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Competition Update – Agency no longer a defence to price fixing

Home Insights Competition Update – Agency no longer a defence to price fixing

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Contributed by: Sarah Keene, Troy Pilkington, Elisha Kemp, and Hannah Loke

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Published on: December 16, 2016

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The Australian High Court has found in favour of the Australian Competition and Consumer Commission (ACCC) in its appeal against Flight Centre. The High Court reversed the Full Federal Court’s decision, and found that despite being an agent of the airlines, Flight Centre and airlines compete in the market for the sale of international airline tickets. In that context, Flight Centre breached competition law by asking the airlines not to sell flights through their own online portals at prices that undercut Flight Centre’s rates.

The decision is significant in that it departs from a long line of competition law precedent in which it has been accepted that generally an agent is not regarded as competing with its principal.

First instance: Flight Centre fined $11m

The Federal Court found that Flight Centre was in breach of competition law, and ordered Flight Centre to pay $11m in penalties. Justice Logan defined the relevant market as the market for booking and distribution services for the retail or distribution margin on the sale of air fares. In that market, His Honour found that Flight Centre, in the context of trying to maintain its “Price Beat Guarantee”, had attempted to induce the airlines to maintain their own online prices so as to avoid Flight Centre's prices from being undercut by the airlines.

On appeal: no price fixing

Flight Centre appealed on both liability and penalty, and the ACCC cross-appealed seeking a higher penalty. The Full Federal Court allowed Flight Centre’s appeal and dismissed the ACCC’s cross-appeal. The Court concluded that Flight Centre acted as an agent for the airlines, so it could not be treated as a competitor (a person can’t price fix with themselves).

Final appeal: it was price fixing

The ACCC was granted special leave to appeal to the High Court in March of this year. Chief Justice French dissented, upholding the Full Federal Court’s reasoning. However, the majority judgment, despite finding that Flight Centre was an agent for the airlines, also found that Flight Centre did compete against the airlines in the market for the sale of international airline tickets.

The key rationale for the majority’s decision was that while Flight Centre was an “agent” of the airlines, the agency was of limited scope in that Flight Centre was not obliged to act in the airlines’ best interests at the point at which Flight Centre sold airline tickets to its customers. Accordingly, at that point, Flight Centre and each airline were in direct competition for the sale of airline tickets.1

The High Court has sent the matter back to the Full Federal Court for the determination of the penalty appeal and cross-appeal.

This decision is significant for industries which make use of agents, who now run the risk of being regarded as competitors (as well as agents) for services. The ACCC has stated that the decision is likely to be “particularly relevant when businesses make online sales in competition with their agents”.2

 


FOOTNOTES
  1. Australian Competition and Consumer Commission v Flight Centre Travel [2016] HCA 49 at [175].
  2. Australian Competition and Consumer Commission “High Court allows ACCC appeal in Flight Centre attempted price-fixing case” (press release, 14 December 2016). Accessible here.

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