$19 million penalty for Garuda brings global cargo cartel case to a close ‒ but the ACCC won't rest on its laurels

By Michael Corrigan, Anna Gamayunov
13 Jun 2019
The second highest penalty in the international airline cartel cargo case shows the Court will impose very significant penalties even if the conduct did not generate huge profits, if other factors are shown.

The long-running international airline cartel cargo case brought by the ACCC has finally come to an end, with Justice Perram in the Federal Court penalising Garuda $19 million for engaging in price fixing in the supply of cargo services on flights from Indonesia and Hong Kong to Australia. This brings the total penalty paid by the international airline cargo cartel to Australian authorities to $132.5 million, an amount which ACCC Chairman Rod Sims says "sends a strong deterrent message, particularly when it comes to international anti-competitive conduct." (Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (Remedies) [2019] FCA 786).

The ACCC begins action against 15 international airlines

In 2008 and 2009, the ACCC commenced legal action against 15 international airlines for cartel conduct in the supply of cargo services from 2001 to 2006. Air New Zealand and Garuda Airlines were the only two airlines who chose to proceed to trial, where after two appeals to the Full Federal Court and two appeals to the High Court, it was held that Air New Zealand and Garuda Airlines had both engaged in cartel conduct in contravention of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)).

The ACCC succeeded in proving that Garuda, along with other international airlines, engaged in price fixing in the supply of cargo services through the imposition of fuel surcharges and an insurance surcharge for flights from Hong Kong to Australia and fuel surcharges, security charges, a customs fee and an air freight rate for flights from Indonesia to Australia.

Court orders second highest penalty in international airline cartel cargo case

Garuda was found to have engaged in 39 contraventions of the cartel provisions from 2003 to 2006 (contraventions that occurred prior to 2 September 2003 were excluded due to the statute of limitations). The maximum penalty that Garuda faced for engaging in cartel conduct in the supply of cargo services was $10 million per contravention. The ACCC submitted to the Federal Court that Garuda should be penalised between $20 million and $28 million.

The Court recognised that the contraventions were interrelated but held that they should not be treated as one global contravention. Justice Perram penalised Garuda $15 million for its contraventions in the supply of cargo services from Indonesia to Australia and $4 million for the cartel conduct that occurred on flights from Hong Kong to Australia.

A $19 million penalty represents the second highest penalty (behind Qantas’ $20 million penalty) imposed on an airline involved in the global cargo cartel. Garuda, an Indonesian national airline, has relatively small operations compared to some of the other international airlines involved in the cartel (such as Emirates, Qantas and British Airways) and the overall penalty of $19 million far exceeds Garuda’s cargo revenue during the relevant period. However, the penalty imposed was found to be proportionate for three key reasons:

  • unlike the other international airlines involved in the cartel, who settled with the ACCC and paid substantial penalties amounting to $98.5 million, Garuda and Air New Zealand were the only airlines who chose not to co-operate with the ACCC in its investigation and instead chose to defend the legal proceedings brought by the ACCC;
  • Garuda’s participation in the cartel was a more serious breach of the Australian competition laws due to senior management’s awareness of the price fixing conduct in relation to the supply of cargo services; and
  • in the penalty hearing, Garuda submitted to the Court that it impose no penalty. This, according to Justice Perram, revealed that Garuda was not remorseful for contravening the cartel provisions and that it should not be held responsible.

Deterrence also played a key role in the assessment of the $19 million penalty. Justice Perram stressed that the penalty was to be set “at a level sufficient to ensure that the penalty is not just seen as a ‘cost of doing business’…The penalty imposed upon Garuda must be such as to make crystal clear to international commercial airlines engaging in air freight that collusive price fixing is not profit enhancing”.

Key takeaways

Even though the law has changed, the case is still an important one on the assessment of penalties; as noted above, the fine exceeded the actual profit Garuda made from the impugned conduct. It shows that both the ACCC and the courts do not want businesses to consider penalties as the cost of doing business.

That willingness from the ACCC has been backed up by the Courts' willingness to impose higher penalties as seen in the Full court decision in the Yazaki case to impose penalties of A$46 million. The decision also highlights the continued application of the Act to conduct occurring in Australia, since the amendments in 2017 which require proof that the parties must be competitors in trade or commerce connected to Australia. And as Mr Sims noted, “The ACCC has recently entered more formal agreements with the FBI on co-operation and information-sharing, and has strong links to other competition regulators worldwide, which mean our scope is much broader than Australian businesses".

So the message remains: be careful and review any arrangements which could be seen as cartel conduct, wherever it occurs - because you can be sure the regulators will be.

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