By Alexandra Merrett Competition Lawyer

In March, it was announced that the High Court had granted the Australian Competition and Consumer Commission (ACCC) special leave to appeal the Flight Centre price fixing case. This will be the first Pt IV case to go “all the way” since Australian Competition and Consumer Commission (ACCC) v Baxter Healthcare Pty Ltd (Baxter) in 2007.

In an earlier article, the author discussed the differences in the ACCC’s approach to the closely related cases of Australian Competition and Consumer Commission (ACCC) v Australia and New Zealand Banking Group Ltd (ANZ) and Flight Centre Ltd v Australian Competition and Consumer Commission (ACCC) (Flight Centre). Both cases involved unusual price fixing claims, with Flight Centre focusing on the relationship between an agent and its principals, and ANZ on a bank and its mortgage broker. The ACCC won Flight Centre at first instance but lost ANZ; lost both cases on appeal to the Full Court (before the same bench); and elected to pursue only Flight Centre to the highest level.

As may be recalled, the Full Court (Allsop CJ, Davies and Wigney JJ) unanimously rejected the ACCC’s claim. While accepting that the impugned conduct was rivalrous or competitive in nature, the court found that the conduct did not occur in a market in which the relevant parties were competitors. In doing so, the court rejected the ACCC’s principal argument that there was a market for the supply of “intermediary” services — specifically, in the case of Flight Centre, for the booking/distribution of air passenger services.

The relationship between rivals and market definition

It is this enigmatic relationship between rivalry, competition and markets which lies at the heart of the special leave application. As noted earlier, the ACCC’s primary ground of appeal is that the Full Court erred in failing to find a separate market for the supply of booking/distribution services, claiming further that the Full Court was wrong in finding that Flight Centre’s role as an agent meant it was not a competitor in any such market. The ACCC also advances an alternative argument that, if the Full Court were correct in saying international passenger air travel services was the only relevant market, it still erred in finding that Flight Centre did not, by reason of its status as agent, compete in such a market.

The special leave application was heard by Kiefel and Gageler JJ. (bear in mind, Kiefel J may well be Chief Justice by the time this matter is resolved.) Commonwealth Solicitor-General Justin Gleeson SC submitted on the ACCC’s behalf that the “heart” of its case: 

… arises from the conundrum which is posed by the Full Court’s judgment that there are concurrent findings of two independent, economic actors, Flight Centre … [and the] airlines … who are in rivalry and competition … and yet the Court says there is no market in which those economic actors are in competition.

He continued, “that conundrum is nowhere explained … or resolved by the Court or even addressed”.

Unsurprisingly, Flight Centre’s counsel (Brett Walker SC) emphasised the agency “defence”. But questions from the bench sought to explore the full scope of the following observation by the Full Court: 

It is necessary to emphasise … that the existence of an agency relationship between two parties does not always mean that those two parties cannot be in competition with each other for the purposes of Pt IV of the Act.

At the time of the Full Court decision, this love of the double negative simply seemed to be the usual legal attempt to cover all bases, with the judges not wanting to over-reach. During the special leave hearing, however, the grey area which it opened up seemed of great interest to Kiefel and Gageler JJ.

What’s at stake?

While the Full Court’s approach to market definition appeared quite conventional (“entirely orthodox” in the words of Brett Walker), the judgment did include some strange observations on the issue of substitutability.

The Australian approach to market definition has long been regarded as settled, but some recent Federal Court decisions have raised question marks. In addition to Flight Centre and ANZ, the ACCC was also criticised at first instance for its approach to defining markets in Australian Competition and Consumer Commission (ACCC) v Air New Zealand Ltd; ACCC v PT Garuda Indonesia Ltd (Garuda) (although it subsequently won that case before the Full Court).

From Flight Centre’s perspective, a penalty of $11 million is at stake. No wonder it says it will continue to defend the claims vigorously! Competition lawyers and economists don’t appear to have as much skin in the game, but with such a fundamental issue to be explored, the final outcome may well be extremely significant.

Note: This is an extract from Competition and Consumer Law News Vol 32 No 3-4.