Australian Competition and Consumer Commission v Singapore Airlines Cargo Pte Ltd

Federal Court of Australia|2009-05-20|Before: Jacobson J

Introduction 1 In its Statement of Claim filed on 22 December 2008, the Australian Competition and Consumer Commission ("the ACCC") alleges that Singapore Airlines Cargo Pte Ltd ("Singapore Airlines") entered into 73 understandings with other international airlines containing provisions for the imposition of fuel surcharges and other contractual restraints which contravened s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth) ("the Act") and engaged the operation of s 45A(1) of the Act. 2 The ACCC also alleges that Singapore Airlines gave effect to 68 of those understandings in contravention of s 45(2)(b)(ii) of the Act. 3 The effect on competition which is proscribed by ss 45(2) and 45A(1) must be on a market in Australia: see ss 45(3) and 4E of the Act. 4 The Statement of Claim pleads three markets for the supply by international airlines and acquisition by shippers of international air freight services, each of which is said to be a market in Australia. The first is a global market. 5 The second, which is called "the Australian market", is for the supply and acquisition of international air freight services on inbound routes to Australia and on outbound routes from Australia. The Australian market is also said to include the supply and acquisition of air freight services between ports outside Australia, but where the freight originates in or is destined for Australia; where the air freight service includes an intermediate port within Australia; or where the transaction for the provision of the air freight services took place in Australia. 6 The third market, which is called the "route specific market" comprises markets for the supply and acquisition of "two-way" air freight services between particular ports in Australia and particular ports outside Australia. 7 Singapore Airlines contends that, save for one of the understandings, the Statement of Claim suffers from two fundamental defects and that it ought to be struck out. 8 The first defect is said to be that the Statement of Claim fails to identify a market in Australia within the meaning of s 4E of the Act. 9 The second is said to be that the contraventions are alleged with such generality that they cannot amount to contraventions of the Act. This is because the provision of the relevant understandings, or the giving effect thereto, must have the proscribed effect on competition in a market in Australia. Singapore Airlines contends that the essential vice in the pleading is that it fails to plead the material facts which are alleged to give rise to the contravention.

The Statement of Claim 10 The Statement of Claim describes the shape and character of the market for international air freight services in [3] - [9]. 11 The most important of those paragraphs are: 3. At all material times there has been demand for air freight services to and from places throughout the world, including places within Australia, by persons wishing to transport goods internationally ("customers"). 4. Customers may: 4.1 be persons who arrange the sending of the goods ("shipper") or the persons to whom the goods are sent ("consignee"), or both; and 4.2 be both shipper and consignee in the case of persons who require the transport by air of goods from one country to another country. Unless the context otherwise requires, a reference herein to a shipper includes a reference to a shipper who is also the consignee. 5. At all material times the demand referred to in paragraph 3 has been met by the supply of air freight services by airlines which transport goods internationally by air ("international airlines"). 12 The particulars of the international airlines are lengthy. They are said to include, but are not limited to, a list of approximately 80 named airlines. Some are well known as carriers to and from Australia such as British Airways, Cathay Pacific, Japan Airlines, Qantas and Singapore Airlines (which is referred to by the acronym SAC) and its parent Singapore Airlines Ltd (referred to by the acronym SIA). 13 The particulars of the international airlines also include a number of other carriers which may be less well known to persons outside the industry such as Dragonair, Ethiopian Airlines and Polar Air. 14 The Statement of Claim alleges in [7] and [8] that: 7. At all material times, SAC has provided air freight services in each of the following ways: 7.1 carrying goods in the cargo holds of passenger aircraft operated by SIA; 7.2 carrying goods in approximately 9 to 14 dedicated air freighter aircraft operated by SAC; and 7.3 carrying goods by arrangement with another airline, in a passenger aircraft or dedicated air freighter aircraft operated by that other airline. 8. Goods may be transported by air from one city or port ("origin port") directly to another city or port ("destination port") (hereinafter referred to as "a direct service") or may be routed via a third (or more) city or port ("intermediate port") (hereinafter referred to as an "indirect service" and each leg of an indirect service is hereinafter referred to as a "sector"). 15 As further background to the pleading of the relevant markets, [10] - [11] set out the arrangements which are made between airlines for the transport of goods internationally. 16 The practice of interlining is described in [10]. It involves arrangements for carrying goods for sectors between an origin port and a destination port under which a single airway bill is issued for the entire journey by the first airline transporting the goods. That airline receives full payment but pays a proportion to the IATA Clearing House for the other airlines involved in the journey. 17 Competition between airlines is described in [12]. International airlines which supply air freight services between ports are said to compete with, and be constrained by, all other international airlines which, inter alia,offer direct or indirect services using their own airlines, those of other airlines, or a combination of both, between those ports or geographically close ports, for example, as a result of interline agreements. 18 The involvement of shippers, freight forwarders and integrators in the market is described in [13] - [23]. It is sufficient for present purposes to refer only to [13] and [20] - [22] which are as follows: 13. Air freight services can be negotiated, sold and acquired by many means, including as follows: 13.1 by a freight forwarder acting as an intermediary between the shipper and the international airline; 13.2 by a freight forwarder booking space with an airline and then on-selling such space to shippers; 13.3 by a shipper contracting with a freight forwarding company that has its own aircraft (which companies are known as "integrators"), which may supply the air freight service itself or by engaging another international airline to supply the air freight service on its behalf; and Particulars Examples of integrators are DHL, UPS and FedEx. 13.4 by a shipper engaging an international airline directly, for example, by telephone or via the internet, whereupon the shipper may be provided with a quote and allocated space on a particular flight for an air freight service and, in such a case, a freight forwarder may be appointed either by the shipper or by the airline after the quotation is provided and accepted and the space on the flight is allocated. … 20. Further, depending upon the freight involved, either or both of the origin or the destination ports can be substituted by the international airline, the freight forwarder or the shipper with another port, whether in the same country as the original port or not. Particulars By way of example, Qantas may be contracted to provide air freight services in respect of goods from Dublin to Canberra. As it does not fly from Dublin, it might arrange instead the surface transportation of the goods to Heathrow. It might then fly the goods to Sydney, Melbourne or Brisbane and then tranship them by domestic flight to Canberra from Brisbane, or by road transport from Sydney. Similar or alternate legs could be arranged by the shipper or the freight forwarder. 21. Further, international airlines, freight forwarders and shippers can substitute a new intermediate port for an existing intermediate port (either with a substitution of the origin or destination port or without any such substitution of the origin or destination ports). 22. Further, in relation to each sector for air freight services, the suppliers or potential suppliers of air freight services on that route include at least those international airlines which fly from the port of origin and those international airlines which fly to the port of destination. 19 The relevant markets which are the subject of the alleged contraventions are described in [24] - [27] as follows: 24. By reason of the matters alleged in paragraphs 3 to 23, at all material times there was a worldwide market for the supply by international airlines and the acquisition by shippers of air freight services ("the Global Market"), which market was a market in Australia within the meaning of section 4E of the TPA. 25. Further or in the alternative to paragraph 24, by reason of the matters alleged in paragraphs 3 to 23 above, at all material times there was a market ("the Australian Market") for the supply by international airlines and the acquisition by shippers of air freight services: 25.1 from ports or regions outside Australia to ports or regions inside Australia; and 25.2 from ports or regions inside Australia to ports or regions outside Australia, which market was a market in Australia within the meaning of section 4E of the TPA. 26. Alternatively, further to paragraph 25, the Australian Market also includes the supply and acquisition of air freight services between two or more ports which are outside Australia but where: 26.1 the origin of the freight is within Australia; 26.2 the destination of the freight is within Australia; 26.3 the air freight service for the particular goods includes an intermediate port actually or potentially within Australia; or 26.5 the consignee, shipper, customer, freight forwarder or international airline transacted the air freight service in Australia. 27. Further or in the alternative to paragraph 25, by reason of the matters alleged in paragraphs 3 to 23 above, at all material times there were markets ("Route Specific Markets") for the supply and acquisition of two-way air freight services between particular ports inside Australia and particular ports outside Australia which markets were markets in Australia within the meaning of section 4E of the TPA. 20 Singapore Airlines is said to have been in competition with other international airlines for the supply of air freight services supplied in each of those relevant markets. This allegation is as follows: 28. By reason of the matters alleged in paragraphs 3 to 27 hereof, since 1 July 2001 SAC has been or, but for the agreements, arrangements or understandings alleged herein, would have been, or would have been likely to be, in competition with other international airlines for the supply of air freight services, being services supplied in: 28.1 the Global Market; further or alternatively 28.2 the Australian Market; further or alternatively 28.3 the Route Specific Markets; within the meaning of sections 45(3), 45A(1) and 45A(8) of the TPA. Particulars 28.3.1 In the Global Market, SAC competes with all international airlines. 28.3.2 In the Australian Market, SAC competes with all international airlines which actually fly or potentially can fly to ports within Australia or which can arrange for air freight services to and/or from ports within Australia by way of interline or block space agreements or otherwise, and alternatively those airlines together with airlines supplying services which fall within paragraph 26. 28.3.3 In each Route Specific Market, SAC competes with all international airlines which actually fly or potentially can fly (directly or indirectly) on those routes or which can arrange for air freight services on those routes by way of interline or block space agreements or otherwise. In this subparagraph, a reference to "routes" includes routes to and from adjacent ports which fall within paragraph 12.5. 21 The genesis of the fuel surcharge is to be found in a resolution of a Meeting of Cargo Tariff Coordinating Conferences of IATA held in Geneva in August 1997. This is described in [30] of the Statement of Claim. 22 A further resolution was passed in May 1998 under which the IATA Secretariat was to continue monitoring the average weekly spot price of aviation fuel as an index against the average price in June 1996. This is referred to as the IATA Fuel Price Index and is described in [31]. 23 It appears that in about April 2000, IATA ceased publishing the IATA Fuel Price Index, apparently as a result of advice from IATA's legal advisers that IATA members could be exposed to anti-trust liability if IATA continued to publish the Index. This is alleged in [37]. 24 Following cessation of the publication of the IATA Fuel Price Index, Lufthansa commenced publishing its own fuel price index and a methodology (referred to as the "Lufthansa Initial Methodology") which provided for a calculation of a surcharge when the stipulated trigger point was reached. This is alleged in [38]. 25 Revisions of the Lufthansa Initial Methodology and actions taken are described in [40]ff. One such action was the imposition of a fuel surcharge in December 2003 by Lufthansa and other international airlines, including Singapore Airlines. This is described in [47.7] which refers, inter alia,in [47.7.1] to the surcharge imposed by Singapore Airlines for separate IATA Tariff Conference Areas, namely: · IATA Tariff Conference Areas 1 ("TC1") and 2 ("TC2"), (being Europe, Africa and the Americas) and North Asia; and · IATA Tariff Conference Area 3 ("TC3", which includes Australia) (being Asia and South and South West Pacific) 26 All this is a prelude to the allegation of the 73 understandings which commence in [49] with the Lufthansa Fuel Surcharge Understanding. The Statement of Claim alleges eight separate types of understanding. 27 The first and most common type of understanding is concerned with understandings that contain provisions to support fuel surcharges in connection with the supply of international air freight services globally and from Singapore, Indonesia, Hong Kong and United Arab Emirates to various destinations including Australia. 28 The Statement of Claim alleges that these provisions constitute price fixing within s 45A(1) and that certain of them had the purpose or effect of substantially lessening competition within s 45(2). 29 The second type of understanding concerns understandings containing provisions to impose security or insurance surcharges globally or from destinations in Europe and from the places mentioned in relation to the first understanding. These provisions are said to constitute price fixing under s 45A(1). 30 The third is an understanding to impose a war risk surcharge in connection with the supply of international air freight services from Indonesia. This is said to constitute price fixing under s 45A(1). 31 The fourth is an understanding to impose a customs fee in connection with the supply of international air freight services from Indonesia and from anywhere in the world to Indonesia. This is said to constitute price fixing within the meaning of s 45A(1). 32 The fifth is an understanding between Singapore Airlines and Lufthansa not to undercut prices offered by each other and not to compete for the supply of air freight services including, but not limited to, air freight services to and/or from Australia. 33 This is said to constitute price fixing within s 45A(1), to be an exclusionary provision within the meaning of s 4D and to have the purpose or effect of substantially lessening competition within the meaning of s 45(2). 34 The sixth is an understanding not to offer prices lower than specified prices for the supply of air freight services from Jakarta to various destinations including Sydney and Perth. This is said to constitute price fixing within s 45A(1). 35 The seventh is an understanding between Singapore Airlines and (at least) Malaysian Airlines providing for those airlines to increase the prices charged for the supply of air freight services for the transport of meat from Australia to the Middle East. This is said to constitute price fixing within s 45A(1). 36 The eighth type of understanding concerns commission paid to cargo agents in respect of the fuel surcharge charged on the supply of air freight services from Singapore including, but not limited to, flights to Australia. This is said to constitute price fixing under s 45A(1) and to have had the purpose or effect of substantially lessening competition within s 45(2). 37 Mr Archibald QC, who appeared for Singapore Airlines took me to the allegation of two separate understandings which he said illustrated the vice in the pleading. 38 The first was the May 2003 Indonesia Understanding as follows: 155. On or about 9 May 2003, SAC made an arrangement or arrived at an understanding with a number of other international airlines including but not limited to Garuda, Emirates, Malaysia Airlines, SriLankan Airlines, Thai Airways, KLM, Kuwait Airways, Air India, Cathay Pacific, Lufthansa, Cargolux, Gulf Air and British Airways (the "May 2003 Indonesia Understanding"), containing the following provision: with effect from 12 May 2003 each of those airlines would impose (or, as the case might be, re-impose) a fuel surcharge from Indonesia no less than the following amounts: 155.1 USD0.10/kg on the supply of air freight services from Indonesia to TC1 and TC2; and 155.2 USD0.05/kg on the supply of air freight services from Indonesia to TC3 (not including Japan). Particulars 155.2.1By an email dated 24 April 2003 from Ms Lelly of Malaysia Airlines to the various members of the ACRB - Indonesia, she advised that Garuda had advised that it intended to waive the fuel surcharge with effect from 24 April 2003. This resulted in complaints from the other international airlines (including SAC) that they had not received any notification about the waiver and a request for a meeting of ACRB - Indonesia to discuss the issue. Garuda agreed and that meeting of ACRB - Indonesia was held on 9 May 2003 at which time Garuda agreed to reimpose the fuel surcharge at the urging of the other airlines at the meeting including SAC, Emirates, Malaysia Airlines, SriLankan Airlines, Thai Airways, KLM, Kuwait Airlines, Air India, Cathay Pacific, Lufthansa, Cargolux, Gulf Air and British Airways. 155.2.2The May 2003 Indonesia Understanding was arrived at at the meeting of ACRB - Indonesia held on 9 May 2003. 155.2.3The minutes of the ACRB - Indonesia meeting held 9 May 2003 were circulated by email and/or fax to those airlines that attended and to members of the ACRB - Indonesia that did not attend. Particulars will be provided after discovery. 156. The said provision of the May 2003 Indonesia Understanding: 156.1 had the purpose and had the effect and was likely to have the effect of fixing or controlling or maintaining a component of the price charged by SAC for the supply of air freight services including the supply of air freight services to Australia in competition with the other parties to the May 2003 Indonesia Understanding; and 156.2 was a provision to which section 45A of the TPA applied. 157. SAC gave effect to the said provision of the May 2003 Indonesia Understanding by imposing a fuel surcharge from Indonesia of the following amounts: 157.1 USD0.10/kg on the supply of air freight services from Indonesia to TC1 and TC2; and 157.2 USD0.05/kg on the supply of air freight services from Indonesia to TC3 (other than Japan); from on or about 12 May 2003 to on or about 24 December 2003. 39 The second was the United Arab Emirates 2004 Level 5 surcharge understanding as follows: 340. On or about 27 July 2004, SAC made an arrangement or arrived at an understanding with other airlines including Alitalia, Air France, British Airways, Cargolux, Cathay Pacific, China Airlines, Emirates, FedEx, Kenya Airways, KLM, Kuwait Airways, Lufthansa, Martinair and Swissair containing a provision that the parties would impose a fuel surcharge of AED0.45/kg to the Middle East and Indian Sub-continent and AED0.90/kg to all other destinations (equivalent to Level 5 on the Lufthansa Methodology) on the supply of air freight services from the United Arab Emirates with effect from on or about 1 August 2004 (the "UAE 2004 Level 5 Surcharge Understanding"). Particulars The arrangement was made, or the understanding was arrived at, at a meeting of CASCO held on or about 27 July 2004. The participants were present at the meeting and agreed, or agreed by preceding or subsequent communications, that: 340.1 in the case of those airlines that had not already imposed the UAE Level 5 fuel surcharge, that they would impose it from about 1 August 2004; and 340.2 in the case of those airlines that had imposed the UAE Level 5 fuel surcharge, that they would continue to apply it after 1 August 2004. Further particulars may be supplied following discovery. 341. The said provision of the UAE 2004 Level 5 Surcharge Understanding: 341.1 had the purpose and had the effect and was likely to have the effect of fixing or controlling or maintaining a component of the price charged by SAC for the supply of air freight services including the supply of air freight services to Australia in competition with the other parties to the UAE 2004 Level 5 Surcharge Understanding; and 341.2 was a provision to which section 45A of the TPA applied. 342. In the period from on or about 1 August 2004 until on or about 1 October 2004, SAC imposed a fuel surcharge of AED0.45/kg to the Middle East and Indian Sub-continent and AED0.90/kg to all other destinations on the supply of air freight services from the United Arab Emirates. 343. By imposing the fuel surcharge referred to in the previous paragraph, SAC: 343.1 gave effect to one or more of the said provisions of the Lufthansa Fuel Surcharge Understanding; and 343.2 further or in the alternative, gave effect to the said provision of the UAE 2004 Level 5 Surcharge Understanding. 40 The contraventions of s 45(2)(a)(ii) of the Act, by making or arriving at each of the 73 understandings, are pleaded in [437]. I will set out the prefatory part of that paragraph and the two sub-paragraphs which refer to the understandings which were said to illustrate the vice in the pleading: 437. By reason of the matters pleaded herein, SAC has contravened section 45(2)(a)(ii) of the TPA by making or arriving at each of: … 437.21 the May 2003 Indonesia Understanding; … 437.45 the UAE 2004 Level 5 Surcharge Understanding; 41 The contraventions of s 45(2)(b)(ii) of the Act are pleaded in [438],which contains 73 sub-paragraphs setting out understandings, the giving effect to which is said to contravene s 45(2)(b)(ii). However somewhat confusingly, there are only 68 understandings listed in [438] as the five understandings which appear at [437.24] - [437.28] are repeated in the following five sub-paragraphs. I will set out the prefatory part of [438] and the illustrative sub-paragraphs, as follows: 438. By reason of the matters pleaded herein, SAC has on each occasion contravened 45(2)(b)(ii) of the TPA by giving effect to the provisions of: … 438.17 the May 2003 Indonesia Understanding; … 438.45 the UAE 2004 Level 5 Surcharge Understanding; 42 The Statement of Claim then contains a second paragraph [438] which makes the same allegations as the first such paragraph except omitting the repeated sub-paragraphs. The 68 instances listed in the second [438] include the May 2003 Indonesia understanding at [438.17] and the UAE 2004 Level 5 Surcharge Understanding at [438.41]. 43 The Lufthansa Price Understanding is also alleged to be an exclusionary provision in the following paragraphs of the Statement of Claim: 439. By reason of the matters pleaded herein, SAC has contravened 45(2)(a)(i) of the TPA by making or arriving at the Lufthansa Price Understanding. 440. By reason of the matters pleaded herein, SAC has on each occasion contravened 45(2)(b)(i) of the TPA by giving effect to the provisions of the Lufthansa Price Understanding.

The relevant provisions of the Act 44 Section 45(2) of the Act prohibits the making of contracts, arrangements or understandings that contain an exclusionary provision, or a provision that has the purpose or effect of substantially lessening competition, as well as the giving effect to such a provision. The sub-section states: (2) A corporation shall not - (a) make a contract or arrangement, or arrive at an understanding, if - (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii) provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision - (i) is an exclusionary provision; or (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition. 45 Section 45(3) specifies what is meant by "competition" in ss 45 and 45A. It states: (3) For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services. 46 The Act does not contain a definition of the term "market" but s 4E contains a territorial limitation and provides for substitutable or competitive goods or services to be included within the meaning. 47 Section 4E states: For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first mentioned goods or services. 48 Section 4D(1) states that a provision of an understanding shall be taken to be an exclusionary provision if: (1) A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if: (a) the contract or arrangement was made, or the understanding was arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any two or more of whom are competitive with each other; and (b) the provision has the purpose of preventing, restricting or limiting: (i) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or (ii) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions; by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed contract, arrangement or understanding or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate. 49 Section 4D(2) provides: (2) A person shall be deemed to be competitive with another person for the purposes of sub-section (1) if, and only if, the first-mentioned person or a body corporate that is related to that person is, or is likely to be, or, but for the provision of any contract, arrangement or understanding or of any proposed contract, arrangement or understanding, would be, or would be likely to be, in competition with the other person, or with a body corporate that is related to the other person, in relation to the supply or acquisition of all or any of the goods or services to which the relevant provision of the contract, arrangement or understanding or of the proposed contract, arrangement or understanding relates. 50 Section 45A(1) is a deeming provision. The effect of it is to deem price fixing arrangements to be illegal without the need to establish that the arrangements have the effect of substantially lessening competition. It provides: (1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other. 51 The only other section to which reference need be made is s 5(1) which, relevantly, extends the provisions of Part IV of the Act to conduct engaged in outside of Australia by bodies corporate carrying on business within Australia.

Whether the pleading is defective 52 I was provided with lengthy written submissions which addressed topics including the principles which govern the definition of the market and the proper construction of ss 4D and 45(2) of the Act. 53 However, ultimately, the questions which arise are quite narrow and, for the most part, do not turn upon any contentious principles of law. 54 Both parties agreed that the Act can be contravened by conduct engaged in extraterritorially, where that conduct harms or affects competition in a market in Australia, 55 Further, there was no real dispute as to the question of the correct principles of market definition. These principles were authoritatively stated by the High Court in Queensland Wire Industries Proprietary Limited v Broken Hill Proprietary Company Limited (1989) 167 CLR 177 at 188, 195, 199 and 210, and have been referred to in numerous other authorities including Singapore Airlines Limited v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174. 56 The concept of a market is a flexible one; it is the area of close competition between firms or the area of rivalry between them. In defining the market, it is necessary to consider the range of economic activity, the class of products and the geographic areas in which the activities occur. 57 Section 4E specifically provides that the market must be a market in Australia and that it includes products which are substitutable or otherwise competitive. 58 Mr Archibald, who appeared for Singapore Airlines, accepted, for the purposes of the present application, the market definitions alleged by the ACCC in [24] - [27] of the Statement of Claim. In making this concession, he pointed out that if the matter goes to a final hearing, Singapore Airlines may contest the descriptions of the global market, the Australian market and the route specific market. 59 Mr Archibald's primary argument in the present application was that the allegations made in the Statement of Claim are beyond the reach of the Act because they include understandings to fix the price of international air cargo services supplied on routes either wholly outside Australia, or from outside of Australia to Australia. Neither, it is argued, can constitute the supply of a service within a market in Australia within the meaning of the Act. 60 Moreover, even if a market in Australia were to be identified, Mr Archibald submitted that the Statement of Claim is nonetheless defective as it fails to identify the provisions of the alleged understandings that fix the prices or restrict the supply of services supplied in competition in a market in Australia, or that have the purpose or likely effect of substantially lessening competition in a market in Australia. 61 The ACCC responded by pointing out that each of the pleaded markets is stated to be a market in Australia, so that the requirements of s 4E of the Act are satisfied. Mr O'Bryan SC, who appeared for the ACCC, submitted that this is supported by the authorities which have considered the meaning of the expression "a market in Australia", in particular the cases which have looked at the question of whether a global market is such a market in accordance with s 4E. 62 Mr O'Bryan argued that in determining the geographic location of the market, the emphasis should not be on the place of the contract, and is not restricted to the sphere of activity of a corporation or the limit of its actual sales. Rather, a conventional analysis will focus on factors including the location of the actual and potential buyers and sellers, and the location of the relevant competitive activities. 63 Further, Mr O'Bryan argued that the minimum required nexus with Australia is either that the arrangement has or is likely to have an anti-competitive purpose or effect in a market in Australia, or that any of the parties to the arrangement has fixed or controlled prices in relation to services in respect of which they are in competition in a market in Australia. 64 It is true that the authorities, including three recent cases that have considered the question in relation to international air freight services, accept the proposition (either expressly or impliedly) that a global market is capable of constituting a market in Australia: Riverstone Computer Services Pty Limited v IBM Global Financing Australia Limited [2002] FCA 1608 at [21], Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd (2009) 251 ALR 166 at [21]; Australian Competition and Consumer Commission v Qantas Airways Ltd (2009) 253 ALR 89 at [35]; Emirates v Australian Competition and Consumer Commission [2009] FCA 312 at [70]. 65 Also, in Emirates, Middleton J accepted that inbound and outbound air freight services are capable of being part of the Australian market: Emirates at [62], [63]. 66 It follows in my view that Singapore Airlines cannot succeed on its first objection to the Statement of Claim because the pleaded markets are at least capable of amounting to markets in Australia. 67 But it does not follow that this provides an answer to the second ground of attack on the pleading. That is because the Statement of Claim alleges a very large number of price fixing understandings, many of which concern freight services between routes which, on their face, have no connection with Australia. This is illustrated in the pleading of the May 2003 Indonesia Understanding and the UAE 2004 Level 5 surcharge understanding which I have set out at [38] and [39] above. 68 The difficulty which arises is that the Statement of Claim goes on to allege that the making and giving effect to the entirety of the alleged understandings contravenes s 45(2) of the Act and that the said provisions of the understandings are provisions to which s 45A of the Act applies. What is then missing from the pleading is a statement of the material facts which support the allegation that, taking the example of the May 2003 Indonesia Understanding, the price fixing arrangement in respect of the carriage of freight from Indonesia to Europe, Africa and the Americas has the proscribed effect on competition under s 45(2) of the Act on a market in Australia. 69 That such an effect must be established is clear from the provisions of ss 45(2), 45(3) and 4E. 70 Also, for s 45A(1) to be engaged, the services that are the subject of the anti-competitive provision must be supplied by the party to the illegal understanding in competition with the other party in a market in Australia: see Emirates at [22], citing Eastern Express Pty Limited v General Newspapers Pty Limited (1991) 30 FCR 385 at 419-420; South Sydney District Rugby League Ltd v News Ltd (2000) 177 ALR 611 at [195] and ss 45A(8), 4D(1)(a) and 4D(2) of the Act. 71 This deficiency in the pleading of the occasions on which s 45A(1) is engaged is again illustrated by the May 2003 Indonesia understanding, the parties to which are said to include Singapore Airlines and others such as Kuwait Airways and Cargolux. The services are said to include the supply of air freight services from Indonesia to Europe, Africa and the Americas. But there is no statement of material facts that Singapore Airlines and the other airlines are in competition with each other in a market in Australia in respect of the supply of air freight services from Indonesia to those destinations. 72 These deficiencies are also illustrated by the pleading of the UAE 2004 Level 5 surcharge understanding where the impugned provision is an understanding between the parties which relates to a fuel surcharge on the supply of air freight services from the United Arab Emirates, which is charged at one rate to the Middle East and the Indian sub-continent and at another rate to all other destinations. 73 Again, what is missing is a statement of the material facts which demonstrate the proscribed effect on competition in Australia and that the services are supplied by the parties in competition with each other in a market in Australia. 74 In short, there are two essential vices in the pleading. The first is a failure to address the ingredients of the field of rivalry between the parties to the understandings. The second is a consequent failure to state material facts which disclose how the parties to an understanding for the supply of air freight services from, for example, Jakarta to Paris are in competition with each other in a market in Australia. 75 It is not sufficient to assert that higher prices on routes between points outside Australia of themselves have an adverse price effect on consumers in Australia. What s 45(2) is concerned with is the effect on competition in a market in Australia, not the effect on consumers residing in Australia.

Whether the recent authorities answer the pleading question 76 In my opinion, neither Auskay, Emirates nor ACCC v Qantas, to which I have referred above, answer the question of whether the pleading is deficient in the respects that I have stated. 77 In Auskay, Tracey J dealt with an application to strike out a pleading in a class action that alleged contraventions of ss 45 and 45A of the Act in relation to understandings between Qantas and other international airlines in terms that resemble the nature of the allegations in the present case. 78 Referring to the geographic location of the market, Tracey J said at [21]: The respondents in the present proceeding are entitled to know where in Australia it is said that they compete with each other named respondent for the provision of international airfreight services. This will depend on where negotiations between the respondents and their customers take place and contracts are entered into. 79 The deficiency which Tracey J identified in the pleading was that it failed to identify any market whatsoever. That is sufficient to distinguish Auskay from the present proceeding. 80 The observations made by Tracey J at [21] as to the relationship between the geographic market and the place of contracting were somewhat diluted by the remarks of Middleton J in Emirates at [72]. I will refer to that issue below but it does not affect the pleading deficiencies which I have identified in the ACCC's Statement of Claim. 81 In ACCC v Qantas, Lindgren J imposed penalties and other relief on Qantas for contravention of s 45 of the Act in relation to understandings of the type alleged in the present proceeding. 82 However, in reading his Honour's remarks, it is necessary to bear in mind that, for the purpose of the proceeding, Qantas admitted that its conduct contravened s 45 of the Act. 83 His Honour determined the appropriate penalty in light of a statement of agreed facts which included an admission by Qantas that there is a worldwide market for air cargo services and that its conduct may also be considered by reference to a number of narrower markets, including a market or markets in Australia. 84 Lindgren J referred at [31] to the relevant territorial connection provisions stated in ss 4E and 5 of the Act. He was satisfied that s 5 extended the provisions of s 45 of the Act to the relevant conduct because Qantas is incorporated in Australia. Similarly, s 5 would apply in the present case (subject to the elimination of the identified defects) because Singapore Airlines carried on business here. 85 The two critical paragraphs of the judgment of Lindgren J are [35] and [38] which I will set out below: 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. … 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. 86 Mr O'Bryan relied on those paragraphs of Lindgren J's judgment to support the pleading. However, I do not think they assist. This is because they are to be read in light of the admissions to which I referred above. 87 In my view, his Honour's observations do not stand for the proposition that it is sufficient to plead a global market, and the giving of effect to it anywhere in the world, in order to give rise to an arguable claim of contravention of s 45(2) of the Act. That was not the issue before his Honour, and the apparent breadth of his Honour's remarks at [38] seem to me to be explicable by the admissions made by Qantas: Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [62]. 88 In Australian Competition and Consumer Commission v British Airways PLC [2008] FCA 1977 at [20], Lindgren J adopted the remarks he had earlier expressed in ACCC v Qantas. However, this observation is also to be read in light of admissions made by British Airways in that case. It does not, in my view, amount to a statement of general principle which is sufficient to support the present pleading. 89 In Emirates, the applicants, who were Emirates and Singapore Airlines, sought to challenge, inter alia, the validity of notices issued to them under s 155 of the Act. The notices sought documents and information in relation to alleged price fixing arrangements relating to international air cargo services. That phrase included international flights inbound to, and outbound from, Australia. 90 The essential question was whether the notices were invalid on the ground alleged by Emirates and Singapore Airlines, namely that they did not relate to a market in Australia. That ground failed because the applicants were unable to eliminate any reasonable hypothesis which was inconsistent with the contention that the market was wholly outside Australia. 91 Middleton J was of the view that on the evidence adduced before him, the market for air cargo services into Australia may be part of the international cargo market and the Australian market is, or may be, a part of that international market. 92 It is true that this observation and his Honour's other observations at [60]-[73] support the proposition that the markets pleaded in the present case are capable of amounting to markets in Australia. But these observations do not answer the question which arises in the present application, namely whether the pleading states the material facts that support the allegation that the totality of the impugned conduct substantially lessens competition in a market in Australia. 93 Mr O'Bryan submitted that the decision in Emirates gives rise to an issue estoppel. In my view it does not because, for the reasons stated above, Emirates did not decide the same question as that which arises in the present case: Kuligowski v Metrobus (2004) 220 CLR 363 at [21], [40].

The relevance of the place of contracting 94 Mr Archibald submitted that one of the issues in the pleading is that it fails to take account of the proposition that, ordinarily, the place of contracting will coincide with the location of the market. 95 That proposition is somewhat at odds with the remarks of Middleton J in Emirates at [66] that the place of contracting is not determinative of the geographic location of the market. Nevertheless, his Honour did leave open at [72] the possibility that the place of contracting will have some relevance to the determination of the place where the competition takes place. His Honour went on to say of the observations of Tracey J in Auskay: I do not read his Honour's comments (made in the context of a pleading dispute) as dictating that in determinating [sic] the geographic location of the market one is confined by the location of the making of the contract for the subject services. 96 However, I do not need to consider whether Middleton J's explanation of the earlier remarks of Tracey J in Auskay is correct. That is because, on the view I have reached, the pleading is defective for reasons which do not depend upon the relationship between the place of contracting and the geographic location of the market.

General Observations 97 It is true, as was observed by Dawson J in Banque Commerciale SA en liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 293, that pleadings are but a means to an end, not an end in themselves. But the function of pleadings is an important one because it is the pleading which defines the issues and presents the claim with reasonable clarity. 98 For the reasons mentioned above, the Statement of Claim does not fulfil that function. It leaves open the fundamental nature of the ACCC's case that the conduct in question substantially lessens competition in a market in Australia. Subject to one exception, there are simply no material facts stated which demonstrate that the price fixing understandings in respect of international air freight services between destinations outside Australia have the proscribed effect on competition in a market in Australia. 99 As Mr Archibald submitted, the key vice in the pleading is that the entirety of the conduct that occurs in respect of the making and giving effect to each of the understandings is said to involve a contravention. It is the breadth and generality of that allegation, without material facts to support it, which constitutes the real defect. 100 Nevertheless, I do not consider the defect to be incurable. The recent decisions to which I have referred show that it may well be possible for the ACCC to cure the defects. This is particularly so in the light of the remarks of Middleton J in Emirates because his Honour specifically endorsed the proposition that price fixing between two international points in relation to the supply of international air cargo services, wherever engaged in, may have the proscribed effect on competition in a market in Australia. 101 I therefore propose to grant leave to the ACCC to replead within a period to be agreed between the parties.

The Exception 102 Mr Archibald conceded that the seventh type of understanding referred to at [35] above, namely the Australian-Middle East understanding, does not suffer from the defects to which I have referred. 103 This is because it relates to prices charged for the supply of air freight services for the transport of meat on outbound services from Australia to the Middle East.

Orders 104 The orders I will make are that: 1. Subject to orders 2 and 3, the Statement of Claim be struck out. 2. Order 1 does not apply to the allegations contained in [430]-[432] of the Statement of Claim. 3. The applicant be granted leave to file an amended Statement of Claim within a period of 28 days or such longer period as may be agreed between the parties. 4. The applicant (the ACCC) pay the costs of this motion. I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate: Dated: 20 May 2009 Counsel for the Applicant: Mr N. O'Bryan SC with Mr C.A. Moore and Ms R. Higgins

Solicitor for the Applicant: Australian Government Solicitors

Counsel for the Respondent: Mr A. Archibald QC with Mr M.H. O'Bryan

Trade Practices Act 1974(Cth)ss 4D, 5, 45, 45A

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Judgment (12 paragraphs)

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Cases Cited (12)