Two more airlines settle with Commerce Commission in air cargo case – penalties top $21 million

The High Court has ordered Korean Air Lines Co. Limited (Korean Air) and Emirates to pay penalties of $3.5 million and $1.5 million respectively for breaches of the Commerce Act.

Korean Air has admitted liability in the Commerce Commission’s air cargo price fixing case for agreeing fuel and security surcharges in Hong Kong, Japan and Malaysia for cargo flown to New Zealand. Emirates admitted liability for agreeing fuel and security surcharges in Indonesia for cargo flown to New Zealand.

The penalties, which were recommended to the court by both the Commerce Commission and the two airlines as part of pre-trial settlements, were imposed today by the High Court in Auckland.

Today’s settlements bring the number of airlines that have settled with the Commission in the case to six, and total penalties achieved to $21.375 million. The Commission has also settled with British Airways plc, Cargolux International Airlines S.A., Qantas Airways Limited and Japan Airlines Co Limited.

Today’s penalties included a 33% discount to recognise Korean Air’s admissions and its commitment to co-operate with the Commission’s case and a 25% discount to recognise Emirates’ early admissions. Both airlines also agreed to pay costs to the Commission.

“The Commission is pleased to have settled with two more airlines in this significant case. We are focussed on achieving the most effective resolution of cases. In this instance we have obtained admissions of liability, and penalties that should be a deterrent to others who might breach the Commerce Act,” said Commerce Commission Chair Dr Mark Berry.

Korean Air and Emirates were among the 13 airlines the Commission filed proceedings against in December 2008, alleging that the airlines colluded to impose fuel and security surcharges for air cargo shipments into and out of New Zealand. Korean Air’s conduct occurred over a period of six years, while Emirates’ conduct occurred over three years.

The Commission’s case against the defending airlines is scheduled to continue in the High Court in Auckland in March 2013, following a first-stage hearing that was held in August 2011.  At that hearing the Commerce Commission succeeded on the issue of whether there was a “market in New Zealand” for the inbound air cargo services that the Commission alleges were the subject of price fixing. This finding confirmed the High Court’s jurisdiction to hear the Commission’s case in full.

The defending airlines are now Air New Zealand Limited, Cathay Pacific Airways Limited, Malaysian Airlines System Berhad Limited, Singapore Airlines Cargo Pte Limited and Singapore Airlines Limited, and Thai Airways International Public Company Limited.

In April 2011 the Commission discontinued its proceedings against PT Garuda Indonesia, United Airlines Incorporated and six Air New Zealand executives. In February 2012 the Commission discontinued against two Qantas executives.

Background

Section 30 of the Commerce Act makes price-fixing agreements between competitors unlawful. This includes agreements with the purpose, effect or likely effect of fixing, controlling or maintaining prices, or that provide a mechanism for doing so. An agreement can be a formal document, such as a contract. An agreement can also be very informal.

A company that contravenes section 30 may be ordered to pay penalties under section 80 of the Commerce Act. The penalty must not exceed the greater of:
•       $10 million
•       or, if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing commercial gain, three times the value of any commercial gain resulting from the contravention
•       or, if the commercial gain cannot be readily ascertained, 10% of the turnover of the body corporate and all of its interconnected bodies corporate (if any).

The Commission’s case against the defending airlines was originally scheduled to continue in February 2013. The start date has moved to March 2013.