//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2008] FCA 1976
Federal Court of Australia
2008-07-01
Lindgren J
Original judgment source is linked above.
NEW SOUTH WALES DISTRICT REGISTRY NSD 1694 of 2008
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY NSD 1694 of 2008
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Introduction 1 The applicant, Australian Competition and Consumer Commission (Commission), seeks against the respondent, Qantas Airways Limited (Qantas), imposition of a pecuniary penalty pursuant to s 76 of the Trade Practices Act 1974 (Cth) (the Act) and injunctive relief pursuant to s 80 of the Act. The application relates to Qantas's conduct in arriving at and giving effect to a collusive understanding in respect of an element in the price for the carriage of international air cargo between early 2000 and February 2006 (the relevant period). 2 The Commission and Qantas are agreed on the orders that the Court is invited to make, including the level of pecuniary penalty - $20 million. The Commission and Qantas have provided the Court with a Statement of Agreed Facts and Admissions (see s 191 of the Evidence Act 1996 (Cth)), and Joint Submissions. 3 A single document entitled "Joint Submissions, Statement of Agreed Facts and Admissions pursuant to s 191 of the Evidence Act 1995" was annexed to an affidavit (I will refer separately in these reasons to the "Joint Submissions" and "Statement of Agreed Facts" that comprised that document). It should not have been. Apart from any other reason why it should not have been, being part of an affidavit, it could not be inspected without the leave of the Court or a Judge: see O 46 r 6(3)(a) of the Federal Court Rules. The rule applies even in respect of an affidavit that has been read, in whole or in part, on a hearing. Apparently the document was annexed to the affidavit due to an oversight. There was no opposition to my making an order at the beginning of the hearing that leave was granted to any person to inspect the affidavit. 4 The price to which I referred at [1] above was charged by many international air cargo carriers. Their understanding, which was implemented globally, was that a fuel surcharge would be imposed on most international carriage of cargo by air (the Fuel Surcharge Understanding). 5 For the purpose of this proceeding only, Qantas has admitted that its conduct contravened s 45 of the Act. 6 The Commission and Qantas acknowledge that it is for the Court to be satisfied that Qantas did contravene s 45 and to determine the amount of any pecuniary penalty and the nature of other relief to be ordered. 7 On 11 December 2008 I made orders, substantially in the form agreed by the parties. These are my reasons for doing so.
Qantas's Conduct 8 What follows under this heading is paras 9-94 of the Statement of Agreed Facts my observations being shown in square brackets: THE CONDUCT AND BACKGROUND 9. During the relevant period, Qantas: 9.1 carried on business in Australia and elsewhere as a carrier by air of both passengers and cargo; 9.2 was approximately the 11th largest airline in the world in terms of revenue passenger kilometres; 9.3 had between approximately 31,000 - 38,000 staff and operated in between 36 - 40 countries; 9.4 was a publicly listed company incorporated in Australia and a trading corporation within the meaning of section 4 of the Act. 10. As at 30 June 2007, Qantas had total assets of $19.6 billion. It reported, for that year, total revenues of $15.2 billion and total profits before tax of $1.032 billion. Qantas' revenues from the carriage of air cargo for the year to 30 June 2007 were $902 million. Its total half year profit before tax to 31 December 2007 was $905 million. 11. In the financial years ending June 2002 to June 2006, the following table sets out the gross revenue of Qantas from its freight division (Qantas Freight) from the global carriage of airfreight, and carriage of airfreight to and from Australia. Global revenue from airfreight ($ million) Airfreight revenue from routes from Australia ($ million) Airfreight revenue from routes to Australia ($ million) 2002 512.75 134.93 249.71 2003 524.54 135.94 262.07 2004 486.33 131.54 241.51 2005 683.38 132.27 331.91 2006 783.20 127.24 370.44
[The amounts of $57.33 million and $118.09 million total $175.42 million, which is less than the total global fuel surcharge revenue of $255.20 million. The difference is explained by the fact that some of the surcharge was imposed on international cargo carriage that was not from or to Australia. The total that is relevant for present purposes is the lesser figure of $175.42 million.] 13. During the financial years ending June 2002 to June 2006 Qantas Freight carried approximately 24% of all air cargo to and from Australia, based on weight. Relevant Staff 14. The Commission accepts that Qantas' knowledge of the Fuel Surcharge Understanding was limited to the staff within Qantas Freight. [Paragraphs 15 to 18 of the Statement of Agreed Facts identify two senior members of staff within Qantas Freight, Peter Frampton (Frampton) and John Cooper (Cooper), who, with Clive Finemore another Qantas Freight officer referred to at para 38 of the Statement of Agreed Facts below (Finemore), , arrived at and/or gave effect to the Fuel Surcharge Understanding. Those paragraphs also identify the respective positions held by them over time, and their lines of reporting.] Description of the Market 19. International air cargo is carried both on passenger aircraft, using available belly space capacity, and on dedicated air freighters. Air cargo services are provided "one way" from origin to destination, either directly or using an indirect route via one or more midpoints. Most carriers provide air cargo services on a network-wide basis. Through interline and other arrangements with other carriers they also offer air cargo services to or from airports which their own aircraft do not serve directly. The networks of carriers extensively overlap such that there are various carriers operating to and from any international airport. 20. Carriers issue a document known as an air waybill for the carriage of air cargo. The air waybill sets out … any surcharges including the fuel surcharge. 21. Airlines predominantly provide international air cargo services to freight forwarders although individual shippers also acquire their services. Freight forwarders generally organise the integrated transport of goods on behalf of a range of shippers. In doing so, they purchase air cargo services from carriers. … The cost of air cargo services is passed on to a shipper by their freight forwarder and is ultimately borne by the end user of the goods, be it the shipper or their customers. 22. For the purpose of these proceedings, the Commission and Qantas consider that the appropriate market when considering the arriving at and implementation of the Fuel Surcharge Understanding is, and has been at all material times, a worldwide market for air cargo services, hereinafter referred to as the Air Cargo Market. The Air Cargo Market includes, but is not limited to, the carriage of cargo by air to and from Australia. Qantas considers that the conduct may also be considered by reference to a number of narrower markets, including a market or markets in Australia. The parties agree in any case that, given the conduct admitted in these proceedings, the Court need not determine the precise market definition or its boundaries. 23. International air cargo carriers are, and at all material times have been, actual or potential competitors in the supply of international air cargo services in the Air Cargo Market. Further, at all material times, there have always been at least two airlines, including Qantas, that were parties to the Fuel Surcharge Understanding and which were in competition in any relevant market in Australia. 1996/97: Resolution 116ss 24. The Fuel Surcharge Understanding … had its origins in events which commenced in the second half of 1996 when the price of aviation fuel rose substantially. 25. On or about 25 October 1996, Lufthansa announced that with effect from 1 November 1996 it would levy across its entire route network what it termed a "fuel surcharge" of USD0.10, or the equivalent in local currency, per kilogram of air cargo carried (the 1996 Surcharge). Lufthansa stated that the 1996 Surcharge would be dropped when the price of fuel returned to the level of July 1996. 26. On or about 1 November 1996, Lufthansa commenced to levy the 1996 Surcharge. 27. On or shortly after 1 November 1996, a number of other airlines, including [seventeen airlines including Qantas are mentioned], commenced to levy the 1996 Surcharge either across their entire networks or on particular routes. In the case of Qantas, the direction to do so throughout its global network was given by Frampton on 1 November 1996. 28. Qantas had contact with other airlines regarding the implementation of the 1996 Surcharge. In particular, on 3 November 1996, Frampton travelled from Sydney to Rome for business meetings and then to Paris on 4 November 1996. While in Paris, Frampton had his secretary fax to him the contact numbers for a number of Qantas' principal freight competitors on key international routes, including Singapore Airlines, United Airlines, Korean Air, Northwest and Cathay Pacific. Subsequently, Frampton wrote to Qantas Freight managers throughout the world informing them that he understood that eight specified airlines, including some whose contact details had been requested, would be imposing a fuel surcharge. 29. During November 1996 certain shippers, freight forwarders and their representative organisations complained directly to a number of airlines as well as to certain local competition regulators in Europe regarding the introduction of the 1996 Surcharge. 30. On 14 - 16 January 1997, there was a Special Composite Meeting of Cargo Tariff Coordinating Conferences of the International Air Transport Association (IATA) in Geneva, Switzerland. IATA is an airline industry body, the members of which include international air carriers. It convenes airline forums for members on industry issues. Qantas was in 1997 and remains a member of IATA, but it did not send a representative to the meeting in Geneva. 31. The minutes of the IATA meeting on 14 - 16 January 1997 record, inter alia, that: 31.1 There was discussion as to whether the members should pass a resolution (ultimately known as Resolution 116ss) adopting a fuel surcharge index and related mechanism for the imposition of fuel surcharges in specified circumstances and for specified amounts. 31.2 The members believed there was a "need to build an enabling facility into the package so that more expeditious and orderly industry action could be taken in the event of future fuel crises". 31.3 The terms of the resolution were formulated in the course of the discussion. 31.4 Lufthansa raised a number of concerns in relation to the resolution and in order to alleviate some of these concerns, the IATA Director, Legal Department was invited to give his opinion. A summary of his remarks includes the following: '… Without any immunity, [regulatory] authorities regard with great suspicion any situation where competitors charge the same rate. In the event that there is any evidence whatsoever that competitors have had an opportunity to communicate in any way, and charge the same rate, there is a very strong assumption that they do so having colluded. Until the particular approval is granted for any rate agreed at this conference, that situation would apply. In other words, in my opinion, any airline which moves to charge the rate which is agreed at this conference before any government approval, and therefore antitrust immunity, is obtained, would face a very strong evidential presumption that the rate being charged had been agreed between competitors and without antitrust immunity. The question is one of evidence.' 31.5 Resolution 116ss was put to a vote and although there was almost unanimous support, it was not passed at the meeting due to negative votes from Lufthansa and Swissair. Swissair later withdrew its negative vote but Lufthansa maintained its negative vote due to the implications Resolution 116ss would have on Lufthansa's own established fuel surcharge. 32. In the course of the meeting, IATA advised airlines that Resolution 116ss could not be put into effect until it was declared effective, which would only occur after it received approval from relevant regulatory authorities, including the United States Department of Transport (US DoT). 33. At its 3 March 1997 Cargo Committee meeting in Long Beach, California, IATA formally advised participants, including Frampton, the head of Qantas Freight, that it had received correspondence on 22 January 1997 from the European Commission regarding a complaint by the European Air Shippers' Council. The complaint alleged that IATA and its members had unlawfully consulted, agreed and imposed non-negotiable fuel surcharges on shippers in November 1996. 34. On 10 April 1997, Lufthansa removed the 1996 Surcharge with effect from 15 April 1997 as fuel prices had returned to the level of July 1996. Qantas Freight discontinued its 1996 Surcharge during May 1997. 35. Shortly following the removal of the 1996 Surcharge Lufthansa requested the recirculation of Resolution 116ss to IATA members, with certain amendments. Resolution 116ss was passed by mail vote in August 1997, with a reminder that the effective date for Resolution 116ss would be declared when all known necessary government approvals were received. 36. Resolution 116ss relevantly provided as follows: 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 USD 0.535 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" (to Resolution 116ss) 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 for 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 to 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). 37. Attachment "A" to Resolution 116ss set out the methods of charging and documenting the fuel surcharge, …. Attachment "A" also expressed the surcharge as amounts "not more than" the specified amounts. 38. On 4 - 8 May 1998, there was a Special Composite Meeting of Cargo Tariff Coordinating Conferences of IATA in Geneva, Switzerland. The meeting was chaired by … Finemore, Manager, Freight Planning & Pricing. Finemore was Qantas Freight's representative at IATA. The minutes record that Resolution 116ss was discussed and note the following: '… Mail Vote 875 could not be declared effective because of the outstanding approval of Argentina, India and USA ("required governments"). The US DoT had advised that they would not accept filing of this Resolution for approval unless accompanied by economic justification based on current prices which the US carriers were unable to provide. … The Chairman clarified that until such time as economic justification was provided to the US DoT, and that authority approved the Resolution, it would not be declared effective.' 39. Between August 1997 (when Resolution 116ss was passed) and November 1999, the fuel price index calculated in accordance with Resolution 116ss (the IATA Fuel Price Index) remained below 130, being the trigger point for the first level of fuel surcharge under Resolution 116ss. Because the IATA Fuel Price Index remained below 130, IATA did not take steps to complete the required filing formalities with relevant governments, including the US DoT, for approval of Resolution 116ss. IATA nevertheless continued to publish the IATA Fuel Price Index to airlines and included Resolution 116ss in a rule book prepared by it, known as The Air Cargo Tariff (TACT) Rule Book, as TACT Rule 4.8. This practice continued until April 2000. 1999/2000: Implementing the IATA Fuel Price Index 40. On 29 December 1999 (prior to any IATA application to the US DoT for approval of Resolution 116ss and therefore prior to it becoming effective or having any immunised status), Lufthansa announced the introduction of a fuel surcharge following Resolution 116ss, to which it made explicit reference in its public announcement. The surcharge was 0.10 euros, or the equivalent in local currency, on its entire worldwide network with effect from 1 February 2000. Lufthansa's announcement stated, inter alia: '... the price [of fuel] has clearly exceeded the fuel index target recommended by the International Air Transport Association (IATA) in 1997 for implementing fuel surcharges. If this index, based on the fuel price in June 1996 as 100 per cent, rises above a ceiling of 130 per cent, IATA advises cargo airlines of the possibility of counteracting rising fuel costs with a surcharge. The index, according to information from IATA, has currently reached a level of 136 per cent. Lufthansa Cargo will remove the fuel surcharge as soon as the IATA index falls below 110 per cent for two weeks running.' 41. Following the Lufthansa announcement, in late 1999 and early 2000 (still without Resolution 116ss becoming effective or having any immunised status), a number of other airlines announced the introduction of fuel surcharges across some or all of their global networks, with effect from in or about February 2000 and March 2000. These airlines included [fourteen airlines including Qantas are mentioned]. Some of these airlines (such as Cathay Pacific, Qantas and Air New Zealand) also explicitly referred to the IATA Fuel Price Index in their public announcements, expressly giving effect to Resolution 116ss. … 42. Prior to Qantas Freight announcing the imposition of a similar fuel surcharge, Qantas Freight's Regional Manager, Europe wrote to Cooper and Frampton on 3 January 2000 advising that most airlines (…) were imposing the same fuel surcharge ex-Europe and seeking instructions to do the same. Cooper responded to Frampton and all other Qantas Freight regional managers on 4 January 2000 as follows: 'Peter, I believe we should go for this … If there is enough momentum out there, and we are not seen as the catalyst then the additional revenue that can be obtained would certainly make the effort worthwhile. I would suggest where we need Govt approval, we may wish to simply adjust the market rates accordingly, but must ensure we get each Home Carrier to be the leader, in their market. In Aust we would move only after we ensure support from the "major" carriers in our market place, after ensuring we give them support in their's (sic). Where, home carriers lead off, eg FRA, with LH already announcing we should move with them, especially in FRA nad (sic) LHR where we have suffered yield decline, and have not been anle (sic) to move back up' 43. On 5 January 2000, Cooper asked all Qantas Freight regional managers by e-mail for information on what each "home carrier" was doing in their home ports about fuel surcharges. To the extent they had not already done so, within 24 hours the regional freight managers for Europe, the UK and Ireland and the USA reported back to Cooper after consulting with their counterparts at other airlines, including the relevant "home carriers". 44. Following receipt of this information, Cooper reported to Frampton on 6 January 2000 that all home carriers were "leading the way" in Europe and the USA and Qantas Freight should follow. On the same day, the Qantas Freight regional managers for Europe and the USA were directed by Cooper, with Frampton's knowledge, to implement similar surcharges from 1 February 2000. Announcements to this effect were made to customers on 7 January 2000 for Europe and by at least 10 January 2000 for the USA. In relation to Asia and Australia, Cooper directed the relevant regional managers to "wait and see" what other carriers would be doing and in the UK he directed the regional manager to raise freight rates as British Airways would not be going with a surcharge. 45. The Qantas Freight decision to implement or refrain from implementing fuel surcharges in accordance with Resolution 116ss was taken at Qantas Freight head office by Frampton and Cooper. When making these decisions, Frampton and Cooper had access to direct or indirect information from the regional managers regarding the intended or actual conduct of other airlines throughout their respective networks. … 46. As detailed in paragraphs 89 and 90 below, airlines recognised that there were certain circumstances that made it difficult to impose a fuel surcharge, or a fuel surcharge in the full amount of the fuel surcharge, in a particular location. As set out in those paragraphs, these circumstances often gave rise to communications between airlines in order to implement the surcharge in the particular location to the extent possible. … 47. On 7 January 2000 Finemore sent an e-mail to all Qantas Freight regional managers, copied to Frampton and Cooper, which explained how the fuel surcharge was to be recorded in Qantas Freight's accounting systems. Finemore was responsible for Qantas Freight's compliance with IATA rules and procedures and was aware that Resolution 116ss was not effective and did not have any immunised status. The e-mail also gave the following direction: '… Please also be aware of the following. The information in TACT Rule 4.8 is taken from an IATA resolution adopted a few years ago. However, the resolution has not yet received Govt. approvals so it has no "legal" status. It is fine to use the provisions as a guideline, but there is no immunity from various antitrust laws for any carrier implementing the surcharge on an "industry basis". Please take care to ensure that if/when you do announce and implement a surcharge you do so as QF acting unilaterally, not as part of an industry approach.' 48. Notwithstanding Finemore's advice, on 24 January 2000 the Qantas Freight regional manager for Australasia sent a letter to Australian and New Zealand customers announcing the introduction of a fuel surcharge. This letter also made explicit reference to Resolution 116ss, though US DoT approval had not yet been sought by IATA. Qantas Freight's announcement stated, inter alia: '… The surcharge is directly related to fuel prices. IATA has been monitoring fuel prices and reporting on their fluctuations as compared to those in effect in June 1996, when the price of fuel was US$0.535c per US gallon. A fuel price index was created and the price of US$0.535c was marked at 100 on the Index. This procedure is described in TACT Rule 4.8, and you will note that should the Index rise above 130 for two consecutive weeks, airlines may implement a fuel surcharge and should the Index fall below 110 for two consecutive weeks, the surcharge should be removed. The attachment shows two graphs, one being the price of fuel since July last year and the other being the Index. As you can see, during the third week of November, the Index went above the 130 mark. After the third consecutive week, many carriers started to announce the fuel surcharge in various markets.' 49. … 50. On 28 January 2000 (after many airlines had announced the introduction of fuel surcharges following Resolution 116ss), IATA made a formal request to the US DoT to approve Resolution 116ss. 51. On 14 March 2000, the US DoT rejected Resolution 116ss. … 52. Following the rejection of Resolution 116ss by the US DoT, IATA announced inter alia at its 4 April 2000 Cargo Committee meeting in Vancouver that it would no longer publish the IATA Fuel Price Index. That meeting was attended by Frampton of Qantas Freight and representatives of other international airlines including [sixteen airlines are listed]. The Summary of Action arising from the meeting records the discussion in relation to the IATA Fuel Price Index as follows (underlining added): 'Mr Phil Sims (XB) provided an update on the fuel price index. Resolution 116ss, which provided for an automatic rate increase mechanism triggered by a rise in an industry fuel price index, had recently been refused approval by the DoT. As a result of this disapproval, IATA's legal advisers had recommended that the publication of the index should be suspended. Members, however, felt that it was an extremely useful industry tool and requested that IATA Legal look into the matter further. Action: Secretary & IATA Legal' 53. Qantas was informed in August 2006 by Frampton that he left the meeting feeling there was a clear understanding among the airlines. That understanding was to the effect that: 53.1 if all the airlines attending used an apparently "independent" fuel index which was substantially the same and yielded the same results, they could escape legal sanction; and 53.2 the airlines would continue to use an index substantially the same as the IATA Fuel Price Index. 54. On 7 April 2000, IATA sent a memorandum to the members of the Cargo Tariff Co-ordinating Conferences stating the following: 'As previously advised, Resolution 116ss has not received the requisite government approvals and will not be declared effective. Accordingly, no purpose would be served by its continued circulation of this index and practice of doing so is being discontinued.' 55. On 14 April 2000 IATA sent another memorandum to the members of the IATA Cargo Committee as follows (underlining added): 'Dear Colleagues, We have had a significant number of appeals to maintain and continue to publish the IATA Fuel Index and have been examining how this could be done following the disapproval of Resolution 116ss by the US DoT. Our legal advisors' strong view is that IATA Members could be exposed to serious antitrust liability if we were to continue to publish the Index or to approach PLATTS or any other entity with a request to provide the Index, or if it was suggested to one or more carriers that they approach PLATTS in this regard. While it is recognised we cannot prevent carriers from doing so on their own initiative, we have to affirmatively advise against taking any such action, for the reasons stated below. The Index has now become tainted by the DoT order finding Resolution 116ss, to which the Index was linked, to be adverse to the public interest and in violation of the law. If the carriers were to co-ordinate pricing by reference to the Index, whether pursuant to this disapproved Resolution or simply through de facto parallel pricing actions, that could be regarded as an illegal conspiracy in violation of applicable Competition laws, whether the Index is published by IATA, PLATTS, or indeed, simply calculated by each of the carriers independently.Against that background, IATA has no choice but to discontinue all activity associated with the disapproved Resolution, including calculation and dissemination of the Fuel Price Index, and it has done so. Because any further pricing actions linked to the now tainted Index could expose the carriers engaging in such pricing actions to serious antitrust liability, we must advise that carriers not engage in any pricing actions tied to the Index. As there is no further legitimate or lawful use to be made of the Index, we also recommend that carriers refrain from approaching any third party requesting them to calculate and publish the Index. While we acknowledge the desire of many Members to have the Fuel Index published, we do believe the foregoing reflects a correct analysis of the situation. For the reasons expressed, the position being taken is designed to protect both Members and IATA from serious legal liability risk. This message is being sent to all the members of the Cargo Tariff Steering Group. A similar message is being sent to the Cargo Tariff Coordinating Conference. If anyone wishes to pursue this matter further they are advised to contact their Legal Department. Tom Murphy, Secretary, Cargo Committee' 56. This correspondence was sent to the heads of cargo operations (members of the IATA Cargo Committee) at over 60 airlines, along with their tariff co-ordinators (members of the Cargo Tariff Coordinating Conference). Many of those airlines lobbied IATA through the Cargo Committee and IATA Legal to change this view. As a result of this distribution, all IATA carriers would have received the notice and thereby had brought to their attention the risks associated with the continued use of the IATA Fuel Price Index. 2000: The Lufthansa Initial Methodology 57. Notwithstanding IATA's correspondence, either before or almost immediately following the cessation of the publication of the IATA Fuel Price Index, Lufthansa commenced publishing its own fuel price index on its website which mirrored the IATA Fuel Price Index (the Lufthansa Fuel Price Index). Lufthansa also commenced publishing a methodology (the Lufthansa Initial Methodology) which stated that the surcharge of 0.10 euros (or the equivalent in local currency) would be imposed when the Lufthansa Fuel Price Index exceeded 130 for two consecutive weeks, and would be removed when the fuel price index fell below 110 for two consecutive weeks. The Lufthansa Initial Methodology was otherwise the same as the methodology of Resolution 116ss. 58. Lufthansa later added a further level to its methodology, …. 59. During 2000 Qantas Freight also circulated its own version of an index which mirrored the Lufthansa Initial Methodology to its customers in Australia. 60. On 1 September 2000, the Lufthansa Fuel Price Index exceeded the 170 trigger point for two consecutive weeks. On 6 September 2000, an IATA Cargo Committee meeting was held in Vienna. It was attended by Frampton of Qantas Freight and representatives of other international airlines including [fifteen other airlines are mentioned]. 61. Upon his return to Australia in mid September 2000, Frampton directed Cooper to instruct the Qantas Freight regional managers to publicly announce that Qantas would be increasing (or introducing) the fuel surcharge across its global network from the middle of October 2000. In so doing, Cooper provided the Qantas Freight regional managers with an updated copy of the Lufthansa Fuel Price Index that indicated the 170 trigger point had been exceeded. Frampton told Cooper that "other airlines would be going with the surcharge" when directing him to implement it. 62. On 20 September 2000 Finemore sent an e-mail to all Qantas Freight regional managers, copied to Cooper, which explained the application of the latest fuel surcharge to TACT-rated shipments. The e-mail also gave the following instruction: '…In many countries, QF will be subject to local regulations on the application of surcharges. Those of you working in such environments will be aware of such regulations, and I would suggest you follow the example of the national carrier, especially if there is a requirement for any new surcharge to be filed with the government. In other countries, especially the "deregulated" countries, such as the USA, EEC etc. the application of any surcharge should be a purely commercial decision. It is important that it be seen in this way, and cannot be interpreted as QF being part of any local "understanding" or agreement'. 63. In or about late September 2000, Lufthansa announced that it would increase its fuel surcharge to 0.17 euros or the equivalent in local currency with effect from 1 November 2000. Other airlines, including [seventeen airlines including Qantas are listed] also announced an increase in or the introduction of the fuel surcharge at about this time. … Surcharges were imposed on freight shipped to and from Australia. 64. A few airlines, rather than simply applying the Lufthansa Initial Methodology, formulated their own methodologies. However, in each case the methodology led to substantially the same outcome as the Lufthansa Initial Methodology. 65. All of the methodologies, including the Lufthansa Initial Methodology, and the fuel surcharge as implemented by those airlines listed in paragraph 63, shared certain common features with Resolution 116ss, including: 65.1. the fuel surcharge was non-commissionable (that is freight forwarders were not entitled to a commission upon it) and based on actual weight of the cargo consigned; 65.2 the fuel price used as the basis of the Fuel Price Indices was based on the average of spot prices of aviation fuel in nominated markets; 65.3 the Fuel Price Indices had agreed "trigger points"; 65.4 each time the Fuel Price Indices exceeded a trigger point for an agreed period, that is, a period of two consecutive weeks, charges were introduced or adjusted; 65.5 the fuel surcharge was to be shown in the "Other Charges" box on the air waybill, identified by the charge code MYC or MY, with the total surcharge amount reflected in the "Total Other Charges Due Carrier" box; 65.6 in most countries, the fuel surcharge was to be levied in increments equivalent to US $0.10; and 65.7 that no regard was had to: 65.7.1. changes (if any) in the actual fuel cost to carriers; 65.7.2. routes serviced by dedicated freighters as opposed to passenger aircraft; 65.7.3. the type of aircraft and rate of fuel burn on particular routes; 65.7.4. different hedging policies and hedging positions of particular carriers; or 65.7.5. fluctuations in currency exchange rates. 66. The airlines which imposed fuel surcharges in accordance with the methodology of Resolution 116ss, and replicated the Lufthansa Initial Methodology, all did so notwithstanding being informed of its disallowance by the US DoT and of the clear advice from IATA that such conduct could "be regarded as an illegal conspiracy in violation of applicable competition laws". 2000: Fuel Surcharge Understanding 67. Qantas admits that as a result of the events in paragraphs 24 to 66 above: 67.1 by the end of 2000 at the latest, the Fuel Surcharge Understanding was arrived at between Qantas and other airlines which were members of IATA and which imposed fuel surcharges in a manner consistent with Resolution 116ss (replicated in the Lufthansa Initial Methodology). More than 70 airlines imposed a fuel surcharge in 2000. 67.2 the parties to the Fuel Surcharge Understanding, including Qantas, agreed to each impose a fuel surcharge on the carriage of air cargo across their global networks pursuant to Resolution 116ss and the subsequent equivalent Lufthansa Initial Methodology (or other methodology to substantially the same effect), except where local conditions prevented the imposition, or full imposition, of a fuel surcharge from a particular port or in a particular geographic area. 68. The Fuel Surcharge Understanding included agreement as to the features identified in paragraph 65. 69. In order to facilitate and coordinate the imposition of the Fuel Surcharge Understanding, airlines adopted a practice, which had existed since at least 2000, whereby whenever a trigger point on the Lufthansa Fuel Price Index was close to being reached, airlines would consult with each other to give and receive assurances as to the timing of the changes, to ensure implementation at the next level up or down was coordinated. 69.1 One means by which consultation was conducted and assurances given was that freight personnel from one or more levels within an airline participating in the Fuel Surcharge Understanding communicated to their counterparts, through bilateral or multilateral contacts, each airline's interest in imposing, or intention to impose, surcharges in accordance with the relevant methodology. The purpose of these exchanges was to confirm that the relevant airlines were adhering to the Fuel Surcharge Understanding and to co-ordinate implementation. 69.2 Another means by which this was done was by airlines with lower shares of the cargo carried from a particular port or region informing the competitor or competitors with the highest share in that port or region that they would follow that competitor or competitors and enquiring as to the timing and confirming the next level of proposed surcharge changes. Upon being so informed, the airlines with lower shares would announce and make their own changes to fuel surcharges accordingly. This practice was known as "following the home carrier" or the "home carrier rule". Over time the home carrier would not need to be informed on each occasion that its competitors would follow but would simply advise them of its intentions or make a public announcement on the understanding that they would continue to follow. This second means was particularly significant in a port or geographic region where there was some departure from the global application of surcharges in accordance with the relevant methodology. 69.3 Information regarding the approach of carriers' "head offices" to fuel surcharge adjustments was also freely exchanged during regular airline meetings in various countries in which Qantas Freight representatives participated. These included the Singapore BAR Cargo Sub-Committee, the Hong Kong BAR Cargo Sub-Committee and the ACRB in Indonesia. This information allowed a carrier's "head office" to make network decisions regarding the fuel surcharge with prior knowledge of the actions of its competitors in the named ports (Singapore, Hong Kong or Indonesia) and in other parts of those competitors' networks. 70. Qantas Freight was part of the practice (which was also adopted by other carriers) outlined in paragraph 69. Frampton and Cooper directed that surcharges would be imposed by Qantas Freight in a particular port or region where a significant competitor or "home carrier" indicated an interest in imposing, or an intention to impose, fuel surcharges. This was generally, but not always, done by Cooper informing port and regional managers of Qantas Freight's intention to do so. Qantas Freight executives, including Frampton, Cooper and port and regional managers, also communicated to Qantas' competitors (including home carriers) Qantas' interest in imposing or following, or its intention to impose or follow, particular surcharges. 71. … 72. By late 2001, the price of aviation fuel had fallen. In December 2001, airlines which had imposed a fuel surcharge announced the withdrawal of that surcharge with effect from December 2001 or January 2002. On 17 December 2001 Qantas Freight announced that it would withdraw its fuel surcharge globally from 1 January 2002. 73. The withdrawal of the fuel surcharge in December 2001 was preceded by a number of contacts between airlines at head office and local levels in some ports or geographic areas. In Hong Kong, for example, air cargo staff from various airlines, including a Qantas Freight representative, attended an interline business lunch and agreed that they would not initiate a cancellation of the fuel surcharge, even if it fell below the relevant trigger point, until the Hong Kong Civil Aviation Department required them to do so. 2002: New Methodology 74. On 23 January 2002 Lufthansa announced a new fuel surcharge methodology with smaller increments at more frequent intervals. The new methodology (the Lufthansa Methodology) was as follows: Level Fuel Surcharge Imposition - index Removal - index 1 0.05 euro / kg 115 100 2 0.10 euro / kg 135 120 3 0.15 euro / kg 165 145 4 0.20 euro / kg 190 170
Legal principles relevant to level of penalty 16 Section 76(1) of the Act identifies certain matters to which the Court must have regard when determining an appropriate level of pecuniary penalty. The provision requires the Court to have regard to all relevant matters including: · the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; · the circumstances in which the act or omission took place; and · whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct. 17 In Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 (TPC v CSR) at 52,152-52,153 French J identified the following considerations as being relevant to the level of penalty: (a) the nature and extent of the contravening conduct; (b) the amount of loss or damage caused; (c) the circumstances in which the conduct took place; (d) the size of the contravening company; (e) the degree of power it has, as evidenced by its market share and ease of entry into the market; (f) the deliberateness of the contravention and the period over which it extended; (g) whether the contravention arose out of the conduct of senior management or at a lower level; (h) whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (i) whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention. 18 In NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 (NW Frozen Foods) and J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 (J McPhee & Son), Full Courts of this Court approved of French J's list and added: (j) similar conduct in the past; (k) effect on the functioning of the market and other economic effects of the conduct; and (l) whether the conduct was systematic, deliberate or covert. 19 The "totality principle" as it is called in the criminal law, is applicable, that is to say, the total penalty for related offences should not exceed what is proper for the entire contravening conduct involved: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,169. 20 The principal object of imposing a penalty under s 76 is deterrence, both specific and general: Trade Practices Commission v Stihl Chainsaws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896; TPC v CSR at 52,152; NW Frozen Foods, above, at 292-294. 21 In Australian Competition and Consumer Commission v McMahon Services Pty Ltd (2004) ATPR 42-031 at [15], Selway J stated in relation to price fixing: Once it is understood that deterrence, and particularly general deterrence, is the primary principle in the imposition of penalty for price fixing, then at least two conclusions flow from that. First, it means that penalties for collusive price fixing will need to be substantial and significant. This is, of course, reflected in the size of the maximum penalty upon corporations of $10 million. However, it also follows logically from the principle. Collusive price fixing, particularly between tenderers is difficult to detect. Public enforcement often only occurs with "a tip from an affected party or an insider" (see Marshall & Meurer, "Bidder Collusion and Antitrust Law: Refining the Analysis of Price Fixing to Account for the Special Features of Auction Markets" (2004) 72 AntiTrust Law Journal 83 at 101). Given these difficulties and the potential for large profits from such practices there is a chance that those in the market place might be prepared to factor the risk of a low penalty into its pricing structure as a 'business cost'. That would be inimical to the statutory purpose of ensuring that the practices do not occur. The penalty must be sufficiently high that a business, acting rationally and in its own best interest, will not be prepared to treat the risk of such a penalty as a business cost. 22 This passage was cited with approval by Merkel J in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [10]. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 at [39], Goldberg J concluded that the level of penalty must be sufficiently high that the party penalised will realise the seriousness of its conduct and will not be inclined to repeat it. His Honour noted that obviously the sum required to achieve that object would be the larger where the company has vast resources. 23 The Commission submits (at para 113 of the Joint Submissions) that general deterrence is of paramount importance in the present case: There is a need for a significant level of penalty in the highest ranges of any quantum of penalties previously imposed in Australia in respect of cartel arrangements to deter multinational corporate groups carrying on business in Australia from engaging in similar conduct affecting Australia in the future. A high level of penalty is also required for general deterrence of price fixing conduct affecting Australia by other large multinational corporate groups. 24 The difficulty of detection of collusive price fixing understandings was referred to by Heerey J in Australian Competition and Consumer Commission v McPhee & Son (Australia) Pty Ltd (1998) ATPR 41-628 at 40,891-40,892: This form of contravention commonly occurs in secret and between parties who seek a mutual benefit. The risk of detection is often low and the potential gain to the contraveners, and damage to the community, large. Therefore the penalty needs to be correspondingly high. 25 The principles governing the imposition of penalties for contraventions of Part IV must now be considered in the light of the most recent Full Court pronouncement on the matter in Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 (Mobil Oil). Mobil Oil was not a Part IV case. The Minister for Industry, Tourism & Resources sought, among other relief, an order that the respondent (Mobil) pay to the Commonwealth a pecuniary penalty by reason of its contravention of s 10 of the Petroleum Retailing Marketing Sites Act 1980 (Cth). The primary judge was Gyles J. On his recommendation the Chief Justice directed, pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth), that the jurisdiction of the Court should be exercised by a Full Court in respect of the following question: Where the parties propose an agreed amount to be imposed as a penalty pursuant to s 13 of the Petroleum Retailing Marketing Sites Act 1980 (Cth), is the Court bound by the decision in [NW Frozen Foods] to consider whether the proposed amount is within the permissible range in all the circumstances and, if so, impose a penalty of that amount? The Full Court answered this question as follows: No, but the reasons in [NW Frozen Foods] discloses no error of principle. 26 At [51] the Full Court noted that the following propositions emerged from NW Frozen Foods: (i) It is the responsibility of the Court to determine the appropriate penalty; (ii) Determining the quantumof a penalty is not an exact science and the courts have acknowledged that within a permissible range, a particular figure cannot necessarily be said to be more appropriate than another; (iii) There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy; (iv) The view of the regulator, as a specialist body, is relevant, but not determinative, and its views on matters within its expertise will usually be given greater weight than its views on more "subjective" matters; (v) The Court examines all the circumstances of the case, and where the parties have advanced an agreed statement of facts, the Court may act on it if it is appropriate to do so; and (vi) Where the parties have jointly proposed a penalty, it is not useful to investigate whether the Court would have arrived at that precise figure; the figure will be appropriate if within the permissible range. 27 The Full Court in Mobil Oil made the following further five points: · First, the rationale for giving weight to a joint submission on penalty is the saving in resources for the regulator and the Court, which, in the case of the regulator, can be used to increase the likelihood that other contraveners will be detected and brought before the Court. · Second, the sixth proposition from NW Frozen Foods (see [26] above) does not mean that the Court must commence its reasoning with the level of penalty proposed and limit itself to considering whether that penalty is within the permissible range: the Court may, instead, address the question independently at the outset. · Third, there was no suggestion in NW Frozen Foods that the admissions or statement of agreed facts had been "tailored or modified to reflect the difficulties faced by the [Commission] in proving its case" (at [55]). · Fourth, the regulator should always explain to the Court the process of reasoning said to justify a discounted penalty (the Court referred to Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR 41-851 at [56]). · Fifth, there is nothing in NW Frozen Foods inconsistent with any of the following propositions: (i) The Court may request the parties to provide additional evidence or information or to verify the information provided, in default of which the Court may well not be satisfied that the proposed penalty is within the permissible range; (ii) If the absence of a contradictor inhibits the Court in the performance of its duty under s 76 of the Act, it may seek the assistance of an amicus curiae or of an individual or body prepared to act or intervene under O 6 r 17 of the Federal Court Rules; and (iii) If the Court is disposed not to impose the agreed penalty, it may be appropriate for the parties or either of them to be given the opportunity to withdraw consent and for the matter to proceed as a contested hearing.
The parties' submissions on facts relevant to level of penalty in the present case 28 What follows under this heading is paras 131-158 of the Joint Submissions: Nature and extent of the contravening conduct, including its deliberateness 131. The conduct subject to penalty was engaged in by Qantas' freight division throughout the world. The understanding was to implement the Fuel Surcharge Understanding as widely and as fully as possible but, in some locations in giving effect to the Fuel Surcharge Understanding, the amount of the fuel surcharge varied according to what the participants thought was profitably achievable, and in some locations no surcharge was maintainable. 132. Within Qantas Freight, its involvement in the conduct was not particularly clandestine. It did not however disclose the conduct to Qantas' most senior management or Board. Qantas Freight representatives throughout the world sought or gave pricing intentions or assurances at the direction of Frampton or Cooper but for many of them it was seen as a normal part of business. They would openly report their discussions back to Cooper. The conduct simply continued after Frampton and Cooper left. 133. In many jurisdictions prior to the investigations of this conduct, the local representatives did not consider their discussions particularly secret. In some locations, such as Hong Kong and Japan where local regulators had to approve price increases, Qantas Freight representatives would meet with competitors to jointly propose a surcharge and would minute their meetings and agreement. 134. The conduct ceased in February 2006, when allegations concerning the understanding were publicised following "raids" undertaken by regulatory bodies in the United States and Europe. The cartel could have been defeated at any time in most localities by any major carrier in that locality declining to impose the surcharge. The cartel could have been defeated to and from Australia had Qantas declined to participate. The amount of loss or damage caused 135. The revenue generated by Qantas as a result of the fuel surcharges to and from Australia during the relevant period was approximately $170 million. Qantas Freight carried 24% of the cargo carried to and from Australia. This however does not demonstrate the actual loss to shippers or their customers because, absent the Fuel Surcharge Understanding, some price increases would have occurred to cover the increased costs of fuel, which did increase over the relevant period. It may have also been that some carriers would have been forced to exit certain routes, allowing the remainder to impose other increases with less constraint. These competitive outcomes cannot be known. It is the case that each of the parties to the Fuel Surcharge Understanding had different arrangements for the acquisition of fuel and acquired it in different places: many, such as Qantas, also had hedging arrangements. The Fuel Surcharge Understanding did not accordingly reflect any of the parties' actual costs. Further, a surcharge increase could stay in place even after the price increase that triggered it had gone: different trigger steps were used in the Surcharge Methodology when it was reducing from when it was increasing. 136. Neither the Commission nor Qantas are aware as to what proportion of the surcharge was ultimately borne by any particular consumer or business in Australia. As a general rule, the ultimate consumer will bear most if not all of the transport cost, in the price paid for the cargo: others in the supply chain, such as a wholesaler or retailer will absorb some part of the cost some part of the time. These others involve persons both in Australia or overseas. They will be more likely to absorb the loss if the goods comprising the cargo have been sold prior to the transport cost increase but may also have to do so if their competitors do not have the same costs. Nevertheless it may be assumed that the cost of surcharges on cargo comprising imported goods would be largely borne by Australians whereas the same costs on cargo comprising exported goods would be largely borne by overseas buyers. 137. Businesses in Australia importing cargo on which a surcharge was paid, even if they passed it on totally to their customers, would also be negatively impacted if they competed with domestic goods, but again the effect on any particular consumer or business cannot be known or quantified. The size of the contravener 138. As noted in paragraphs 9 to 13 above, Qantas has assets of nearly $20 billion and during the relevant period was the 11th largest airline in the world in terms of revenue passenger kilometres. Over the relevant period Qantas carried approximately 24% of the air freight to and from Australia and its nearest competitor carried about 14%. Its total profits before tax for the year ended 30 June 2007 was $1.032 billion. It derived revenue of $902 million from the carriage of air freight for the same financial year. Many of Qantas' principal competitors are of a similar or even larger size although none is as large in the Australian segment of the Air Cargo Market. The period over which the contravening conduct extended 139. Qantas' contravening conduct for which penalties can be imposed extended over a four year period from 2002 to 2006 inclusive. Degree of power it has, as evidenced by its market share and ease of entry into the market 140. Qantas does not know, and does not have access to any reliable information to allow it to assess, its share of the Air Cargo Market. 141. In the segment to and from Australia, Qantas holds about 24%. Its nearest rival holds about 14% and there are at least ten significant competitors which are major international carriers and which have market shares to and from Australia of between about 2% and 10%. Qantas clearly has the largest market share in the Australian segment but is and was unable to act without being constrained by its competitors. The circumstances in which the conduct took place 142. Whilst the volatility of jet fuel prices certainly sparked the conduct, and some price adjustment would have been implemented by participants unilaterally to reflect this, the fuel surcharge timing and amount did not reflect the actual changes in costs of the competing airlines or the degree to which general price rises accounted for movements in fuel costs. The conduct substantially reduced competition for the carriage of air cargo. The parties were aware that the US Department of Transport had comprehensively rejected the conduct as anticompetitive. The conduct required the participation of all major carriers in each port or region to be successful. Participation of senior management 143. Qantas Freight's participation in the Fuel Surcharge Understanding was arranged by Frampton and Cooper and implemented by regional managers of Qantas Freight in offices around the world. It was not known to the Qantas Board or its most senior managers. Whilst the most senior person in its air cargo operation was involved, there was, since 1996, a level of more senior executives between him and the Chief Executive Officer. Qantas nevertheless accepts that Frampton, the head of Qantas Freight, a division generating over $500 million revenue a year, is properly classified as a senior executive of Qantas. Culture of compliance with the Trade Practices Act 144. Qantas did have a program of trade practices compliance in place during the period of the contravening conduct. That program proved to be inadequate in identifying, preventing or even limiting the extent of the conduct. Persons responsible for monitoring and preventing such conduct only became aware of it after raids of their competitors' premises overseas were conducted by regulatory agencies. 145. Qantas has recognised the inadequacy of its compliance program. It has substantially upgraded the program and its new program is presently being implemented throughout the world. Co-operation and Contrition 146. Qantas has fully co-operated with the Commission's investigations since Qantas contacted the Commission in mid 2006. Qantas promptly provided the Commission with critical information about collusive understandings, including frank and detailed admissions of its own participation in those understandings as it became aware of them and insofar as it was able. Qantas did so aware that immunity was not available to it in relation to its fuel surcharge conduct and knowing that it was highly likely to face very substantial penalties. 147. To this end Qantas interviewed, and made available for interview by the Commission, over 35 of its staff and former staff and voluntarily searched for and produced documents from its operations throughout the world relevant to its and other airlines involvement in the contraventions. It brought to Australia at its own expense all staff willing to be interviewed by the Commission even though those staff could not have been compelled under section 155 of the Act. The Commission has not needed to serve any section 155 notices on Qantas. 148. Qantas' efforts have made available to the Commission information and documents identifying the involvement of other participants which have not been produced or made available as yet by these persons. Qantas has consistently demonstrated a commitment from its Board and Chief Executive Officer to identify and report to the Commission the extent of its involvement in the contraventions and to ensure the breaches are not repeated. Qantas has demonstrated genuine contrition for its involvement in these contraventions. 149. Whilst Qantas was not able to secure the co-operation of some of its former staff (less than 5) in all countries, the Commission is satisfied it has used its best endeavours to do so. Qantas has offered to the Commission, and undertakes to the Court, to continue to provide this very high level of assistance with the investigation, and possible prosecution, of cases against other participants. 150. Qantas through its solicitors and in-house counsel willingly participated in a series of discussions with the Commission to bring an agreed resolution of the matter before the Court. As a result of those discussions Qantas and the Commission have reached agreement as to the appropriate penalty to be suggested to the Court. Qantas has also assisted the Commission in the preparation of the relevant settlement documents including the admissions. 151. As already mentioned, Qantas has reviewed and upgraded its current trade practices compliance program. 152. The Commission fully accepts that Qantas is entitled to very substantial credit for having admitted contravening the Act, indeed actively self reporting, assisting the Commission in its investigations, upgrading its compliance program and agreeing with the Commission on the appropriate penalty to put to the Court (see Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR ¶41-375 41-375). Qantas' co-operation with the Commission has saved the Commission and the Court (and ultimately the community) the cost and burden of litigating an extremely lengthy and expensive case. 153. The number of possible participants, the fact that numerous witnesses and documents are not within the jurisdiction, the need for translations and the sheer scope and duration of the conduct would make this likely to be the largest and most expensive investigation ever conducted by the Commission. 154. It is obviously of benefit to the Commission's investigations that respondents are encouraged to co-operate in appropriate cases. In these circumstances the parties submit Qantas is entitled to a very substantial discount on the penalty that otherwise would have been appropriate, which, given the regularity of the contravening conduct over the four year period and the maximum applicable penalty per contravention of $10 million, could have been very much higher. This discount should reflect not only its extraordinary levels of assistance in locating witnesses and material to make appropriate admissions as soon as possible but also in using its best endeavours to assist in the investigation and possible prosecution of other participants. 155. Considering Qantas' outstanding cooperation in relation to its own case and as against other parties, the Commission has accepted a very substantial reduction in agreeing on an appropriate penalty to recommend to the Court. Similar conduct in the past 156. The Court has not previously found contraventions against Qantas in relation to the Act. Other regulators 157. The Commission notes that Qantas has already paid a penalty in the United States of US$61 million in respect of its conduct. Qantas expects to pay a very substantial penalty in Europe at the conclusion of EU investigations. The penalty in the United States was very substantially discounted as a result of Qantas' co-operation with authorities there. Qantas expects similar considerations to be applied by European authorities where Qantas has also co-operated with enquiries and made appropriate admissions. Conclusion on appropriate penalty 158. The Commission and Qantas submit that, when all the factors and circumstances referred to above are taken fully into account, a pecuniary penalty of $20 million is appropriate, in that the parties consider that the suggested amount falls within the range that the Court, unaided by the parties' agreement, would have considered appropriate.
Consideration 29 I did not find the present case straightforward and therefore sought and received further submissions from the Commission which were supported by Qantas. 30 My difficulties arose from the following considerations: · The anti-competitive arrangement was a global one and this raised a question as to its territorial connection with Australia and the question of whether the same conduct contravened laws of other jurisdictions so that penalties imposed on Qantas in them should be taken into account; · Identification of the extent to which Qantas profited from the Fuel Surcharge Understanding; and · The extent of the discount for Qantas's early admission of contravention and cooperation with the Commission.
Relevant territorial connection with Australia 31 There are two relevant territorial connection provisions in the Act: ss 5 and 4E. In the present case, the relevant market is a worldwide market for air cargo services, including, but not limited to, the carriage of cargo by air to and from Australia (see 8 above). In these circumstances, the primary territorial and jurisdictional limit is that found in s 5. Section 5 provides, relevantly, that Part IV of the Act extends to engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia. Qantas is incorporated in Australia. 32 Section 45(3) provides, relevantly, that for the purposes of ss 45 and 45A "competition" means competition in any market in which a party to the contract, arrangement or understanding in question supplies or acquires goods or services. Section 4E provides, relevantly, that "market" means a market in Australia. 33 Although the notion of a "market in Australia" in s 4E has been referred to in two cases (Riverstone Computer Services Pty Ltd v IBM Global Financing Australia Ltd [2002] FCA 1608 at [21] per Hill J and Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (2008) ATPR 42-256 at [19] per Tracey J), the concept has not been the subject of extensive judicial consideration. 34 In Riverstone, Hill J rejected the proposition that in order to be a "market in Australia" a market must be wholly within Australia. His Honour said (at [21]) that the fact that a market was global did not signify that there could not be a market in Australia for the same products. As the Commission points out, a contrary view would considerably reduce the efficacy and utility of the competition law provisions of the Act, especially in the modern telecommunications era. 35 The definition of "market in Australia" in s 4E excludes, however, a market that is wholly outside Australia. Part of the present global and international air cargo market necessarily falls within the territorial boundaries of Australia. The Fuel Surcharge Understanding necessarily affected the prices exacted from persons, including persons in Australia, in respect of the international transport of cargo by air. 36 In my view, the jurisdictional threshold in s 5 of the Act is satisfied. 37 Section 45(2) of the Act prohibits the making of a contract, arrangement or understanding containing a provision, or giving effect to a provision, which has the purpose of likely effect of substantially lessening competition in, relevantly, the worldwide market for air cargo services. Section 45A deems arrangements with the purpose or effect of fixing the prices of services supplied in that market to be arrangements with the purpose or effect of substantially lessening competition in that market. 38 Since the Fuel Surcharge Understanding had the purpose and effect of substantially lessening competition in the worldwide market for air cargo services (including by virtue of the operation of s 45A), giving effect to it anywhere in the world contravened s 45(2)(b) of the Act. 39 Nonetheless, the Commission submits, and I accept, that over and above the jurisdictional connection required by s 5 of the Act, the degree of connection to Australia is relevant to the quantum of penalty. Section 2 of the Act states that the object of that Act is to enhance the welfare of Australians through the promotion of competition. Achievement of that objective is not inconsistent with preventing contraventions by Australian entities that injure non-Australians, but it is appropriate to focus primarily upon the effects of a contravention in Australia: cf the reference to "loss or damage" in s 76. Surcharges imposed on flights to and from Australia would be likely to have the most direct connection with loss or damage suffered by businesses or consumers in Australia. 40 The parties have directed the Court's attention chiefly to the surcharges on routes to and from Australia totalling $175.42 million (see 8 above) but they accept that worldwide revenue from surcharges ($255.20 million - see 8 above) is also relevant. They submit that it is appropriate to take into account orders made in other jurisdictions in respect of the same or similar conduct, including penalties or fines paid or likely to be paid. 41 The fines imposed in the United States of America (USA) on Qantas have addressed flights to and from all parts of the world from and to the USA. Accordingly, those fines encompass contravening surcharges on flights from the USA to Australia and from Australia to the USA. Between 2001 and 2006, of the carriage of freight sold by Qantas in the USA, over 90% represented freight carried by Qantas to destinations in Australia. The fines imposed in the USA also encompassed contravening conduct in certain countries as a result of which surcharges were imposed on flights both to the USA and Australia (as well as to other countries). 42 I accept, having regard to the global nature of the market in question, that it is appropriate for the Court to take into account the sanctions already imposed or yet to be imposed on Qantas elsewhere, including the penalty of $61 million imposed on it in the USA and the threatened penalty arising from the investigations of European authorities (see 28 above).
The relationship between Qantas's fuel costs and the surcharges it imposed: To what extent was Qantas's fuel surcharge revenue attributable to the Fuel Surcharge Understanding? 43 As noted at paras 135 and 142 of the Joint Submission relating to facts relevant to level of penalty (see [28] above), the price of aircraft fuel increased over the relevant period. It is plausible that a high proportion of Qantas's global fuel surcharge revenue of $255.20 million and of its fuel surcharge revenue of $175.42 million on routes to and from Australia, would have been imposed by Qantas, even absent the Fuel Surcharge Understanding. It is inconceivable that airlines would simply have borne and not passed on the increases in their fuel costs. 44 The fuel price index moves in response to the average price of fuel in various markets, but the surcharge did not necessarily directly correlate to any particular airline's actual fuel costs. The reason is that each airline had different arrangements for the acquisition of fuel which it purchased in different places. Moreover, Qantas had fuel hedging arrangements. Finally, given that the fuel surcharge was imposed regardless of the length of the flight or aircraft type (different kinds of aircraft have different fuel efficiencies) an airline having mostly short routes would probably do better out of a given surcharge than an airline with mostly long routes. 45 In order for a surcharge to reflect the cost of fuel, it would, at the very least, have to be calculated as a function of weight, distance and aircraft type, but in fact the fuel surcharge was not calculated in that way. Furthermore, a surcharge increase was not imposed or removed immediately as the fuel price increased or decreased. Again, different trigger steps were used for increases and decreases. 46 The position is further complicated by the fact that the cost to the airlines of the fuel price increases was not borne exclusively by international freight transport. Passenger flights carry cargo as well as passengers. During the relevant period, Qantas's internal accounting did not allocate any fuel costs to the freight division. Most airlines imposed passenger fuel surcharges, as Qantas did, from May 2004. 47 The question whether, and if so to what extent, Qantas was better off than it would have been in the absence of the Fuel Surcharge Understanding raises imponderables. The parties to the Fuel Surcharge Understanding must, however, have understood that a surcharge imposed was more likely to "stick" and not be bid away by market forces. Moreover, the Fuel Surcharge Understanding saved each airline the very cost of itself calculating the responses it should make from time to time to fuel price increases. 48 It is impossible, however, to demonstrate either the gain to Qantas or the loss to shippers or their customers arising from the Fuel Surcharge Understanding.
Parity of penalty 49 On the date on which I imposed the penalty on Qantas, I also imposed a $5 million penalty on British Airways Plc: see Australian Competition and Consumer Commission v British Airways PLC [2008] FCA 1977 (the British Airways Reasons for Judgment). I sought submissions on the issue of parity, as between the circumstances of the two cases. The relationship between the amount of penalty and the amount of surcharge imposed on flights to and from Australia during the relevant period seemed to be quite different as between the two cases. The concern I had can be demonstrated by the following table: Global Fuel Surcharge Revenue Fuel Surcharge Revenue on routes to and from Australia Penalty proposed Qantas $225.20 million $175.42 million $20 million British Airways Ł261.05 million Ł5.72 million $5 million
50 The proposed penalty of $20 million represents 8% of the global fuel surcharge revenue of Qantas during the relevant period and 11% of the fuel surcharge revenue on routes to and from Australia during that period. On the other hand, the proposed penalty of $5 million for British Airways represents approximately 0.8% of the global fuel surcharge revenue of that airline during the relevant period and 39% of its fuel surcharge revenue on routes to and from Australia during that period (allowing for conversion of currency between Great British Pounds and Australian Dollars). It was the disparity between the proposed penalties as percentages of the surcharges imposed on routes to and from Australia (11% and 39%) that caused me particular concern. 51 The Commission submits, and I accept, that the surcharges relevant to be considered are not only those imposed on flights to and from Australia. The Air Cargo Market was global and was in part located in Australia. British Airways' global fuel surcharge revenue was some 45 times that on its routes to and from Australia alone. It was, on the other hand, only some 1.3 times the global fuel surcharge revenue of Qantas. 52 The Commission points out that the benefit derived by an airline from particular surcharges depends in part on its costs. If one airline recovers $170 million in surcharges but suffers fuel cost increases of $250 million, while another recovers $10 million in surcharges but suffers fuel cost increases of only $4 million (because, for example, its fuel costs were hedged effectively), the second airline may be seen to have received a greater benefit (depending on the cost to it of its hedging). As ever, the critical question of the profit derived from the Fuel Surcharge Understanding depends on what the airline would have charged in its absence. 53 The Commission also points out that fuel surcharges were only one component in prices charged for international carriage of cargo. Other components might be reduced while, in purported adherence to the Fuel Surcharge Understanding, the fuel surcharge was imposed. (The Commission does not intend to convey, and does not contend that there was in fact an agreement or an attempt to reach an agreement relating to total rates or base rates.) Surcharge revenue alone was therefore not an accurate indication of an airline's overall position. 54 Finally, as noted in the British Airways Reasons for Judgment (at [8] and [27]), British Airways admits that it gave effect to the Fuel Surcharge Understanding the subject of that case (which was an understanding between British Airways and Lufthansa Cargo Aktiengesellschaft alone) only where it applied the full surcharge in accordance with the Surcharge Methodology in that case. Qantas, in contrast, does not take any such point and admits that surcharges imposed at even less than the full amount of the increase suggested by the Surcharge Methodology were imposed in accordance with the Fuel Surcharge Understanding. 55 In its submissions, the Commission gives examples demonstrating the fallacy involved in expecting the outworking of the Fuel Surcharge Understanding in the Qantas case to be consistent with the outworking of the Fuel Surcharge Understanding involved in the British Airways case. 56 I accept that it would not be appropriate to seize on the superficial lack of parity as a reason for not imposing the penalty proposed by the parties.
Approach to penalty 57 The Commission submits that the benefit obtained by the contravening conduct is not the only, or indeed the main, determinant of the size of the appropriate penalty in price fixing cases. It notes that, particularly in cases involving conduct over a lengthy period, the extent of that benefit will be impossible to determine. The Commission referred to observations made by Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 4) (2006) ATPR 42-101 at [56]-[57] and by me in Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809 at [42]. 58 The Commission notes that the parties to the present contraventions were multi-billion dollar, multinational enterprises operating throughout the world, for whom Australia was not the focus of the contravening arrangements but merely one of many places directly affected by the conduct. The question is, according to the submission, what would be an appropriate base penalty to be an effective deterrent for companies of that magnitude from engaging in contravening conduct affecting Australia in the future. 59 The Commission considered an appropriate base penalty for all contraveners to be $7 million, but would have fixed on a much higher "base amount" if the contraveners were not also facing substantial penalties elsewhere. For those companies which reported their involvement to the Commission well before the Commission was able to prove it, the Commission gave a standard discount of approximately 30% leading to a reduction in the base penalty in their cases to approximately $5 million. 60 The Commission submits: That there is a "base" amount appropriate to a contravention, regardless of profit or benefit achieved, is fundamental to deterrence. This is reflected in the fact that the maximum penalty for merely making a contravening arrangement, or even attempting to do so, is the same as the maximum penalty for giving effect to it. Making an arrangement without giving effect to it could not confer a benefit. 61 The Commission refers to J McPhee & Son in which a pecuniary penalty of $2.5 million was ordered in relation to making and attempting to make price fixing arrangements. As another illustration, the Commission refers to non-compete agreements in which one party might derive no direct benefit in a particular market or market segment because it has merely agreed to stay out of that market or segment. 62 For airlines with a 2% or less share of the Australian segment of the Air Cargo Market, the Commission proposed no uplift or increase in the base penalty. The Commission did not propose to discriminate between those with 2% or less, but accepted that all would have been likely to derive a relatively minor benefit in the Australian segment, which would probably be less than the base penalty. 63 Over the relevant period, Qantas carried approximately 24% of all air cargo to and from Australia based on weight, well above the 2% level. Some 69% of Qantas's fuel surcharges were obtained on flights to and from Australia. Qantas's penalty in Australia must reflect the fact that Qantas's activities had the most significant connection with Australia and that Australia is therefore the primary jurisdiction in which those activities should be penalised. The figure reached by the Commission, prior to any discount, was $40 million. 64 In the light of the original and further submissions made by the Commission outlined above I think that this figure of $40 million lies within the range of penalties that I would have imposed, leaving to one side the question of discount (see below).
Discount for early admission of liability and cooperation 65 The Commission allowed a maximum discount of 30% for cooperation. Qantas "self-reported" and made admissions of contravening conduct at times when contravention could not have been proved against them. 66 An additional 20% discount was available to be recommended in respect of assistance in the case against others. Qantas should receive the full additional 20% in the Commission's view. It provided the Commission with access to overseas witnesses. As the case against Qantas proceeded on admissions, the value of the witnesses to the Commission is in its cases against other airlines. The Commission states that to date Qantas has provided 37 witnesses to the Commission. The Commission assures the Court that the information obtained from those witnesses would not have been obtained in the absence of Qantas's cooperation. 67 The base discount of 30% reflects the saving in time and costs to the Commission and therefore to the community. I accept that this consideration is of great importance in the present case in view of the fact that the Fuel Surcharge Understanding was entered into overseas and that witnesses and documentary evidence lies largely outside Australia. The Commission has informed the Court that the fact that many witnesses are not in Australia and are therefore not compellable, has posed a difficulty for the Commission in dealing with other airlines, some of which have failed or refused to comply with notices given to them by the Commission under s 155 of the Act, in a timely manner or at all. As well, the Commission points out that the limitation period is running against the Commission. 68 The Commission has provided to the Court a further submission which, on its application, I have ordered to be kept confidential by being kept in a sealed envelope not to be opened except by order of a Judge. That submission provides considerable detail of Qantas's (and British Airways') cooperation in relation to the Commission's intended institution of proceedings against other airlines. 69 I accept that Qantas's cooperation has been of great benefit and importance to the Commission in the respect mentioned. In my view, a 50% discount cannot be characterised as inappropriate. Left to myself, in the light of both the supplementary open submission and the confidential submission provided by the Commission, I would have allowed a very substantial discount of that general order.
Limited duration of the injunction sought 70 On the hearing I raised with the parties the question whether the duration of the injunction sought should be limited to three years as requested by both parties or should be permanent. 71 Section 80(1) of the Act empowers the Court to grant an injunction either permanent or to expire after a limited period of time, as the Court determines to be appropriate. 72 The appropriateness of injunctions of limited duration under s 80 has been considered in several recent cases. In Australian Competition and Consumer Commission v George Weston Foods Ltd (2004) 210 ALR 486 (George Weston Foods) at [30], Gyles J expressed a reservation concerning the time limit of three years proposed by both parties in that case. His Honour found it difficult to see the reason for the time limit in relation to a properly framed injunction, bearing in mind that under s 80(3) of the Act the Court has power to rescind or vary an injunction granted under s 80(1). 73 Gyles J had occasion to consider the question again in Australian Competition and Consumer Commission v Liquorland (Aust) Pty Ltd (2005) ATPR 42-070 where, again, a time limit of three years was proposed. His Honour (at [71]) repeated the reservation he had voiced in George Weston Foods but granted an injunction limited to three years on the basis that in the circumstances it was not necessary to subject Liquorland (Aust) Pty Ltd to the threat of contempt of court for any longer period. In forming that view, his Honour referred to the existence of a compliance programme, a change in New South Wales licensing laws, and the sharp shock that had been administered to the company by the proceeding. 74 Finally, in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-192, his Honour had to consider a proposed four year time limit. Of this limit, his Honour said (at [8]): It provides a limit to the remedy of contempt of Court for breach. More particularly, it sets a period during which the party restrained will have a very powerful incentive to ensure that there is no further contravening conduct. By the end of that period it is to be hoped that the procedures and, perhaps, the culture of the organisation will be such that further contravention is unlikely. It seems to me that the undertakings which have been obtained in relation to compliance programs are appropriate for that purpose. 75 Young J and Stone J have also had occasion to consider the question of time limits on injunctions granted on the Commission's application. In Australian Competition and Consumer Commission v IPM Operation & Maintenance Loy Yang Pty Ltd (2006) 157 FCR 162 (IPM), the Commission sought a final injunction against the respondent Union. Young J unequivocally rejected (at [233]) a final injunction as "plainly inappropriate" and would "not contemplate an injunction that operates indefinitely" in a case where the relevant conduct had come to an end. His Honour observed that in such a case, any injunction should be for only a limited period of time, and noted that this course was commonly taken in the authorities. 76 For her part, Stone J, in Australian Competition and Consumer Commission v Signature Security Group Pty Ltd (2003) ATPR 41-942, incorporated a two year time limit in the injunction that she granted, even though, as in IPM, the Commission sought a permanent injunction. Her Honour regarded the purpose of the injunction in the case before her as being not to restrain apprehended repetition but to deter the contravening party from repeating the contravention. Her Honour referred to the following observation by French J in ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248: There is room in the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court … The remedy is flexible and may be applied in service of a variety of functions to support the policy of the Act. In imposing the two year time limit, Stone J noted that the respondent had instituted appropriate measures to prevent a recurrence of its contravening conduct, and that if it had not done so she might have granted a permanent injunction, leaving it to the respondent to apply under s 80(3) for its termination. 77 It is important to recognise that the discretion to grant an injunction under s 80(1) is not governed by the constraints that apply where a court is exercising a jurisdiction governed by general equitable principles, although no doubt the same considerations, if they are present, could be relevant. An example is a threat of repetition. 78 In the present case, there is no evidence of a threatened repetition of the contravention or a threat of any other contravention of the Act by Qantas. The purpose of injunctive relief here is therefore not to ensure that a threatened course of action does not occur. Rather, the purpose is, like that of imposition of the pecuniary penalty, that of deterrence - specific deterrence of Qantas and indirectly, general deterrence. 79 In jointly submitting that the three year time limit on the injunction is appropriate, the parties refer to the following considerations: (a) the conduct ceased over two years ago; (b) the Court has not previously found contraventions of the Act by Qantas; and (c) Qantas "has, by its thorough investigation, its admissions, its assistance to the applicant's investigation, its contrition, and its substantial upgrading of its compliance programme internationally, demonstrated both a willingness and a genuine desire to prevent repetition". 80 In my view, for the above reasons, the three year time limit is appropriate.
CONCLUSION 81 It was for the above reasons that I imposed the proposed penalty of $20 million and granted an injunction limited to three years in duration. 82 As requested by the parties, I also ordered Qantas to pay the Commission a contribution towards its costs of this proceeding in an agreed sum of $200,000. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.
Associate: Dated: 23 December 2008 Counsel for the Applicant: Mr C A Moore
Solicitor for the Applicant: Australian Government Solicitor
Solicitors for the Respondent: Johnson Winter & Slattery
Date of Hearing: 4 November, 2, 11 December 2008
Australian Competition and Consumer Commission
Qantas Airways Limited
(2004) 210 ALR 486
(2006) 157 FCR 162
(2005) 215 ALR 281
(2005) 215 ALR 301
(2000) 172 ALR 532
(1996) 71 FCR 285
(1992) 38 FCR 248