In a landmark competition law judgment delivered Wednesday, the Australian High Court has found travel agent Flight Centre attempted to fix prices with airlines whose tickets it sold. The ruling has significant implications for parties in agency relationships who sell into the same market.
Between 2005 and 2009, Flight Centre tried to persuade three airlines, whose tickets it sold under an agency relationship, not to undercut Flight Centre when making direct sales to customers. The Australian Competition and Consumer Commission (ACCC) alleged that this constituted an attempt to fix prices in breach of the (then) Trade Practices Act 1974 (Cth).
A key element of price fixing that the ACCC had to prove was that Flight Centre was "in competition" with the airlines (its principals). The ACCC's primary argument was that, while Flight Centre did not provide air carriage services itself, it competed against the airlines in a separate market for the provision of booking services for customers. Flight Centre argued that no such market existed and that a principal could not be considered to be "in competition" with its agent for the sale of the principal's product.
Decisions of the Federal and Full Federal Courts
In a 2013 judgment the Federal Court accepted the ACCC's arguments that the parties were in competition in a separate market for booking and distribution services and that Flight Centre sought to fix prices in that market.
The Full Federal Court reversed that decision last year, ruling that the relevant market was for the supply of international passenger air travel services. It found that only the airlines supplied those services and Flight Centre only operated in that market as agent for the airlines. Accordingly, while Flight Centre and the airlines were rivals, this was not in a market where Flight Centre and the airlines supplied goods or services in competition with each other.
High Court's decision
The High Court did not accept the ACCC's primary argument about the existence of a separate market for booking and distribution services. However, it did accept a secondary argument that Flight Centre was in competition with the airlines in the broader market for the supply of international passenger air travel services, as identified in the Full Federal Court.
More importantly, the High Court found that an agent could be in competition with its principal even though it was selling its principal’s services. Key to this finding was the finding that Flight Centre was free to act in its own interests and set its own price for tickets. "The mere existence of the agency relationship did not in law preclude the agent from competing with the principal for the supply of contractual rights against the principal."
The Chief Justice of the High Court, Justice Robert French, dissented. He agreed with the Full Federal Court that Flight Centre's "proposals with respect to the pricing practices of its principals were not proposals offered by it as their competitor but as their agent". However, that will be cold comfort to Flight Centre, which has exhausted its appeal rights.
Implications for New Zealand businesses
While not directly binding on the New Zealand courts, this decision will be influential should these issues arise in the New Zealand context given the similarity of our competition regime with that of Australia. Businesses should take considerable care when they are in competition with their suppliers or customers (whether in an agency relationship or not) to ensure that they do not discuss the prices of goods or services they sell in competition with each other. There is often a fine line between discussions on terms between a principal and agent (or seller and reseller) and terms that either party offer to customers. As the Flight Centre case shows, the authorities may well take action should that line be crossed.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.