The ACCC has won a High Court appeal in its case against Flight Centre, with the Court ruling that Flight Centre was in competition with the airlines it was selling on behalf of. Flight Centre’s efforts to persuade airlines to raise the price of tickets that airlines sold directly to customers was found to have amounted to price fixing.
There was essentially one question for the High Court to determine: Did Flight Centre and the relevant airlines compete in a market for the supply of services?
Where an airline could also sell a ticket directly to a customer, Flight Centre not only makes sales on behalf of an airline, but it sells in competition with it, making Flight Centre both agent and competitor to the airlines. Under its Agency Agreement, Flight Centre was free to determine the ticket prices, but it offered a ‘price beat’ guarantee to customers, promising to beat prices quoted on other websites, including those of the airlines.
Between 2005 and 2009, Flight Centre sent six emails to the relevant airlines attempting to induce them not to offer tickets directly to customers at prices below those published to all travel agents on a global distribution system. The High Court found that these emails, at least partly, were an attempt by Flight Centre to avoid having to beat the prices the airlines offered directly to customers via the airlines’ websites.
The decision concerned the operation of section 45A of the (now repealed) Trade Practices Act 1974 (Cth). However, the principles considered by the Court will apply to the present cartel conduct rules in the Competition and Consumer Act 2010 (Cth) (CCA).
There are significant potential penalties for cartel conduct under the CCA – the 2013 trial judge had ordered Flight Centre to pay $11 million in penalties (which was then overturned by the Full Court in 2015). The Federal Court will now revisit the appropriate penalty amount in light of the High Court’s conclusions.
The ACCC welcomed the High Court’s 2016 decision. “The ACCC pursued this matter because we were concerned that Flight Centre’s conduct in this case affected the competitive process,” ACCC Chairman Rod Sims said. “This decision will provide important guidance for the future application of competition laws in Australia to other situations where competing offers are made directly to consumers by both agents and their principals.” Mr Sims noted the finding was “particularly relevant when businesses make online sales in competition with their agents”.
Bottom line for organisations
- It is crucial to review any of your existing arrangements where one party supplies or distributes goods or services as an agent of the other party, and the principal supplies the same goods or services directly to customers. Ensure you examine whether the terms of the agency arrangement leave the agent free to act in its own interests (as opposed to being constrained by contractual or fiduciary obligations to act only in the interests of the principal).
- If you are involved in any such agreements, then you may also be ‘in competition’ with your principal or agent for the purpose of the cartel laws. Great care must be taken not to reach any understandings or enter into any agreements with the other party that could amount to cartel conduct. For example, agreeing on customers to which one or both parties will or will not market goods or services, or determining the price that one or both parties will charge customers for the products subject to the agency arrangement must be avoided.
- Seek advice about these risks at an early stage if you suspect competition laws may apply to you. More detailed analysis may be needed to answer the seemingly simple question: ‘Who is my competitor?’
- Learning Seat can assist by providing risk analysis and management to identify ACCC-related risks, as well as online training, template policies and a whistleblowing service.