Air New Zealand v Australian Competition and Consumer Commission; PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2016] HCATrans 245 (14 October 2016)

Last Updated: 18 October 2016

[2016] HCATrans 245

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S110 of 2016

B e t w e e n -

AIR NEW ZEALAND (ARBN 000 312 685)

Applicant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

Office of the Registry
Sydney No S112 of 2016

B e t w e e n -

PT GARUDA INDONESIA LTD ARBN 000 861 165

Applicant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

Applications for special leave to appeal

KEANE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 OCTOBER 2016, AT 12.04 PM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC: If it please the Court, I appear with my learned friends, MR N.J. OWENS, SC and MR R.A. YEZERSKI, for the applicant in the Air New Zealand Case. (instructed by Corrs Chambers Westgarth)

MR N.C. HUTLEY, SC: I appear with my learned friend, MR T.J. BRENNAN, for PT Garuda Indonesia Ltd. (instructed by Norton Whyte Lawyers)

MR J.A. HALLEY, SC: May it please the Court, I appear with my learned friend, MS H. YOUNAN, in both matters for the respondent, the ACCC. (instructed by the Australian Government Solicitor)

KEANE J: Mr Walker, would it be convenient for yourself and Mr Hutley to address us and then for us to hear from Mr Halley?

MR WALKER: Yes, rather than sandwich - yes, yes, very much so.

KEANE J: Very well.

MR WALKER: Is that convenient, your Honour?

KEANE J: Yes.

MR WALKER: Your Honours, section 4E, in what might be called slightingly its prepositional element in Australia has not been the subject of a decision in this Court. In that sense, as your Honour Justice Gordon in another context has observed, the law on this matter might be described as unsettled. However, we submit that this is a case, the argument for which we seek special leave, is dominated by the importance of clear and hitherto unchallenged authority.

To throw that up, may I remind your Honours of how the majority in the Full Court, at application book 410, paragraph 98 described the concept of substitution or substitutability in relation to section 4E and I stress, on the question of deciding whether a market is in Australia. At that point, in paragraph 98 they conclude, having referred to supposed difficulties, to describe substitution as:

the quite arbitrary choice of the criterion for deciding the s 4E question.

Now, to describe it as quite arbitrary is, with respect, startling because substitution is the defining feature - the defining feature of a market.

GORDON J: Well, that is the dispute, is it not? That is the issue between you.

MR WALKER: The move from the 4E question to the defining feature, being substitution, is the question in this case, but whether substitution is the defining feature of market hitherto has not been regarded as doubtful and for that the classical passage in Queensland Wire 167 CLR at 188 will do. I have not invented the expression “defining feature”. That is the expression of the Chief Justice and Justice Wilson in referring back to the locus classicus of this notion in QCMA. Their Honours’ parentheses, having cited QCMA, is to say, explaining that the defining feature of a market is substitution, not it is one of a royal of countervailing factors that need to be weighed up case by case, but it is the defining feature.

The correctness of that approach was never argued in this litigation. It was taken as canonical. However, in our submission, in the move from the defining feature of a market being substitution to it being a quite arbitrary choice of criterion for deciding whether the market is, in Australia, in our respectful submission, very large, evocative of very serious questions in relation to market definition and the location juristically of a market and is thereby an appropriate question for special leave.

Their Honours, on the same page, in 188 after all - again this is common ground, until the Full Court’s decision here that is - it was common ground that this was the orthodox approach in this country, that the process of defining a market was a process “by substitution”. Now, we know that substitution or substitutability leads to fuzzy outcomes. That is in the nature of one of the examples that they amusingly cite on that very page, at what point will some other foodstuff, query fruit, be interchangeable with a banana.

So there is going to be fuzziness and it is going to be driven, no doubt, by what I am going to call market conditions because substitution, as we know in times of dearth, can lead to buying roasted ground chicory instead of coffee beans for the beverage that you would prefer to be made out of coffee. So substitutability is no doubt fuzzy in the sense that it requires case-by-case determination of what buyers, would-be buyers, would consider what would-be sellers are able to be matched.

Who will benefit or suffer from so-called switching decisions and your Honours appreciate that switching and substitution are not separate concepts. They are part and parcel of the same defining feature of a market and you find both those expressions, of course, in the passage to which we have drawn attention in our written submissions, Justice McHugh and Boral. I do not need to take you to it.

So that was all clear orthodoxy until along came these reasons. In our submission, the matter is then highlighted in terms of the departure from orthodoxy which alone justifies the attention of this Court by a grant of special leave to be seen on page 415 in paragraph 117. Queensland Wire is there being referred to, and its holding can be seen to be paraphrased in a way which is, with respect, not correct. That also justifies the attention of this Court. In the second sentence, their Honours say in the majority:

We accept that, as Mason CJ and Wilson J observed, market definition primarily addresses substitution.

Well, their Honours said no such thing. They said that substitution is the defining feature and that defining a market is a process carried out by substitution. Then their Honours say in the next sentence something which no doubt builds on that extraneous word “primarily” - extraneous, that is, to the body of orthodox understanding on the authorities of this Court until this decision. It builds on it but it is building therefore on a false foundation. Their Honours say:

it does not follow that a market is comprised only of substitution or substitution possibilities.

Now, we know from section 4E that the inclusive features in considering market definition - - -

GORDON J: Substitution or competition.

MR WALKER: Substitution or other competitive - and this is not a case that throws up, to present itself either on the facts or an argument, as to exploring what territory other than by a process of buyer and seller choices, switching choices, what process could be described as competition which would not involve some consideration of substitution.

GORDON J: Is not one of the difficulties here the suite of services that is identified in a sense as not in Australia but the market - in other words, if you are looking at what is described as a “suite of services” and in particular at 164 on page 427 as one of the, in effect, distinguishing factors of this case.

MR WALKER: No, it is not a distinguishing factor. It is a problem in this sense, makes the case very apt for special leave. It is very close to the heart of the reasoning against us. It is a problem because it steps outside hitherto orthodox approaches to the definition of a market and unless you have defined a market appropriately, then you are certainly going to go wrong answering the question whether it is in Australia.

At page 427, just the page before and leading up to this list of seven overlapping reasons to which I will come in a moment, of which Justice Gordon has just named I think the fourth - - -

GORDON J: The third, I think.

MR WALKER: - - - the third - there is reference there to another case which, like Queensland Wire, involved market definition but did not focus on whether it was in Australia, but their Honours in the majority here correctly accept that which is implicit as an uncontested issue in Taprobane that that market was in Australia. The suite of services supplied in Taprobane would have extended to the glass bottom boats over coral reefs in the Maldives or in Bali or in Mauritius, et cetera, et cetera.

No one would seriously entertain the notion that the fact that services had to be provided in those other places as part of a suite, starting with your connecting flight to Perth to go via Singapore to wherever you were going to go or from any other city within the market in Australia - the notion that because there might be regulatory requirements as to the safety of the glass bottom boat, for example in Mauritius or wherever, that there was therefore a location of the market in that place is readily dismissed, as their Honours dismissed it in 159 on orthodox grounds, because the notion that the location of the supply of services, and we are talking about freight services here after all, the notion that the market will embrace all places where services are provided and, by the way, they are not just national territory - they are also high seas, the air above high seas – the notion that those are places which are part of the location of the market immediately raises what I am going to call an anti-purposive consequence of a kind that butts up against and exposes the tenuousness of the fifth - - -

GORDON J: The fifth is at 167.

MR WALKER: No, the sixth, I should say, the sixth of the reasons that you find at 428, 429 in paragraph 168. Now, your Honours have read what we have written about that. That sixth reason talks about enhancing the welfare of Australians and it might be supposed that their Honours had in mind enlarging the scope of dealings that might be subject to Australia’s prohibition on collusion.

That must be the reasoning in that paragraph but of course enlarging the geographic scope of markets in the way in which it has been done here so as to include the port of destination as has been done here, is calculated to enlarge enormously what I will call the number of, and the diversity of, participants in that market. Thereby, of course, for other purposes in the statute which are critical for “enhancing the welfare of Australians” it will render it almost impossible to demonstrate, for example, market power.

So, in our submission, when one goes to those seven reasons, it can be seen that even with the overlap that their Honours volunteer, and it is not at all clear what that means, they produce no explanation as to why reference to the place of substitution, that is, the place where switching decisions are given effect to, is not as a matter of orthodox reasoning and building on the defining feature of a market, the proper approach and far from being “quite arbitrary”.

Now, the first of the reasons is not a reason at all. It records that which is common ground and commonsense. The next one, of course, is circular, that is, everything that has to be considered in construing this section needs to be considered. That also is accepted. No one was intent on arguing to the contrary. Neither of those say anything about departing from substitution.

The third one is the one to which Justice Gordon has drawn attention and is one of the reasons why this is an ideal case for special leave. Transnational, that is international, commerce is, we hope, for this nation’s good, not going to become less common. We hope it is going to be obviously very common and accordingly, the notion of there being services which require performance or involve the delivery of commodities, trade, that is, involving more than one national location, is exactly the kind of thing that ought to be looked at by this Court in order to determine the correctness or otherwise of the approach taken to the simple phrase “in Australia” in section 4E, essayed by the majority.

Your Honours appreciate that the dissenting reasons are reasons which as we have written, we respectfully commend as embodying the orthodox position. Justice Yates, with respect, seeks to give those words an operation which builds schematically and in a coherent way on the approach taken to market definition for the allied purpose of locating a market and so the third “suite of services” notion is nothing other than an unexplained departure from the ease with which their Honours characterise Taprobane as a market in Australia, not in Bali, Mauritius, et cetera, et cetera. There is no explanation given anywhere for why what was so easy to be understood in paragraph 159 becomes a stumbling point for our success on the appeal below in paragraphs 164 and 165.

Now, 166 is allied - that is the fourth - to the “suite of services” notion and is, with respect, utterly without substance. If the fact that these services to be provided include on the high seas, above the high seas and in countries of destination, by a ship, say, based in Australia, if the fact of they being elsewhere and requiring work to be done is not enough to say the market is in Australia, as Taprobane plainly illustrates, then the fact that there are what are called barriers to entry, which really only mean regulatory requirements, things that have to be obeyed in order to carry out that work, is utterly of no moment and no one has hitherto, until this case, suggested that is how one either defines a market or finds out where it is located.

Of course there were regulatory requirements in each of Bali, Fiji, Tahiti, et cetera, et cetera, as listed in paragraph 159. No one would ever have supposed that that either changed the boundaries of the market or located them in any of those places.

The reference to agency at the end of 167 is, with respect, a bit of a fugitive. It does not join in any reasoning anywhere in the case but gives rise to the uneasy possibility that their Honours had in mind that if there was an agency then somehow one could ignore the place where the agents gave effect to switching decisions and, as it were, attribute to the agents the location of their principal which is, with respect, absurd.

GORDON J: Is not paragraph 167 dealing with the marketing to shippers, in effect to try and work out where the market may be located?

MR WALKER: It is, and it has its own serious deficiency of reasoning. Marketing means advertising or other blandishments to persuade somebody to make a decision, relevantly a switching decision. A switching decision may be made, that is by the person who makes it, wherever that person is, and some such people will be in penthouses in Monaco but the markets as to which their switching decisions will be given effect will not be markets thereby in the south of France because if they are controlling by their decision, their switching decisions, the market for say, bulk cement in south-east Queensland, the market is not expanded by asking, where was that switching decision made, any more than asking where was the antecedent pamphlet perceived, the marketing that persuaded that chairman and chief executive officer to send the direction across the world to Toowoomba.

Now, in our submission, it is for those reasons paragraph 167 again departs from orthodoxy. It is not the place where decisions of business control are made which is significant. If that were so, markets in Australia would be all far too large for any public interest regulation to be readily enforced under this Act because they would be as broad as the physical location of decision-makers – again, nobody has ever said that before. The physical location of suppliers where customers come and where switching decisions are given effect to, yes, but not the perfectly arbitrary, to use that word properly, location of where services are marketed to somebody who makes a decision, one way or the other, in answer to persuasion.

The sixth I have already sufficiently dealt with. In our submission, that does not overlap with anything and either assumes its own conclusion or is wrong for the reasons we have written, that is, one does not assume that a law goes as far as necessary to decide a case and then say that purposively that must be what the statute means. This is a statute with limits. This is the first time this Court is being asked to consider the proper way in which to approach the limit laid down in an obviously internationally significant way by that simple prepositional phrase “in Australia”.

Now, the seventh one is about foreign law and that foreign law, for the reasons we have written, was utterly inappropriate to be enlisted as a reason for approaching the Australian statute as the majority did. Quite simply, what the Australian law says is different, as we have written, from both New Zealand and the European provisions - that is the first thing. The second thing is, of course, for the reasons we have written, there is a misunderstanding of the way in which the European case, which was not argued below, in fact determined this issue in a way that might have provided some tangential, quasi, analogous reasoning.

So, as to the main point which, in our submission, is so important to be determined by this Court, one comes back to the last sentence of paragraph 156 on page 426 and asks, with respect, with some bewilderment, what does it mean to visualise a metaphorical market, even after you have been through each of those seven reasons and even after you have tried to

understand in what sense substitution is quite arbitrary. Now, your Honours, I see the red light. You have seen the argument we advance in relation to the quite separate other point. Thank you.

KEANE J: Yes, thank you, Mr Walker. Mr Hutley.

MR HUTLEY: Thank you, your Honour. If I can add - - -

KEANE J: You had a separate point as well.

MR HUTLEY: I do, your Honour. I have to come to that, but I thought I would make a short observation about the first point. I really cannot improve on what my learned friend has said for this purpose other than make this observation - if your Honours take the seven factors, when did we lose? When we got to five, after two, and this is important, there is no intellectual coherence in just identifying a series of factors and saying one loses because it becomes impossible for any person to know really why we lost as an integrated process of analysis and that is what is fundamentally at the heart of where, with respect, the Full Court went wrong.

They got, in effect, as it were, blinded by this metaphor language and in effect, really it is a zeitgeist. You feel it and that is where it all went wrong. Your Honours, if 167 is right, that will be the greatest gift to monopolists of all time because the thing about monopolists, they tend to make their decisions in their headquarters and every market in either Melbourne, Brisbane, Sydney or Perth - no disrespect to Adelaide - but that is where it is really going to happen because that is where, in effect, the switching decision - and switching decision, in effect, is itself a metaphor which causes a problem.

What you are looking at is switching. What you are looking at is the economic ability to produce constraint and producing constraint is not produced at the point where you make the decision if it is in Melbourne. The constraint is, is where you can change suppliers and that is on the ground and that is why you look for a physical location. That is why all markets have a geographical aspect and sometimes, as my learned friend says, it is fuzzy around the edges.

GORDON J: Sometimes it can be in more than one place.

MR HUTLEY: Of course, your Honour, it can. It depends upon the nature of the product but the one thing about this product, as your Honours observe, it is an integrated supply and you cannot switch over New Guinea. You cannot switch in Sydney. You have to switch in Hong Kong or Denpasar and we accept it is all the same. That is what his Honour the trial judge did. That is what the minority decision did and they were right.

Now, can I turn, with respect, to our next point. Your Honours, this is the inconsistency point and, your Honours, if I can start by taking your Honours through the Air Services Agreement. Their Honours, and I will not take your Honours to them, these Air Services Agreements - you will find the relevant one is in application book 3 at 621. This was the Air Services Agreement through Australia and the Government of the Republic of Indonesia.

These took a form after the 1946 agreement between the United States and the United Kingdom, which is discussed in detail by the trial judge at paragraphs 131 to 148, application book 1, 54 to 60 and adumbrated by the Full Court at paragraph 181 at 433 in application book 2 and it is important to see their structure. The structure, with respect, was overlooked by the Full Court when they considered this issue. Article 3(1) says:

Each Contracting Party shall designate in writing to the other Contracting Party, in respect of any specific route, an airline to operate an agreed service –

Now, Article 3(5) says:

At any time after the provisions of paragraphs (1) and (2) –

which are the preconditions to operability:

of this Article have been complied with, the airline so designated and authorised may begin to operate the agreed services, provided that a service shall not be operated unless a tariff is in force in respect thereof established in accordance with the provisions of Article 6 –

So, in other words, a precondition to this structure of arrangements, that is, for the operation, is that you put in place an Article 6 tariff arrangement. Now, your Honours will recall that the Full Court, as part of their reasoning, said all that one had to do is undertake reasonable endeavours to achieve one of these matters. It is not, with respect, right. These were absolute were absolute conditions precedent to the effect - bringing into existence of this treaty between Australia and Indonesia.

Then Article 3(6), that your Honours will see - I will not take your Honours through the details - is sections 12 and 13 are sections which are brought into effect by the Air Navigation Act to give effect to Article 3(6), that is permitting the State to deprive a carrier of capacity to conduct its business if it did not comply with the treaty. Now, Article 6, your Honours, if your Honours will turn over to that at 622, says:

The tariffs on any agreed service shall be established at –

and it says the basis, and then the last sentence:

These tariffs shall be fixed in accordance with the following provisions of this Article.

So, it is mandatory. Secondly:

Agreement on the tariffs shall, whenever possible, be reached by the designated airlines concerned through the rate-fixing machinery of the International Air Transport Association. When this is not possible –

and possibility has been held to be, in effect, possible physically not legally:

tariffs in respect of each of the specified routes shall be agreed upon between the designated airlines concerned. In any case the tariffs shall be subject to the approval of the aeronautical authorities of both Contracting Parties.

and (3):

If the designated airlines concerned cannot agree on the tariffs, or if the aeronautical authorities . . . do not approve . . . the aeronautical authorities . . . shall endeavour to reach –

et cetera. Then there is provision for arbitration under Article 9. If you could turn back then in the book and I can take your Honours shortly to section 12. Section 12 is at 616. It has various formulations over time, your Honours will see back from 1960 all through to its latest iteration in 2001, but the important point your Honours will see is subsections (1) and (2) remain a constant throughout and if your Honours will just note (1) and (2). More importantly, perhaps for the argument, is section 13, which your Honours will find on the next page, 618. That provides that:

The Minister may suspend or cancel an international airline licence issued to an international airline of a country other than Australia if and only if –

and then (b), perhaps most important:

the airline fails to conform to, or comply with, any term or condition of the relevant agreement or arrangement –

Your Honours will have observed that the Full Court made a point that there was no obligation upon an airline to comply with the treaty because they are not a party and therefore there was not a breach by the airline of the treaty – a breach by the airline of the treaty was not a breach of section 13 but, of course, that is, with respect, not correct.

An airline is exposed to the loss of its licence if it fails to conform to the treaty and the treaty provides for the establishment mandatorily of tariff arrangements and, therefore, the structure of the legislation is, which remains in place - and can I say your Honours will see from the various iterations of section 13, which has been altered over time, and over time since the enactment of the Trade Practices Act. Your Honours will see section 13(b) was altered in 1992 by making reference to arrangements referred to in section 12 and arrangement in section 12 is exactly the form of agreement which we have.

So, in other words, that Act has been, as it were, re-enacted as late as March 2005. So, in other words, the federal legislature has passed legislation which on its face requires my client, lest it be exposed to the removal of its licence, lest it conform to a treaty - the treaties as his Honour has found and there is no dispute, are in a standard form and have been since 1946 which incorporate these forms of articles, which set out for the mandatory fixing of fees and it was against that background that the Trade Practices Act was enacted and it is against that background, the Trade Practices Act, that there has been continual re-enactment of these provisions by the Federal Parliament which expose my clients on their terms to a loss of their licence unless they comply with international obligations entered into by this country. Now, we submit, on its face, there is an obvious operative, at least, inconsistency between the Air Navigation Act, appropriately contextualised, and the Trade Practices Act.

GORDON J: So is the point that you seek to make that what is set out in paragraph 190 on page 436 is the error?

MR HUTLEY: Yes, I think, your Honour. Let me just turn up that paragraph - - -

GORDON J: That it does not itself create a new duty imposed.

MR HUTLEY: I am sorry, your Honour. Your Honour is referring to which paragraph?

GORDON J: Paragraph 190 on page 436, down at the bottom.

MR HUTLEY: Yes.

GORDON J: The duty point is the point you say is where they form the conclusion that it did not itself create a duty imposed upon an entity.

MR HUTLEY: Quite, your Honour. Whether it did or it did not, in Hohfeldian terms, what it did was expose us, my client, to the loss of its licence if it did not do this thing. The way the court dealt with that problem, not having found there was an inconsistency, was then to go and say - - -

GORDON J: Is that not the basis for why they say there is no inconsistency?

MR HUTLEY: Yes, firstly that it is the basis, but then they have a further argument that even if there was an inconsistency, they say the legislature, the Minister could not remove our licence for failing to comply with the treaty, conform with the treaty, because we would be in breach of the law because of the Trade Practices Act.

Now, of course, that assumed its conclusion but setting that aside for the moment, in the reasoning of the court, they only looked at Article 6(3). They did not look, for example, at Article 3(1), Article 6(1) or Article 3(5) which made these treaties and the existence of these tariffs the condition for the operation of these treaties.

Now, we say, it is an important question, an important question that if a power of a minister is conditioned upon an Act, enlivened upon an Act, which is part of our international obligations which have obviously been recognised by the legislature through the legislation, to say that it would be unreasonable for a Minister to act in accordance with that, because of some other piece of legislation which for this purpose is predicated to be not inconsistent with the provision is an important question of law because we say unless one of these provisions has prevalence, be it the Trade Practices Act or the Air Navigation Act, if it is the Air Navigation Act, the Minister must be able to exercise that power, in our respectful submission. So that is an important question.

Then we turn to the question of how do you resolve what we say is an evident inconsistency and this takes one to the jurisprudence in this Court and, your Honours, the cases are set out and, in our respectful submission, as it were, section 51 does not answer the question. Section 51 deals with where there is specific authorisation. There is no specific authorisation of the Acts with which we are talking about by the legislature. It does not specifically authorise it. What it says is my client will be exposed to the loss of the licence unless it does something conforming with another agreement.

That does not necessarily specifically authorise that. I could be exposed to the loss of a right unless I do something even though the person who exposed me to the loss of that right had no power to authorise me to do something. That is a matter for the determination of the legislature. The Full Court said the distinction we see thereby drawn was one without substance and we say that is wrong.

Secondly, then one moves, if that is wrong, to the question, does the specific or the general apply and we say that jurisprudence, particularly in the circumstance where the legislature has continually repeated the re-enactment of the piece of legislation against the background of these international agreements, makes perfectly clear that the legislature has worked on the assumption that the specific trumps the general. Otherwise, there can be no rational explanation as to why section 13(1)(b) has been continually re-enacted and amended against a background of international agreements which are consistent and have been consistent since 1946 of having provisions in exactly this form.

We say they are important questions, both of international - Australia’s position as a party to multiple international agreements and how this Court’s approach to where the Federal Parliament through legislation has continually purported to re-enact a provision which on its face is seeking to give effect to well-acknowledged international types of obligations such as these clauses and to merely refer to the fact that there is a general provision of the Trade Practices Act and for that matter, section 51, raises of itself an important question as to the approach to the construction of inconsistencies in such legislation and it is for that reason we say, your Honours, would give us special leave.

KEANE J: Yes, Mr Halley.

MR HALLEY: Your Honour, if we could address first the question of market and market in Australia. From our perspective, the majority was applying orthodox principles to solve perhaps a novel issue in the sense that this was the first occasion on which a court was asked to directly address the question of section 4E.

The criticism that is advanced of the majority’s reasons falls into three categories. The first concerns a failure to appreciate the significance of substitution and the suggestion of heresy in how the majority approached the question of market definition. One thing that is clear in this case is that the markets were defined by reference to substitution.

The markets propounded by the Commission at first instance were markets in three categories: the first, a market from destination to all ports, the subject of the relevant impugned arrangements - that was rejected on the basis that there was insufficient evidence of supply side or demand side substitution.

The second level of markets that were propounded were markets from origin to destination ports in Australia. That was rejected on the basis that there was insufficient evidence of substitution at destination between, for example, Melbourne and Perth or Sydney and Brisbane. What was found by the trial judge and accepted by the majority and the dissenting judge as well, was that the markets consisted of O to D pairs, from origin to destination.

So, the question of substitution underlay the market definition which is being taken forward in this case. What the respondents now seek to do is look at the markets as found and seek to apply what we submit can only be construed, as the majority found, an artificial approach to a geographic dimension to limit a market to origin and not to the area over which the market was supplied.

Now, true it is and the majority made this clear, it is not sufficient in itself for a market location to be defined by every location at which that service is supplied. Nor is it sufficient for a geographic aspect of a product to define the market itself and on that basis the Full Court, the majority, looked at Taprobane and said, well, the fact that the services extended to the island destinations was not in itself sufficient.

But a fair reading of Taprobane would indicate that from the perspective of the court it was addressing the geographic dimension in the context of, was it by reference to particular cities or Australia wide and your Honours may recall the words that the question of the geographic dimension was largely agreed and that was that it would extend to the whole of Australia. That is what was relevant for the court to consider. It was not relevant for the court to consider a geographic dimension by reference to the potential area on which the services might ultimately be provided.

One of the points that my friend, Mr Walker, sought to advance was that including destination in a market would give rise to an almost impossibility to identify market power because it would expand exponentially perhaps, the number of participants in the market. The reality is, as the majority identified, it was necessary to include destination and the location of the market because it was only airlines that had the ability to provide services at origin and destination that fell within the relevant pool of competitors, which was the competition issue in this case.

The competition in this case derived from the requirement that the Commission had to establish that the airlines with which Air New Zealand and Garuda colluded and reached the understandings relevantly competed with each of Garuda and Air New Zealand in a market. That was the first step. The second step was then to demonstrate that that market was a market in Australia. The universe of airlines that relevantly competed on the O to D routes were only those airlines that had the ability to operate at origin and destination.

Now, the point that the Full Court made and we submit made by reference to established authority was that market definition is a focusing exercise, it is a purposive and evaluative exercise, it has to have close regard to the facts and that is what, with respect, we submit, the majority did. The majority did not seize on - - -

GORDON J: It means visualise the metaphorical market.

MR HALLEY: Precisely, and we say that is entirely consistent with how the Court has described the process of market definition.

GORDON J: I do not think it has ever described it in that way before.

MR HALLEY: Not with those precise adjectives, but it has certainly been described in Queensland Wire as an economic - I will come to it in a moment, but it is seen as an economic abstraction. It is seen as a focusing exercise. It is seen as not a bright line in the sense of being able to identify the boundaries, the fuzziness of them, but a market has to, and this is our principal submission, the Full Court was quite appropriate and quite correct in saying that in order to identify the geographic dimension of the location of a market one has to do that in the context of the product dimension and the context of the functional dimension.

If the market that is defined and in this case, of course, the market was defined but we are now looking at a further degree of abstraction to say well, the market has been defined by reference to conventional approach to substitution which no one, as we understand it, checks, but then a further exercise is going to be undertaken, calling in aid substitution but calling in aid a particularly, we submit, contrived nature of substitution, to limit substitution to where a switching decision is given effect and we say, for the reasons that the majority made clear, that is entirely arbitrary, and secondly, by reference to - and this developed particularly in the course of the argument before the Full Court, that it was referable to the sources of supply.

Now, as the majority made clear, the source of supply in itself, is not a particularly helpful rule or test to determine the location of a market because here, in order to provide the service, the airlines had to have services at origin, but by the same token, they had to provide services, or supply services at destination and that is why the dichotomy between the expert that the Commission called, Professor Church, was that the services supplied at O to D and all destinations between, and by Professor Gilbert, who the airlines relied upon, said that it was limited to origin.

Now, Garuda, in their submissions, make the comment, which was picking up from what the trial judge found or referred to, was a service of taking possession with a view to flying the cargo elsewhere. Now, as the majority found and certainly as we submit, that is not an appropriate description of the service. The service was the carriage from O to D. The relevant substitution was of the service. The substitution takes place within the market: the area of rivalry, the area of close competition in which the substitution takes place.

To reduce the market, or the location of the market to switching decisions being given effect or to where the service is supplied does not relevantly answer the question, particularly in the current context and in that respect the majority was correct to say one has to look at all aspects in order to be able to locate the market, not for the purposes of 4E, not a geographic dimension which is limited to where a switching decision is given effect, where one may construe that the service is supplied, whereas a suppliers location had to be, as I have indicated, at both origin and destination.

So, the Full Court’s approach was not to ignore substitution. It was to have regard to the fact that substitution must take place within a market but the boundaries of that market have to capture the competitive process. They have to capture where the demand is. They have to have regard to where the services are marketed.

Of course, if one takes any one of those in isolation, it is easy to come up with examples that my learned friend, Mr Walker, pointed to. If one says it is the place of contracting, well clearly the contracting could have been done in Beijing. If it is where the person to whom the marketing was directed, it was in Paris. If the payment was made offshore, one can come up with any example to show that if you just look at one aspect in isolation, if you look to where the service is supplied that is not enough in itself.

One has to look at the totality. It is, as in any market definition issue, fact intensive. There were many facts found by the trial judge. None of those are being attacked now on appeal or before this Court and it is those findings, particularly those summarised by us in our submissions with reference to arguments - contentions number 3 and number 5 which highlight relevant matters that were taken into account by the majority.

What is significant is that Justice Yates did not say it was quite irrelevant to have regard to any of those matters. He expressed himself far more cautiously, and if I could ask your Honours to turn to the application book for Air New Zealand at 558 and at paragraph 608 – I am sorry, application book 572 at paragraph 659, your Honours will see there his Honour said:

With respect to the Commission’s fourth submission . . . the Primary judge’s conclusion on the geographical dimension of the market is not inconsistent with the general observations made in Fortescue Metals Group about markets, which are quoted by the Commission. Fortescue Metals Group does not stand for the proposition that the geographical dimension of the market is determined merely by the fact that the product dimension of the market is characterised, in part, by a geographical element. In that case, the Tribunal did refer (at [1022]) to actual sales patterns, the location of customers and the place where sales take place, as relevant considerations for determining the geographic market.

Now, Justice Yates then, we submit respectfully, erred in saying that because there was a finding that the agents that were the intermediaries were the – sorry, the freight forwarders were the intermediaries of the airlines, that that then located relevantly the airlines for all purposes at origin. We submit that was in error because the – may have located them for the purpose of entry into the airway bill but not for all the other purposes - the marketing directed to them otherwise and their location more generally. There is a similar issue, with respect, at application book 566 at paragraph 641 of Justice Yates’ judgment and your Honours will see at 567, third line:

However, the place where competition is expressed or manifested is not necessarily the place where the market is located. This is because a market is not simply a field of rivalry –

and he then goes on. So, having regard to the matters that the majority had regard to do fall within the rubric of what the authorities have considered, as we have otherwise set out in more detail in our submissions as relevant matters to take into account in assessing or determining the location of a market. It is by no means necessary to be able to attack a judgment on the basis of well, where did we lose?

It is entirely unexceptional that in determining and locating a market one would have regard to all relevant matters in order to determine that the market relevantly captured competition, that the market relevantly answered the competition question and that issues of market power could be assessed.

It is the introduction of a test for geographic dimension which is limited to where the switching decision is given effect or an attempt to identify the location of the supplier as the sole basis to identify the location of a market that is novel, and that is what has never happened before. The explanation or the attack on the majority, the three limbs we say for the reasons we otherwise set out in our submissions, do not arise, that no relevant error has been demonstrated, that one can of course take a phrase, a word, out of context, but when one looks at the judgment as a whole there is a careful critique of the difficulty of restricting the location of a market to where the switching decisions are given effect or the locations of the supplier.

There is then a careful analysis of the relevant authorities indicating how one approaches market definition and the importance and role of substitution within that, but the fact that the market has to capture where the relevant services are substituted which in this case on any view would comprehend origin and destination, and the suggestion that the use of the, if I might describe, judicial flourish to describe the focusing exercise and the need to be purposive and evaluative does not generate or does not indicate relevant error.

The third proposition that somehow an inappropriate effects test has been introduced in circumstances where we say a fair reading of the judgment for the reasons we have explained in our submissions clearly indicates that they did not approach this on the basis of an effects test means that the error has not been demonstrated, or sufficient error has not been demonstrated, that there are insubstantial prospects of success, not least because of the extent of the factual findings which have been carefully made by the primary judge, referred to by the majority, summarised in our submissions, as to factors which taken as a whole are sufficient to locate the relevant markets in part in Australia, sufficient for the purposes of section 4E of the Act.

Perhaps in closing on the market issue, the most useful explanation perhaps advanced by the majority as to what happened and why the trial judge or the primary judge ultimately came to the conclusion, contrary to perhaps the factual findings that he otherwise made, identifying the extent of the location relevantly in Australia, is at application book 397 - - -

GORDON J: Paragraph 48 where they said - - -

MR HALLEY: At paragraph 48, yes, precisely, your Honour. That is where I think they quite fairly have identified the error which is that:

his Honour seems to have moved from the proposition at [212] that substitution occurs in a market to the proposition or assumption that the market contains only substitution decisions, and not the circumstances on which such decisions are based.

We say that presents a very stark explanation for why, notwithstanding all the findings that were made that there was relevant competition in Australia, that shippers were part of the market in Australia, that there was demand in Australia, that the services were provided to Australia, and so forth, that the trial judge nevertheless moved ultimately to a proposition that anything other than where the switching decision was to be taken effect would be arbitrary.

We say the solution is not to identify an arbitrary locus from which one could identify the market, but rather to look at the market as a whole, particularly in circumstances here where the orthodox approach with the emphasis on substitution had already identified the markets as being markets for the supply of air freight services from origin to destination.

Your Honours, if I may address briefly the question of inconsistency, we have otherwise dealt with that in some detail in our submissions. The point that we advance and continue to advance is that 51(1)(c) addresses the issue on any view, that the legislative intent is clear, that in the absence of a specific authorisation in another statute, the provisions of Part IV would apply.

Here in a sense Garuda has a dilemma. Either it is construed as some form of authorisation, or not. If it is not some form of authorisation, then it does not relevantly apply as an exception, so that the legislative intent would be that Part IV would continue to operate and there would be no relevant exception.

If it was an exception then or an authorisation, it is not specific – there is no attempt by the legislature within any of the amendments to the Air Navigation Act to specifically refer to the Trade Practices Act for the purpose of carving out what otherwise would be a contravention, and the majority took a very pragmatic and sensible approach which was that it is only permissive in the sense that the airline may lose its licence, not that it must lose its licence or it will lose its licence if it fails to comply, and otherwise the reasoning of the majority has not been demonstrated to be in error.

With respect to foreign state compulsion, we simply submit that it proceeds on a premise that there was some form of compulsion. Mr Walker has not otherwise developed his argument. In the circumstances, we do not wish to or do not feel the need to add anything further to what we said in writing. If your Honours please.

KEANE J: Thank you, Mr Halley. We do not need to hear from you further, Mr Walker or Mr Hutley. There will be a grant of special leave in relation to each of these matters. Gentlemen, how long do you think the argument of both matters – obviously we will hear both matters together. How long will that be?

MR WALKER: It will not be finished within one day.

KEANE J: Mr Halley?

MR HALLEY: We would agree with that, your Honour.

KEANE J: So a day and a half?

MR WALKER: Yes.

KEANE J: Okay. Very well, there will be a grant of special leave in the matter. The parties should obtain from the Deputy Registrar directions for the filing of submissions and should adhere to them.

AT 1.04 PM THE MATTERS WERE CONCLUDED