A "MARKET IN AUSTRALIA"
17 In its SASC the applicant failed to expressly identify any "market".
18 In my previous reasons, I set out the relevant statutory provisions and referred to various authorities which established the need for an applicant, in a case such as the present, to identify a "market in Australia" in which it was alleged that the anti-competitive conduct occurred: at [9]-[19]. I also ventured some observations on what material facts should be pleaded in order to establish the existence of a relevant market: at [20]-[21]. The applicant has responded with a radical re-pleading. It pleads the existence of a variety of markets. They include a "Global Market" for the supply of international air freight services (paragraph 35) and an "Australian Global Market" for Australian international air freight services which formed part of the Global Market (paragraph 38). It has also pleaded the existence of what is described as a "Transactional Global Market", which formed part of the Global Market (paragraph 37), as well as a "Transactional Australian Global Market", which formed part of the Australian Global Market (paragraph 39). It alleges that, in each of the transactional markets, "at least part of the negotiation of, or entry into a contract for, the supply of international airfreight services comprised a communication directed to or originating from Australia". Both the "Global Market" and the "Australian Global Market" are said to be "a market in Australia" within the meaning of s 4E of the TPA (paragraphs 36 and 38). Various regional markets are also said to exist.
19 The material facts on which the applicant relies for the purpose of establishing the existence of the "global market" are:
· There was a demand, around the world, for international air freight services (paragraph 15);
· Various carriers, including the respondents, provided such services (paragraph 16);
· The respondents provided their services between various regional hubs and between manifold points of departure and arrival around the world (paragraph 32);
· The existence of various modes of carriage of international air freight between hubs and ports of departure and origin (paragraph 33); and
· It was possible for carriers to provide services between hubs and ports of origin and arrival, to substitute routes between hubs and ports, and to substitute modes of carriage between hubs and ports (paragraph 34).
20 The applicant also seeks to rely on the details of the alleged cartel agreement to establish the existence of the global market. It is alleged that, under cover of the agreement, the respondents further agreed to impose a fuel surcharge and a security surcharge which were applied to the provision of air freight services throughout the world, including into and out of Australia. I assume that the Court will, at trial, be invited to infer that the geographic reach of the agreements is indicative of the existence of a global market.
21 The respondents submit that parts of the "market" pleadings are unintelligible. They also complain that the applicant's pleadings of a "global market" and "market in Australia" are conclusionary and do not contain all of the material facts which my previous reasons suggested were necessary.
22 The applicant responded that, because no attempt had been made in the SASC to identify a "market", the re-pleading was struck out for that reason and therefore anything which I had said about material particulars was obiter. It further submitted that, since my previous reasons were published, other decisions had been handed down which suggested that it may not be necessary to plead all of the material particulars which I had identified. In any event, it contended, it was sufficient that it was able to establish "that two or more parties to the price fixing arrangements supply services the subject of the price fixing arrangement in competition with each other in any market in which a party to the price fixing arrangement supplies those services".
23 The law on what constitutes a "market in Australia" is far from settled. One thing that is clear is that a market which is wholly outside Australia is not comprehended by the statutory definition: see Singapore Airlines Ltd v Australian Competition and Consumer Commission (2009) 260 ALR 244 at 254; Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89 at 112. The existence of a global market which extends into the geographic boundaries of Australia does not, on the other hand, preclude a finding that there exists a "market in Australia". There can, therefore, be no objection to the applicant pleading, as it has done, that there is a global market for air freight services and that part of that market is a "market in Australia", provided that material facts are pleaded which establish the existence of those markets: see Sammy Rosso Supplies Pty Ltd v Australian Safeway Stores Pty Ltd (1998) ATPR 41-641 at 41-094 per Goldberg J.
24 One of those material facts, in a case in which s 45A of the TPA is relied on, is the area or areas within Australia in which particular respondents compete with each other and in which they give effect to any anti-competitive agreement to which they are parties. As Middleton J said in Emirates v Australian Competition and Consumer Commission (2009) 255 ALR 35 at 41:
"The services the subject of the unlawful provision must be the services supplied by the relevant party to the arrangement in competition with the other party in any market in Australia. Put another way, the area of competition has to coincide with the area of restriction imposed by the unlawful provision: see ss 45A(8), 4D(1)(a) and (2) …".
25 Any attempt to define a "market" with absolute precision confronts serious obstacles. The term "is a metaphor used to describe a range of competitive activities by reference to function, product and geography": see Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at 545. The concept was succinctly explained by Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 26 ALR 609 at 647 where he quoted with approval a passage from a decision of the Trade Practices Tribunal:
"The Trade Practices Tribunal considered the concept of market in some detail in Re Queensland Co-operative Milling Association Ltd (1975-6) 8 ALR 481 at 517, where the members said: "A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them … Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive"…".
26 The "market", then, is an area within which close competition occurs between the same firms to enter into business transactions with buyers of their products or services, and where the competitors provide or seek to provide their goods or services.
27 As Re Queensland Co-operative Milling and other authorities to which I made reference in my previous reasons make clear, a market for services will exist only if there is strong substitutability between those services on both the demand and supply sides. In its submissions, Cathay Pacific cited a number of hypothetical examples which make good this point. There may be a high degree of cross-elasticity of demand between an international air freight service from Hong Kong to Sydney and an equivalent service from Hong Kong to Melbourne. An increase in the price of the Hong Kong to Sydney service might lead to customers using the Hong Kong to Melbourne service and then using land transport to move the goods within Australia. In such circumstances it could be said that the Hong Kong to Sydney and the Hong Kong to Melbourne services were part of the same market. On the supply side, if carriers were faced with reduced demand for services on the Hong Kong to Sydney route, and an increased demand on the Hong Kong to Melbourne route, the carriers which service both routes could move aircraft and other resources from the Sydney route to the Melbourne route to meet the changed demand. It could, therefore, be said that there was a high degree of cross-elasticity of supply between the services so as to justify treating the two routes as part of a single market.
28 It would, on the other hand, be far more difficult, if not impossible, to establish the existence of cross-elasticity of demand or supply for international air freight services on the routes from Hong Kong to Moscow and from Dubai to Sydney. The applicant, nonetheless, maintained that the field of rivalry between the respondents, and hence the market, is worldwide.
29 As has been noted, the material facts relied on by the applicant to establish the existence of a "global market" include the possibility that carriers are able to substitute routes and modes of carriage between hubs and ports when providing services. In some cases this will be suggestive of cross-elasticity of supply. It would not matter to the customer, assuming no material variation in charges or delivery time, whether goods sent from London to Melbourne were routed through Hong Kong or Singapore. That may be accepted and the two routes may be found to form part of the same market. That example, however, deals with but one of a myriad of routes comprehended by the substitutability pleading in paragraph 34. Not all of these routes could possibly be said to form part of the same market. It could not, realistically, be asserted that close competition and strong substitution could be found for the supply of international air freight services between one particular route and every other route in the world. Rather, there are potentially thousands of discrete markets, the existence of which will depend on the type of economic analysis referred to in the authorities.
30 It follows that the matters pleaded in paragraph 34 do not assist in establishing the existence of a global market or a market in Australia. Rather they are suggestive of the presence of multiple markets for international air freight services throughout the world and in Australia.
31 In the absence of any other material facts which establish a field or fields of rivalry between the respondents (or some of them) in Australia, in which competition between particular respondents occurs for the provision of international air freight services and negotiations take place between respondents and customers or potential customers, the FASC fails to identify (other than in a conclusionary manner) any "market", be it a global market or a market in Australia. The pleadings in relation to the transactional markets and the regional markets suffer from the same deficiency. The existence of transactional markets cannot, for example, be established on the simple basis that communications passed to or from Australia. The pleadings are confusing in that, rather than supporting the existence of the conclusionary global market for international air freight services which includes a market in Australia, they suggest the existence of multiple markets scattered throughout the world.
32 This is not a deficiency which can be dismissed as peripheral. As I pointed out in my previous reasons, there are multiple routes into and out of Australia on which air freight is carried. Not all respondents operate on all of these routes. Some of the routes may fall within the same market because two or more respondents compete on the routes and there is cross-elasticity of demand and supply on those routes. On other routes into and out of Australia some of the respondents will not be in competition with other respondents and those routes will constitute separate markets. Even in respect of routes which commence or end in Australia, there may not be a market in Australia if all or most of the competitive activities in which the parties engage, and the negotiations between respondents and customers, take place outside Australia. Each respondent is entitled to know in which market or markets in Australia it is alleged to have engaged in anti-competitive conduct with one or more of the other respondents contrary to the TPA. The FASC does not provide them with this information. It cannot be assumed that, simply because the alleged cartel arrangements were expressed to be operative throughout the world, that this necessarily led to anti-competitive conduct taking place in all markets for the provision of international air freight services. It is possible, for example, that the respondents would not have applied surcharges on routes on which they were competing with other airlines who were not cartel members and who were not inflating prices.
33 One of the matters which I previously suggested must be identified was the place or places where negotiations took place between the respondents and their customers and agreements were entered into by them. The respondents complain that the applicant has not pleaded that negotiations between the respondents and potential customers took place within Australia or that contracts were signed here.
34 In my previous reasons, I said at [20] that:
"In my view an applicant in a proceeding such as the present in which exclusive reliance is placed on s 45A of the Act, must, in its statement of claim, identify the market or markets in which it is said that the anti-competitive conduct has taken place. The pleadings must identify (at least) the relevant goods or services and the geographic boundaries of the market. The pleading need not descend to the degree of particularity to which Heerey J objected in McPhee or the detail which Selway J found to be unnecessary in McMahon Services. In both of those cases it was held that the identification of a market was a material fact or particular which had to be pleaded".
35 In order for there to be a "market in Australia", it is necessary for competitive activity to occur within Australia. As I said at [19]:
"In economic terms "a market is the field of actual and potential transactions between buyers and sellers among whom there can be strong substitution, at least in the long run, if given a sufficient price incentive": see Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 at 190. In the same case a market was also referred to as an "area of close competition between firms": ibid; see also Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 195 (per Deane J); at 199-200 (per Dawson J). Buyers and sellers of goods and services must negotiate and enter transactions in an area in which suppliers are engaged in close competition with each other. That area must be located within Australia".
36 Competitive activity can take many forms. It may involve advertising campaigns by the suppliers of particular goods or services by which they attempt to attract customers. It may involve the efficiency with which services are provided or attempts to provide higher quality products. Firms may also compete by offering better quality after-sales service, or in ensuring the ready availability of spare parts. These competitive activities may take place within a geographic market even though contracts for the provision of the goods or services are negotiated or entered into elsewhere. In many cases, negotiations between seller and buyer will take place in a competitive environment in Australia and contracts will be signed here. When, however, there is a global or international market of which Australia forms part, it is possible for competitive activity of the kind earlier mentioned to take place in Australia even though contractual arrangements are formalised overseas.
37 It has yet to be determined authoritatively that a "market in Australia" exists when goods and services are provided on a competitive basis in Australia, but the terms and conditions on which they are provided have been negotiated and agreed upon wholly outside Australia.
38 In Emirates, Middleton J referred to the issue in the course of dealing with applications to set aside notices issued under s 155 of the TPA. His Honour held (at 52):
"… the place of contracting is not determinative of the geographic locality of the relevant market. The references relied upon in Heydon J D, Trade Practices Law (Lawbook Co, subscription service) do not, in context, stand for such a proposition. As the authorities referred to previously indicate, the concept of a 'market' refers to a range of 'competitive activities' relating to the field of actual or potential activities between buyers and sellers among whom there is, or can be, close competition. It involves the 'field of rivalry', not just referrable [sic] to the place of contracting".
39 It had been submitted to his Honour that some observations which I had made in my previous reasons supported the proposition that there could not be a market in Australia unless contracts between buyers and sellers were negotiated and entered into in Australia. One of the respondents' grounds for seeking to have the SASC struck out was that it did not identify the various routes, to and from Australia, on which the various respondents (or some of them) competed. It was in this context that I said at [21] that:
"The respondents in the present proceeding are entitled to know where in Australia it is said that they compete with each other named respondent for the provision of international airfreight services. This will depend on where negotiations between the respondents and their customers take place and contracts are entered into. These material particulars are not provided. It cannot be assumed that all or even some of the respondents are in competition, in the necessary sense, in all parts of Australia. In the absence of these material facts the pleadings are deficient in a significant respect".
40 On reflection, I should have used the word "may" instead of "will" in the second sentence of the quoted passage. It was not my intention to rule, on a pleading summons, that the place or places where the international carriers negotiated and entered into contracts with those who wished to use their services, were or would be determinative of the geographic location of the relevant markets. These were relevant but not decisive considerations. If the only substantial competitive activity which occurred between particular carriers on routes into and out of Australia took place overseas this may have suggested that the relevant market was not "in Australia" even if contracts were signed here. On the other hand, if vigorous competition and negotiations in Australia culminated in contracts being signed overseas the opposite conclusion would be likely. These matters were, therefore, material in determining the geographic parameters of the relevant market and, in particular, whether that market was "in Australia". Those parameters differed between the respondent carriers, because they did not all provide services to and from the same ports or along the same routes.
41 For present purposes, the applicant's failure to identify where relevant negotiations took place, and where contracts were entered into and signed between the respondents and their customers, does not lead to the conclusion that it has thereby also failed to plead facts which would be determinative of the geographic boundaries of the market. The failure does, however, mean that material facts which must be provided in order to identify the global market and the part of it which constitutes a "market in Australia" have not been supplied.
42 In its SASC the applicant failed to plead the existence of any relevant market in Australia. It sought to remedy this deficiency, in its FASC, by pleading the existence of multiple markets, variously described. This has served only to create greater confusion. The individual respondents are entitled to know the markets for the provision of international air freight services which are alleged to exist in Australia, and in which of those markets it is alleged that they compete with another respondent or respondents and who those other respondents are. The FASC does not provide this essential information.
43 In my previous reasons I noted that the failure of the applicant, in its SASC, to identify a market or markets created a special problem for British Airways: at [24]. This was because that airline had the benefit of an authorisation under s 88 of the TPA in relation to a joint services agreement which it has with Qantas. That agreement permitted British Airways to agree with Qantas about the prices for services offered, including cargo services, on routes covered by the agreement. Such an authorisation would provide British Airways with a defence against any claim that it had contravened s 45 of the TPA. This issue remains despite the attempts of the applicant, in its FASC, to allege the existence of global, Australian and other markets. This is because, for the reasons which I have already given, the applicant has failed to plead material particulars which are necessary to identify the relevant markets.
44 The applicant has submitted that it would be open to British Airways to plead, in its defence, that it had the benefit of s 88 in particular markets. That would be so had the relevant markets been identified in the FASC. They have not.