Commercial / Law / Study by subject

NZLJ Student Companion April 2017: Commercial Law

This Student Companion by Barry Allan is from the April 2017 edition of the New Zealand Law Journal [2017] NZLJ 88

STUDENT COMPANION: COMMERCIAL LAW

Australian Competition and Consumer Commission v Flight Centre Travel Group Limited [2016] HCA 49, (2016) 339 ALR 242

Flight Centre is a major supplier of airline tickets, through shops, a website and a call centre. It has agency relationships with various airlines that allow it to sell tickets to travel on those airlines. The contract providing for these relationships is the standard International Air Transport Association (which has 265 airline members) Passenger Sales Agency Agreement. Flight Centre is required to pay a price set by airlines (less commission) for each ticket sold but has the liberty to set the price to its customers. It has made various “price guarantee” promises under which it promised to beat the price of any other provider of airline tickets, including direct sales by airlines. This made it vulnerable to airlines selling tickets directly to passengers at prices lower than Flight Centre could match. It would either lose sales to airlines or make losses adhering to the terms of its price guarantee. As members of the public become more willing to use the internet to purchase airline tickets, the problems for Flight Centre would only get worse. When three airlines started doing just that, Flight Centre sent a number of emails to them, trying to get their agreement to stop selling tickets directly to customers at these discounted prices. It threatened to stop selling tickets for the airlines if they did not comply.

The Australian Competition and Consumer Commission (ACCC) sought pecuniary penalties against Flight Centre for allegedly attempting to induce a contract, arrangement or understanding containing a provision which would have the purpose or effect of “substantially lessening competition” in a market, in breach of s 45 of the Trade Practices Act 1974. The sole issue arose out of s 45A(1), which deems provisions to have an anti-competitive purpose or effect if they fix prices and, more importantly, the two parties to the contract or arrangement are “in competition with” each other. This required the ACCC to establish a market within which Flight Centre and the airlines were competing against each other.

Its primary argument was that the relevant markets were for the provision of distribution services to international airlines and for the provision of booking services to customers. The High Court unanimously held that it was “artificial” to regard the market in those terms. Booking flights, issuing tickets and collecting fares are inseparable elements of the sale of air tickets, not services in their own right. Furthermore, even if they were services, they would not be services provided by the airlines to themselves in competition with Flight Centre.

The secondary, albeit more obvious, argument was that the market was for the supply of contractual rights to international air carriage to customers (that is, airline tickets) on a particular airline. The ACCC claimed that, within that market, Flight Centre was in competition with the airlines. The essence of Flight Centre’s argument was that since it only sells as agent for the airlines, it cannot be in competition with them. Any contract brought about by Flight Centre is between the airline and the passenger, and any action of Flight Centre is an action of the airline. As a result, concerns expressed by Flight Centre to an airline could not be a proposal by one competitor to another.

Although French CJ accepted this argument, it was rejected by all other members of the High Court. Kiefel and Gageler JJ at [81] noted that while s 84 of the Trade Practices Act deemed actions of agents to be those of the principals, it did not stop those actions being actions of the agents. This meant that Flight Centre and the airlines could both be seen as providers of tickets. Nettle J took this a step further at [126]–[127], saying that a ticket for travel on an airline issued by Flight Centre is “functionally identical” to one issued by that airline. This made them competitors.

An agent like Flight Centre is not to be equated with an airline’s in-house sales staff giving internal advice as to appropriate pricing, because such staff cannot determine the price at which tickets are sold to passengers. This point was addressed at length by Nettle J at [131]–[147], who analysed European and American case law. While an agent’s fiduciary duties normally prevent it from competing with its principal, Kiefel and Gageler JJ held at [77]–[84] that the contract is the source of rights and responsibilities. Here, the contract left Flight Centre free to set its own prices and generally to act in its own interests when selling airline tickets. Gordon J actually found that when Flight Centre was selling tickets to its own customers, it was competing with all other suppliers and not even acting as an agent for an airline. In dealing with its customers, Flight Centre was acting as a principal, undertaking to get the best ticket to meet their needs, without reference to the interests of any airline.