Commerce Commission v Air New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Venning J
• Judgment Date: 13 June 2013
• Neutral Citation: [2013] NZHC 1414
• Docket Number: CIV-2008-404-008352
• Court: High Court
• Date: 13 June 2013

Under Sections 27, 30 and 80 of the Commerce Act 1986

Between

Commerce Commission

Plaintiff

and

Air New Zealand Limited

Defendant

[2013] NZHC 1414

CIV-2008-404-008352

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Application by defendant airlines to be released from undertaking not to appeal judgment — plaintiff alleged eight defendant airlines had entered into and given effect to arrangements imposing fuel and security surcharges at certain agreed rates — plaintiff obtained judgment that determined airlines supplied inbound air cargo services in competition with each other in New Zealand, and there was a market in New Zealand which meant the Court had jurisdiction to hear claim — plaintiff had agreed to two stage trial on basis that there would be one set of appeals — airlines agreed not to appeal that judgment until substantive proceeding held so that all issues could be decided together — whether it was just for defendants to be released from their undertaking.

Appearances:

B W F Brown QC, J C L Dixon, K C Francis and L C A Farmer for Plaintiff

A R Galbraith QC and S Ladd for Defendant

JUDGMENT OF Venning J

Introduction

1 The defendant, Air New Zealand Limited (Air NZ) has admitted certain breaches of Part 2 of the Commerce Act 1986 (the Act) and has not denied other breaches. The Court is asked to impose a pecuniary penalty under the Act. The Commerce Commission (the Commission) and Air NZ are agreed that, subject to the Court's review, a penalty of $7.5 million is appropriate, together with costs of $259,079.18. Air NZ has also agreed to pay a further contribution of $300,000 towards the Commission's investigation costs.

Background – Air NZ

2 Air NZ is an international airline with its registered office and global head office in Auckland, New Zealand. It carries on business in New Zealand (and elsewhere) as an airline transporting passengers and freight to and from New Zealand.

3 In 2006 Air NZ was the 46 ^th largest cargo airline in the world by cargo revenue. It flew between New Zealand and 18 countries and employed approximately 96 staff in its cargo business. It also had independent sales agents in 37 countries to which it did not fly but in relation to which it provided air cargo services on other airlines' aircraft.

The Air Cargo industry

4 The international air cargo business transports 35% of the value of goods traded internationally. Airlines typically supply air cargo services to freight forwarders at origin. Freight forwarders generally organise the integrated transport of goods on behalf of a range of shippers (exporters and importers). In doing so they purchase air cargo services from airlines. The cost of air cargo services is typically passed on by freight forwarders to shippers.

5 Between January 2000 and February 2006 Air NZ and other airlines charged freight forwarders a price for air cargo services that consisted of a base rate together with various surcharges and fees. Relevantly for present purposes the surcharges included fuel and security surcharges for some routes and periods.

6 For present purposes the relevant markets in New Zealand for air cargo services to New Zealand were from Australia, Japan and Malaysia.

7 For the purposes of this proceeding only Air NZ admits the facts set out in the second agreed statement of facts and, to the extent set out in the agreed statement of facts, it admits the third to ten causes of action of the seventh amended statement of claim. Air NZ does not plead to the Commission's allegations in relation to the fuel surcharge component of the price of air cargo services from Australia to New Zealand. That is, however, deemed an admission under r 5.48(3) of the High Court Rules for the purposes of this proceeding.

Australia

8 On or about January 2000 Air NZ and Qantas reached an understanding regarding timing and rates for the imposition of fuel surcharges they would impose on air cargo services from Australia to New Zealand. The fuel surcharge was set at A$0.10 cents/kg on air cargo from Australia to New Zealand. The understanding was reached via communications between Air NZ's regional cargo manager for Australia and Qantas's general manager for freight sales. From on or about February 2000 until on or about September 2000 Air NZ and Qantas implemented and gave effect to the understanding. As a result Air NZ and Qantas fixed, controlled or maintained the fuel surcharge component of the price for air cargo services from Australia to New Zealand. The agreement came to an end in September 2000 following the retirement of the Air NZ manager.

Japan

9 Following the terrorist attacks in the United States on 11 September 2001, Air NZ and other airlines that were members of the International Cargo Association of Japan, TC3 subcommittee entered an understanding in September and October 2001 to impose a security surcharge on air cargo services from Japan to New Zealand to recover increased costs associated with increased security involving cargo. The understanding had the purpose, effect, or likely effect, of fixing, controlling and maintaining the security surcharge component of the price charged by the airlines for air cargo services from Japan to New Zealand. Air NZ and each of the other airlines sought and obtained regulatory approval to the imposition of the security surcharges in Japan. No attempt was made to conceal the conduct.

10 From October 2001 to February 2006, Air NZ gave effect to the Japan Security Understanding.

11 In September 2002 Air NZ and other airlines that were members of the International Cargo Association of Japan, TC3 Sub-committee entered an understanding to implement a fuel surcharge of ¥12/kg on the price for air cargo services from Japan to New Zealand. The Japan Fuel Surcharge Understanding had the purpose, effect, or likely effect, of fixing, controlling and maintaining the fuel surcharge component of the price charged by the airlines for air cargo services from Japan to New Zealand. Air NZ gave effect to the Understanding from October 2002 until February 2006. Air NZ and each of the other airlines involved in the Understanding sought and obtained regulatory approval to the imposition of the fuel surcharge in Japan. No attempt was made to conceal the conduct.

12 Air NZ was entitled to apply to the New Zealand Minister of Transport for approval of the Japan Fuel Surcharge Understanding and the Japan Security Surcharge Understanding under s 88 of the Civil Aviation Act 1990 but it did not do so. Air NZ considers that if it had done so such application would have been granted.

Malaysia

13 Between 2000 and 2006 Air NZ did not provide air cargo services directly between Malaysia and New Zealand and did not employ any cargo staff in Malaysia. Air NZ operated in Malaysia through an independent sales agent, who would typically represent a number of airlines, providing indirect air cargo services on other airlines' aircraft.

14 Following the terrorist attacks in the United States on 11 September 2001, Air NZ and other airlines operating in Malaysia, entered an understanding in September and October 2001 that they would impose a security surcharge on air cargo services from Malaysia to New Zealand to recover the increased costs of security incurred in handling cargo. Like the Japan Security Surcharge Understanding, the Understanding had the purpose, effect, or likely effect of fixing, controlling and maintaining the security surcharge component of the price charged by the airlines for air cargo services from Malaysia to New Zealand. From October 2001 to February 2006 Air NZ gave effect to the Malaysia Security Surcharge Understanding.

15 On 5 February 2000 various airlines, not including Air NZ, that were members of the Inter-Airline Cargo Group – Malaysia arrived at an arrangement or understanding to impose a fuel surcharge, the Malaysia Fuel Surcharge Understanding. Air NZ was not initially a party to the Malaysia Fuel Surcharge Understanding. Subsequently, in or about October/November 2002, through the conduct of its independent sales agent in Malaysia Air NZ joined the Malaysia Fuel Surcharge Understanding. That Understanding had the purpose, effect, or likely effect, of fixing, controlling and maintaining the fuel surcharge component of the price charged by the airlines for air cargo services from Malaysia to New Zealand. Through the conduct of its independent sales agent Air NZ gave effect to the Malaysia Fuel Surcharge Understanding from October/November 2002 until February 2006.

16 The proposed security and fuel surcharges were notified to and a surcharge formula agreed with the Malaysian Ministry of Transport by Malaysian Airlines on behalf of all airlines. While Air NZ was entitled to apply to the New Zealand Minister of Transport for approval of the Malaysia Fuel Surcharge Understanding and the Malaysia Security Surcharge Understanding it did not do so. Air NZ considers that had it applied for approval any such application would have been granted.

17 The Japan Fuel and Security Surcharge Understandings and the Malaysia Fuel and Security Surcharge Understandings ceased by February 2006 when allegations of price-fixing regarding surcharges in the air cargo industry were publicised following raids undertaken by competition agencies in the United States and Europe.

Consequences of Air NZ's actions

18 The conduct admitted to (or not denied) is in breach of s 27 via s 30 of the Act. Section 80 of the Act confers on the Court jurisdiction to impose pecuniary penalties for such breaches. In its current form s 80 provides for a maximum pecuniary penalty of a sum the greater of:

• (i) $10,000,000; or

• (ii) either—

  • (A) if it can be readily ascertained and if the Court is satisfied that the...