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Commerce Commission procedure in accordance with standard best practice

20 March 2009

The Commerce Commission is disappointed that Air New Zealand has chosen to file what the airline itself describes as "unnecessary litigation" and in so doing, is seeking to delay the proceedings that seek to determine whether or not Air New Zealand was a party to a sophisticated international price fixing arrangement.

Normally, the Commission would decline to comment on these matters as they are before the Court, however it is important to clarify four points:

First, Parliament authorised the Commission to impose orders under Section 100 of the Commerce Act 1986 so as to protect the Commission's investigation processes, in particular confidential information. Commerce Commission General Counsel Peter Taylor said, "The orders are a key means by which the Commission can ensure that the targets of its cartel investigations cannot tip each other off as to the Commission's likely lines of enquiry following an interview with the Commission. The orders are an important tool in the Commission's battle to stamp out hard core cartel conduct - conduct that is often covert, of long duration, difficult to detect and internationally recognised as doing enormous harm to the economy."

Such orders provide protection to witnesses and other parties that are forced to respond to the Commission's investigations. This ensures that parties have proper protection available to enable them to provide full and frank responses to the Commission. Significantly, the orders do not in any way prevent employees or other witnesses from discussing with their employer the facts of a case as they know them. The Section 100 orders prevent revelation of what is discussed with the Commission. Air New Zealand's employees are now, and have always been, free to discuss those matters with the airline and its lawyers. Indeed, Air New Zealand claims that it has conducted extensive interviews with key staff.

Second, in this particular case, the Commission has made various attempts to engage with Air New Zealand. The Commission offered to amend the orders so as to allow Air New Zealand's internal and external lawyers access to the Commission's confidential areas of enquiry. Air New Zealand refused this offer, preferring instead to file these proceedings. It is difficult to reconcile this fact with Air New Zealand's assertion that the Commission would not engage with it.

Third, the Commission has always been prepared to engage with Air New Zealand on the underlying investigation. The Commission has a well-known cooperation policy, which is modelled on international standards. A number of airlines are cooperating fully with the Commission in this case and that is what the Commission expects and is standard in these cartel investigations. The Commission has offered to meet and discuss the investigation with Air New Zealand if it is prepared to cooperate with the investigation.

"Air New Zealand has refused to do so, on the basis that it could not risk being seen to cooperate due to the risk of jeopardising its defence of a class action brought against it and other airlines in Australia," said Mr Taylor. Furthermore, although it complains of lack of candour by the Commission, Air New Zealand has declined to provide the Commission with the results of its internal review and interviews it claims to have conducted.

The Statement of Claim specifies in detail the Commission's allegations. Air New Zealand has not asked the Commission to provide further particulars of the claim, which it could do if it were uncertain as to any aspect of the claim.

Air New Zealand already has much of the same information as the Commission, from which it is able to see the basis for the Commission's claim. The current proceedings allow for standard means of exchanging information. There are normal court procedures for exchange of evidence which can provide for the usual protection of confidential information.

Moreover, a number of airlines throughout the world have already admitted essentially the same conduct in other jurisdictions. For example, Qantas - which is alleged in the Commission's proceeding to have colluded with Air New Zealand - has already admitted cartel conduct in the United States and Australia and incurred fines of US$61 million and AUS$20 million, respectively.

Fourth, and most importantly, the Commission's practices and procedures are at all times in accordance with international standards in relation to the investigation and prosecution of cartels. Mr Taylor said, "The Commission does not take lightly the decision to institute an investigation or commence proceedings. Once a proceeding is commenced, it conducts itself to the standard of a model litigant."

The Commission will be making no further comment while the matter is before the Courts.

Background

On 15 December 2008 the Commerce Commission initiated proceedings in the High Court in Auckland against 13 airlines and seven airline staff, including senior executives, for extensive and long-term cartel activity in the air cargo market. Air New Zealand is one of those parties. The Commission alleges that airlines throughout the world colluded to raise the price of freighting cargo by imposing fuel and security surcharges for more than seven years. This affected the price of cargo both into and out of New Zealand. Some airlines are cooperating with the Commission and an early resolution may be possible in some cases.

International action on air cargo cartel

Overseas competition authorities are also investigating the air cargo market.

In the United States - British Airways, Korean Air, Qantas and Japan Airlines have settled and agreed to pay record fines. Most recently, Air France KLM has also settled in the US Courts and has been fined US$350 million. In total, the US Courts have already awarded penalties of US$1.2 billion against airlines for participation in a cartel that has increased air cargo rates to and from the United States. At least one US air cargo executive will pay a fine and also serve a sentence in a US prison as a result of his activity in a cartel. In Australia, the Federal Court in Sydney has ordered Qantas Airways Limited to pay Aus$20 million and British Airways plc to pay Aus$5 million in pecuniary penalties for breaching the price fixing provisions of the Trade Practices Act 1974.

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