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Commerce Commission proceeds with air car price-fixing case

Commerce Commission gets green light to proceed with air cargo price-fixing case

The Commerce Commission has succeeded in the first phase of its trial against the defending airlines in the Commission’s air cargo price-fixing case.

In May 2011, the High Court was asked to decide whether there was a “market in New Zealand” for the inbound air cargo services that the Commission alleges were the subject of price-fixing by the defending airlines. Jurisdiction regarding outbound air cargo was not disputed.

The airlines argued that for cargo inbound to New Zealand the competition between the airlines occurred only at overseas ports of origin and not in New Zealand, and that for these reasons the Commission’s inbound price-fixing claims were outside the reach of the Commerce Act.

In its judgment released today, the High Court at Auckland decided that inbound air cargo services were supplied in a market in New Zealand, and that the Court had jurisdiction to hear the Commission’s case in full. The Court held that it was sufficient that part of the market is situated in New Zealand, noting that it “[saw] the fact that part of the service takes place in New Zealand as an important facet of the reality that part of the market is in New Zealand”. In this case, the arrival and handling of cargo in New Zealand, and the demand for cargo shipments from New Zealand importers, were key factors in the Court’s finding that a market exists here for inbound cargo services.

The Court rejected the airlines’ argument that competition between the airlines stopped at the moment the cargo contracts were entered into at ports of origin, and found that such a narrow analysis “does not seem ... in accord with the facts and common sense”.

“The High Court’s decision is a significant one and brings welcome clarity to the business community,” said Mary-Anne Borrowdale, General Counsel Competition at the Commerce Commission. “The Commission’s case is based on its concern that customers affected by price-fixing of inbound cargo are located here, and the airlines’ arguments would have meant that they would not be required to respond to our case in a New Zealand court. We are pleased that the Court accepted the Commission’s view of the commercial realities.”

“The Commission has made out the initial elements of its claim, and the trial can now proceed to its next phase, when we will allege that the defending airlines agreed to fix the prices of both inbound and outbound air cargo services,” said Ms Borrowdale.

The defending airlines in this case are: Air New Zealand Limited, Cathay Pacific Airways Limited, Emirates, Japan Airlines International Co Limited, Korean Air Lines Co Limited, Malaysian Airlines System Berhad Limited, Singapore Airlines Cargo Pte Limited and Singapore Airlines Limited, and Thai Airways International Public Company Limited.

As the trial is ongoing, and the High Court judgment may be the subject of an appeal, the Commission does not intend to make further comment at this time. The judgment can be read on the Commission’s website at http://www.comcom.govt.nz/competition-enforcement-outcomes/

Background

Air cargo proceedings

In December 2008 the Commerce Commission commenced proceedings against 13 international airlines and eight airline executives, alleging the airlines colluded to raise the price of freighting cargo by imposing fuel surcharges on cargo shipments into and out of New Zealand. The conduct is alleged to have occurred over a period of more than seven years.

In April 2011, the High Court imposed penalties on British Airways plc and Cargolux International Airlines S.A. after they admitted their role in the cartel. British Airways was ordered to pay $1.6 million in penalties, and Cargolux was ordered to pay $6 million. Qantas Airways Limited also admitted its participation in the cartel, and in May 2011 the High Court imposed a penalty of $6.5 million against Qantas.

In April 2011 the Commission also discontinued the proceedings against PT Garuda Indonesia, United Airlines Incorporated and six Air New Zealand executives.

ENDS

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