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Court awards highest penalty to date in price fixing

12 May 2011

The High Court has ordered Qantas Airways Ltd to pay a $6.5 million penalty for breaches of the Commerce Act, the highest penalty to date in New Zealand for price fixing.

 

The penalty, which had been recommended to the court by both the Commerce Commission and Qantas as part of a pre-trial settlement in the air cargo cartel case, was confirmed yesterday by the High Court in Auckland. At the same time in another courtroom the Commission was opening its case in the first stage of the cartel proceeding in which the Commission alleges that a number of international airlines colluded to raise the price of freighting cargo.

 

The Judge noted that the starting point for the penalty was $13 million, with a 50 per cent discount for Qantas' high level of co-operation with the Commission's investigation.

 

"When parties admit breaches of the Act early and co-operate with the Commission's investigation there are significant benefits for them, and it is in the public interest, since court hearings can be a costly and drawn-out way of resolving matters," said Commerce Commission General Counsel for Enforcement, Mary-Anne Borrowdale. "It is appropriate to recognise that Qantas admitted its price fixing at the very earliest opportunity, and is providing genuine assistance with the Commission's case against the defending airlines."

 

In his judgment Justice Allan noted this..."As soon as the nature and scale of the problem came to the notice of Qantas senior management and its Board, the Commission was advised that Qantas would co-operate in every respect. It has continued to do so over a significant period. In particular, it has proactively provided extensive evidence and documents detailing the collusive FSU (Fuel Surcharge Understanding) and its own participation in that FSU." The Judge also noted that Qantas has committed to making its staff available as witnesses in the cartel case against the defending airlines.

 

The Qantas penalty brings the amount achieved in settlements of the cartel case to $14.1million. The Commission has also settled with British Airways plc and Cargolux International Airlines S.A.

 

The airlines continuing to defend the charges are: Air New Zealand Limited, Cathay Pacific Airways Limited, Emirates, Japan Airlines International Co Limited, Korean Air Lines Co Limited, Malaysian Airlines System Berhad Limited, Singapore Airlines Cargo Pte Limited and Singapore Airlines Limited, and Thai Airways International Public Company Limited.   The Stage One hearing of the cartel case is scheduled to continue until early June.

You can download the High Court judgment from the Commission's website at: www.comcom.govt.nz/competition-enforcement-outcomes

 

Background

 

Cartels are groups of businesses or executives who, instead of competing against each other to offer the best deal, secretly agree to work together and keep prices high. Cartels harm competitors by sharing customers with other cartel members, rigging bids, agreeing to charge higher prices than they would be able to charge in a competitive market, restricting volumes and by squeezing non-cartel members out of the market.

 

The alleged air cargo cartel in other jurisdictions

Australia - Fifteen airlines were implicated in the cartel. Eight of these airlines have been ordered to pay penalties totalling AU$46.5m. The other eight airlines are awaiting hearing.

United States - Nineteen airlines have been fined a total US$1.6b. Four executives have been fined and imprisoned (6-8 month terms) and six others have been charged and are awaiting trial.

European Union - The European Commission imposed penalties against 11 airlines totalling $800m.

Canada - Six airlines entered guilty pleas and have been fined a total of CAN$17m.

South Korea - Nineteen airlines have been fined KRW120b.