Case: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375
Outcome: cited
"totality principle" as it is called in the criminal law, is applicable, that is to say, the total penalty for related offences should not exceed what is proper for the entire contravening conduct involved: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,169. What follows under this heading is paras 131-158 of the Joint Submissions: Nature and extent of the contravening conduct, including its deliberateness 131. The conduct subject to penalty was engaged in by Qantas' freight division throughout the world. The understanding was to implement the Fuel Surcharge Understanding as widely and as fully as possible but, in some locations in giving effect to the Fuel Surcharge Understanding, the amount of the fuel surcharge varied according to what the participants thought was profitably achievable, and in some locations no surcharge was maintainable. 132. Within Qantas Freight, its involvement in the conduct was not particularly clandestine. It did not however disclose the conduct to Qantas' most senior management or Board. Qantas Freight representatives throughout the world sought or gave pricing intentions or assurances at the direction of Frampton or Cooper but for many of them it was seen as a normal part of business. They would openly report their discussions back to Cooper. The conduct simply continued after Frampton and Cooper left. 133. In many jurisdictions prior to the investigations of this conduct, the local representatives did not consider their discussions particularly secret. In some locations, such as Hong Kong and Japan where local regulators had to approve price increases, Qantas Freight representatives would meet with competitors to jointly propose a surcharge and would minute their meetings and agreement. 134. The conduct ceased in February 2006, when allegations concerning the understanding were publicised following "raids" undertaken by regulatory bodies in the United States and Europe. The cartel could have been defeated at any time in most localities by any major carrier in that locality declining to impose the surcharge. The cartel could have been defeated to and from Australia had Qantas declined to participate. The amount of loss or damage caused 135. The revenue generated by Qantas as a result of the fuel surcharges to and from Australia during the relevant period was approximately $170 million. Qantas Freight carried 24% of the cargo carried to and from Australia. This however does not demonstrate the actual loss to shippers or their customers because, absent the Fuel Surcharge Understanding, some price increases would have occurred to cover the increased costs of fuel, which did increase over the relevant period. It may have also been that some carriers would have been forced to exit certain routes, allowing the remainder to impose other increases with less constraint. These competitive outcomes cannot be known. It is the case that each of the parties to the Fuel Surcharge Understanding had different arrangements for the acquisition of fuel and acquired it in different places: many, such as Qantas, also had hedging arrangements. The Fuel Surcharge Understanding did not accordingly reflect any of the parties' actual costs. Further, a surcharge increase could stay in place even after the price increase that triggered it had gone: different trigger steps were used in the Surcharge Methodology when it was reducing from when it was increasing. 136. Neither the Commission nor Qantas are aware as to what proportion of the surcharge was ultimately borne by any particular consumer or business in Australia. As a general rule, the ultimate consumer will bear most if not all of the transport cost, in the price paid for the cargo: others in the supply chain, such as a wholesaler or retailer will absorb some part of the cost some part of the time. These others involve persons both in Australia or overseas. They will be more likely to absorb the loss if the goods comprising the cargo have been sold prior to the transport cost increase but may also have to do so if their competitors do not have the same costs. Nevertheless it may be assumed that the cost of surcharges on cargo comprising imported goods would be largely borne by Australians whereas the same costs on cargo comprising exported goods would be largely borne by overseas buyers. 137. Businesses in Australia importing cargo on which a surcharge was paid, even if they passed it on totally to their customers, would also be negatively impacted if they competed with domestic goods, but again the effect on any particular consumer or business cannot be known or quantified. The size of the contravener 138. As noted in paragraphs 9 to 13 above, Qantas has assets of nearly $20 billion and during the relevant period was the 11th largest airline in the world in terms of revenue passenger kilometres. Over the relevant period Qantas carried approximately 24% of the air freight to and from Australia and its nearest competitor carried about 14%. Its total profits before tax for the year ended 30 June 2007 was $1.032 billion. It derived revenue of $902 million from the carriage of air freight for the same financial year. Many of Qantas' principal competitors are of a similar or even larger size although none is as large in the Australian segment of the Air Cargo Market. The period over which the contravening conduct extended 139. Qantas' contravening conduct for which penalties can be imposed extended over a four year period from 2002 to 2006 inclusive. Degree of power it has, as evidenced by its market share and ease of entry into the market 140. Qantas does not know, and does not have access to any reliable information to allow it to assess, its share of the Air Cargo Market. 141. In the segment to and from Australia, Qantas holds about 24%. Its nearest rival holds about 14% and there are at least ten significant competitors which are major international carriers and which have market shares to and from Australia of between about 2% and 10%. Qantas clearly has the largest market share in the Australian segment but is and was unable to act without being constrained by its competitors. The circumstances in which the conduct took place 142. Whilst the volatility of jet fuel prices certainly sparked the conduct, and some price adjustment would have been implemented by participants unilaterally to reflect this, the fuel surcharge timing and amount did not reflect the actual changes in costs of the competing airlines or the degree to which general price rises accounted for movements in fuel costs. The conduct substantially reduced competition for the carriage of air cargo. The parties were aware that the US Department of Transport had comprehensively rejected the conduct as anticompetitive. The conduct required the participation of all major carriers in each port or region to be successful. Participation of senior management 143. Qantas Freight's participation in the Fuel Surcharge Understanding was arranged by Frampton and Cooper and implemented by regional managers of Qantas Freight in offices around the world. It was not known to the Qantas Board or its most senior managers. Whilst the most senior person in its air cargo operation was involved, there was, since 1996, a level of more senior executives between him and the Chief Executive Officer. Qantas nevertheless accepts that Frampton, the head of Qantas Freight, a division generating over $500 million revenue a year, is properly classified as a senior executive of Qantas. Culture of compliance with the Trade Practices Act 144. Qantas did have a program of trade practices compliance in place during the period of the contravening conduct. That program proved to be inadequate in identifying, preventing or even limiting the extent of the conduct. Persons responsible for monitoring and preventing such conduct only became aware of it after raids of their competitors' premises overseas were conducted by regulatory agencies. 145. Qantas has recognised the inadequacy of its compliance program. It has substantially upgraded the program and its new program is presently being implemented throughout the world. Co-operation and Contrition 146. Qantas has fully co-operated with the Commission's investigations since Qantas contacted the Commission in mid 2006. Qantas promptly provided the Commission with critical information about collusive understandings, including frank and detailed admissions of its own participation in those understandings as it became aware of them and insofar as it was able. Qantas did so aware that immunity was not available to it in relation to its fuel surcharge conduct and knowing that it was highly likely to face very substantial penalties. 147. To this end Qantas interviewed, and made available for interview by the Commission, over 35 of its staff and former staff and voluntarily searched for and produced documents from its operations throughout the world relevant to its and other airlines involvement in the contraventions. It brought to Australia at its own expense all staff willing to be interviewed by the Commission even though those staff could not have been compelled under section 155 of the Act. The Commission has not needed to serve any section 155 notices on Qantas. 148. Qantas' efforts have made available to the Commission information and documents identifying the involvement of other participants which have not been produced or made available as yet by these persons. Qantas has consistently demonstrated a commitment from its Board and Chief Executive Officer to identify and report to the Commission the extent of its involvement in the contraventions and to ensure the breaches are not repeated. Qantas has demonstrated genuine contrition for its involvement in these contraventions. 149. Whilst Qantas was not able to secure the co-operation of some of its former staff (less than 5) in all countries, the Commission is satisfied it has used its best endeavours to do so. Qantas has offered to the Commission, and undertakes to the Court, to continue to provide this very high level of assistance with the investigation, and possible prosecution, of cases against other participants. 150. Qantas through its solicitors and in-house counsel willingly participated in a series of discussions with the Commission to bring an agreed resolution of the matter before the Court. As a result of those discussions Qantas and the Commission have reached agreement as to the appropriate penalty to be suggested to the Court. Qantas has also assisted the Commission in the preparation of the relevant settlement documents including the admissions. 151. As already mentioned, Qantas has reviewed and upgraded its current trade practices compliance program. 152. The Commission fully accepts that Qantas is entitled to very substantial credit for having admitted contravening the Act, indeed actively self reporting, assisting the Commission in its investigations, upgrading its compliance program and agreeing with the Commission on the appropriate penalty to put to the Court (see Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR |P41-375 41 375). Qantas' co-operation with the Commission has saved the Commission and the Court (and ultimately the community) the cost and burden of litigating an extremely lengthy and expensive case. 153. The number of possible participants, the fact that numerous witnesses and documents are not within the jurisdiction, the need for translations and the sheer scope and duration of the conduct would make this likely to be the largest and most expensive investigation ever conducted by the Commission. 154. It is obviously of benefit to the Commission's investigations that respondents are encouraged to co-operate in appropriate cases. In these circumstances the parties submit Qantas is entitled to a very substantial discount on the penalty that otherwise would have been appropriate, which, given the regularity of the contravening conduct over the four year period and the maximum applicable penalty per contravention of $10 million, could have been very much higher. This discount should reflect not only its extraordinary levels of assistance in locating witnesses and material to make appropriate admissions as soon as possible but also in using its best endeavours to assist in the investigation and possible prosecution of other participants. 155. Considering Qantas' outstanding cooperation in relation to its own case and as against other parties, the Commission has accepted a very substantial reduction in agreeing on an appropriate penalty to recommend to the Court. Similar conduct in the past 156. The Court has not previously found contraventions against Qantas in relation to the Act. Other regulators 157. The Commission notes that Qantas has already paid a penalty in the United States of US$61 million in respect of its conduct. Qantas expects to pay a very substantial penalty in Europe at the conclusion of EU investigations. The penalty in the United States was very substantially discounted as a result of Qantas' co-operation with authorities there. Qantas expects similar considerations to be applied by European authorities where Qantas has also co-operated with enquiries and made appropriate admissions. Conclusion on appropriate penalty 158. The Commission and Qantas submit that, when all the factors and circumstances referred to above are taken fully into account, a pecuniary penalty of $20 million is appropriate, in that the parties consider that the suggested amount falls within the range that the Court, unaided by the parties' agreement, would have considered appropriate. I did not find the present case straightforward and therefore sought and received further submissions from the Commission which were supported by Qantas. My difficulties arose from the following considerations: &#8226; The anti-competitive arrangement was a global one and this raised a question as to its territorial connection with Australia and the question of whether the same conduct contravened laws of other jurisdictions so that penalties imposed on Qantas in them should be taken into account; &#8226; Identification of the extent to which Qantas profited from the Fuel Surcharge Understanding; and &#8226; The extent of the discount for Qantas's early admission of contravention and cooperation with the Commission. There are two relevant territorial connection provisions in the Act: ss 5 and 4E. In the present case, the relevant market is a worldwide market for air cargo services, including, but not limited to, the carriage of cargo by air to and from Australia (see [8](22) above). In these circumstances, the primary territorial and jurisdictional limit is that found in s 5. Section 5 provides, relevantly, that Part IV of the Act extends to engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia. Qantas is incorporated in Australia. Section 45(3) provides, relevantly, that for the purposes of ss 45 and 45A "competition" means competition in any market in which a party to the contract, arrangement or understanding in question supplies or acquires goods or services. Section 4E provides, relevantly, that "market" means a market in Australia.