Su v Direct Flights International Pty Ltd

Submissions 5 I have not heard oral argument on the applicant's motion. I ordered, on the return date, that the respondents file and serve written submissions no later than 3 December 1998, that the applicant file and serve written submissions no later than 17 December 1998 and that the parties have liberty to apply on three days' notice. Liberty to apply was granted, particularly on the footing that the parties might wish, once the written submissions had been delivered, to seek an opportunity to make further oral submissions. Each party has filed written submissions and no party has exercised liberty to apply. In those circumstances, I shall deal with the matter, as contemplated, on the written submissions.

The applicant's pleaded case 6 I shall not repeat the detailed account of the allegations in the pleading, as they then stood, or the discussion of principles in my reasons for judgment of 14 October: those reasons should be read together with these. To set the scene for a discussion of the draft statement of claim, it is enough to describe in broad outline what appears to be the essence of the applicant's claims as they would be propounded in a pleading in the form of the draft statement of claim. 7 The applicant is a travel agent who carries on business at Cabramatta. The third respondent (Qantas) and the fourth respondent (National Airlines) are the only airlines which provide direct flights between Sydney and Saigon; Qantas has done so since 1991, National Airlines since 1993 or 1994. Under two successive agreements between Qantas and the first respondent (Direct Flights), and by agreements between National Airlines and, successively, Direct Flights and the second respondent (Airnet), Qantas and National Airlines have withdrawn from the usual channels of distribution all seats on direct flights between Sydney and Saigon during what is described as the peak season in each year, that is the period between mid November and late February. Instead, Qantas has (except for a few seats sold through two "preferred travel agents") sold all the seats, in accordance with the agreements, to Direct Flights, who have thus been exclusive distributors of them with unfettered discretion as to the terms on which and to (or through) whom they will be on‑sold. On a similar basis, National Airlines has sold all the seats on its peak season direct flights between Sydney and Saigon first to Direct Flights and, more recently, to Airnet. Direct Flights and Airnet are related in that they have a common place of business, a common director, the same secretary and identical shareholders. Direct Flights and Airnet have, whenever the applicant has sought seats on peak season direct flights between Sydney and Saigon for sale to his retail customers, either refused to supply them or agreed to do so but only on unusually onerous conditions: particularly, it is said that both Direct Flights and Airnet have refused to supply the applicant with "an updated list of fares for the flights" and have refused to supply him with seats on credit but have, instead, insisted upon payment by cash or bank cheque. 8 It is said that there is a market for seats on direct flights between Sydney and Saigon during peak season, the first stage of that market being the provision or distribution of those seats by Qantas and National Airlines, the second stage being their retail distribution: while Qantas was the sole provider, the market comprised approximately 510 seats per week; since National Airlines has been a provider, the total number of seats per week has been about 1,020, so that the total number of seats available during a peak season is about 16,320 having an aggregate market value of about $24,480,000. It is said that the various agreements between Qantas and National Airlines, on the one hand, and Direct Flights and Airnet, on the other, have (and have had) the effect of substantially lessening competition; accordingly, each respondent infringed s 45 of the Trade Practices Act by entering into them and has infringed the section also by giving effect to them. Additionally, it is alleged that in the circumstances each respondent has a substantial degree of power in the defined market and has taken advantage of that power in breach of s 46 of the Trade Practices Act. Finally, it is claimed that Qantas and National Airlines have aided and abetted, variously, the breaches of s 46 by Direct Flights and Airnet and are thus persons involved in contraventions of that section for the purposes of s 75B. It is alleged that each contravention by each of the respondents has prevented the applicant from trading competitively in the market, resulting in loss. He claims damages against each respondent. 9 The draft statement of claim is, in many respects, significantly different from its predecessor. There is now no claim, as there was in the earlier pleading, that the respondents have contravened s 47. Allegations of fact have been added, and some allegations of fact in the earlier pleading have been substantially changed. It is, I think, unnecessary to describe the changes in detail. Generally, the draft statement of claim is much more successful than its predecessor in making clear the basis of the applicant's claims against the various respondents; and in some respects the basis of the claims has significantly changed. Generally, there is, I think, nothing objectionable about that, but it is necessary to mention one matter raised in submissions on behalf of Direct Flights and Airnet. The further amended statement of claim (considered in my judgment of 14 October) did not make it clear that the earlier of the two agreements between Qantas and Direct Flights had any direct bearing on any claim by the applicant that a respondent had infringed a provision of the Trade Practices Act. In argument, counsel for the applicant, in response to a question by me, accepted that the earlier agreement was referred to by way of background only. Consequently, Direct Flights and Airnet submit that the applicant ought not now be permitted to allege that the parties to that earlier agreement, by entering into it or giving effect to it, had infringed s 45. I do not accept that argument. The change that has been made, in this respect, is one of a kind which would ordinarily be allowed by way of amendment. There is no reason in the present case why it would be unfair to Direct Flights or otherwise inappropriate, to follow (notionally, at least) the ordinary course. 10 I shall turn to the bases on which it is now alleged that the various respondents infringed s 45 and s 46.

Section 45 11 The draft statement of claim deals with the matter at length, and exhaustively, in relation to each respondent. It is possible, however, to summarise the allegations without doing injustice to the pleader. 12 There is some important background, relating particularly to Qantas. Qantas, it is alleged, ordinarily supplies seats to travellers on its aircraft both through retail sales directly to the public and by way of wholesale sales to travel agents for resale to the public. It is then alleged that sales to travel agents are made in a particular way: "10. Pursuant to usual travel industry practice travel agents are and were at all material times able to ascertain the availability of seats on all flights operated by the Third Respondent through the Abacus system. Further, once seat availability had been ascertained, travel agents are and were at all material times, able to book seats on all flights operated by the Third Respondent, directly with the Third Respondent through the Computer Reservation System ("CRS"). All travel agents have free and unfettered access to seats on flights operated by the Third Respondent through this system and are thus able to compete effectively against each other." 13 Though perhaps it does not greatly matter, the pleading goes on to describe, in a way which differs significantly from what was said in the earlier pleading, the role of a "consolidator". In the earlier document it was alleged that Direct Flights and Airnet were "consolidators". That is not now alleged. A consolidator is said to be one whose sole function is to issue "paper tickets" where a travel agent has booked a seat (through the CRS); for that service the consolidator is paid a fee. In other words, a consolidator is not a re‑seller or distributor; its function may be described (as alleged in the draft statement of claim) as a purely clerical one. 14 What is alleged in relation to National Airlines is somewhat different. It is said that until about late 1994 National Airlines could not sell tickets via the CRS, because of United States sanctions against Vietnam. Those sanctions were lifted, so it is alleged, in late 1994; but, because of the agreement then entered into between National Airlines and Airnet, National Airlines' tickets were never available (for peak season flights) via the CRS. 15 There is a second background matter which should be mentioned. The earlier of the two agreements between Qantas and Direct Flights, which continued in effect between late 1991 and some time during 1994, is described in the draft statement of claim as an agreement or arrangement whereby Qantas would charter aircraft to Direct Flights. The later of the two agreements is described somewhat differently. Under that agreement Qantas allocated to Direct Flights all its peak season direct flights seats between Sydney and Saigon, other than a small number sold to preferred travel agents. Direct Flights then on‑sold the seats to travel agents at a profit. The agreements between National Airlines and, successively, Direct Flights and Airnet are said to have been of substantially the same character as the later agreement between Qantas and Direct Flights; in the case of National Airlines, however, there were no preferred travel agents and all its peak season direct flight seats were sold under the earlier agreement to Direct Flights and, under the later agreement, to Airnet. 16 In substance, however, the making and giving effect to each of the agreements is said to have involved the respondents in contraventions of s 45 in much the same way. As a result, I can use, as a sufficient example of all the relevant allegations, those made against Qantas and Direct Flights in relation to the earlier of the two agreements between them. 17 The offending provisions of that agreement are pleaded in this way: "(a) the Third Respondent would allocate to the First Respondent all of the available seats on its peak season direct flights between Sydney and Saigon; (b) the said seats would not be available to travel agents directly from the Third Respondent through the CRS; (c) the Third Respondent would withdraw all seats on all of the said flights from the Abacus system, with the result that seat availability could only be ascertained through the First Respondent; (d) the said seats would only [be] available to travel agents through the First Respondent; (e) the First Respondent would have complete and unfettered discretion as to which travel agents it chose to allocate seats; (f) the First Respondent could refuse to allocate seats to a travel agent should it so wish; (g) the First Respondent could charge a higher fee for the allocation of the seats than it could have charged as a consolidator for the Third Respondent; (h) the First Respondent could set the price to be paid by travel agents for the said seats." 18 The effect of those provisions is then described as follows: "(a) travel agents in general and the Applicant in particular, were no longer able to ascertain availability of seats on the said direct flights operated by the Third Respondent through the Abacus system; (b) travel agents in general, and the Applicant in particular, were no longer able to book the said seats from the Third Respondent directly through the CRS; (c) travel agents in general, and the Applicant in particular, could only obtain the said seats from the First Respondent; (d) the First Respondent had complete control over the distribution to travel agents of the said seats; (e) the First Respondent had complete control over which travel agents were allocated seats on the said direct flights; (f) only those agents who were chosen by the First Respondent to receive seats on the said flights were able to provide such seats to their customers; (g) other travel agents who were not allocated any of the said seats by the First Respondent [, including] the Applicant, were unable to provide customers with seats on the said flights; (h) such customers would then go to a travel agent who had been able to procure the said seats from the First Respondent; (i) travel [agents] unable to obtain the said seats in particular the Applicant, were thereby prevented from competing in the market as defined …; (j) the First Respondent controlled the retail market for the sale of seats on the said flights." 19 The pleader proceeds to allege that Qantas and Direct Flights put the provisions of the agreement into effect as follows: "(a) for the peak season of 1994, the Third Respondent withdrew all seats for the said direct flights from the Abacus system; (b) for the peak season of 1994, the Third Respondent withdrew all seats for the said direct flights from the CRS; (c) the Third Respondent allocated all the said seats to the First Respondent; (d) the First Respondent accepted the allocation of the said seats from the Third Respondent; (e) the said seats were only available for booking by travel agents through the First Respondent; (f) the First Respondent set the price paid by travel agents for the said seats; (g) the First Respondent supplied the said seats only to certain travel agents chosen by the First Respondent." 20 As a result of the making and putting into effect of the agreement, it is said that the applicant was unable to trade competitively because Direct Flights refused to supply the applicant with seats on the peak season direct flights so that the applicant was unable to provide such seats to customers; as a result the applicant was unable to trade competitively in the market and suffered loss and damage. 21 There is a suggestion in some of the respondents' submissions that the anti‑competitive effect pleaded is the effect on the applicant so that, his market share being undeniably very small, it could not be said that he had pleaded that the effect of making or giving effect to the provisions of the agreement was a substantial lessening of competition. That, however, in my view is not a fair reading of the draft statement of claim. The alleged lessening of competition is a more general and substantial one. It is one said to result from the "withdrawal" of seats from a system (the CRS) in which they would be available freely to all travel agents and their sale through an exclusive wholesaler which was free to dispose of them as it chose. It is that which is said to result in "lessening competition … in breach of s 45(2)(a)(ii) of the Trade Practices Act": that is, a substantial lessening of competition in the relevant market. That is the pleaded contravention; it is said to have caused loss to the applicant through its particular application to him. 22 There is no room for doubt as to the approach to be taken to the applicant's motion. It is the approach which the Court takes to a strike‑out motion, described by Sheppard J in Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 124 ALR 685 at 695 as follows: "… a court asked to strike out all or part of a pleading needs to be careful to ensure that giving effect to the application does not prevent a party from making a case which it is entitled to make. One has to err on the side of caution lest one deprive a party of a case which in justice it ought to be able to bring." 23 On the other hand, I cited in my earlier judgment, reported at (1998) ATPR 41‑662, AT 41,374, recent authority in this Court which "puts beyond argument, in the context of a case arising under Pt IV of the Trade Practices Act, the proposition that an applicant must plead material facts sufficient to make out each element of the causes of action propounded". It is, of course, true that in Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 at 414 Beaumont J said: "… under the modern system of pleading, the question is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the applicant upon the pleadings to prove facts at the trial which would constitute a cause of action: see Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631." 24 That is, indeed, in substance what the Privy Council said in Evatt at 631 in drawing a distinction between common law pleading and pleading under the judicature system. When, however, one examines Dorset Yacht Co v Home Office [1970] AC 1004, the authority cited by their Lordships, it becomes apparent, in my opinion, that the distinction drawn is by no means as sharp or as far‑reaching as may at first sight appear: see at 1033 per Lord Morris of Borth‑y‑Gest, at 1052 per Lord Pearson and at 1057 per Lord Diplock. Of course, the pleader must plead facts not evidence and the pleading may be regarded as a framework; it must, however, if it is to be adequate, be a complete framework. 25 If the draft statement of claim is tested against those principles, I do not think that leave should be given to the applicant to file it, to the extent that it incorporates the allegations of contravention of s 45. I take that view because, if the allegations about the customary availability of seats on flights operated by Qantas via Abacus and the CRS were proved, if it were proved also that that custom applied to airlines generally so as to extend to National Airlines and if the making and giving effect to agreements containing the alleged provisions were established, nevertheless infringement of s 45 would not, on the part of any respondent, be made out. That is so because the substantial effect of the agreements alleged is simply that (apart, in the case of Qantas, from the two preferred travel agents) Qantas and National Airlines have each appointed an exclusive distributor which has complete freedom as to the way in which it sells seats on peak season direct flights by wholesale. But, whatever its custom may have been, there is no allegation that either Qantas or National Airlines had not itself a corresponding freedom. If there is a lessening, or a substantial lessening, of competition, it is not because of an effect of the agreement, or because the agreement is put into effect. If the effect of the provisions of the agreements is (I do not think that the pleaded facts, properly understood, go further than this) that the distributor may distribute as widely, or as narrowly, as Qantas or National Airlines might have done but for the agreements, material facts are not alleged which are sufficient for the purpose of pleading contravention of s 45. In my view, the respondents correctly submit that, despite its much greater clarity, the draft statement of claim in this respect carries the matter no further than its predecessor did. I do not think that the applicant should have a further opportunity to replead this aspect of his case.

Section 46 26 The section relevantly provides; "46.(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of ‑ … (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. … (2) If ‑ … (b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market, the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market." 27 Again, in essence, the allegations - particularly those against Direct Flights and Airnet - are straightforward. From 1991 until late 1994 Direct Flights controlled the distribution to travel agents of all the seats on peak season direct flights between Sydney and Saigon. That was the period of the charter agreement with Qantas and the initial agreement with National Airlines. After 1994 Direct Flights (by virtue of the second agreement with Qantas) controlled (allowing for the preferred travel agents) about 48 per cent of the seats on those flights. It thus (so it is said) had a substantial degree of power in the market (I mention in passing that I do not accept a contention on behalf of Direct Flights and Airnet that this allegation is insufficient because of the pleading's division of the market into a first stage and a second stage). It took advantage of that market power by, particularly, refusing to supply seats to certain travel agents, including the applicant, and by the other alleged discriminatory conduct to which I have referred and other conduct which I need not particularly describe. The allegations against Airnet are substantially the same. 28 It is said that Direct Flights was at times aware that the applicant could only obtain seats on the flights concerned from either itself or Airnet and, because of its relationship with Airnet, knew that it had also refused to supply seats to the applicant. Corresponding allegations are made in relation to Airnet and it is then pleaded that Direct Flights and Airnet are related corporations for the purposes of s 46(2)(b). The applicant claims that, as a result of Direct Flights and Airnet thus taking advantage of their substantial power in the market, the applicant suffered loss because he was unable to supply seats on peak season direct flights to his customers or compete against travel agents to whom Direct Flights and Airnet had sold seats. 29 It is convenient to deal with the s 46 case against Direct Flights and Airnet immediately. It is not without difficulties, but they are difficulties which I think the applicant should have a further opportunity to remedy. In this respect the draft statement of claim indicates, to an extent that its predecessor did not, that the applicant may be able properly to plead a case against Direct Flights and Airnet. One of the difficulties, and it is not insignificant, is that there is still no pleading of material facts which might establish an essential element of contravention of s 46, that is to say purpose. It is certainly true that, as an evidentiary matter, s 46(7) gives an applicant some assistance in proving purpose; nevertheless, there is no contravention unless market power is taken advantage of for one of the proscribed purposes; and the applicant has pleaded only a result or effect, not a purpose. No doubt the applicant is correct in submitting that there is a distinction between purpose and motive; what impels one to engage in particular conduct is (or at least may be) different from what one intends, or hopes, to achieve by engaging in it. But there is equally a clear distinction between purpose and effect. It is perfectly possible that conduct entered into for a legitimate purpose may nonetheless have the effect, for example, of preventing the entry of a person into a market. In short, purpose, as distinct from effect, is an essential element of the statutory wrong and the pleader must deal with it. 30 The other matter is not referred to in submissions. The applicant asserts that Direct Flights and Airnet are, for the purposes of s 46, related companies on the footing of allegations that they share a place of business, a common director, a secretary and common shareholders who are natural persons. Section 4A(5) defines, apparently exhaustively, the concept of a "related" body corporate, for the purposes of the Trade Practices Act. A body corporate is related to its subsidiaries, its holding companies and other subsidiaries of its holding company (or one of its holding companies). Section 4A(6) gives rise to a rebuttable presumption, in proceedings under the Trade Practices Act, that bodies corporate are not related to each other. The problem here is that, assuming the pleaded allegation to be true, neither Airnet nor Direct Flights is a subsidiary of the other, a holding company of the other or a subsidiary of a holding company of the other. Of course, the allegation in the pleading, if proved, might well be taken to demonstrate a close relationship in a sense other than the statutory one and (possibly) permit an inference of concerted action (see Dowling v Dalgety Australia Pty Ltd (1992) 34 FCR 109). It may well be, however, that this is a matter to which the pleader should give some further attention. 31 As to Qantas (the allegations in relation to National Airlines are similar) the draft statement of claim repeats, in substance, the allegations about the agreements and their effect, so that: "60 … (e) the Third Respondent allocated all of the seats for the peak seasons of 1994, 1995, 1996, 1997 and 1998, except for approximately ????? *** [sic], to the First Respondent. This was contrary to usual travel industry practice; (f) the Third Respondent in the peak seasons of the aforesaid years thereby created a situation whereby the First Respondent had total control over the distribution of the seats on the said flights of the Third Respondent in the Market Second Stage." 32 As a result, it is said, the applicant suffered loss. Once again, however, there is no allegation of purpose (or of material facts indicating purpose). And, in my view, there is no possible basis on which a proscribed purpose could be inferred from the mere circumstance that an exclusive distributor has been entrusted, on a fully discretionary basis, with the wholesale distribution of seats on the flights between Sydney and Saigon. It follows that the applicant should not be permitted to file a statement of claim incorporating claims made on that footing, under s 46, against Qantas or National Airlines.

Section 75B 33 The claims against Qantas and National Airlines under s 75B are made in the alternative to the direct claims against them under s 46. It is alleged that each aided and abetted the breaches of s 46 by Direct Flights or Airnet and was consequently "involved" in the contraventions for the purpose of s 75B. The allegations against Qantas and National Airlines again rely on the agreements and their effect. Particularly it is said that Qantas and National Airlines were aware, or ought to have been aware, of the extent of the market power conferred on Direct Flights and Airnet. 34 That is as far as the allegations go against National Airlines, and plainly that is insufficient to constitute aiding and abetting a contravention of s 46. In relation to Qantas, the pleading goes a little further: "65 … (g) the Third Respondent was aware or ought to have been aware that the First Respondent would supply tickets for the said seats only to certain travel agents; (h) the Third Respondent allowed the First Respondent to use its name and logo in the advertisement pleaded in paragraph 29 above." 35 The advertisement is one which Direct Flights is said to have published, listing travel agents from whom seats on the direct flights could be bought. 36 I must, of course, assume for present purposes that those are facts which the applicant would in due course prove. I shall assume also it would be open to that applicant to prove, and that he could prove, that Qantas knew of the content of the advertisement. But an essential element of infringement of s 46 is, once again, proscribed purpose: there is no infringement if all that is established is that Direct Flights would supply only to certain travel agents (and not to others). In Yorke v Lucas (1985) 158 CLR 661, Mason ACJ and Wilson, Deane and Dawson JJ said at 669: "Notwithstanding that s. 75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning." 37 As to those concepts, their Honours said at 667: "Both in the case of felonies where the principal offender and the secondary participant commit separate offences, and in the case of misdemeanours where no distinction is drawn between the two, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it. To form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime." 38 Thus, in the case of a contravention of s 52, the mere making of representations on behalf of a corporation, without knowledge of their falsity, could not constitute "involvement" in misleading or deceptive conduct contravening s 52. Exactly the same principle applies here, where contravention of s 46 is alleged. Accordingly, the applicant should not be permitted to proceed on the basis of the s 75B allegations in the draft statement of claim.

Conclusion 39 The substantial result is that I propose to allow the applicant a short period - twenty‑one days after the making of orders on the motion may be appropriate - within which to file a further pleading incorporating the s 46 claims, and the supporting factual allegations, against Direct Flights and Airnet. Apart from that, the applicant should not have leave to proceed against any of the respondents on the basis of the allegations or claims in the draft statement of claim. Because that means that the claims against Qantas and National Airlines fall away in whole, they ought to have their costs of the present motion and of the proceedings against them to date and ought to be able to tax and recover those costs forthwith. The question of costs, and their recovery, in relation to the claims against Direct Flights and Airnet should, I think, be deferred until it becomes clear whether the case against them, based on s 46, will proceed. 40 Because I have extended the time for filing and serving the applicant's motion and the draft statement of claim, the proceeding does not stand dismissed. No motion for summary dismissal is before me (in fact no notice of such a motion has ever been given). It may be that the matter is sufficiently dealt with, so far as Qantas and National Airlines are concerned, simply by allowing the orders of 14 October to stand. 41 The parties, in any event, should have the opportunity to propound the orders, consistent with these reasons, which they seek. I hope that the parties will be able to consult with a view to reducing to a minimum the number of matters which will need to be decided. In the circumstances, I shall not direct any particular party to bring in short minutes but I will give each party liberty to file and serve, not later than Monday, 22 February 1999, short minutes of the orders for which it contends. I shall then set the matter down for any necessary argument as to the form of the orders, and for the making of orders. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane.

Associate: Dated: 11 February 1999 Counsel for the Applicant: Ms L K Robinson

Solicitor for the Applicant: Borak & Co

Counsel for the First and Second Respondents: Mr P P Strasser

Solicitor for the First and Second Respondents: Milne Berry & Berger

Counsel for the Third Respondent: Mr A I Tonking

Solicitor for the Third Respondent: Minter Ellison

Solicitor for the Fourth Respondent: Norton Smith & Co

Date of filing of Respondents' submissions: 3 December 1998

Date of filing of Applicant's submissions: 17 December 1998

Date of Judgment: 11 February 1999