7.1.7 Culture of compliance and previous conduct
191 Garuda submitted both in relation to Hong Kong and Indonesia that it had not previously been found to have contravened the TPA or any other competition law. I accept this submission.
192 However, the question of deterrence, both general and specific, throws up the question of what conduct is to be deterred. Garuda submitted that it could not reasonably have known at the time of the contraventions that Pt IV of the TPA would be held to apply to its air freight operations insofar as they involved cargo flights terminating at ports in Australia. Further, Garuda submitted that the Indonesian Supreme Court had held that fixing the level of fuel surcharges did not infringe Indonesian law. Consequently, it had no reason to believe that its conduct was unlawful. There would be no specific deterrence purpose served by punishing an entity for conduct which it had no reason to think was unlawful.
193 This is a complex submission. I have already rejected at [118]-[121] above the submission that the Indonesian Supreme Court found that fixing the levels of FSCs did not infringe Indonesia's competition law. On the other hand, since the conduct to be punished is the conduct constituting contraventions of Pt IV, the question of whether the same conduct is also a contravention of Indonesian law seems to be something of a sideshow. I do not think that one could say that the contravention of Pt IV was more or less serious depending on whether it was, or was not, unlawful under Indonesian competition law.
194 The fact that an entity is ignorant of the operation of Pt IV is irrelevant to whether there is a contravention of it. Whether ignorance of the operation of Pt IV is irrelevant to the assessment of a penalty is a more difficult question. The Commission submitted that ignorance of Pt IV was either irrelevant to the assessment of remedies or otherwise simply revealed a failure of compliance, that is to say, assuming that Garuda was ignorant as it alleged, this simply revealed a failure to ascertain what its legal obligations were.
195 The Commission interrogated Garuda about this topic. The questions and answers were as follows:
Interrogatory 3: Was any disciplinary action or sanction taken by Garuda against any of the persons employed by it anywhere in the world in respect of their knowledge of, or involvement in, any of the conduct the subject of the contraventions found by the Court?
[Answer:] No.
Interrogatory 4: If the answer to 3 is 'yes', provide details of the person, the disciplinary action or sanction taken, and when it was taken.
[Answer:] N/A.
196 Those answers, whilst showing that Garuda took no disciplinary steps, do not establish what Garuda knew about Australian law. I have found this a difficult question to resolve. However, at the end of the day, it comes down to the evidence. The only evidence led by Garuda on this topic came from Mr Mandala. He is a senior manager in cargo sales for Garuda's strategic business. At the times relevant to the contraventions he was the manager of cargo capacity for Garuda. He gave this evidence about what he understood of the operation of Australian law:
25. During the period 1 September 2002 to 17 April 2005 and subsequently although to a lesser extent, I was in regular contact with the General Manager, Revenue, and senior staff in Garuda's cargo business, including staff who represented Garuda at the Air Cargo Representative Board meetings ("ACRB") in Indonesia. On one occasion, I attended a meeting of the ACRB on behalf of Garuda.
26. Prior to 2006 I did not contemplate, believe or have any knowledge that the conduct by Garuda in Hong Kong or Indonesia connected with prices or surcharges for the carriage of cargo could constitute a breach of Australian law. Nor did any employee of Garuda ever say anything to me to indicate that he or anyone else employed by Garuda contemplated, believed or had knowledge that such conduct could constitute a breach of Australian law.
27. From my experience as an employee of Garuda for 28 years, I expect that if any employee of Garuda had suspected or believed that conduct of Garuda could have constituted a breach of Australian law, there would have been a report and consideration of the issue at high level of management, including minutes and other written records relating to the consideration of the issue. At no time before the commencement of this proceeding did I become aware of any report or consideration by management in Garuda's cargo business concerning the possibility that conduct by Garuda in Indonesia or other places outside Australia could constitute a breach of Australian law. The policy of Garuda was to comply with the laws of the countries to which it operated. There was surprise in the cargo department at the allegations that Garuda had been in breach of Australian law.
28. I have reviewed the financial statements for Garuda for the years 2003-2004, 2005-2006 and 2015-2016 and I say that from those documents and my own knowledge and experience the cargo business as a proportion of the total business of Garuda was approximately 6.5%. As Garuda did not operate freighters, the cargo business was dependent upon the availability of space on the lower deck on passenger aircraft and that space was also used for the carriage of passenger luggage. The revenue from the carriage of international cargo was about 35% of the total revenue for the carriage of cargo for Garuda.
197 I accept that Mr Mandala did not know about the application of Australian law. But he was a cargo manager so that is unsurprising. More important than the evidence which Garuda has led is the evidence which it has not. Mr Poeloengan was not called - and he knew the conduct was going on and was far further up the corporate ladder than Mr Mandala.
198 Garuda led no evidence about how it informs itself of the legal regimes of the various nations to which it flies. For an international commercial airline, compliance with overseas legal regimes is a fact of life. Not the least of the regimes which they must be across are those regulating aeronautical matters. I would not, for example, find convincing, from Garuda's perspective, any claim that it was ignorant of the requirements of the Air Navigation Act 1920 (Cth). This is because it is an airline which flies through Australian airspace and is required to hold, and does hold, a licence under that Act.
199 Many nations have competition laws. However, no evidence has been put before the Court as to which nations through whose airspace Garuda conducted air freight services had competition laws. Garuda has led no evidence as to how it approaches the liabilities it might have under the competition laws of different nations including Indonesia. It has not led any evidence that it did not ever consider those liabilities. I do not know therefore whether Garuda ever considered its liability on Australian-bound routes under Pt IV or whether it did consider its liability under Pt IV and decided it did not apply. I do not even know if there is a department within Garuda which considers its regulatory exposures.
200 Viewed through that prism, the evidence of Mr Mandala that he did not know that Pt IV applied is underwhelming. There is no reason to think that he would know.
201 The question then is whether I should accept Garuda's submission that it had no reason to think that Pt IV applied to it at the relevant time. I do not accept that Garuda has proved anything about its attitude to compliance with Pt IV. Accordingly, I do not accept the submission. That leaves the Court in the position, however, that it knows nothing about how Garuda approached the question of the application of Pt IV to its Australian-bound routes. I do not think that a rejection of Garuda's submission entails acceptance of its opposite - that is, I do not think that I can find that Garuda did know that Pt IV applied. This would be to invert the onus of proof which rests on the Commission.
202 However, it is clear that Garuda did not detect that its conduct was in breach of Pt IV. The question then is whether this failure was a reasonable or unreasonable failure. This is a question on which the Commission bears the onus. Nonetheless, there is evidence from which one could infer that Garuda's compliance arrangements were not reasonable. The Commission administered an interrogatory to Garuda about the instructions given by Garuda to its employees in the relevant period about competition laws. The question and Garuda's answer were as follows:
Interrogatory 6: What, if any, instruction in Australian or Indonesian trade practices or competition law requirements was given by Garuda to its employees in Hong Kong or Indonesia at any time in the period from 1 January 2002 until 17 October 2006?
[Answer:] None.
203 I was told by Mr Halley that the discussions between the parties resulted in this answer being limited to confirmation that there was no instruction given with respect only to Australian trade practices law. Assuming that to be so, one cannot use this as evidence that Garuda did not have regard to its liabilities under Indonesian competition law.
204 I am prepared to infer from this evidence that Garuda was not aware that its conduct on routes originating in ports outside Australia and terminating at ports in Australia was regulated by Pt IV of the TPA. If it had been aware that it had such a liability, I think it unlikely that it would not have informed its employees in its cargo division of this exposure. The question then becomes why Garuda was unaware of this exposure. The significance of this evidentiary vacuum may be illustrated. There are several possible scenarios:
(a) it had systemic mechanisms in place for assessing its legal liabilities arising from the provision of its services on flights to other countries but these mechanisms failed for some reason to cause advice to be obtained about the application of Australian competition law to Garuda's services on flights to Australian ports;
(b) it had systemic mechanisms in place for assessing its legal liabilities arising from the provision of its services on flights to other countries and these mechanisms did cause advice to be obtained about the application of Australian competition law to services on its flights to Australian ports. The advice, however, incorrectly told Garuda that there was no risk of the application of Pt IV to such flights;
(c) it had systemic mechanisms in place for assessing its legal liabilities arising from the provision of its services on flights to other countries and these mechanisms caused advice to be obtained about the application of Australian competition law to services on its flights to Australian ports. The advice was that there was a risk that Pt IV did apply to flights to Australian ports. However, Garuda either (i) failed to implement the advice or (ii) deliberately ignored it; or
(d) it had no systemic mechanisms for assessing its legal risks on flights to other nations. It failed to detect the potential for liability under Pt IV because there was no mechanism within the company which would cause that question to be asked.
205 I think (b) may be excluded as may (c)(ii). If Garuda had received legal advice that Pt IV did not apply to it, that advice would have been put before the Court since it would be significantly to Garuda's benefit. Likewise, I have seen nothing to suggest that Garuda would have deliberately flouted Pt IV had it known it applied. That leaves (a), (c)(i) and (d). Although these all differ in degree they are, nevertheless, systemic compliance failures. Put another way, Garuda either had no compliance mechanisms relevant to its legal risk on flights to Australia, or if it did have such mechanisms they either failed to detect the risk or, if they detected it, the airline failed to act upon it. I therefore accept the Commission's submission that what is involved is a compliance failure. I am unable to accept the submission that Garuda had no culture of compliance since I am unable on the evidence before me to ascertain which of (a), (c)(i) or (d) is actually the case on the balance of probabilities. I accept scenario (d) would establish that Garuda had no culture of compliance but it is only one of three equally available inferences and hence is not established on the balance of probabilities.
206 I have considered whether it may be possible to mount an argument that such a conclusion is irrelevant because assuming that Garuda should have obtained advice about the application of Pt IV, it would have been told that it had no such exposure. If one accepted the correctness of that proposition, it would follow that any compliance failure on its part was not causally connected to the contraventions.
207 This argument involves a factual contention that if advice had been sought in the relevant period as to whether Pt IV applied to Garuda's cargo operations into Australia the answer would have been that it did not. However, I am not satisfied that that is what a competent legal advisor would have informed Garuda in the period 2001 to 2006. A competent advisor would have told Garuda that there was a significant risk that Pt IV did apply to traffic into Australia and that price fixing on those routes was unwise. For example, the 2001 edition of Ray Steinwall, Annotated Trade Practices Act 1974 (Butterworths, 2001) says this about the meaning of the word 'market' in s 4E (at p 58):
The geographic dimension of a market comprises the geographic area in which sellers of the particular product operate and to which purchasers can practically turn for such products.
208 That statement, of course, reflects the language of Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 at 490. My view of statements of that kind, in the Trial Reasons, was that they invited an analysis of where the 'turning' could occur, i.e., where the switching decisions were made. However, no case established that view and the contrary view was easy to understand and plainly available. No competent advisor would have expressed the view that during the relevant time Pt IV did not apply to Garuda in relation to its air freight operations to ports in Australia. The only competent advice would have been that the question was an open one and that there was a real risk that it did apply. That view of the contestability of the issue sits comfortably with the fact that of the nine judges who have looked at the question, seven have been of the view that Garuda's Australia-bound air freight operations were in a market in Australia.
209 I do not accept therefore that the High Court's decision that a market in Australia could extend to operations outside Australia was unforeseeable. That being so, I do not think that one can say it is possible to submit that the contraventions are causally disconnected from any compliance failure on its part.
210 For completeness, I reject the Commission's submission at the hearing that Garuda should have been aware of the unlawfulness of what it was doing because of the approach which had been taken to Resolution 116ss and the advice of the United States Department of Trade that use of an index methodology would not be given approval in the United States: see Trial Reasons [497]-[503]. I do not think that by itself a resolution of the Department of Trade of Resolution would have meant very much to Garuda when it did not conduct any services to the United States. However, for the reasons I have already given, this does not matter.
211 Additionally, although Garuda submitted that the May 2004 Indonesia Customs Fee Understanding had been authorised by the IATA authorisation (see Trial Reasons at [1255]-[1258]) this was never established. I held at trial that the IATA authorisation did not apply to the customs fee and that, in any event, there was no evidence that the customs fee was ever arrived at under the auspices of the authorisation. The Full Court reached a different view on the first issue but upheld my conclusions on the second. I reject Garuda's submission.