FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Air New Zealand Limited [2014] FCA 1157

Citation:

Australian Competition and Consumer Commission v Air New Zealand Limited [2014] FCA 1157

Parties:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v AIR NEW ZEALAND LIMITED (ARBN 000 312 685)

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v P.T. GARUDA INDONESIA LTD (ARBN 000 861 165)

File numbers:

NSD 534 of 2010

NSD 955 of 2009

Judge:

PERRAM J

Date of judgment:

31 October 2014

Catchwords:

TRADE PRACTICES – price fixing – alleged arrangements or understandings between airlines to fix fees and surcharges in relation to the carriage of air cargo – Trade Practices Act 1974 (Cth) ss 45 and 45A – whether airlines engaged in collusive practices – whether airlines bound by domestic law or practice of foreign countries to fix charges

TRADE PRACTICES – price fixing – whether alleged price fixes had purpose, or were likely to have the effect, of substantially lessening competition in a market in Australia – whether markets were ‘in Australia’ for the purposes of Trade Practices Act 1974 (Cth) s 4E – definition of market – assessment of substitution and switching behaviour – assessment of product, geographical and functional dimensions

EVIDENCE – proving a contract, arrangement or understanding within the meaning of Trade Practices Act 1974 (Cth) s 45 – circumstantial proof of collusive behaviour – evidence to be looked at as a whole

Legislation:

Commonwealth Constitution s 109

Acts Interpretation Act 1901 (Cth) s 23(b)

Air Navigation Act 1920 (Cth) ss 12,13, 22

Air Navigation Amendment Act 1989 (Cth) s 3

Aviation Transport Security Act 2004 (Cth)

Civil Aviation Act 1988 (Cth)

Competition Policy Reform Act 1995 (Cth) s 15

Evidence Act 1995 (Cth) ss 63, 140, 144

Foreign Antitrust Judgments (Restriction of Enforcement) Act 1979 (Cth)

Foreign Proceedings (Prohibition of Certain Evidence) Act 1976 (Cth)

Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth)

Trade Practices Act 1974 (Cth) ss 4, 4E, 5, 45, 45A, 46, 47, 51(1)(a), 51(1)(b), 51(1C), 112

Transport and Communications Legislation Amendment Act 1992 (No 2) (Cth) s 10

Air Navigation Regulations 1947 (Cth) rr 16, 20, 258(1)

Air Navigation Amendment Regulations 1998 (No 1) (Cth)

Air Navigation Amendment Regulations 2000 (No 3) (Cth)

Explanatory Memorandum, Trade Practices Bill 1974 (Cth)

Co-operation Act 1923 (NSW) s 82

Co-operatives Regulations 1961 (NSW) reg 35A

Agreement between the Government of the Commonwealth of Australia and the Government of Hong Kong concerning Air Services, signed 15 September 1993, [1993] ATS 28 (entered into force 15 September 1993)

Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Indonesia for Air Services Between and Beyond their Respective Territories, signed 7 March 1969, [1969] ATS 4 (entered into force 7 March 1969)

Agreement between the Government of Hong Kong and the Government of the Republic of Indonesia Concerning Air Services, signed 6 June 1997, [1981] I-33911 (entered into force 27 June 1997)

Agreement between the United States and the United Kingdom relating to Air Services, signed 11 February 1946, 3 UNTS 253 (entered into force 11 February 1946)

Convention on International Civil Aviation, signed 7 December 1944, 15 UNTS 295 (entered into force 4 April 1947)

Exchange of Notes constituting an Agreement between the Government of Australia and the Government of Indonesia to amend the Annex to the Agreement for Air Services between and beyond their respective Territories of 7 March 1969, signed 16 August 1986, [1986] ATS 23 (entered into force 16 August 1986)

International Air Services Transit Agreement, signed 7 December 1944, 84 UNTS 389 (entered into force 8 February 1945)

Statute of the International Court of Justice, 39 AJIL Supp 215 (entered into force 24 October 1945)

Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155 UNTS 331 (entered into force 27 January 1980)

Air Transport (Licencing of Air Services) Regulations (Hong Kong) cap 448A rr 3(1), 5(2)

Competition Act (Singapore, cap 50B, 2004)

Undang-Undang Republik Indonesia Nomor 15 Tahun 1992 Tentang Penerbangan [Law No 15 of 1992 on Aviation] (Indonesia) Art 13(2)

Peraturan Pemerintah Republik Indonesia Nomor 40 Tahun 1995 Tentang Angkutan Udara [Government Regulation No 40 of 1995 on Aviation] (Indonesia) Arts 38, 40

Undang-Undang Republik Indonesia Nomor 5 Tahun 1999 Tentang Larangan Pratek Monopoli Dan Persaingan Usaha Tidak Sehat [Law No 5 of 1999 Regarding the Ban on Monopolistic Practices and Unfair Business Competition] (Indonesia)

Federal Aviation Act of 1958, 49 USC 1301 (1958) (USA) §§ 412, 414

Sherman Antitrust Act, 15 USC §§ 1 – 7 (1890) (USA) §§ 1 - 7

Cases cited:

Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission (2005) 159 FCR 452 considered

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375 considered

Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) 160 FCR 321; [2007] FCA 794 considered

Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 cited

Australian Competition and Consumer Commission v Mobil Oil Australia Ltd [1997] ATPR ¶ 41-568 cited

Bradshaw v McEwans (1951) 217 ALR 1 cited

Browne v Dunn (1893) 6 R 97 cited

Cadia Holdings Pty Ltd v New South Wales (2010) 242 CLR 195 cited

Commissioner of Police v Eaton (2013) 294 ALR 608 cited

Commissioner of Taxation v Qantas Airways Ltd (2012) 247 CLR 286 distinguished

Currie v Dempsey [1967] 2 NSWR 532 cited

Habib v Commonwealth (2010) 183 FCR 62 cited

Heli-Aust Pty Ltd v Cahill (2011) 194 FCR 502 cited

International Air Transport Association [1984] ATPR (Com) ¶ 150-083 considered

International Air Transport Association [1986] ATPR (Com) ¶50-101 considered

Maricic v Dalma Formwork (Australia) Pty Ltd [2006] NSWCA 174 cited

Palmer v Dolman [2005] NSWCA 361 cited

Qantas Airways Limited [1987] ATPR (Com) ¶ 150-056 considered

QIW Retailers Limited v Davids Holdings Pty Ltd (No 3) (1993) 42 FCR 255 cited

Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 cited

Re Fortescue Metals Group Ltd (2010) 271 ALR 256 cited

Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 distinguished

Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 cited

Refrigerated Express Lines (Australasia) Pty Limited v Australian Meat and Livestock Corporation (No 2) (1980) 29 ALR 333 cited

The Queen v Halton; ex parte A.U.S. Student Travel Pty Limited (1978) 138 CLR 201 distinguished

Thiel v Commissioner of Taxation (1990) 171 CLR 338 cited

Trade Practices Commission v David Jones (Australia) Pty Ltd (1986) 13 FCR 446 cited

Trade Practices Commission v Email Ltd (1980) 31 ALR 53 considered

Trade Practices Commission v Service Station Association Ltd (1993) 44 FCR 206 considered

Hartford Fire Insurance Co v California, 509 US 764 (1993) cited

In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 906 F 2d 432 (9th Cir, 1990) cited

In re Flat Glass Antitrust Litigation, 385 F 3d 350 (3rd Cir, 2004) cited

Monsanto Co v Spray-Rite Service Corp, 465 US 752 (1984) considered

Re Uranium Antitrust Litigation, 480 F Supp 1138 (9th Cir, 1979) cited

Re Uranium Antitrust Litigation 617 F 2d 1248 (7th Cir, 1980) cited

Serfecz v Jewel Food Stores, 67 F 3d 591 (7th Cir, 1995) cited

Theatre Enterprises Inc v Paramount Film Distributing Corp, 346 US 537 (1954) cited

United States v Aluminium Co. of America, 148 F.2d 416, 443 (CA2 1945) cited

Williamson Oil Co Inc v Phillip Morris USA, 346 F 3d 1287 (11th Cir, 2003) cited

Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103 (24 August 2011) distinguished

Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v Belgium) (Judgment) [2002] ICJ Rep 3 cited

Case No COMP/M.5141 – KLM/Martinair (European Commission decision of 17 December 2008) distinguished

SS ‘Lotus’ (France v Turkey) (Judgment) [1927] PCIJ (ser A) No 10. cited

The Fisheries Case (United Kingdom v Norway) (Judgment) [1951] ICJ Rep 116 cited

Appellate Body Decision, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WTO Doc WT/DS268/AB/R, AB-2004-4 cited

Texts cited:

Beaton-Wells, C, and Fisse, B, Australian Cartel Regulation: Law policy and practice in an international context (Cambridge University Press, 2011)

Brunt, M, ‘Market Definition Issues in Australian and New Zealand Trade Practices Litigation’ (1990) 18 Australian Business Law Review 86

Corones, SG, Competition Law in Australia (Lawbook, 5th ed, 2010)

Fugate, WL, ‘Antitrust Jurisdiction and Foreign Sovereignty’ (1963) 49 Virginia Law Review 925

Haanappel, P, Pricing and Capacity Determination in International Air Transport (Kluwer Law and Taxation Publishers, 1984)

Kovacic, WE, ‘The Identification and Proof of Horizontal Agreements under the Antitrust Laws’ (1993) 38 The Antitrust Bulletin 5

Senz, S, and Charlesworth, H, ‘Building Blocks: Australia’s response to foreign extraterritorial legislation’ (2001) 2 Melbourne Journal of International Law 69

Dates of hearing:

6-9, 12-15, 20, 21, 23, 27-30 November 2012; 3-7, 11, 13, 14, 19 December 2012; 4-7, 11, 13, 14, 18, 19, 25, 27, 28 February 2013; 1, 4-8, 12, 14, 15, 19, 27 March 2013; 4, 11, 17, 18 April 2013; 9, 10, 13-15 May 2013; and 5 June 2013

Place:

Sydney

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

1287

Counsel for the Applicant in NSD 534 of 2010 and NSD 955 of 2009:

Mr JA Halley SC, Ms E Collins SC, Mr JR Clarke SC, Mr J Clark, Mr C Arnott, Ms N Shaw, Ms V Bosnjak and Ms T Dinh

Solicitor for the Applicant in NSD 534 of 2010 and NSD 955 of 2009:

Australian Government Solicitor

Counsel for the Respondent in NSD 534 of 2010:

Mr RM Smith SC, Mr NJ Owens and Mr R Yezerski

Solicitor for the Respondent in NSD 534 of 2010:

Corrs Chambers Westgarth

Counsel for the Respondent in NSD 955 of 2009:

Mr M Leeming SC and Mr T Brennan

Solicitor for the Respondent in NSD 955 of 2009:

Norton White

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 534 of 2010

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

AIR NEW ZEALAND LIMITED (ARBN 000 312 685)

Respondent

JUDGE:

PERRAM J

DATE OF ORDER:

31 OCTOBER 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.    Vary Order 1 of 1 May 2013 in the manner foreshadowed at paragraph 1287 of these reasons.

2.    The application be dismissed.

3.    Direct the parties to file and exchange written submissions on costs by 4:15 pm on Friday 19 December 2014 together with any affidavit upon which reliance is placed.

4.    Stand the matter over for a hearing on costs at 10.15 am on Wednesday 4 February 2015.

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

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 955 of 2009

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

P.T. GARUDA INDONESIA LTD (ARBN 000 861 165)

Respondent

JUDGE:

PERRAM J

DATE OF ORDER:

31 OCTOBER 2014

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.    Vary Order 1 of 1 May 2013 in the manner foreshadowed at paragraph 1287 of these reasons.

2.    The application be dismissed.

3.    Direct the parties to file and exchange written submissions on costs by 4:15 pm on Friday 19 December 2014 together with any affidavit upon which reliance is placed.

4.    Stand the matter over for a hearing on costs at 10.15 am on Wednesday 4 February 2015.

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

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 534 of 2010

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

AIR NEW ZEALAND LIMITED (ARBN 000 312 685)

Respondent

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION                                                              NSD 955 of 2009   

 

 

 

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

P.T. GARUDA INDONESIA LTD (ARBN 000 861 165)

Respondent

JUDGE:

PERRAM J

DATE:

31 October 2014

PLACE:

SYDNEY

REASONS FOR JUDGMENT

1 INTRODUCTION

1    The Australian Competition and Consumer Commission (‘the Commission’) sues Air New Zealand Limited (‘Air NZ’) and P. T. Garuda Indonesia Limited (‘Garuda’) alleging collusive behaviour in the fixing of surcharges and fees on the carriage of air cargo from overseas into Australia, allegedly contrary to the combined effect of ss 45 and 45A of the Trade Practices Act 1974 (Cth). The two airlines are not said to have acted alone but instead in the company of a large number of other international airlines. Whilst there were proceedings on foot against many of those airlines at an earlier time, all of those proceedings had been settled or were in the process of being settled prior to the present trial commencing.

2    Involved are four different kinds of charge:

(a)    a fuel surcharge: This was a charge usually calculated by reference to the weight of cargo and was designed to compensate airlines for fluctuations in the price of aviation fuel. The significance of it being levied as a surcharge was that it appeared as a separate charge on air waybills rather than being absorbed invisibly in an overall freight charge. An air waybill is the basic document of carriage in the air cargo market.

(b)    an insurance and security surcharge (‘ISS’): This was a surcharge designed to compensate airlines for increased insurance costs in the wake of the attacks on the World Trade Center on 11 September 2001. Again it was charged by reference to weight and appeared as a separate charge on an air waybill.

(c)    a customs fee: This fee was imposed by the Indonesian Government on airlines by reference to the number of air waybills contained in a cargo manifest. The airlines passed this fee on to their customers. There were only two such fees imposed in this case and their role is peripheral. These also appeared on the air waybill.

(d)    a freight rate: There was a single example in Indonesia where it was alleged that Garuda had been involved in fixing an overall freight rate.

3    The Commission’s case was that anti-competitive conduct, including price fixing, had occurred in the markets in which cargo was flown into Australia from:

(a)    Hong Kong;

(b)    Singapore; and

(c)    Indonesia.

4    With one minor exception, the Commission’s case was not concerned with the imposition of surcharges or fees on flights out of Australia. As will be seen, this is significant.

5    As a matter of industry structure, the airlines imposed the fuel and insurance surcharges at the airport of origin. The customs fee in Indonesia, however, was imposed on flights both out of and into Indonesia, including from Australia.

6    In each of the three jurisdictions above, most international airlines were members of industry representative bodies which had so-called cargo sub-committees. In Hong Kong, the relevant body was the Hong Kong Board of Airline Representatives Cargo Sub-Committee (‘the HK BAR CSC’) and it met in Hong Kong. In Singapore, the equivalent body was the Singapore Board of Airline Representatives Cargo Sub-Committee (‘the Singapore BAR CSC’), whilst in Indonesia it was known as the Air Cargo Representative Board (‘the ACRB’).

7    Air NZ and Garuda, together with very many other international carriers, were members of these three industry bodies.

8    The Commission’s basic contention is that the HK BAR CSC, the Singapore BAR CSC and the ACRB became forums in which the airlines were either able directly to engage in price fixing with respect to the surcharges and customs fees or that they provided an environment in which such conduct was facilitated.

9    The personnel of the airlines was not the same in each of the three jurisdictions although there was some overlap. Consequently, the Commission’s case in each jurisdiction is different. Further, the internal mechanics of its case in the three jurisdictions is also different. Those differences require an appreciation of the common element in all three cases, ‘the Lufthansa Index’, also sometimes referred to as the ‘Lufthansa Methodology’. I will use both expressions interchangably.

10    Beginning in around the mid-1990s international airlines had sought to impose fuel surcharges to compensate them for fluctuations in the price of aviation fuel. This was organised initially by the International Air Transport Association (‘IATA’). It adopted a resolution, known as resolution 116ss, which specified an appropriate level of fuel surcharge depending upon the average of five spot prices for aviation fuel (Singapore, US Gulf, US West Coast, Rotterdam and Italy). The appropriate level was expressed as a percentage of the baseline price in June 1996 and each level indicated a specified or particular surcharge once that percentage was reached. If resolution 116ss had come into force, it would have provided a system in which international airlines charged the same fuel surcharges at the same time. In other words, it would have provided a framework which allowed the airlines to move in unison in the face of fluctuations in the price of aviation fuel.

11    Of course, many airlines have hedging programmes to protect against just such fluctuations. On that basis, and other bases too, on 14 March 2000 the United States Department of Transport declined to give IATA or the airlines anti-trust immunity (the complex regulatory rÉgime is discussed below in Chapter 3). This prevented resolution 116ss from being given effect to in the United States. IATA consequently did not formally promulgate resolution 116ss. It notified its members of this development and warned them against publishing their own indexes, no doubt for anti-trust reasons.

12    Despite this, Lufthansa then began publishing an identical index to the, now defunct, resolution 116ss, which it did on its publicly available website. This index has given rise to a large amount of anti-trust litigation in many jurisdictions. In effect, a common theme has been that the Lufthansa Index facilitated price fixing by international carriers of fuel surcharges.

13    The Commission’s case in this litigation arises out of that general concept. However, there are significant variations.

14    In Hong Kong, the Commission alleges that the Lufthansa Index (and a later index created within the HK BAR CSC) was used as the basis for making joint applications to the Hong Kong Civil Aviation Department (‘the HK CAD’). That body’s approval was necessary for the imposition of any surcharge on flights out of Hong Kong and, through the HK BAR CSC, the airlines lodged joint applications for the approval of the Lufthansa (and later) indexes. The Commission alleges that this was price fixing. Both Air NZ and Garuda deny that they engaged in price fixing. They also say that they were obliged to lodge joint applications by Hong Kong law. I have concluded that they did engage in some, but not all, of the conduct alleged against them and that they were not required to act as they did by the law of Hong Kong.

15    In Singapore, only Air NZ was pursued. It was not directly alleged that Air NZ or other airlines had used the Lufthansa Index to set their surcharges. Instead, it was said that the approach of the index’s trigger points as the price of aviation fuel fluctuated provided multiple occasions for the airlines to discuss what surcharge they were going to impose and that this led to price fixing. Even if this practice was not price fixing in itself it was, so the Commission alleged, a practice which substantially lessened competition. In addition to its case about fuel surcharges, the Commission also alleged that the airlines had colluded on the imposition of an ISS.

16    I have concluded that the Commission has not demonstrated that Air NZ was involved in collusive practices with respect to the fuel surcharges in Singapore although it did engage in price fixing with respect to the ISS.

17    In Indonesia, the Commission pursued only Garuda. It was said that Garuda had engaged in price fixing with the other airlines using the Lufthansa Index as a means to determine fuel surcharges. This was alleged to have occurred at meetings of the ACRB. With one minor exception, I have accepted this case. I have also concluded that similar collusion took place with respect to the customs fee on outbound but not inbound flights.

18    Garuda argued that it was required to act as it did by Indonesian law or practice. This contention was of no substance.

19    Both airlines pursued a large number of technical defences. I have rejected all of these, including an ambitious submission that international commercial aviation in Australia is not subject to regulation under the Trade Practices Act 1974. These arguments were, in the main, of little merit and occupied much of a trial which spanned over six months.

20    Despite that, I have concluded that one of the airlines’ defences ought to be accepted. The Commission alleged conduct contrary to s 45 in respect of each act of collusion. Section 45 applies only to competition in a market in Australia. Because the Commission’s case was limited (in all but one minor case) to flights from airports outside Australia into airports inside Australia I have concluded that no market in Australia was involved. The evidence showed that the surcharges were imposed and collected at the origin airports. The competition which occurred between the airlines and which the surcharges interfered with was competition in markets in Hong Kong, Singapore and Indonesia and not competition in any market in Australia. Prices may well have been affected in Australia by the conduct but that does not mean the market in which the airlines were competing was located here.

21    In this regard, it is worth noting that the ‘market in Australia’ requirement is quite different to the effects doctrine in the United States under the Sherman Antitrust Act, 15 USC §§ 1 – 7 (1890) (USA) (‘the Sherman Act’), where a price effect in the United States will suffice to bring that legislation into play. That is not what the Trade Practices Act 1974 does.

22    Accordingly, the actions will be dismissed. I will hear the parties on costs.

23    These reasons are set out as follows:

1 INTRODUCTION    

[1]

2 THE INTERNATIONAL CARGO INDUSTRY – A GENERAL DESCRIPTION    

[24]

Judgment Acronyms    

[25]

2.1 International transportation of cargo    

[25]

2.1.1 Demand from consignors and consignees    

[25]

2.1.2 Modes of international cargo transport    

[30]

2.1.3 Categories of international air cargo    

[35]

2.2 Freight forwarders    

[38]

2.2.1 Services supplied by freight forwarders    

[38]

2.2.2 Consolidation    

[39]

2.2.3 Customs clearance services    

[40]

2.2.4 Tracking    

[42]

2.2.5 Types of freight forwarders    

[43]

2.2.6 Transactions between freight forwarders and consignors/consignees    

[45]

2.2.7 IATA accreditation of freight forwarders    

[54]

2.3 Integrators    

[55]

2.4 Air cargo transport    

[56]

2.4.1 Substitutable airports at which the airline first takes or relinquishes possession    

[56]

2.4.2 Substitutable intermediate airports    

[58]

2.5 Airline cargo operations    

[60]

2.5.1 Services supplied by airlines    

[60]

2.5.2 Types of airlines and aircraft    

[63]

2.5.3 Designation and capacity grants to airlines    

[70]

2.6 Domestic regulation of international transportation of cargo    

[75]

2.7 Landing slots    

[77]

2.8 Route network decisions    

[79]

2.9 Inter-airline arrangements    

[84]

2.9.1 Interlining    

[84]

2.9.2 Code share arrangements and airline alliances    

[87]

2.10 Prices charged by airlines    

[89]

2.10.1 Standard rates    

[94]

2.10.2 Contract/special rates    

[95]

2.10.3 Ad hoc rates    

[98]

2.10.4 TACT rates    

[99]

2.10.5 Surcharges    

[100]

2.11 Factors affecting prices    

[102]

2.12 Sales and marketing    

[103]

2.13 Negotiations    

[107]

2.14 Terms of supply    

[108]

2.15 Air waybills    

[111]

2.16 Payments for air cargo transport    

[121]

3 THE APPLICATION OF THE TRADE PRACTICES ACT 1974 TO INTERNATIONAL COMMERCIAL AVIATION    

[129]

3.1 Background to the regulation of international commercial aviation    

[131]

3.2 Whether the Trade Practices Act 1974 applied to international commercial aviation at all    

[149]

3.3 Was the Trade Practices Act 1974 inconsistent with the Australia-Indonesia ASA as applied by the Air Navigation Act 1920?    

[161]

3.4 Did the Air Navigation Act 1920 operate inconsistently with the Trade Practices Act 1974 in the period 2001-2006?    

[188]

3.5 The application of the Trade Practices Act 1974 to bundles of contractual rights    

[207]

4 WAS THERE A MARKET IN AUSTRALIA?    

[210]

4.1 The product dimension    

[220]

4.1.1 What were the relevant routes?    

[224]

4.1.2 Was mail included in the relevant markets?    

[236]

4.1.3 Were chartered flights included in the relevant markets?    

[248]

4.1.4 Was the use of integrators included in the relevant markets?    

[251]

4.1.5 Conclusions on product dimension    

[252]

4.2 Geographical dimension    

[253]

4.2.1 Transport services    

[254]

4.2.2 Ground handling services    

[255]

4.2.3 Enquiry services at airport    

[256]

4.2.4 Identity of market participants    

[259]

4.3 The functional dimension    

[266]

4.4 Market in Australia?    

[310]

4.4.1 Source of demand in Australia    

[313]

4.4.2 Downstream substitution in Australia    

[327]

4.4.3 Conclusion    

[333]

4.5 The market for flights ex Singapore and Indonesia    

[336]

5 THE EXTRA-TERRITORIAL OPERATION OF THE TRADE PRACTICES ACT    

[339]

5.1 The need for actual conduct    

[340]

5.2 Interference with sovereign rights of other States    

[359]

5.3 Whether Parliament intended the TPA to interfere with the sovereign affairs of other States    

[388]

6 HONG KONG LAW AND DOMESTIC PRACTICE    

[390]

6.1 The requirements of the law of Hong Kong    

[395]

6.1.1 The Hong Kong-New Zealand ASA    

[401]

6.1.2 The Hong Kong-Indonesia ASA    

[413]

6.1.3 The Australia-Indonesia ASA    

[415]

6.1.4 Obligations with respect to approved tariffs    

[418]

6.2 The requirements of the HK CAD    

[428]

7 INDONESIAN LAW AND DOMESTIC PRACTICE    

[450]

8 PROOF IN SECTION 45 CASES    

[462]

8.1 What needs to be proved?    

[463]

8.2 How is an understanding to be proved?    

[464]

8.3 Who bears the onus of proof?    

[488]

8.4 A Jones v Dunkel inference against the Commission?    

[489]

8.5 Standard of proof    

[490]

9 BACKGROUND TO THE UNDERSTANDINGS ALLEGED BY THE COMMISSION    

[492]

10 THE UNDERSTANDINGS ALLEGED BY THE COMMISSION IN HONG KONG    

[508]

10.1 Introduction    

[508]

10.2 Witnesses    

[514]

10.3 The 2002 Hong Kong Lufthansa Methodology Understanding    

[520]

10.3.1 Air NZ    

[559]

10.3.2 Garuda    

[592]

10.3.3 Implementation    

[596]

10.3.4 Were the provisions of the understanding ones to which s 45A applied?    

[600]

10.4 The Hong Kong Imposition Understanding    

[623]

10.4.1 Increase to Level 2 (Index Level: 135)    

[631]

10.4.2 Increase to Level 3 (Index Level: 165)    

[634]

10.4.3 Increase to Level 4 (Index Level: 190)    

[637]

10.4.4 Decrease to Level 3 (Index Level: 170)    

[639]

10.4.5 Decrease to Level 2 (Index Level: 145)    

[641]

10.4.6 Increase to Level 3 (Index Level: 165)    

[643]

10.4.7 Increase to Level 4 (Index Level: 190)    

[644]

10.4.8 Subsequent increases and decreases    

[645]

10.4.9 Was the Understanding reached and implemented?    

[647]

10.5 The First Hong Kong Surcharge Extension Understanding    

[659]

10.6 The Second to Eighth Surcharge Extension Applications    

[668]

Second Extension (additional six months)    

[669]

Third Extension (additional year, new levels 5 and 6)    

[670]

Fourth Extension (new levels 7 and 8)    

[671]

Fifth Extension (additional year, new levels 9 and 10)    

[672]

Sixth Extension (new levels 11 and 12)    

[673]

Seventh Extension (new levels 13 and 14)    

[674]

Eighth Extension (additional year)    

[675]

10.7 The October 2001 Hong Kong Insurance Surcharge Understanding    

[694]

10.8 The December 2002 Hong Kong Insurance Surcharge Understanding    

[698]

10.9 Conclusions on the facts in Hong Kong    

[702]

11 THE COMMISSION’S CASE IN SINGAPORE    

[706]

11.1 Introduction    

[706]

11.1.1 The BAR CSC and the LIDC    

[717]

11.1.2 The Witnesses    

[721]

11.2 The Overarching Understanding    

[734]

11.2.1 FSC movements in the period September 2002 to September 2005    

[745]

Data for FSCs charged ex-Singapore in TC1 and TC2    

[750]

Data for FSCs charged ex-Singapore in TC3 North Asia    

[751]

Data for FSCs charged ex-Singapore in TC3 SE Asia    

[751]

Graphs    

[752]

11.2.2 The implementation of the FSCs    

[752]

11.2.2.1 The First Implementation Allegation    

[753]

a The FSCs which were imposed    

[753]

b The internal decision making process of SQ    

[763]

c The decision making process of Air NZ    

[771]

d Analysis    

[772]

11.2.2.2 The Second Implementation Allegation    

[774]

a The FSCs which were imposed    

[775]

b The internal decision making process of SQ    

[781]

c The internal decision making process of Air NZ    

[784]

d Analysis    

[786]

11.2.2.3 The Third Implementation Allegation    

[787]

a SQ’s internal decision making process (increase to SGD0.38)    

[810]

b Air NZ’s internal decision making process (non-increase)    

[814]

c Analysis    

[815]

d SQ’s internal decision making process on decreases    

[817]

e Air NZ’s internal decision making process (SGD0.17)    

[818]

f Analysis    

[819]

11.2.2.4 The Fourth Implementation Allegation    

[823]

a The FSCs which were imposed    

[823]

b The decision making process within SQ and Air NZ    

[833]

c Analysis    

[841]

11.2.2.5 The Fifth Implementation Allegation    

[842]

a The FSCs which were imposed    

[842]

b SQ’s decision-making process    

[853]

c Air NZ’s decision making process    

[864]

d Analysis    

[868]

11.2.2.6 The Sixth Implementation Allegation    

[869]

a The FSCs which were imposed    

[869]

b SQ’s internal decision making process    

[879]

c Air NZ’s internal decision making process    

[887]

d Analysis    

[888]

11.2.2.7 The Seventh Implementation Allegation    

[889]

a The FSCs which were imposed    

[889]

b SQ’s internal decision making process    

[896]

c Air NZ’s decision making process    

[897]

d Analysis    

[898]

11.2.2.8 The Eighth Implementation Allegation    

[899]

a The FSCs which were imposed    

[899]

b SQ’s internal decision making process    

[907]

c Air NZ’s internal decision making process    

[912]

d Analysis    

[913]

11.2.2.9 The Ninth Implementation Allegation    

[914]

a The FSCs which were imposed    

[914]

b SQ’s internal decision making process    

[927]

c Air NZ’s internal decision making process    

[932]

d Analysis    

[933]

11.2.2.10 The Tenth Implementation Allegation    

[934]

a The FSCs which were imposed    

[934]

b SQ’s internal decision making process    

[942]

c Air NZ’s internal decision making process    

[945]

d Analysis    

[948]

11.2.2.11 The Eleventh Implementation Allegation    

[949]

a The FSCs which were imposed    

[949]

b SQ’s internal decision making process    

[957]

c Air NZ’s decision making process    

[960]

d Analysis    

[962]

11.2.3 The Commission’s circumstantial case    

[963]

11.2.3.1 The historical context of the airlines’ purpose in agreeing fuel surcharges    

[967]

11.2.3.2 The airlines’ admissions as to the purpose of their conduct    

[975]

11.2.3.3 Previous dealings between the airlines in Singapore    

[996]

11.2.3.4 Communications between airlines to settle on a co-ordinated outcome for the reintroduction of a fuel surcharge in Singapore    

[1003]

11.2.3.5 Communications between the airlines to settle on co-ordinated increases of FSCs    

[1045]

11.2.3.6 The extraordinary meeting of the BAR CSC on 8 December 2003    

[1049]

11.2.3.7 Further BAR CSC meetings    

[1056]

22 April 2004 LIDC-C meeting    

[1057]

28 April 2004 BAR CSC meeting    

[1059]

24 September 2004 BAR CSC meeting    

[1061]

20 October 2004 BAR CSC meeting    

[1066]

Conclusions on the Seventh Proposition    

[1069]

11.2.3.8 Fuel surcharge surveys    

[1070]

11.2.3.9 The Singapore Competition Act 2004    

[1072]

11.2.3.10 Implementations of the FSCs    

[1074]

11.2.4 Was the Overarching Understanding reached?    

[1077]

11.2.4.1 Mr Gregg    

[1078]

11.2.4.2 Mr Chew    

[1079]

11.2.4.3 Ms Goh    

[1087]

11.2.4.4 Was Air NZ a party to the understanding?    

[1092]

11.2.5 Was the understanding a price fix under s 45A?    

[1106]

11.2.6 Substantial lessening of competition?    

[1107]

11.3 The remaining Understandings    

[1109]

11.3.1 The December 2003 Singapore Understanding    

[1110]

11.3.2 The October 2004 Singapore Understanding    

[1111]

11.3.3 The Singapore ISS Understanding    

[1112]

11.4 Conclusions on the facts in Singapore    

[1128]

12 THE COMMISSION’S CASE IN INDONESIA    

[1129]

12.1 Introduction    

[1129]

12.2 Background    

[1133]

12.2.1 The Air Cargo Representative Board    

[1133]

12.2.2 Witnesses    

[1140]

12.3 The Understandings    

[1141]

12.3.1 The October 2001 Fuel Surcharge Understanding    

[1141]

12.3.2 The October 2001 Air Freight Rate Understanding    

[1149]

12.3.3 The April 2002 Fuel Surcharge Understanding    

[1156]

12.3.4 The June 2002 Fuel Surcharge Understanding    

[1177]

12.3.5 The September 2002 Fuel Surcharge Understanding    

[1178]

12.3.6 The January 2003 Fuel Surcharge Understanding    

[1179]

12.3.7 The May 2003 Fuel Surcharge Understanding    

[1180]

12.3.8 The May 2004 Customs Fee Understanding    

[1190]

12.3.9 The September 2004 Fuel Surcharge Understanding    

[1205]

12.3.10 The April 2005 Fuel Surcharge Understanding    

[1209]

12.3.11 The July 2005 Fuel Surcharge Understanding    

[1214]

12.3.12 The September 2005 Fuel Surcharge Understanding    

[1217]

12.3.13 The October 2001 Security Surcharge Understanding    

[1227]

12.3.14 The January 2003 Indonesia Security Surcharge Understanding.    

[1230]

12.3.15 The May 2003 Security Surcharge Understanding    

[1231]

12.3.16 The September 2004 Security Surcharge Understanding    

[1233]

12.3.17 The July 2005 Indonesia Security Surcharge Understanding    

[1235]

12.3.18 The Overarching Indonesia Understanding    

[1237]

13 THE AUTHORISATIONS    

[1244]

14 TIME AND LIMITATION ISSUES    

[1273]

15 REMAINING INTERLOCUTORY ISSUES    

[1280]

15.1 The Commission’s reply to Garuda’s defence    

[1280]

16 CONCLUSIONS    

[1287]

2 THE INTERNATIONAL CARGO INDUSTRY – A GENERAL DESCRIPTION

24    The industry involves a considerable amount of terminology. The purpose of this section is to introduce that terminology and also to highlight some structural aspects of the industry. This section is heavily drawn from the parties’ agreed statement of facts. In addition to the description below I will set out the acronyms often used in these reasons:

Judgment Acronyms

ACRB

Air Cargo Representative Board (Indonesia)

Air NZ

Air New Zealand Limited

ANA

Air Navigation Act 1920 (Cth)

ANR

Air Navigation Regulations 1947 (Cth)

ARBN

Australian Registered Business Number

ASA

Air Services Agreement

AWB

Air Waybill

BAR CSC ExCom

Hong Kong Board of Airline Representatives Cargo Sub-Committee Executive Committee

BARINDO

Board of Airline Representatives in Indonesia

BSA

Block Space Agreement

CAB

Civil Aviation Board (USA)

CAD

Civil Aviation Department (USA)

CASA

Civil Aviation Safety Authority (Australia)

CASS

Cargo Account Settlement System

CIF

Cost Insurance Freight

EDN

Export Declaration Number

FSAG

Fuel Surcharge Action Group

FSC

Fuel Surcharge for Cargo

FOB

Free On Board

GSA

General Sales Agents

GSSA

General Sales and Service Agents

Garuda

P.T. Garuda Indonesia Limited

HAFFA

Hong Kong Association of Freight Forwarding Agents Limited

HAWB

House Air Waybill

HK BAR CSC

Hong Kong Board of Airline Representatives Cargo Sub-Committee

HK BAR CSC Ex Com

Hong Kong Board of Airline Representatives Cargo Sub-Committee Executive Committee

HK CAD

Hong Kong Civil Aviation Department

HMT

Hypothetical Monopolist Test

IATA

International Air Transport Association

IASC

International Air Services Commission

Indonesia ASA

Australia-Indonesia Air Services Agreement

ISC

Insurance Surcharge for Cargo

ISS

Insurance and Security Surcharge

LIDC-C

Singapore Local Industry Development Committee - Cargo

MAWB

Master Air Waybill

Qantas

Qantas Airways Ltd

Singapore BAR CSC

Singapore Board of Airline Representatives Cargo Sub-Committee

SPA

Special Prorate Agreement

SQ

Singapore Airlines Ltd

SSNIP

Small but Significant Non-Transitory Increase in Price

SWG

Surcharge Working Group

TACT

The Air Cargo Tariff

TC1

IATA Cargo Tariff Conferences - Area 1

TC2

IATA Cargo Tariff Conferences - Area 2

TC3

IATA Cargo Tariff Conferences - Area 3

the Commission

Australian Competition and Consumer Commission

the Conferences

IATA Cargo Tariff Conferences

ULD

Unit Load Device

2.1 International transportation of cargo

2.1.1 Demand from consignors and consignees

25    There is a requirement for the transportation of cargo on the part of persons who wish to send cargo from a place of origin to an international place of destination and on the part of persons who wish to receive cargo at an international place of destination sent from an international place of origin.

26    Within the international cargo transport industry, a person who sends cargo, or from whom cargo is sent, is typically referred to as the ‘consignor’. A person to whom cargo is sent is typically referred to as the ‘consignee’. The consignor and consignee may be the same person or related bodies corporate. The transport of cargo between a consignor and consignee does not necessarily involve the sale of the cargo by one to the other or any commercial transaction between them.

27    The international transportation of cargo involves the following activities (amongst others):

(a)    transport of the cargo from the consignor to the sea or air port from which the cargo will be transported internationally;

(b)    when necessary, storage at the port;

(c)    transport from the origin port to the destination port;

(d)    customs handling at the destination port;

(e)    when necessary, storage at the destination port; and

(f)    transport of the cargo from the destination port to the consignee.

28    If there is a sale of the cargo involved then the terms of sale between a consignor and consignee relating to the transport of cargo may include terms as to risk and responsibility for arranging the transport and payment. Within the international cargo transport industry, there are a number of common arrangements, including ‘ex-works’, ‘free on board’ (‘FOB’) and ‘cost insurance freight’ (‘CIF’). The effect and nature of these arrangements are defined in the Incoterms published by the International Chamber of Commerce. For ex-works and FOB, the consignee is ordinarily responsible for making the arrangements for the cargo to be transported from the place of origin or the origin port as applicable to the place of destination and is liable for the cost and risk. For CIF, the consignor is ordinarily responsible for making the arrangements for the cargo transport and is liable for the cost and risk.

29    Most consignors or consignees who wish to transport cargo only require the transportation of the cargo in one direction, that is, from a specific place of origin to a specific place of destination. The uni-directional nature of nearly all cargo transport is materially different to passenger transportation. The vast majority of passengers acquire transport services from a place of origin to a place of destination and a return service back to the place of origin, although not necessarily from the initial destination.

2.1.2 Modes of international cargo transport

30    Cargo is transported internationally by air, land (road and rail), sea and combinations of these modes of transport. Cargo can only be transported to or from Australia by sea or air. The key differences between sea, air and land modes of international cargo transport include speed and cost. In respect of transport between Australia and other countries, sea transport is almost always the slower mode of international cargo transport and the lower cost mode of international cargo transport for high volume and/or heavy weight cargo. In respect of transport between Australia and other countries, air transport is almost always the quicker mode of international cargo transport and the higher cost mode of international cargo transport for most types of cargo.

31    Air transport is generally the preferred mode for the international transport of time-sensitive cargo (including perishable cargo) and cargo that is high value, low volume and/or low weight. In the relevant period there were frequent and material fluctuations in the cost of fuel used for transportation of air cargo between other countries and Australia.

32    The decision whether to transport cargo by sea or air between Australia and other countries is affected by a number of factors including:

(a)    relative transport costs, including to and from relevant ports and airports;

(b)    the value, size and weight of the cargo;

(c)    whether the delivery of the cargo is time-sensitive;

(d)    the delay in reaching the destination port; and

(e)    the distance between the place of origin and the place of destination and the directness of the available sea and air services.

33    Types of cargo that are frequently transported by sea:

(a)    to Australia, by weight, include coal tar, pitch and other crude oils; ores; and inorganic chemicals and, by FOB value, include motor vehicles, parts and accessories; coal tar, pitch and crude oil; and engines and motors; and

(b)    from Australia, by weight, include iron and other ores; mineral fuels; and unmilled grains and, by FOB value, include mineral fuels; iron and other ores; and fresh meat.

34    Types of cargo that are frequently transported by air:

(a)    to Australia, by weight, include engines and machines; motors and electrical appliances; and polymer plastics and, by FOB value, include motors and electrical appliances; engines and machines; and pharmaceutical goods;

(b)    from Australia, by weight, include fresh meat; fresh fruits and nuts; and seafood and, by FOB value, include precious stones and metals; medical products; and office machinery.

2.1.3 Categories of international air cargo

35    General air cargo is all cargo other than specialised air cargo and mail. Specialised air cargo are items which by their nature require special handling on the ground or in the air and includes items such as live animals, and oversize items such as boats or cars. Certain types of specialised cargo must be transported on freighters such as oversized items and some dangerous goods.

36    General air cargo is in turn usually classified as:

(a)    perishable cargo (that is, cargo that will deteriorate over a short period of time or if exposed to adverse temperature, humidity or other environmental conditions); and

(b)    non-perishable or dry cargo.

37    Perishable cargo ordinarily requires particular handling on the ground and/or in the air (e.g. cold storage) or may be subject to particular time pressures. The time-sensitivity of the transport of non-perishable cargo depends upon the nature of the cargo and the circumstances of the particular shipment. Transport of non-perishable cargo may also be required to occur quickly, for example when parts are required regularly or urgently for a production process that uses the part or otherwise required for urgent repairs. Certain types of goods need to be stored in particular conditions such as securely or at a particular temperature during transportation. The proportion of air cargo exported from Australia which is non-perishable is higher than the proportion of air cargo imported into Australia which is perishable.

2.2 Freight forwarders

2.2.1 Services supplied by freight forwarders

38    Freight forwarders offer to supply, and when engaged, do supply consignors and/or consignees with services associated with the transport of cargo from a place of origin to a place of destination. When these activities are performed by freight forwarders they are usually supplied by a freight forwarder located at the place of origin and a separate or related freight forwarder located at the place of destination.

2.2.2 Consolidation

39    Depending on the nature of the goods to be transported and the requirements of the consignor/consignee, freight forwarders endeavour to combine different shipments into one, larger, shipment, a process known as ‘consolidation’. Freight forwarders prefer to consolidate if practicable because the per kilogram cargo rate payable to an airline to carry the consolidated shipment usually decreases as the chargeable weight of a consignment increases. If a forwarder combines several small shipments into one large shipment the per kilogram rate payable by the freight forwarder is usually lower based on the total chargeable weight of the consolidated shipment. In addition, if a heavy, low volume consignment can be combined with a light, large volume consignment, the amount payable to the airline to carry the consolidated shipment is usually less than the amount that would be payable for the two shipments separately. Accordingly, consolidated cargoes usually qualify for better overall rates, by leveraging the volume and weight ratios of different cargo shipments. A freight forwarder may agree with another freight forwarder to consolidate cargo being handled by the two freight forwarders.

2.2.3 Customs clearance services

40    When cargo is delivered to an origin airport, customs clearance services are required to process the cargo through customs. For example, an export declaration must be submitted to Australian customs for cargo being transported from Australia. The Export Declaration Number (‘EDN’) assigned by customs is normally placed on the air waybill (in this chapter, ‘AWB’) in the box entitled ‘Accounting Information’. Australian Customs require the airline to lodge a main manifest within three working days after departure which lists all cargo loaded on the aircraft.

41    When cargo is delivered to the airport where the airline relinquishes possession, customs clearance services are required to process the cargo through customs. All cargo must be cleared at that airport by an entity authorised by the applicable customs authority to provide customs clearance services. This can be performed by a customs broker, integrator or a freight forwarder.

2.2.4 Tracking

42    Freight forwarders monitor the cargo’s progress from the place of origin to the place of destination. Most freight forwarders provide tracking facilities on their websites which enable a user with access to the relevant AWB number to monitor the progress of transportation.

2.2.5 Types of freight forwarders

43    Freight forwarders range from multinational firms with staff and branches throughout the world to firms that operate in a single country or city. To enable freight forwarders effectively to provide their services to consignors and consignees across several countries, freight forwarding companies generally establish, or participate in, freight forwarding networks. The type of network depends on the type of freight forwarder:

(a)    multinational freight forwarders generally operate and have offices in a number of countries. An example is DB Schenker, which has a worldwide network comprised of subsidiary companies. Some multinational freight forwarders operate only within particular regions. For example, the New Zealand-based company Mainfreight has a regional network in Asia, with some offices in the United States;

(b)    national or local freight forwarders are locally based companies without an established international presence. Such freight forwarders have arrangements with other freight forwarders, situated at various locations internationally.

44    Some freight forwarders have separate ‘export’ and ‘import’ divisions. Others will divide their business in terms of ‘sea’ and ‘air’ cargo and/or ‘perishable’ and ‘non-perishable’ cargo. There are also specialist freight forwarders for particular industries. Some freight forwarders operate as wholesale freight forwarders, providing services to other (often non-IATA-accredited) freight forwarders.

2.2.6 Transactions between freight forwarders and consignors/consignees

45    Major freight forwarders may approach major consignors or consignees at their global or regional headquarters to promote the services they provide. Where a consignor is responsible for initiating a shipment and it does not have a standing arrangement in place, it usually contacts one or more freight forwarders located at the place of origin to negotiate and contract for the acquisition of services (the origin freight forwarder). The origin freight forwarder provides the services required of it at the place of origin and in turn contacts a freight forwarder at destination (a destination freight forwarder) to provide services required of them at the place of destination.

46    Where a consignee initiates the shipment it may contact either a freight forwarder at the place of origin or the place of destination to negotiate and contract for the acquisition of services. Where it contacts the destination freight forwarder, the destination freight forwarder provides the services required at the place of destination and, in turn, contacts an origin freight forwarder to arrange the necessary services (including arranging for freight to be carried by air) at the place of origin. These origin and destination freight forwarders may be part of one multinational group, members of an alliance of independent freight forwarders or simply parties that deal with each other on a regular or ad hoc basis.

47    Where the origin freight forwarder and the destination freight forwarder are not part of the same company, the forwarder which transacts with the consignor or consignee (as the case may be) usually pays the other freight forwarder for the services provided by it. The amount paid by one freight forwarder to another in such circumstances depends upon the terms agreed between them.

48    Following this contact the freight forwarder may offer its standard rates to the consignor/consignee or, where the consignor or consignee sends or receives shipments regularly, the freight forwarder may offer a particular rate or rates to apply to those shipments (together, fixed rates). Fixed rates may apply for several months or a few weeks and change depending on the size of the shipment (larger or regular shipments attracting better rates) and the requirements of the consignor or the consignee.

49    Alternatively, where the consignor/consignee requires a price for a particular shipment, the freight forwarder may prepare a specific quote. Quotes are most often provided in relation to large orders where no fixed rates have been agreed with the consignor/consignee or unusual orders, such as transporting unusual cargo or transporting to an unusual place of destination. Quotes may be provided in a form which shows the various components of the quote.

50    On occasions, some consignors and consignees tender for, and then contract for, services they require from freight forwarders for set periods of time. Different rates may apply for faster or slower services, direct and indirect routes, dangerous goods or depending on other relevant considerations such as the nature of the services required (door-to-door, door-to-airport, airport-to-door, etc).

51    The price for the carriage of freight by air is normally based on the ‘chargeable weight’ of a shipment. The chargeable weight of cargo is the higher of the actual weight (in kilograms) or the volumetric weight of the cargo. Volumetric weight (sometimes also known as ‘dimensional weight’) is a measure of the volume or space that a consignment takes up, converted to be expressed in kilograms. Different freight forwarders may apply different conversion rates. AWBs have the two weights (i.e. actual weight and volumetric weight) identified in respect of any consignment.

52    Once the shipment is delivered to its final place of destination, the origin freight forwarder invoices the consignor or the destination freight forwarder invoices the consignee depending on whether it is the consignor or consignee that arranged the freight transaction and is responsible for payment of the overall freight cost.

53    If the consignor is responsible to the freight forwarder for the freight cost, it pays the origin freight forwarder for the overall freight cost. If the consignee is responsible to the freight forwarder for the freight cost, the consignee pays the freight cost to the origin or destination freight forwarder. The freight forwarders will then settle amongst themselves for their respective services.

2.2.7 IATA accreditation of freight forwarders

54    Freight forwarders may apply for accreditation with IATA. IATA accreditation is given to a freight forwarder in respect of its outbound cargo operations within a specified country, being the preparation of cargo for air carriage from that country. On accreditation, IATA assigns the freight forwarder a numeric code which covers the forwarder’s outbound cargo operations throughout the country concerned. In order to obtain accreditation with IATA, freight forwarders must meet certain minimum criteria including staff qualifications, financial requirements, suitability of premises and cargo handling equipment and appropriate licenses to trade. IATA accreditation enables freight forwarders to utilise IATA’s Cargo Account Settlement System (‘CASS’) clearing house and settlement system to remit transaction details and make payments to airlines (which is discussed later).

2.3 Integrators

55    Integrators may also use contracted space on freighter or passenger aircraft of third party airlines on particular routes and/or at particular times, according to demand and the capacity of the integrator to meet demand using capacity in its own aircraft.

2.4 Air cargo transport

2.4.1 Substitutable airports at which the airline first takes or relinquishes possession

56    The carriage of freight by air is more often than not undertaken by an airline from the airport closest to the place of origin of the cargo (primary origin airport) and to the airport closest to the place of destination of the cargo (primary destination airport). The carriage of freight by air may be undertaken by an airline to or from an airport other than the airport closest to the place of origin of the cargo (alternative origin airport) or to an airport other than an airport closest to the place of destination (alternative destination airport). Accordingly, the airport at which the international airline first takes possession or relinquishes possession of the cargo may not be the origin airport or destination airport respectively. Some international airlines use land transport between various airports selected by them so they can accept cargo from and to airports where they do not fly. For example, during the relevant period some international airlines accepted cargo to and from Brisbane but only flew to Sydney and used overnight road transport to transport cargo between Brisbane and Sydney and vice versa.

57    Whether an alternative origin or destination airport is a substitute for the primary origin or destination airport depends on factors such as the cost, timeliness, availability and capacity of the alternatives including the availability of land transport between alternative airports. In some cases where the carriage of freight by air is undertaken by an airline from an alternative origin airport and/or to an alternative destination airport the cargo does not arrive at its place of destination as quickly as if the cargo had been transported between the primary origin airport and the primary destination airport.

2.4.2 Substitutable intermediate airports

58    The carriage of freight by air between a particular origin airport and destination airport may involve:

(a)    no stops at intermediate airports;

(b)    a stop without change of planes at one or more intermediate airports which means that cargo continues to its destination airport without being unloaded; or

(c)    a stop and change of aircraft at one or more intermediate airports, in which case the cargo must be unloaded and reloaded.

59    Where the carriage of freight by air involves a stop at an intermediate airport, in most cases the cargo does not arrive at its destination airport as quickly as if the cargo had been transported on a non-stop service.

2.5 Airline cargo operations

2.5.1 Services supplied by airlines

60    In order to carry freight by air, an airline requires at least the following rights, facilities and services:

(a)    aircraft operated by it (which includes both aircraft that are leased or owned);

(b)    the right to fly aircraft of a specified capacity on specific routes pursuant to the applicable Air Services Agreements (‘ASAs’);

(c)    the right to access the international airports on specific routes (origin airport, destination airport and any intermediate airport used) including:

(i)    air traffic control services; and

(ii)    landing slots (the right to schedule an aircraft arrival or departure, on a specific day within a specific time);

(d)    ground handling;

(e)    engineering services; and

(f)    sales and marketing staff and office facilities.

61    Ground handlers provide all ground handling for airlines, including receipt of export cargo for carriage, loading and unloading of the aircraft, warehousing (when required) and handling relevant documentation. The generic term ‘ground handlers’ includes ‘cargo terminal operators’ and ‘ramp’ handlers. Airlines may engage different companies to supply cargo terminal or ramp handling services.

62    Cargo terminal operators accept freight, and prepare freight for export on each flight. They also handle and release imported freight. Cargo terminal operators also provide warehousing when required. Ramp handlers are responsible for loading and unloading the aircraft, which includes the delivery and collection of freight to or from the ground handler’s warehouse.

2.5.2 Types of airlines and aircraft

63    Airlines carry freight by air using the cargo hold (also known as the bellyhold) of international passenger aircraft or dedicated air freighter aircraft. For international passenger aircraft, passengers are seated on the main deck of the aircraft and passenger luggage is stowed in the bellyhold of the plane. Remaining space in the bellyhold is available for the transport of cargo capable of being transported in the bellyhold.

64    For freighter aircraft, both the main deck and the bellyhold of the aircraft are available for cargo transport. Freighter aircraft by reason of the dimensions of their main deck allow for the loading and unloading of oversized and irregular cargo including, for example, cars. The revenue earned by airlines from carrying passengers on international passenger aircraft is greater than the revenue that is earned from the transport of cargo on the aircraft.

65    Airlines which carry freight by air can be divided into the following categories:

(a)    bellyhold only airlines;

(b)    cargo only airlines; and

(c)    combination airlines.

66    Cargo only airlines are airlines that operate only freighter aircraft. Cargolux is an example of a cargo only airline. Neither Air NZ nor Garuda operated as a cargo only airline during the relevant period.

67    Combination airlines operate both passenger aircraft (with cargo capacity in the bellyhold) and freighter aircraft. Air NZ was a combination airline. Garuda was not.

68    Wide-bodied aircraft are capable of carrying large Unit Load Devices (‘ULDs’). Examples of wide-bodied aircraft are the Boeing 777, Boeing 767, Boeing 747 and the Airbus A380. Narrow-bodied aircraft have less storage space than wide-bodied aircraft. For most narrow-bodied aircraft, cargo and baggage has to be stowed in the hold by hand. An exception to this is the A320 which is capable of carrying small ULDs. Examples of narrow-bodied aircraft are the Boeing 737 and Airbus A320. On both narrow-bodied or wide-bodied aircraft, part of the cargo holds may be kept at a special temperature for the transport of sensitive cargo requiring lower or higher temperatures, such as perishable cargo (as referred to in paragraphs 3637 above).

69    During the relevant period, Garuda operated only wide-bodied passenger aircraft to and from Australia, Indonesia and Hong Kong. Air NZ operated narrow-bodied and wide-bodied aircraft between Australia and New Zealand during the relevant period.

2.5.3 Designation and capacity grants to airlines

70    An individual airline is not entitled to carry freight by air between two international airports unless the relevant traffic rights have been granted to it. The airline must first be designated under the ASA by one of the countries which is a party to the ASA in respect of the route, and then must be allocated capacity on the route by the relevant governmental authority of the designating country, and must hold the necessary regulatory approvals.

71    During the relevant period, some ASAs provided that signatories could refuse designation if, by way of example, the airline was not incorporated in a contracting state, did not have a principal place of business in a contracting state, was not substantially owned by entities domiciled in a contracting state or effective control was not vested in a contracting state. Except in the case of the Australia-Hong Kong ASA, the ASAs between each of New Zealand and Indonesia and Australia allowed a signatory to refuse designation if substantial ownership and control of the airline was not vested in the other party, or its nationals. The Australia-Hong Kong ASA provides that each signatory may refuse designation of an airline in its country where it is not satisfied that the airline is incorporated and has its principal place of business in the other signatory’s country.

72    Once designated by its ‘home’ country, an airline wishing to operate a service on a route governed by an ASA to which its ‘home’ country is a party must apply to the regulatory authority in its home country to obtain capacity rights.

73    In Australia, applications by Australian airlines for capacity to operate services on routes governed by ASAs to which Australia is a party, are made to a Commonwealth entity, the International Air Services Commission (‘IASC’). The IASC makes determinations on the allocation of scheduled international air route capacity to Australian airlines on public benefit grounds. Determinations allocating capacity are usually made for a period of five years for routes where capacity or route entitlements are restricted. In cases where capacity entitlements and route rights are unrestricted, determinations may be issued for a period of 10 years. In either case, the IASC has the discretion to make interim determinations, which are for a period of three years.

74    Airlines that intend to operate non-scheduled international air services need to obtain the approval of the aeronautical authorities in each country to be served. An airline usually has to be licensed by its home country to operate non-scheduled international air services. Non-scheduled international air services are not licensed in Australia. In Australia, foreign airlines may be required to obtain non-scheduled flight approvals in accordance with the Air Navigation Act 1920 (Cth).

2.6 Domestic regulation of international transportation of cargo

75    Domestic regulations in Australia, Hong Kong, Singapore and Indonesia also control the carriage of freight by air to or from those countries. Such regulations govern matters including licensing, the granting of capacity for scheduled services and permission for non-scheduled services. Each of Australia, Hong Kong, Singapore and Indonesia has enacted legislation and regulations governing the operation of scheduled air services.

76    An airline seeking to provide international scheduled services to or from a country for the first time is required to seek multiple approvals from regulatory authorities in all countries involved. By way of example, any airline (whether Australian or foreign) seeking to operate international scheduled air services to or from Australia must:

(a)    obtain an International Airline Licence from the Department of Infrastructure and Transport.

(b)    obtain Civil Aviation Safety Authority (‘CASA’) clearances in accordance with the Civil Aviation Act 1988 (Cth). Operators (Australian and foreign) seeking to commence scheduled international air services to and from Australia are also required to apply to CASA for an Air Operator’s Certificate or Foreign Aircraft Air Operator’s Certificate together with a certificate in respect of airlines liability insurance. CASA is responsible for all operational and safety approvals pertaining to civil aviation in Australia;

(c)    obtain the approval of the Office of Transport of the Department in accordance with the Aviation Transport Security Act 2004 (Cth); and

(d)    obtain timetable approval from the Department. Timetable details include the type of aircraft to be used for each scheduled international air service in accordance with regulations 16 and 20 of the Air Navigation Regulations 1947 (Cth).

2.7 Landing slots

77    Airports are constrained by the physical capacity of their facilities (the main constraint being the capacity of the terminal building and the number of runway slots available for landing or take-off) or restrictions in the form of night curfews. Further, some international airports have reached their capacity. Where, in practice, a constraint limits arrival and departure times, slot allocation is required and slot parameters are employed.

78    Once an ASA is negotiated between Australia and another country and an airline has obtained a licence from the Department, the airline then needs to arrange times to take-off and land at the airports it intends to serve in Australia and the other country. This is managed by the airports and airlines commonly using an IATA protocol for allocation of take-off and landing slots.

2.8 Route network decisions

79    Decisions about whether to operate on a particular route and, if so, the frequency and aircraft type on the route are decisions made by the head office of an airline. Most routes operated by Air NZ and Garuda for passenger aircraft are to and from an airport or airports in their home countries. Such airports are described as the airline’s ‘hub’. The location of the hub is primarily determined by the ‘flag’ or nationality of the airline, and the availability of air traffic rights for air services between countries.

80    The factors that are relevant to a decision to operate a passenger aircraft on a particular route include but are not limited to (with varying degrees of significance):

(a)    potential passenger demand on the route (both to and from the destination airport) and the revenue likely to be earned from carrying passengers, which is a primary factor in deciding whether to operate the service on routes;

(b)    whether the airline holds or is able to acquire traffic rights to operate a service on the route (if the appropriate ASAs are in place or can be negotiated) and the time it may take to acquire these rights (if possible), particularly in relation to new routes;

(c)    the availability of necessary airport infrastructure;

(d)    the nature and capacity of services offered by competing airlines on the route; and

(e)    indirect revenue or marketing effects arising from a change to the route network or schedule or linkages with other routes serviced by the airline.

81    The total revenue earned by airlines from carrying passengers on an aircraft is greater than the total revenue that is earned from the transport of cargo on the aircraft. For that reason, in relation to passenger aircraft, passenger rather than freight revenue considerations primarily determine routes, schedules and capacity.

82    Freighter aircraft routings can differ from passenger aircraft routings in that they often follow a scheduled sequence of stops within a multi-stage routing. Factors that are relevant to a decision to operate a freighter aircraft from a particular airport (as part of the freighter aircraft’s routing) include but are not limited to (with varying degrees of significance):

(a)    potential freight requirements from that airport and other airports on the routing and the revenue likely to be earned from carrying cargo;

(b)    whether the airline holds or is able to acquire traffic rights to operate a service on the route (if the appropriate ASAs are in place or can be negotiated) and the time it may take to acquire these rights (if possible), particularly in relation to new routes;

(c)    the availability of necessary airport infrastructure;

(d)    the nature and capacity of services offered by competing airlines from that airport; and

(e)    indirect revenue or marketing effects arising from a change to the route network or schedule or linkages with other routes serviced by the airline.

83    Similar factors to those listed in paragraphs 79 to 82 are relevant to a decision to increase, reduce or remove capacity on a particular route.

2.9 Inter-airline arrangements

2.9.1 Interlining

84    Airlines carry the majority of freight by air using aircraft operated by that airline. Airlines commonly refer to airports serviced using aircraft they operate as online airports. Airlines also have the option to and do carry freight by air by using another airlines’ capacity to carry freight by air. This practice is commonly known as interlining. Interlining occurs when:

(a)    an airline wishes to carry freight by air to or from an airport to which the airline does not operate its own aircraft (offline airport) including where it does not have the relevant traffic rights and/or slots; or

(b)    an airline is unable to carry freight by air on its own aircraft on a particular route at a particular time because of capacity constraints.

85    Interline agreements between airlines can take a number of different forms including:

(a)    a Special Prorate Agreement (‘SPA’), which is an agreement between two airlines that specifies the rates that one party will charge the other for the carriage of cargo on given sectors of its network, and vice-versa. Alternatively, though far less frequently, the agreements set a minimum amount for the sector to be paid to the operating carrier. It does not include any space commitment by either party; or

(b)    a Block Space Agreement (‘BSA’), which is a specific agreement between two airlines similar to an SPA but that includes a reservation of space (either hard or soft) on one or more specific sectors covered by the agreement.

86    Some international airlines share capacity on a freighter aircraft or share the operations of a freighter aircraft.

2.9.2 Code share arrangements and airline alliances

87    Code share arrangements enable one airline, which does not itself operate on a route (or if it needs more capacity), to sell space on a flight operated by another airline on that route under the first airline’s designated IATA code. The non-operating airline also requires traffic rights under the relevant ASA.

88    Airline alliances involve varying levels of marketing and/or operational cooperation.

2.10 Prices charged by airlines

89    The price charged for carrying freight by air is a combination of the air cargo rate plus any applicable surcharges.

90    There are four categories of air cargo rates charged by airlines:

(a)    ‘standard’ rates;

(b)    ‘contract’ or ‘special’ rates;

(c)    ‘ad hoc’ rates; and

(d)    ‘TACT’ rates.

91    Normally, air cargo rates are expressed in terms of a rate per kilogram based on the ‘chargeable weight’ of each consignment. Airlines typically offer a range of different rates based on:

(a)    different types of cargo (e.g. general or perishable);

(b)    different chargeable weights of consignments; and

(c)    different airports at which the airline first takes possession and the airport at which the airline relinquishes possession (or destination regions).

92    In addition, different rates may be offered for specific routings and particularly time sensitive cargo (the most time sensitive cargo is usually described as ‘express’ cargo, which has the shortest delivery or collection cut off times before the flight), for ULDs and valuable goods (e.g. bullion), or where special handling is required (e.g. live animals, human remains or flowers).

93    Airlines also impose a minimum charge per consignment. Air cargo rates per kilogram usually decrease with increasing chargeable weight.

2.10.1 Standard rates

94    Each local cargo sales office of Air NZ and Garuda publishes, from time to time, its standard rates as ‘tariff’ or ‘rate’ sheets or schedules for carrying freight by air from the airport at which that office is located to the airport at which the airline relinquishes possession. Standard rates are generally quoted in the local currency at the place of origin. Sometimes the standard rates of airlines operating in particular origins (especially those exhibiting high currency volatility) are published in US dollars or Euros. Standard rates are generally reviewed between one and four times a year (on a seasonal basis), depending on the airline.

2.10.2 Contract/special rates

95    Contract rates are rates that have been agreed between an airline and a specific freight forwarder for cargo transported by the airline from a place of origin to places of destination. Mostly such agreements about contract rates do not include an obligation on the part of the freight forwarder to purchase any services from the airline. Contract rates are usually less than standard rates.

96    Contract rates are often agreed where there is a regular need for capacity leading to the possibility of higher volumes or in relation to cargo that has some special feature that means it does not fall under ‘standard’ rates, such as a requirement for special handling.

97    Contract rates that are offered to freight forwarders may be negotiated by email, telephone or at meetings with the staff of the local cargo sales office of an airline, who are based at the airport at which the airline first takes possession, with the relevant origin freight forwarder.

2.10.3 Ad hoc rates

98    Ad hoc rates (also referred to as ‘spot rates’) are rates negotiated in respect of carrying a particular shipment of freight by air. Ad hoc rates may be affected by immediate supply and demand conditions including capacity on available flights at the required time.

2.10.4 TACT rates

99    During the relevant period TACT rates were the rates shown in the TACT Manual published by IATA. TACT is an acronym for ‘The Air Cargo Tariff’. Generally, airlines only used these rates for unusual types of cargo (for example, human remains). Airlines may also use TACT rates as the basis for interlining, although only where no SPA was agreed between the airlines.

2.10.5 Surcharges

100    At various times during the relevant period, Air NZ and Garuda applied surcharges, including fuel surcharges and also ISSs which were charged after September 2001 and which are described variously as security, insurance, war risk or crisis surcharges.

101    In some countries including Hong Kong and Japan, and in Dubai, the relevant aeronautical authorities required surcharges to be approved before they could be imposed on the transport of cargo by air from that country.

2.11 Factors affecting prices

102    The air cargo rates offered by airlines for the transport of air cargo between two airports usually differ according to the direction of travel. Air cargo rates (both standard and contract rates) usually vary depending on route and carrier.

2.12 Sales and marketing

103    In locations where the airline’s cargo business volume is too small to justify dedicated cargo sales and marketing staff, the airline may appoint General Sales Agents (‘GSAs’) or General Sales and Service Agents (‘GSSAs’). GSAs perform some or all of an airline’s own sales and marketing function. The GSA may be a dedicated sales agent or, in some cases, another airline or an IATA freight forwarder. A GSSA is a GSA that also performs ground handling services.

104    Each of Air NZ and Garuda has a general website which can be viewed from anywhere in the world and which contains marketing and promotional information, including in relation to carrying freight by air. It was common for international airlines generally to have such a website.

105    Some international airlines have (at varying times) introduced functional website services accessible from Australia and other countries relating to carrying freight by air. The nature of these website services varies widely between airlines. Some provide only limited services such as general product and service information, flight timetables and shipment tracking. It is not clear whether this was done either by Air NZ or Garuda.

106    Some international airlines during at least part of the relevant period provided an online service available to Australian based freight forwarders registered with the particular airline to request capacity for cargo being transported from Australia (e.g. SQ, Cathay and Emirates). These services, among other things, allowed freight forwarders to enquire whether space was available for shipment on a particular day or flight and request capacity of the airline. Bookings could be made including by email and telephone.

2.13 Negotiations

107    Freight forwarders contact station employees (or the GSAs) of an airline by telephone, email or fax to make an enquiry about space and price for a particular shipment (and, where available, an enquiry about space through the airline’s website or other portals). The information provided to an airline for the purposes of carrying freight by air usually includes:

(a)    a general description of the cargo making up the shipment;

(b)    estimates of the weight and dimensions of the shipment (this information is required for pricing and logistics, i.e. how the shipment will be packed and loaded on to the aircraft);

(c)    the preferred date of shipment;

(d)    whether the cargo will be delivered to the cargo facility ready for loading onto the aircraft or will require further packing by the airline’s cargo terminal (e.g. loading onto a pallet or into a ULD with other cargo);

(e)    any specific packaging or handling requirements (e.g. for dangerous or perishable cargo);

(f)    when the shipment will be delivered to the ground handler for processing;

(g)    the level of service required (e.g. whether the freight forwarder requires an express service or guaranteed uplift on a particular flight); and

(h)    the airport at which the cargo is to be collected.

2.14 Terms of supply

108    When a freight forwarder books the carriage of freight by air, it may be booked either in blocks or on an ad hoc basis:

(a)    Pre-purchased block space (hard block space): ‘block space’ is available to be purchased from airlines. Pursuant to a BSA a freight forwarder has access to a pre-allocated amount of cargo capacity. Freight forwarders acquire block space on busy routes where they have regular demand and where there are limits on available capacity to carry freight by air. Under a hard BSA the freight forwarder must pay for the pre-allocated space regardless of whether or not the space is filled. Freight forwarders may also acquire hard block space on less busy routes where they have reliable, regular shipments or to ensure price stability;

(b)    Pre-booked space (allocation space): some airlines offer ongoing (but not necessarily guaranteed) bookings for regular air cargo shipments, which can be cancelled a few days prior to flight. This is sometimes referred to as a ‘space allocation arrangement’ or ‘soft’ BSA. A freight forwarder may have an ongoing forward booking for a pallet from the airport at which the airline first takes possession to the airport at which the airline relinquishes possession for regular freight. The freight forwarder has to notify the airline a few days in advance of each flight whether the freight forwarder requires that pallet. Unlike hard block space, pre-booked space is only paid for if it is used; and

(c)    Ad hoc space: where space has been neither pre-purchased nor pre-booked, transport of single or consolidated cargo is on an ad hoc basis and depends on the availability of space on a particular flight. Rates for ad hoc space are normally more variable than for pre-purchased or pre-booked space depending on demand and how far in advance a booking is made prior to departure. For ad hoc shipments, the freight forwarder contacts the airline at the place of origin, seeking a price as well as confirmation that space is available and that the required delivery time can be met. Such requests can be made as late as three or four hours prior to departure time.

109    The degree to which freight forwarders use BSAs is dependent upon the place of origin, the route and the characteristics of the consignors and consignees. Airlines and freight forwarders typically negotiate ‘hard block space’ and/or ‘soft block space’ agreements separately for each route (e.g. Sydney to Singapore).

110    Any additional terms on which the freight is carried by air are as negotiated between the airline and the freight forwarder. They may be recorded in a formal agreement such as a BSA, or recorded in a less formal document such as an email. Ordinarily, an airline which offers to carry freight by air has in place standard terms and conditions which are applicable to carrying freight by air.

2.15 Air waybills

111    The principal international standard document for carrying freight by air is the AWB. The AWB is prima facie evidence of the conclusion of a contract, the receipt of cargo, and conditions of carriage. Either an AWB or a substitute for an AWB is required before cargo can be loaded at the place of origin. Paper AWBs accompany the cargo to the destination airport where the airline relinquishes it.

112    There are two forms of AWB in use. An airline AWB contains the airline’s logo and unique AWB numbers printed on it. Neutral AWBs are template documents which have the same format and layout as an airline AWB but do not bear any logos and do not have AWB numbers printed on them. In respect of neutral AWBs, airlines issue freight forwarders with a range of valid AWB numbers, which the forwarders will then use to generate, or ‘cut’, the AWB for shipments to be consigned on that airline.

113    Airlines operating services from a particular airport of origin provide airline AWBs or a series of AWB numbers for use with neutral AWBs to authorised freight forwarders at the place of origin. Each AWB has an 11 digit serial number, commencing with a three digit code identifying the airline, which enables the issuing airline (and any other airlines participating in the carriage) to identify and account for all AWBs. This serial number provides a unique reference used to manage every shipment of cargo across all parties involved in the delivery of the shipment, including making bookings and checking the status of delivery and position of a shipment.

114    The freight forwarder ‘cuts’ or ‘raises’ the AWB at the place of origin. The AWB includes the following information:

(a)    airline details and AWB number (as noted above);

(b)    ‘shipper’ details – a name and address for the person or entity making available the cargo from the place of origin, who may also be the party sending the freight (for the purposes of the AWB, the person who makes the cargo available is also known as the ‘shipper’). Where cargo is consolidated by the freight forwarder, the ‘shipper’ named on the AWB is always the freight forwarder and this is sometimes the case for non-consolidated shipments;

(c)    ‘issuing agent’ or ‘issuing airline’s agent’ details – the person authorised to hold the airline’s AWB stock and therefore to authenticate and issue the AWB on the airline’s behalf. The issuing agent is almost always the freight forwarder;

(d)    ‘consignee’ details – a name and address for the person or entity who is the recipient of the cargo at the airport at which the airline relinquishes possession. This can be either a freight forwarder (and always is where cargo is consolidated) or the consignee;

(e)    weight and dimensions of cargo (i.e. the weight and size of the shipment that will be physically loaded on the aircraft);

(f)    general description of the cargo;

(g)    the nature of the cargo and any special handling requirements;

(h)    payment details – whether the shipment is ‘total prepaid’ (paid to the AWB issuing airline) or ‘charge collect’ (paid to the airline completing the carriage to the airport at which the airline relinquishes possession). The majority of shipments of Garuda and Air NZ are ‘prepaid’ with the freight forwarder paying the AWB issuing airline; and

(i)    certification by the ‘shipper’ that the contents of the AWB are correct and a specific declaration concerning dangerous goods.

115    The AWB for each cargo shipment is signed by the freight forwarder on behalf of the person sending the freight and the air cargo carrier at the airport at which the airline first takes possession.

116    AWBs for cargo are only ever issued for one way shipments. In those exceptional cases where cargo is transported to one country and then returned to the country of origin, a separate AWB is issued in respect of each of the two shipments by the freight forwarder at each airport at which the airline first takes possession.

117    The AWB also records on its face particular rates for the shipment and various other charges. Ordinarily, the rate shown on an AWB is the IATA TACT rate, although in most cases that is not the rate actually being charged by the airline. The AWB never incorporates any benefit, incentive or rebate paid by the airline to the freight forwarders.

118    Where a freight forwarder consolidates various shipments of cargo received from a number of consignors into one consolidated shipment or consignment, the freight forwarder delivers a Master Air Waybill (‘MAWB’) to the airline at the airport at which the airline first takes possession. ‘MAWB’ is simply the terminology used to denote an AWB that is used for a consolidated shipment. The MAWB always describes the ‘shipper’ as the freight forwarder and the bulk shipment simply as ‘consolidated’. In such instances the freight forwarder separately issues its own ‘House Air Waybill (‘HAWB’) to the consignor of each of the individual shipments comprising the consolidated shipment. The HAWB incorporates or makes reference to the terms and conditions between the person sending the freight and freight forwarder.

119    For non-consolidated cargo, freight forwarders may still either automatically generate a HAWB number and/or create the HAWB (as well as a MAWB – known as ‘back to backs’ i.e. the single HAWB is attached to the back of the MAWB). This is because many freight forwarders rely on HAWB numbers to drive their billing systems, even if no actual HAWB is printed or created.

120    Airlines do not generally see HAWBs. During the relevant period, HAWBs were generally sealed in an envelope with invoices and other relevant documentation, which was then attached with the MAWB and transported with the cargo. The HAWBs contain information confidential to the freight forwarder and thus are not seen by the airlines.

2.16 Payments for air cargo transport

121    In most cases, the origin freight forwarder is obliged to pay the airline for air cargo transport charges. Payment is usually made in local currency of the place of origin. In some countries with high currency volatility payment may be required in another currency. In the industry, this is generally known as ‘prepaid’.

122    Some shipments may be ‘charges collect’, in which case the destination freight forwarder pays on delivery.

123    The charges which are payable to airlines for carrying freight by air by freight forwarders, whether prepaid or charges collect, are not conditional upon the freight forwarder receiving payment from the consignor or consignee, as the case may be, for the freight forwarder’s services.

124    The freight forwarder makes the payment to the airline for the cost of carrying freight by air including via the IATA-operated CASS (where that system is available in the country of origin). As noted above, CASS is an accounts settlement system that facilitates the interaction and exchange of information and remittance between freight forwarders and airlines.

125    Freight forwarders are able to use CASS if they are accredited agents/intermediaries or non-accredited IATA ‘associates’. In order to obtain IATA accreditation freight forwarders must meet certain financial criteria. The requirements for associateship are less stringent than for accreditation. However, associateship still requires a freight forwarder to provide a financial undertaking and a bank account in the country of origin (and in certain circumstances, a bank guarantee).

126    Between 2000-2006, in those countries where CASS operated, freight forwarders were able to settle the invoices issued by airlines in that country in a single payment to CASS. CASS then made a single payment to each airline in that country covering such invoices for all freight forwarders. The airline charges for carrying freight by air for most cargo transported from Australia are paid for using this system.

127    CASS is available in a number of countries. However, its implementation has been gradual. If CASS is not available in a particular origin country (for example, India), payment is made directly by the freight forwarder to the airline. In those circumstances, some airlines will contract with some freight forwarders based in that country only if it supplies a bank guarantee or other security for payment.

128    Having clarified these matters of terminology it is useful to begin with the airlines’ legal arguments as to the non-applicability of the Trade Practices Act 1974.

3 THE APPLICATION OF THE TRADE PRACTICES ACT 1974 TO INTERNATIONAL COMMERCIAL AVIATION

129    Garuda, supported by Air NZ, submitted that Part IV of the TPA had no application to the regulation of international commercial aviation under the Air Navigation Act 1920 (Cth) (‘the ANA’). There were five arguments in all:

(a)    the background to the regulation of international commercial aviation showed that at the time of the introduction of the TPA, the majority of bilateral air transport agreements provided for rate fixing machinery;

(b)    a consideration of the terms of the ANA showed that the TPA could never apply to international commercial aviation;

(c)    alternatively, the TPA could not apply where Australia had entered into an ASA with another nation which required or permitted rate or tariff fixing;

(d)    consequently, the TPA could not apply to the conduct alleged against the airlines in the period 2001-2006;

(e)    further, the TPA did not apply to the service provided by the airlines which was not the carriage of goods by air but instead the provision to consumers of bundles of contractual rights.

130    It is convenient to deal with these in turn.

3.1 Background to the regulation of international commercial aviation

131    Garuda began its argument by drawing attention to the nature of the regulation of international civil aviation at the time at which the TPA came into force on 24 August 1974. At that time, the regulation of international civil aviation was quite different to the situation which presently obtains and reflected arrangements which had been reached between a large number of nations in the aftermath of World War II.

132    That aftermath had left the United Kingdom and the European nations with substantially weakened economies and the United States in a very much stronger economic position. Further, the end of the war had seen the United States having left over from its war efforts not only a very large number of air freighters which were readily suitable to being converted to commercial airliners but also a large number of pilots with which to fly them. Although the United Kingdom also had a significant number of pilots following its war effort it had not been involved in operating air freighters to the extent that the United States had. In addition, the United States economy in 1946 was, in stark contrast to the economy of the United Kingdom, in a position to continue manufacturing even more planes.

133    There was a general sense towards the end of the second world war that given the great advances in aviation technology in the preceding six years, international civil aviation would need to be regulated afresh and this led rapidly to the Convention on International Civil Aviation, signed 7 December 1944, 15 UNTS 295 (entered into force 4 April 1947) (‘the Chicago Convention’). Although the Chicago Convention achieved many things it did not achieve a consensus on the economic issues which arose between the various states. A multilateral agreement reached at the same time, the International Air Services Transit Agreement, signed 7 December 1944, 84 UNTS 389 (entered into force 8 February 1945) (‘the Air Transit Agreement’), recognised what are termed the first and second freedoms. These are respectively: the right of the civil aircraft of one country to fly over the territory of another without landing provided advance notice is given and approval given (the first freedom); and the right to land in another country for technical reasons such as maintenance or refuelling but without offering commercial services (the second freedom). Despite multilateral agreement on those matters no equivalent multilateral agreement could be reached about the operation of purely commercial services between states or through several states.

134    The reasons for this were related to the economic matters just mentioned. The United States, with its much greater economic position favoured ‘open skies’ and free trade, whereas the Europeans, and particularly the United Kingdom, were concerned that untrammelled competition with United States carriers would see their national air industries overrun.

135    The consequence of this impasse was that the terms on which international civil aviation operations were to be conducted between any two given states required bilateral agreement, a multilateral approach having failed at Chicago in 1944.

136    The first and most important of these bilateral agreements was that reached between the United Kingdom and the United States. Officials from these two countries met in Hamilton, Bermuda between 15 January and 11 February 1946. This meeting resulted in the Agreement between the United States and the United Kingdom relating to Air Services, signed 11 February 1946, 3 UNTS 253 (entered into force 11 February 1946), sometimes also known as the Original Bermuda Agreement or, amongst the cognoscenti of bilateral air transport treaties, more often as ‘Bermuda I’. I will call it ‘Bermuda I’, although I do not mean by that to suggest that I am one of those cognoscenti. Its significance is that it has served as a template for many other bilateral air service agreements subsequently reached between other states.

137    The provisions of Bermuda I dealt with five principle issues: entry, capacity, rates, discrimination and dispute resolution. For present purposes only the issue of rates is relevant.

138    Paragraphs (a) to (e) and (h) of Annexure II to Bermuda I were as follows:

(a)    Rates to be charged by the air carriers of either Contracting Party between points in the territory of the United States and points in the territory of the United Kingdom referred to in this Annex shall be subject to the approval of the Contracting Parties within their respective constitutional powers and obligations. In the event of disagreement the matter in dispute shall be handled as provided below.

(b)    The Civil Aeronautics Board of the United States having announced its intention to approve the rate conference machinery of the International Air Transport Association (hereinafter called (“I.A.T.A.”), as submitted, for a period of one year beginning in February 1946, any rate agreements concluded through this machinery during this period and involving United States air carriers will be subject to approval by the Board.

(c)    Any new rate proposed by the air carrier or air carriers of either Contracting Party shall be filed with the aeronautical authorities of both Contracting Parties at least thirty days before the proposed date of introduction; provided that this period of thirty days may be reduced in particular cases if so agreed by the aeronautical authorities of both Contracting Parties.

(d)    The Contracting Parties hereby agree that where-

(1)    during the period of the Board’s approval of the I.A.T.A. rate conference machinery, either any specific rate agreement is not approved within a reasonable time by either Contracting Party, or a conference of I.A.T.A. is unable to agree on a rate, or

(2)    at any time no I.A.T.A. machinery is applicable, or

(3)    either Contracting Party at any time withdraws or fails to renew its approval of that part of the I.A.T.A. rate conference machinery relevant to this provision,

the procedure described in paragraphs (e), (f) and (g) hereof shall apply.

(e)    In the event that power is conferred by law upon the aeronautical authorities of the United States to fix fair and economic rates for the transport of persons and property by air on international services, and to suspend proposed rates in a manner comparable to that in which the Civil Aeronautics Board at present is empowered to act with respect to such rates for the transport of persons and property by air within the United States, each of the Contracting Parties shall thereafter exercise its authority in such manner as to prevent any rate or rates proposed by one of its carriers for services from the territory of one Contracting Party to a point or points in the territory of the other Contracting Party from becoming effective, if in the judgment of the aeronautical authorities of the Contracting Party whose air carrier or carriers is or are proposing such rate, that rate is unfair or uneconomic. If one of the Contracting Parties on receipt of the notification referred to in paragraph (c) above is dissatisfied with the new rate proposed by the air carrier or carriers of the other Contracting Party, it shall so notify the other Contracting Party prior to the expiry of the first fifteen of the thirty days referred to, and the Contracting Parties shall endeavour to reach agreement on the appropriate rate. In the event that such agreement is reached, each Contracting Party will exercise its statutory powers to give effect to such agreement. If such agreement has not been reached at the end of the thirty-day period referred to in paragraph (c) above, the proposed rate may, unless the aeronautical authorities of the country of the air carrier concerned see fit to suspend its operation, go into effect provisionally pending the settlement of any dispute in accordance with the procedure outlined in paragraph (g) below.

(h)    The rates to be agreed in accordance with the above paragraphs shall be fixed at reasonable levels, due regard being paid to all relevant factors, such as cost of operation, reasonable profit and the rates charged by any other air carriers.

139    Before considering what these provisions required, it is useful to know something of IATA (referred to in (b) and (d) of the Bermuda I extracts above). IATA is the international trade association for airlines. It was founded as a result of the International Air Transport Operators Conference held in Havana in 1945. It is a corporate body under Canadian law with its headquarters in Montreal. It represents the great majority of the world’s scheduled international airlines (scheduled services being separately regulated from chartered flights). The reference to IATA in the rate fixing machinery in Bermuda I in (b) of Annexure II (and its subsequent multitudinous progeny) has given IATA a very important public function even though it is a private organisation. Its rate fixing machinery is conducted through its tariff coordinating conferences: see Peter Haanappel, Pricing and Capacity Determination in International Air Transport (Kluwer Law and Taxation Publishers, 1984) at 96. IATA membership is open to any airline operating a scheduled international air service, although membership rules for participating in the tariff coordinating conferences are quite complicated. At present, approximately 230 of the world’s airlines are members. Although formal IATA membership only applies to airlines, other industry stake-holders can participate in different IATA programs including airports, travel agencies and other travel and tourism intermediaries, freight forwarders and other industry suppliers. IATA works with governments to establish uniform standards and procedures for commercial air operations.

140    All members of IATA must elect whether they wish to become a member of a Tariff Coordinating Conference of which there are in broad terms two kinds, Passenger Tariff Conferences and Cargo Tariff Conferences. The members may elect to join one or neither of the conferences. The passenger conferences may be put to one side. There are three Cargo Tariff Conferences reflecting the Tordesillan division by IATA of the world into three broad areas:

(a)    Area 1 – encompassing all of the north and south american continents and the islands adjacent thereto, Greenland, Bermuda, the West Indies and the islands of the Caribbean Sea and the Hawaiian Islands including Midway and Palmyra;

(b)    Area 2 – encompassing all of Europe and the islands adjacent thereto, Iceland, the Azores and Madeira, all of Africa and the islands adjacent thereto, Ascension Island and that part of Asia laying west of the Ural mountains including Iran and the Middle East;

(c)    Area 3 – encompassing all of Asia and the islands adjacent thereto except the portion included in Area 2, all of the East Indies, Australia, New Zealand and the islands adjacent thereto and the islands of the Pacific Ocean except those included in Area 1.

This case is largely concerned with Area 3 which was called by all parties in the case ‘TC3’ (the other two areas being referred to as Traffic Conference (‘TC’) TC1 and TC2).

141    The Conferences originally fixed minimum rates. Speaking in 1984 Haanappel puts it this way (at 104):

Finally, it should be mentioned that strictly speaking all IATA agreed fares and rates are minimum fares and rates. In principle, IATA carriers are free to charge higher fares and rates than the ones agreed upon through the IATA Tariff Coordinating machinery and approved by Governments. For two reasons, however, IATA carriers will seldom or never do so in practice. The first reason is economic in nature, and the second relates to the regulatory aviation systems of many countries. Economically, IATA carriers cannot afford to charge higher tariffs than the minimum tariffs agreed upon in the Tariff Conferences. All IATA carriers basically offer the same undifferentiated product, i.e. rapid point - to - point transportation. When an IATA carrier would charge a higher price for that product than its fellow member airlines do, it would automatically put itself into an impossible competitive position. Passengers and shippers would ignore this carrier and prefer the others. In addition hereto, once IATA airlines have had their IATA agreed tariffs approved by the various interested Governments, these tariffs become, in the regulatory aviation systems of many nations, the actual, Governmentally sanctioned tariffs. Therefore, one can say that the minimum IATA fares and rates in practice always become the actual, uniform fares and rates.

[emphasis in original; footnotes omitted]

142    As discussed later in these reasons, (at [189] and [1247]), prior to 1981 it was unlawful for a carrier in Australia to discount below the approved tariff, which in cases involving Bermuda I style treaties was generally the IATA fare. Increasing deregulation since that time has meant that the IATA tariffs are no longer, in practice, minima. For present purposes, what is important is that IATA rates are not now, and have never been, maximum limits imposed on fares and tariffs. There is a related debate in this case as to whether Art 6(2) of the Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Indonesia for Air Services Between and Beyond their Respective Territories, signed 7 March 1969, [1969] ATS 4 (entered into force 7 March 1969) (‘the Australia-Indonesia ASA’) requires agreement on the minimum or maximum tariffs. That debate raises a slightly different question to whether IATA’s rate fixing machinery results in a minimum rate. Insofar as that former question is concerned I am prepared to accept the statement appearing in Haanappel as a statement of ‘general facts’ by a ‘serious historian’: cf. Cadia Holdings Pty Ltd v New South Wales (2010) 242 CLR 195 at 223 [76]. I deal with the issue of the proper construction of Art 6(2) below at [163] and [415].

143    Returning then to Bermuda I, it will be seen that its terms required the United Kingdom and United States carriers to reach agreement on rates through the IATA Passenger and Cargo Tariff Conferences and thereafter to have them approved through the relevant national regulators.

144    On its face this procedure may appear to be directly inimical to antitrust legislation such as the Sherman Act or Pt IV of the TPA. Between 1958 and 1979, however, § 412(b) of the United States Federal Aviation Act of 1958, 49 USC 1301 (1958) (and after 1946, other legislation antecedent to that Act) authorised the Civil Aviation Board (‘the CAB’) to disapprove arrangements between airlines establishing fares and rates if the CAB had found them adverse to the public interest. In practice, the CAB required all IATA Conference resolutions in relation to, inter alia, fares and rates to be filed with it for approval. It was through this procedure that IATA arrangements obtained (in general) default antitrust immunity under United States law. After 1979, antitrust immunity was no longer automatically granted through the approval of an application, but rather a discretion rested with the CAB to grant antitrust immunity. As will be seen subsequently, the facts of this case include an actual example of the CAB refusing approval under §§ 412 and 414 of the Federal Aviation Act.

145    It might be wondered why the United States agreed to the rate fixing arrangements in Bermuda I when it favoured competition between carriers. According to Haanappel this arose from the desire of the United States to obtain access to the Atlantic routes into Europe. He says (at 27):

The final events which brought Britain and the United States to the negotiating table at Bermuda were the desire of American carriers to increase their frequencies to London beyond the limits allowed by the pre-war bilateral arrangements still in force in early 1946 and, in the fall of 1945, the announcement by Pan Am of its intention to cut considerably fares from the United States to Britain and France. These intentions had met with fierce French and British resistance. Under these circumstances, a compromise was reached whereby the Americans accepted governmental tariff control, which they had been unwilling to do at Chicago in 1944, and whereby the British accepted the idea that airlines themselves would fix capacity and frequencies of flights, instead of following the system which they had proposed in 1944 and which involved intergovernmental predetermination of capacity and frequencies. Some say that the compromise was perfectly acceptable to both parties. Others say that it had only become possible by the promise of an American loan to rebuild the British aviation industry. Wherever the truth may lie, and it probably lies in the middle, in the long run, Bermuda 1 proved to be satisfactory to both the Americans and the British.

[footnotes omitted]

146    After Bermuda I, the United States and the United Kingdom issued a joint statement proclaiming Bermuda I as the basis for their future bilateral air transport arrangements and a large number of other nations thereafter followed suit. The deviations from the Bermuda I model in the post-war period were principally related to issues of capacity and frequency rather than rates: Haanappel (at 34). Also, different arrangements had to be reached where particular national carriers were not members of IATA, for example, Aeroflot of the then USSR.

147    Writing in 1984 Haanappel described the situation which then existed in relation to rate fixing in bilateral arrangements as follows (at 37):

In the field of pricing or ratemaking clauses, most nations have stayed more faithful to the Bermuda 1 principles than they have with respect to capacity and frequency. Most existing bilateral air transport agreements explicitly delegate the determination of fares and rates for scheduled international air services, covered by those agreements, to IATA, but virtually always under the reservation that such rates and fares shall be subject to Government approval, i.e. approval by the aeronautical authorities of both Contracting Parties to a bilateral air transport agreement. This system of Governmental tariff approval has now become known as the ‘double’ or ‘dual approval’ rule. Very seldom, however, do bilateral agreements make the use of the IATA ratemaking machinery mandatory. Practically all bilateral agreements which explicitly delegate ratemaking to the IATA Traffic Conference machinery state that rates and fares shall be determined by the airlines designated under the agreements in question, and that ‘where possible’ or ‘wherever possible’ the IATA machinery shall be used for that purpose.

A rather small number of bilateral air transport agreements implicitly delegate international ratemaking to IATA. These agreements delegate international ratemaking, again mostly ‘subject to Government approval’ and ‘where’ or ‘wherever possible’, to ‘an association of air carriers’ or ‘an international air transport association’.

[emphasis in original; footnotes omitted]

148    I propose to proceed on the basis that at the time of the introduction of Part IV of the TPA on 1 October 1974 the vast majority of bilateral air transport agreements (including those concluded by Australia) provided for rate fixing machinery of the style seen in Bermuda I.

3.2 Whether the Trade Practices Act 1974 applied to international commercial aviation at all

149    Bilateral agreements with rate fixing machinery within them would not have been sufficient to prevent Pt IV of the TPA from applying to international civil aviation for, as international instruments, they could have no direct domestic effect in themselves. If Pt IV was not, therefore, to apply to international civil aviation it must be as a result of the operation of its own terms, the provisions of the ANA or the Air Navigation Regulations 1947 (Cth) (‘the ANR’) or some combination of some or all of these.

150    In 1974 the critical provisions of the ANA for present purposes were ss 12, 13 and 22. These provided as follows:

12 International airline licences

(1)     An international airline of a country other than Australia shall not operate a scheduled international air service over or into Australian territory except in accordance with an international airline licence issued by the Director-General in accordance with the regulations.

(2)     An international airline licence shall not be granted to an international airline of a country other than Australia unless that country and Australia are parties to the Air Transit Agreement, or to some other agreement or arrangement, whether bilateral or multilateral, under which scheduled international air services of that other country may, subject to the agreement or arrangement, be operated over or into Australian territory.

13 Suspension or cancellation of international airline licences

    The Minister may suspend or cancel an international airline licence issued to an international airline of a country other than Australia if and only if-

(a)    the airline or any aircraft operated by the airline fails to comply with a provision of this Act or the regulations or the terms of its licence;

or

(b)    the airline fails to conform to, or comply with, any term or condition of the relevant agreement or arrangement referred to in the last preceding section.

22 Offences

(1)    A person who contravenes or fails to comply with a provision of this Act is guilty of an offence.

(2)    The owner, the operator and the hirer (not being the Crown), and the pilot in command and any other pilot, of an aircraft that flies in contravention of, or fails to comply with, a provision of this Act is guilty of an offence.

(3)     An offence against this Act may be prosecuted either summarily or upon indictment, but an offender is not liable to be punished more than once in respect of the same offence.

(4)    The punishment for an offence against this Act is-

(a)    if the offence is prosecuted summarily-a fine not exceeding four hundred dollars or imprisonment for a term not exceeding six months, or both;

or

(b)    if the offence is prosecuted upon indictment-a fine not exceeding One thousand dollars or imprisonment for a term not exceeding two years, or both, or, if the offender is a body corporate, a fine not exceeding Ten thousand dollars.

151    As I understood the Commission’s submission in relation to a subsequent, but not materially different, form of these provisions, they were not to be seen as having the effect of requiring an international carrier to comply with any relevant bilateral agreement. The obligation was instead not to conduct an international air service without a licence (s 12(1) of the ANA). It was true that s 13(b) authorised the Minister to cancel or suspend such a licence if the terms of the relevant bilateral agreement had not been complied with, but a breach of the bilateral agreement was not in itself a breach of the ANA or the ANR, so that the offence provision (s 22) was never engaged by such a failure and, concomitantly, the ANA could not be seen as imposing a norm of conduct requiring compliance with the relevant bilateral agreement.

152    There is, with respect, an air of unreality about this submission. An international civil aviation carrier operator must have a licence. If it does not comply with the relevant bilateral agreement then it is at risk of losing its licence. If it loses its licence it must either cease operations altogether between Australia and the other country involved, or, alternatively, commit a serious offence under the ANA. I do not think it can be suggested that a carrier confronted with this dilemma has any real choice about compliance with the relevant bilateral agreement. I accept, therefore, and contrary to the Commission’s submission, that s 13(b) when viewed in a context which includes ss 12(1) and 22, requires international civil aviation operators to comply with the terms of any relevant ASA. That is the point of the provision and that is what it does.

153    This is, however, not the only feature of the rÉgime. As at 1 October 1974 there were also some regulations. These were regs 106A, 255 and 258 of the ANR. Regulations 255 and 258 in substance simply repeated ss 12 and 13 of the ANA, i.e. an international carrier needed to operate in accordance with a licence issued pursuant to the relevant bilateral agreement (reg 255) and if it did not do so then its licence could be cancelled by the Minister (reg 258(1)). Again, as with ss 12 and 13 of the ANA these two regulations did not explicitly require a carrier to comply with a relevant bilateral agreement, but, in their substantial operation they had precisely that effect.

154    The relevant portions of ANR reg 106A provided as follows:

106A Tariffs of charges

(1.)    The holder of a licence to operate an international air service to or from Australian territory shall submit to the Director-General his tariff of charges for the carriage of persons and cargo on that service and such tariff shall include charges for carriage of persons and cargo between all stopping places on the route authorized in the licence.

(2.)    The Director-General may-

(a)    approve any tariff of charges submitted or deemed to have been submitted under this regulation;

(b)    approve any such tariff subject to such variations as he directs; or

(c)    reject any such tariff, and direct the adoption in its stead of such tariff as he considers fair and reasonable for the service provided.

(6.)    The holder of the licence or any other person shall not charge, demand, collect or receive, or advertise that he will charge, for the carriage of persons or cargo on an international air service to or from Australian territory, an amount less than the amount approved or deemed to have been approved, or directed to be adopted, in accordance with this regulation.

155    The effect of this was to require lodgement with, and government approval of, any relevant tariff and thereafter to prohibit the holder of the licence from the discounting of its prices below that tariff unless approval for a variation was obtained. The regulation did not say that the tariff lodged had to have resulted from an agreement on tariffs reached between airlines, nor does it even require airlines to lodge the same tariff. Under ANR reg 106A it was, therefore, legally possible for airlines to lodge different tariffs, and indeed, this would be likely to occur where the relevant ASA did not include any requirement as to rate fixing. During the course of the trial Garuda made reference to the fact that as late as 1978 a charter airline had been prosecuted for discounting a fare (The Queen v Halton; ex parte A.U.S. Student Travel Pty Limited (1978) 138 CLR 201) which was said to be diametrically opposed to the idea that Pt IV could possibly apply to air navigation. But The Queen v Halton was not concerned with price fixing between airlines. It was concerned with charging less than an approved tariff. That an offence of discounting existed tells one nothing about price fixing.

156    A significant element in the ANA/ANR rÉgime is that it neither necessarily requires nor authorises rate fixing of the kind contemplated in Bermuda I. The ANA on 1 October 1974 was wholly silent upon this issue. There can be no doubt that where Australia had entered into a bilateral agreement either in a Bermuda I form or in some other form providing for rate fixing, then the effect of the ANA and ANR was to require compliance with that rate fixing rÉgime, but this was a feature of the relevant ASA rather than the ANA/ANR. Nor, as I have indicated, was the requirement that carriers lodge tariffs or the prohibition on them thereafter discounting those tariffs in ANR reg 106A, in principle, inconsistent with the operation of Pt IV of the TPA. The regulation did not prevent carriers from charging higher tariffs and it certainly did not require them to charge the same tariff. In principle, at least, there was no legal collision between such a rÉgime and one such as Pt IV, prohibiting price fixing between competitors.

157    In his closing submissions, Mr Leeming SC placed much reliance upon the decision of Deane J in Refrigerated Express Lines (Australasia) Pty Limited v Australian Meat and Livestock Corporation (No 2) (1980) 29 ALR 333. In that case, his Honour concluded that the rÉgime contained in Pt X of the TPA excluded any operation for Pt IV. Part X dealt with overseas cargo shipping. It contemplated the making of conference agreements on rates. Section 112 explicitly exempted from the operation of Part IV conduct which was done pursuant to such an agreement but did not exempt, in terms, the conduct involved in reaching such an agreement. It was not a difficult conclusion to reach, as his Honour did, that a set of provisions which exempted conduct pursuant to conference agreements was inconsistent with the operation of Pt IV, including the making of conference agreements.

158    But that is not this case. The ANA/ANR do not require or authorise conference arrangements at all. Although Garuda in its submissions repeatedly suggested that the ANA/ANR created a rÉgime involving IATA rate fixing, in my opinion, they did no such thing. What they created was a rÉgime in which carriers had to comply with any bilateral air transport agreement which was in place. But the ANA/ANR were silent on what those agreements required. This is a critical distinction between Pt X of the TPA and the ANR/ANA.

159    Nor do I accept that this argument is assisted by the Full Court of this Court’s decision in Heli-Aust Pty Ltd v Cahill (2011) 194 FCR 502 (FC) which held that the Civil Aviation Act 1988 (Cth) covered the field when it came to the regulation of air safety so that a State law also regulating that topic could not apply to civil aviation. That decision was concerned with a different Act and with inconsistency between State and Federal law. It has nothing to say in a case such as the present.

160    That is not to say that there could not be circumstances in which Pt IV and the ANA/ANR might have come into conflict. I accept that wherever Australia had entered into a Bermuda I style ASA then the potential effect of ss 12 and 13 as they stood in 1974 may well have been to require what Pt IV prohibited, namely, an agreement between carriers to fix prices. The present point is that such a conflict would arise only in those cases involving such an ASA and would not arise if the relevant ASA did not itself provide for rate fixing. For that reason I cannot conclude the operation of the ANA/ANR on 1 October 1974 was inherently inimical to the operation of Pt IV of the TPA and I reject the submission that Pt IV had no application at all to international civil aviation at that time.

3.3 Was the Trade Practices Act 1974 inconsistent with the Australia-Indonesia ASA as applied by the Air Navigation Act 1920?

161    A more modest form of Garuda’s argument relied upon the terms of the actual ASA between Australia and Indonesia which was reached between the two nations on 7 March 1969. I accept Garuda’s submission that the Australia-Indonesia ASA was, in substance, a Bermuda I style arrangement. Article 2 permitted each nation to designate a single airline to operate on the routes contained in the annex to it. There is no need to set those out; they are routes involving ports in both countries.

162    Initially there were only two designated airlines, Garuda and Qantas. An exchange of notes between the two nations (Exchange of Notes constituting an Agreement between the Government of Australia and the Government of Indonesia to amend the Annex to the Agreement for Air Services between and beyond their respective Territories of 7 March 1969, signed 16 August 1986, [1986] ATS 23 (entered into force 16 August 1986)), however, whilst perhaps not drafted with perfect clarity, appears to have permitted both nations after that time to designate more than one carrier under the Australia-Indonesia ASA.

163    From 1969 until 2013, and at all times material to this litigation, Art 6 of the Australia-Indonesia ASA provided as follows:

Article 6

(1)    The tariffs on any agreed service shall be established at reasonable levels, due regard being paid to all relevant factors including cost of operation, reasonable profit, characteristics of service (such as standards of speed and accommodation) and the tariffs of other airlines for any part of the specified route. These tariffs shall be fixed in accordance with the following provisions of this Article.

(2)    Agreement on the tariffs shall, whenever possible, be reached by the designated airlines concerned through the rate-fixing machinery of the International Air Transport Association. When this is not possible, tariffs in respect of each of the specified routes shall be agreed upon between the designated airlines concerned. In any case the tariffs shall be subject to the approval of the aeronautical authorities of both Contracting Parties.

(3)    If the designated airlines concerned cannot agree on the tariffs, or if the aeronautical authorities of either Contracting Party do not approve the tariffs submitted to them in accordance with the provisions of paragraph (2) of this Article, the aeronautical authorities of the Contracting Parties shall endeavour to reach agreement on those tariffs.

(4)    If agreement under paragraph (3) of this Article cannot be reached, the dispute shall be settled in accordance with the provisions of Article 9 of this Agreement.

(5)    No new or amended tariff shall come into effect unless it is approved by the aeronautical authorities of both Contracting Parties or is determined by a tribunal of arbitrators under Article 9 of this Agreement. Pending determination of the tariffs in accordance with the provisions of this Article, the tariffs already in force shall apply.

164    Article 6(2) did not make the IATA rate fixing machinery compulsory, although it did require it wherever possible, and when it was not possible, Garuda and Qantas were to agree the rates between them which were then to be approved by the respective aeronautical authorities.

165    It is difficult to avoid the conclusion that on 1 October 1974 when Pt IV first became law, the combined operation of Art 6(2) and ss 12 and 13 of the ANA (and also ANR regs 255 and 258(1)) was to require collusive behaviour by the two airlines of the very kind prohibited by Pt IV on that day. I accept, therefore, that there was a conflict, in their practical operation, between the ANA/ANR rÉgime and Pt IV in relation to flights to and from Indonesia on 1 October 1974.

166    Part IV of the TPA as originally enacted foresaw the possibility of such conflicts. Section 51(1) at that time provided:

51 Exceptions

(1) In determining whether a contravention of a provision of this Part has been committed, regard shall not be had-

(a)    to any act or thing that is, or is of a kind, specifically authorized or approved by, or by regulations under, an Act other than an Act relating to patents, trade marks, designs or copyrights;

(b)    in the case of acts or things done in a State–except as provided by the regulations, to any act or thing that is, or is of a kind, specifically authorized or approved by, or by regulations under, an Act passed by the Parliament of that State; or

(c)    in the case of acts or things done in a Territory-to any act or thing that is, or is of a kind, specifically authorized or approved by, or by regulations under, an Ordinance of that Territory.

167    The first matter to note about this provision is that it applied to ‘acts or things’ done under another statute or regulation. It did not seek to mediate the conflicts it managed at the level of the actual laws in question (unlike, for example, s 109 of the Constitution). It awaited instead some event under those provisions. To consider its operation one needs, therefore, to posit some action onto which the provision may then attach. In this case, it is convenient to assume the existence of conduct under Art 6(2) of the Australia-Indonesia ASA between Garuda and Qantas by which the two airlines, on or around 1 October 1974, reached an agreement to charge a particular rate.

168    The second matter to observe is the need for the second law to render the conduct ‘specifically authorised or approved’. It is apparent, I think, that the words ‘specifically’ qualifies both ‘authorised’ and ‘approved’ – it is hard to see why one would need to be specific but not the other. But the question then arises: what is an authorisation or approval which is specific?

169    One matter which is clear is that the specific authorisation or approval must be found in the Act or regulation mentioned in s 51(1) and not some subordinate instrument made under that Act or regulation. The terms of s 51(1) do not include in their exempting scope matters or things specifically authorised or approved under instruments which are not themselves Acts or regulations. Thus, to take an example which will be relevant in due course, the imposition by the Director-General of Civil Aviation in Australia of a condition on an international air carrier’s licence to comply with an ASA containing rate fixing machinery would not engage s 51(1) because, whether this was a specific authorisation or approval, it was not an authorisation or approval ‘by, or by regulations under, an Act’. Put another way, the specificity involved must emerge at the level of the Act or regulation in question.

170    In Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 the Full Court of this Court had occasion to consider whether s 82 of the Co-operation Act 1923 (NSW) and reg 35A of the Co-operatives Regulations 1961 (NSW) specifically authorised co-operative building societies to compel loan applicants to insure mortgaged premises with a particular insurer. That conduct would have been exclusive dealing within the meaning of s 47 of the TPA.

171    Section 82 of the Co-operation Act required, inter alia, that the rules of a co-operative building society should set forth ‘such other matters as may be prescribed by regulation’. Regulation 35A of the Co-operatives Regulations provided:

The following matter is prescribed pursuant to section 82 (3) (e) of the Act to be set forth in the rules of a building society:-

The manner in which the insurance of any building or premises the subject of a mortgage to the society is to be effected and whether the insurance of that building or those premises is required to be effected with an insurance company or insurance society specified, nominated or approved by the society or the board.

172    Deane J was of the view that reg 35A authorised the co-operative building societies to nominate an insurer in the way that they had but he did not accept that it did so ‘specifically’. His Honour reasoned as follows (at 164):

The requirement in reg 35A, that the rules set forth whether insurance is required to be effected with a nominated insurer, may properly be seen as constituting legislative approval or authorization of the inclusion in the rules of an unspecified statement on that subject. In my view, however, it no more constitutes specific authorization or approval of any particular statement on that subject matter which the rules of a particular society might contain than does, for example, the common legislative requirement specifying that particular matters be set out in the prescribed written memorandum of a money-lending contract constitute specific legislative authorization or authority for the particular provisions which appear in a particular contract (see, for example, Money-lenders and Infants Loans Act 1941-1948 (N.S.W.), s 22(2)).

173    Brennan J approached the matter a little differently. At 152 his Honour said:

Section 51 (1) (b) limits the operation of s. 47 so that the laws of a State may define the acts or things which do not fall within the prohibitions of s. 47. The boundaries of this Alsatia are to be chosen, in the first instance by the laws of the relevant State. But the appropriate State legislation which exercises the exempting power must specifically authorize or approve the act or thing, that is, it must manifest a legislative intention that the act or thing; if done or existing, shall not be a link in the chain of proof of a liability, whether civil or criminal. To be sure, the laws of a State do not usually trouble to give legislative affirmation of the lawfulness of acts or things which are not otherwise proscribed, but a legislative assumption of the lawfulness of an act or thing is not tantamount to a specific authorization or approval of that act or thing. What is necessary is that the State law should exhibit a specific legislative intention to authorize or approve that act or thing, even though the act or thing would not–but for the provisions of the Trade Practices Act–be unlawful.

Regulation 35A is not so drawn as to give that specific authorization or approval to the act of lending on condition that the borrower effect insurance with an insurer nominated by a building society.

174    Bowen CJ was of the contrary view. The Chief Justice reasoned, at 144, this way:

But s. 51 (1) (b) does not require the authorization to be express or direct. It requires simply that it should be specific. It does not appear to me that reg. 35A lacks the quality of being specific. It refers precisely to the class of acts in question, namely, the act of requiring insurance of premises to be effected with an insurance body specified by the society. It could hardly be more specific in this relevant respect, without descending to the specification of particular cases.

It is true that the regulation requires to be set forth in the rules whether such insurance is a requirement. A society would have a choice whether or not it included such a requirement in its rules. But this only means that the regulation involves authorization or approval to the rules either requiring or not requiring it.

It is further true that, even if the requirement be included in the rules the authorization or approval inherent in the regulation will not be availed of unless the society in fact engages in the practice. We are asked in these proceedings to proceed upon the basis it has been included in the rules. Certainly, the applicant societies proceeded to engage in the practice. In the circumstances, it is my view, the societies in doing so engaged in a practice which was specifically authorized or approved by the reg. 35A.

175    The application of these statements to the situation which existed on the passage of Pt IV of the TPA on 1 October 1974 is not without some difficulty. The Court in Ku-ring-gai was considering s 51(1)(b) rather than s 51(1)(a) but I do not think, subject to one matter to which I will return, that this is a compelling distinction. The language ‘specifically authorised or approved’ is the same in subsections (a) and (b) and one ought, if possible, to read the same phrases in different parts of the same section as having a consistent meaning.

176    So far as the reasoning of Deane J is concerned, the position of reg 35A and that of the Australia-Indonesia ASA is indistinguishable. Sections 12 and 13 (and ANR regs 255 and 258(1)) may well authorise or approve rate fixing under Art 6(2) but they do not do so ‘specifically’.

177    The reasoning of Brennan J requires one to ask whether the Act or regulation manifests ‘a legislative intention that the act or thing, if done or existing, shall not be a link in the chain of proof of the liability, whether civil or criminal’. In the case of ss 12 and 13 (and ANR regs 255 and 258(1)) I do not think such an intention is manifest. It becomes manifest only when account is taken of a relevant ASA having a rate fixing clause. In Ku-ring-gai, as Bowen CJ observed (in dissent), the Court was invited to proceed on the basis that the societies in question had included the rule contemplated by reg 35A. This does not appear to have led Brennan J, however, to the conclusion that reg 35A specifically authorised the action taken under the rule it authorised. I am unable to distinguish that situation from the one obtaining where ss 12 and 13 of the ANA (and ANR regs 255 and 258(1)) require compliance with ASAs but any rate fixing provision is contained only in a particular ASA itself.

178    The result of Ku-ring-gai is that the approach of either of the judges in the majority leads to the conclusion that s 51(1)(a) would not have exempted conduct of Garuda and Qantas in reaching an agreement on rates under Art 6(2).

179    That, however, is not the end of the matter. Garuda submitted that such an outcome would place Australia in breach of its obligations to Indonesia under the Australia-Indonesia ASA and the Court should be slow to interpret domestic legislation in a way which resulted in a breach by Australia of its international obligations.

180    I do not think that I should lightly conclude that Australia was in breach of the Australia-Indonesia ASA. During the trial, the question of whether the Commonwealth was cognisant of the treaty implications of the arguments which were being advanced by the Commission was expressly raised. The Commission’s position was that whilst it did not represent, or at least was not, the Commonwealth, those parts of the Commonwealth which should be informed that its submissions in this case involved treaty implications had been informed that this was so. I am dubious about the first proposition in the present context but, in light of the second, consider myself at liberty, if necessary, to consider the legality of Australia’s position.

181    For present purposes, I do not propose to draw a conclusion on this issue. I will, however, assume in Garuda’s favour that its submission is correct and that the application of Pt IV of the TPA to Qantas and Garuda and thereby the imposition of a prohibition by domestic Australian law on what both nations had agreed should occur by way of rate fixing under Art 6(2), is a breach of Australia’s obligations under public international law. I emphasise, so that there can be no doubt, that this is an assumption and not a conclusion.

182    Making that assumption does not, however, assist Garuda. My hands are tied in relation to the meaning of the expression ‘specifically authorised or approved’ in s 51(1)(b) of the TPA by the Full Court’s decision in Ku-ring-gai. The question in s 51(1)(a) is concerned with exactly the same expression but, purely viewed as a matter of precedent, I could in theory arrive at a different construction of the same phrase in s 51(1)(a). To do so would, however, contradict the canon of construction which requires that the same expression should be interpreted consistently throughout a section. I could do that, at least in principle, because the context might unavoidably require it. On this view, the context would include Australia’s obligation under the Australia-Indonesia ASA.

183    There would then be a tension between the need to interpret the expression ‘specifically authorised or approved’ consistently throughout s 51(1) and the need, if at all possible, to avoid putting Australia in breach of the Australia-Indonesia ASA. I have come to the conclusion that the latter principle would have to yield in this case to the need to maintain a consistent interpretation of s 51(1) but I have done so principally because of my inability to formulate a construction of the expression ‘specifically authorised or approved’ which would permit due regard to be had to the Australia-Indonesia ASA. In effect, the only way forward on this point would be to apply the dissenting reasoning of Bowen CJ to s 51(1)(a) but this would have a much larger effect than merely solving the inconsistency which arises with the Australia-Indonesia ASA. It would have the effect of permitting s 51(1)(a) to operate even where the Act or regulation in question did not specifically authorise the activity in the same way that s 51(1)(b) did. Although this would solve the problem with the Australia-Indonesia ASA it would give s 51(1)(a) a much narrower operation than s 51(1)(b). This anomaly is, I think, too much to be tolerated even allowing due regard to Australia’s international obligations.

184    For that reason, I conclude that as at 1 October 1974 it was a breach of Pt IV for the two designated carriers to engage in the rate fixing process contemplated by Art 6(2). This conclusion gives rise to a number of consequential problems which should perhaps be briefly noted, some soluble, perhaps some not.

185    The first consequence is that it means that the effect of ss 12 and 13 of the ANA (and ANR regs 255 and 258(1) on the Australia-Indonesia ASA would require compliance with Art 6(2) and, therefore, rate fixing and with it conduct contrary to Pt IV. Having concluded that Pt IV prevails in this contest, some adjustment to the ANA/ANR must be accommodated to give the two statutory schemes a harmonious operation: Commissioner of Police v Eaton (2013) 294 ALR 608 at 621 [45], [48]. The appropriate one is that s 13 (and ANR reg 258(1)) did not authorise the Minister to cancel or suspend a licence for breach of an ASA where the conduct constituting the breach was in fact required by Pt IV.

186    A second consequence is potentially more intractable. To the extent that Indonesian domestic law (or the domestic law of any other State with whom Australia has a Bermuda I style ASA) requires, as Australian law does, compliance with the relevant ASA between the two States there is a conflict between Australian domestic law and the domestic law of that other State for one requires what the other forbids. Later in these reasons, however, I conclude that neither the law nor administrative practices of Hong Kong or Indonesia required Air NZ or Garuda to collude on surcharges. This difficulty does not therefore arise for consideration in this case.

187    In any event, I conclude:

(a)    Part IV of the TPA was not excluded in its entirety by the form of the ANA and ANR as they stood at 1 October 1974; and

(b)    as at that date the existence of Art 6(2) of the Australia-Indonesia ASA and s 13 of the ANA (and ANR reg 258(1)) did not require or authorise Garuda to breach Pt IV of the TPA and Pt IV applied to any rate fixing conduct engaged in under that Article.

3.4 Did the Air Navigation Act 1920 operate inconsistently with the Trade Practices Act 1974 in the period 2001-2006?

188    The primary question which arises in this litigation is not concerned, however, with the form of the ANA/ANR as at 1 October 1974. It is instead concerned with that legislative rÉgime as it stood in the period between 2001 and 2006 when the contraventions are alleged to have occurred. Apart from some minor peripheral matters such as relocation and renumbering the ANA, at least in so far as price fixing is concerned was essentially, if not precisely, identical to that which had obtained in 1974. Section 13 was amended by the Air Navigation Amendment Act 1989 (Cth) s 3 to permit the Secretary to vary the terms of a licence, a power which had previously been lacking. New penalty provisions were inserted into s 12 of the ANA by the Transport and Communications Legislation Amendment Act (No 2) 1992 (Cth), s 5 for flying without a licence and, in addition, the application of s 12 of the ANA was extended to Australian airlines (curiously this does not appear to have been a feature of the legislation before 1992). Additionally, s 16(1) of the ANA by force of the Transport and Communications Legislation Amendment Act (No 2) 1992 (Cth) s 10 now imposed on the licence a condition that the owner, operator, hirer or pilot must comply with ‘all applicable laws of the Commonwealth or of a State or Territory’. Contrary to the submissions of the Commission, I do not accept that s 16(1) of the ANA as amended advances matters very far. Part IV of the TPA is either applicable by force of s 51 or it is not. Section 16 of the ANA does not throw any light on what the ‘applicable’ Commonwealth laws are; it just imposes compliance with them as a licence condition with the sole effect being that a breach of such a law would then authorise cancellation or suspension of a licence as well as whatever remedies are provided for by the Commonwealth law in question.

189    Perhaps more significant were the changes made to ANR reg 106A (which, it will be recalled, required lodgement of a tariff by an international airline and which prohibited discounting from that tariff). Regulation 106A was renumbered on 29 March 1999 by the Air Navigation Amendment Regulations 1998 (No 1) (Cth) Sch 3 and became reg 19 but, again, this was not materially different to reg 106A. On 20 December 2000 however, reg 19 was itself amended by the Air Navigation Amendment Regulations 2000 (No 3) (Cth) and was substituted with a new reg 19 which permitted, but did not require, lodgement by an airline of its tariff which the Secretary could in his or her discretion approve, reject or vary by subjecting it to conditions. The prohibition on discounting ceased to be a feature of the regulation. As noted far below at [1247] the Commonwealth formally announced in September 1981 that it would not prosecute that offence.

190    Significantly, under additional ANR reg 19A, if the Secretary did not make a decision under reg 19(1) within seven days of the lodgement of the tariff it was deemed to have been approved by reg 19(4). The practical operation of regs 19 and 19A was one in which airlines were not obliged to lodge a tariff, but, should they choose to do so, the tariff would be approved if no decision was taken within seven days. In any event, any tariff approved had no legal effect on the rates which an airline could charge.

191    Since I have already concluded that reg 106A (and therefore reg 19) was not inconsistent with Pt IV of the TPA these developments are, so it seems to me, of no great moment. Of much greater significance, however, are the amendments to s 51 of the TPA brought about by the Competition Policy Reform Act 1995 (Cth). This statute (by force of s 15) re-enacted s 51(1) of the TPA by altering its layout. Subsection (1)(a) and (1)(b) as amended read:

51 Exceptions

(1)    In deciding whether a person has contravened this Part, the following must be disregarded:

(a)    anything specified in, and specifically authorised by:

(i)    an Act (not including an Act relating to patents, trade marks, designs or copyrights); or

(ii)    regulations made under such an Act;

(b)    anything done in a State, if the thing is specified in, and specifically authorised by:

(i)    an Act passed by the Parliament of that State; or

(ii)    regulations made under such an Act;

192    This amendment to s 51(1) had no effect upon its meaning. This is not so, however, in the case of ss 51(1A) and 51(1C). These were in the following terms:

51 Exceptions

(1A)    Without limiting subsection (1), conduct is taken to be specified in, and authorised by, a law for the purposes of that subsection if:

(a)    a license or other instrument issued or made under the law specifies one or both of the following:

(i)    the person authorised to engage in the conduct;

(ii)    the place where the conduct is to occur; and

(b)    the law specifies the attributes of the conduct except those mentioned in paragraph (a).

For this purpose, “law” means an Act, State Act, enactment or Ordinance.

(1C)    The operation of subsection (1) is subject to the following limitations:

(a)     in order for something to be regarded as specifically authorised for the purposes of subsection (1), the authorising provision must expressly refer to this Act;

[emphasis in original]

193    These amendments are antithetical to Garuda’s basic contention. I have already concluded that the ANA/ANR rÉgime as at 1 October 1974 did not specifically authorise or approve rate fixing behaviour by Garuda or Qantas in consequence of the form that s 51 of the TPA had in 1974. With the insertion of the new s 51(1C) into the TPA by the Competition Policy Reform Act 1995 (Cth) Garuda’s argument becomes even more difficult for on no view did the ANA/ANR rÉgime expressly refer to the TPA. Further, although I have already rejected Garuda’s argument based upon reg 106A, its complete deletion from the legislative rÉgime by 2001 makes Garuda’s arguments in that regard unsustainable.

194    Garuda also submitted that it was required to engage in rate fixing under Art 6(2) of the Australia-Indonesia ASA by the very terms of its licence. This was an unattractive submission in so far as the legislative rÉgime stood in 1974 for, as I have already indicated at [183], the presence of such a licence condition could not have been a specific authorisation or approval under the ANA/ANR. After the passage of the new s 51(1C) in 1995, the same problem existed now further exacerbated not only by the fact that the ANA/ANR did not expressly refer to the TPA but also by the fact, leaving that problem to one side, that Garuda’s licence did not refer to it either.

195    That conclusion makes it unnecessary for me to determine whether, in fact, Garuda’s licence did contain such a condition. In the interest of completeness, however, I will state my conclusion that I do not think that it did. The only licence placed before the Court by Garuda (or the Commission) was one dated 12 December 1994. It was in the following terms:

DEPARTMENT OF TRANSPORT

LICENCE No. 94/218

INTERNATIONAL AIRLINE LICENCE

Authority: Air Navigation Regulation 191(3) and 193

Pursuant to Section 12 of the Air Navigation Act 1920.

GARUDA INDONESIA AIRWAYS

being a designated airline of

THE GOVERNMENT OF THE REPUBLIC OF INDONESIA

is hereby licensed to operate scheduled international air services over and into Australia in accordance with the

AGREEMENT BETWEEN AUSTRALIA AND INDONESIA FOR AIR

SERVICES BETWEEN AND BEYOND THEIR RESPECTIVE TERRITORY

AS AMENDED

signed at Sydney on 7 March 1969 and arrangements made pursuant to that Agreement.

2.    The services shall be operated in accordance with capacity and frequency entitlements on routes specified in the aforesaid Agreement and arrangements made pursuant to that Agreement, and such timetables as are from time to time approved by the Secretary to the Department of Transport.

3.    The licensee shall comply with the relevant provisions of the Air Navigation Act 1920, the Air Navigation Regulations, the Civil Aviation Act 1988 and the Civil Aviation Regulations.

4.    Subject to the provisions of the aforesaid Agreement and arrangements made pursuant to that Agreement, this licence is valid until it is cancelled or suspended in accordance with the Air Navigation Act 1920 and the Air Navigation Regulations.

5.    This licence is issued subject to the condition that the licensee continues to operate scheduled international services.

6.    This licence will come into effect on the thirteenth day of December 1994.

Dated this 12th day of December 1994

John Kerr

Assistant Secretary

International Relations Branch

Aviation Division

Delegate of the Secretary to the Department of Transport

196    The curious will note the reference to ‘a designated airline’ of Indonesia in the second line of the licence which is consistent with the Exchange of Notes done on 16 August 1986 which permitted (or perhaps more accurately assumed) that each State could designate more than one airline.

197    The textual question which arises is whether the licence is reciting that it has been issued in accordance with the Australia-Indonesia ASA or whether, instead, the licence to operate conferred by it is one which is subject to a condition that the scheduled air services to which it refers must be carried out in accordance with that ASA.

198    Garuda stressed the prominence of the licence condition and both parties traded blows on what might properly be gleaned from the apparent absence of a numbered paragraph 1. I do not think very much is to be obtained from such matters. The difficulty is that the licensing condition is ambiguous. It is not clear whether the words ‘in accordance with’ govern the phrase ‘is hereby licensed’ or the phrase ‘to operate scheduled international air services’. The actual location of this ambiguous expression on the page constituting the licence does not seem to me to affect, one way or the other, the resolution of its ambiguity and I do not think that the absence of paragraph number 1 tells one much either.

199    That said, three matters incline me to the view that the proper construction of the licence is that the words ‘in accordance with’ refer to the issue of the licence rather than a condition imposed by it upon carriage. The first is that the existence of an ASA is the sine qua non for the issue of a licence. The power of the Director-General to issue a licence is constrained by the necessity for there to be a relevant ASA or Air Transit Agreement (see ANA s 12(2)). This may suggest that it would be natural for a licence to recite one of the jurisdictional prerequisites for its own existence.

200    Secondly, the imposition by the Director-General of a requirement that a licence holder comply with the terms of the ASA is unnecessary for s 13(b) of the ANA already requires the relevant airline to comply with the ASA upon pain of forfeiture of the licence. I do not mean to suggest, thereby, that the power to impose conditions did not extend to the imposition of a condition requiring compliance with the ASA (although that may be arguable). Rather, the point is that when construing an ambiguous part of the licence it is relevant to observe that one of the proposed readings appears to involve a redundant obligation.

201    Thirdly, the terms of the licence contain further redundancies if the opening words are read as imposing a condition upon Garuda’s operations that it comply, as a licence condition, with the terms of the agreement. In particular, paragraph two would then unnecessarily require compliance with other aspects of the same agreement.

202    In those circumstances, I conclude that Pt IV of the TPA applied to Garuda’s conduct between 2001 and 2006 and neither the terms of the ANA/ANR at that time nor the terms upon which Garuda’s licence was issued to it, brought about any different result.

203    Part of Garuda’s response to this form of the Commission’s argument was to retreat to the proposition that ss 51(1)(a) and 51(1C) of the TPA did not, on the passage of the Competition Reform Act 1995 (Cth), bring international civil aviation within the purview of Pt IV because Pt IV, at least as originally enacted, had never extended to the regulation of international civil aviation in the first place. It was said that s 51(1C) could not alter what had been the original meaning of Pt IV of the TPA in 1974. It was, in that sense, irrelevant.

204    It will follow from my conclusion that Pt IV did apply to international civil aviation in 1974 that the premise upon which this argument rests fails. In any event, it seems to me that even if that were not so, s 51(1C) must have been ambulatory in effect and, if necessary, had the effect of expanding in 1995 Pt IV’s operation into fresh fields. Regardless, I have concluded that the fields were not fresh.

205    Garuda’s submission was principally directed to Art 6(2) of the Australia-Indonesia ASA. A similar argument is, at least theoretically available, for Garuda’s and Air NZ’s direct flights from Hong Kong which were governed by the terms of the Agreement between the Government of the Commonwealth of Australia and the Government of Hong Kong concerning Air Services, signed 15 September 1993, [1993] ATS 28 (entered into force 15 September 1993) (‘the Australia-Hong Kong ASA’). This agreement, at least in relation to this topic, did not feature heavily in this litigation. Article 7(3) of the Australia-Hong Kong ASA provided as follows:

The tariffs referred to in paragraph (2) of this Article may be agreed by the designated airlines of the Contracting Parties seeking approval of the tariffs, which may consult other airlines operating over the whole or part of the same route before proposing such tariffs. However, a designated airline shall not be precluded from proposing, nor the aeronautical authorities of the Contracting Parties from approving, any tariff if that airline shall have failed to obtain the agreement of the other designated airlines to such tariff, or because no other designated airline is operating on the same route. Reference in this and the preceding paragraph to “the same route” means the route operated, not the specified route.

206    Article 7(3) did not invoke IATA rate fixing machinery but it did authorise, if not require, agreement between designated airlines by the seeking of tariff approval. However, as the discussion above indicates, the outcome of any collision between the terms of an ASA to which Australia is party and Pt IV in the period 2001 to 2006 is that the latter prevails. Even assuming that Art 7(3) of the Australia-Hong Kong ASA rises as high in its effect as Art 6(2) of the Australia-Indonesia ASA (a doubtful proposition) this has no impact on the outcome of that question. A similar conclusion attends the position of the Hong Kong-Indonesia ASA Agreement between the Government of Hong Kong and the Government of the Republic of Indonesia Concerning Air Services, signed 6 June 1997, [1981] I-33911 (entered into force 27 June 1997) which Garuda invoked for flights between Hong Kong and Indonesia. I reject also, for the same reasons, Air NZ’s parallel arguments about its position in Hong Kong.

3.5 The application of the Trade Practices Act 1974 to bundles of contractual rights

207    Garuda submitted that it did not provide the service of flying cargo (or presumably passengers) from one location to another. Instead the service provided by it to its customers was said to be the bundle of contractual rights which arose on the ‘cutting’ of an AWB. The price fixing alleged against Garuda was the fixing of a price for a service, whereas, in fact what had occurred (if it was ultimately established) was price fixing in relation to a contractual right. Put another way, what the customers were buying were contractual rights relating to a service, i.e. carriage. Section 45A was only concerned with price fixing for services and not in relation to contractual rights.

208    The basis of Garuda’s startling submission that it did not provide the service of flying cargo from one locale to another was the High Court’s decision in Commissioner of Taxation v Qantas Airways Ltd (2012) 247 CLR 286. In that case it was held that Qantas did not supply the service of flying passengers from one location to another on aircraft but instead only the service of providing a bundle of contractual rights on the purchase of a ticket (for the purposes of the GST legislation). It is very unlikely that the High Court’s reasoning applies outside the context of GST legislation. In any event, the argument fails even on its own terms. A supply of contractual rights is a supply of a service under the TPA for ‘services’ in s 4 includes ‘rights’.

209    I turn then to the airlines’ contention that the TPA did not apply due to an absence of a market in Australia.

4 WAS THERE A MARKET IN AUSTRALIA?

210    In order to succeed the Commission must show that fixing the levels of the various surcharges had the purpose, or was likely to have the effect, of substantially lessening competition in a ‘market in Australia’: s 4E. The airlines contended that whatever else might be said, the markets for airborne cargo out of Hong Kong, Singapore and Indonesia were not ‘in Australia’. I propose for now to put the position of Singapore and Indonesia to one side and to return to them only after I have dealt fully with the position of Hong Kong.

211    The operation of s 4E in respect of markets not wholly located in Australia has not yet been authoritatively settled in this country. A quartet of interlocutory determinations has established that a market need not be wholly in Australia to be ‘in Australia’ but none of these have involved any application of s 4E to facts found at trial: see Riverstone Computer Services Pty Limited v IBM Global Financing Australia Ltd [2002] FCA 1608 at [21] per Hill J (discovery); Australian Competition and Consumer Commission v Qantas Airways Limited (2008) 253 ALR 89; [2008] FCA 1976 at [33] to [36] per Lindgren J (penalties); Emirates v Australian Competition and Consumer Commission (2009) 255 ALR 35; [2009] FCA 312 at [55], [74] per Middleton J (s 155 notice); Auskay International Manufacturing and Trade Pty Ltd v Qantas Airways Limited (2010) 188 FCR 351 at [33] to [47] per Jessup J, Moore and Dodds-Streeton JJ agreeing (pleadings). The explanatory memorandum which accompanied the Trade Practices Bill 1974 (Cth) on its introduction suggested that, as with s 5, the expression ‘market in Australia’ controlled the extraterritorial reach of the Act: see paragraph [87]. The airlines submitted that the nature of s 4E as a territorial limitation might require that the words ‘market’ be given a confined construction in s 4E on the grounds that this was necessary to observe the requirements of international comity. Without such a reading, so it was put, Pt IV might well interfere with the sovereign powers of Hong Kong by penalising conduct which was either lawful or required under its domestic laws. The conclusion I have reached is that that orthodox approach required by the current state of Commonwealth law requires the rejection of the Commission’s case so that this question does not arise.

212    The initial question then is one of market definition. A market is an area of close competition between firms or the field of rivalry between them. What is in this field? In this field or area substitution in response to competitive pressures occurs. Movements in price or the standard of goods or services which take place outside the field or area will induce no significant competitive consequences inside it. To give an example, an increase in the price of Coco Pops may cause some consumers to switch to other types of breakfast cereal such as muesli but none of them, aside from a small class of outlying eccentrics, is likely to switch to fish fingers. Breakfast cereals are certainly in one market and fish fingers in another (although both markets may be distinct sub-markets in a larger market, that for groceries). Whether the market in question is limited to breakfast cereals depends upon whether consumers might respond by switching to something else confronted with price or quality changes in cereals. Maybe instead there is a breakfast food market consisting of cereals, bacon, eggs and sausages but whether this is so will depend upon whether these are reasonable substitutes. The boundaries of the area or field are marked, therefore, by the limits of substitution. This concept may be dressed up in various lingual variations none of which differ as a matter of substance: see, for e.g., Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 (‘QCMA’) at 190; Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 195-196 per Deane J and 199 per Dawson J; Re Fortescue Metals Group Ltd (2010) 271 ALR 256 at 419.

213    The concept of substitution is basic to the process of market definition and ‘market’ is defined in s 4E in a way which confirms this. That definition shows that in so far as Australian law is concerned it is relevant to consider not only demand side substitution (such as occurs when the consumer above switches from Coco Pops to muesli) but also supply side substitution. This phenomenon occurs when firms not presently providing the goods or services in question find it profitable to enter the field of rivalry and provide them. A price increase or quality decrease in Coco Pops may tempt another manufacturer of rice crispies into coating them with cocoa and setting them up as a Coco Pop alternative. Put more formally, products are substitutes in demand if purchasers will switch between them in response to a change in price, output or the cumulative package of goods and/or services offered. Products are substitutes in supply if other producers of those products will use their existing capacity to switch between production of those products (either generally or at specific locations) in response to competitors’ changes in price or output or if other firms can competitively enter the market (which involves an assessment of the relevant barriers to entry): see Re Tooth & Company Limited and Tooheys Limited (1979) 39 FLR 1 at 38 per Keely J and Shipton and Brunt MM.

214    How strong must the substitution effect be? It must be ‘strong’ which is alternatively expressed as requiring ‘close competition’. Questions of degree and evaluation are unavoidably involved. Underlying these notions is the idea that the existence of substitutes operates to restrain the market power of those who are in the market: the price of Coco Pops is constrained by the price of Rice Bubbles and Corn Flakes; it is not constrained by the price of fish fingers or bicycle pumps. Whether the price of Coco Pops is also constrained by the price of sausages will involve assessments of matters of degree. Further, the price of Coco Pops is also constrained by the ever-present risk of opportunistic predatory behaviour by other cereal manufacturers. All of those questions are ones of fact.

215    Part IV of the TPA is concerned with the promotion of competition: see, for example, TPA s 2 and Moral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 at 391. The interests of competition and consumers will often coincide but not everything which is bad for consumers is necessarily anticompetitive nor is the converse invariably true. Although barriers to entry restrict competition, not all such barriers are bad for consumers. Consumers would not be aided by allowing anyone to practice surgery although prices would probably drop. So too, although consumers are disinclined to favour increased costs, a mere price rise is not by itself a sign of anticompetitive behaviour or market inefficiency.

216    The purpose of market definition is to provide ‘a tool to facilitate a proper orientation for an analysis of market power’ see Professor Maureen Brunt, ‘Market Definition Issues in Australian and New Zealand Trade Practices Litigation’ (1990) 18 Australian Business Law Review 86. Usually it is approached, as I will approach it, by seeking to ascertain its product, geographical and functional ‘dimensions’. These terms are not mentioned in the TPA but economists, tribunals, regulators and judges all appear to accept them as useful conceptual tools for analysing markets and market power.

217    The product dimension is the ‘what’ question; the geographical dimension is the ‘where’ question; and the functional dimension is concerned with the location of market participants along the supply chain.

218    Three economists were called to assist in the resolution of these and related issues: Professor Church, Professor Gilbert and Dr Williams. They each agreed that market definition begins by identifying a product and location based on the alleged anticompetitive conduct although Dr Williams thought some other matters needed to be attended to before that step was taken. Dr Williams thought it necessary first to identify a putative set of activities and then to identify the material constraints on those activities.

219    The basic difference in these approaches is that Dr Williams’ methodology brings to the front of the debate the possibility of downstream switching behaviour by importers into Australia whereas this was thought by Professors Church and Gilbert properly to belong in a functional analysis. Since I propose to examine that issue I see little profit in working out the taxonomic issue of where the enquiry properly belongs. It is useful to begin with the product dimension.

4.1 The product dimension

220    The expert witnesses agreed that the product dimension of the market identifies competing products, that is, products which are reasonably good substitutes. In that regard, and consistently with the authorities in this Court, each expert thought that the hypothetical monopolist test (‘HMT’) was an accepted methodology for market definition. Through the lens of the HMT the relevant product market was generally the smallest collection of products or services such that a hypothetical monopolist over those products would find it profit maximising to impose a small but significant and non-transitory increase in price (a ‘SSNIP’) on at least one of the products or services.

221    The appropriate place to start then is with the identification of the relevant product dimension using, if necessary, a SSNIP to help clarify the situation. One should put aside at the outset the debate between the parties as to whether the airlines provided ‘air cargo services’ or ‘air freight services’. The difference between the parties in this terminological battle related to the identity of the persons seeking the service. I resolve that issue a little later in this section, concluding that the customers were principally freight forwarders but that there were also large shippers who had substantive relations with the airlines. Since I do not think a terminological battle adds much enlightenment to the debate once that factual finding is made, I will use the expressions interchangeably and as connoting no difference.

222    The remaining and substantive debate between the Commission and the airlines was fourfold. The questions were:

(a)    What were the relevant routes? The Commission contended that there was a market for airfreight services from Hong Kong to ports outside Hong Kong, that is, a single market for all cargo flights originating from Hong Kong to anywhere in the world (including Australia). Alternatively, it submitted that there was a market for air cargo services from Hong Kong to anywhere in Australia. Finally it contended for individual markets from Hong Kong to individual ports in Australia. The airlines saw the relevant markets as being route specific;

(b)    Was mail included in the relevant markets? The Commission argued, but the airlines denied, that the relevant markets included the carriage by air of mail;

(c)    Were chartered flights included in the relevant markets? The Commission submitted that the relevant market included specially chartered flights in addition to regular scheduled flights; and

(d)    Was the use of integrators to be included in the relevant markets? The Commission submitted that the services provided by integrators were also in the relevant market.

223    It is convenient to deal with these in the order set out above.

4.1.1 What were the relevant routes?

224    The Commission’s primary contention was that there was a Hong Kong originated market which described routes over which air freight services were supplied and acquired between Hong Kong and ports in other countries (including ports in Australia) both by direct routes and by indirect routes via intermediate ports. As will be seen, the fuel surcharges themselves were agreed between the airlines in relation to all destinations outside Hong Kong so, in a sense, the Hong Kong originated market is a sensible place to begin the process of analysing the product dimension of the market.

225    The airlines emphasised that on the demand side it was difficult to see that anyone who wanted to fly cargo from Hong Kong to London would be satisfied by freight services from Hong Kong to say, Buenos Aires, a point not without some force. The Commission submitted that this criticism paid insufficient attention to supply side substitution. It particularly drew my attention (more than once) to the Full Court’s decision in Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (2010) 188 FCR 351. In that case, which was concerned with the adequacy of a pleading, the primary judge struck out a pleading of a global market for airfreight services. The airlines specifically made the submission in that case that the market could not be global because customers would not be satisfied with carriage to any different destination to the one each had initially wanted. The Full Court concluded that the primary judge had erred in accepting that proposition. The reasons of the Court were given by Jessup J in these terms (367 [44]-[45]):

44    The same reasoning may be applied to the transport of goods by air. A customer would never accept the transport of his or her goods from Melbourne to Tokyo as a substitute for transporting them from Melbourne to Boston. But, if there were suppliers who would, given a sufficient price signal, devote their resources to the former in preference to the latter, those suppliers should be regarded as doing business in the same market. From the supply side perspective, the Melbourne-Tokyo service should be regarded as a substitute for the Melbourne-Boston service. And the same conclusion would apply with respect to the example given by the primary judge, namely, the potential for a Hong Kong to Moscow service to be a substitute for a Dubai to Sydney service. By “service” here I use, of course, the economic rather than the operational sense of the word: the service is the product supplied by the carrier, not merely the identification of the route followed by a particular aircraft.

45    For the above reasons, I consider that his Honour was in error in two related respects in the approach he took to the applicant’s allegation that there was a global market. His Honour ought not to have treated the routes followed by aircraft as effectively defining the service which was supplied by the respondents; and he ought to have recognised that the applicant’s factual case was that there was global supply-side substitutability for the provision of airfreight services, however improbable that circumstance may appear at this interlocutory stage of the proceeding.

226    Earlier in his Honour’s reasons Jessup J had identified an error in the primary judge’s treatment of routes as constituting a market saying (at 365 [39]):

39    I agree with his Honour that para 34 comprehends “a myriad of routes”, but I consider, with respect, that his Honour’s next proposition — that all of those routes could not “possibly be said to form part of the same market” — answers the wrong question. The question was not whether different routes could form part of the same market, but whether different carriers might supply, or seek to supply, any one service. The way it is put in para 34(a) of the Fourth Amended Statement of Claim is that the different carriers could supply the service of transporting airfreight between any one hub and any other hub. It is as clear as may be from the pleading that their ability to do so does not depend on them operating aircraft over the route which runs directly between those hubs. When understood in this sense, what his Honour described as a “myriad of routes” is no more than an operational circumstance by which any two or more carriers might compete to provide the same service. It does not, with respect, imply the existence of “thousands of discrete markets”.

227    The Commission is, of course, correct to draw attention to supply side substitution but the evidence does not permit me to make any findings about it. My attention was not drawn to any particular route for which such substitution was said to be possible. It was not, for example, suggested that I should examine the Hong Kong to London route to see if airlines providing that service could also provide services along the Hong Kong to Sydney route.

228    At an instinctive level it is perhaps not too difficult to imagine that an airline flying, for example, from Hong Kong to Denpasar might be able to provide the service of flying cargo from Hong Kong to Sydney or perhaps from Hong Kong to Los Angeles. But this vague impression does not provide a secure basis for finding that firms flying cargo from Hong Kong to any one destination outside of Hong Kong could readily switch to providing the service of flying cargo from Hong Kong to any other destination outside of Hong Kong. Not the least of the problems facing such a contention is the fact, agreed between the parties, that it is predominantly passenger traffic and not cargo volume which dictates the routes selected by airlines (see [81]). The ability to switch to providing a service on a particular route is for bellyhold airlines and, to an extent, combination airlines therefore constrained by passenger volumes and not pricing considerations in the cargo market (see Section 2.8).

229    Further, it will matter considerably where the origin or destination airports fit into the putative supply side entrant’s network (see Section 2.8). Qantas may fly to London but opening a London – New York service for it is by no means a plausible network decision.

230    Then there are other unexplored barriers to entry such as the ability of the proposed supply side entrant to obtain the regulatory approvals necessary from the relevant States. As discussed in Section 2.5.3 any airline opening up a new route needs to obtain regulatory approval. At least in Australia, that approval process involves an assessment of the public interest. There are significant difficulties for entrants on some routes; cf. the Sydney to Los Angeles route where trade issues constrain the number of airlines entitled to fly. Further, there are other issues such as the ability of the proposed supply side entrant to obtain landing slots at the airports in question (see Section 2.7) and also issues about airport infrastructure. I do not suggest that any of these have a particular answer. The point, rather, is that before one could say anything meaningful about supply side substitutes one would need to gauge these effects. This evidential deficiency is not, with respect to the Commission, addressed by repeated incantations of Auskay. Nor is the absence of evidence about these matters cured by suggesting that air transport markets should be defined by aggregating routes operated on a continent-to-continent basis. No doubt this was done by the European Commission in Case No COMP/M.5141 – KLM/Martinair (European Commission decision of 17 December 2008) at [35]-[39] but what was before the Commission was not before me. Here the problem is not a lack of theoretical possibilities; it is an absence of any attempt to address how these factors would have affected the plausibility of a supply side entrant.

231    The next market alleged was more focussed and consisted of those firms transporting cargo by air ex Hong Kong into Australian airports.

232    The evidence does not satisfy me that freight forwarders or other participants regarded flights from Hong Kong to one city in Australia to be substitutable for flights to another city in Australia. In a vacuum it is difficult to see that a consignee or freight forwarder would be satisfied with having goods shipped to Perth which were intended for Sydney. In order to assess this properly, however, it would be necessary to know what transport options were available between the various airports in Australia and their relative pricing structures.

233    There was evidence that on occasion the airlines themselves would transport cargo by truck between Melbourne and Sydney, Melbourne and Adelaide, and Sydney and Brisbane. However, these trucking services were provided as an aspect of the air service which each airline itself had provided. In order to be satisfied that a service provided from Hong Kong to Melbourne was, or could be, a reasonable substitute for a service provided from Hong Kong to Sydney I would need to know something about the costs of shipping cargo between Melbourne and Sydney. I was taken to no evidence about this beyond the airlines own trucking arrangements which, for the reason I have given, I do not think is material.

234    In those circumstances, I cannot conclude that there was demand side substitutability. Still less does the evidence establish supply side substitutability. Here, following Auskay, the question must be whether airlines flying on individual routes from Hong Kong to a given port in Australia could provide the service of flying from Hong Kong to a different port in Australia. Again there is simply no way on the evidence I could assess this. I do not know the proposed airlines, their location, the regulatory constraints on their entry in the market or the landing slot situation. This assessment would also need to include an analysis with respect to the operation of the demand of passenger flights and its impact on cargo. Accordingly, I cannot find any supply side substitutability. In those circumstances, I cannot accept the existence of a Hong Kong to Australia market.

235    I do, however, accept that there could be individual markets from Hong Kong to individual airports in Australia. Customers may switch between the airlines providing services on any given route. I am far from clear which ports in Australia were involved but I am prepared to assume that they include at least Sydney, Melbourne, Perth and Brisbane. Further, given the way the cargo market is arranged I do not have any difficulty in accepting that between these ports indirect routes were reasonable substitutes for direct routes.

4.1.2 Was mail included in the relevant markets?

236    The Commission contended that the relevant product included the carriage of mail by air. This was denied by the airlines. The first question which arises is whether the service of flying mail from Hong Kong to any given port in Australia is a close substitute for the service of flying cargo on the same route (i.e. a demand side analysis). My attention was not drawn to any information either about the kinds of items which might be sent by mail or the cost of doing so. The airlines submitted that from the consumer’s perspective they were not substitutable services. Certainly if the service of flying mail consists only of flying envelopes this may well be true. There was no attempt in any of the parties’ submissions to explain what the mail service was although the Commission did refer me to a postal agreement between Garuda and the International Postal provider (PT POS Indonesia) dated 28 April 2006. That agreement defines that expression ‘postal item’ to mean as follows:

Is a postal satchel containing a collection of postal letters and/or goods, excluding dangerous goods, perishable goods and live animals, of a certain shape and size with a maximum weight of 30 kgs which is properly closed and sealed (sealed), accompanied by postal item (postal item) shipping advice (carrier register), and transferred by POS to Garuda to be transported and transferred to an agreed upon place.

237    This certainly seems to contemplate that categories of goods up to 30 kilos could be carried through the postal system. Much more than that from the agreement I cannot tell.

238    Mr Gregg of Air NZ also gave evidence explaining the materially different ways in which mail was handled by airlines in comparison to cargo. I accept this aspect of his evidence.

239    None of this tells one very much about the question of substitutability. The top five categories of imports from Hong Kong into Australia in the period 2004 to 2006 were:

Motors, appliances, radio, TV

22.98%

Engines and machines

13.32%

Clothes and others

9.35%

Clothes – knitted

7.71%

Books, paper, art

6.51%

240    In order to assess substitutability one would need to have some idea as to the extent to which items of that kind could be put through the postal system. It is, for example, far from obvious to me that one could send a television by post although books and paper obviously could be sent in this fashion. What is not obvious is whether items which could obviously be sent via post as a matter of practicality, would in fact be sent by post in the context of a SSNIP.

241    The airlines submitted that the freight forwarders had no access to the mail system (that access being limited to national postal providers). That argument assumes that the relevant functional aspects of the market include only the freight forwarders. It is possible (I do not say correct) to take a broader view and to ask whether consignors might choose to send items by post rather than by airfreight if confronted by an unacceptable increase in freight rates. If one took that view I am certainly able to grasp that some consignors might switch their sending practices. Persons sending a small fluffy toy from Hong Kong to Sydney to their grandchild might find, at a particular price point, that it was cheaper to put the item into the post. But that observation conceals so many unknown factors that it lacks any useful content from my perspective.

242    I do not know what the cost of postage rates are (or were at the relevant time). I do not know who the consignors were. Nor what their particular importation needs were. I do not know whether the postal system will accept significant shippings of consumer items (in terms of load). Assuming that the 22.98% of Hong Kong to Australia air imports consisting of motors, appliances, radios and TVs was mostly destined for wholesale markets, I do not know whether it could plausibly be put through the postal system. I do not know what the insurance arrangements might be on such items if sent by post although I am sure that the question of insurance is very important in the business of importing goods into Australia.

243    These uncertainties are only the ones which emerge on a brief examination of the problem. In light of just those problems, I cannot be satisfied that from the demand side the service of moving mail from Hong Kong to an Australian port was a close substitute for air freight between those places.

244    The Commission’s answer to this was, once more, that it painted an incomplete picture since it failed to give attention to supply side substitution. It was said that in terms of supply, capacity or space mail was substitutable for other types of cargo. That of course is not the question. The issue is not whether the capacity or space to carry mail is substitutable with cargo, but rather, whether those providing the service of carrying mail can operate to hinder a SSNIP in the cargo market either by offering up mail services in direct competition with air cargo or alternatively making some modification to the mail service allowing it to compete directly with air freight. Mr Gregg gave evidence that mail was an important source of revenue for Air NZ and that it ‘could’ compete with other kinds of cargo. But, for the same reason, this does not seem to me to be the correct question.

245    Once that is appreciated, the Commission’s factual contention that cargo and mail competed for space in the holds of planes seems to me to be beside the point. In a sense passengers and mail compete for space on a plane but it would be more than odd to suggest that they were in the same market.

246    Once the correct supply side substitution question is posed, i.e. could mail carriers restrain a SSNIP in the cargo market, the same difficulties which arose on the demand side analysis re-emerge. Whether mail carriers could compete with cargo carriers (leaving to one side the conceptual confusion that these are often likely to be the same entities) depends on the extent to which consumers would be willing to use the postal system, a question which has no answer on the evidence before me. Whether mail carriers could produce some new mail related service which might operate as a competitor in the cargo market is an imponderable which cannot be answered on the state of the evidence before me.

247    I reject the proposition that mail services are part of the cargo market.

4.1.3 Were chartered flights included in the relevant markets?

248    The Commission submitted that charter flights should be seen as being a close substitute for air cargo services. I accept that for consignors who were moving enough cargo to fill an entire plane chartering a flight might well be a rational response in the face of a SSNIP in the cargo market, but, with respect to the Commission, I fail to see how it was much of an option for consignors who had less than a plane load of cargo.

249    Mr Cleary’s evidence was that Qantas was able quickly and without substantial investment to provide charter services using its freighters. He instanced two examples. One was moving V8 supercars and the other was Toshiba Australia who had needed to move a large consignment.

250    I do not think that this evidence goes close to showing that the air cargo market included those firms providing charter services. In order to answer that question one would need to know if the charter flight providers could limit the ability of the cargo carriers to impose a SSNIP in the cargo market. I do not think that highly unusual chattels such as V8 supercars are the kinds of chattels which tell one anything about the air cargo market – cars, perhaps unsurprisingly, were not on the list of the top ten imports by air from Hong Kong to Australia in the period of 2004 to 2006. Normally cars are transported by sea. I accept that a plane load of cargo from Toshiba Australia tells one that a well-known electronics firm had sufficient cargo transportation needs to use a whole plane but that does not come close to telling me what I would need to know to answer the question which arises. There are so many types of cargo involved in this market that it is, in my opinion, not even speculation to point to the matters which the Commission relies upon. I conclude that chartered flight services are not part of the cargo market.

4.1.4 Was the use of integrators included in the relevant markets?

251    Integrators provide door to door services (amongst other services) generally using their own aircraft. In a sense they are a form of vertical integration between an airline and a freight forwarder. In the period 2002 to 2006 international integrators included Federal Express, TNT, UPS and DHL. The evidence of Mr Nelson was that integrators typically handled express cargo for satchels and small packages. There may be an interesting question as to whether the services of integrators are substitutable with those provided by airlines in terms of cargo. This question does not, however, arise in Hong Kong because the evidence showed that integrators did not operate on routes between Hong Kong and Australia in the period 2002 to 2006 but purchased cargo services from other airlines such as Air NZ.

4.1.5 Conclusions on product dimension

252    I conclude that the product dimension for each market consisted of the services of flying cargo from Hong Kong to individual ports in Australia. None of these markets included mail carriers, charter flight operators or integrators.

4.2 Geographical dimension

253    As foreshadowed above it is useful now to explain the service provided by the airlines, which had a number of features. In essence there were four elements:

4.2.1 Transport services

254    This consisted of the familiar service of transporting the cargo from a port of origin to a port of destination. It included the service, where necessary, of special handling requirements (for example, those obtaining with respect to perishable cargo) which could include temperature and pressure stipulation. In a broad sense it included meeting timetabling requirements. The air service might be direct (i.e. directly from origin to destination) or often enough indirect (via intermediate ports).

4.2.2 Ground handling services

255    These are provided at the origin and destination airports and any intermediate ports where the cargo is unloaded. They include getting the cargo into ULDs or pallets (if this has not been done by the relevant freight forwarder), getting the cargo to the plane, formulating a load plan and then loading the cargo. At the destination end it includes unloading the plane and storing the cargo for collection. It also includes special handling requirements for some classes of cargo (i.e. lobster, flowers and so on).

4.2.3 Enquiry services at airport

256    The relevant airline also provided services for tracing delayed or lost shipments and dealing with issues arising from damaged cargo at destination. Generally speaking the ground handling services at any particular origin airport were provided by the home airline for that airport. For example Cathay Pacific would provide ground services at Hong Kong airport but Qantas would provide them in Sydney. Airlines would typically engage third-party contractors in countries where they did not themselves provide ground handling services and, on occasion, this would be done by the home airline for that airport. This is of little moment, however, as in each case the relevant home airline or third-party contractor acted as the other airlines agents for those purposes.

257    It would be obvious that each of these services had a geographical element to it. The ground handling services were provided physically at both the origin and destination airports and the transportation service was provided along a geodesic line across the surface of the globe corresponding with the route taken by the plane. It was provided at all points along that path including over countries where the plane did not stop. The enquiry services were provided principally at the destination airport although their very nature dictated interaction with other elements of each airline’s international network.

258    So far as payment is concerned, there seems little doubt that in the vast majority of cases airlines were paid at the origin airport (i.e. Hong Kong). It was possible, as the witness Mr Sim explained, for a carrier to be paid at destination but this was very rare and I do not propose to include it in the analysis.

4.2.4 Identity of market participants

259    There was debate between the parties as to whether the participants in each market included only the airlines and the freight forwarders or also, in some cases, the shippers. The relevance of that debate was the potential influence it could have on geographical issues. There were, in essence, two debates.

260    The first concerned the correct way to consider how persons might choose to switch patronage in the face of a SSNIP in a relevant market. The airlines maintained the position that the participants were airlines in Hong Kong and freight forwarders in Hong Kong and that any withdrawal from patronage from one airline to another had to occur necessarily in Hong Kong. The only place in which one could choose which airline to fly from Hong Kong to Sydney was Hong Kong.

261    The second issue was raised by the Commission who thought it necessary to identify who made the switching decisions and having done so, to identify where those decisions were made. There were cases, so the Commission submitted, particularly in the case of large importers, where a freight forwarder did not select the airline to be used and instead this was a decision made by the downstream importer. In such cases, so the Commission contended, the switching decision happened where the importer was located which might well be in Australia.

262    The relevance of whether the shippers were market participants turned on the discipline which might be imposed on an upstream market such as air cargo by a downstream market (such as goods importers). One effect that a price increase might well have in the Hong Kong air cargo market could be to cause importers in Australia to stop importing from Hong Kong altogether. An analysis of market power in Hong Kong would therefore necessitate an assessment of that phenomenon which would be Australian in origin. It would be to encourage error not to take into account the location of the source of that effect.

263    The first issue, but perhaps not the second, requires one to identify the market participants. I do so below concluding that the decision as to which airline to use to transport cargo from Hong Kong to Australia was generally made by freight forwarders but that, on some occasions, it could be made by large importers or exporters notwithstanding that they continued to use freight forwarders. The market participants in the various markets into Australia therefore included air carriers, freight forwarders and some large importers in Australia and exporters in Hong Kong.

264    Some of these importers may well have been located in Australia. Some of them may have been located at an international headquarters in Europe. I accept that it is quite possible in the case of significant shippers that the actual decisions about importation, including when it arises, the issue of which carrier to use, need not occur at the origin. The evidence of Mr Nelson supports this view as does a moment’s reflection. Because it will be relevant when examining the functional aspects of the relevant markets it is to be observed, however, that regardless of where the event consisting of the subjective decision to switch from one airline to another might be made, the only place in which it could be given effect would be Hong Kong. The range of choices from amongst which a person might choose an airline to fly cargo from Hong Kong to Sydney is inherently limited to those firms having operations in Hong Kong. Even if there were a supply side substitute it would still have to be provided in Hong Kong.

265    I turn then to the correct approach to the functional characterisation of these markets.

4.3 The functional dimension

266    Some aspects are not in dispute. Leaving aside extremely rare occurrences (typically those involving live animals) airlines carrying cargo from Hong Kong to Australia generally dealt directly only with freight forwarders situated in Hong Kong or its nearby environs. The contractual relationship was between the airline and the freight forwarder and it was they which were the parties to the air waybill whose terms governed the carriage of the cargo.

267    The market involved, however, is a transportation market of goods many of which were destined for sale in other markets. Those goods needed to move from a place of manufacture to a place of consumption and, insofar as this involved moving between non-contiguous states (such as Hong Kong and Australia) this was likely to involve the use of air cargo services. But the carriage of goods from one state to another is more complex than mere transportation. Involved also are activities such as customs clearing, cargo preparation and transportation to the airport from the place of pickup. Ancillary to services of that kind are other services such as warehousing and bond storage.

268    Whilst integrators provide all of these services and air transport as well, many airlines have found it convenient to allow others to provide these kinds of ancillary services and to limit themselves to the essential transportation aspect of the business. It is attractive to think in familiar terms of a supply chain but perhaps a little misleading as well. The freight forwarders at origin are frequently not the same as the freight forwarders at destination (although they may be). The vertical structure of the industry was thus likely to look like this:

269    This arrangement may not be so vertical as it appears. It is true that goods travel from the top to the bottom but often enough the consignee (as importer) may be the instigator of the particular shipment which will create the situation of importation. The services provided by the freight forwarders are necessary accompaniments to the services provided by the airlines themselves and neither makes much sense without the other.

270    Quite apart from those matters there is the fact that the nature of the consignors and consignees may vary significantly. At one end, there will be those involved in single instances of exportation or importation involving often enough individual chattels. For these people, their encounter with the international system of air cargo transport is likely to be transitory. At the other end of the spectrum there will be significant exporters and importers of chattels whose very size and the volume of whose cargo signify the presence of substantial economic actors. Although the young man importing into Australia via air a single item of electronics purchased on eBay is a shipper it would, I think, invite serious conceptual confusion to place him in the same category as a large importer of computer equipment bringing in 200 pallets of machines per week.

271    The debate between the parties in relation to the functional dimension of the market was, as I have said, directed towards the issue of whether the ‘shippers’ were market participants. As I have endeavoured to show, the class of shippers is very disparate.

272    The Commission’s documentary and testimonial evidence on this issue strongly suggested that airlines, in general, regarded significant importers and exporters both as targets for their marketing activities and also as the ultimate source of business. Many of the airlines produced cargo magazines for the cargo trade and a cursory examination of these makes clear that the larger shippers were regarded by airlines, in general, as objects to be pursued. Further, the internal reporting documents for a number of airlines show that the cargo moving activities of particular shippers were the subject of intense scrutiny. These observations accord with common sense. That the airlines would compete for volumes of cargo directly from large shippers is, with respect, obvious.

273    Air NZ contested this conclusion. It accepted that the Commission’s evidence did suggest that some shippers were market participants but it denied that the Commission’s evidence related to the relevant markets, that is, to routes out of Hong Kong and Singapore to Australia. To make evidence relating to other ports and other routes relevant the Commission would need to prove, so the argument ran, that the competitive conditions in all of the markets upon which the Commission’s evidence touched were the same.

274    The Commission began its submissions by noting that the marketing reports of Air NZ and other airlines showed that they considered themselves to be carrying loads or volumes for particular shippers. The Commission pointed to Singapore Airlines’ (‘SQ’) cargo marketing report for Japan for January 2003. This report contains the statement ‘the bulk of the loads come from Sanyo Ex OSA and, to a lesser extent, Yamaha and Toyota Ex NGO’. This certainly shows that SQ was focussed upon shipper traffic in the business conducted by it out of Japan. I do not think however, that I can reason directly from the state of the Japanese market to the position in the Hong Kong market.

275    The Commission relied upon Air NZ’s cargo monthly report for May 2004 for the Asia Japan region. Interestingly, this report dealt with traffic both out of Hong Kong and Japan. Under the heading ‘Market Demand’ it refers to ‘Sony/Panasonic/Xerox traffic volume increased after golden week holiday (29 Apr to '05 May 04)’. This report does not make clear where this cargo was going. But I can see no reason not to infer from it that Air NZ, at least, was focussed on large shippers in markets including Hong Kong.

276    An internal Cathay Pacific email dated 30 July 2004 has a section headed ‘major shippers activity’ under which it was said ‘Sharp has been shipping over 300 sets of PDP with volume around 330MC to SYD this week’. Under the heading ‘market information’ it goes on to say ‘Toyota has just modified their sales & production plan for 2004 to upward’. The balance of this email shows, however, that it is a report of the Japan station for Cathay and whilst I accept that it shows that that station was closely following the activities of some large shippers I do not think that I can simply translate that state of affairs to Hong Kong, Singapore or Indonesia.

277    On the other hand, the marketing magazines of the airlines – which were directed to multiple markets – do proceed on the basis that regardless of origin port the airlines were focussed on shipper activity. Thus, in the January to June 2005 edition of the SQ Air Cargo Magazine (entitled ‘the Megabeat’) there was an article relating to the combined efforts of ‘Lee Fish Europe’ (a significant importer of fresh fish into the European market) and SQ’s cargo line.

278    The article is illuminating. Having set out the significant needs of Lee Fish Europe for fresh seafood of high quality sourced from the Pacific rim (as well as the blue waters of the Maldives and Sri Lanka) and the speed with which this catch must be transported to the tables of Europe it goes on to say:

Working in such a challenging market, Lee Fish recognizes the need to partner an airline which could ensure capacity is available on a regular basis and which would have total visibility of the product that is being carried out of its overseas markets. In this respect, SIA Cargo is proud to be Lee Fish’s partner.

279    Now it is true that this article does not speak directly to the various markets out of Hong Kong and into Australia. But it does suggest that SQ regarded itself as partnering with at least one shipper and further that this partnership was worth publicising in a marketing magazine. A subpoena issued to SQ elicited documents which showed that the Megabeat Magazine had been distributed worldwide to its managers. I am not sure that this necessarily means that it was distributed to shippers themselves. But it does show that partnering with shippers was not at all unheard of throughout SQs worldwide network.

280    The Commission relied upon a document entitled ‘South East Asia 1st Quarter 2006 Sales Plan Report’. It is not clear whose document this is. It bears a ‘KAL’ discovery number which suggests that it may have originated from Korean Airlines. The Commission relied upon a section under the hearing ‘KULSF’. I do not know what this means, although it may refer to Kuala Lumpur. Whichever airline generated the report it certainly shows that airline to be interested in shipper activities:

Major shippers namely Flextronics, Western Digital, Freescale and Canon have projected stable traffic during Jan and Feb.

281    There are many similar references throughout the document.

282    Again, whilst I accept that this shows an interest on the relevant airline’s part in the activities of shippers, I am not persuaded I should simply assume equivalent interest in different markets.

283    Oral testimony given the during the trial suggested that airlines were interested in what the shippers were doing even if they denied that there was any direct contact with them. Mr Gregg’s evidence was to this effect in relation to Air NZ, and Mr Haddad gave similar evidence for Garuda.

284    I was taken to many marketing reports from a number of airlines. These are not written in a way which confines their contents to individual routes but instead they are based on area wide analysis. For example, in Air NZ’s report for July 2002 there is a reference to ‘good demand of Sony SYD and ‘Xerox new products for AKL’. I am not going to set all of these out although a list of them appears in footnotes 246 to 251 of the Commission’s closing submissions. To my mind these show that the marketing operations of airlines in the Asian market were focussed in large part on the activities of large shippers who were perceived to be the ultimate source of demand.

285    Ms Goh and Mr Gregg were anxious in their oral evidence to deny any direct contact with the shippers. When pressed on how the marketing reports came, therefore, to include such detailed information about the shippers Ms Goh intimated that the information had come from a freight forwarder. This does not seem to be very likely and Ms Goh could not recall how she came to be able to report the figures to head office.

286    In any event, whether the airlines had direct contact with shippers is really beside the point. The real question is whether airlines perceived shippers to make decisions about which airline they would use or whether that decision making process was confined in its entirety to freight forwarders. I do not accept that all large shippers were content to leave the decision about which airline to use to the freight forwarders. I can see no reason why a firm with a lot of cargo to carry would not use the volume of its business to extract a better deal from an airline.

287    In those circumstances, I conclude that across the Asia Pacific area the airlines recognised that shippers had demand for capacity. Indeed, they actively followed the position of shippers, recognising that these were the economic foundation of the market.

288    The Commission also submitted that the evidence showed that particular consignees had demand for the airlines services. A very large quantity of documentary evidence was referred to at footnotes 262 to 273 of the Commission’s submissions in chief. This material showed that in the Asia Pacific region there were consignees who were actively considered as a revenue source by the airlines. I did not apprehend that this was really denied as a regional proposition by either of the airlines. Their point, to which I return below, was that one could not reason from that general position to particular statements about the markets out of Hong Kong or Singapore into ports in Australia.

289    Next the Commission submitted that the airlines designed their products according to the demand for particular scheduling, handling and storage requirements of specified shippers. The evidence, on an Asia wide basis, supported this proposition (and it was not submitted to the contrary). So much was apparent, for example, in the marketing reports of the airlines and there were instances of airlines (specifically, British Airways) responding to such requirements.

290    The Commission submitted that certain shippers had particular preferences and were able to influence the choice of airline and flight. It relied upon a very substantial body of documentary evidence located in footnotes 270 to 274 to make good that proposition. It appears to me to do so. Neither Air NZ nor Garuda submitted that this material did not establish what the Commission suggested. Their point was that it was not possible to draw conclusions about the qualities of the Hong Kong to Australia markets or Singapore to Australia markets from this material. I deal with that contention below.

291    Next the Commission submitted that airlines had direct contact and negotiations with shippers regarding price and service. Leaving aside the position of Air NZ this proposition appears straight forward among other airlines such as SQ, Cathay, Qantas and Emirates.

292    A report was prepared for Air NZ by a firm of business consultants, AJ Kearney, on how the airline might improve its position in the cargo market. It is replete with references to Air NZ having direct contact with customers (an expression which the report uses in contradistinction to freight forwarders) and it emphasises in more than one place the three way nature of the relationship between Air NZ, the freight forwarders and the customers. It proceeds on an assumption that Air NZ dealt with customers and suggests ways that this might be better done. In light of this report, the proposition that Air NZ had no contact with customers is quite untenable and I reject it. Ms Goh and Mr Gregg gave oral testimony to the contrary. I reject that evidence as inconsistent with the available contemporaneous documentary material.

293    The Commission submitted that airlines adopted sales and marketing strategies directed to shippers promoting the airfreight services which they offered. The evidence for this was located in footnotes 290 to 304 of the Commission’s submissions in chief. I accept that this proposition is established at the level of the Asian market in general. The contrary was not submitted by either airline.

294    The Commission submitted that airlines entered into tripartite arrangements with freight forwarders and shippers. I accept this. Typically such arrangements referred to specific products and would identify the carrier, the shipper and the freight forwarder. They also often provided for meetings between the airline and shipper and for the shipper to provide to the airline projected tonnages and frequencies. An internal email received by Mr Gregg on 13 May 2003 gives the correct flavour:

The two key exporters have been pushing for price relief for the past month or so … We are confident that the pressure is genuine and both exporters are making serious noises about pulling the product out of the market. This would be extremely serious as once an exporter leaves a market it is difficult for them to re-establish their position at a later date.

295    An internal memorandum from Mr Gregg to a Mr Jellie of 11 March 2003 stated:

Many major exporters have stated that volumes will diminish if the surcharge in [sic] instated on top of current rates … Air New Zealand is currently viewed as playing our part and taking responsibility in assisting exporters through tough times … Many exporters have passed comment regarding [net profit results in press] and I believe that it will be extremely difficult to justify a surcharge on the back of our half year profit statement.

296    There is a letter from SQ to WDM International dated 28 September 2000 which states:

… we are more than happy to sit down and discuss set contracts/rate with you and your shippers. We are able to lock in said contracts for a 6 or 12 month period however this must be agreed and signed by all parties (including your respective shipper/shippers …

297    I therefore accept the proposition that in the general Asian market tripartite arrangements were entered into between carriers, shippers and freight forwarders.

298    The Commission then submitted that airlines competed with each other for the custom of particular shippers. Thus several internal reports of various airlines referring to losing custom from one shipper to another airline were in the evidence. The Commission referred to extensive documentary evidence in relation to this at footnotes 313 to 315 of its submissions in chief. Apart from disputing that this material was capable of showing anything about the markets which existed between Hong Kong, Singapore, Indonesia and Australia I did not apprehend there to be a dispute about the contention put forward by the submission.

299    The Commission next submitted that it was relevant to a functional analysis that the freight forwarders included terms in their contractual documentation that permitted them to pass through charges such as fuel surcharges. This appears to have been so. It also relied on the fact that freight forwarders were contractually the agents of the shippers. This is a controversial proposition contested by Garuda. I do not think that I need to resolve it as the market issues are to be determined as a matter of economic substance rather than legal form. It is appropriate to describe the freight forwarders as intermediaries having fluctuating control over the cargo whose carriage they arranged.

300    The Commission submitted that the airlines regarded the goods they carried as belonging to the shippers. This is an inevitable consequence of the freight forwarders being intermediaries and, in many ways, is obvious. Air NZ argued that references to the volumes of particular kinds of cargo being carried by it in its monthly report were to be understood as statements about what the freight forwarders were doing. I reject this proposition which, for reasons I have already given, makes no sense.

301    The Commission then submitted that the airlines marketed themselves as dealing directly with the shippers. A large amount of promotional material was put before the Court in footnote 337 to make good that proposition. I accept it.

302    Largely, the airlines did not dispute any of the propositions above which were established by the very large volume of documentation upon which the Commission relied. Rather they submitted that:

(a)    the competitive forces in the various markets were different;

(b)    it should not be assumed that functional factors in one market were applicable in others; and

(c)    accordingly, the Commission had not proved by the above matters that the markets in suit had the qualities which it submitted.

303    Thus Air NZ drew attention to the fact that of the Commission’s five lay market witnesses only one, Mr Cleary of Qantas, had any experience on routes to Australia from Hong Kong or Singapore. Each of the others was involved on other routes. So too a large part of the Commission’s documentary tender related to routes other than the ones whose functional aspects were under consideration.

304    This was of significance because evidence was elicited from Mr Cleary that the competitive conditions faced by Qantas varied between routes. Mr Gregg and Mr Nelson gave similar evidence.

305    I reject this submission. I do so because it is contrary to common sense and to Air NZ’s own documents. It is contrary to common sense because it is plain that a number of shippers controlled significant volumes of cargo. I cannot imagine a universe of discourse in which a rational business would ignore these significant economic actors. No doubt small shippers were of little interest to the airlines but this related to the economic significance of their custom.

306    I accept that the competitive conditions in the Singapore to Sydney market and the Hong Kong to Taipei market were not necessarily the same. Obvious differences which exist include the different mix of substantial importers in Sydney and Taipei not to mention the difference in what is being exported from Hong Kong and Singapore. Further, because the most significant driver in routing decisions is passenger flow the competitive dynamics of the two legs are likely to be influenced by the different passenger volumes on them.

307    But does this mean that I should assume that the air cargo market on those two different routes does not include airlines and freight forwarders? I think not. There is no reason to think that the structural features of the cargo business on different routes are different. In particular, there is no reason to think that the airlines on significant routes are not involved in the giving effect to international trade nor that international trade involves importers and exporters.

308    Further, routes out of Hong Kong, regardless of whether they are bound for ports in Australia or elsewhere, are constrained by the basic hardware and operations of the airport. For that reason I have no difficulty in concluding that despite the different competitive conditions on various routes, airlines generally deliver their services using planes. For similar reasons it is obvious, in my opinion, that on any given route (of sufficient size) there would be substantial importers and exporters for whom it would be natural for the airlines to compete. The management consultants report obtained by Air NZ shows that the contrary position is not one seriously entertained by Air NZ internally, even if it was put forward in this litigation.

309    Accordingly, I draw the following conclusions about the functional dimensions of the market:

(a)    the participants in the relevant markets were airlines, freight forwarders and shippers (be they exporters at origin or importers at destination) whose cargo volume was sufficiently significant for the airlines to be commercially motivated to pursue it;

(b)    shippers of that kind often (but not always) made decisions about which airlines they would use. Where the shipper was an importer in Australia this decision was likely to be made in Australia;

(c)    shippers of that kind continued (aside from the situation of integrators) to use freight forwarders who provided an indispensable set of services for dealing with the ancillary transport issues which the airlines themselves would not deal with. Relationships erected in the case of shippers of this kind were often tripartite. In some cases the tripartite nature of what was taking place was consummated with a contract but this was not a necessary nor even particularly common feature;

(d)    shippers of that kind, wherever located were therefore capable, at least in theory, of operating as a constraint on airlines cargo rates because of their ability, again in theory, to switch to alternate sources of supply and to outflank any exercises of market power at the relevant origin airport; and

(e)    smaller shippers who had no view about which airline to use and who left matters entirely to their freight forwarders were not participants in any of these markets.

4.4 Market in Australia?

310    Was the market in Australia? The Commission argued that the market was in Australia for three reasons which it is convenient to deal with separately.

311    Despite the great length of the parties’ submissions the actual debates between them turned out to be narrow. The economic issues for determination were:

(a)    whether the fact that the airlines competed against each other in Australia in the provision of:

(i)    carriage through Australian airspace;

(ii)    ground handling services in Australia; and

(iii)    handling enquiries about lost and damaged cargo in Australia;

was sufficient to locate the markets in Australia;

(b)    whether the fact that the source of some of the demand for the services was ultimately in Australia was sufficient to locate part of each market in Australia;

(c)    whether the market in Hong Kong was constrained by the abilities of importers in downstream markets in Australia to switch to alternate sources of supply, and if so, whether it was appropriate to characterise the downstream markets as part of the upstream market; and

(d)    whether, in light of the foregoing, the market was in Australia.

312    I deal with these separately.

4.4.1 Source of demand in Australia

313    As I have already said I accept that a separate market for air cargo services existed for the carriage of cargo between Hong Kong and each airport in Australia. Part of the service provided was provided in Australia in the form of carriage through Australian air space, ground handling services at destination airports and the service of handling enquiries about lost and damaged cargo. There is no doubt that the airlines competed against each other in providing these services and that the competition physically took place in Australia. Further there were substantial importers in Australia whose custom the airlines tousled to obtain.

314    Although the contracts of carriage were entered into in Hong Kong by the freight forwarders with each airline, as a practical matter, substantial importers in Australia had the capacity to influence or even direct the decision as to which airline was to be used. On the other hand, less substantial importers had no such influence.

315    The Commission submitted that a market was an ‘area of close competition between firms’ or ‘the field of rivalry between them’ citing decisions such as QCMA at 190. So viewed, the field of rivalry between the airlines extended to Australia where the three destination services described above were provided in a competitive environment. On the other hand, the airlines emphasised that what took place inside a market was substitution and they pointed to the statement of Spender J in QIW Retailers Limited v Davids Holdings Pty Limited (No 3) (1993) 42 FCR 255 at 267 adopting a quotation from the Second Annual Report of the Trade Practices Commission (1975) that the geographical market is an area ‘in which sellers of the particular product operate and to which purchasers can practicably turn for such goods or services’.

316    The airlines focussed on the concept of the place where customers might turn but the Commission took comfort from the statement that the market was located where the sellers operated (submitting that they operated, inter alia, in Australia where ground handling services and the like took place). The conundrum that these may well be different places is a feature of transportation markets in general.

317    There is textual support for the position of both sides in QCMA but that decision is not to be construed as if it were a statute. This is particularly so where QCMA was not concerned with transportation markets. The central thrust of QCMA nevertheless concerns substitution. It is through that prism that the present problem is most usefully analysed.

318    As I have said I reject the existence of any supply side substitutes because there was no evidence that other airlines could enter the various Hong Kong to Australian airport markets if the carriers in those markets executed a SSNIP. To assess that I would either need evidence that other carriers would have been able enter the markets or, if that direct evidence was lacking, some kind of analysis about barriers to entry and the feasibility of entering the markets. There was no such evidence.

319    The issue of demand side substitution is more illuminating. The range of airlines who are available to be selected in any of the relevant route specific markets is limited by the fact that each needs to have a presence in Hong Kong where possession is taken of the cargo from the freight forwarder. There is in every cargo transaction a legal moment when that possession is transferred and that event can only occur in Hong Kong. The service of taking possession of the cargo in Hong Kong with a view to flying it to Sydney cannot be performed anywhere but in Hong Kong.

320    It is easy, therefore, to follow the airlines’ submission that the place where customers turn to choose between various providers of the service is strictly limited to Hong Kong. The Commission, however, submits that the service is provided not only at Hong Kong but also along all points on the route between Hong Kong and the relevant Australian airport. A repeat customer, the Commission submits, might well find itself growing weary of one airlines ground handling efforts at Sydney and decide to switch instead to a different carrier specifically to obtain superior ground handling services at that airport in relation to flights from Hong Kong. Here there can be seen, so the argument ran, switching behaviour between airlines and in respect of a service not delivered in Hong Kong. Mr Gregg gave evidence that ground handling services were a key measure of performance and Mr Cleary (previously of Qantas) said that it was easier to sell capacity where Qantas had well managed cargo terminal operations. I accept that there was competition in respect of ground handling although of a somewhat constrained nature given that ground handling was very often only provided by the home carrier in a particular port.

321    However, the relevant enquiry is not about switching in some loose sense but rather, as the text of s 4E requires, substitution. The correct question is where are the relevant substitutable services provided to consumers of those services. The ground handling services provided at the destination airport in Sydney are, no doubt, a part of a general suite of services making up the service provided by an airline but ground handling services at Sydney are not themselves a substitute for air cargo services from Hong Kong to Sydney any more than a tyre is a car. If there were true substitutes available in Sydney (because the ground handling services are provided in Sydney) this would entail that a person wishing to move cargo from Hong Kong to Sydney could do so by giving possession of the cargo to the airline at Sydney. The absurdity of that statement signals the presence of conceptual error. The presence of that error is confirmed if one accepts, as on the Commission’s case one must, that the market for carrying air freight from Hong Kong to Sydney includes airports in Australia.

322    If it was sufficient in the case of an international transportation market that it was located wherever rivalrous services were provided then it would follow that the market in Australia for packaged tours of Europe would be located wherever the tour bus happened to be. It was no doubt for that reason that the Commission was careful to include in its analysis the additional fact that there were shippers (that is, importers) in Australia who were participants in the market (as I have held there to be).

323    One may ask then, and the airlines did, what the analytical significance of having a market participant in Australia was and here the answer, it seems, was that it showed that the switching decisions could not themselves be located in Hong Kong where the airplanes were. However, the question is not where the switching decision is subjectively made as an act of cognition but, instead and in contradistinction, where it is given effect. If that be correct, the location of some importers in Australia is irrelevant and the Commission’s position is indistinguishable from the example given above of the package tour of Europe.

324    I do not accept, therefore, the Commission’s first variant of its argument on market in Australia.

325    I am also unpersuaded by the suggestion that the fact that the ultimate source for some of the demand was in Australia affects the analysis, at least in this case. At paragraph 66(ii) of his report in reply Professor Church said:

The relevant product markets consist of paths that terminate in Australia because of derived demand by Australians to consume imports or otherwise have cargo transported to Australia. The demand for air cargo to Australia by freight forwarders is derived from this demand and is not independent. Hence the demand in the market for air cargo is located in large part in Australia and there will be economic effects of an increase in the price of air cargo to Australia in Australia.

326    I did not apprehend this evidence to go so far as to say that this had the consequence that the market was located in Australia. The last sentence contains two ideas: that the demand may be situated in Australia and that a price increase may have economic impacts in Australia. I am prepared to accept that some of the demand for the services was, in the case of some large importers, probably located in Australia and I have no doubt that increases in freight rates might have the effect of increasing the cost of imported goods in Australia. I do not think that Professor Church was saying that the markets were, however, in Australia. At best his opinion was that the functional aspects of the markets might have, as he put it at [66] in his reply, an ‘Australian dimension’. I am certainly prepared to accept that for some purposes, such as examining whether a merger decreases competition in various markets, knowing that one market has an ‘Australian dimension’ might be useful but I do not think it assists in answering the question of where the market is located. As Professor Church agreed under cross-examination, the consequence of his approach was that the markets for components added to Mercedes-Benz cars in Stuttgart had an Australian dimension when those cars were sold in Australia to satisfy Australian demand. Whilst it might be useful to know that for some purposes, it is too broad to be a useful identifier of market location.

4.4.2 Downstream substitution in Australia

327    The next argument depended upon a proposition explored by Dr Williams and Professor Church and accepted, I think, by Professor Gilbert. It depended on the idea that in an input market which was vertically arranged, the behaviour of participants in a downstream market might operate to limit the ability of participants in an upstream market to exercise market power: cf. Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 at 346 [252]. Professor Gilbert gave the example of the ability of consumers of electricity to switch to new sources of supply such as solar or wind and thereby to hinder the ability of a coal monopolist selling to power generators to exercise market power in its dealing with the generators. Professor Church gave a similar example involving the provision of internet services where a monopolistic provider of network arrangements to wholesalers might be constrained by decisions of consumers to switch to internet delivered by altogether different means.

328    This is, no doubt, an interesting phenomenon. If the purpose of the process is to assess market power one can readily understand how incomplete a picture one would get if such effects were to be left out of consideration.

329    There were some nice questions about how the effects of downstream substitution away (as it is called) is dealt with in the process of market definition. However, none of those questions arise because there is simply no evidence that any such effect would have occurred in this case.

330    It is easy enough to understand the effect when considering an input market with a single input such as in the examples above concerning coal or internet services. But the facts of this case are much more complicated for there are multiple downstream markets. So, as set out above at [239], the top five exports from Hong Kong to Australia in the period 2004 to 2006 were:

Motors, appliances, radio, televisions

22.98%

Engines and machines

13.32%

Clothes and others

9.35%

Clothes – knitted

7.71%

Books, paper, art

6.51%

331    When one comes to ask what the effect of a SSNIP would be in, say, the Hong Kong to Sydney market, one would need to know something about the markets which are encompassed in the figures above. One would also need to know something about alternate sources of supply (such as Singapore, China and so on). Let it be assumed for the sake of argument that televisions made up 10% of imports coming from Hong Kong into Australia. If the Sydney market for televisions was highly competitive importers might be inclined to absorb any SSNIP which was imposed by air carriers out of Hong Kong.

332    Whether they did so or sought instead to locate televisions in places other than Hong Kong would rather depend on those other places and the transport costs which would be involved. It might be feasible, but difficult, to assess the behaviour of one downstream market (such as televisions) in the face of a SSNIP in the Hong Kong to Sydney air cargo market. The difficulty however, is that one must assess not one such market but very many markets, being the downstream markets, and one must aggregate their behaviour to work out if there would be enough downstream substitution away in those multiple markets to operate as a constraint in the upstream market.

4.4.3 Conclusion

333    No such attempt was made in this case and I am left with what was described by the parties as a thought experiment. A thought experiment clarifies concepts but it cannot provide a substitution for some empirical evidence be it qualitative or quantitative. There is simply no basis upon which I could find this effect did, or was likely to, take place.

334    I do not therefore need to enter the debate as to whether a market which operates as a downstream restraint should be included in the upstream market. If it is to be, it does have the consequence, which Professor Gilbert noted, that the market for air cargo services includes all the markets into which the cargo carried by them is then subsequently sold. That appears to be a somewhat odd outcome. Of course, in merger cases under s 50 of the TPA the phenomenon of downstream substitution away is an important factor, but the terms of s 50 focus upon a substantial lessening of competition in a market. By contrast, s 45 requires the substantial lessening of competition to occur in the market in which the firms are competing. This is a significant difference. In any event, the complete absence of any evidence about the occurrence of this phenomenon means these questions do not arise. I am conscious that the High Court of New Zealand reached the opposite conclusion in Commerce Commission v Air New Zealand Ltd (2011) 9 NZBLC 103, 318 (24 August 2011). That case was tried on agreed facts. The Court was willing to infer a number of matters concerning downstream effects which I cannot embrace having had the benefit of a trial.

335    I conclude that the relevant markets for the transport of cargo to ports in Australia from Hong Kong were not markets in Australia.

4.5 The market for flights ex Singapore and Indonesia

336    The above analysis is confined to Hong Kong. I would reach the same conclusions, however, in relation to the markets from Singapore and Indonesia into Australia. That is, that there were individual markets on the individual routes into Australia; that the product was the carriage of cargo together with the ancillary services discussed above; and that the market participants were the airlines, freight forwarders and some large shippers. I am unclear about the position of integrators. Assuming in the Commission’s favour that there were integrators operating out of Indonesia and Singapore, I do not think this would alter the analysis above. The relevant consumer choices are still very much at the origin airport.

337    Whilst I am satisfied that there could be demand side substitution in those markets, that demand side substitution occurred at the ports of origin. There was no evidence of supply side substitution.

338    Each of the markets in Hong Kong, Indonesia and Singapore was consequently not a market in Australia.

5 THE EXTRA-TERRITORIAL OPERATION OF THE TRADE PRACTICES ACT

339    The conclusion that there was no market in Australia renders irrelevant a series of complex arguments raised by the airlines as to why the TPA should not be construed to apply to regulate offshore aviation markets. Had I concluded that there had been a market in Australia I would not have been disposed to accept any of those arguments. Put another way, if I am wrong in my conclusions on the location of the markets, I do not accept that there are any good reasons why the TPA did not apply to the conduct in question. In this section, I consider and reject the airlines’ arguments on extra-territoriality.

5.1 The need for actual conduct

340    Although I have not yet come to an examination of the conduct alleged by the Commission against the two airlines it is nevertheless useful to note for the purposes of the present debate an aspect of the alleged conduct which is not in dispute. The Commission’s case is that the various arrangements or understandings were reached at meetings or through courses of conduct between the airlines, all of which unquestionably occurred outside Australia. Further, the arrangements or understandings which the Commission alleges the airlines arrived at were, with one minor exception in Indonesia, arrangements or understandings about the imposition of surcharges or fees which were to be imposed on freight forwarders at the origin ports where the cargo was to be uploaded, i.e. Hong Kong, Singapore, Denpasar or Jakarta. Perhaps to bring the point into clearer focus, what is alleged in each case is that the arrangements or understandings were reached in those places about charges which were to be imposed in those places. All of these events, even on the Commission’s case, happened outside Australia. The single minor exception to this concerned the Commission’s case against Garuda in Indonesia where a customs fee was imposed on flights from Australia to Indonesia. As will be seen, however, I am not satisfied that the Commission proved that any understanding had been reached by Garuda about that fee. It may, therefore, be disregarded for present purposes.

341    To understand the submissions made against the Commission it is necessary to focus on the internal mechanics of the Commission’s case.

342    The actionable wrong pointed to by the Commission is a breach of s 45(2) of the TPA which at the relevant time provided that:

45. Contracts, arrangements or understandings that restrict dealings or affect competition

(2) A corporation shall not-

(a)    make a contract or arrangement, or arrive at an understanding, if-

(i)    the proposed contract, arrangement or understanding contains an exclusionary provision; or

(ii)    a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)    give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision-

(i)    is an exclusionary provision; or

(ii)    has the purpose, or has or is likely to have the effect, of substantially lessening competition.

343    The Commission moves both under ss 45(2)(a) and 45(2)(b), that is, it seeks to prove that the two airlines entered into the arrangements or understandings (s 45(2)(a)) and that (in most cases) they gave effect to them (s 45(2)(b)). Regardless of which limb the Commission proceeds under, however, it must nevertheless prove that the provision of the contract, arrangement or understanding must have had ‘the purpose, or would have or be likely to have the effect, of substantially lessening competition’ in the case of s 45(2)(a)(ii) or ‘has the purpose, or has or is likely to have the effect, of substantially lessening competition’ in the case of s 45(2)(b)(ii). I did not apprehend that anything turned on the subtle difference in the terms of these two provisions which appear substantially the same.

344    Looked at in isolation, therefore, s 45(2) would impose upon the Commission an obligation to show that the contract, arrangement or understanding to impose each surcharge (or the giving effect to a provision in the contract, arrangement or understanding) had the purpose or the likely effect of substantially lessening competition.

345    To do so the Commission generally called in aid of s 45A which deemed such an arrangement or understanding to have that effect in certain circumstances including those where the contract, arrangement or understanding had the purpose or was likely to have the effect of fixing, controlling or maintaining the price for services (I disregard for present purposes the Commission’s arguments based on exchanges of pricing information which did not rely on s 45A). At the relevant time, s 45A(1) provided:

45A. Contracts, arrangements or understandings in relation to prices

Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.

346    The important feature for present purposes, which was especially emphasised by Garuda, was that the conduct which was alleged to contravene s 45 was conduct which was deemed by s 45A(1) to have a particular quality. It was not legally necessary under s 45 that the airlines had engaged in conduct which had the purpose, effect, or likely effect of substantially lessening competition, and it was potentiality thrown up by the interaction between ss 45(2)(a) and 45(2)(b) as well as s 45A(1) that there might be no actual substantial lessening of competition.

347    This may seem difficult to follow but it became critical in Garuda’s submission when one came to consider the extraterritorial operation of the TPA. Three provisions were relevant to that enquiry. First, s 45(3) made clear that the competition to which s 45(2) referred was competition in a market in which the airlines provided services in competition with each other in the following terms:

(3) For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.

348    Secondly, the expression ‘market’ was defined in s 4E to mean a market in Australia. Its full text is:

For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.

349    These two provisions provide a limitation on the geographical reach of Pt IV of the TPA. Their effect is the subject of discussion above. By itself, however, s 4E would not be sufficient to give Pt IV of the TPA an extraterritorial operation even if the relevant ‘market in Australia’ was a subset of some larger market, extending beyond the geographical confines of the Commonwealth. The wording of s 4E does not disclose an intention in itself to operate extraterritorially.

350    That work is done instead by s 5(1) which, thirdly, extends the operation of Pt IV (and other Parts too) to conduct which occurs outside Australia so long as it is engaged in by a body corporate incorporated in or carrying on business within Australia. Section 5(1) provides:

Part IV, Part IVA, Part V (other than Division 1AA), Part VB and Part VC extend to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia.

[portion in bold effective from 15 December 2001]

351    It has been held that the TPA applies extraterritorially only insofar as the conditions of s 5 have been met: Bray v F Hoffmann-La Roche Ltd (2002) 118 FCR 1 at 16 [52] per Merkel J. Garuda pointed to the conclusion in Bray that the provisions of the TPA that imposed accessorial liability on persons who have, broadly speaking, assisted in the contravention of Pt IV (s 75B), was itself contained in Pt VI which is concerned with ‘Enforcement and Remedies’, so that s 5 was not engaged (Pt VI not being mentioned in s 5(1)).

352    Why did this matter? It was material because one of the limitations in s 5(1) was that it extended the operation of Pt IV only to ‘conduct outside Australia’. Section 5(1) was sufficient, Garuda accepted, to engage with and apply to the conduct referred to in s 45(2) (that is, the conduct in reaching a contract, arrangement or understanding or in giving effect to such a contract, arrangement or understanding) but it could not engage with the superadded necessity that the purpose or likely effect of the relevant provision of such a contract arrangement or understanding had the quality of substantially lessening competition. The legal characterisation of that purpose or likely effect was not conduct to which s 5(1) could apply.

353    I do not accept this argument. It rests upon a false dichotomy between the conduct proscribed by s 45(2) – that is, the conduct of entry into a contract, arrangement or understanding – and the characterisation of the competitive effect of the provisions of the contract, arrangement or understanding arrived at.

354    The conduct to which s 45(2) refers is not just the conduct of entry into, or giving effect to, a disembodied contract, arrangement or understanding; rather, and to the contrary, it is the conduct of entry into or giving effect to a particular kind of contract, arrangement or understanding, specifically, a contract, arrangement or understanding containing a provision or provisions with a particular quality, viz, having the purpose, effect or likely effect of substantially lessening competition.

355    To draw an analogy, if s 45(2) instead prohibited the conduct of entering into a contract whose performance would be criminal, Garuda’s submissions would necessarily entail the conclusion that a separate enquiry was needed into the conduct of entering into the contract and, thereafter, the legal characterisation of what the performance of its terms would require. But in that case it is clear that the conduct and the contract are not separate from each other. The conduct which is proscribed is entry into a contract with the given qualities.

356    In this circumstance, I do not accept that the requirement that a provision of a contract, arrangement or understanding have the purpose, effect or likely effect of substantially lessening competition is separate from or distinct to the conduct to which s 45(2) itself refers. What is prohibited by s 45(2) is entry into or giving effect to a contract arrangement or understanding having a particular quality. That being so, s 5(1) extends the operation of s 45(2) to extraterritorial conduct having that quality. I reject the argument.

357    Garuda pursued a variant of this argument which focussed instead on the quality of s 45A as a provision which deemed there to be a substantial lessening of competition where the purpose or likely effect of a provision of a contract, arrangement or understanding was, put shortly, price fixing. As a matter of definition, upon s 45A’s enlivenment there need not have been any conduct at all for, so Garuda submitted, it provided for the activation of s 45(2) purely through a process of deeming. Section 5(1), by contrast, was to be seen as requiring actual conduct rather than deemed conduct.

358    The flaw in this otherwise diverting argument is, in essence, the same difficulty which afflicts its first variant. Section 45A(1) is intimately connected with conduct – the conduct in s 45(2). It provides a specific answer to the question of how the conduct in s 45(2) is to be characterised for the purposes of that provision. Just as it is unsound to seek to winnow the forbidden contract, arrangement or understanding in s 45(2) from the characterisation of its provisions, so too it is impermissible to treat a deeming provision about that characterisation as not being concerned with the conduct to be characterised and hence beyond s 5(1). Furthermore, s 45A does deal with conduct, namely, the conduct of price fixing. The price fixing conduct which enlivens the deemed substantial lessening of competition by s 45A is conduct to which s 5 applies.

5.2 Interference with sovereign rights of other States

359    Air NZ and Garuda joined in a submission that Pt IV of the TPA should be construed so as to avoid unreasonable interferences with the sovereign authority of other nations. In this case, so the argument ran, to permit the terms of Pt IV to apply to conduct in Hong Kong, Singapore and Indonesia in circumstances where that conduct was either required or permitted by the laws of those places involved an interpretation of the TPA which displayed a lack of legislative deference to the sovereign authority of other nations. Such a construction was to be avoided, if at all possible.

360    There are two issues here; first, did the law of the foreign places involved permit or require the alleged conduct; secondly, does the principle exist? As to the first issue, I conclude below in Chapter 6 that neither the law of Hong Kong nor the directions of its government required airlines to collude on the setting of fuel or insurance surcharges. I reach the same conclusion in Chapter 7 about the law and administrative requirements of Indonesia. It was not suggested that the law or administrative practices of Singapore required the airlines to agree surcharges amongst themselves.

361    On the other hand, the law of Hong Kong did not at any of the relevant times forbid price fixing arrangements and the law of Singapore did not do so until 1 January 2006 when the relevant parts of the Competition Act (Singapore, cap 50B, 2004) came into force. Although there was a competition law in force in Indonesia at all relevant times, it was not proved in this case that the conduct alleged against Garuda contravened that law. In those circumstances, I proceed on the basis that the law of all three jurisdictions neither required nor forbade the alleged conduct.

362    As to the second issue (does the principle exist?), it therefore arises in a context in which the alleged interference with sovereign rights consists of an Australian law operating extraterritorially to render unlawful conduct within a foreign state which is not required by the local law of that state but not forbidden by it either. The airlines’ submission about this involves a different principle of statutory interpretation to the presumption that legislation does not operate extraterritorially. Indeed, it takes as its point of departure in almost all cases the fact that the impugned domestic legislation does operate extraterritorially. The airlines’ focus instead is on what that extraterritorially operative domestic legislation requires in foreign places and how what it so requires intersects with the local legal systems into which it has intruded.

363    In Hartford Fire Insurance Co v California 509 US 764 (1993) the Supreme Court considered, inter alia, whether the Sherman Act applied to conduct by re-insurers in the London market in allegedly conspiring to force primary insurers to change the terms of their standard domestic commercial general liabilities policies in the United States. The proceedings were summarily dismissed by the District Court of the Northern District of California (‘the District Court’) and this was partially reversed by the Court of Appeals for the Ninth Circuit. One of the questions before the Supreme Court was whether notions of international comity required the District Court to decline the exercise of jurisdiction. There were two forms of the argument. One was that the Sherman Act would not be interpreted so as to extend to the regulation of the London reinsurance market; the other, that even though the Sherman Act might extend that far, the Court should nevertheless decline to exercise the jurisdiction it otherwise had.

364    The majority concluded that no question of comity arose because there was no conflict between the Sherman Act and British law. Souter J delivered the Courts opinion on this issue (with whom Rehnquist CJ, White, Blackmun and Stevens JJ joined). Citing (at 799) the Restatement (Third) of Foreign Relations Law (‘the Restatement (Third)’) § 403 Comment e, his Honour concluded ‘[n]o conflict exists, for these purposes “where a person subject to regulation by two states can comply with the laws of both.” (footnote omitted)’. Since the London reinsurers did not argue that British law required them to act in some fashion prohibited by the Sherman Act his Honour was unable to discern any conflict to which the principle invoked could attach.

365    On this issue, however, Scalia J (with whom O’Connor, Kennedy and Thomas JJ relevantly agreed) dissented. Having identified that statutes are not generally construed as applying extraterritorially his Honour went on to say at 814 - 815:

But if the presumption against extraterritoriality has been overcome or is otherwise inapplicable, a second cannon of statutory construction becomes relevant: “[A]n act of congress ought never to be construed to violate the law of nations if any other possible construction remains.” Murray v. Schooner Charming Betsy, 2 Cranch 64, 118 (1804) (Marshall, C.J.). This cannon is “wholly independent” of the presumption against extraterritoriality. [EEOC v. Arabian American Oil Co., 499 U.S. 244, 264 (1991) (Marshall, J., dissenting)] It is relevant to determining the substantive reach of a statute because “the law of nations,” or customary international law, includes limitations on a nation’s exercise of its jurisdiction to prescribe. See Restatement (Third) §§ 401-416. Though it clearly has constitutional authority to do so, Congress is generally presumed not to have exceeded those customary international-law limits on jurisdiction to prescribe.

Consistent with that presumption, this and other courts have frequently recognized that, even where the presumption against extraterritoriality does not apply, statutes should not be interpreted to regulate foreign persons or conduct if that regulation would conflict with principles of international law…

[full citation added]

366    His Honour identified the principle as being illustrated in several cases concerned with conflict of laws but also on the broader basis which had been explained by Learned Hand J in United States v Aluminium Co. of America, 148 F.2d 416, 443 (CA2 1945) that ‘we are not to read general words, such as those in [the Sherman] Act without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the “Conflict of Laws.”’ (square brackets in original).

367    Having then referred to a subsequent line of cases dealing with international comity and the Sherman Act, Scalia J then continued (at 817):

The “comity” they refer to is not the comity of courts, whereby judges decline to exercise jurisdiction over matters more appropriately adjudged elsewhere, but rather what might be termed “prescriptive comity”: the respect sovereign nations afford each other by limiting the reach of their laws. That comity is exercised by legislatures when they enact laws, and courts assume it has been exercised when they come to interpreting the scope of laws their legislatures have enacted. It is a traditional component of choice-of-law theory. See J. Story, Commentaries on the Conflict of Laws § 38 (1834) (distinguishing between the “comity of the courts” and the “comity of nations,” and defining the latter as “the true foundation and extent of the obligation of the laws of one nation within the territories of another”). Comity in this sense includes the choice-of-law principles that, “in the absence of contrary congressional direction,” are assumed to be incorporated into our substantive laws having extraterritorial reach.

368    This required a consideration of what it was precisely that comity necessitated. Relying again on the Restatement (Third) his Honour concluded (at 818):

… a nation having some “basis” for jurisdiction to prescribe law should nonetheless refrain from exercising that jurisdiction “with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable.”

369    What then did reasonableness require? Scalia J continued (at 818-819):

The “reasonableness” inquiry turns on a number of factors including, but not limited to: “the extent to which the activity takes place within the territory [of the regulating state],” id., § 403(2)(a); “the connections, such as nationality, residence, or economic activity, between the regulating state and the person principally responsible for the activity to be regulated,” id., § 403(2)(b); “the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which desirability of such regulation is generally accepted,” id., § 403(2)(c); “the extent to which another state may have an interest in regulating the activity,” id., § 403(2)(g); and “the likelihood of conflict with regulation by another state,” id., § 403(2)(h). Rarely would these factors point more clearly against application of United States law.

370    Having referred to the extensive British legislative regulation of the London re-insurance market his Honour then concluded (at 819):

Considering these factors, I think it unimaginable that an assertion of legislative jurisdiction by the United States would be considered reasonable, and therefore it is inappropriate to assume, in the absence of statutory indication to the contrary, that Congress has made such an assertion.

371    Despite being in dissent in Hartford Scalia J’s exposition of the relevant principle of statutory interpretation was endorsed by the entire Court in F Hoffman-La Roche Limited v Empagran S.A. 542 US 155 (2004). In that case Breyer J (in whose judgment Rehnquist CJ, Stevens, Kennedy, Souter and Ginsburg JJ joined and with whose judgment Scalia and Thomas JJ concurred) said this (at 164):

… this Court ordinarily construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations. See, e.g., McCulloch v Sociedad Nacional de Marineros de Honunduras, 372 U.S. 10, 20-22 (1963) (application of National Labor Relations Act to foreign-flag vessels); Romero v. International Terminal Operating Co., 358 U.S. 354, 382-383 (1959) (application of Jones Act in maritime case); Lauritzen v. Larsen, 345 U.S. 571, 578 (1953) (same). This rule of construction reflects principles of customary international law––law that (we must assume) Congress ordinarily seeks to follow. See Restatement (Third) of Foreign Relations Law of the United States §§ 403(1), 403(2) (1986) (hereinafter Restatement) (limiting the unreasonable exercise of prescriptive jurisdiction with respect to a person or activity having connections with another State); Murray v. Schooner Charming Betsy, 2 Cranch 64, 118 (1804) (“[A]n Act of congress ought never to be construed to violate the law of nations if any other possible construction remains”); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 817 (1993) (SCALIA, J., dissenting) (identifying rule of construction as derived from the principle of “ ‘prescriptive comity’ ” ).

372    The terms of Scalia J’s concurrence are also relevant (at 176):

I concur in the judgment of the Court because the language of the statute is readily susceptible of the interpretation the Court provides and because only that interpretation is consistent with the principle that statutes should be read in accord with the customary deference to the application of foreign countries’ laws within their own territories.

373    Air NZ submitted that these two decisions established the principle of statutory interpretation upon which it relied. The Commission in answer submitted that it was doubtful the principle existed in Australian law. The Commission did not submit (as to me appears to be the case) that the majority judgment in Hartford requires the rejection of the airlines’ argument on the basis that there was no conflict between the Australian and the local laws: see 799 (supra, [364]).

374    Leaving that to one side, the situation in the United States is not perhaps as clear as Air NZ’s submissions suggest: see, for example, Spector v Norwegian Cruise Ship Line Ltd 545 U.S. 119, 158 (2005) where Scalia J appears to have altered his approach in Hartford; Pasquantino v United States 544 U.S. 394 (2005) (where the Court seemingly had no difficulty applying a US wire-fraud statute to persons smuggling liquor into Canada); Morrison v National Australia Bank Ltd 561 U.S. 247 (2010). Since none of these materials were the subject of submission I shall say no more of them.

375    Instead, I will confine my attention to Hartford and Empagran. An analysis of these two decisions reveals that the suggested United States principle is an outcrop or corollary of the principle that statutes are interpreted, where possible, in a way which is consistent with customary international law or relevant treaty obligations.

376    The interesting aspect of the two decisions is, I think, the invocation of a principle of customary international law that one State should refrain from exercising jurisdiction extraterritorially over persons subject to regulation in another State unless that exercise is in some way reasonable. The source of this principle is, perhaps, obscure. Indeed, only Scalia J discussed the issue in any detail in Hartford (at 818):

In sum, the practice of using international law to limit the extraterritorial reach of statutes is firmly established in our jurisprudence. In proceeding to apply that practice to the present cases, I shall rely on the Restatement (Third) for the relevant principles of international law. Its standards appear fairly supported in the decisions of this Court construing international choice-of-law principles (Lauritzen, Romero, and McCulloch) and in the decisions of other federal courts, especially Timberlane. Whether the Restatement precisely reflects international law in every detail matters little here, as I believe this litigation would be resolved the same way under virtually any conceivable test that takes account of foreign regulatory interests.

377    The parts of the Restatement (Third) referred to by Scalia J are in the section entitled ‘Jurisdiction and Judgments’ and the parts of that section referred to are in Chapter One which deals with the jurisdiction of States to make laws. Section 402 says:

§ 402. Bases of Jurisdiction to Prescribe

Subject to § 403, a state has jurisdiction to prescribe law with respect to:

(1) (a)    conduct that, wholly or in substantial part, takes place within its territory;

(b)    the status of persons, or interests in things, present within its territory;

(c)     conduct outside its territory that has or is intended to have substantial effect within its territory;

(2)    the activities, interests, status, or relations of its nationals outside as well as within its territory; and

(3)    certain conduct outside its territory by persons not its nationals that is directed against the security of the state or against the limited class of other state interests.

378    This is a statement about the content of public international law. Broadly it is consistent with the views expressed by Professor Crawford in Chapter 21 of Brownlie’s Principles of Public International Law; that is, jurisdiction is generally territorial or by nationality. Pausing there, it is plain that the TPA relies on a territorial nexus. Section 4E limits the markets to which Pt IV applies to those which are ‘in Australia’ and s 5(1) makes plain that only the extraterritorial conduct of bodies corporate incorporated in or conducting business in Australia is covered by the legislation.

379    More interesting is the limitation which is said by the Restatement (Third) to exist on this principle. Section 403(1) provides:

§ 403. Limitations on Jurisdiction to Prescribe

(1)    Even when one of the bases for jurisdiction under § 402 is present, a state may not exercise jurisdiction to prescribe law with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable.

380    I am far from certain that this is a correct restatement of the content of customary international law, and, despite the robustness with which Scalia J expressed the view that it was, I am not sure that his Honour’s statement is, with respect, correct either. However, for now I am content to assume that the statement is correct. If so, there is no reason that the similar principle of statutory interpretation in Australian law that one should construe legislation, if possible, so as to avoid putting Australia in breach of its international obligations, does not lead to the same result. Every statute is ‘to be so interpreted and applied as far as its language admits as not to be inconsistent with the comity of nations or with established rules of international law’: see Jumbunna Coal Mine NL v Victorian Coal Miners’ Association (1908) 6 CLR 309, 363; Chu Kheng Lim v Minister of State for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1, 38; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273, 287. If there is a principle of international law that proscribes the exercise by a State of extraterritorial legislative competence in circumstances where, although there is present a territorial or nationality based nexus, nevertheless the extent of the legislative interference with the affairs of another State is unreasonable, then that principle would lead to conclusions largely in line with the dissent in Hartford.

381    Brownlie’s suggests that there are at least five ways extraterritorial jurisdiction is attracted (or can be, – the difference is sometimes elusive): a territorial connexion, nationality, passive personality, the protection principle and the effects doctrine. Without lingering on this excessively, there is nothing in this which resembles § 403 of the Restatement (Third).

382    The difficulty, so it seems to me, is that the principle of international law identified by § 403 of the Restatement (Third) (that only reasonable interferences in the affairs of other States are justified) appears to be contrary to the leading authorities in public international law. In SS ‘Lotus’ (France v Turkey) (Judgment) [1927] PCIJ (ser A) No 10 the Permanent Court accepted that once a nexus to the relevant State was established the power of regulation was untrammelled. Although that case has been much discussed over the years none of those discussions have suggested the limitation referred to by Scalia J: see, for example, The Fisheries Case (United Kingdom v Norway) (Judgment) [1951] ICJ Rep 116; Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v Belgium) (Judgment) [2002] ICJ Rep 3.

383    There is no trace in Brownlie’s of such a reasonableness requirement for the exercise of legislative jurisdiction once a legislative nexus such as territory or nationality, is established. If such a principle, in fact, existed there might well be difficulties created in otherwise mundane areas. States frequently expose their nationals to taxation obligations arising out of events in foreign jurisdictions. If the principle referred to by Scalia J actually existed then the whole problem of double taxation would be unlikely to exist. The fact that there exists such a widespread range of double taxation treaties based on the OECD Model is quite inconsistent with the proposition inherent in Scalia J’s statement that such acts of extraterritorial taxation could only be lawful in international law where they were reasonable. Further, the application of a reasonableness standard in such a context would most likely be unworkable. What metric could be used to determine whether an extraterritorially imposed tax was unreasonably imposed?

384    So too, the very existence of the United States’ ‘effects doctrine’ in antitrust litigation and the extensive way it has been used by United States courts themselves to interfere directly in the affairs of other States (see, for example, in relation to Australia the Ranger Uranium Litigation: Re Uranium Antitrust Litigation, 480 F Supp 1138, 1149 (9th Cir, 1979) and Re Uranium Antitrust Litigation 617 F 2d 1248 (7th Cir, 1980)) strongly shows that there is absent the kind of widespread acceptance of the supposed norm which would be necessary in order to identify a rule of customary international law. The decision in Hartford in a sense makes the point. In that case, the United States exercised legislative jurisdiction over the London re-insurance market (despite Scalia J’s dissent). Whatever else Hartford shows it must show that the rule of customary international law invoked by Scalia J does not exist as a matter of states practice. Others have reached the same conclusion: see Deborah Senz and Hilary Charlesworth, ‘Building Blocks: Australia’s response to foreign extraterritorial legislation’ (2001) 2 Melbourne Journal of International Law 69. (‘Since the interest-balancing approach has been rejected by a significant proportion of US trading partners in the antitrust context, the reasonableness doctrine is unlikely to evolve into a generally accepted rule of international law’ (at 83)).

385    It follows that the domestic principle of statutory interpretation which suggests that laws should be interpreted so as to avoid putting the Commonwealth in breach of customary international law cannot have the effect that Pt IV of the TPA should not be interpreted so as to authorise unreasonable interferences with the sovereign rights of other nations where a territorial nexus is established with the Commonwealth. No such principle of customary international law exists. To the extent that Scalia J’s dissent in Hartford suggests to the contrary it is, with great respect to that eminent jurist, plainly wrong.

386    To summarise: two principles of statutory interpretation are involved. The first is that legislation is not to be interpreted as having extraterritorial effect unless this is made clear. In this case, s 5(1) of the TPA makes clear that Pt IV does apply extraterritorially to Australian companies or companies conducting business in Australia. A second principle of statutory interpretation requires legislation to be read, if possible, so as not to put the Commonwealth in breach of customary international law or some treaty obligation. At the level of customary international law, Australia is fully entitled to regulate extraterritorial affairs so long as there is a proper nexus. The fact that the TPA only applies to extraterritorial conduct of corporations carrying on business or incorporated in Australia and only with respect to markets in Australia more than satisfies the territorial nexus requirements of customary international law. There is no principle of customary international law which makes unlawful the regulation of extraterritorial affairs involving persons with a proper nexus to a State just because that regulation is superimposed on another State’s domestic legislation. Insofar as treaty obligations are concerned, even assuming that the imposition of Pt IV liability on Garuda involves Australia in a breach of Art 6(2) of the Australia-Indonesia ASA (which for reasons given later it does not) there is no textual mechanism by which s 51(1) of the TPA can be read down to exclude that outcome.

387    Had I concluded that the markets in question were markets in Australia within the meaning of s 4E, I would not have felt constrained by the fact that the conduct alleged was not unlawful in Hong Kong, Singapore or Indonesia to seek to narrow the construction I gave that expression. In any event, as in Hartford, I have concluded that none of the legal systems involved required the airlines to collude on surcharges so no inconsistency with foreign law arises.

5.3 Whether Parliament intended the TPA to interfere with the sovereign affairs of other States

388    Garuda submitted that the passage in 1976 and then again in 1981 of Commonwealth legislation designed to outflank the excessive operation of the United States Sherman Act’s effects doctrine showed that the TPA could not apply in the extraterritorial way for which the Commission contended. The legislation in question is the Foreign Proceedings (Prohibition of Certain Evidence) Act 1976 (Cth), the Foreign Antitrust Judgments (Restriction of Enforcement) Act 1979 (Cth) and the Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth). I do not accept that these throw any light on the matter. They are different legislation passed after the TPA.

389    I turn then to the law of Hong Kong.

6 HONG KONG LAW AND DOMESTIC PRACTICE

390    For the purposes of several defences the airlines submitted that they were bound by the law of Hong Kong to obtain the approval of the HK CAD before imposing a fuel or insurance surcharge; that in the event that they wished to calculate the surcharge by reference to an index mechanism they were required to do so collectively through an application made on each of their behalves through the HK BAR CSC; and that if such approval was obtained they were permitted to charge only that amount and not some lesser amount.

391    Each of these is a necessary element in the airlines’ various defences in so far as they related to the domestic law of Hong Kong. Unless the obligation was to charge the amount approved, and not some lesser amount, there would be no conflict with a law which proscribed price fixing. So too, the requirement that the airlines obtain approval for tariffs, in general, could not justify the conclusion that they were therefore obliged to act jointly to formulate an index mechanism.

392    For those reasons, it is an essential part of the airlines case that they demonstrate that all three obligations arose as a matter of the law of Hong Kong. The airlines approached their proof of this matter in two distinct ways. First, they sought to prove that the actual law of Hong Kong by itself generated the obligation. Secondly, they set out to demonstrate that regardless of the content of Hong Kong law the HK CAD had, in fact, as a matter of administrative discretion, imposed each of the three requirements upon them. The Commission accepted that the act of state doctrine required this Court to proceed on the basis that the actions of the HK CAD were valid whether they were authorised by domestic law or not: cf. Habib v Commonwealth (2010) 183 FCR 62 at [6], [38]-[42], [91]-[110].

393    Success under either of these approaches would be sufficient for the airlines.

394    I deal first with what the law of Hong Kong required and then with what was required by the HK CAD as a matter of administrative discretion.

6.1 The requirements of the law of Hong Kong

395    Regulation 3(1) of the Air Transport (Licencing of Air Services) Regulations (Hong Kong) cap 448A prohibits a person using an aircraft for the carriage of cargo between Hong Kong and other places ‘except under and in accordance with’ the provisions of an operating permit (at least in so far as non-Hong Kong registered carriers are concerned). Regulation 5(2) permits the licencing authority to attach such conditions to a licence as it sees fit. Air NZ’s Hong Kong operating permit relevantly provided:

This permit is granted subject to the following conditions:

(j)    For carriage between New Zealand and the HKSAR on any service operated under this permit ANZ shall charge only those tariffs which have been approved by the DGCA and the aeronautical authorities of New Zealand. For carriage between the HKSAR and a State other than New Zealand on any service operated under this permit ANZ shall charge only those tariffs which have been approved by the DGCA and, where appropriate, to the aeronautical authorities of the other State;

(k)    Tariffs shall be filed with the DGCA in such form as the DGCA may specify;

(l)    For the purposes of conditions (j) and (k) above, the term tariff has the meaning assigned to it in the relevant bilateral arrangements;

396    Garuda’s Hong Kong operating permit was not materially different. There is no question that both required approval to be obtained for the imposition of a ‘tariff’; the question is whether a fuel or insurance surcharge is a ‘tariff’. Both operating permits refer to the meaning of tariff as being governed by ‘the relevant bilateral arrangements’. It is therefore necessary to examine the treaties not because their provisions had any legal impact on either airline but because the language of their operating permits gave the word ‘tariff’ the same meaning as it had in those treaties. Because the Commission denies that fuel surcharges, insurance surcharges or customs fees are tariffs it is necessary to ascertain the meaning of that term in each relevant treaty. That question is a question of public international law.

397    What then are ‘the relevant bilateral arrangements’ which are to be construed? Here, unfortunately, matters are less than clear. It is not difficult to assume that carriage of cargo by Air NZ from Hong Kong to New Zealand is governed by the Hong Kong-New Zealand ASA. Things become less clear, at least to me, when Garuda is flying from Hong Kong to Australia. Garuda submitted, and no-one seemed to be inclined to disagree, that it only flew to Australia from Hong Kong via Indonesia. I was not taken to evidence about this so the issue remains obscure.

398    Of course, it is far from obvious that this assumption would be correct. The evidence before the Court suggested that cargo which was not time critical often proceeded by surprisingly circuitous routes. It is by no means clear that cargo flown from Hong Kong to Australia by Garuda would necessarily fly via Indonesia. To know the answer to this question it would be necessary to know the routes Garuda flew and the existence and extent of any interlining arrangements to which it was a party.

399    The parties did not attempt, so far as I could see, to resolve these issues. Instead, Air NZ and the Commission approached the matter on the basis that the relevant ASA was the Hong Kong-New Zealand ASA and Garuda on the basis that it was the Hong Kong-Indonesia ASA and the Australia-Indonesia ASA. I can do little else although I stress that this may well be less than a complete picture. Fortunately, as will become apparent, the distinction does not matter.

400    The question then becomes the meaning of the word ‘tariff’ in these three ASAs and whether it includes a fuel or insurance surcharge or a customs fee. I deal first and principally with the Hong Kong-New Zealand ASA.

6.1.1 The Hong Kong-New Zealand ASA

401    Article 7 of the Hong Kong-New Zealand ASA defines ‘tariff’ in the following terms:

ARTICLE 7

Tariffs

(1)    The term ‘tariff’ means:

(a)    the fare charged by an airline for the carriage of passengers and their baggage on scheduled air services and the charges and conditions for services ancillary to such carriage;

(b)    the freight rate charged by an airline for the carriage of cargo (excluding mail) on scheduled air services;

(c)    the conditions governing the availability or applicability of any such fare or freight rate including any benefits attaching to it; and

(d)    the rate of commission paid by an airline to an agent in respect of tickets sold or air waybills completed by that agent for carriage on scheduled air services.

(2)    The tariffs to be charged by the designated airlines of the Contracting Parties for carriage between Hong Kong and New Zealand shall be those approved by both aeronautical authorities and shall be established at reasonable levels, due regard being had to all relevant factors, including the cost of operating the agreed services, the interests of users, reasonable profit and the tariffs of other airlines operating over the whole or part of the same route.

(3)    Any of the designated airlines may consult together about tariff proposals, but shall not be required to do so before filing a proposed tariff. The aeronautical authorities of each Contracting Party shall not accept a filing unless the designated airline making such filing gives an assurance that it has informed the other designated airlines of the proposed tariffs.

(4)    Any proposed tariff for carriage between Hong Kong and New Zealand shall be filed with the aeronautical authorities of both Contracting Parties in such form as the aeronautical authorities may separately require to disclose the particulars referred to in paragraph (1) of this Article. It shall be filed not less than 60 days (or such shorter period as the aeronautical authorities may allow) before the proposed effective date. The proposed tariff shall be treated as having been filed with a Contracting Party on the date on which it is received by the aeronautical authorities of that Contracting Party. Each designated airline shall not be responsible to any aeronautical authorities other than its own for the justification of the tariffs so proposed except where a tariff has been unilaterally filed.

(5)    Any proposed tariff may be approved by the aeronautical authorities of either Contracting Party at any time and, provided it has been filed in accordance with paragraph (4) of this Article, shall be deemed to have been approved by the aeronautical authorities unless, within 30 days (or such shorter period as the aeronautical authorities of both Contracting Parties may allow) after the date of filing, the aeronautical authorities of either Contracting Party have served on the aeronautical authorities of the other Contracting Party written notice of disapproval of the proposed tariff. Such notice of disapproval shall be given not less than 15 days prior to the effective date of the proposed tariff.

(6)    If a notice of disapproval is given in accordance with the provisions of paragraph (5) of this Article, the aeronautical authorities of the two Contracting Parties may determine the tariff by mutual agreement. Either Contracting Party may, within 30 days of the service of the notice of disapproval, request consultations which shall be held within 30 days of the request.

(7)    If a tariff has been disapproved by one of the aeronautical authorities in accordance with paragraph (5) of this Article, the aeronautical authorities have been unable to determine the tariff by agreement in accordance with paragraph (6) of the Article, the dispute may be settled in accordance with the provisions of Article 15 of this Agreement.

(8)    Subject to paragraph (9) of this Article, a tariff established in accordance with the provisions of this Article shall remain in force until a replacement tariff has been established.

(9)    Except with the agreement of the aeronautical authorities of both Contracting Parties, and for such period as they may agree, a tariff shall not be prolonged by virtue of paragraph (8) of this Article:

(a)    where a tariff has a terminal date, for more than 90 days after that date;

(b)    where a tariff has no terminal date, for more than 90 days after the date on which a replacement tariff is filed with both aeronautical authorities by the designated airline or airlines of one or both Contracting Parties.

(10)    The tariffs charged by the designated airlines of one Contracting Party for carriage between the area of the other Contracting Party and the territory of a State which is not a Contracting Party shall be subject to the approval of the other Contracting Party and such non-contracting State: provided, however, that a Contracting Party shall not require a different tariff from the tariff of its own airlines for comparable services between the same points. The designated airlines of each Contracting Party shall file such tariffs with the other Contracting Party, in accordance with its requirements. Approval of such tariffs may be withdrawn on no less than 15 days’ notice provided however that a Contracting Party withdrawing such approval shall permit the designated airline concerned to apply the same tariffs as its own airlines for comparable services between the same points.

402    The question therefore is whether a fuel or insurance surcharge is a ‘freight rate’ under Art 7(1)(b) or a condition governing the availability or applicability of a fare under Art s 7(1)(c). The parties agreed that as a treaty its interpretation was to be approached in accordance with Art 31 of the Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155 UNTS 331 (entered into force 27 January 1980) (‘the Vienna Convention’).

403    Article 31(1) of the Vienna Convention provides that a treaty ‘shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose’. The context includes its text and preamble (as Art 31(2) assumes). Article 31(3)(b) ensures that the context includes any subsequent practice that establishes the agreement of the parties regarding its interpretation. In the case of the ASA under consideration this would open the way to an argument that the States party was accustomed to treating fuel surcharges as ‘tariffs’ under Art 7(1) as was the New Zealand government. No attempt was made to rely upon this matter. I put Art 31(3)(b) to one side.

404    A number of textual considerations suggest that ‘freight rate’ should be interpreted to include a component of an overall rate such as a fuel surcharge. First, the combined operation of Arts 7(2), 7(5) and 7(6) is to create a rÉgime in which the aeronautical authorities of Hong Kong, i.e. the HK CAD and those of New Zealand maintain, if necessary through agreement or arbitration, control over ‘freight rates’ on flights governed by the Hong Kong-New Zealand ASA. Whilst one can be tolerably clear about the purpose underlying rate fixing in Bermuda I style ASA’s, Art 7 is a somewhat less demanding provision. Strict supervision is, however, maintained. The airlines do not have to consult with each other about tariffs but may do so: Art 7(3). I do not think I can speculate on why Hong Kong and New Zealand decided that they should maintain ultimate control over tariffs even if the ultimate approval within 30 days of lodgement of a tariff provided by for by Art 7(5) rather suggests that interference was expected to be light. What one can take from the control contemplated by Art 7 for the two States is that it served some potential economic purpose.

405    Secondly, if one admits of the possibility that an airline might charge a ‘tariff’ within Art 7(2) but then be able to charge another impost in addition to the ‘tariff’ which was not itself a tariff, then it would follow that the regulatory scheme would not apply to and would not regulate this second class of impost.

406    Thirdly, this would mean that approval under Art 7(2) was not required to levy such an impost and that no power existed under Art 7(5) to disapprove its imposition. Effectively, in relation to this impost the ASA would operate for completely ‘open skies’.

407    Fourthly, there is no limit to the size of this effect. Any component of a freight rate, if components of a rate be themselves not a rate, will lie outside the regulation of Art 7. In particular, every freight rate can be reduced to two equal or nearly equal halves. If components of a rate lie outside Art 7 one obvious lacuna in the operation of Art 7 is the device of converting all ‘freight rates’ into two or more ‘components’ lying beyond its reach.

408    Fifthly, reading ‘freight rate’ so that for any act of carriage there can be only one such rate and thereby excluding any components of such a rate, is supported by the singular form of the expression ‘the freight rate’. In the interpretation of written instruments it is generally accepted as a matter of domestic law that references to the singular include the plural unless the context indicates to the contrary: see, for example, Acts Interpretation Act 1901 (Cth), s 23(b). The Vienna Convention does not include amongst its provisions any express rule concerning the approach to the interpretation of singular expressions. This reflects a conscious decision taken during its drafting not to include canons or maxims of interpretation. It is likely that ordinary rules of language apply. Thus the World Trade Organisation’s Appellate Body considered that ‘duty’ included ‘duties’ so that an investigating authority looking into anti-dumping allegations was not prohibited from considering more than one at a time: Appellate Body Decision, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina [2004] WTO Doc WT/DS268/AB/R, AB-2004-4 at [102]. Probably the safer course is to seek to ascertain from the terms of the treaty involved whether the States party intended a reference to the singular to include the plural. In the case of Art 7 it should be inferred that they did because to read it otherwise would render the article open to obvious circumvention of a kind which could not have been in contemplation.

409    Sixthly, I have difficulty in identifying what end it would serve to construe ‘freight rate’ so as not to include components of a rate. It would certainly undermine the ability of the two States to control the prices being charged on the routes between them.

410    Those matters lead me to conclude that the expression ‘freight rate’ where used in Art 7(1) includes a component of a freight rate, such as a surcharge or a customs fee, as a matter of ordinary meaning.

411    Professor Dempsey expressed the view in his evidence that a tariff included a surcharge. Since I have reached that conclusion independently I do not need to call in aid of his opinion. Accordingly, I may skirt the rather complex questions attending the receipt of his opinion: cf. Art 32, Vienna Convention.

412    For these reasons I conclude that a ‘freight rate’ in Art 7 of the Hong Kong-New Zealand ASA includes a component of a freight rate such as a surcharge or a customs fee. Consequently, the fuel surcharges the subject of this litigation were tariffs under the Hong Kong-New Zealand ASA.

6.1.2 The Hong Kong-Indonesia ASA

413    The relevant provision of the Hong Kong-Indonesia ASA was Art 8. It provided:

ARTICLE 8

Tariffs

(1)    The term “tariff” means one or more of the following:

(a)    the fare charged by an airline for the carriage of passengers and their baggage on scheduled air services and the charges and conditions for services ancillary to such carriage;

(b)    the rate charged by an airline for the carriage of cargo (excluding mail) on scheduled air services;

(c)     the conditions governing the availability or applicability of any such fare or rate including any benefits attaching to it; and

(d)     the rate of commission paid by an airline to an agent in respect of tickets sold or air waybills completed by that agent for carriage on scheduled air services.

(2)    The tariffs to be charged by the designated airlines of the Contracting Parties for carriage between Hong Kong and Indonesia shall be those approved by the aeronautical authorities of both Contracting Parties and shall be established at reasonable levels, due regard being had to all relevant factors, including the cost of operating the agreed services, the interests of users, reasonable profit and the tariffs of other airlines operating over the whole or part of the same route.

(3)    The tariffs referred to in paragraph (2) of this Article may be agreed by the designated airlines of the Contracting Parties seeking approval of the tariffs, which may consult other airlines operating over the whole or part of the same route, before proposing such tariffs. However, a designated airline shall not be precluded from proposing, nor the aeronautical authorities of the Contracting Parties from approving, any tariff, if that airline shall have failed to obtain the agreement of the other designated airlines to such tariff, or because no other designated airline is operating on the same route. References in this and the preceding paragraph to “the same route” are to the route operated, not the specified route.

(4)    Any proposed tariff for carriage between Hong Kong and Indonesia shall be filed with the aeronautical authorities of the Contracting Parties by the designated airline or airlines seeking its approval in such form as the aeronautical authorities may separately require to disclose the particulars referred to in paragraph (1) of this Article. It shall be filed not less than 60 days (or such shorter period as the aeronautical authorities of the Contracting Parties may agree) before the proposed effective date. The proposed tariff shall be treated as having been filed with the aeronautical authorities of a Contracting Party on the date on which it is received by those aeronautical authorities

(5)    Any proposed tariff may be approved by the aeronautical authorities of a Contracting Party at any time and, provided it has been filed in accordance with paragraph (4) of this Article, shall be deemed to have been approved by the aeronautical authorities of that Contracting Party unless, within 30 days (or such shorter period as the aeronautical authorities of the Contracting Parties may agree) after the date of filing, the aeronautical authorities of one Contracting Party have served on the aeronautical authorities of the other Contracting Party written notice of disapproval of the proposed tariff.

(6)    If a notice of disapproval is given in accordance with the provisions of paragraph (5) of this Article, the aeronautical authorities of the Contracting Parties may jointly determine the tariff. For this purpose, one Contracting Party may, within 30 days of the service of the notice of disapproval, request consultations between the aeronautical authorities of the Contracting Parties which shall be held within 30 days from the date the other Contracting Party receives such request in writing.

(7)    If a tariff has been disapproved by the aeronautical authorities of a Contracting Party in accordance with paragraph (5) of this Article, and if the aeronautical authorities of the Contracting Parties have been unable jointly to determine the tariff in accordance with paragraph (6) of this Article, the dispute may be settled in accordance with the provisions of Article 15 of this Agreement.

(8)    Subject to paragraph (9) of this Article, a tariff established in accordance with the provisions of this Article shall remain valid until a replacement tariff has been established.

(9)    Except with the agreement of the aeronautical authorities of both Contracting Parties, and for such period as they may agree, the validity of a tariff shall not be prolonged by virtue of paragraph (8) of this Article:

(a)    where a tariff has a terminal date, for more than 12 months after that date;

(b)     where a tariff has no terminal date, for more than 12 months after the date on which a replacement tariff is filed with the aeronautical authorities of the Contracting Parties by a designated airline of a Contracting Party.

(10)    (a)    The tariffs to be charged by the designated airlines of Hong Kong for carriage between Indonesia and another State shall be subject to approval by the aeronautical authorities of Indonesia and, where appropriate, of the other State. The tariffs to be charged by the designated airlines of Indonesia for carriage between Hong Kong and a State other than Indonesia shall be subject to approval by the aeronautical authorities of Hong Kong and, where appropriate, of the other State.

(b)    Any proposed tariff for such carriage shall be filed by the designated airline of one Contracting Party seeking approval of such tariff with the aeronautical authorities of the other Contracting Party. It shall be filed in such form as those aeronautical authorities may require to disclose the particulars referred to in paragraph (1) of this Article and not less than 90 days (or such shorter period as they may decide) prior to the proposed effective date. The proposed tariff shall be treated as having been filed on the date on which it is received by those aeronautical authorities.

(c)    Such tariff may be approved at any time by the aeronautical authorities of the Contracting Party with whom it has been filed and shall be deemed to have been approved by them unless, within 30 days after the date of filing, they have served on the designated airline seeking approval of such tariff written notice of disapproval.

(d)    The aeronautical authorities of a Contracting Party may withdraw approval of any such tariff approved or deemed to be approved by them on giving 90 days' notice to the designated airline charging such tariff. That airline shall cease to charge such tariff at the end of that period.

(11)    Notwithstanding the provisions of paragraphs (5) and (l0)(c) of this Article, the aeronautical authorities of a Contracting Party shall not disapprove any proposed tariff filed with them by a designated airline which corresponds (e.g. in price level, conditions and date of expiry but not necessarily the routeing being used) to the tariff charged by an airline of that Contracting Party for comparable services between the same points or is more restrictive or higher than that tariff.

414    On the issue of whether a tariff includes a surcharge or a customs fee, the construction questions are largely the same. It is true, because Indonesia has not acceded the Vienna Convention, that it does not directly apply but it is likely, in any event, that the Vienna Convention merely reflects the contents of customary international law: see Thiel v Commissioner of Taxation (1990) 171 CLR 338 at 356. I see no material difference between the definition of ‘tariff’ under Art 8 and its definition in Art 7 of the Hong Kong-New Zealand ASA in relation to this issue. Consequently, I conclude that it includes surcharges and customs fees as well.

6.1.3 The Australia-Indonesia ASA

415    The Australia-Indonesia ASA does not contain a definition of ‘tariff’. The most relevant provision is Article 6 which is set out above at [163].

416    The same reasoning, however, applies. If ‘tariff’ is construed not to include a component of an overall freight rate then the entire purpose of the article can be thwarted by breaking overall freight rates into component elements to which Article 6 will not apply. This cannot be what the States party intended. Accordingly, I conclude that a tariff includes a surcharge and a customs fee.

417    For that reason, I conclude that the surcharges and customs fee are tariffs within the meaning of all three agreements.

6.1.4 Obligations with respect to approved tariffs

418    It follows therefore that I accept the first of the requirements contended for by the airlines. If they were going to impose a fuel or insurance surcharge or a customs fee they needed to obtain approval from the HK CAD as a matter of Hong Kong domestic law.

419    I also accept that the only surcharge which could be imposed would be the approved one. This flows not from the meaning of the word ‘tariff’ in any of the ASAs which is, at least on this topic, obscure but from the language of the operating permit (‘shall charge only those tariffs which have been approved’). The word ‘only’ means ‘only’. The charging of a non-approved surcharge would be the charging of a different tariff.

420    I do not, however, accept that Hong Kong domestic law required anything in relation to collective applications for fuel surcharges. Indeed, the airlines did not submit that it did. Their case was that this requirement was to be seen as emerging from the administrative directions given to them by the HK CAD.

421    The Commission called an expert in the law of Hong Kong, Dr McCoy QC, to prove that a tariff was a maximum amount. The airlines called Mr Wingfield, Hong Kong’s former solicitor-general, to prove that it was a minimum amount. There is no doubt that in the case of Bermuda I the expression ‘tariff’ referred to a minimum. The entire point of Bermuda I was to prevent the forces of ‘destructive competition’ from leading to the elimination of the European aviation industry at the hands of the United States industry. This is the very point made by Haanappel to which I have referred to above in Section 3.1. I can see no reason why one would have an ASA to regulate air transport between two nations containing price fixing machinery if the price fixed was a maximum. Nothing in the literature about ASAs supports the Commission’s position; nor does it correspond with what happened.

422    Despite this, Dr McCoy held the contrary view. There were three reasons for this. First, a Court would take judicial notice of discounting of tariffs by airlines. I cannot take judicial notice of such a matter. Section 144 of the Evidence Act 1995 (Cth) constrains the matters of which I can take judicial notice to matters of common knowledge where the proceeding is held, (i.e. Sydney) or matters capable of verification by reference to documents the authority of which cannot be reasonably be questioned. The tariff discounting practices of airlines flying out of Hong Kong are not the legitimate subject of judicial notice. Even if the obstacles of s 144 could somehow be surmounted, the practices of airlines would be irrelevant to the meaning afforded the word ‘tariff’ in the ASAs. Later shared States’ practice may throw light on what a treaty provision may mean (cf. Vienna Convention Art 32) but that is not what the practice of airlines would reveal.

423    Secondly, Dr McCoy thought that the ASAs were part of what he termed a ‘Russian Doll’ consisting on the outside of the Vienna Convention, the ASAs, the domestic ordinances in Hong Kong and the terms of the operating permit. Viewed in that context, one could see that they were maxima from which discounting could occur because this was the natural English meaning of the word ‘tariff’. I do not agree that this is so. Even if the ordinary meaning of the word ‘tariff’ connoted a minimum I do not think in the context of the ASAs it could mean that because of an inability on my part, despite some effort, to understand what the point of rate fixing machinery is if those subject to it are permitted to discount from it. In any event, I doubt whether ‘tariff’ has such meaning. The Oxford English Dictionary defines a tariff as ‘an official list or schedule setting forth the several customs duties to be imposed on imports and exports; a table or book of rates; any item of such a list, the impost (on any article); also the whole body or system of such duties as established in any country.’ This does not support Dr McCoy’s view.

424    Thirdly, Dr McCoy argued that the Art 44(e) of the Chicago Convention provided for ‘no unreasonable competition’ and this was something a Hong Kong decision maker would have to take into account. I take from this the idea that the Chicago Convention is somehow to be seen as imposing an obligation to encourage competition (albeit not of an unreasonable kind); that competition would require the ability on the part of airlines to discount; and, therefore, that one ought to read the word ‘tariff’ in the ASA consistently with that obligation. I do not accept this. Assuming that the ASAs should be interpreted in light of the Chicago Convention one would require a great deal more than these three words to qualify the operation of these bilateral arrangements. The argument is tenuous.

425    I conclude that Dr McCoy is, with respect, wrong about this and that Mr Wingfield is correct. As it happens, the issue is also one of public international law about which I can form my own views: Australian Competition and Consumer Commission v PT Garuda Indonesia (No 9) (2013) 212 FCR 406 at [32]-[48]. My own view is that it is quite plain that tariffs are minima and that the point of rate fixing machinery in ASAs is to prevent the destructive forces of competition from harming (originally) flag carriers.

426    The Commission also alleged that there was a further issue about the meaning of ‘tariff’ which was whether once a tariff was approved it had to be imposed by an airline. I did not read the airlines’ submissions as contending that this was a requirement. In any event, it is plain that there was no such obligation.

427    The Commission also cited Browne v Dunn (1893) 6 R 97 for the proposition that since Dr McCoy was not cross-examined to suggest that his view about tariffs being minima was wrong the airlines could not submit to that effect. I reject this submission. The issue was plainly in contest; both sides knew their respective positions; opinions had been exchanged. The rule in Browne v Dunn does not require the obvious to be put to a witness. In any event, quite apart from the airlines’ position I am satisfied that Dr McCoy is certainly incorrect in light of my own understanding of how the ASA should be interpreted as a matter of public international law. I do not propose to decide this case on a basis of which I know to be wrong.

6.2 The requirements of the HK CAD

428    There is no direct evidence that the HK CAD ever issued a written requirement that airlines wishing to impose a fuel surcharge calculated by reference to an index mechanism do so by a collective application through the HK BAR CSC. No witness was called from the HK CAD to say that it had done so. There was indirect evidence, however, to that effect. Air NZ pointed to the testimony of Ms Liu (who was cross-examined) and the affidavit of Mr Tan (who was not). There was also correspondence to the President of the European Commission from the HK CAD.

429    Before turning to the controversial aspects of that evidence it is useful to refer to some matters by way of background. The airlines which operated out of Hong Kong international airport established amongst themselves a body called the Hong Kong Board of Airline Representatives (‘the HK BAR’) to represent their interests in matters of concern to them. It consisted of representatives from each of the airlines and a member of the Hong Kong Legislative Council. It had a number of subcommittees including the cargo subcommittee (the HK BAR CSC) whose purpose was to represent the interests of airlines in discussions with the HK CAD about air cargo. At the relevant time the HK BAR CSC had around 50 to 60 members.

430    During the period 2000 to 2008 the HK BAR CSC was chaired by a representative of Cathay Pacific, the home carrier. The relevant chairpersons were:

(a)    Mr Chung Mak (until January 2000);

(b)    Mr KK Leung (from February 2000 to September 2003);

(c)    Mr Tom Wong (from September 2003 to August 2005); and

(d)    Ms Christine Liu (from July 2005 to June 2007).

431    Ms Liu was called as a witness by Air NZ. She is presently an employee of Cathay Pacific but is on extended unpaid leave. Messrs Mak and Wong are no longer employed by Cathay Pacific and Mr Leung passed away in 2011.

432    The HK BAR CSC also had an executive subcommittee which met, as Ms Liu put it, in a more efficient manner and had a smaller membership. These committees kept minutes of their meetings. There was also a surcharge working group which was established in 2003 as a subcommittee of the HK BAR CSC. It was part of the role of the chair of the HK BAR CSC to deal with the HK CAD on the issue of tariffs.

433    As I have said, the written correspondence between the HK BAR CSC and the HK CAD does not reveal the existence of a written requirement that airlines wishing to impose a fuel surcharge using an index mechanism do so by way of joint application. The HK CAD’s written correspondence does indicate, however, that it regarded fuel surcharges as tariffs within the meaning of the relevant ASAs: see, for example, its letters to the HK BAR CSC of 12 April 2002 and 18 June 2002 which both clearly stated the HK CAD’s view that fuel surcharges were tariffs which required its approval. For reasons already given above, this view was correct.

434    Over the period 2000 to 2007 it is clear that the HK CAD gave approval for the imposition of fuel surcharges based on three indices. The first index was the IATA fuel index which was used for the period 2000 to 2002; the second was the Lufthansa fuel index which was used between 2002 and 2006; and, the third was a fuel index proposed by the HK BAR CSC itself which was used after 2006 until 2007. The HK CAD also approved changes to the lists of airlines who were using the index through the HK BAR CSC’s joint application. None of this very extensive correspondence refers to the need for the HK BAR CSC to apply jointly on behalf of all airlines wishing to use a fuel price index although in practice this is what occurred.

435    At the time that the index being used switched from the Lufthansa Index to the HK BAR CSC index (in September 2006) a meeting took place between Ms Liu and four representatives of the HK CAD being a Ms Poon, a Mr Kwok, Mr To and a person called Erin. Ms Liu gave evidence about this meeting. Paragraphs six to twelve of her affidavit of 22 February 2013 are as follows:

6.    After I completed my presentation, one of the CAD representatives (I cannot now recall which one), said words in Chinese to the following effect:

We would like to provide you clarification of our stance on how we assess applications for fuel surcharges. We would like to give you clarification because we have learned recently that there was some confusion about our policy.

7.    

8.    The CAD representative said words to the effect:

If you want an approval to charge an FSC in accordance with an FSC mechanism, all airlines must agree to a single mechanism, not multiple mechanisms. But if an individual airline wants to apply for approval to charge a static FSC, it can apply individually.

9.    I recall that Stephen Kwok said words to the effect:

You can imagine that its not possible to implement and monitor more than one FSC mechanism in Hong Kong, not just for the CAD but because it would be confusing for shippers as well.

10.    Ms Poon said words to the effect:

If you want to apply to CAD for a static surcharge in Hong Kong, individual airlines can do so. But according to the Air Services Agreements, the CAD requires 60-90 days to review the application before it will grant approval. If approved, the approval would last two months and the FSC could not change in those two months.

11.    I then said words to the effect:

That is a very clear statement, thank you. Would you mind putting that in black and white so that I can pass that information on to the airlines?

12.    A CAD representative responded in words to the following effect:

If you need the details in black and white, we would have to obtain the Bureau’s approval and that would be a prolonged and complicated process. As chairman of the BAR-CSC, you can pass this on the airlines.

436    It will be noted that on Ms Liu’s account the HK CAD did not prevent airlines lodging their own static applications although it did indicate that such applications would take between 60-90 days to process and would be in force for only two months. This is quite different to the airlines’ submission that they were obliged by a direction from the HK CAD only to lodge a joint application. Ms Liu’s affidavit directly contradicts that proposition. It suggests instead that the airlines were free to lodge individual applications albeit there may have been commercial reasons why they did not wish to utilise that freedom. These included the delay which would be involved in obtaining approval, the inability to change the surcharge during the approval’s currency and its relatively short duration. None of these, however, was a legal impediment to making an application for an individual approval. Further, an airline which wished to use an index mechanism to determine its surcharges was perfectly free to do so. Instead of getting approval for the entire index structure it could keep the index in-house and seek approval for the individual surcharges its index suggested. There were commercial disincentives against doing so, but there was never a direction from the Hong Kong authorities that airlines who decided to impose surcharges using an index must agree on a single index with their competitors.

437    The Commission was nevertheless critical of Ms Liu’s evidence (I return to this below) but it is corroborated by contemporaneous documentation. For example, in her letter to the HK CAD of 26 September 2006, Ms Liu set out the circumstances in which the Lufthansa Index came to an end but went on to say:

In accordance with your prior direction to collectively apply for review and approval for the Ex-Hong Kong air cargo fuel surcharge, BAR-CSC has endeavoured to create an index that is consistent, transparent and predictable, in line with the requirements of the shipper and freight forwarder community in HK. Accordingly, we will be grateful for your consideration and approval of BAR-CSC’s proposed new air cargo fuel surcharge mechanism.

438    Further, in an email of 20 September 2006 Ms Liu said:

… as CAD indicated verbally to me that airlines should submit one scheme iso [instead of] leaving CAD to choose.

439    The Commission submitted that I should reject Ms Liu’s evidence for the following reasons. First, the final account of the conversation of 26 or 29 September was given by Ms Liu only in her third affidavit and was thus to be seen as her third ‘go’ at getting the account correct. Secondly, it was unlikely she could have had such precise recall of the conversation which had happened seven years earlier. In the same vein, it was said that her confident assertion she could recall certain events in 2006 was inherently implausible. Thirdly, in relation to the events of September 2006 it was pointed out that Ms Liu was by then aware of the antitrust implications of what had been occurring and indeed it was Ms Liu who was striving to obtain a clear statement from the HK CAD that it would require a joint application for the use of a fuel price index mechanism. Further, her evidence of whether she took a file note of the conversation was said to be unsatisfactory. She testified that she had taken a note of it but acknowledged under cross-examination that no such note had ever been found. Fourthly, she was criticised for her account of the meeting which was said to have certain chronological difficulties. Fifthly, it was said that she had reconstructed her evidence from the email of 19 September 2006. Finally, it was said that she was argumentative in the manner in which she gave her evidence.

440    I accept that Ms Liu was perhaps sometimes a little over confident in her ability to recall the events of 2006 with such clarity. But none of the criticisms which have been made of her evidence dispose me to consider that her account of the conversation of 26 September 2006 is incorrect. In significant ways it is corroborated by the emails of 20 and 26 September 2006. For me to reject her evidence I would need to conclude that these emails were generated with some ulterior and essentially dishonest motive. I acknowledge that it is possible that Ms Liu, being by then aware that antitrust questions had arisen, was seeking to obtain in writing something which might serve as a defence in subsequent antitrust proceedings. But I do not really think this is likely. The legal mechanics by which the statement sought to be elicited from the HK CAD as to its fuel surcharge index requirements operated at a very high level. The Commissioner’s case on this aspect attributes to Ms Liu a degree of forensic foresight well in excess of that I would expect her to have.

441    This conclusion also accords with what common sense might suggest HK CAD’s position would be – it would be ungainly to have to deal with more than one fuel index and it would perhaps promote confusion amongst the shippers.

442    Accordingly, I accept Ms Liu’s evidence about events in Hong Kong and, in particular, I accept her evidence about what was said by representatives of the HK CAD to her at the meeting held in September 2006. No doubt there were deficiencies in her evidence but I did not think that these bespoke a lack of honesty on her part.

443    Of course that establishes a ‘direction’ only in September 2006. It does not establish that the HK CAD always proceeded on this basis. On the other hand, I do know that, in fact, there was only one fuel index approved at a time and that in each case it was the result of a joint application made on behalf of airlines by the HK BAR CSC. I am prepared to infer that the position announced in September 2006 was not new but reflected the practice of the HK CAD over the entire relevant period. It is difficult to see why there would have been a sudden change of practice in September 2006.

444    Air NZ placed considerable reliance upon a letter written by the HK CAD to the European Commission on 3 September 2009 (see: Australian Competition and Consumer Commission v Air New Zealand (No 7) (2013) 209 FCR 361). In this letter the HK CAD set out its views of what it had required of airlines in the relevant period. In part it said:

The Commission should be absolutely clear that, in respect of the cargo fuel surcharge index-based mechanism, we require that the BAR-CSC and the participating carriers agree on the details of the collective applications, including the amount of the surcharge for which approval was sought, the evidence to be provided to CAD supporting the applications and the single mechanism to be used for determining the surcharge. The CAD also mandated and required the participating carriers to levy specifically the surcharge approved. Moreover, we mandated and required BAR-CSC to submit for approval to CAD any change of the list of carriers participating in the collective applications and we made it clear that such carriers should not levy any fuel surcharge without CAD’s express approval to the BAR-CSC.

445    Where this letter varies from it I prefer Ms Liu’s account of what the HK CAD in fact required to the account set out in its letter. Her account is based upon contemporaneous experiences with nominated HK CAD officials actually involved in the process of preparing the fuel surcharge. Further, Ms Liu’s account is supported by the contemporaneous documents discussed above. The letter, on the other hand, postdates by a number of years the events in question and is written by a person who appears to have no direct contemporaneous involvement in the surcharge approval process.

446    I do not, however, accept that Ms Liu’s evidence establishes the direction for which the airlines contend. Her account of the meeting in September 2006 does not show that the airlines were told that they could only submit a joint application in respect of a fuel index mechanism. Instead the airlines were told that they could each apply for a static surcharge but that the HK CAD would most likely take 60-90 days to process any such application and any approval would, in any event, last for only two months. As I have said above, an airline which wished to use its own fuel index could do so by providing the HK CAD with a series of static surcharges calculated by that airline internally using its own index. No doubt the information by the HK CAD that it would take at least two months to process any such application provided something of a commercial disincentive for an airline to go down that path and perhaps the same may be said of the fact that any such approval would only last for two months, but this was a commercial or practical concern and not a legal one. The sluggishness of the HK CAD’s approach to such applications, and their disinclination to entertain them, was no doubt inconvenient but it was not an administrative prohibition. I therefore reject the key proposition the airlines advance that the HK CAD required a joint application for any fuel index mechanism. It encouraged such an approach, but it did not require it. At all times they were both legally and administratively able to lodge single applications on each of their own behalves. The HK CAD never directed that the airlines could not do this and it never directed them to collude. The correct position is most accurately captured in a telex of 10 January 2000 sent by the Chair of the HK BAR CSC about an alteration to a surcharge. It concluded:

F.Y.I, if any individual airlines would still like to file to HKCAD for a fuel surcharge, they are of course free to do so.

447    I therefore accept that:

(a)    a fuel or insurance surcharge is a tariff within the meaning of the relevant operating permits;

(b)    airlines were required to obtain approval from the HK CAD for the imposition of any fuel or insurance surcharge;

(c)    once that approval was obtained each airline was permitted to charge only that surcharge and no other; but

(d)    although airlines were encouraged to lodge a joint application through the HK BAR CSC for the approval of any fuel index mechanism, they were not directed to do so and each could have, subject to some commercial inconvenience, applied its own fuel index mechanism.

448    I have considered the affidavit evidence of Mr Tan who was not made available for cross-examination and whose affidavit was received over objection as a documentary tender under an exception to the hearsay rule. He had no direct evidence on this topic to give but only that of his understanding of what the HK CAD required. I prefer Ms Liu’s evidence to Mr Tan’s.

449    The upshot of that factual conclusion is that the question of whether there is a foreign state compulsion defence does not arise.

7 INDONESIAN LAW AND DOMESTIC PRACTICE

450    Garuda submitted that it had been required to engage in collective agreement in fixing surcharges because of Undang-Undang Republik Indonesia Nomor 15 Tahun 1992 Tentang Penerbangan [Law No 15 of 1992 on Aviation] (Indonesia) (‘the Indonesian Aviation Law’) Art 13(2) a translation of which provided:

Foreign civil aircraft from and to or through the territory of the Republic of Indonesia, can only be used on the basis of a bilateral agreement, multilateral agreement or special permission from the government.

[emphasis added]

451    There was a dispute as to whether ‘on the basis of’ was an adequate translation of the Indonesian word ‘berdasarkan’ but this presently is of no moment. This is because Art 13(2) applies to foreign aircraft which Garuda’s aircraft are not. Two experts on Indonesian law, Professor Lindsay and Dr Butt, were called and both agreed that Art 13(2) did not apply to Garuda which would appear to be the end of this argument.

452    In its written submissions, however, Garuda submitted that it came under an obligation to agree surcharges collectively by reason of Art 38 of Peraturan Pemerintah Republik Indonesia Nomor 40 Tahun 1995 Tentang Angkutan Udara [Government Regulation No 40 of 1995 on Aviation] (Indonesia) (‘the Indonesian Aviation Regulations’). A translation of Art 38(2) provided:

Scheduled air passenger and transport cargo tariffs are to be determined guided by the provisions of bilateral treaties or multilateral treaties and the agreement of the parties that has obtained the approval of the Minister.

453    Professor Lindsay was of the view, with which Dr Butt agreed, that Art 38 of the Indonesian Aviation Regulations had to be interpreted in light of the statute which implemented it which was Art 40 of the Indonesian Aviation Law. It provided:

The structure and classes of commercial air transport tariffs are to be stipulated by the government.

454    This is fatal to Garuda’s submissions because it is clear that Art 40 is directed, not to Garuda, but to the Government of Indonesia. What Art 38(2), therefore, requires is for the Government to determine the tariffs guided by the relevant bilateral arrangement. It says nothing about Garuda’s obligations.

455    Garuda also submitted in writing that it was ‘tolerably plain that Article 38(2) corresponds to an implementation of a Bermuda style tariff-fixing obligation. The reference to multilateral treaties is apt to include IATA rate-fixing where that is available’. When the relevant treaty uses IATA rate fixing it is true that the effect of Art 38(2) and Art 40 will be that the Government of Indonesia will be obliged to set tariffs by reference to any IATA rate fixing which has occurred. But this is not a legal obligation which rested on any of the airlines. It rested only upon the Government of Indonesia. Accordingly, Art 38(2) did not require Garuda to engage in IATA rate fixing as a matter of Indonesian domestic law.

456    The Commission also submitted that its construction of these provisions was assisted by the subsequent passage of the Undang-Undang Republik Indonesia Nomor 5 Tahun 1999 Tentang Larangan Pratek Monopoli Dan Persaingan Usaha Tidak Sehat [Law No 5 of 1999 Regarding the Ban on Monopolistic Practices and Unfair Business Competition] (Indonesia). Because I have rejected Garuda’s claims about Indonesian law I do not need to decide this issue.

457    I therefore reject Garuda's submissions about Indonesian law, which were tenuous. As to Indonesian State practice Garuda submitted that it was clear that the government of Indonesia was involved in the determination of tariffs including surcharges. To make good this point it relied upon four matters:

(a)    The minutes of a meeting of the ACRB held on 4 October 2001. These contain the statement 'GA will report to Indonesian Government' in respect of the fuel and security surcharges. This does not prove that the Indonesian government required lodgement of tariffs. The absence of any such statement for all of the other understandings suggests there was not.

(b)    The minutes of a meeting of the ACRB held on 13 September 2002. These minutes record that 'GA advised Indonesian Authority unable to accept the new formula for Low Density Cargo as stipulated in the IATA Memorandum CTC COMP 0396…'. An earlier meeting held on 30 July 2002 shows that the airlines had decided not to implement this IATA rule and were informing the government. This was not the determination of a tariff or surcharge as suggested by Garuda nor is there any evidence of any reply from the government.

(c)    The minutes of a meeting of the ACRB held on 9 April 2002. This meeting concerned the AWB fee discussed later. The Indonesian government is not referred to in this minute.

(d)    The minutes of a BARINDO meeting held on 28 May 2004. This in fact concerned a letter written to the government asking it not to introduce a new tax.

458    These four matters do not remotely persuade me that, in fact, the Indonesian government required lodgement of tariffs or surcharges.

459    Finally, Garuda relied upon a submission made by the Commission to the Department of Foreign Affairs and Trade in October 2007. This submission refers to the obligation under the ASA to lodge tariffs but says nothing about whether Indonesia actually required this to be done.

460    I find there was no such practice. Neither Indonesian law nor practice required Garuda to collude on surcharges. The issues of its foreign state compulsion defences do not arise.

461    Before turning to the facts it is first useful to make some observations about the requirements for proof in cases such as the present.

8 PROOF IN SECTION 45 CASES

462    Four issues arise here. First, what needs to be proved in order to show that a contract or arrangement has been made or an understanding reached within the meaning of s 45? Secondly, how does one go about proving such a matter? Third, who bears the onus of proof? Fourth, what is the level of proof required?

8.1 What needs to be proved?

463    As to the first issue the following propositions are orthodox in the jurisprudence of this Court (although not free from controversy in academic circles):

1.    Section 45 uses the expression ‘contract, arrangement or understanding’. Obviously enough a contract involves a degree of formality. Arrangements and understandings, on the other hand, are different concepts but at the heart of both is the need for there to be a meeting of the minds or, if you will, a consensus: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) 160 FCR 321; [2007] FCA 794 at 331-332 [26]-[28]. It seems that an arrangement will generally require some form of express negotiation or at the very least communication between the parties: ACCC v Leahy at 331-332 [26] and the authorities there collected. On the other hand, an understanding can be tacit and may arise without communication so long as there is a meeting of the minds: ACCC v Leahy at 332 [27]-[28]. Whatever else is involved it seems this means that at least one party assumes an obligation to another or gives an assurance or undertaking that it will act in a certain way: Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission (2005) 159 FCR 452 at 464 [45] applying the remarks of Lindgren J in Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375 at 408 [141].

2.    Ordinarily, the concept of a meeting of the minds or a consensus will involve some element of reciprocity between the parties to the understanding. A number of obiter dicta suggest that reciprocity or mutuality is not inevitably a necessary element whilst conceding that, in practice, it will frequently be present. The debate was usefully summarised by Lockhart J in Trade Practices Commission v Service Station Association Ltd (1993) 44 FCR 206 at 230-231. Although many later authorities in this Court have referred to this judgment as authority for the proposition that mutuality is not a necessary element, it is worth noting Lockhart J’s own observation that it is difficult to imagine such a case in practice. This view was also shared by Spender and Lee JJ in their concurring judgment at 238. In a similar vein, I am aware of no case in which an understanding has been established in which there was not mutuality between the alleged parties to the understanding. Nevertheless, the authorities in this Court require one to proceed on the basis that it is possible, at least in theory, to establish an understanding without mutuality being present.

3.    An understanding need not be overt. In most cases, there will be overt or express action of some kind or another because in practical terms it is quite difficult to reach a consensus without some form of communication. It is not, however, impossible.

4.    On the other hand, there will be no understanding where one party decides unilaterally to act in a particular way in response to a pricing manoeuvre by a competitor. A deliberate decision to follow the pricing of a competitor does not give rise, by itself, to an arrangement or understanding to which s 45 applies. In a sense, this is a corollary of the need for a consensus.

5.    Consequently, there can be no understanding because one party hopes or expects (in a non-normative sense) that another party will act in a particular way: Apco Service Stations v ACCC at 464 [45]; ACCC v CC (NSW) Pty Ltd at 408 [141].

8.2 How is an understanding to be proved?

464    Turning then to the second question of how an arrangement or understanding might, in practice, be proved the following points deserve repetition:

1.    It will be rare, particularly in price fixing cases, for the parties openly to have committed themselves to each other in some fashion which is easily detected, still less proved. Exceptions to this will, however, include those cases where one member of a price fixing cartel or bid rigging enterprise betrays the other members by giving direct testimony of the understanding. There will also be cases where written agreements are present as, for example, sometimes happens with vertical distribution arrangements or, as in the case of IATA, when the price fixing procedure takes place in the open as part of a formal conference pricing structure.

2.    In cases where direct evidence is not available, the proof of a collusive understanding needs must be circumstantial. Pausing there, it is important to note that there is nothing inherently weak about cases based on circumstantial evidence. In truth, the strength of any particular circumstantial case will be a function of the number of elements of which it consists and the corresponding unlikelihood of those elements happening for reasons other than as a result of the posited collusive behaviour. Just as with any case of circumstantial evidence, it is forlorn to seek to work out the significance of the individual elements. The circumstantial case’s nature and its strength emerge organically from a consideration of it as a whole. Thus, the onus of proof is to be applied only at the end: Palmer v Dolman [2005] NSWCA 361 at [41]. As subparagraph (c) of [41] shows, however, this does not mean that the court is prevented in the ordinary way from finding particular circumstances proved or not proved. Rather, what is meant is that the question of whether the inference, which it is said should be drawn, is to be asked holistically at the end of the process rather than it being asked whether the inference should be drawn from any individual circumstances.

3.    The range of circumstances which may, in a particular case, form part of such a circumstantial case are without limit. In the competition area there are, however, some recurrent themes. As circumstances, none of these themes prove anything in general: some meetings between competitors are collusive, some are not; sometimes parallel pricing arises from conspiracy, sometimes it does not; so too, not every market anomaly signals the presence of a cartel – sometimes they just happen. To produce a list of potential circumstantial matters may run the risk, therefore, of giving rise to a ‘check list’ mentality in which, rather than asking whether a circumstantial case has been proved, one sees how many items on the list are present. Such reasoning is erroneous. Lists of matters which have been found in past cases sometimes to indicate the presence of collusive behaviour can never be more than just aids to understanding given sets of facts. At the end of the day, the question will always remain: has the circumstantial case been proved?

465    With that important limitation in mind the following circumstances have been found to be present in some cases of collusive behaviour.

466    Parallel Conduct. One would expect cartel behaviour to produce parallel, or at least approximately parallel, pricing behaviour. However, it is equally clear that other circumstances can produce the same effect quite innocently. In markets for high volume, homogenous goods in which the market participants are protected by significant barriers to entry, it is quite possible for parallel pricing to occur without collusion. Sawtooth patterns in the movement of petrol prices have been held, in more than one jurisdiction, not to prove the presence of price fixing: see, for example, in Australia, the discussion by Gray J in ACCC v Leahy [2007] FCA 794 at [927]-[930]; and in the United States In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 906 F 2d 432, 445 (9th Cir, 1990). More generally, the same phenomenon can occur in any market which exhibits oligopolistic interdependence, that is, a market in which there are relatively few firms and where those firms use their awareness of each other’s activities in setting prices. It is thus accepted that a circumstantial case consisting only of parallel pricing will never suffice to establish a contravention of s 45: Trade Practices Commission v Email Ltd (1980) 31 ALR 53 at 56. In that case, Lockhart J referred to a number of well-known US decisions to that effect including the Supreme Court’s decision Theatre Enterprises Inc v Paramount Film Distributing Corp, 346 US 537 (1954). Away from markets which exhibit features of oligopolistic interdependence it may be that parallel price movements are more difficult to explain or, to put it another way, that collusion may be more probable. This case does not, however, present a suitable vehicle for the testing of that proposition.

467    In the language of the law of circumstantial evidence, in a case of bare parallel pricing there will usually be a hypothesis consistent with innocence. Certainly this will be so in a market which exhibits oligopolistic interdependence. On the other hand, the absence of parallel pricing may (but need not) tend to prove the absence of collusion. Again, this cannot be an ironclad rule. Even where there is a price fixing cartel there may be circumstances in which non-parallel pricing may yet emerge. For example, there may be a breakdown in discipline in the cartel leading to an outbreak of cheating by one or more of the carteliers. The facts in this case afford an example of this by Garuda in its operations out of Indonesia in the case of the May 2003 Fuel Surcharge Understanding (below at [1180]) when it unilaterally stopped charging the agreed FSC. There may be other cases too where the members of a price fixing cartel deliberately engage in non-parallel pricing from time to time to reduce the appearance of parallel behaviour; or the ability successfully to collude may only occur during certain intermittent market conditions.

468    It follows from these observations that the presence (or absence) of parallel behaviour is only the beginning of the inquiry and will rarely, if ever, be sufficient on its own to reach a conclusion one way or the other. Air NZ relied upon a passage in SG Corones, Competition Law in Australia (Lawbook, 5th ed, 2010) at 276-277 which was in these terms:

Circumstantial evidence, such as prices moving in unison is not sufficient; there must be witnesses who are prepared to give direct evidence of a consensus and a commitment being reached as to the prices they will charge in the future.

469    This is followed immediately by a paragraph which begins, ‘[t]here may be no direct evidence of the parties meeting or communicating directly with each other’. In any event, the first the statement is wrong. Whilst it is true that a circumstantial case consisting solely of parallel pricing cannot succeed (although note the possible exception in markets not exhibiting features of oligopolistic interdependence discussed above at [466]), this is an entirely different proposition to the notion that circumstantial cases are not permitted in Part IV cases at all. There is no support for that idea in the authorities. Further, it is incorrect to say that the necessary consensus can be proved only by direct testimony. In most cases it will, in fact, be proved circumstantially: cf. Apco Service Stations v ACCC at 465 [52].

470    Meetings and opportunities to exchange confidential information. There can be legitimate reasons for competitors to meet. The cargo sub-committees in this case afford examples of this. The cargo carrying airlines, as a class at each airport, did have rational and legitimate reasons to meet. For example, they had common interests in seeking to lobby governments on the imposition of taxes. The customs charge levied by the Indonesian government on air waybills affords an example of an issue upon which the airlines had a joint legitimate interest in lobbying (see below at [1190]). So too, there were common issues such as the airlines’ satisfaction with the performance of individual terminal operators. In each of these cases there were innocent reasons for the airlines to consult with each other. Meetings of that kind may nevertheless provide the opportunity for collusive behaviour to take place. What may commence as a legitimate meeting procedure may ultimately result in collusion. This will be particularly so where the meetings are scheduled on a regular or semi-regular basis, as was largely the case in these proceedings. On the other hand, where competitors meet without any apparent legitimate purpose then this will assist in proving, although not determining, the existence of a price fixing understanding. Again, it is possible that there may be innocent explanations such as that the meeting was fortuitous or unintended. The status of evidence that competitors met is, therefore, somewhat nuanced and in this way resembles the status of evidence of parallel pricing.

471    Economically irrational behaviour. I discuss the approach of the United States’ federal courts to proof of cartel matters in more detail below, but it is worth noting that it is recognized, again with some caution, that economically irrational behaviour can be indicative of the presence of a cartel. For example in In re Flat Glass Antitrust Litigation, 385 F 3d 350, 360-361 (3rd Cir, 2004) the United States Court of Appeals for the 3rd Circuit observed that:

Evidence that the defendant acted contrary to its interests means evidence of conduct that would be irrational assuming that the defendant operated in a competitive market. In a competitive industry, for example, a firm would cut its price with the hope of increasing its market share if its competitors were setting prices above marginal costs.

472    Caution needs to be exercised when going down this path. As the United States Court of Appeals for the 11th Circuit pointed out in Williamson Oil Co Inc v Phillip Morris USA, 346 F 3d 1287 (11th Cir, 2003) at 1310 a court should not be ‘too quick to second-guess well-intentioned business judgments of all kinds’. And indeed it has been pointed out that conscious parallelism may generate precisely the kind of ‘irrational behaviour’ under discussion in In re Flat Glass: Co-ordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation at 445.

473    Motive. There is no doubt that the existence of a motive to fix prices is a legitimate matter to take into account in assessing whether the collusive behaviour took place. As in other fields of law, there is an acceptance that the objective likelihood that a person committed an act is increased if the person had a motive to commit the act. The decision in Trade Practices Commission v David Jones (Australia) Pty Ltd (1986) 13 FCR 446 at 448-449 (upon which the Commission relied) is an example where motive formed an essential part of the reasoning. However, some care is necessary in identifying what the relevant motive is. The motive cannot be one of simply making profits because all firms are exercised ultimately by that motive and the pursuit of profit for profit’s sake is evidence of robust capitalism rather than anti-competitive behaviour. Authority in the United States has suggested that motive in the present sense requires an inquiry into the conscious likelihood that the collusive behaviour would succeed: see, for example, In re Flat Glass at 360. This will likely be the case in any concentrated industry. This has led the Court of Appeals for the 7th Circuit to observe that ‘[t]he mere existence of mutual economic advantage, by itself, does not tend to exclude the possibility of independent, legitimate action and supplies no basis for inferring a conspiracy’: Serfecz v Jewel Food Stores, 67 F 3d 591, 600-601 (7th Cir, 1995). It is true that this is not how the Court analysed the question of motive in TPC v David Jones but recourse to the facts of that case show the evidence of motive did relate directly to oligopolistic interdependence. The market involved in that case was the market in Adelaide for Sheridan manchester and the number of firms was small enough to meet at Kappy’s Coffee Lounge (still in business in 2014 at Compton St, Adelaide). The evidence before Fisher J certainly showed an awareness on the respondents’ parts that the market could, with some efforts, be fixed: see 449 ff.

474    Joint action, collusion and similar pricing structures. The Commission submitted that each of these matters could support a circumstantial case of collusive behaviour. The authorities cited for this were Australian Competition and Consumer Commission v Mobil Oil Australia Ltd [1997] ATPR ¶ 41-568 and TPC v Email Ltd. For reasons I will give shortly, I do not accept that either of those decisions is authority for those propositions. Putting that observation to one side, these matters are couched at such a level of generality that they may, in practice, be meaningless. For example, if ‘collusion’ can be demonstrated then this is hardly to be thought of as an element in a circumstantial case. Collusion is not how a s 45 case is proved; it is what is proved in a s 45 case. Likewise, the concept of joint action is so nebulous that without knowing more the concept is unlikely to assist. If the alleged ‘joint action’ has involved meetings or other occasions upon which pricing or other confidential information might be exchanged then one can readily see its relevance to the proof of collusion by circumstantial means. If, on the other hand, what is involved is something else not involving such occasions it is difficult to see what the concept might add to the overall analysis. For example, it is difficult to see how joint sponsorship by a number of firms of some public spectacle would support a price fixing case. So too, the fact that firms have similar pricing structures is really just another way of pointing to price parallelism. Accepting that price parallelism can assist in, but not generally establish by itself, a circumstantial case of collusion, I do not think it is useful to concatenate similarity in pricing structures to the list of matters which may assist in proving a circumstantial case.

475    In any event, neither of the authorities relied upon by the Commission to establish these propositions does so. The page references given by the Commission to TPC v Email are to passages in which the Court rejected the Commission’s case on the facts. The reasons of Heerey J in ACCC v Mobil Oil were concerned with a pleading debate and seem to establish only that parallel pricing is not sufficient.

476    In a case, therefore, in which it is sought to prove collusion in breach of s 45 by circumstantial means, the following non-exhaustive matters may be useful aids in analysis:

1.    Has there been parallel pricing?

2.    Have the parties accused of collusion had occasion to meet or otherwise exchanged pricing information? Are there legitimate reasons for why these meetings might have occurred?

3.    Have the firms accused of the collusive conduct acted in a way which is economically irrational?

4.    Do the firms have a motive to engage in price fixing conduct, that is to say, do they have an understanding of their own ability to control prices by collusion?

477    Because the situations involving collusion which may arise are in effect limitless in their variety, this list cannot be exhaustive. There may always be other circumstances available. For example, where there is a substantial drop in the price of a good in an upstream input market and there are no corresponding price consequences in the downstream markets this may – but need not – indicate the presence of one or more collusive arrangements.

478    What is important to grasp is that lists of this kind are not substitutes for analysis. What is required is proof of a circumstantial case and the matters set out above are merely circumstances worth examining. In this regard it is to be emphasised that the domain of discourse here involved is really an aspect of the law of evidence and, in particular, the law pertaining to circumstantial proof. What will be involved are competing hypotheses and there will follow, at least in a competition case, a comparison between the likelihood of the various circumstances being explained by the thesis conclusion of collusion and the likelihood of the circumstances being explained by some other, innocent, explanation.

479    In the criminal law, with which this case is not concerned, the question will be whether the Crown has proved the guilt of the accused beyond a reasonable doubt. This has the strong procedural consequence, insofar as a circumstantial case is concerned, that if there is any reasonable hypothesis consistent with the innocence of the accused the prosecution will fail.

480    In civil proceedings such as the present, a different approach will result from the lower civil standard of proof. The question will be whether the party alleging collusion has proven it on the balance of probabilities: Bradshaw v McEwans (1951) 217 ALR 1 at 5. That party will need to show that its hypothesis of collusion is more probable than not. A party accused of collusion will be able to resist proof of such a case in two ways. The first will be to attack the adequacy with which the various circumstances have been proved, that is to say, the alleged colluder may attack the very existence of the alleged circumstances. This situation is not relevant to the current analysis and may be put to one side. Secondly, the alleged colluder may seek to prove that there is an alternative hypothesis which explains the circumstances. The legal burden of proof will remain on the party alleging collusion but within that framework it will be forensically useful for the respondent to seek to show that there is an alternative innocent hypothesis which is more likely than the one relied upon by the applicant. In that context, and unlike the criminal law, it will not suffice to point only to the fact of a reasonable hypothesis consistent with innocence. The endeavour will be forensically useful only if the hypothesis is more likely than not. Even so, one needs to keep steadily in mind that it is the applicant who ultimately bears the onus of proof.

481    Finally, when it comes to assessing the circumstantial case the question is not whether each of the circumstances individually proves the existence of the alleged arrangement or understanding. Rather, the issue is whether all of the circumstances taken together do so. To approach the matter on any other basis destroys the integrity of the circumstantial case.

482    There is a considerable body of jurisprudence in the United States concerned with what needs to be proved by way of circumstantial evidence to make good a claim of collusion under the Sherman Act. These cases identify what have been referred to as plus factors, that is, circumstantial matters tending to prove conspiracy. Professor Kovacic sets out a list of these plus factors in William E Kovacic ‘The Identification and Proof of Horizontal Agreements under the Antitrust Laws’ (1993) 38 The Antitrust Bulletin 5 at 37-54. They include:

(a)    the existence of a rational motive for defendants to behave collectively (p 37);

(b)    actions contrary to the defendant’s self-interest unless pursued as part of a collective plan (p 38);

(c)    market phenomena that cannot be explained rationally except as the product of concerted action (p 42);

(d)    the defendant’s record of past collusion-related antitrust violations (p 44);

(e)    evidence of interfirm meetings and other forms of direct communications among alleged conspirators (p 45);

(f)    the defendant’s use of facilitating practices (p 48);

(g)    industry structure characteristics that complicate or facilitate the avoidance of competition (p 53); and

(h)    industry performance factors that suggest or rebut an inference of horizontal collaboration (p 54).

483    I am indebted to Professors Beaton-Wells and Fisse for both this list and the reference to the article: see Caron Beaton-Wells and Brent Fisse, Australian Cartel Regulation: Law policy and practice in an international context (Cambridge University Press, 2011) at 60.

484    However, the authorities (and there are many) which discuss or apply the plus factors are all cases involving applications for summary judgment. Why is this? The answer is that in the United States cases under the Sherman Act are tried by juries. The jurisprudence in the United States federal courts has therefore been focussed on the circumstances in which defendants’ attempts to take the matter away from a jury are entitled to succeed. Largely these have involved summary judgment applications. The Supreme Court in Monsanto Co v Spray-Rite Service Corp, 465 US 752, 768 (1984) explained the forensic task confronting a plaintiff met with a summary judgment application this way:

[T]here must be evidence that tends to exclude the possibility of independent action by the [defendants]. That is, there must be direct or circumstantial evidence that reasonably tends to prove that [the defendants] had a conscious commitment to a common scheme designed to achieve an unlawful objective.

485    The ‘plus factors’ have come to be matters pointed to on summary judgment applications to support the availability of reasonable inferences that collusion must have been involved.

486    One needs to approach the plus factors in the Australian context, therefore, with care. It is one thing to say that there are several ‘plus factors’ present so that a matter should be permitted to go to a jury. It is altogether another to use them to conclude that collusion has actually occurred. Beyond pointing out the existence of various matters which can (but need not) tend to prove a conspiracy it seems the plus factors do not provide much guidance beyond being examples of the kinds of circumstantial material which may be useful.

487    Finally, as with any circumstantial case, the ultimate question is whether the plaintiff has established the existence of the arrangement or understanding on the balance of probabilities. Because of the way circumstantial evidence operates, the case is to be looked at as a whole and not piece by piece as I have already indicated above. Ultimately this is likely to lead to reasoning which consists of a careful weighing of all of the material but whose final steps are ultimately impressionistic. This is an inherent aspect of the nature of circumstantial evidence. There is no one size fits all approach to assessing evidence in cases of this kind.

8.3 Who bears the onus of proof?

488    Plainly the Commission bears the burden of proving its case. Both airlines contended that the Commission bore the onus of disproving what were called their affirmative defences. These defences included arguments such as that they were compelled to act by reason of foreign law. I reject this argument. The existence of a liability in the airlines under s 45 does not have as one of its constituent elements the non-existence of the facts constituting these defences. For example, had the airlines not raised the operation of foreign law as a defence it would be absurd to suggest that the Commission was obliged as part of its case under s 45 to prove that foreign law did not compel the defendant’s behaviour. I am unable to see that the situation changes when the defences are pleaded. In some cases a defence will operate by denying factual matters which are necessary ingredients in the moving party’s case. In those cases, the onus will lie upon that party to prove that matter and not on the defendant to disprove it. But where a defence consists of a matter of exculpation or excuse which inherently or otherwise assumes the existence of liability, then the onus will lie on the party asserting the exculpation or excuse to prove the facts said to justify it: see Currie v Dempsey [1967] 2 NSWR 532 at 539-540 per Walsh JA; applied Maricic v Dalma Formwork (Australia) Pty Ltd [2006] NSWCA 174 at [70] per Basten JA (Beazley and Ipp JJA agreeing). These defences were of that nature and it was for the airlines to prove them.

8.4 A Jones v Dunkel inference against the Commission?

489    Both airlines joined in a submission that an inference should be drawn against the Commission for failing to call witnesses from the airlines that it had cooperation agreements with. I have not found it necessary to invoke this principle in reaching my conclusions.

8.5 Standard of proof

490    The airlines submitted that I should take into account the gravity of the allegations made against them in considering whether the Commission has proved that they contravened s 45. Section 140(2)(c) of the Evidence Act requires this outcome and I so proceed. Further, I propose to assume in the airlines’ favour that right thinking people would regard the price-fixing conduct of which these airlines are accused as disgraceful.

491    I turn then to the facts.

9 BACKGROUND TO THE UNDERSTANDINGS ALLEGED BY THE COMMISSION

492    The story of the fuel surcharges the subject of this litigation is a complex one having its antecedent roots in the 1990s and the internal mechanics of IATA. Before turning to the positions in each of Hong Kong, Singapore and Indonesia it is useful to be equipped with some general background about how they came to exist.

493    The working committees of IATA included the Cargo Tariff Co-ordinating Conferences and the Cargo Committee. Beginning in 1990 the IATA Secretariat had been monitoring the price of aviation fuel using the average spot price available in five world markets – Singapore, US Gulf, US West Coast, Rotterdam, and Italy. The Secretariat created an index expressed in US cents per US gallon from July 1990. It showed that in the 18 months leading up to January 1997 the average price of fuel had increased substantially.

494    In December 1996 the Cargo Tariff Conferences Steering Group met and decided that there was sufficient justification to hold a worldwide conference of Cargo Tariff Co-ordinating Conferences. Such a conference was held in Geneva between 14 and 16 January 1997. This meeting resulted in a proposed resolution known as ‘116ss’. It contemplated that a fuel surcharge of USD0.10/kg (or its equivalent in local currency) would be imposed from 1 March 1997 provided fuel prices calculated using the average referred to above remained above 130% of the price which obtained in June 1996 (which was used as a baseline). This would be removed if fuel prices fell below 110% of the baseline for more than three weeks. If fuel prices rose again and exceeded 130% of the baseline then IATA would convene a meeting to consider whether the fuel surcharge should be reintroduced which it would also do if the price exceeded 150% for the purposes of reviewing the amount of the surcharge (the USD0.10/kg or equivalent). These percentages came to be referred to as index levels. So, for example, an index level of 130 connotes a fuel price of 130% of the baseline price (in this case, the price in June 1996).

495    In this form proposed resolution 116ss was defeated because Lufthansa voted against it. However, during the course of 1997 refinements were made to the resolution and it was recirculated to the Cargo Tariff Co-ordinating Conferences in the period June to August 1997 in the form of Mail Vote 875. On 7 August 1997 IATA declared that Mail Vote 875 had been passed.

496    In consequence of that mail vote, resolution 116ss as adopted was as follows:

WHEREAS         aviation fuel prices represent a significant portion of TC Members’ operating costs

WHEREAS     minor fluctuations in fuel prices may be reasonably absorbed

WHEREAS         the need exists to react to significant changes in fuel costs in a rapid and orderly manner

IT IS RESOLVED that,

1    the Secretary shall monitor average weekly spot prices of aviation fuel from published oil industry sources against the average prices of June 1996 of USD0.535 per US Gallon (Index 100)

2    provided that the index equals or exceeds 130 on or after 1 October 1997 the charges contained in Attachment ‘A’ shall apply

3    a)    in the event that the index subsequently is lower than 110 for a period of 2 consecutive weeks the Secretary shall advise TC Members that application of the charges in Attachment ‘A’ shall be suspended

b)    in the event that the index subsequently exceeds 130 for a period of 2 consecutive weeks the charges contained in Attachment ‘A’ are reintroduced

4    in the event that, at any time, the index exceeds 150 for a period of 2 consecutive weeks, the Secretary shall convene a special meeting of the Cargo Tariff Coordinating Conferences to review the amounts contained in Attachment ‘A’

5    any TC Member may file to amend the charge(s) or to introduce new charge(s) in Attachment ‘A’ subject to the following conditions:

a)    the filing shall be submitted to the Secretary providing reasons for the amendment or new charge and the intended effective date

b)    upon receipt of such filing, the Secretary shall circulate the information to all TC Members

c)    any voting TC Member of the Tariff Conference(s) concerned may protest the filing within 10 days, and shall provide reasons and compromise proposals

d)    filings not protested shall become effective on the date proposed and shall be incorporated into the agreement from such date, subject to applicable government approval(s)

497    At a further meeting of Cargo Tariff Co-ordinating Conferences held in Geneva between 4 and 8 May 1998 it was noted that resolution 116ss could not be declared effective because the United States Department of Transport had not yet approved, and other countries had disapproved, Mail Vote 875. Despite this, IATA published the resolution in its publication of tariffs known as the TACT Rule Book (i.e The Air Cargo Tariff Rule Book). IATA also began to publish the fuel index generated by resolution 116ss.

498    In early December 1999, the IATA fuel index had exceeded 130 for two consecutive weeks which would have been a trigger under resolution 116ss had it been in force.

499    A number of airlines contacted IATA about fuel surcharges at this point, but each was advised, correctly, that resolution 116ss was not effective. On 10 January 2000, IATA’s Manager of Industry Affairs sent members a telex listing the recent fuel price index movements. Air NZ was one of the recipients.

500    Between December 1999 and February 2000 a number of international airlines introduced a fuel surcharge of USD0.10/kg, 0.10/kg or local currency equivalent with effect from early February or March 2000. These airlines included Air NZ as well as Alitalia, KLM, Air France, American Airlines, Lufthansa, United Airlines, SAS, Korean Air, Cathay Pacific, Emirates, Qantas, Thai Airways and Cargo Lux.

501    On 28 January 2000, IATA applied to the US Department of Transport for two year approval and antitrust immunity for resolution 116ss (as to the significance of which, see above [144]). On 14 March 2000, this was refused on the basis that the index was ‘fundamentally flawed’. Difficulties with it included its failure to readjust as quickly when prices moved down and its failure to take into account the airlines fuel hedging programmes.

502    IATA promptly notified its members that resolution 116ss was not effective. By then, however, Lufthansa had begun publishing the IATA index on its own website. Once notified that resolution 116ss was no longer effective Lufthansa began to publish its own index called the ‘Lufthansa Index’ which was, however, identical to the now abandoned IATA index.

503    Further attempts at a composite meeting of Cargo Tariff Co-Ordinating Conferences held in Geneva between 15 and 17 May 2000 to revive resolution 116ss or render it more likely to be accepted by the US Department of Transport failed.

504    Lufthansa subsequently added a further level to its index which when increased to 170 for two consecutive weeks set the surcharge at USD0.15/kg/0.17/kg and when decreased (for two consecutive weeks) to 150 set the surcharge at USD0.10/kg/0.10/kg. On 29 September 2000, the 170 trigger point was reached but throughout 2001 the index dropped and the surcharge was itself removed in December 2001/January 2002. Being copied from the original IATA Index (and hence resolution 116ss) the Lufthansa Index was not triggered unless it reached 130. The fact that the index remained below 130 through the second half of 2001 meant that the Lufthansa Index was not triggered and no fuel surcharge was indicated. In January 2002, Lufthansa announced it had revised its methodology across its entire network. Whereas the previous index was first triggered at 130 the new one was now triggered at 115. The index in the full form was as follows:

Level

Fuel Surcharge

Imposition- Index

Removal

1

EUR/USD 0.05/kg

115

100

2

EUR/USD 0.10/kg

135

120

3

EUR/USD 0.15/kg

165

145

4

EUR/USD 0.20/kg

190

170

505    An internal Lufthansa email suggests that Lufthansa contacted Air France and KLM to suggest that they should adopt this index and proposed that they ‘take a similar path after a small delay’. Emirates and SAS introduced largely similar indices. Subsequently in 2004 and 2005 when the index went much higher than 190 Lufthansa added additional levels. Lufthansa continued to publish its index until May 2009.

506    A consideration of the understandings requires a consideration of a number of emails and other primary materials. In many cases these documents were authored by people for whom English was not their first language. The errors in the quoted documents appear in the original.

507    I deal first then with the Commission’s case in Hong Kong.

10 THE UNDERSTANDINGS ALLEGED BY THE COMMISSION IN HONG KONG

10.1 Introduction

508    The Commission’s case in Hong Kong centred largely around the activities of the HK BAR CSC and the local aeronautical regulator, the HK CAD. For reasons given above at [390]ff it was necessary for any airline wishing to impose a surcharge of any kind to obtain HK CAD’s approval to do so. As I have explained above in Chapter 6.2 the HK CAD provided commercial incentives to airlines who wished to use an index methodology to determine surcharges (such as the Lufthansa Methodology) to apply jointly for approval. This attitude of the HK CAD provided fertile soil in which price fixing was likely to be facilitated.

509    By 2000 the airlines operating out of Hong Kong who were members of the HK BAR CSC were meeting on a regular basis to agree upon the surcharge mechanisms they would collectively ask the HK CAD to approve. Following these meetings the chair of the HK Bar CSC (which was provided by local national carrier, Cathay Pacific) would write to the HK CAD seeking approval for the surcharge mechanism which had been agreed. Often a process of surveying the airlines on an appropriate surcharge was adopted by the HK BAR CSC in lieu of or in advance of physical meetings. Later sub-committees were established with a similar function. These were the HK BAR CSC Executive Committee (‘HK BAR CSC Ex Com’) and the Surcharge Working Group (‘SWG’).

510    The Commission’s case centred around four sets of alleged understandings reached through these structures. These were:

(b)    an arrangement or understanding entered into by the airlines at a meeting of the HK BAR CSC held on 23 July 2002 and by which the airlines were said to have decided to fix prices in accordance with the ‘modified Lufthansa Methodology’;

(b)    an alternative allegation that the airlines arrived at an arrangement or understanding to alter their fuel surcharges in response to circularised letters sent to the HK CAD informing it of changes to the surcharge as index points were passed and the date the charge would come into effect. In effect this allegation is that the airlines used the procedure by which the HK BAR CSC communicated with the HK CAD as a means of co-ordinating movements in the level of the fuel surcharge (‘the Hong Kong Imposition Understanding’);

(c)    a series of eight understandings by which the original approved modified Lufthansa Methodology was extended for further periods of time or with additional levels; and

(d)    an arrangement or understanding to impose an insurance surcharge in October 2001 and another in December 2002.

511    The workings of the HK BAR CSC were heavily documented in contemporaneous records. Throughout the period in question there was no competition law in Hong Kong and much of the material which is available shows plainly that, as a group, the airlines were agreeing the surcharge they wished to see approved. This was not seriously contestable to my mind.

512    Both airlines did, however, deny reaching the various alleged understandings. At a high level of generality these arguments were that:

(a)    they were not at some of the meetings where price fixing is alleged to have occurred;

(b)    they were bound by Hong Kong law to implement the surcharges once they had been approved by the HK CAD;

(c)    in the case of Air NZ, its policy was simply to follow whatever the national carrier, Cathay, was doing; and

(d)    where the price-fixing occurred at the level of the SWG or the HK BAR CSC Ex Com, those subcommittees did not have the authority to engage in price fixing on behalf of Air NZ or Garuda.

513    In the main, I have rejected (b) and (c) but accepted, in some cases, (a) and (d).

10.2 Witnesses

514    Air NZ called three witnesses involved in the events in Hong Kong: Mr Gregg, Ms Goh and Ms Liu. It did not call Mr Martin Ngai, Regional Cargo Manager for North Asia, based in Hong Kong, who was, I conclude, the person who made the actual decisions for Air NZ about the imposition of surcharges out of Hong Kong.

515    Mr Gregg held the position of Manager of Global Cargo Sales for Air NZ between 2000-2008. His evidence was relevant both to the events in Hong Kong and Singapore. For reasons I give in relation to Singapore (below, Chapter 11) I do not regard Mr Gregg's evidence as being of much significance to the Commission's price fixing case. The decision maker was Mr Gregg's subordinate in Hong Kong, Mr Ngai. Mr Gregg was not present at the relevant meetings and his role was largely to approve what Mr Ngai had already done.

516    Ms Goh was the Regional Manager for Asia/Japan Cargo. Mr Ngai reported to her in Hong Kong and she reported to Mr Gregg. Her role was more significant in Singapore. Insofar as Hong Kong was concerned, her affidavit evidence was that Mr Ngai made the decisions and he reported to her. She told him that he needed to obtain approval from headquarters in New Zealand. She denied under cross-examination that she herself had reported the fuel surcharges to headquarters. When confronted by documentary evidence to the contrary, she explained it on the basis that it was just part of the many forms she had to provide to headquarters. The Commission submitted that I should disbelieve her on this basis. I do not agree. Mr Ngai was the real decision maker and Ms Goh’s role was peripheral. In my opinion, she was merely mistaken.

517    She also gave evidence that Air NZ usually formed its own view on surcharges. Subsequently, when challenged she said that Air NZ followed the national carrier. This was her evidence in Singapore, too. I accept her evidence but think it of little relevance when the person making the decisions was Mr Ngai.

518    Air NZ also called Ms Liu. She commenced working at Cathay Pacific in 1997 and from July 2005 was the Manager of Cargo Sales for Hong Kong and China. As an aspect of that position it was Ms Liu who chaired the HK BAR CSC. She was also a member of the HK BAR CSC Ex-Com. The Commission’s case extends over the period 2000-2006. Ms Liu’s evidence is, therefore, relevant strictly to 2005-2006. The relevance of Ms Liu’s evidence related to the directions said to have been given by the HK CAD to the airlines. In Chapter 6, above, I have concluded that Ms Liu’s evidence should be accepted but that the effect of her evidence is that the HK CAD did not require airlines to lodge joint applications for surcharge mechanisms and that they remained free to apply for approval for their own surcharges which they could, if they chose, generate using their own index. The HK CAD provided commercial incentives to lodge joint applications but they were not legal requirements.

519    I turn then to the first understanding alleged by the Commission, the 2002 Hong Kong Lufthansa Methodology Understanding.

10.3 The 2002 Hong Kong Lufthansa Methodology Understanding

520    As explained above, the use of the IATA index by various airlines was underway by at least December 1999. An inquiry made by Cathay Pacific of IATA on 7 January 2000 revealed that resolution 116ss had not yet been declared effective. Cathay, which was the home carrier in Hong Kong, initially reacted by deciding that it would not file an application with the HK CAD for an official fuel surcharge but would instead adjust its market rates for ‘better flexibility’ and to ‘better cater for the needs of the airlines’. This it proposed to do on 1 February 2000. Cathay was, of course, the chair of the HK BAR CSC (more accurately, its employees were). It conveyed its view that it would not be using a fuel surcharge index itself to other airlines and indicated that it would be content to discuss the matter at the next HK BAR CSC meeting which was to be held on 12 January 2000.

521    At some time prior to that meeting Cathay’s position appears to have changed to one where it would abide the outcome of the meeting’s decision on whether a surcharge should be imposed. Internal email correspondence of Cathay and Qantas supports this view.

522    The meeting took place on 12 January 2000. There are no minutes of this meeting available. However, a number of emails sent shortly after it allow some picture to be painted of what occurred. All of the airlines present at the meeting, except Canadian Airlines and Garuda, expressed no objection to the imposition of a fuel surcharge filed with the HK CAD via the Chair of the HK BAR CSC (that is, Cathay). The effective date would be 1 February 2000; Cathay would inform the industry; it would represent all carriers in the application to the HK CAD; and would inform the Hong Kong Association of Freight Forwarders Agents Limited (‘HAFFA’) of the intention to apply to the HK CAD for approval from 1 February 2000.

523    As anticipated at that meeting, on 14 January 2000 Cathay applied to the HK CAD for approval to introduce a fuel surcharge in Hong Kong. It was expressed to be ‘as per IATA resolution 116ss’ although it omitted any reference to that resolution not being effective. The suggested fuel surcharge would be imposed when the IATA index hit 130 and would be HK0.50/kg in Asia (TC 3) and HK1.00kg in all other areas. An email from Cathay Pacific to the United Parcel Service enclosed Cathay’s application to the HK CAD and I infer, as the Commission submitted I should, that it was sent to all other members of the HK BAR CSC. I do this because it is addressed to ‘BAR-CSC members’ and because it is natural that this would occur.

524    Subsequently, the proposed implementation date was changed to 16 February 2000. Meanwhile the HK CAD was provided with a copy of resolution 116ss by Cathay on 25 January 2000. There was no indication to the HK CAD that resolution 116ss was not in force.

525    Following various enquiries and exchanges between Cathay and HK CAD, the latter approved the introduction of a fuel surcharge with effect from 16 February 2000 on 14 February 2000 ‘in accordance with the IATA Resolution 116ss’. It was valid for one year or until the index dropped below 110 for two consecutive weeks. Cathay promptly conveyed this information to the airlines. The airlines, including Air NZ, then announced the surcharge to their customers and imposed it.

526    In the months which followed there were two developments. First, as already noted above, the US Department of Transport refused to approve resolution 116ss leading to its abandonment by IATA. IATA wrote to its member airlines on 14 April 2000 and counselled them against approaching another entity to publish the IATA index or calculating it themselves. It was not long after this that Lufthansa began to publish its own index on 29 September 2000.

527    The second development was a sharp rise in the price of fuel towards the end of the year. Following various discussions the airlines met on 10 October 2000 and resolved that a second round of fuel surcharges at HK0.40/kg long haul and HK0.20/kg intra-Asia be the subject of an application to the HK CAD for tariff approval. The index, of course, did not contemplate this being triggered at 130, having no provision for higher levels. Nevertheless, the suggestion was that this surcharge would be imposed when the index reached 150.

528    The application was made on 12 October 2000. The application referred to the fact that the IATA mechanism had provided for a review of the mechanism if the fuel price index exceeded 150 for two consecutive weeks. The proposed commencement date was 1 November 2000. Air NZ, amongst others, announced that it would impose a second round fuel surcharge from 1 November 2000 subject to government approval.

529    This was not what the index provided for. Resolution 116ss, had it been effective, would have required a special meeting of the Cargo Tariff Co-ordinating Conferences to be convened when the index reached 150 to decide what to do. Having been supplied with a copy of resolution 116ss which omitted any reference to the fact that it was not in force, it is perhaps easy to understand why, on 16 October 2000, the HK CAD asked the HK BAR CSC whether such a meeting had been held.

530    This was a challenging question to answer given that the HK BAR CSC had not informed the HK CAD that resolution 116ss was not in force and the HK CAD’s letter of 16 October 2000 evidently assumed that it was.

531    The Chairman of the HK BAR CSC replied to the HK CAD on 17 October 2000 that IATA had not convened a special meeting at ‘this time,’ but instead, had asked ‘individual airlines to use their own discretion to tackle the matter’. This was not correct. No meeting could be convened under resolution 116ss because it was not effective. IATA had not told the airlines to use their discretion if the index reached 150. It had told them not to use the index and indeed, had discontinued the publication of the index and any related activities.

532    The application was approved on 27 October 2000. It was valid for one year or until the index dropped below 110 for two consecutive weeks and on the condition that it would drop back to the earlier level if the index fell below 110 for two consecutive weeks. The airlines were informed of this on 30 October 2000 and it was implemented from 1 November 2000.

533    Subsequently, in December, the price of fuel began to drop. Over the course of 2001 various fluctuations in the index were implemented. There is no need to set the detail of them out. The final position, reached on 11 December 2001, was that the fuel surcharge was withdrawn as the price had fallen below 110 for two consecutive weeks.

534    The Commission makes no direct complaint about these initial events in Hong Kong. It does submit, however, that they provide valuable context in understanding subsequent events about which it does complain. I accept this submission.

535    On 23 January 2002, Lufthansa unilaterally altered its worldwide fuel index from its original version which had just been a copy of the IATA index. The critical feature of this new ‘methodology’ (a rather grand word for what is simply a table) was that it could go down as well as up and had multiple trigger points. The new Lufthansa Methodology was as follows:

Implementation/Increase

Reduction/Suspension

115

EUR0.05/kg

100

EUR0.15/kg

135

EUR0.10/kg

120

EUR0.10/kg

165

EUR0.15/kg

145

EUR0.05/kg

190

EUR0.20/kg

170

Suspension

536    Because the surcharge was a ‘tariff’ under the relevant ASAs, Lufthansa needed, and believed it needed, the approval of the HK CAD. Since the existing HK CAD approval of resolution 116ss had been achieved collectively by the HK BAR CSC this suggested, and Lufthansa appears to have accepted, that it should obtain HK CAD approval for its revised methodology. When it made the worldwide announcement of its revised methodology it had made clear that the position in Hong Kong was subject to approval. Subsequently Lufthansa produced a version of the modified index it would like to see imposed in Hong Kong. This was as follows:

Fuel Price Index Above

Applicable surcharge per kilo actual weight

Fuel Price Index Below

Applicable surcharge per kilo actual weight

115

HKD0.40

170

HKD1.10

135

HKD0.70

145

HKD0.70

165

HKD1.10

120

HKD0.40

190

HKD1.40

100

Fuel surcharge suspended

537    Not all of the airlines shared Lufthansa’s enthusiasm to reduce the trigger point to 115 from 130 and to impose the new higher trigger levels. Initially the proposal met with considerable resistance from within the HK BAR CSC. This was driven by two factors. The first was a perception strongly held by Cathay that the HK CAD would not approve the proposed index because it was activated at a lower trigger point and more often than the existing index. Cathay’s view was that the fuel surcharge was not popular with the HK CAD and such a generous arrangement was unlikely to be approved. The second matter was that during the first half of 2002 the fuel price hovered just under 130 which created an anticipation in many quarters that a surcharge would shortly become levyable anyway under the current approval. Those of that view could see no need to force the issue with the HK CAD.

538    On 10 May 2002 the HK BAR CSC wrote to each of the airlines noting that the price of fuel had not passed through the 130 barrier and seeking their input into what should be done. The letter enclosed a questionnaire asking airlines whether they were collecting a fuel surcharge in their home countries. The responses showed that European and US carriers were charging fuel surcharges consistently with the Lufthansa Index. The airlines were also asked whether they wished to depart from the methodology used at that time. In their answers, in excess of 30 indicated they did not wish to change from the current index whilst six indicated that they did.

539    On 16 May 2002 a meeting of the HK BAR CSC was held and, contrary to the outcome suggested by the questionnaire, it was decided to adopt the revised Lufthansa Methodology. Contemporaneous emails sent by persons in attendance at the meeting suggest that the reason this occurred was because of a general sense that the price of fuel was not going to pass through 130 and thereby activate the surcharge. By contrast, the new Lufthansa Index would be enlivened at 115. This gave its adoption a commercial attractiveness.

540    There are no minutes available for this meeting but what occurred can be reconstructed from four reports sent in its wake. First, Mr Johnny Ho of Qantas reported to his superiors by email on the outcome of the meeting in the following terms:

Attended BAR-SCS meeting today (16May02) for discussion of fuel surcharge.

Chairman requested members to vote for two options:

1)    Waiting for fuel index to reach 130, or

2)    Use current mechanism of European Carriers with lower trigger points.

About 15 members (including CX) voted for option 2 with lower trigger point and remaining members (except SQ) had no objection for this option.

After discussion, members agreed to go with following actions:

1.    Mechanism

    It is agreed (including BA) to use LH’s current mechanism as the benchmark with the benefits of lower trigger point for fuel index at 1.15 and higher amount at HKD0.40/kg.

    (BA’s trigger point at 125 and the amount at HKD0.30/kg)

2.    Fuel surcharge amount

    Fuel Index    Long Haul    Asia

    +115    HKD0.40/kg    HKD0.20/kg

    +135    HKD0.80/kg    HKD0.40/kg

    +165    HKD1.20/kg    HKD0.60/kg

    +190    HKD1.60/kg    HKD0.80/kg

    -170    HKD1.20/kg    HKD0.60/kg

    -145    HKD0.80/kg    HKD0.40/kg

    -120    HKD0.40/kg    HKD0.20/kg

    -100    Suspend

    Long Haul includes Australia, New Zealand and S.W. Pacific

3.    Fuel surcharge will be based on “Chargeable weight”.

4.    Tentative date: 01JUN2002

Chairman and some of the memebrs will arrange to meet CAD to express our planning before filing formal application.

541    Secondly, Mr Chan reported to his superiors at Martinair on the meeting in these terms:

In todays carriers’ meeting on the above, all agreed that the current fuel price movement is not likely to reach the 130 index level to warrant the implementation of the FSC. This puts the carriers in HKG at a distinct disadvantage.

Consequently through unanimous consent all carriers agreed to adopt the LH system to replace the existing one. BAR-CSC will make a collective application to CAD for approval targeting 15th June as the implementation date. Fyg, the LH scheme is based on the following trigger levels:

index    surcharge amount     index    surcharge amount

exceed 115    hkd0.40/k    below 170    hkd1.20/k

exceed 135    hkd0.78/k    below 145    hkd0.78/k

exceed 165    hkd1.20/k    below 120    hkd0.40/k

exceed 190    hkd1.56/k    below 100    surcharge suspended

Explanation:

For example: When index reaches 135 the FSC amnt is hkd0.78/k and only when index falls below 120 then surcharge revert to hkd0.40/k. This helps to maintain the FSC @ hkd0.78/k even if the index falls to anyway between 134 - 121.

Above surcharge amount applicable to long-haul and 50pct applies to short-haul, surcharge on chargable basis.

CX/LH/BA start lobbying CAD next week before officially submit application. Will post-keep on development.

542    Thirdly, Mr Ngai of Air NZ reported to his superior Mr Gregg in terms which included this statement:

Today I attend the interline meeting and good news is that we are proposing HKG CAD for a HKD0.40 F/S from 01Jun.

543    Finally, five days after the meeting on 21 May 2002 the Chair of the HK BAR CSC, Mr Leung, reported to the members the following:

Dear Member Airlines,

BAR-CSC held a meeting last Thursday (May 16) to discuss the fuel surcharge and decided the following:

1.    many overseas markets are imposing cargo fuel surcharge while Hong Kong market is not. It is because the current mechanism that BAR-CSC agreed with CAD about 1.5 years ago has not reached the trigger point (fuel index level 130) to levy the surcharge. It appears the current fuel surcharge mechanism does not reflect the actual development of fuel prices this year.

2.    as such, the majority of BAR-CSC members decided to change to a new fuel surcharge mechanism which allows members in HK to levy the surcharge earlier but at a smaller amount. The objective is to make it aligned with that of the other major cargo markets outside of Hong Kong. The current mechanism reflects the upwards/downward trend of fuel prices in only two steps. The new mechanism is much more closely linked to the actual movement of fuel prices. This is achieved by doubling the number of steps in the fuel price index, which allows BAR-CSC members to more promptly respond to any changes, whether upward or downwards, in fuel prices.

3.    BAR-CSC will see civil Aviation Department this Thursday (May 23) to explain the new mechanism and lobby for their support, before we submit a formal application for the new mechanism and surcharge.

544    There are thus available contemporaneous written accounts from four people actually at the meeting: Mr Ho, Mr Chan, Mr Ngai and Mr Leung. The following inferences may be drawn from their reports:

(a)    there were more than 16 airlines represented at the meeting. Mr Ho recorded that 15 voted for the option that was adopted and the remaining, except SQ, had no objection;

(b)    only one airline, SQ, was against switching to a modified Lufthansa Index. This is recorded in Mr Ho’s email. Mr Chan’s email does not mention this but I am satisfied that Mr Ho’s account is more detailed and reliable;

(c)    all of the airlines present agreed to implement the index subject to its approval by the HK CAD. If consent was not forthcoming they would not impose it but if it was they would; and

(d)    it would be imposed, if possible, on 1 June 2002.

545    On 5 June 2002, following a number of informal meetings with the HK CAD, the HK BAR CSC lodged an application for approval of the new index. The suggested commencement date was 19 June 2002.

546    This application was then distributed to the airlines along with a suggestion that they circulate information to their agents in Hong Kong about the surcharge. Various airlines, including Air NZ on 18 June 2002, did this. On the same day, the HK CAD advised the HK BAR CSC that in the meantime no airline should impose a surcharge without its written approval. Various negotiations then continued between the HK CAD and the HK BAR CSC. On 19 July 2002 the HK CAD finally approved the modified index. The terms of the approval were as follows:

Dear Sir,

I refer to your tariff filing to levy fuel surcharge at levels according to a set of predetermined fuel price indices.

    Having considered the information you provided, I am pleased to inform you that your application as described in your letter ref SO/CAD-06/002 dated 5 June 2002 is approved for a period of one year with effect from 19 July 2002. Please note that it is a condition of this approval that you inform this Department with every adjustment, whether upward or downward, of the level of surcharge levied and the corresponding fuel price index. You are also required to inform us of the fuel price index on a regular basis or at request. This approval will be invalid if there is any change to the method of calculation of the index without our prior agreement.

    Please note that this approval is given on a one-off basis and without prejudice to any future or similar applications of tariff filing for fuel surcharge.

547    What was approved was the application of 5 June 2002. The approval was of limited duration, one year from 19 July 2002. It did not require the airlines to obtain approval for each surcharge as it became levyable by reason of increases or decreases in the index. The obligation was only that the HK BAR CSC inform the HK CAD each time there was a change in surcharge and the corresponding index level. The approval did not contemplate airlines charging some other surcharge. The HK BAR CSC was required to inform the HK CAD of the level of surcharge levied from which it may readily be inferred there was only to be one surcharge. The application of 5 June 2002 was in the following terms:

Dear Alan

On behalf of BAR-CSC, I write to seek CAD approval on a new fuel surcharge mechanism to replace the existing one which has been used for close to two years.

The major reasons for proposing the new mechanism are as follows:

(i)    the existing fuel surcharge mechanism (Attachment A) reflects the upward/downward trends of fuel prices in only two steps. The new fuel surcharge mechanism (Attachment B) is much more closely linked to the actual developments of fuel prices. This is achieved by doubling the steps in the fuel price index; which allows the BAR-CSC airlines to more promptly respond to any changes, whether upward or downward, in fuel prices. Due to the introduction of the new levels in fuel price index, the limits are slightly modified. The fuel surcharge process will be left unchanged. If the fuel price index passes the fixed limits for two subsequent weeks, the corresponding fuel surcharge will be implemented with one week notice.

(ii)    in the proposed new mechanism, the key advantage for shippers/cargo agents is that in the long run it is very likely they will pay less than that of the current mechanism. Attachment D provides a comparison of the surcharge amount using the existing and new mechanisms if they were applied to fuel index movement in 2001, 2000 and 1999. As you can see, in most weeks, in this 3-year period, the new mechanism would benefit shippers/cargo agents because they would have paid less.

(iii)    it is now a worldwide practice for other major cargo markets outside of HK to use new fuel surcharge mechanisms and surcharges for their air cargo exports. Attachment C gives details of the various surcharges being imposed by markets in Europe, USA and Asia.

The latest fuel index as at May 24, 2002 went up to the level of 130 (Attachment E) and it looks it may be edging up above 130 soon. At this level, the surcharge under the new mechanism will be HK$0.40/kg, less $0.60/kg than under the existing mechanism.

BAR-CSC would like to apply the new fuel surcharge mechanism effective from June 19, 2002, as follows:

Proposed new surcharge

effective June 19, 2002

if index exceed 115 for 2 consecutive weeks

Area 1

North & South America

HK$0.40/kg

Area 2

Europe, Middle East & Africa

HK$0.40/kg

Area 3

South and Southwest Pacific

HK$0.40/kg

Area 3

Asia (other than South & Southwest Pacific)

HK$0.20/kg

We hope the above meets with your approval and if further information is needed please contact me …

548    I do not accept that the approval required any airline to levy the surcharge. It did require, however, that if a surcharge was levied it had to be in accordance with the index.

549    Further, other than providing that there be no fuel surcharge before 19 July 2002, it also said nothing about the timing of the surcharge’s imposition.

550    Shortly after the approval of 19 July 2002 the HK BAR CSC called a meeting to determine the next step. Again there are no minutes available of this meeting but it was followed by various email reports from which what occurred may be reconstructed.

551    Mr Ho of Qantas reported:

With approval from CAD on our recent application under new mechanism of lower trigger points, Carriers in HKG are allowed to start fuel surcharge with validity for one year with effect from 19JUL2002.

KK stated HAFFA requested Carriers to impose fuel surcharge with two weeks notification as they need time to inform all their members. However, the floor came to the conclusion as followings :

1.    Effective date: 01th August 2002

2.    On chargable weight

3.    One week notice to agents for next change (increase or decrease)

KK requested each individual members to send notice to all related agents/shippers about the introduction and mechansim of the new fuel surcharge.

552    Mr Yip of SQ reported:

HKG CAD has just given the approval of local BAR’s application for fuel surcharge. The surcharge of HK$0.40/kg and HK$0.20/kg for long and shorthaul destinations respectively will be effective from 01 AUG 2002. The shortfall surcharge covers Area 3 except S and SW Pacific regions.

The surcharge rate will be adjusted according to the movement of Fuel Index as published by LH Cargo. The attached table shows the details of the scheme.

The surcharge will be based on chargeable weight and reflected in AWB as MYC due carrier.

All airlines in BAR have agreed to implement the surcharge as from 01 AUG 02.

553    Mr Leung advised Northwest Airlines in these terms:

It is good news that CAD eventually approved BAR-CSC’s new fuel surcharge scheme after almost 2 months of negotiation with CAD, HAFFA and HK Shippers Council. Attached pls find a copy of the approval letter and the new fuel surcharge scheme.

Members of the BAR-CSC has decided to start collecting the new fuel surcharge from Aug 01, 2002 at HK$0.40/kg for longhaul destination and $0.20/kg for shorthaul destinations.

Please note the surcharge amount varies according to the movement of the fuel index levels. For example, the surcharge can go up to a maximum of HK$1.60/kg for longhaul and $0.80/kg for shorthaul.

554    Mr Leung informed the Hong Kong Shippers’ Council as follows:

This is to inform that CAD has approved BAR-CSC’s application for the new fuel surcharge mechanism. A copy of the approval letter and the new fuel surcharge scheme is attached.

Subsequently BAR-CSC held a meeting this afternoon (July 23) which decided to implement the fuel surcharge effective from August 01, 2002. The surcharge will be HK$0.4/kg for long-haul destinations and HK$0.2/kg for short-haul destinations. The latest fuel index as at July 12, 2002 is 125 a copy of which is attached.

Please take note there are four trigger points of the fuel index that will trigger a change of the surcharge amount. If the index level exceeds above or drops below a trigger point for two consecutive weeks, the surcharge amount will change correspondingly.

If you have any queries, please do not hesitate to contact me …

555    A similar letter was written to HAFFA. On the basis of this material the following inferences may be drawn:

(a)    all the airlines at the meeting decided to impose the surcharge with effect from 1 August 2002;

(b)    this agreement was reached by a collaborative decision-making process, hence Mr Ho’s expression ‘the floor came to the conclusion’. They were agreeing inter se to be bound by the outcome of that process; and

(c)    the nature of that decision was that all the airlines present regarded themselves as bound to give effect to the decision (‘All airlines in BAR have agreed to implement’).

556    Having decided that they would impose the surcharge on 1 August 2002 the question then arises whether the airlines were motivated in so doing to use the modified Lufthansa Index by the HK CAD’s approval, by their own earlier decision on 16 May 2002 to do so, or by both? It seems to me that they must have been actuated in a sense by both. Unless they had desired to impose the surcharge in accordance with the modified Lufthansa Index, they would not have done so. Nor did the approval require them to charge a surcharge. On the other hand, without the approval they could not have done so. In that sense, neither was a sufficient condition to bring about the decision to impose the surcharge and both were necessary; that is to say, there needed to be both a desire to introduce a surcharge and a permission to do so.

557    A number of airlines, including Air NZ, announced the implementation of the new surcharge effective from 1 August 2002.

558    It was on this basis that the revised Lufthansa Methodology came to be adopted.

10.3.1 Air NZ

559    The Commission’s primary case on this was pleaded at paragraph 124 of the Further Amended Statement of Claim (‘Air New Zealand FASOC’) (which was in terms the same as paragraph 112 of the Commission’s claim against Garuda):

2002 Hong Kong Lufthansa Methodology Understanding

124.    On or about 23 July 2002, Air New Zealand made an arrangement or arrived at an understanding with other international airlines including Air France, British Airways, Cathay Pacific, El Al, Emirates, Finnair, Garuda, Dragonair, Japan Airlines, Korean Air, Lufthansa, Malaysia Airlines, Martinair, Northwest Airlines, Qantas, SAS, Singapore Airlines, Thai Airways, United Airlines and UPS containing provisions to replace the pre-2002 Hong Kong methodology with a revised methodology based on the Lufthansa Methodology and in the terms alleged in the table below, and those international airlines would impose surcharges in accordance with that methodology for the supply of air freight services from Hong Kong (the “2002 Hong Kong Lufthansa Methodology Understanding”).

Implementation/increase

Reduction /suspension

Index

Fuel Surcharge

Index

Fuel Surcharge

Exceeds 115 for 2 consecutive weeks

HKD0.40/kg

(HKD0.20/kg for Asia, except South and South West Pacific)

Below 170 for 2 consecutive weeks

HKD1.20/kg

(HKD0.60/kg for Asia, except South and South West Pacific)

Exceeds 135 for 2 consecutive weeks

HKD0.80/kg

(HKD0.40/kg for Asia, except South and South West Pacific)

Below 145 for 2 consecutive weeks

HKD0.80/kg

(HKD0.40/kg for Asia, except South and South West Pacific)

Exceeds 165 for 2 consecutive weeks

HKD1.20/kg

(HKD0.60/kg for Asia, except South and South West Pacific)

Below 120 for 2 consecutive weeks

HKD0.40/kg

(HKD0.20/kg for Asia, except South and South West Pacific)

Exceeds 190 for 2 consecutive weeks

HKD1.60/kg

(HKD0.80/kg for Asia, except South and South West Pacific)

Below 100 for 2 consecutive weeks

Suspend surcharge

Particulars

124.1    On or about 16 May 2002, at a meeting of the HK BAR-CSC, a majority of international airlines decided to change from the pre-2002 Hong Kong methodology to a new fuel surcharge methodology based on the Lufthansa Methodology (the “Hong Kong Lufthansa Methodology”), to apply to the CAD to obtain approval for the revised methodology, and to impose fuel surcharges in accordance with the revised methodology upon approval.

124.2    On or about 5 June 2002, KK Leung, the Chairman of the HK BAR-CSC, wrote a letter to the CAD on behalf of the HK BAR-CSC, and copied to all members, applying for approval for the revised methodology.

124.3    On or about 19 July 2002, the CAD approved the revised methodology for one year with effect from 19 July 2002 until 18 July 2003.

124.4    On or about 23 July 2002, at a further meeting of the HK BAR-CSC, it was decided to commence charging fuel surcharges in accordance with the revised methodology from 1 August 2002, and to impose a surcharge of HKD0.40/kg (HKD0.20/kg for Asia, except South and South West Pacific) from that date on the supply of air freight services from Hong Kong.

[emphasis in original]

560    There is thus pleaded an arrangement or understanding having two elements. The first is an agreement to replace the pre-2002 resolution 116ss methodology with Lufthansa’s revised methodology; the second is an agreement that the airlines would impose surcharges in accordance with that methodology.

561    The fact that the airlines were openly co-operating to have the fuel surcharge approved might be thought to make it quite obvious that the understanding alleged by the Commission was made good. It appeared that way to me during the trial and, despite the vigorous submissions made on Air NZ’s behalf, I am unable to throw off the sense that the obvious is indeed the case. Air NZ nevertheless submitted that this was not so. It made the following submissions as to why it did not reach the understanding alleged by the Commission. These were:

(a)    the alibi issue. Air NZ submits that there is no evidence that it was represented at the critical meeting of 23 July 2002;

(b)    the chronology issue. Air NZ submitted that the pleaded case was that the arrangement on understanding was reached on 23 July 2002 when the approval had already been granted on 19 July 2002;

(c)    the multiple level issue. Air NZ submitted that the Commission could not succeed where higher levels were later added to the index;

(d)    the implementation issue. Air NZ submitted that all that had been agreed at the meeting of 23 July 2002 was the date upon which the surcharge would be imposed. The evidence did not show that at the meeting a decision to impose the surcharge had been made;

(e)    the 16 May 2002 meeting issue. Air NZ submitted that the events at the meeting of 16 May 2002 became irrelevant after approval was given on 19 July 2002;

(f)    the irrelevance of implementation issue. Air NZ submitted that little could be drawn from the fact that the airlines had all implemented a surcharge in accordance with what had happened at the meeting of 23 July 2002;

(g)    the consensus issue. Air NZ submitted that it could not have reached an arrangement or understanding because it was bound to act as it did in accordance with the law of Hong Kong;

(h)    the absence of agreement issue. Air NZ submitted that there was no evidence that there had been a meeting of the minds or that it had undertaken to do anything or that any airline had undertaken to do anything for it. Nor was there any express communications between the parties.

562    I reject each of these submissions.

563    As to (a) (whether Mr Ngai was present at the meeting): Air NZ submitted that it was not represented at the meeting of 23 July 2002. There is no doubt that Air NZ was invited to attend the meeting. A telex inviting Air NZ to the meeting was sent on 22 July 2002. Its terms indicated that recipients were asked to confirm their attendance ‘by email’ or by telephone. Air NZ pointed to the fact that there was no evidence of any such email being sent. That, of course, leaves out the possibility that Air NZ responded by phone or did not respond but attended in any event.

564    To meet that eventuality Air NZ relied upon the terms of the telex itself. On the telex the airlines are identified by codes. The code for Air NZ is ‘HKGSFNZ’. On the copy of the telex in evidence there are a series of ticks next to various airline codes but there is no tick next to ‘HKGSFNZ’.

565    Air NZ submits that I should infer from this that these ticks served as signs that the airline had attended the meeting. The absence of a tick next to Air NZ’s code meant that it was not there. It buttresses that submission by noting that the same document has a handwritten list of persons on a different page together with an identifier for each person’s airline. It says that this list substantially corresponds with the ticked codes on the telex. To that I would add that the document was produced by Cathay who was, of course, in charge of organising the meeting.

566    The Commission submits that the telex and attached list are simply evidence of the identity of the airlines who responded to the invitation prior to the meeting. It submits that Qantas and SQ were both at the meeting but do not appear on the list which is true. It also says that the list appears to show only nine airlines which is an implausibly low number for such an important meeting.

567    I have no particular view about the latter but I do accept that the absence of Qantas and SQ from the list when they were both represented at the meeting shows that the telex is unlikely to be an attendance list for the meeting. I do not think therefore that I should infer from the telex that Air NZ did not attend.

568    Of course, it is not for Air NZ to prove that it was not at the meeting but instead for the Commission to prove that it was. I am prepared to infer, however, that Air NZ was represented at the meeting by Mr Ngai. This is for several reasons. To begin with, Mr Gregg of Air NZ had authorised Mr Ngai to attend meetings of the HK BAR CSC on Air NZ’s behalf. It is clear also from contemporaneous emails that Mr Ngai had attended the meetings of the HK BAR CSC on 3 April 2002 and 16 May 2002. Furthermore, Mr Ngai prepared a circular informing customers of the implementation of the surcharge on 23 July 2002, i.e., the same day. This suggests either that he became aware very quickly of what had occurred at the meeting or that he was present at it. The former is rendered less likely, although not impossible, by the absence of any correspondence from the HK BAR CSC on that day informing the airlines of the surcharge outcome. It is not impossible because Mr Ngai may have been informed orally by someone from another airline who was at the meeting (or who had spoken to someone at the meeting). It may also be that a document was sent on that day but that all copies of it have been lost. Of course one needs to keep in mind, and I do, that the absence of evidence is not the same as evidence of absence.

569    There is therefore material from which, taken altogether, one could draw the inference that Mr Ngai was present at the meeting. By itself, it is possible that Mr Ngai did not go to the meeting of 23 July 2002 even though he went to the meetings of 3 April 2002 and 16 May 2002. By itself, it is possible that the HK BAR CSC did circularise its members on 23 July 2002 (including Mr Ngai) but that no one has been able to find a copy of the circular since. By itself, it is possible that Mr Ngai found out what happened at the meeting on 23 July 2002 through some other unexplained means. By itself, it is possible that he was not at the meeting even though he had been authorised by Mr Gregg to attend the meetings of the HK BAR CSC and even though Mr Gregg was not at it.

570    Although all of these matters are individually possible, I do not consider that taken together they are likely. For that reason, I infer that Mr Ngai was present at the meeting. Although the matter is contestable, it seems to me the more likely explanation. Mr Ngai of course could have thrown some light on this issue but he was not called. Although the inference that Mr Ngai was present at the meeting may probably be drawn without resort to Jones v Dunkel, its application to Mr Ngai’s non-appearance at the trial, fortifies me in the correctness of that conclusion.

571    I find that Mr Ngai was present at the meeting of 23 July 2002.

572    As to (b) (the chronology issue): Paragraph 124 of the pleading is set out above. It is not altogether clear what Air NZ’s argument was. Paragraphs 126-133 of Air NZ’s closing submissions on this point emphasised that on the date on which the Commission alleged the arrangement was reached (23 July 2002) the approval had already been granted (on 19 July 2002). Certainly this is true. Air NZ submitted that it was then bound to do that which it had already agreed to do. This appears to me to be the same argument pursued in relation to the issue of whether Air NZ can have reached an arrangement or understanding in light of the existence of the approval. I consider this issue below as a part of the ‘consensus issue’.

573    As to (c) (the multiple level issue): Air NZ submitted that the revised methodology had four identified surcharge levels. Air NZ identified the issue as whether that revised methodology extended to any further levels which were subsequently added to the index.

574    There were two aspects to this. The first was said to be a pleading issue. It was submitted that to the extent that the Commission alleged that Air NZ gave effect to the understanding alleged in [124] by imposing a surcharge at a level other than that alleged in [124] the claim must fail.

575    If the pleading did not allege that the arrangement or understanding was subsequently varied one might entertain this argument. However, it is expressly alleged at [159]-[162], [170]-[173], [192]-[197], [204]-[208], [214]-[218] and [236]-[242] of the Air New Zealand FASOC that subsequent arrangements or understandings were reached adding additional levels to the index. The allegation made by the Commission that these higher levels were implemented is, in each case, pleaded as an implementation of the arrangements in those paragraphs and not that in [124]. That the initial arrangement was subsequently varied and those variations acted upon is not an answer to the suggestion that the initial arrangement was reached. The point is, therefore, without substance. I do not, however, accept the Commission’s submission that it would have been an answer to this argument to seek refuge in the word ‘methodology’.

576    The second aspect of this point was said to be the need for the Commission to show that the revised methodology pleaded in [124] contemplated additional levels. It was then said that such a contention would encounter two identified difficulties. I do not accept the identified need for the initial arrangement expressly to contemplate its own amendment. Nor did the Commission suggest this was the case. Consequently, the two suggested difficulties have no relevance and may be put aside.

577    As to (d) (the implementation issue): Here Air NZ submitted that the evidence did not demonstrate any agreement or understanding by the airlines to impose the surcharge in accordance with the HK CAD’s approval ‘per se’. Instead, so it was submitted, the evidence demonstrated that the airlines had taken the necessity to impose the approved surcharge for granted and were concerned only with the date upon which it was to be imposed.

578    I reject this submission. The approval did not impose on the airlines any obligation to charge the surcharge. It was an approval not an instruction. Approved tariffs did not have to be charged. Nor did the airlines at the meeting proceed upon the basis that the approval bound them to implement the surcharge.

579    Air NZ submitted that certain matters showed that the airlines understood that they were going to implement the surcharge as at 23 July 2002. Reference was made to the fact that the airlines discussed at the meeting the need to give notice to HAFFA of the selection of the weight basis of the surcharge and the date the surcharge would be imposed. The point of this was that none of it showed ‘any agreement between airlines that they would impose a charge’.

580    I do not accept this. The airlines had agreed on 16 May 2002 that if their application was approved they would impose a fuel surcharge. When the application was approved on 19 July 2002 none was under any legal compulsion to implement it. The meeting of 16 May 2002 created no legal obligations and the approval of 19 July 2002 required no action but only controlled the nature of any action which might be taken. In order for the surcharge to be imposed the airlines therefore had to decide to impose it. On 23 July 2002 they agreed to do so and to do so from 1 August 2002.

581    Air NZ did not submit that no decision could be reached to agree the surcharge because such an agreement had been reached on 16 May 2002. Such an argument might have had more substance although it would necessarily involve an admission of price fixing on 16 May 2002. In the absence of that argument being put, Air NZ’s argument reduces to the assertion that agreement could not be reached on 23 July 2002 to impose the surcharge either because the approval required it (it did not) or because, in some unarticulated way, the decision had already been made. The former is simply incorrect. As to the latter, I do not think that I can assess whether the 23 July 2002 agreement was preceded by another agreement to impose the surcharge without knowing what that other agreement was. This has not been explained.

582    Air NZ also submitted that the evidence of Mr Gregg assisted its arguments. Mr Gregg, of course, was not at the meeting. The person who was at both meetings was Mr Ngai and Air NZ decided not to call him as a witness. Mr Gregg’s evidence was that he understood that the HK CAD had imposed a maximum level so that Air NZ could make its own commercial decision as to which surcharge it was going to charge. The point was that ‘he had no relevant understanding that Air New Zealand had committed to anything’. I do not regard Mr Gregg’s evidence as useful. His understanding that the approval levels were maxima was incorrect as Air NZ accepted. Further, since he was not at the critical meeting I do not think his views of what happened at the meeting are of any weight; more so when he had authorised Mr Ngai to attend and Mr Ngai generated a record of the meeting which was transmitted on the very same day.

583    As to (e) (the 16 May 2002 meeting issue): this argument, which was a variant of the one just considered, was that whatever had happened before 19 July 2002 was rendered irrelevant by the approval granted on that day. Unlike the preceding argument which sought to locate the decision to implement the surcharge entirely in the approval, this argument conceded the possibility that the airlines had decided to do something before the approval but that whatever this was – here the submission was understandably coy – it had been rendered irrelevant by the approval.

584    I do not accept this argument either. Before the approval on 19 July 2002 the airlines had agreed on 16 May 2002 that they wished to impose a particular surcharge but needed to get approval to do so from the HK CAD. In the absence of an approval this agreement had no immediate consequences. When the approval was forthcoming that which they had all previously agreed they wanted to do became possible. On 23 July 2002, it now being legally possible to impose the surcharge, they all decided to do so. Far from rendering the events before it irrelevant, the approval and the meeting of 16 May 2002 explain precisely why it was extremely likely that the airlines would agree on 23 July 2002 to impose a fuel surcharge. In my opinion, the only credible answer to that contention would be a submission that they reached no such agreement on 23 July 2002 because it had already been reached on 16 May 2002. Such an argument, understandably enough, was not advanced.

585    As to (f) (the irrelevance of implementation): Air NZ submitted that little could be gleaned from the fact that the airlines had all implemented the surcharges over the following years with clock-work like efficiency. This was because they were to be seen as simply reacting to the surcharge announcements made by the HK BAR CSC. This argument ignores the meeting of 23 July 2002 when the agreement to impose the surcharge was reached.

586    As to (g) (the consensus issue): Air NZ submitted that it could have reached no arrangement or understanding because it was bound to act as it did by the approval granted on 23 July 2002.

587    This is a factual submission about the subjective mental state of Air NZ. Two minds matter: that of Mr Gregg and that of Mr Ngai. Mr Gregg’s evidence about these events I have rejected on the basis that he was not present at the meeting. In any event, if I had accepted his evidence it would lead to the conclusion that he thought the approval was a maximum amount and did not bind Air NZ to do anything. This would not assist Air NZ’s argument, but, little weight ought to be given to Mr Gregg’s understanding of events to which he was not witness. Mr Gregg’s evidence about this may, in those circumstances, be put aside.

588    What of Mr Ngai? No evidence was called from him. His report to Mr Gregg of the events of 23 July 2002 contains no statement to the effect that the airlines were implementing the surcharge because they were required by the HK CAD to do so. Further, as discussed above, neither Hong Kong domestic law nor the approval granted on 19 July 2002 bound any airline to impose the approved surcharge.

589    I conclude therefore that Air NZ did not understand itself to be obliged to implement a surcharge just because it had been approved.

590    As to (h) (the absence of agreement issue): Air NZ denied that there had been any meeting of the minds on 23 July 2002, or that any understanding had been reached or any express communications exchanged. I reject this submission. The emails sent shortly after the meeting abundantly show that there was agreement. Mr Ngai was present at that meeting. I infer that Mr Ngai participated in the price fixing which took place on 23 July 2002. It was the point of the meeting; it is what the reports of what occurred at the meeting suggest; and parallel pricing then followed. I may more comfortably draw that inference where Mr Ngai was not called.

591    I conclude that the arrangement or understanding alleged in paragraph 124 against Air NZ is shown to have been reached.

10.3.2 Garuda

592    The Commission made the same allegation against Garuda at [112] of its Amended Statement of Claim filed in the proceedings against it.

593    Both parties accepted that there was no evidence one way or the other as to whether Garuda was present at the meeting on 23 July 2002. The Commission submitted that Garuda had attended some HK BAR CSC meetings which I accept but I do not see how that advances matters very far. The Commission also submitted that a variety of circumstantial matters pointed to Garuda being a party to the arrangement or understanding. But that will not suffice in relation to the pleaded case which is that Garuda reached the arrangement or understanding ‘on or about 23 July 2002’. The Commission does not make good that case by showing that Garuda subsequently agreed that the arrangement should be extended (although it may make good another case). This is because, as the Commission’s pleading shows, there may be more than one way for an airline to arrive at the understanding: one could, for example, join into a pre-existing cartel. Being present at the meeting held on 23 July 2002 is one way an airline might have come to the alleged understanding or arrangement but an airline who did not attend that meeting could nevertheless still take part by joining in later. The point is that the pleading is concerned with entry into the understanding by being at the meeting. This is the effect of ‘on or about 23 July 2012.’

594    In those circumstances, there is insufficient material for me to draw the inference that Garuda was at the meeting of 23 July 2002. Consequently, this allegation is not made good.

595    I conclude, therefore, that Air NZ was party to the agreement or understanding reached on 23 July 2002 but that Garuda was not.

10.3.3 Implementation

596    There is no factual debate that both Air NZ (and Garuda) imposed the surcharge in accordance with the revised Lufthansa Methodology. Additionally, Air NZ usually announced that it was doing so to its customers. Below, when dealing with the Commission’s Hong Kong Imposition Understanding, I conclude that Garuda and Air NZ took part in every surcharge variation under the modified Lufthansa Methodology.

597    Air NZ submitted this was not so because it was not acting pursuant to any arrangement or understanding reached on 23 July 2002 but instead was acting pursuant to the requirements of the HK CAD.

598    I have concluded above that this is not so and that: each airline, including Air NZ, had decided to use the revised Lufthansa Methodology because they actively wished to do so; that the HK CAD approval did not require them to levy the surcharge; that the decision to do so was a collective one between the airlines; and that the approval had bound them, once that decision was made, to do no more than they wished to do. That they acted only once the approval was granted does not negate the fact that they were acting in accordance with the arrangement or understanding which was approved. Whilst a firm who engages in price fixing behaviour because it is in fact compelled to do so by a foreign legal system will not be shown thereby to have made the commitment which Australian trade practices law requires to make good an agreement, arrangement or understanding under s 45, the opposite is also true. Firms who procure the creation of foreign legal requirements as a cloak for their own motives do not take themselves outside of s 45:

The real question is whose acts are the subject of inquiry. If the acts are those of the foreign government within its own jurisdiction, then the antitrust exception applies. The situation is the same if the foreign government through its laws, regulations, or orders, requires private parties to perform the anticompetitive acts. If, on the other hand, the acts complained of are in reality those of private parties who seek to hide behind the cloak of foreign law, the courts will attach antitrust liability.

See Wilbur L Fugate, Antitrust Jurisdiction and Foreign Sovereignty’ (1963) 49 Virginia Law Review 925, 932.

599    Accordingly, I reject this argument as a matter of fact.

10.3.4 Were the provisions of the understanding ones to which s 45A applied?

600    The Commission contends that each of the provisions of the arrangement was a price fixing provision. To make good this point the Commission must establish that the provisions had the purpose or had or were likely to have the effect of fixing, controlling or maintaining the price of providing the service of the carriage of air cargo. It must also establish under s 45A that the airlines were in competition with each other. This last issue cannot seriously be questioned and I say no more about it.

601    Air NZ, supported by Garuda in this regard, pointed to the word ‘price’ in s 45A and argued that a component of a price was not a price to which s 45A applied. They submitted that this point had been determined in their favour by Lindgren J in ACCC v CC (NSW) Pty Ltd at [184] where his Honour said:

[I]t is not enough for the Commission to establish, as it has pleaded, that the UTF understanding was likely to have the effect of controlling a component of the price: it must establish that it was likely to have the effect of controlling the overall price.

602    At paragraph [23] of its closing submissions the Commission accepted that the relevant question was whether the understandings had the likely effect of controlling the overall price. On this view, it was not, therefore, necessary for it to show that the overall price was fixed, controlled or maintained only that this was its purpose, effect or likely effect.

603    Putting to one side some semantic issues about expressions such as ‘purpose’, ‘effect’, ‘likely effect’ and ‘fix, maintain or control’ the substantial debate between the parties was whether the introduction of each surcharge had the effect (or was done with the purpose) of the airlines increasing their cargo charges by the amount of the surcharge or whether, instead, the effect (or purpose) of the understanding related only to the surcharge itself so that the imposition of the surcharge had no overall effect on cargo rates because competition remained extant on overall price.

604    That general observation cannot, however, be a substitute for the inquiries for which s 45A calls. The section requires an assessment of the quality of purposes, effects or likely effects. That quality is fixing, controlling or maintaining the price for goods or services.

605    There is a debate usefully, with respect, explained by Logan J in Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212 at [82] – [83], as to whether the expression ‘fixing controlling or maintaining’ in s 45A(1) is a composite expression or three distinct concepts informing each other’s meanings. Like Logan J I propose to adopt what was said by Lindgren J in ACCC v CC (NSW) Pty Ltd: ‘to fix a price is the most precise case’ (at [133]); ‘to maintain a price assumes that a price has been fixed beforehand; and, an understanding will control a price if it restrains a freedom that would otherwise exist as to a price to be charged’ (at [168]). No doubt, those concepts inform each other. In my opinion, an arrangement or understanding whose purpose, effect or likely effect is any of the above will be an arrangement or understanding to which s 45A applies. Whether this is so because the three words form a composite expression whose content consists of the union of the meaning of the three composite words or whether it is three concepts the result will be the same.

606    The Commission’s case was that the understanding of 23 July 2002 was:

(a)    likely to have the effect; or

(b)    had the purpose

of controlling the actual price charged by the airlines by way of increasing by the addition of a fixed or minimum charge (the surcharge) to the price which, apart from the surcharge, would not have been charged. Another more colloquial way of rendering this concept is that the purpose, effect or likely effect of the arrangement or understanding was that they would all put their rates up by the same amount, i.e., the amount of the surcharge. Because they were not all charging the same rate to begin with I do not think that this can be described as price fixing in its simplest sense of agreeing to charge the same amount. Nor, in this case, do I think that this practice would maintain the price because there appears to be nothing in the understanding of 23 July 2002 which would stop the individual airlines from reducing their actual cargo rates at a later time to absorb (or indeed to reverse) the effect of the surcharge having been imposed.

607    I do, however, accept at the level of principle that a decision by competitors who are charging different rates simultaneously to increase their charges by the same amount could be an arrangement or understanding with a price controlling effect or purpose or likely effect. That is not to answer the question at hand but rather merely to indicate the conceptual box into which the current debate is to be placed.

608    The Commission did not shy away from the need to show that the relevant purpose, effect or likely effect had to be the control of the whole price. It submitted that an arrangement by all competitors to increase their charges by the same amount was an arrangement which controlled the price because the liberty that would otherwise exist to charge each airline’s usual freight rate was restrained by the necessity of increasing the charge by the amount of the surcharge.

609    Air NZ, supported by Garuda, submitted that this conclusion ought not to be drawn in the case of the fuel surcharge for two reasons. The first was that the arrangement or understanding reached did not lead to a fixed increase. This was because the understanding did not specify whether it applied to chargeable or actual weight with the consequence that not necessarily the same surcharge was being imposed. I do not find this argument persuasive. Each of the airlines charged on both bases typically calculating the freight rate on chargeable weight for very light loads (such as flowers) which took up hold space. That the surcharge in such cases on an actual per kilo basis would be different is beside the point. As the Commission correctly submitted, there was nevertheless no competition in respect of the calculation of the surcharge. A similar situation would arise if the vendors of apples in the Sydney CBD market (assuming such a market exists) decided to increase the price of apples sold by the kilogram by $1 per kilo but where sold individually by 20 cents per apple. This does not cease to be price controlling merely because two different mechanisms of control are in play.

610    Air NZ’s second point was that whilst it was true that a price could be fixed, controlled or maintained without an agreement to charge literally identical charges the Commission had not pleaded such a case. Instead, it had explicitly alleged the imposition of identical surcharges. Having elected to run its case on the basis of identical charges it could not now switch to some looser concept.

611    This submission is not supported by reference to the pleadings. Paragraph 125 is the relevant paragraph and is in these terms:

125.    Each of the provisions, or alternatively one or more of the provisions, of the 2002 Hong Kong Lufthansa Methodology Understanding:

125.1    had the purpose and had the effect and was likely to have the effect of fixing or controlling or maintaining the price charged by Air New Zealand and the price charged by the other parties to the 2002 Hong Kong Lufthansa Methodology Understanding for the supply of air freight services including the supply of air freight services to Australia in competition with each other; and

125.2    was a provision to which section 45A of the TPA applied.

612    It is clear that this allegation relates to controlling the price for the ‘the supply of air freight services’. The pleading does not allege that the price which was fixed or controlled was the surcharge itself.

613    I accept, therefore, in principle that the Commission’s case can work. That leaves unresolved the other questions posed by s 45A, namely, whether the arrangement or understanding had the purpose, effect or likely effect of controlling that price.

614    It seems that ‘purpose’ refers to the subjective purpose of the parties: News Limited v South Sydney District Rugby League Football Club Limited (2003) 215 CLR 563 at [18], [31]-[43], [59]-[66] and [212]-[216]. The Commission advanced the submission that the airlines’ subjective purpose was to be inferred from three matters. These were:

(a)    the fact that the airlines sought to come to an understanding as to the levying of the relevant surcharges at specific amounts or rates to be applied and as to the date by which this was to occur;

(b)    the evidence of airline employees as to the significance of fuel cost as an input for the airlines; and

(c)    the evidence of airline employees, especially those of Air NZ, that they would not impose a fuel surcharge unless the large carriers did so.

615    In my opinion, (a) is sufficient to permit an inference to be drawn that the purpose of the understanding was to increase the price for air freight services by the amount of the surcharge in accordance with the methodology. This is not to say that the airlines were necessarily ruling out later reductions in their freight rates which might counteract the surcharge, only that they all intended to move their prices, in the first instance, in accordance with the index. This was its point. Consequently, as at 23 July 2002 – the time when the question of purpose is to be ascertained – the purpose was for all the airlines to increase their freight rates in accordance with the methodology. In my opinion, on that date there was an understanding between the airlines whose purpose was the control of their freight prices by the largely simultaneous increase in those rates by the imposition of a surcharge in accordance with the methodology. Section 45A(1) is enlivened.

616    It is true, as Garuda submitted, that at later times there was some evidence that some airlines would discount their cargo rates to overcome the effect of the surcharge. That, however, is not an answer to the Commission’s case about what happened on 23 July 2002. Cartel conduct does not cease to be such merely because there is a subsequent outbreak of cheating amongst the carteliers.

617    I am also satisfied that the effect of the understanding was that the airlines all increased their charges by the amount of the surcharge after the decision on 23 July 2002. There was, ultimately, no dispute that the surcharge had been substantially implemented.

618    That leaves the question of ‘likely effect’. Garuda, supported by Air NZ, submitted that the ‘likely effect’ limb of s 45A(1) was only available in matters which were not concerned with history. I do not accept this submission. In relation to identical words in s 47(10) the argument was rejected by the Full Court in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at 586 [247]-[248]. It is also inconsistent with the approach adopted by Lindgren J in ACCC v CC (NSW) Pty Ltd.

619    I am satisfied that the likely effect of the understanding that was reached was that the airlines would increase their respective freight rates by the amount of the surcharge. It was the point of the surcharge. As the discussions leading to the surcharge show, the aim of the surcharge was to compensate the airlines for the rising cost of fuel. I cannot accept that any of the airlines who were party to the understanding had any intention but as soon as possible to increase their freight rates by the amount of the surcharge. Nothing stood in the way of preventing what the airlines in fact intended to happen from happening. It was therefore the likely effect of the understanding that the airlines would increase their freight charges by the amount of the surcharge.

620    I conclude that Air NZ was a party to an understanding reached at the meeting on 23 July 2002 that the airlines would impose a fuel surcharge in accordance with the revised Lufthansa Methodology and that the purpose, effect and likely effect of this understanding was to control the price which the airlines charged for their services. The deeming provided for by s 45A is therefore enlivened.

621    Because I am of the view, however, that the relevant competition between the airlines was not competition in ‘a market in Australia’ within the meaning of s 4E, s 45 can have no application.

622    I turn then to the second way the Commission puts its case, the Hong Kong Imposition Understanding.

10.4 The Hong Kong Imposition Understanding

623    In the years following the reaching of the understanding at the meeting held on 23 July 2002 to impose a fuel surcharge in accordance with the revised Lufthansa Methodology a number of events occurred. One of these was a series of fluctuations in the price of aviation fuel resulting in both the increase and decrease of the fuel surcharge. Another was the addition of higher levels to the index as the price of fuel went higher than the original index contemplated (which initially had only four levels). Because the approval was always for a limited period from time to time it was also necessary for the airlines to seek to have its duration extended.

624    In the case of the fluctuations, the airlines were bound under the terms of the original (and subsequent) approvals to inform the HK CAD of each change in the surcharge as the index went up or down. In the case of the additional levels and duration extensions, such extensions in the index required further approval from the HK CAD. In all of those cases the HK BAR CSC found itself in the position of having to write to the HK CAD.

625    The Commission ran an alternative case that on each occasion a trigger for a change in the surcharge was indicated by the appropriate fluctuation in the price of aviation fuel, the HK BAR CSC wrote to the HK CAD, sending a copy to the member airlines, and informing it of the amount of the surcharge which would be imposed and the date of its imposition; that the HK BAR CSC would also inform the HK CAD of the identity of the airlines who would be implementing the relevant surcharge alteration by providing it with a list of participating airlines, a copy of which was also provided to the airlines themselves; that the airlines included in the lists put their names forward to be included on them and permitted their names so to be included; and that the airlines on the lists imposed the surcharge in accordance with the amount and timing notification to the HK CAD. These events are said to have occurred between 6 August 2002 and 26 September 2006 and are alleged to have given rise to an understanding between the airlines by February 2003, and no later than February 2005, that they would impose fuel surcharges in accordance with each notified alteration sent to the HK CAD.

626    This allegation is fact rich. On 6 August 2002 Mr Leung, the then chair of the HK BAR CSC, wrote to the HK CAD to inform it that the HK BAR CSC had decided to implement the fuel surcharge with effect from 1 August 2002. This fax was copied to ‘BAR-CSC members’. There is some question as to whether Air NZ and Garuda received the fax of 6 August 2002. It was copied to ‘BAR CSC members’ but the first extant copy of the list of those airlines maintained by the HK BAR CSC is one attached to another fax dated 21 August 2002. It is headed as a ‘revised’ list indicating that an earlier version or versions existed. Air NZ and Garuda are on this list. It does not follow inevitably that they were on the earlier list or, in consequence, that they received the fax of 6 August 2002. Since I have concluded that Air NZ was represented at the meeting on 23 July 2002 by Mr Ngai I have no difficulty inferring that it was on the distribution list on 6 August 2002. I also infer from the fact that Garuda had attended prior meetings of the HK BAR CSC and the fact that it implemented the surcharges that it too received this fax.

627    The fax to the HK CAD contained an important indication of how the HK BAR CSC proposed to proceed in the future. On its second page it contained the following statement:

In order to eliminate in future the misunderstanding between BAR-CSC and CAD, I would like to reiterate the procedure of implementing the new fuel surcharge mechanism :

-    BAR-CSC informs CAD with every adjustment, whether upward or downward, of the level of surcharge levied and the corresponding fuel price index.

-    BAR-CSC has to wait for two consecutive weeks for the fuel index to reach or exceed a trigger point before a surcharge adjustment is made. BAR-CSC would give cargo agents one week’s notice before a surcharge adjustment is implemented.

-    BAR-CSC informs CAD of the fuel price index on a regular basis or at request.

I hope the above explains the misunderstanding BAR-CSC has had for this time and the procedure for BAR-CSC to take for any surcharge adjustment in future.

628    On 16 August 2002 the HK BAR CSC wrote to the HK CAD. This letter is not available. However, its contents may, in part, be inferred from a letter sent on 20 August 2002. This letter was from the HK BAR CSC to the HK CAD and began ‘Further to our fax dated August 16, 2002 regarding the list of airlines that are collecting the fuel surcharge…’ I would infer from this that a list had been sent on 16 August 2002 to the HK CAD of participating airlines. The letter goes on ‘to explain and clarify the other six airlines’ which indicates that there must have been previous information of the other airlines, that is, those in the previous letter of 16 August 2002 as opposed to the six in the letter of 20 August 2002. I cannot be clear that on that day all of the airlines had likewise received the same list because I cannot determine whether the fax of 16 August 2002 was copied to all member airlines.

629    In any event, there is no question that on 21 August 2002 the HK BAR CSC provided the HK CAD with a list of 57 participating airlines. These included Air NZ and Garuda.

630    At this point it is necessary to recall two facts. The first is that the airlines present at the meeting on 23 July 2002 had decided to implement the modified Lufthansa Methodology on 1 August 2002. The first level of that index was enlivened at 115 and was set at HKD0.40/kg. At the time of the decision to implement on 23 July 2002, the index had been above 115 for more than two weeks so that this authorised the imposition of this first level charge. The decision of the meeting was to take this step on 1 August 2002.

10.4.1 Increase to Level 2 (Index Level: 135)

631    The next trigger in the index was 135. As at 5 September 2002, the index had exceeded 135 for two weeks and an increase in the surcharge to HKD0.80/kg therefore followed from the modified Lufthansa Methodology. As contemplated in the HK CAD’s letter of 6 August 2002 the HK BAR CSC wrote to the HK CAD on 5 September 2002. This letter indicated that the index had reached 138 and 142 respectively in the weeks of 23 August 2002 and 30 August 2002 and that an increase in the surcharge to HKD0.80/kg was authorised by the index except in Asia other than the South and South West Pacific where HKD0.40/kg was applied. The letter indicated that this second level of the surcharge would be imposed on 13 September 2002. A copy of this letter was sent by the HK BAR CSC to the participating airlines – including Air NZ and Garuda – on the same day under cover of a fax which said to each airline:

Attached please find the letter from KK Leung (for and on behalf of BAR-CSC) to Alan Shum [sic] of HKCAD in respect of increase in cargo fuel surcharge wef :SEP13, 2002.

632    Another letter sent by the HK BAR CSC on the same day asked the airlines (including Air NZ and Garuda) to notify their agents ‘so that they can have one week’s advanced notice’.

633    In their defences Air NZ and Garuda admitted that they had imposed both the initial surcharge and the first level increase on 13 September 2002 on routes flown by them.

10.4.2 Increase to Level 3 (Index Level: 165)

634    The modified Lufthansa Methodology had a third level which was enlivened at 165 and was HKD1.20/kg. By 12 February 2003 the index had exceeded 165 for two weeks. On 12 February 2003 the HK BAR CSC wrote to the HK CAD informing it that the new Level 3 surcharge would be imposed from 21 February 2003. The letter informed the HK CAD that it would give the freight forwarders one week’s notice and that it had written to its members, HAFFA and the Shippers’ Council, to inform them of the surcharge increase. This fax was copied to the HK BAR CSC member airlines. A number of airlines, including Air NZ, announced that they would be imposing the surcharge from 21 February 2003. Garuda did not make an announcement. Nevertheless, both airlines (and a number of other airlines) imposed the surcharge from that date.

635    On 18 February 2003 the HK BAR CSC provided the HK CAD with a revised list of airlines who were covered by the filing. On 19 February 2003 this was supplemented by some minor additions consisting of subsidiary airlines of airlines already on the list or, in two cases, the addition of airlines who had been removed from the list at an earlier time.

636    On 19 February 2003 the HK CAD issued an approval for the addition of a further five airlines. Only one of those airlines – Australian Airlines – was amongst the five mentioned the day before by the HK BAR CSC. Nothing turns on this anomaly for which I am unable to account.

10.4.3 Increase to Level 4 (Index Level: 190)

637    In the weeks before 13 March 2003 the fuel index exceeded 190 for more than two weeks. This potentially enlivened the fourth level of the index. The HK BAR CSC then called a meeting of the airlines for 13 March 2003. A practical consideration made such a meeting necessary because the approval granted by the HK CAD on 19 July 2002 had only provided for approval of the first four levels of the index mechanism. No meeting was necessary to increase to Level 4 but any further increases would require an amendment to the original approval to include higher levels. Consistently with this view, the HK BAR CSC wrote to the HK CAD on 13 March 2003 advising it of the Level 4 surcharge of HKD1.60/kg and that it would take effect from 27 March 2003. The letter enclosed a list of all 60 airlines who would be doing so. This letter was copied to the airlines.

638    Insofar as the increase to Level 4 was concerned, the airlines, including Air NZ and Garuda, all implemented it. In the meantime, the HK BAR CSC continued to do internal work designed to add additional levels to the approved index, as the minutes of the meeting on 19 March 2003 show.

10.4.4 Decrease to Level 3 (Index Level: 170)

639    On 7 April 2003 the price of fuel had moved in the opposite direction. The HK BAR CSC chair advised its members in the following terms:

The index fell to 155 in the week of March 28, 2003. If it goes below the trigger point of 170 for the following week (week of April 4, 2003), then according to the fuel surcharge mechanism the fuel surcharge should be reduced from the current HK$1.60/$0.80/kg to HKS1.20 $0.60/kg.

If we give two weeks' notice to the cargo forwarders for the cut in fuel surcharge, the effective date of the revised surcharge will take place within the week of April 21, 2003.

Therefore, would all members of BAR-CSC be prepared for the drop in fuel surcharge and the effective date of implementation. I will keep all of you informed once the decision is made.

Thank you for your attention.

640    On the following day the HK BAR CSC informed the HK CAD that in light of the reduction in the price of fuel the surcharge would be decreased to Level 3 (HKD1.20/kg for long haul) and that this would take effect from 22 April 2003. It undertook that the freight forwarders would be given two weeks notice of the increase. The airlines which would apply the surcharge were those appearing on the list issued on 19 February 2003. That list included Air NZ and Garuda. The letter to the HK CAD was copied to the members of the HK BAR CSC. On 22 April 2003 both Garuda and Air NZ implemented the decrease to Level 3.

10.4.5 Decrease to Level 2 (Index Level: 145)

641    On 24 April 2003 the price of fuel had dropped below 145 for more than two weeks which therefore required a reduction under the index. On 24 April 2003 the HK BAR CSC notified the HK CAD and its members (by copying the letter to them) that this was so and that the Level 2 surcharge (HKD0.80/kg for long haul) would be implemented from 1 May 2003. The letter attached a list of airlines which would be implementing the decrease and this list included Air NZ and Garuda. The member airlines, including Air NZ and Garuda, then implemented the surcharge decrease.

642    The approval for the modified Lufthansa Index was due to expire on 18 July 2003. In circumstances to which I return below the approval was extended by the HK CAD to 18 January 2004.

10.4.6 Increase to Level 3 (Index Level: 165)

643    On 5 December 2003 the fuel index had exceeded 165 for more than two weeks. On that day the Chair of the HK BAR CSC wrote to the HK CAD notifying it that, as that had occurred, the airlines would increase the fuel cargo surcharge to Level 3 (HKD1.20/kg for long haul) from 19 December 2003. The letter attached a list of 58 airlines which would be implementing the surcharge and that list included Air NZ and Garuda. The letter and the list were copied to the members of the HK BAR CSC including Air NZ and Garuda. Air NZ notified its customers that it would impose the increase. The airlines, including Air NZ and Garuda, subsequently imposed the increase to Level 3.

10.4.7 Increase to Level 4 (Index Level: 190)

644    On 27 April 2004 the index had exceeded 190 for more than two weeks. On that day the HK BAR CSC wrote to the HK CAD notifying it of this fact and that there would be an increase in the fuel surcharge to Level 4 (HKD1.60/kg for long haul) from 11 May 2004. The letter attached a list of the 57 airlines which would be implementing the increase. The list included Air NZ and Garuda. A copy of the letter and the list was circulated on the same day to the HK BAR CSC airlines including Air NZ and Garuda. Air NZ notified its customers of the increase. Subsequently the airlines, including Air NZ and Garuda, implemented the Level 4 increase.

10.4.8 Subsequent increases and decreases

645    I have set out in some detail the process by which the level of the fuel surcharges was increased and decreased over the first four levels. These levels were subsequently extended to include levels up to 12. I discuss this below.

646    Subsequently there were a further 19 variations in the index until 26 September 2006 upon each of which the Commission relies. In each the mechanism was largely identical; that is to say, a letter was sent by the HK BAR CSC to the HK CAD indicating that a trigger point had been reached and that a change in the level of the fuel surcharge would be implemented on a given date; the attachment to that letter of a list of participating airlines; the copying of that letter to the airlines (always including Garuda and Air NZ) and the subsequent implementation of the increase by the HK BAR CSC airlines including Air NZ and Garuda. There were slight variations: on some occasions the HK BAR CSC would write directly to the airlines as well (usually in addition to copying them in on the correspondence to the HK CAD); usually, Air NZ would announce the increase to its customers but Garuda would not. Although the Commission set out in its written submissions the detail of the remaining 19 variations, I have decided to exclude this detail from these reasons because it does not, in substance, differ from the variations over the first four levels. Instead, I will summarise the 19 variations as follows:

Date letter sent to HK CAD

New level

Date of implementation

26 July 2004

Level 5 (HKD2.00/kg)

9 August 2004

2 September 2004

Level 6 (HKD2.40/kg)

16 September 2004

21 October 2004

Level 7 (HKD2.80/kg)

6 November 2004

2 November 2004

Level 8 (HKD3.20/kg)

16 November 2004

23 November 2004

Level 7 (HKD2.80/kg)

7 December 2004

21 December 2004

Level 6 (HKD2.40/kg)

4 January 2005

8 March 2005