relevant period carried on business in Australia and elsewhere as a carrier of air cargo.  Martinair flew directly to Australia and carried about 2% of the air cargo to Australia throughout the relevant period.

8.2.         employs approximately 2500 staff and operates flights to destinations in 50 countries excluding code-sharing and franchise arrangements;

8.3.         throughout the relevant period employed 6 employees in Australia;

8.4.         is, and was throughout the relevant period, a company incorporated in the Netherlands, and

8.5.         is, and was throughout the relevant period, a registered foreign corporation in Australia within the meaning of section 4 of the Act.

9.              As at 31 December 2007, Martinair had total assets of €700 million, total revenue of €951 million and net losses before tax and before provisions for payment of antitrust fines and penalties for that year of €41 million.

10.          In the financial years ending 31 December 2003, 2004, 2005 and 2006, the following table sets out Martinair’s gross revenue from the global carriage of air cargo, and carriage of air cargo to Australia:

	Global revenue from air cargo	Air cargo revenue from routes to Australia
2003	€410 million	€23.8 million
2004	€495 million	€20.0 million
2005	€705 million	€20.5 million
2006	€798 million	€6.1 million[1]
Total	€2.4 billion	€70.4 million

11.          In the same period, the revenue derived from fuel surcharges imposed by Martinair was as set out in the following table:

	Global cargo fuel surcharge revenue	Revenue from cargo fuel surcharges on routes to Australia
2003	Unknown	€2.4 million
2004	Unknown	€2.4 million
2005	Unknown	€3.2 million
2006	Unknown	€0.9 million[2]
Total	Unknown[3]	€8.9 million

12.          Cargo fuel surcharges were implemented by [Martinair] pursuant to the Fuel Surcharge Understanding, principally on air cargo carried between Europe and other destinations. 

Description of the Market

13.          International air cargo is carried both on passenger aircraft, using available belly space capacity, and on dedicated air freighters.  Air cargo services are provided “one way” from origin to destination, either directly or using an indirect route via one or more midpoints.  Most carriers provide air cargo services on a network-wide basis.  Through interline and other arrangements with other carriers they also offer air cargo services to or from airports which their own aircraft do not serve directly.  The networks of carriers extensively overlap such that there are various carriers operating to and from any international airport.

14.          Airlines predominantly provide international air cargo services to freight forwarders.  Freight forwarders generally organise the integrated transport of goods on behalf of a range of shippers.  In doing so, they purchase air cargo services from carriers.  Freight forwarders issue a document known as an air waybill for the carriage of air cargo.  

15.          Apart from freight forwarders, individual shippers also acquire air cargo services from airlines.  Shippers may be the purchasers or the sellers of goods or the owners of goods that need to be moved rapidly over relatively long distances.  

16.          [Martinair] considers that the market in which international air cargo services are supplied can properly be viewed as a series of local markets for the provision of air cargo services.  The Commission considers, and for the purposes only of these proceedings, [Martinair] does not dispute that the most appropriate market for analysing the conduct the subject of these proceedings was at all material times during the relevant period a worldwide market for air cargo services, hereinafter referred to as the Air Cargo Market.  Irrespective of how the market is defined, Martinair was at all material times a competitor in a market for the supply of international air cargo services with airlines such as KLM and Cargolux and others.  

1996/97: Resolution 116ss

17.          The information in paragraphs 18 to 35 is provided by way of background, but not as material facts giving rise to [Martinair]'s admitted contraventions.   

18.          In the second half of 1996, the price of aviation fuel globally rose substantially. 

19.          On or about 25 October 1996, Lufthansa announced that with effect from 1 November 1996 it would levy across its entire route network what it termed a "fuel surcharge” of USD0.10, or the equivalent in local currency, per kilogram of air cargo carried (the 1996 surcharge).  Lufthansa stated that the 1996 surcharge would be dropped when the price of fuel returned to the level of July 1996. 

20.          On or about 1 November 1996, Lufthansa commenced to levy the 1996 surcharge. 

21.          On or shortly after 1 November 1996, a number of other airlines, including Martinair, commenced to levy an equivalent fuel surcharge on international air cargo. 

22.          In 1997, the members of the International Air Transport Association (IATA) passed a resolution (Resolution 116ss) that IATA prepare and publish a fuel price index for its members, and providing for the imposition of fuel surcharges in accordance with a methodology linked to the index.  IATA was at the time (and remains) the peak airline industry body of which major international airlines are members. 

23.          Martinair is not a member of IATA and was not a member at any material time. 

24.          The IATA fuel price index measured movements in the price of aviation fuel against a base of the average of prices in 5 ports in June 1996 (index = 100).  The methodology provided that when the index reached 130 for two consecutive weeks, airlines would impose the local currency equivalent of USD0.10 per kilogram of air cargo as a "fuel surcharge", and also that this surcharge would be removed when the index fell below 110 for two consecutive weeks.  The methodology provided details for imposing the surcharge such as the means of including the surcharge on air waybills and the freight forwarders' eligibility for commission.

25.          The surcharge generated by the index rose and fell with movements in the price of fuel but did not represent changes in the actual fuel costs of any of the particular airlines which applied it.

26.          In the period 1997 to 1999, the IATA fuel price index remained below 130, being the trigger point for the first level of the fuel surcharge under Resolution 116ss.  Nevertheless, IATA advised its members that the fuel surcharge should not be imposed until Resolution 116ss had received regulatory approval, including from the United States Department of Transportation (US DoT).  No such approval was obtained.

27.          In the period 1997 to 1999, IATA continued to publish its index.

1999/2000: Implementing the IATA fuel price index

28.          In November 1999, for the first time since its publication in 1997, the index exceeded 130, the trigger point for the imposition of a surcharge. 

29.          In January 2000, IATA sought regulatory approval of Resolution 116ss from the US DoT but this was refused in March 2000.  As a consequence of regulatory rejection of Resolution 116ss, IATA ceased publishing its fuel price index.

30.          On 7 April 2000, IATA sent a memorandum to the members of the Cargo Tariff Co-ordinating Conferences stating the following:

"As previously advised, Resolution 116ss has not received the requisite government approvals and will not be declared effective. Accordingly, no purpose would be served by its continued circulation of this index and practice of doing so is being discontinued.” 

31.          On 14 April 2000 IATA sent another memorandum to the members of the IATA Cargo Committee as follows:

"Dear Colleagues,

We have had a significant number of appeals to maintain and continue to publish the IATA Fuel Index and have been examining how this could be done following the disapproval of Resolution 116ss by the US DoT. Our legal advisors’ strong view is that IATA Members could be exposed to serious antitrust liability if we were to continue to publish the Index or to approach PLATTS or any other entity with a request to provide the Index, or if it was suggested to one or more carriers that they approach PLATTS in this regard. While it is recognised we cannot prevent carriers from doing so on their own initiative, we have to affirmatively advise against taking any such action, for the reasons stated below.

The Index has now become tainted by the DoT order finding Resolution 116ss, to which the Index was linked, to be adverse to the public interest and in violation of the law. If the carriers were to co-ordinate pricing by reference to the Index, whether pursuant to this disapproved Resolution or simply through de facto parallel pricing actions, that could be regarded as an illegal conspiracy in violation of applicable Competition laws, whether the Index is published by IATA, PLATTS, or indeed, simply calculated by each of the carriers independently. Against that background, IATA has no choice but to discontinue all activity associated with the disapproved Resolution, including calculation and dissemination of the Fuel Price Index, and it has done so. Because any further pricing actions linked to the now tainted Index could expose the carriers engaging in such pricing actions to serious antitrust liability, we must advise that carriers not engage in any pricing actions tied to the Index. As there is no further legitimate or lawful use to be made of the Index, we also recommend that carriers refrain from approaching any third party requesting them to calculate and publish the Index.

While we acknowledge the desire of many Members to have the Fuel Index published, we do believe the foregoing reflects a correct analysis of the situation. For the reasons expressed, the position being taken is designed to protect both Members and IATA from serious legal liability risk.

This message is being sent to all the members of the Cargo Tariff Steering Group. A similar message is being sent to the Cargo Tariff Coordinating Conference.

If anyone wishes to pursue this matter further they are advised to contact their Legal Department.

Tom Murphy, Secretary, Cargo Committee"

32.          This correspondence was sent to the heads of cargo operations (members of the IATA Cargo Committee) at over 60 IATA member airlines, along with their tariff co-ordinators (members of the Cargo Tariff Coordinating Conference).

2000: The Lufthansa Fuel Price Index

33.          Either before or almost immediately following the cessation of the publication of the IATA fuel price index, Lufthansa commenced publishing its own fuel price index on its website which effectively replicated the IATA fuel price index (the Lufthansa Fuel Price Index). Lufthansa also commenced publishing a methodology which stated that the surcharge of €0.10 (or the equivalent in local currency) would be imposed when the Lufthansa Fuel Price Index exceeded 130 for two consecutive weeks, and would be removed when the fuel price index fell below 110 for two consecutive weeks. Lufthansa’s methodology was otherwise the same as the methodology of Resolution 116ss.

34.          During 2000 and 2001, Lufthansa implemented increases and decreases to its fuel surcharge in accordance with the Lufthansa Fuel Price Index.

35.          By late 2001, the price of aviation fuel had fallen. In December 2001, Lufthansa and other airlines which had imposed a fuel surcharge announced the withdrawal of that surcharge with effect from December 2001 or January 2002.

2002: New Lufthansa Methodology

36.          In or about January 2002, Lufthansa publicly announced a new fuel surcharge methodology with smaller increments at more frequent intervals.  The new methodology was as follows (the Lufthansa Methodology):

Level	Fuel Surcharge	Imposition – index	Removal – index
1	0.05 euro / kg	115	100
2	0.10 euro / kg	135	120
3	0.15 euro / kg	165	145
4	0.20 euro / kg	190	170

37.          Similar to Resolution 116ss, the Lufthansa Methodology calculated the fuel surcharges based on the actual per kilogram weight of international air cargo and used a two week period for an index threshold to trigger a fuel surcharge increase or decrease.  The fuel surcharge was imposed in euros or the equivalent in local currency.

38.          Several other airlines announced and charged fuel surcharges based on the Lufthansa Methodology.  Martinair and KLM (and a few other airlines) adopted their own fuel surcharge methodology[,] although Martinair's methodology was accessible only to internal company employees.  In the case of the KLM and Martinair methodologies, they produced substantially the same changes in the amount of the surcharges at the same time as the Lufthansa Methodology. 

39.          At various times between January 2002 and October 2005, Lufthansa added additional levels to its methodology as the fuel index approached the highest level on the existing methodology (Additional Levels). The following table records the Lufthansa Methodology, incorporating the Additional Levels:

Level	Fuel Surcharge	Imposition – index	Removal – index
1	0.05 euro / kg	115	100
2	0.10 euro / kg	135	120
3	0.15 euro / kg	165	145
4	0.20 euro / kg	190	170
5	0.25 euro / kg[4]	215	195
6	0.30 euro / kg	240	220
7	0.35 euro / kg[5]	265	245
8	0.40 euro / kg	290	270
9	0.45 euro / kg[6]	315	295
10	0.50 euro / kg	340	320
11	0.55 euro / kg[7]	365	345
12	0.60 euro / kg	390	370
13	0.65 euro / kg[8]	415	395
14	0.70 euro / kg	440	420

40.          In this Statement of Agreed Facts and Admissions, a reference to the “Surcharge Methodology” is a reference to the Lufthansa Methodology including Additional Levels, or to a methodology which led to substantially the same outcome as application of the Lufthansa Methodology, which includes both the Martinair and KLM methodologies.

41.          During the period in which Lufthansa was publishing its index, senior Martinair employees had discussions with their competitors including Cargolux and KLM concerning the application of surcharges in accordance with the Surcharge Methodology.

The Fuel Surcharge Understanding 

45.          Martinair admits that by no later than early 2003, it had arrived at an understanding with KLM and Cargolux containing a provision that they would have discussions and exchange and confirm information with each other in relation to the fuel surcharge that each intended to impose in accordance with the Surcharge Methodology. The understanding had the purpose and likely effect of confirming and coordinating the application by the parties to the understanding of their fuel surcharges, on cargo carried internationally by air across their respective global networks, except where local conditions in a particular port or in a particular geographic area prevented the imposition, or full imposition, of the fuel surcharge (the Fuel Surcharge Understanding).  Martinair admits that the relevant provision of the Fuel Surcharge Understanding had the purpose and likely effect of fixing or maintaining a component of the price for the international air cargo services of itself, KLM and Cargolux.

46.          Martinair gave effect to the Fuel Surcharge Understanding during the relevant period by:

46.1.     exchanging information with KLM and Cargolux in relation to the fuel surcharge that each airline intended to impose; and

46.2.     increasing and decreasing their respective fuel surcharge levels charged to customers in accordance with the Surcharge Methodology including Additional Levels, in response to changes in the fuel price.

47.          During the relevant period, personnel at Martinair spoke to personnel at KLM and Cargolux regarding whether a decision had been made by those other carriers to change their fuel surcharges. 

48.          These discussions were in the form of telephone conversations and emails between Martinair's Vice-President Cargo Sales Europe (and other employees on behalf of Martinair), including with:

48.1.     Cargolux personnel, including the Senior Vice President Sales & Marketing; and

48.2.     KLM personnel, including KLM's Vice President for the EMEA (Europe, Middle East, Africa) region.

49.          Communications would usually occur after increases or decreases of the price of jet fuel were expected to trigger changes in the fuel surcharge applicable.  Usually, though not always, these communications occurred before each such airline made a formal decision to alter an existing fuel surcharge.

50.          [Martinair] engaged in activity, with the knowledge of senior staff, to confirm and promote the ongoing operation of the Fuel Surcharge Understanding and to ensure it was given effect. [Martinair]'s senior employees communicated with employees in the freight divisions of other airlines to give and receive assurances that a relevant fuel surcharge increase or decrease would be imposed.

51.          The purpose and effect of these communications was to confirm that the airlines would move to the same amount at around the same time, thereby giving effect to the Fuel Surcharge Understanding.

52.          For the purposes of these proceedings only, [Martinair] admits that during the relevant period, and pursuant to the Fuel Surcharge Understanding, [Martinair] imposed surcharges in accordance with the Surcharge Methodology to the extent possible on routes to Australia.  In the case of freight carried ex-Australia, market conditions during the relevant period usually did not allow the same surcharge to be imposed.

53.          There were exceptions to the imposition by [Martinair] of fuel surcharges in accordance with the Surcharge Methodology in cases where local conditions prevented the imposition of a surcharge in accordance with such methodology (or the full and/or immediate imposition of that surcharge) from a particular port or in a particular geographic area. The following are examples of such exceptions:

53.1.     Where a local law or regulation required fuel surcharges to be approved by a local government department, there were cases where airlines were unable to obtain approval for surcharges precisely in accordance with the Surcharge Methodology, although in most cases the departure from the Surcharge Methodology was merely a delay in moving to the next surcharge level.  This occurred in Hong Kong and the United Arab Emirates, for example.

53.2.     There were occasions in ports outside Europe where airlines with a significant share of cargo services from a particular port or in a particular region declined to impose a fuel surcharge, or a particular fuel surcharge level, causing [Martinair] to form a view that the imposition of a surcharge in accordance with the Surcharge Methodology would be commercially unworkable because it would lead to a significant decline in sales.

54.          Attached to this statement of agreed facts as Attachment A is a table recording the surcharges imposed by Martinair [Attachment A is not reproduced in these reasons].  Implementation of changes in the fuel surcharge generally lagged behind the fuel price indexes reaching an index threshold by approximately 2 -3 weeks to give airlines time to notify customers of the new charges.

55.          For the purposes of these proceedings only, [Martinair] admits that arriving at the Fuel Surcharge Understanding and giving effect to its provisions constituted the arriving at and giving effect to an understanding containing provisions to which section 45A of the Act applies in that it had the purpose, effect and likely effect of fixing, controlling or maintaining a component of the price charged by competitors for the carriage of cargo by air, and that such conduct is therefore deemed to have the purpose, effect and likely effect of substantially lessening competition between [Martinair] and its competitors for the carriage of cargo by air, including to Australia.

56.          For the purposes of these proceedings only, [Martinair] admits that by arriving at the Fuel Surcharge Understanding and by giving effect to its provisions by charging on air waybills surcharges in accordance with the Fuel Surcharge Understanding, it has contravened sections 45(2)(a)(ii) and (b)(ii) of the Act, by reason of section 45A.

13                  The Relevant Period was approximately 3 years.  The conduct ceased in February 2006 when allegations concerning the Fuel Surcharge Understanding received publicity following  “raids” undertaken by regulatory bodies in the United States and Europe.

Legal principles RELEVANT to level of penalty

14                  Paragraphs 11 to 40 of the Joint Written Submissions set out the factors and applicable legal principles relevant to the level of penalty. At [16] to [27] of the Qantas Reasons under the heading “Legal Principles Relevant to Level of Penalty”, I summarised those factors and principles and will not repeat them here (see too the British Airways Reasons at [16]).

The pARTIES’ SUBMISSIONS ON FACTS RELEVANT TO level of PENALTy IN THE PRESENT CASE

15                  What follows under this heading is paras 42-73 of the Joint Written Submissions made by the Commission and Martinair.

Nature and extent of the contravening conduct, including its deliberateness

42.          The conduct subject to penalty is described in the statement of agreed facts and admissions.  It was engaged in by Martinair across their global network in accordance with the Fuel Surcharge Understanding and was deliberate and continued for approximately 3 years.

43.          The conduct ceased in February 2006, when “raids” were undertaken by regulatory bodies in the United States and Europe.  The conduct could have been defeated at any time in most localities by any major carrier in that locality declining to impose the surcharge.  Martinair is not a major carrier to Australia and carried about 2% of freight carried to Australia.

The amount of loss or damage caused

44.          The revenue generated by Martinair as a result of the fuel surcharges to Australia during the relevant period was approximately €8.9 million[9].

45.          The revenue derived from fuel surcharges however does not demonstrate the actual loss to shippers or their customers because, absent the Fuel Surcharge Understanding, some price increases would have occurred to cover the increased costs of fuel, which did increase over the relevant period.  It may have also been that some carriers would have been forced to exit certain routes, allowing the remainder to impose other increases with less constraint.  These competitive outcomes cannot be known.  It is the case that the parties to the Fuel Surcharge Understanding had different arrangements for the acquisition of fuel and acquired it in different places: many also had hedging arrangements.  Further, the fuel surcharge was a flat charge regardless of the distance travelled, and therefore did not reflect or seek to reflect actual fuel costs on any flight or route.  Accordingly, for any specific item of cargo, the relevant fuel surcharge methodologies did not fully or precisely reflect changes in the airlines' actual fuel costs, which may have been higher or lower than the surcharge applied to the item of cargo.  The cost of air cargo services is usually passed on, in whole or in part, to a shipper by their freight forwarder.

46.          Neither the Commission nor [Martinair] are aware as to what proportion of the surcharge was ultimately borne by any particular consumer or business in Australia.  As a general rule, the ultimate consumer will bear most if not all of the transport cost, in the price paid for the cargo: others in the supply chain, such as a wholesaler or retailer will absorb some part of the cost some part of the time.  These others involve persons both in Australia and overseas.  They will be more likely to absorb the loss if the goods comprising the cargo have been sold prior to the transport cost increase but may also have to do so if their competitors do not have the same costs. 

The size of the contravenor

47.          As noted in the statement of agreed facts and admissions Martinair has total assets of about €700 million and during the relevant period was a significant international carrier of freight.  Martinair carried about 2% of the air cargo to Australia throughout the relevant period. 

48.          Over the relevant period Martinair carried around 2% of the air freight to Australia.  Qantas and Singapore Airlines by comparison carried about 24% and 14% respectively. 

49.          Martinair's net loss before tax and before provisions for payment of antitrust fines and penalties for the year ended 31 December 2007 was €41 million.  It derived global revenue of approximately €798 million from the carriage of air freight in the calendar year 2006. 

50.          Prior to 31 December 2008, Martinair was 50% owned by KLM.  Since 31 December 2008, Martinair has been wholly owned by KLM which is itself owned by Air France-KLM.  

The period over which the contravening conduct extended

51.          Martinair’s contravening conduct for which penalties can be imposed extended over approximately a 3 year period starting from 6 years prior to these proceedings were instituted until February 2006 inclusive.

Degree of power it has, as evidenced by its market share and ease of entry into the market

52.          In the segment to Australia there are at least ten other significant competitors which are major international carriers and which have market shares to Australia of between about 2% and 10%.  Martinair was unable to act in the Australian segment or elsewhere without being constrained by its competitors. 

The circumstances in which the conduct took place

53.          The conduct required the participation of all major carriers in each port or region to be successful. 

Participation of senior management

54.          Senior staff at Martinair participated in, or were aware of, the arriving at and giving effect to the Fuel Surcharge Understanding.

Culture of compliance with the Trade Practices Act

55.          Martinair's trade practices compliance policies at the time of the conduct were not adequate to prevent the conduct occurring. 

56.          Since the beginning of 2006, Martinair has taken extensive measures to provide compliance training and education to its employees on competition law compliance throughout the world. In this context, Martinair's management instructed the Legal Affairs and Human Resources departments to provide training to all employees on (competition) compliance. Both departments have developed custom-made, airline-specific, web-based training.

57.          Martinair also provided all employees outside head office with compliance training prepared by the American company HR Classroom. At the same time, the employees of Martinair in the Netherlands were instructed by their in-house counsel.

58.          Currently the training program is implemented in the company whereby every employee has to take web based training on a yearly basis which is subject to testing. Furthermore, every new employee has to take the training when he/she starts working for Martinair. The test results are stored and analysed in order to verify whether all topics of the training are known by the Martinair employees and, if necessary, additional training on topics is provided.

59.          The customised training is hosted externally by a third party, Interactive Dialogues. This company works closely together with law firm Freshfields for the content of the training.  Martinair adapted the content prepared by Freshfields in close co-operation with Interactive Dialogues to make the content specific to Martinair's business.

Co-operation and Contrition

60.          Martinair has co-operated with the Commission’s investigations and made frank admissions of its participation in the understandings.  

61.          Martinair through its solicitors participated in a series of discussions with the Commission to bring an agreed resolution of the matter before the Court.  As a result of those discussions Martinair and the Commission have reached agreement as to the appropriate penalty to be suggested to the Court.  Martinair have also assisted the Commission in the preparation of the relevant settlement documents including the admissions.

62.          As already mentioned, Martinair has reviewed and upgraded its current trade practices compliance programs.

63.          The Commission accepts that Martinair is entitled to credit for having admitted contravening the Act, upgrading their compliance program and agreeing with the Commission on the appropriate penalty to put to the Court ([…]).  Martinair’s co-operation with the Commission has saved the Commission and the Court (and ultimately the community) the cost and burden of litigating a lengthy and expensive case. 

64.          It is obviously of benefit to the Commission’s investigations that the respondent is encouraged to co-operate in appropriate cases.  In these circumstances the parties submit Martinair is entitled to a substantial discount on the penalty that otherwise would have been appropriate, which, given the regularity of the contravening conduct over the three year period and the maximum applicable penalty per contravention of $10 million, could have been very much higher.  This discount reflects the timely and appropriate admission and the substantial savings from a full investigation and litigation. 

65.          The discount proposed by the Commission is 30%.  This is less than the 50% recommended for Qantas and the 40% recommended for British Airways both of which were accepted by Lindgren J.  This reflects that Martinair has been frank and timely concerning disclosure to the Commission of their own conduct.  However, the evidence provided by them concerning others has been solely as a result of compliance with notices under section 155 of the Act. 

66.          Unlike Qantas and British Airways before it, Martinair has not provided witnesses or volunteered to provide other assistance with the case against others.  Nevertheless, it has made admissions in advance of the Commission being in a position to prove the case against them. 

Similar conduct in the past

67.          The Court has not previously found contraventions against Martinair in relation to the Act. 

Other regulators

68.          The Commission notes that Martinair was under investigation in the United States in respect of its conduct and, in June 2008, agreed to pay a fine of US$42 million under a guilty plea, accepted by the US Department of Justice.  Martinair expects very substantial penalties in Europe will be sought at the conclusion of the European Union investigations.  Martinair is co-operating with regulators in both jurisdictions.  The parties submit that it is necessary and appropriate to take these penalties and likely penalties into account when determining an appropriate penalty in these proceedings. 

Conclusion on appropriate penalty

69.          The Federal Court has previously ordered penalties against:

69.1.     Qantas in the amount of $20 million in [the Qantas Proceeding];

69.2.     British Airways in the amount of $5 million in [the British Airways Proceeding].

70.          Qantas and British Airways had respective shares in the Australian segment of the market of approximately 24% and 3%.  These penalties included allowances for co-operation and assistance of 50% and 40% respectively. 

71.          As noted in the judgements of Lindgren J ([in the Qantas Reasons] at [58] [sic – [59]] [in the British AirwaysReasons] at [28]) the Commission recommended to the Court that a base penalty of $7 million was appropriate for cartel participants with a 2% share or less of the Australian segment of the market that participated for all or substantially all of the period eligible for penalty.  This recommendation reflects the basic need for effective deterrence regardless of the actual benefit that was gained.  It also reflects the size and economic strength of the contravenors and the fact that they have paid and will be likely to pay very substantial penalties in other jurisdictions.  From the base penalty, the Commission proposed and recommended to the Court in those cases that a discount of approximately 30% was appropriate for airlines that admitted their involvement substantially in advance of the Commission being able to prove it.  The Commission maintains that submission and has adopted that approach in its recommendations to the Court in these proceedings. 

72.          The parties submit that the respondent meets the circumstances set out in the preceding paragraph and that, absent any additional circumstances, the penalty ought be $5 million.  That penalty level is jointly recommended by the Commission and Martinair to be appropriate.

73.          The parties submit the penalties proposed are both within the range that the Court, unaided by the parties' views, would consider appropriate and achieve parity with penalties imposed upon other airlines who have admitted their participation in this conduct.

CONSIDERATION

16                  Because of my adoption, mutatis mutandis, of the Qantas Reasons and the British Airways Reasons (see especially [31] – [80] of the Qantas Reasons), it seems to me that the appropriateness of the penalty and other orders sought by Martinair and the Commission turns largely on the issue of parity.

17                  Throughout the Relevant Period, Martinair carried on business in Australia (and elsewhere) as a carrier of air cargo, and was registered as a foreign corporation in Australia.  Martinair carried about 2% of Australian international air cargo throughout the Relevant Period whereas British Airways carried approximately 3%.

18                  Martinair’s revenue from fuel surcharges on Australian routes during the Relevant Period was approximately €8.9 million, and the British Airways figure was £5,721,207.  That is to say, although Martinair carried a slightly lower percentage of Australian international air cargo, it earned an amount of fuel surcharge revenue on routes to Australia generally similar to that of British Airways.

19                  Although the global revenue of air cargo of Martinair is comparable to that of British Airways, the total assets, total revenue and total profits are significantly less than those of British Airways.  The obvious explanation, as pointed out by Mr Moore of counsel for the Commission during the hearing, is that Martinair had a greater focus on freight, although it remains the fact that it is a substantial company with substantial revenues.

20                  Because Martinair had a 2% or less share of the Australian segment of the air cargo market, the Commission proposes no uplift or increase in the base penalty of $7 million.  As noted at [59] of the Qantas Reasons, for companies that reported their involvement to the Commission well before the Commission was able to prove it, the Commission gave a standard discount of approximately 30%, leading to a reduction in the base penalty in their cases to approximately $5 million.  That is the case with Martinair.  The present case is not one, however, in which a further discount is sought in respect of the provision of witnesses, documents and information in relation to the Commission’s intended institution of proceedings against other airlines: cf [68] of the Qantas Reasons.

21                  It will be noted that Martinair expects to have to pay very substantial penalties in the United States and Europe.

22                  In addition to the penalty of $5 million sought, the parties seek an order that Martinair contribute $100,000 to the Commission’s costs.  This is less than the amount that was ordered in each of the Qantas and British Airways Proceedings. The reason is that Martinair, Air France and KLM are now all part of the one corporate group, and therefore the costs have been divided between Martinair of the one part and Air France and KLM of the other part.

23                  Senior counsel for Martinair conceded that Martinair’s conduct was extremely serious, involving as it did price-fixing affecting the Australian market.

24                  Senior counsel for Martinair pointed out that his client’s only business in Australia is that of an air cargo service provider.  Martinair is not a major international airline such as Qantas, British Airways, Air France or KLM.

25                  Senior counsel also pointed out that the contravening conduct was not primarily directed to Australia, and that the Fuel Surcharge Understanding was entered into in Europe and applied to the carriage of air cargo between Europe and other destinations including Australia.  He contrasted Martinair’s 2% share of Australian air freight with Qantas’s 24% and Singapore Airline’s 14%.  Martinair had only six employees in Australia and 2,500 worldwide, and operated flights to 50 countries. 

26                  For the above reasons I was of the view that, overall, the circumstances of the Martinair case were comparable of those of the British Airways case and that a similar level of penalty was appropriate.

CONCLUSION

27                  The reasons set out above were my reasons for making the orders on 16 February 2009.

 

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:         14 April 2009

 

Counsel for the Applicant:	Mr CA Moore
Solicitors for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr RM Smith SC
Solicitors for the Respondent:	Clayton Utz

Date of Hearing:	16 February 2009
Date of Judgment:	16 February 2009
Date of Publication of Reasons:	14 April 2009