Air New Zealand Ltd v Australian Competition and Consumer Commission; PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2017] HCATrans 46 (3 March 2017)

Last Updated: 7 March 2017

[2017] HCATrans 046

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S245 of 2016

B e t w e e n -

AIR NEW ZEALAND LTD (ARBN 000 312 685)

Appellant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

Office of the Registry
Sydney No S248 of 2016

B e t w e e n -

PT GARUDA INDONESIA LTD ARBN 000 861 165

Appellant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

KIEFEL CJ
BELL J
KEANE J
NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 3 MARCH 2017, AT 10.01 AM

(Continued from 2/3/17)

Copyright in the High Court of Australia

____________________

KIEFEL CJ: Yes, Mr Sheahan.

MR SHEAHAN: Your Honours, I propose to go first through the relevant provisions in the statute, as in section 1 of our outline, and then to pass over, if I might, section 2 of our outline temporarily, so that I can take the Court through section 3, which has the main factual findings that bear upon the questions that arise, since they have not been touched upon much in the proceedings so far.

Going to the statute, as we said yesterday, we think it is common ground that 4E operates only after the market definition process has occurred and it then asks: can that market be characterised, the market as found, as in Australia? The text of the section does not suggest that anything less than the market as found, in all its dimensions, should be assessed for that purpose of applying the territorial test.

The context is perhaps significant. Section 4E is engaged in this case by sections 45 and 45A and they are concerned relevantly with the effect of certain arrangements on competition. Now, competition is relevantly defined, as your Honours I think will have seen, in 45(3) as:

competition in any market in which a corporation that is a party to the contract, arrangement . . . supplies . . . services -

So, that the idea of market which is caught up in section 45 by subsection (3) is anchored in the provision of services. The same in 45A where it is adopted, the same in 47 where it arises in relation to some of the contraventions that are there dealt with, those that are not per se offences, and then the third line, enforcing. So, that if one looks at section 47(10):

Subsection (1) does not apply to the practice of exclusive dealing –

unless, and then there is a competition test. Then, in (13)(b) there is a definition of “competition” – competition for this section having a slightly different meaning to competition in section 45. Again, in each case competition and, therefore, market is anchored in the provision of services.

Now, that is the context that gives rise to section 45E. A second thing to note about section 4E is that it does not offer a definition of “market” as such. I think our learned friend, Mr Walker, said yesterday that at one point that it defines “market” in a prescriptive way. In truth, 4E does not define “market” at all. It does two things. It imposes a territorial limitation by the words “market in Australia” and then it goes on to indicate inclusively some things that ought to be included or had regard to in defining a market.

So, in our submissions, in paragraph 50, we refer to what Justice Heydon said about it extracurially. At the bottom of page 8, section 4E:

may do no more than raise some of the questions that must be asked in leading the evidence. It says that the market must be in Australia. When used of goods and services, “market” is to include substitutable or otherwise competitive goods and services. This raises some questions about mapping the product dimensions –

I emphasise the word “product” because, as his Honour rightly, we think, intuited the main focus here is the product dimension:

of the market but it provides no answers. Nor would it be proper for the Act to do so.

Justice McHugh in Queensland Wire, I think, also observed – I am sorry – in Boral that section 4E does not provide a definition of “market”.

The second thing we alluded to – the second thing to note about 4E – we alluded to at the end of the day yesterday, and that is that in imposing a territorial restriction on the operation of the Act, it is not rightly to be seen as imposing a geographic test as such. When the Chief Justice and Justice Gageler in Flight Centre observed correctly, with respect, that a market need not be a place something very important was observed. Markets can be disembodied things. It is an abstract concept as employed in this Act and, as is found sometimes in the real world, particularly in an environment where services are increasingly digitised.

So, when the Act requires the market to be in Australia, that question may have to be assessed in the same way one might assess the location of a chose in action for the purposes of a statute, not slavishly by reference to the rules that apply to international law but having regard to the text of the statute and its object and the context of the provision.

The third thing to note about 4E itself is that expression “otherwise competitive with” tacked on to the reference to the need to have regard to substitutability. There are three points we would like to make about “otherwise competitive with”. The first two are by reference to what was said about competition in the QCMA Case, which your Honours will recall as the foundation of much of the analysis on the other side. It is in the first volume of the authorities, tab 1. The first point to note is the observation at page 514 at about point 7, where the Tribunal says:

we add a few comments on how the Tribunal views competition. However, “competition” is such a very rich concept (containing within it numbers of ideas) that we should not wish to attempt any final definition -

What follows is all-important, but for our purposes the notion that it is a very rich concept is significant in the questions presently before the Court.

The second thing that we wanted to point out by reference to QCMA is on the opposite page at about the same point, line 40:

Competition expresses itself as rivalrous market behaviour -

as price competition, obviously. Then a point is raised about competition of other kinds. And the Tribunal concludes:

In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers.

That is important, possibly trite, but it is important because it emphasises that the process of competition, the dynamic of competition that is at the heart of all these inquiries is something that occurs across the whole spectrum of the provision of the service in question. It is not a process or a dynamic that stops once the delivery of a service commences, by putting goods on a plane in Hong Kong, for example.

The third point we would make about this expression “or otherwise competitive with” is that we think it is reasonably well established that there can be significant competition effects and constraints that do not derive from substitutability as such. I will give your Honours two examples, without at the moment going to the cases. One relates to the wholesale supply of groceries to independent retailers. This was the subject of sort of, as it were, parallel or consecutive proceedings in the court and then later in the Tribunal.

The key question in each environment was: do we define the market as a wholesale market for the supply of groceries to independent retailers, located where the independent retailers are getting their supplies, from QIW’s warehouse at Loganlea - or Rocklea, I should say – or do we say that the independent wholesalers selling to retailers are selling to retailers who are constrained in their conduct by the big grocery chains – Woolworths and Coles – who operate nationally.

So that the more realistic way to examine the dynamics of competition in a market, in this case a merger between two independent wholesalers, is to examine a national or eastern seaboard market for the supply of groceries to consumers.

That was a case in other words where the pressure of competition downstream from the actors and their customers bore upon market definition and the competition analysis.

BELL J: Was this concept of competition having a dimension apart from substitutability the subject of the expert evidence and any findings?

MR SHEAHAN: In this case?

BELL J: Yes.

MR SHEAHAN: Yes. In fact, I think it is common ground really. I think it was acknowledged yesterday, and certainly dealt with by the trial judge, that downstream constraints can have an impact on a competition analysis and market definition.

Factually, in this case there were not found to be any relevant downstream constraints of this kind, but my point for present purposes is in the context of construing section 4E, do we start by answering this question in Australia on the footing that, as our learned friends I think encouraged the Court to do, the balance of the section goes on to mandate or prescribe a focus on the definition of markets and competition that is exclusively directed to substitution possibilities. It is substitution possibilities in supply that we heard all about yesterday.

BELL J: What is the significance of the submission, given the primary judge’s findings respecting downstream effects?

MR SHEAHAN: It does not have any significance. If we get to the second question level – I will deal with the construction of 4E first, but at the second question level it does not have any significance. I accept that. But it does have significance in assessing the width of the inquiry that one undertakes at the section 4E level in the “in Australia” question.

Now, the second example where this sort of problem came up is in relation to tugboats. Tugboat markets intuitively are local. If you are at Wollongong, you have only got the suppliers in Wollongong, you cannot get supply from someone in Melbourne or wherever and that has been a definition of the geographic market, the tugboats, has occurred in some cases. But wider definitions have also been adopted, including in Howard Smith in the Tribunal on this footing.

But while in a particular port the opportunities for substitution were confined to the tugboats in that port, the people buying the services of tugboats typically operated at more than one port and if they stopped using the services of a tugboat provided at port A, they would probably stop using the services of the same tugboat provider at ports B and C and, in that sense, there was countervailing power, as it is sometimes put, on the part of the customers that constrained what would otherwise have been the market power of the tugboat providers if they had a dominant position in a particular port. Again, nothing to do with substitution, but part of the richness of the competition analysis that is necessary and something that is overlooked if one simply focuses exclusively on substitution possibilities.

NETTLE J: But the market remained the market where the tugboat operated, surely, in that case?

MR SHEAHAN: No, and in the Howard Smith Case it was held to be a national market for tugboat services.

NETTLE J: Is it not that the competition or the effects on competition in the local market were affected by factors which were nationwide?

MR SHEAHAN: They were affected by factors which extended beyond individual ports, yes.

NETTLE J: So, to determine the effect on competition in the local port one looked to factors abroad but one was still looking for the effect on competition in the local port, was one not?

MR SHEAHAN: Well, that was the starting point of the question. So, the question is posed because you have, for example, a merger authorisation or an asset acquisition authorisation in a particular port. That throws up the question, is that going to involve a substantial lessening of competition. Do you define the market as being national, and the answer is no, because it is just two operators in one port.

Now, the third thing we would note, just returning to the statute, if we may, and the context for 4E, there is section 46(3)(b) and 46A(4)(b) and this is consistently with what we have just been saying. Both require an assessment of market power by reference to constraints derived from persons to whom the services are supplied; so, again, downstream considerations, not really to do with substitutability at all.

Fourthly, when one gets in the Act to the most comprehensive description of matters bearing upon substantial lessening of competition – that is in section 50(3) – there are nine mentioned. Only one of them at (f) is substitutes. The others include (b):

the height of barriers to entry –

which in a case like this requires attention to where a service is actually provided. Subparagraph (d):

the degree of countervailing power in the market –

which directs attention to the ultimate sources of demand for the product in the market. Not the immediate source, necessarily, but the ultimate source, and along with that:

the dynamic characteristics of the market –

which are mentioned in (g):

including growth, innovation and product differentiation –

which goes back to the point we have mentioned already, that the process of competition involves a process of rivalry across – not just price – but the whole package of service and product delivery, and so on.

Also, relevantly, in this context, there is the observation of Justice Deane in Queensland Wire Industries that we quote in our submissions at paragraph 40. It is sufficient to go there, I think, where he said – having mentioned – it is on page 6 of our submissions – having mentioned that:

identification of a market involves “value judgments about which there is some room for legitimate differences of opinion” –

He said:

the definition of a market:

will commonly involve assessment of the relative weight to be given to competing considerations in relation to questions such as the extent of product substitutability and the significance of competition between traders at different stages of distribution.

GORDON J: You do not rely upon that, though, as an exhaustive definition.

MR SHEAHAN: Certainly not, certainly not. But, we do, your Honour, rely on it – consistently with what we have been seeing in the statute itself – as indicating that there is real content in the “or otherwise competitive with” language in section 4E. Whereas, I think our learned friends would rather have it as being – well, I think they put it expressly – as indicating nothing more than there are some blurry lines around substitutability.

BELL J: Consistently with the analysis in the Seven Network Case.

MR SHEAHAN: What we are putting, I think, is consistently with the analysis in the Seven Network Case. Sorry, now I remember what your Honour is referring to.

BELL J: Yes.

MR SHEAHAN: And, yes, consistently with an obiter observation - - -

BELL J: Yes.

MR SHEAHAN: - - - in that case. That is there point about it.

BELL J: Yes.

MR SHEAHAN: Our submission is, with respect, that is wrong. When you look at the statute as a whole, when you look at authorities and observations such as Justice Deane’s, it is plain that the “or otherwise competitive with” limb has real work to do. And, in that context, it is not insignificant that the text of 4E, as a matter of text, subordinates substitutability to “competition”:

includes a market -

so it is inclusive for:

goods or services that are substitutable for, or otherwise competitive -

substitutable or for some other reason, to be taken into account or treated as competitive, the ultimate question being competitive. The ultimate question is not substitutable; the ultimate question is competitive, and that is, as the Tribunal pointed out in QCMA, a very rich concept.

BELL J: I understand the reference to it being a rich concept. If it is not to be understood in the way described in Seven Network, what are the boundaries of “otherwise competitive with”?

MR SHEAHAN: That is not a question that can be answered in the abstract, in our submission.

BELL J: Can it be given any content beyond the assertion that it is rich?

MR SHEAHAN: The instances of its application give it content – the two examples I have given already. There will be others in the course of these submissions. But really, as the Tribunal made plain in the passage that I took you to, it is unwise to attempt any formula for the resolution of these questions and really that is what Justice Heydon was saying extracurially in the passage I took your Honours to a little while ago as well.

The courts should not attempt to lay down bright-line rules for these questions. The markets, as I think he put it in another passage we quote, must be revealed to them, must be revealed to the court on a case by case basis. I understand that sounds unhelpful in a sense but we are dealing with a statute that employs deliberately evaluative language.

GORDON J: In Liquorland, Justice Allsop described it as, in a sense, ought to provide some content to the question of market identification and talks about looking at the conduct and trying to, in a sense, work out where it best fits, having regard to the competitive or anti-competitive attributes that are said to attach to the conduct.

MR SHEAHAN: Yes.

GORDON J: Are you saying any more than that?

MR SHEAHAN: We are not saying anything different from that, no, your Honour.

GORDON J: And that is why you start with 45?

MR SHEAHAN: That is why we start with 45. The last point we wanted to make about statute was that – and this is what we were just touching on – it is necessary to take into account the kind of provision that we are discussing. This is a point made well, in our submission, by Justice Leeming, again extracurially, in an article in our supplementary bundle of authorities behind tab 7.

At page 116 in the article “Equity: Ageless in the ‘Age of Statutes’” in the second full paragraph he refers to Justice Frankfurter and Justice Friendly and America having anticipated the distinction, which he says is important and underappreciated. Frankfurter had said that the:

‘enactments such as the Sherman Law that embody a felt rather than defined purpose and necessarily look to the future for the unfolding of their content, making of their judicial application an evolutionary process nourished by relevant changing circumstances’. Judge Friendly described such statues as open - rather than close-ended. Open-ended statutes, which turn on broadly expressed concepts, like ‘misleading or deceptive’ or ‘manner of manufacture’, naturally and indeed necessarily attract a more purposive and less minutely textual mode of construction. What is more, different parts of the same statute may be construed differently -

He concludes with a reference to Judge Katzmann’s recent book where the same point is made: different tools, depending upon the thing that is being analysed, the work that is being done.

Now, it is relevant that that examination commences with Justice Frankfurter’s observation about the Sherman Act. The same principles are relevant in relation to the Trade Practices Act, Part IV. That seems tolerably clear, we think, from the second reading speech for the original Bill, which is in tab 15 of the legislative materials folder. I do not need to take your Honours to it now but, on page 3, from about halfway down the page to the end of the page. Perhaps I should just note that there was a quote from Chief Justice Hughes in an American decision on the Sherman Act, when he said:

It does not go into detailed definitions which might either work injury to legitimate enterprise or through particularization defeat its purposes by providing loopholes for escape.

BELL J: I am sorry, which page is that?

MR SHEAHAN: Sorry, it is page 3 of the second reading speech, behind tab 15 of the legislative materials. So what do we get from the statute, in our submission? First, that for sections 45 and 47 in particular, the contraventions are anchored in the provision of services. Secondly, that the market in the substantive provisions, 45, 46 and so on, is deployed as a focusing device for competition analysis.

In section 46 it has a slightly different operation, because you have a finding of market power. But the contraventions there are all contraventions directed to interference in particular ways with the process of competition. Properly understood, “market” in the Act has, as it were, a procedural function, a focusing function. It operates as a tool to assist analysis of the key operative provisions and in particular their operations in relation to competition.

Now, thirdly, nothing defines or limits “market” to substitution possibilities – nothing in the text. On the contrary, when one reads 4E as a whole, the “or otherwise competitive with” limb has real content, it is not subordinate. Fourthly, the expression, “market in Australia” is not about geography, it is a territorial limitation on the operation of the operative provisions of the Act where the notion of market is employed.

Fifthly, geographic dimension, the thing on which the appellants hinge their entire case, is nowhere mentioned and it is important to understand that the geographic dimensions of markets are themselves merely tools for analysis of the market. They are conceptual devices to better understand the market. So, they are tools to assist in using a tool to assist in applying or focusing the application of operative provisions in the Act.

The geographic dimension of a market is a second order analytical device that the appellants seek to erect into a criterion for the operation of the statute. That, in our respectful submission, is not a legitimate mode of reasoning and it has no footing in the text, context or objects of this legislation.

KEANE J: Well, except that the statute section 4E postulates the possibility of locating the market.

MR SHEAHAN: Indeed, plainly. What it does not require, in our submission, is to reduce the inquiry involved in that location, the “in Australia” words, reduce that inquiry to the outcome of an investigation of a heuristic device, the identification of a geographic dimension of a market that has already occurred in the market definition process. There is nothing in the text that suggests that the “in Australia” question should be confined to a reference to one dimension of the dimensions of the market. That might sound in the abstract like an odd thing to say. I mean, the geographic definition surely will capture all the geographic aspects of the marketing question.

On our learned friend’s case, no, because the product dimension in this case is Hong Kong and Australia. That is common ground. Both experts agreed. The product dimension had a geographic aspect. It was pick up in Hong Kong and deliver to Sydney. On our side, we submit, that is a powerful reason for concluding when you ask the 4E “in Australia” question, a powerful reason for concluding that yes, this market, even if only by reference to its product dimension is in Australia, why exclude?

BELL J: So that any product that ends up in Australia gives you a basis for a finding of a market in Australia.

MR SHEAHAN: Not necessarily. It gives you a basis for - - -

BELL J: A product dimension always has it in Australia, so you always have that nexus, if that is all that is here required.

MR SHEAHAN: We do not say, I think, at any point, as an abstract proposition, that any particular thing will necessarily be enough. So the mere fact that there is (a) an Australian geographic aspect to the product dimension does not necessarily warrant a conclusion that the market is in Australia.

NETTLE J: Is your test, at the end of the day, after you have taken into account all these considerations of market in Australia any different to the American idea of geographic market?

MR SHEAHAN: We will have to come to the American decisions in a little while. I think it is, with respect, a very difficult question to answer because it is not all that easy to say what the American approach is, even by reference to the cases that our learned friends went to yesterday.

NETTLE J: Although there are quite a few of them saying the same thing, at least as it appears to me.

MR SHEAHAN: When we get to them what we will submit is that they, properly understood, indicate that the geographic definition of a market will extend to where the customers are, which I think was the burden of some of the propositions that were put by the Bench to our learned friends yesterday.

NETTLE J: Particularly where the product is marketed.

MR SHEAHAN: Where the product is marketed. So we agree with that completely. We would submit that, for the purposes of both the “in Australia” question, and if we were doing the geographic market definition question, you would define “the market” in a case like this by reference to the location of major customers. That would extend your definition to Australia.

We would say you would extend your definition by reference to the fact that the services, the competitive rivalry, occurs here. You would extend your definition by reference to the fact that there are barriers to entry here that have to be overcome. That is not necessarily as significant as the other matters but it is significant. You extend your definition to Australia because the product materially, in its product dimension, is an Australian product.

The geographic aspect of the product dimension is not incidental or peripheral; it is central and fundamental. There is no more significance in picking up the goods in Hong Kong than there is in delivering them in Sydney. Indeed, a customer, whether it is an exporter in Hong Kong or an importer in Sydney, has no interest in whether they are picked up if they are not delivered. They have no interest in what happens in between as long as the delivery is secure and timely.

BELL J: You describe the concept of “market” as a tool to assist in the analysis.

MR SHEAHAN: Yes.

BELL J: Once you move away from what I will describe as the Seven Network concept of the scope of the 4E definition, what value is the tool? What work does it do?

MR SHEAHAN: Well, if one goes back to the operative provisions – 45, 47 and 50 in particular – “market” feeds into each of those because it has to be a competition in a market and each of them has a separate competition focus. In section 45, it is parties to the arrangement. In section 47, it is vertical so it does not have parties to the arrangement, there is a different structure. In section 50, it is at large.

BELL J: Any of the rich competitive behaviour between the corporations that are a party to the understanding for the purposes of section 45, on the analysis that I understand you are advancing, might be said to inform the concept of “the market” because it is an elastic concept. So it is not altogether easy to understand what value as an analytic tool it is serving.

MR SHEAHAN: The question your Honour asks is a very good one. Some American economists, for example, will say, when asked about these questions, that really market definition does not matter; what you really need is an examination of competition and constraints. It is an unnecessary in many cases exercise to try and define “market” but it is in the Act and so we have to use it.

BELL J: It is in the Act and it is - - -

MR SHEAHAN: Deployed.

BELL J: And 4E needs some content.

MR SHEAHAN: Yes - and keep in mind originally in the Act it was just the territorial limitation. The balance referring to “substitutability or otherwise competitive with” was added after the Swanson Committee Report in order to, I think, probably dispel what might have been confusion about what products were.

There was a decision that found a market associated with a single brand of a product and that obviously gave too narrow a focus to the operation of the substantive provisions of the Act. So these words were introduced largely to dispel that notion.

We have what is fundamentally with the words “market in Australia” a territorial limitation on the operation of the Act, which operates in addition to the main territorial limitation, which is in section 5. The Act applies to anyone, wherever they are, who carries on business in Australia. For the purposes of these operative provisions in Part IV, 4E comes in to provide an additional limb of territorial restriction. I am not sure that I can be of more assistance to your Honour than that, I am afraid.

Before moving on from the statute, I was going to respond to your Honour the Chief Justice’s question yesterday about the particular context here being a 45A case. We cannot say that market has no relevance here or that 4E has no relevance because in 45A the last few words require that all this is happening amongst parties to the contract:

in competition with each other.

So, there is some competition element as an element of the contravention and as an element of 45A applying, and by 45(3) the definition of “competition” means “competition in any market”, applies to 45A, so that by that means the definition or the provision dealing with marketing in 4E is brought into play.

But as this Court has said recently and previously, market is an instrumental concept, it is purposive, and what one can say is that in the context of 45A it has, compared to the other provisions, distinctly attenuated significance because 45A does not call for any analysis of market power and it does not call for any analysis of the substantial lessening of competition. It only calls for an answer to the question whether the parties to the arrangement are in competition with each other, the question which is usually easily answered and here was easily answered. If I can turn then, your Honours, to section 3 of our outline, the factual findings - - -

GORDON J: Just so I can finish that off, does that mean that the next step in that logic is that having identified those elements and, as I understand it, there is no dispute about them, the next question is, well, they are in competition with each other, where do they compete?

MR SHEAHAN: Yes, and we would say that the answer to that question, evidently, extends to competition in Australia because they compete here for customers - - -

GORDON J: So, to pick up Justice Bell’s, in effect, query about market and looking at otherwise competitive and competition, there are various aspects to competition?

MR SHEAHAN: Indeed.

GORDON J: So, the context is then driven by the facts rather than – when they talk about the rich textual analysis, they are not talking about necessarily our outer limits. One is looking to see, in a sense, where the parties compete and how they compete.

MR SHEAHAN: Yes. To take up that point, a different way of approaching – Dr Williams’ approach to the issues in this case was to say, we look first at the conduct said to amount to the contravention and then we look at the activities of the firms that gave rise to that conduct. That, I think, is harmonious with what your Honour has been putting to me. We have an allegation of collusion as to prices in Hong Kong in the provision of freight services to Sydney, what activities give rise to that and those activities include the activities of competition between these parties in relation to customers in Australia, the provision of services in Australia and the objection to the collusion is that it is inconsistent with price competition for that source of demand.

NETTLE J: To what extent can we rely on Dr Williams’ analysis?

MR SHEAHAN: We did not, at any point, disavow Dr Williams’ analysis so it sits there. We have given to your Honours’ associates, I think, or I can hand up at any rate our reply submissions in the Full Court below which affirm that, notwithstanding what the majority said at paragraph 100, I think, we did rely on it. I will hand those up.

BELL J: So, to the extent that the primary judge rejected Dr Williams’ analysis, it was because of the view that his Honour took respecting the central issue, as it were. So, he saw Dr Williams as beginning at the wrong end of the inquiry.

MR SHEAHAN: The other two experts did not approach it in the way Dr Williams did and so I think that led to Dr Williams, in effect, being put to one side. The issue was joined from an identical starting point as between Church and Gilbert.

BELL J: Professors Church and Gilbert. Yes.

MR SHEAHAN: But, the approach of Dr Williams remains available and, in our submission, it is, in fact, harmonious – it is derived from an article by Professor Brunt which he cites in his report which is in volume 4 of the appeal book. The focus on activities in the competition analysis is consistent with the passage we will take you to in a little while from what Justice French said in Taprobane.

GORDON J: Also, Boral, probably.

MR SHEAHAN: Yes. So, if I can take your Honours to the facts in volume 2 of the trial judge’s reasons. Starting with paragraphs 232 to 233 on page 451, just to note this – in the context of dealing with the product dimension, the discussion that starts on page 447, his Honour examines - - -

KIEFEL CJ: Which paragraph are you - - -

MR SHEAHAN: Paragraph 231 and following – 231 to 233. His Honour examines two questions, principally – substitution possibilities at origin and substitution possibilities at destination. In other words, instead of sending cargo, Hong Kong to Sydney, could you send it from Guangzhou to Sydney – truck it over the water and send it that way. Would that be a competitive restraint on collusion in the Hong Kong – amongst the Hong Kong freight providers?

At the other end, the same question. Instead of sending it Hong Kong to Sydney, could you send it Hong Kong to Melbourne and get it shipped up by rail? Would that be a competitive restraint? The answer to each of those questions was no. The relevant point, for present purposes, is that the product dimension analysis required an examination and was given an examination of substitution possibilities at both origin and destination, which we think has some significance in deciding whether this is a market in Australia.

KIEFEL CJ: I am sorry, could you expand on that? Why?

MR SHEAHAN: Because it emphasises that the Australian dimension of the product market being just as significant as the Hong Kong dimension.

KIEFEL CJ: So, you are referring to process of inquiry rather than the result of it.

MR SHEAHAN: Yes, exactly, the process of inquiry, but each limb, origin and destination being equally significant in the analysis of the product. Now, the factual findings continue at 456. Perhaps I should note at 455 at the bottom of the page his Honour concludes that:

the product dimension . . . consisted of the services of . . . cargo from Hong Kong to individual ports in Australia.

The geographic dimension findings commence on the next page.

KIEFEL CJ: Which paragraph?

MR SHEAHAN: At 253. His Honour refers to four elements; in fact, there are three. At 253 to 256 he breaks up the product into “Transport services”, “Ground handling services” and “Enquiry services at airport”. Then in 257, his Honour says:

It would be obvious that each of these services had a geographical element to it. The ground handling services were provided physically at both the origin and destination airports and the transportation service was provided along a geodesic line . . . The enquiry services were provided principally at the destination airport -

So they are the services. Each has a geographic aspect. Each has an important fundamental, not incidental, geographic aspect that is Australian. He then goes on to address the identity of market participants in 259 and following. Now, at 262 to 263 his Honour refers to the question “whether the shippers were market participants” and in 262 importantly he says:

One effect that a price increase might well have in the Hong Kong air cargo market could be to cause importers in Australia to stop importing from Hong Kong altogether. An analysis of market power in Hong Kong would therefore necessitate an assessment of that phenomenon which would be Australian in origin. It would be to encourage error not to take into account . . . the source of that effect.

In 263, he concludes in the last sentence:

The market participants in the various materials . . . included air carriers, freight forwarders and some large importers in Australia and exporters in Hong Kong.

KEANE J: Was there any exploration in the evidence of rivalry between importers in Australia, large import/export firms?

MR SHEAHAN: As to the provision of freight?

KEANE J: Well, in a sense, even though the Act distinguishes suppliers and acquirers, in a sense acquirers are suppliers too because they provide money.

MR SHEAHAN: Yes.

KEANE J: If the buyers of freight services, importers, someone who is importing Sanyo whitegoods or something, Sanyo appliances, if one of the big shippers wants their supplies more regularly than another and are willing to pay for it, they may attract better rates from the airline supplying the services. So, in a sense, they would be suppliers too. You could not really look at the market without looking at them and the effect of their activities on the price.

MR SHEAHAN: Indeed.

KEANE J: Was that explored?

MR SHEAHAN: I think, yes, and we will be coming to it in the factual findings that I am about to continue with.

GORDON J: The majority dealt with it as part of their evidence, did they not, when they were dealing with Toshiba and those sorts of people?

MR SHEAHAN: Yes, it was dealt with in a more summary way in the Full Court.

GORDON J: I thought it was the other way around. I thought, at least we had some evidence of some facts.

MR SHEAHAN: But the trial judge’s findings on these matters are no longer challenged. There was one challenge by a notice of contention in the Full Court but it is no longer pressed.

At paragraph 270, on page 459, having set out the vertical structure of the industry in a schematic way in 268, his Honour says in 270, at about line 40:

At the other end of the spectrum –

from small ad hoc consignors:

there will be significant exporters and importers of chattels whose very size and the volume of whose cargo signify the presence of substantial economic actors.

And we emphasise the word “economic” in that context. On the next page, at 272, he says:

The Commission’s documentary and testimonial evidence on this issue strongly suggested that airlines, in general, regarded significant importers and exporters both as targets for their marketing activities and also as the ultimate source of business.

Can we just pause there to make this observation, your Honours. You will recall yesterday our learned friend, Mr Hutley, trying to draw a distinction between marketing in the sense of promotion and marketing in the sense of sales. In our respectful submission, it is a meaningless distinction in an economic context because marketing is just directed at places where you hope to have sales, and sales are where the sales are. They are both equally material in an economic analysis for competition purposes. So the attempt to draw a distinction, in our submission, goes nowhere. His Honour went on:

Many of the airlines produced cargo magazines for the cargo trade and a cursory examination of these makes clear that the larger shippers were regarded by airlines, in general, as objects to be pursued. Further, the internal reporting documents for a number of airlines show that the cargo moving activities of particular shippers were the subject of intense scrutiny. These observations accord with common sense.

Then going over to 277 on the next page, again referring to the marketing magazines; this is about at line 21:

the marketing magazines of the airlines – which were directed to multiple markets – do proceed on the basis that regardless of origin port the airlines were focussed on shipper activity.

Turning over to the next page, 284 – what I am skipping over, your Honours, is some of the more granular reference to the evidence for these conclusions. At 284, on page 462, he was taken to many marketing reports of the airlines. And he concludes the paragraph, by saying:

To my mind these show that the marketing operations of airlines in the Asian market were focussed in large part on the activities of large shippers who were perceived to be the ultimate source of demand.

A critical finding, in our respectful submission. At 286:

The real question is whether airlines perceived shippers to make decisions about which airline they would use or whether that decision making process was confined in its entirety to freight forwarders. I do not accept that all large shippers were content to leave the decision about which airline to use to the freight forwarders. I can see no reason why a firm with a lot of cargo would not use the volume of its business to extract a better deal from an airline -

directed to your Honour Justice Keane’s point. Then, at 287:

In those circumstances, I conclude that across the Asia Pacific area the airlines recognised that shippers had demand for capacity. Indeed, they actively followed the position of shippers, recognising that these were –

now we say this with emphasis:

the economic foundation of the market.

In the next paragraph:

The Commission also submitted that the evidence showed that particular consignees had demand for the airlines’ services . . . This material showed that in the Asia Pacific region there were consignees who were actively considered as a revenue source by the airlines.

That was not contested. His Honour then notes a point which is that, while it was not contested, the respondents, now the appellants, were arguing that you could not infer that that was also the position on these Australian roads simply because it was the position in the Asia Pacific market more generally. His Honour, later at 302 to 307 looks at that question and rejects the argument. At 289, going back again to your Honour Justice Keane’s point:

the airlines designed their products according to the demand for particular scheduling, handling and storage requirements of specified shippers. The evidence, on an Asia wide basis, supported this proposition –

Paragraph 290:

The Commission submitted that certain shippers had particular preferences and were able to influence the choice of airline and flight.

His Honour accepted that appeared to be so. At 291 to 292:

the Commission submitted that airlines had direct contact and negotiations with shippers regarding price and service.

His Honour said it appeared straight forward, leaving aside the position of Air New Zealand which it comes back to. In the next paragraph, there was a report for Air New Zealand by a consultant which was:

replete with references to Air NZ having direct contact with customers . . . it emphasises in more than one place the three way nature of the relationship between Air NZ, the freight forwarders and the customers.

In light of that evidence, his Honour went on to reject testimonial evidence given to the contrary by Air New Zealand’s witness. At 293, there was a submission that:

airlines adopted sales and marketing strategies directed to shippers promoting the airfreight services which they offered.

His Honour accepted that that proposition was established for the Asian market in general. At 294:

The Commission submitted that airlines entered into tripartite arrangements with freight forwarders and shippers.

His Honour accepted that. At 298:

The Commission then submitted that airlines competed with each other for the custom of particular shippers.

His Honour concludes:

I did not apprehend there to be a dispute about –

this. At 300:

The Commission submitted that the airlines regarded the goods they carried as belonging to the shippers.

It was not the freight forwarding agent’s “stuff”, it was the shipper’s. That was obvious. And in 301, interestingly:

the airlines marketed themselves as dealing directly with the shippers.

Not merely did they deal directly with the shippers but they marketed themselves as dealing directly with the shippers - this is one of the services we provide. Come to us rather than someone else because we will deal with you directly.

His Honour goes on then to deal with the question whether findings about the Asia Pacific market in general can be applied to the Australian routes, and at 305 and 307 he concludes that they can:

There is no reason -

he says in 307:

to think that the structural features of the cargo business on different routes are different.

His Honour summarises these findings in 309 and concludes that:

the participants in the relevant markets –

included shippers at origin and destination - that is in (a) – and that shippers of the kind in question made decisions, often:

about which airlines they would use.

It was not the freight forwarder’s decision. And:

Where the shipper was an importer in Australia this decision was likely to be made in Australia –

In (c):

Relationships . . . were often tripartite –

and so on. Finally, in relation to the findings – there is one other subject. At 313 his Honour, having referred to the service, says:

Part of the service provided was provided in Australia in the form of carriage through Australian air space, ground handling services at destination airports and the service of handling enquiries about lost and damaged cargo. There is no doubt that the airlines competed against each other in providing these services and that the competition physically took place in Australia. Further there were substantial - - -

KIEFEL CJ: What is his Honour identifying as the competition, the conduct in actually carrying out the services?

MR SHEAHAN: Yes. And:

there were substantial importers in Australia whose custom the airlines tousled to obtain.

Paragraph 314 is also important, but probably repetitious. The only other findings I need to go to relate to barriers to entry.

GORDON J: At 326 of the judgment, the primary judge is dealing with the ultimate source of some demand in Australia and after dealing with Professor Church, goes on to deal with – in the middle of 326 he is:

prepared to accept that some of the demand for the services was –

Is that consistent with the earlier findings that you have taken us to or is that dealing with a different point?

MR SHEAHAN: I think when you get to 326 - - -

GORDON J: It is the third sentence.

MR SHEAHAN: Yes, it is making the same point, I think.

GORDON J: That is where he is dealing with Professor Church’s Australian dimension question.

MR SHEAHAN: Yes, well, Professor Church accepted that there was an Australian dimension in the product market but his view was that that was irrelevant to the question whether – to the geographic dimension of the market and it was irrelevant to whether the market was in Australia. I am sorry, I am getting confused between Church and Gilbert. Professor Church’s view was that there was, in this case, coincidence between product market and geographic market. It did not make sense, really, to distinguish between them because once you have defined the product, you have defined something that was fundamentally transnational between Hong Kong and Australia and included, fundamentally, the delivery of services in Australia and Hong Kong.

His Honour’s rejection of that approach seems to have been driven, if I may say so, entirely by an acceptance of the proposition put by the appellants that the focus – that first, we are only concerned in the 4E question, with looking at the geographic dimension of the market. And, for the purposes of the defining of “geographic dimension of the market”, we are only looking at the identification of substitutes. So, each of those, in our respectful submission, suffered the vice – if I can put it very broadly – of being overly reductionist.

BELL J: In the Full Court’s – in the dissenting reasons of Justice Yates at paragraph 622, his Honour says that:

the primary judge posed the overarching question: Where are the relevant substitutable services provided to consumer of those services? On appeal, the Commission accepted that this was the correct question.

The point, as I understood it, was that the Commission was contending that one looks at substitution possibilities across the range of the services provided, a view that rejected the single suite of services in favour of a notion of disaggregation. Does that correctly capture the way the Commission put the matter?

MR SHEAHAN: It correctly captures, I think, part of the way the Commission put the matter. In identifying – in responding to the proposition that the trial judge embraced, that we end up looking at where substitution decisions take effect, and we look at what are substitutes, the Commission said to the first, the substitution decision took effect just as much in Sydney as it took effect in Hong Kong.

As to the second, the product, the services that were being substituted one for the other included services being provided in Australia just as much in Hong Kong. So that when you defined the product it has this geographic dimension, it is transnational, it is Hong Kong-Australian and you cannot ignore that when you come to answering the substitution question: is it substitution transnationally of a transnational thing? Answer, yes. That is substitution in an Australian context.

BELL J: It is simply that I read from that encapsulation of the Commission’s position that the Commission was not contending other than for the centrality of the substitution question but rather that his Honour had narrowed it.

MR SHEAHAN: Yes. I think that is right. We do not cavil with the proposition that in market analysis substitutability is a central conception in the central device. We cavil with the proposition that it is exhaustive. We cavil with the proposition that in particular when you are coming to define a geographic dimension of a market that you ignore the location of customers, for example.

If your Honour goes back to the immediately preceding paragraph in Justice Yates’ reasons, your Honour will see him citing the Commission’s reliance on what had been said by the Tribunal presided over by Justice Finkelstein in Fortescue Metals where he said, in defining the geographic dimension:

“what is relevant ... are actual sales patterns, the location of customers and the place where sales take place.

So the “geographic market” definition - it has always been the Commission’s case that those matters are necessary not incidental parts of the analysis.

BELL J: How does the substitution possibility arise within Australia?

MR SHEAHAN: The substitution – I think this will sound like a non-answer to your Honour’s question – possibility arises as much here, we say, as it does in Hong Kong because it is by reference to Australian things and decisions are made relevantly in Australia that affect the volume of demand on the service providers who are in Hong Kong for the most part.

Perhaps a slightly different way of answering your Honour’s question is to answer this question: what, if any, difference does the approach to definition or delineation of the geographic dimension that we are proposing make, as opposed to what we describe as a narrow focus on substitutability or an exclusive focus on substitutability.

The first part of our answer to that question, which I hope is at least partly responsive to what your Honour put to me – what difference does this approach make - is that adopting an approach to geographic delineation that brings into account sales patterns, the location of customers, where sales are made, does not improperly reduce the chance of a finding that there has been substantial lessening of competition or that there is market power, and this case is in a sense a paradigm example of that.

Finding the market for these products, this service, as being Australian and Hong Kong does not diminish in any way the prospects of a finding of market power in one of the big Hong Kong carriers or finding that collusion among them gave rise to a substantial lessening of competition – not at all.

Adding a second limb into the product dimension, if anything, at least in theory, makes a product narrower rather than broader. There will be cases though where the wider analysis, bringing into account sales patterns, constraints at downstream levels, barriers to entry and so on, will have an impact on the question about substantial lessening of competition, will have an impact on geographic market definition.

The cases that I alluded to earlier this morning dealing with markets for tugboats in ports and independent grocery wholesalers afford examples of that. If you have a wider focus merely than substitutes in supply then the analysis may bring into account considerations which lead to a different answer.

So, our answer to your Honour is that in many cases the difference of approach for which we contend has no significance except perhaps when you get to a 4E “in Australia” question if you are going to plug your geographic delineation straight into the 4E question then it has some significance, but leaving that aside. In many cases, no difference, in some cases, material difference, in no case, we would submit, an improper difference because the things that are brought into account by a wider examination of circumstances of competition and constraint, wider than merely substitution possibilities are absolutely legitimate to be brought into account in the context of the statute and its objects and the decisions of the tribunals and the court reflect that.

The last factual findings I wanted to take the Court to dealt with the existence of barriers to entry in Australia and in the trial judge.....reasons we see them at paragraphs 70 to 78 at pages 402 to 403, 405 to 40 – I cannot read my own writing, I am sorry - - -

KIEFEL CJ: Sorry, did you say paragraph - - -

MR SHEAHAN: Paragraphs 70 to 78 at page 405. So there are findings about regulatory restraints governed by air services agreements, that is through 74, then in 75 and following “Domestic regulation of international transportation of cargo” and then in 77, 78 “Landing slots” which are not a regulatory restraint but they are a vital commercial restraint. They are a vital commercial restraint only operating at the destination. Those are the critical findings on barriers to entry.

Then may we simply note that in Taprobane - I do not need to go to it just now but it is in tab 3 of the authorities - in Justice French’s reasons at page 179 he treated them as – perhaps I should go to it, I am sorry. His Honour said “analysis of market structure - - -

KIEFEL CJ: Where are you reading from, Mr Sheahan?

MR SHEAHAN: I am sorry, it is actually point 5, I think, on page 179, I am sorry, your Honour:

Analysis of market structure is necessary to determine distribution of power within the market.....

2. The height of barriers to entry - - -

is one of the relevant factors and something similar was said by the Tribunal in QCMA.

Now, that said, we accept that barriers to entry are not as significant in this case as the other factors that we have been mentioning. But the fact that there are barriers to entry in Australia is, on a conventional analysis of competition and market, a legitimate factor to be brought into account and the fact that those factors are significantly operative in Australia helps to assist in concluding that this is “a market in Australia” for the purposes of addressing the section 4E question.

NETTLE J: Are you finished with the evidence now?

MR SHEAHAN: Yes.

NETTLE J: Could I ask you one question, please, and I am sorry to repeat that Dr Williams was shunned in the Full Court’s reasons, or at least the majority’s, because it was said that he accepted his analysis was contrary to Application by services Sydney Pty Ltd.

MR SHEAHAN: Yes.

NETTLE J: In a word, why should we not reject his evidence for the same reason?

MR SHEAHAN: For the reason that is given, I think, in paragraph 21 of the Full Court’s submissions that we handed up, which is that while that is so, his method of analysis was in fact consistent with another Australian authority, including the description of market definition, including geographic definition, in Justice French’s reasons in Taprobane.

BELL J: Was the issue addressed in Taprobane?

MR SHEAHAN: I will come to Taprobane in a little while, but there was a market definition issue in Taprobane. But the resolution of the question insofar as it was resolved came after a long and, with respect, as one might expect, useful discussion of the basic principles by Justice French. It is that discussion of principle, strictly speaking, perhaps obiter, is what we are referring to here.

NETTLE J: Is your analysis contrary to Application by Services Sydney?

MR SHEAHAN: Our analysis in this Court is not.

NETTLE J: It is not.

MR SHEAHAN: We accept that, in a sort of strict, as it were, slavish application of the method of analysis of Dr Williams would be inconsistent with the approach that was adopted by the Tribunal in the Sydney Case.
But we say that that does not stand in the way of the Court seeing the wisdom of it, given its harmony with the principles as stated by Justice French in Taprobane, in particular, the proposition that a central element or a necessary element of geographic market delineation, looking at the geographic dimension, is looking at the activities of the competitors in the marketplace.

GORDON J: Just before you leave the evidence – I am sorry – in the Full Court, Justices Dowsett and Edelman, at 57 and following, set out in effect specific evidence that did not seem to be referred to by the trial judge in dealing with the importance of shippers and the role that the shippers played when vis-à-vis picking up Justice Keane’s point – that is, the extent to which they themselves in effect were an important part of demand or market from the supplier’s perspective. Is that right or wrong?

MR SHEAHAN: I think, your Honour, the evidence that is referred to by the Full Court at 57 and following is some of the evidence that, in going through the trial judge’s findings, I passed over going from conclusion to conclusion, but it may be that they referred to some additional elements of evidence, but they are not referring to different findings, I do not think. It is pointed out to me that your Honours will have seen that a lot of what Justice Perram did in the passages that I took the Court to was referred back to footnotes - - -

GORDON J: That is why I am asking, because I could not find it in Justice Perram’s judgment, so what I am asking is: is this the factual material that would have been found in the footnote?

MR SHEAHAN: Yes.

GORDON J: I see.

MR SHEAHAN: There was just one other aspect of the expert evidence I wish to go to before going to the way the Full Court approached this “in Australia” question. My learned friends referred to some agreed facts in volume 4, pages 1365 to 1366 to highlight an area of agreement on which they understandably rely, between Professor Church and Professor Gilbert, in particular paragraphs 44 and 45, I think. I am sorry - they were looking at 10 and 11. The ones that we would then point to are the areas of disagreement, which one sees at 44 and 45 and then again at 47 and 48, and 48 in particular.

GORDON J: What are we to do with that reference?

MR SHEAHAN: It is just to put in context that the agreement as to some matters of principle between Professor Church and Professor Gilbert did not translate into an agreement as to what mattered, which was whether, by the application of sound economic principle, one reached the conclusion that the markets in question were or were not in Australia.

If I can turn now to how the majority approached what we have called the first question, can I just highlight the fact that it was a real question, and not by reference to some paragraphs of their Honours’ reasons, to indicate something about the structure of the majority’s judgment. In 72 on page 792, at the bottom, they identify the questions in reverse order to the way we have identified them, I think:

The first issue involves defining the market.

We have agreed that that is the premise on which the 4E question is asked. Then in 73 they say:

The second issue involves characterising whether the defined market is “in Australia”. In many cases, a determination of the geographic dimension of the market will reveal whether the market is “in Australia”.

We agree.

But the question is not whether the “geographic dimension of the market” is in Australia. Nor is it whether the effect of a switching decision is in Australia. The question is whether, as a matter of characterisation, the market is in Australia. For this reason, all of the matters identified by the Commission -

which are essentially those we have been raising with the Court today:

should properly be considered.

They then go on to summarise, in paragraph 74, the considerations that lead them to the conclusion that they have just described in 73.

This maps what happens in the paragraphs which follow. May we indicate that – if the Court goes to paragraph 90, you will see that the question that we have put as question 1 again being specifically addressed:

s 4E requires characterisation of whether or not the identified market is in Australia . . . But it would be an error to approach the question of characterisation simply by asking whether one dimension of the market was “in Australia”. The entire market must be considered, and the other dimensions may be relevant –

They make similar reference to this question specifically at paragraphs 149 to 151. In 150, they make the point again:

Although the issue of whether the market is in Australia is intimately connected to the identification of the market, as we have said, it is not any single dimension of the market that must be considered . . . but the market itself. Unless the overall dimensions of the market . . . are known, it may be difficult to determine whether it is in Australia.

Our point, in short, is that one addresses the characterisation question –

the “in Australia” question, as we put it:

by reference to a “market” not by reference only to some part of the market identification exercise.

Looking ahead, as it were, to the end of the exercise, at paragraph 160 – before they proceed to examine – or summarise the seven reasons that lead them to conclude that the market is in Australia they say, in the last two sentences of 160:

These reasons apply even if the question is to be treated as one of locating the “geographic dimension” of the identified market.

So, what their Honours do is plainly state the question: is the “in Australia” question to be resolved simply by reference to the geographic dimension that has emerged in the market definition process that has already occurred? They spent quite a deal of time giving reasons why the answer to that is a distinct negative. Then in 160, they make the point that, when they approach the question on that footing, they are going to conclude that this market is in Australia. But, in addition, the same considerations would lead you to a conclusion that if you were just focusing on geographic dimension delineation, you would reach the same conclusion.

NETTLE J: Mr Sheahan, putting aside the last two sentences of paragraph 160, is it correct to say that the part of the analysis that you have just shown us from the majority’s reasons precisely accords with Dr Williams’ evidence?

MR SHEAHAN: I could not say that it precisely accords with it. I could say that it was consistent with it. I should say that the burden of what happens between 73 and 160 is a discussion of what we have called “the first question” which is whether the inquiry, the “in Australia” inquiry should be limited to just identifying the product of the market definition and geographic dimension process. So, it is quite extensive discussion about what we have called the first question.

BELL J: Do I understand that you would accept that the definition in QCMA is not met on this analysis and you would say that is because when one is looking at “market” for the purposes of section 45 one has a different dimension in mind. Is that fair? I have difficulty seeing how you can fit this with QCMA.

MR SHEAHAN: In our submission, QCMA reflects a correct, perfectly natural emphasis on substitutability for the purposes of the market definition process that we say precedes the section 4E “in Australia” question. We say that understood properly the market definition process described by the Tribunal in QCMA is not limited to or narrowly confined by substitutability questions, particularly when one is concerned with geographic market definition and that authorities, to which we will come, make that plain.

So that we support, without seeing anything as a departure from what was said by the Tribunal in QCMA, but we support the majority’s conclusion in 160 first that regard to all the relevant considerations, the market as a whole would drive one to a conclusion that this market was in Australia as a characterisation question and, in addition, that if one was simply doing a QCMA founded market definition exercise you would reach the same conclusion, that is, you would reach the conclusion that you would describe or define the geographic dimension of the market as being in Australia.

GORDON J: Or as including Australia.

MR SHEAHAN: As including Australia, yes.

BELL J: So within Australia there would be actual and potential transactions between buyers and sellers among whom there can be strong substitution?

MR SHEAHAN: Well, there are buyers in Australia who are not typically the immediate contracting parties with the airlines but they are the source of the demand for those airlines and as the findings we have been through indicate, they often would make decisions about which airline to use and what particular services would be provided, and the airlines would customise the service that they provided for the particular customer.

So the process of substitution was occurring in Australia. Decision-makers in Australia who had the demand for the service were making substitution decisions about who would provide the service that started in Hong Kong and finished in Sydney.

KIEFEL CJ: Is that to assimilate switching decisions with substitutability?

MR SHEAHAN: Your Honour, I am proceeding on the footing that I am focusing on substitutability for the purposes of this discussion and perhaps I am assimilating to some extent switching and substitutability, yes. Your Honours, returning to the way the majority approached the “in Australia” question, I have taken your Honours to paragraph 74 where they lay out a map as to what they are going to do.

Perhaps before going to that, one of the important matters that emerges is one we have touched on already, which is that the product here, as we have said, has an Australian dimension and the point of the Full Court was that the reference to “market”, just as a matter of text really in section 4E, naturally directs attention to a market as a whole, all its dimensions, not merely some subset of the market.

We rely on our submissions and did below on the point made about the coincidence or the significance of transport product markets in this type of question. The point derived from an article by a Mr Werden which is in volume 2 of the authorities at tab 17, page 133 and warrants brief reference. Mr Werden’s article was introduced into the proceedings by the appellant’s expert, Dr Gilbert. Your Honours will see that in volume 4 of the appeal books, 1019 at line 10, and he relied on it.

It is perhaps relevant to say that Mr Werden is an influential figure in United States antitrust matters. The Competition Tribunal in Fortescue presided over by Justice Finkelstein noted that it was Mr Werden’s work in the Department of Justice Antitrust Division that was the foundation for the gradual acceptance in competition policy of the hypothetical monopolists test, which is heavily relied upon by our learned friends.

We actually should, while we are talking about Mr Werden, quibble with something said by our learned friends for Air New Zealand in their reply submissions at footnote 4 where they take us to task for relying on Mr Werden’s article. They say:

Rather than relying on the testimonial economic evidence –

we rely:

on part of a single footnote in an article by G J Werden entitled, “The History of Antitrust Delineation”. As will be apparent from the title of that article, it was not concerned with the question of how one locates a market for purposes of competition law –

What we quibble with is their description of the title of the article and the conclusion that they draw from the title of the article. The title of the article is “The History of Antitrust Market Delineation” and the whole subject of the article is the subject of defining a market for the purposes of competition law. The relevant passage occurs on page 133 where there is a discussion, first, about the modest origins of the notion of a geographic dimension:

a student note that appeared in the Columbia Law Review –

in 1954. Then, the author’s views about it are spelled out, as it happens, in the footnote – footnote 54:

These two terms –

“product market” and “geographic market”:

are convenient and very commonly used in antitrust; however, they can be misleading. There is but one relevant market with product and geographic dimensions-not separate product and geographic markets. The product and geographic dimensions of relevant markets must be delineated in the context of each other, and the separation . . . is an oversimplification. Transportation, for example, cannot be sensibly separated along such lines.

That proposition comes, with respect, with significant economic credentials in this area and the benefit, we would respectfully submit, of common sense. I realise that is a dangerous quality ever to invoke.

Your Honours will have noted that in that short passage, Mr Werden made, concisely, the critical points for the Full Court’s analysis of what we have called the first question. There is only one market. The market itself is an instrumental concept and these distinctions between geography and product are simply useful techniques for thinking better about it. They are not intrinsic, they are not essential. The separation can be an oversimplification – is an oversimplification and, in particular, in relation to transport markets, likely to be false or unnecessary, or inutile.

Now, there is another – even aside from transport markets, the same position can obtain and, indeed, you can see it in a case much relied upon by Professor Gilbert for the appellants in his report. He refers to it in volume 4 at 1023 in paragraph 30, for example, but it is the decision of the District Court in Federal Trade Commission v Arch Coal which is in our supplementary bundle at tab 4.

Professor Gilbert relied upon it for this reason. The participants in the market were coal suppliers. They sold all around the country but the market was defined as being confined to the particular area in which they were. One can see how that kind of conclusion fed into the appellant’s view of the world.

The problem is this. The product was coal with a particular sulphur content that made it especially useful, I think, in electricity production – thermal coal, having regard to various regulations. What happened in that case in terms of geographic market definition was discussed at page 123 under the heading “Relevant Geographic Market”. At the top of the right-hand column, Judge Bates observes:

Here, however, because the relevant product market is defined in geographic terms as SPRB coal, which is produced and sold in that region, the product market and geographic market analysis are really the same . . . The parties agree that the relevant geographic market has the same scope as the relevant product market –

that is to say the area where this unique coal was mined. So, in the context of looking at a merger between some of the coal producers, it was sufficient to look at that little area where people who could win that particular kind of coal were located. It is relevant, however – we mention it because it is another example of the product market definition driving the geographic market definition outside transport. It is also relevant to note the way his Honour in shorthand described the geographic definition process at 119 in the left-hand column under the heading “The Coal Market”. At about point 7 in the left-hand column:

Second, the “relevant geographic market” identifies the geographic area in which the defendant competes in marketing its products or service.

Whichever way you understand the expression “marketing, promotion, sales”, that is a definition that in this case extends to Australia. In that respect, can we note our learned friend Mr Walker’s acceptance of what was said yesterday by your Honour Justice Nettle, transcript 11, line 404.

Now, going back to the Full Court majority’s reasons, the first consideration that they dealt with was the text of section 4E, which they mention at page 74. Then at 76 to 81 they address the legislative history – this is pages 794 to 795. In the end it has the negative significance that is pointed out in paragraph 81, namely that the amendment after the Swanson Committee to introduce the reference to substitution was evidently not directed at changing the meaning of “in Australia”, so perhaps in a limited extent, that is to say by the addition of the inclusory provision which requires that regard be had to substitute products as one of the factors to be considered in a flexible assessment of factors comprising a market.

The second point made by the majority is dealt with in paragraphs 82 to 87. They talk about “the flexibility of the concept”. That expression has been the subject of criticism but it was used in relation to the market definition process by Justice Jacobson in ACCC v Singapore Airlines, which we mentioned in our outline, in terms a flexible concept.

Now, as a corollary of its flexibility and richness and its purposive, instrumental or functional character, it would, the majority said and we submit, be wrong to try to reduce the “market in Australia” question to a formula or a settled but necessarily artificial rule. To put it slightly differently, there is no reason to treat the market in Australia question as being any less evaluative than the market definition question.

Now, the significance of this aspect of their Honours’ reasons is, for the first question that we pose, amongst other things, that it invites recourse to the objects of the legislation in section 2. One is looking at language “market in Australia” that does not have a concrete, prescriptive meaning.

How is one best to answer a question about its true content? It is relevant, in our respectful submission, to have regard to the objects of the statute. Now, there were some objections – this is what the Full Court did, in paragraphs 84 and 85, I think. One was that giving a wider scope to “market” reduces the effectiveness of the Act because it makes it less easy to find market power. As to that, it is not a difficulty that arises in the context we are considering. In the context we are considering, a market definition process has happened and we are just looking at characterising the market as in Australia, so there is no dilemma.

KIEFEL CJ: Their Honours do not say that, though, do they?

MR SHEAHAN: I am sorry, your Honour?

KIEFEL CJ: Do their Honours actually say that?

MR SHEAHAN: They do not put it that way, no. I confess that that is our elaboration. For once, on this approach, you are in this question – you have answered the question. We do not have to confine ourselves to the mere geographic delineation of the market to answer the “in Australia” question. In truth, all the considerations that we point to support a richer, if I can use that word again, examination of the “market in Australia” question, because it lets you take this case as an example.

It lets you bring the Act into play in dealing with a case where there has been collusion between firms who are carrying on business in Australia – collusion as to the price of the services they are going to provide; where the service is one physically provided in fundamental part in Australia; where the service is provided materially in response to demand, derived from Australia; where the service that is provided materially to market participants in Australia who will bear the additional price that is the product of the cartel arrangement.

It is relevant in deciding the richness of the “market in Australia” inquiry, to take into account whether a richer outcome will better enable you – better enable the Court and regulators, to bring into account under the aegis of the Act cases of that kind where the object of the statute is to protect, promote the interests of consumers by promoting competition.

Now, Garuda raises a separate question about reliance upon the objects defined in section 2, and that it is – it was a point made by my learned friend, Mr Hutley, yesterday. A purposive construction, he said, does not assist where you are construing a limit on the operation of the statute. We agree that may be so, if the question is simply do we have a broader construction of this provision or a narrower construction of this provision. If the provision is just a limiting provision, you do not get much assistance from the purpose.

But the question here is different. We are not advocating a broader construction of the operation of the limit or a narrower construction of the operation of the limit, but rather the question is between a broader or narrower conception of the range of considerations to be brought into account in answering the question. Now, that may in a particular case end up in a narrower operation or a broader operation, but it is not the kind of question to which the objection relied upon by my learned friends is directed.

More specifically, the question here is whether the territorial limit should operate by reference to a single criterion not to be found in the Act at all – that is the geographic dimension - or rather by reference to the full plenitude of meaning of the express criterion, that is, market. In making that interpretive choice – making that interpretive choice – it is, in our submission, perfectly legitimate to have regard to the objects of the statute.

A second aspect of the point made by the majority at paragraph 82, that it is an abstract concept, a metaphor and purposive, is more fully developed – this is the significance of the metaphorical aspect – it is more fully developed by the majority at 104, and they return to it at 154 and 156. The point is a simple one. Once you have determined that a market is a metaphor or an abstract concept used purposively and instrumentally, requiring an evaluation in order to be employed at all, it becomes almost incongruous to seek to answer a territoriality question about that kind of thing by the simple adoption of a geographic dimension test that arises from a market definition process.

As I remind your Honours, the Chief Justice and Justice Gageler said in Flight Centre at [66] that the market may not be a place, so one should not be looking necessarily to a geographic dimension in order to decide whether this thing, this abstract thing, is in Australia.

KEANE J: To the extent that we have to do something to locate it, taking QCMA which spoke of the market as a mechanism, it is really about locating the operation of the mechanism, is it not, the interplay of supply and demand forces?

MR SHEAHAN: The interplay – so, the pattern of sales.

KEANE J: And, they are relevant. Places of performance, patterns of sales, they are relevant, not on their own right, not as freestanding factors in a multifactorial impressionistic exercise, but as indicators of the interplay of supply and demand.

MR SHEAHAN: I think we would agree with that.

GORDON J: I have a problem with the breadth of something which says.....inviting the Court to make a choice between broader or narrower. I do not know if that is the question. Just to pick up what Justice Keane is putting to you, here you are looking at competition in relation to a particular supply of services. That is what 45 directs you to. And, you are asking what are – to pick up Justice Keane’s words – the interplay of supply and demand. Where is the competition? What are the elements and facets of that competition? And, then identify, in a sense, is that competition or is the interplay of the supply and demand factors in that kind of analysis in Australia?

MR SHEAHAN: We do not disagree with that, your Honour. But, what we submit is that the kind of factual findings that we took the Court through earlier, from the trial judge’s decision, indicate that those dynamics of supply and demand were materially operating in Australia, in this case.

GORDON J: That may be the conclusion but the process of analysis is to look at the competition – is to look at the facts – it is to work out where the participants are and all of the dimensions. It is not at large.

MR SHEAHAN: No, no. We deny the proposition that it is at large.

GORDON J: It is dictated not only by the section itself but by the particular facts.

MR SHEAHAN: Yes.

GORDON J: Conduct of the participants.

MR SHEAHAN: Yes.

GORDON J: Suppliers and acquirers.

MR SHEAHAN: Yes, we agree. The majority then move on to consider some of the difficulties associated with the approach of the trial judge and of the appellants here to the “in Australia” question at paragraphs 93 to 109. I do not think I need to traverse those in any detail, having pointed them out, and some of them have been covered already. To the relevant considerations that end up in a conclusion that the markets should be found in Australia, on this first approach, I think we have adequately discussed already and have been touched upon by your Honour Justice Gordon in our last exchange. I should say - - -

KIEFEL CJ: How did the Full Court actually answer that question?

MR SHEAHAN: They answered it by the matters that they summarise in the seven reasons. They commence at paragraph 161. So, the important ones are “Thirdly”, 164, 165, 166, 167 and 168.

KIEFEL CJ: Can you summarise it?

MR SHEAHAN: It essentially involves the matters that we have been through. It is the fact that it is a suite of services, it is not disaggregateable. The suite of services is physically provided in large part in Australia devoted to answering demand from Australians. The services are marketed to Australians. There is no particular reason for treating the aspect of the service that physically occurs in Australia as being any less significant than the aspect of the service that occurs outside Australia.

The provision in the services in Australia is part of the rivalry that is competition, the quality of the service delivery, the responsiveness of the airline suppliers to the particular requirements of particular customers, the barriers to entry in Australia, the competition of the airlines for the custom of people in Australia and, finally, the purposes of section 4E in the context of section 2.

KIEFEL CJ: Their Honours are really defining the market and answering the question that it is in Australia at the same time.

MR SHEAHAN: In the result they do that, yes. So the next question that one comes to is, by reference to the authorities, whether the particular matters that they have brought into account in deciding, if I can call it this, the second question, “What is the geographic dimension of this market?” are properly brought into account and whether you can properly conclude on the basis of these facts that it is a market that is in Australia as well as in Hong Kong.

As to those matters, may we say this. Much has been said relevant to it in two short pages in the decision in Flight Centre. If I can ask your Honours to go to it, it is in the supplementary bundle of authorities, in the discussion of principle commencing on page 156 in the left-hand column, commencing with paragraph [66], the market first:

A market is a metaphorical description of an area or space (which is not necessarily a place) for the occurrence of transactions –

where buyer meets seller:

Competition . . . is rivalrous behaviour in respect of those transactions.

Rivalrous behaviour includes, as we have submitted, across the whole price product service package. In paragraph [67]:

A market is commonly defined by reference to its dimensions . . . commonly described in terms of product -

What the double use of “commonly” there reflects is something that we saw in Mr Werden’s footnote – that is, these concepts are tools, they are not essential aspects of anything and they can lead into error, in some cases, and they can be inutile in others.

BELL J: The reference there is to transactions. If one goes back to the Full Court at 165, their Honours observe that the whole of the suite of services is no more supplied in Hong Kong than it is at the Australian end.

MR SHEAHAN: Yes.

BELL J: But all the transactions necessarily must occur in Hong Kong.

MR SHEAHAN: Most, possibly almost all, the ultimate contracting occurred in Hong Kong in the sense that freight forwarders for the most part entered into contracts, cut airway bills with the carriers in Hong Kong. If what one means by transaction is that - - -

BELL J: I am just taking the reference to rivalrous behaviour in respect of those transactions in paragraph [66].

MR SHEAHAN: I take your Honour’s point. We understand, taking the phrase as a whole, “rivalrous behaviour in respect of the transaction”, the “transaction” is not the contract but the provision of a service in this case, in another case it might be a supply of goods. Here it is the provision of a service and the “rivalrous behaviour” in respect of the provision of a service includes the quality of the provision of the service. The next sentence is also important:

The dimensions of a market are commonly . . . function . . . and geography –

and the parenthetical phrase follows:

(the physical area within which those services are supplied).

That we take as supportive of our submission that you do not cut off the analysis or the identification of the geographic market by looking at where the provision of the services commences to be provided, or where part of the services are provided, but where the services are provided the area within which the services are provided.

We should say immediately that there is nothing novel about that focus. In Taprobane, in a passage quoted in our submissions at paragraph 68, Justice French, with the agreement of Justices Spender and O’Loughlin, framed the question as “the geographic area within which those activities occur”.

KIEFEL CJ: Where is that from – Taprobane, which page?

MR SHEAHAN: It is from Taprobane at page 174, about halfway down the page. The market:

has a “descriptive and a purposive role . . . fact-finding together with evaluative and purposive selection. In any given application it describes a range of economic activities defined by reference to particular economic functions (eg manufacturing, wholesale or retail sales), the class or classes of products . . . and the geographic area within which those activities occur.

Again, we emphasise that this being a section 45 case, by virtue of the language of 45, it is grounded in the provision of services. That is the ultimate subject matter of the rivalrous behaviour that is to be investigated in terms of a substantial lessening of competition.

GORDON J: It is the ultimate subject matter, but I must say I have never understood rivalrous behaviour of a transaction to be limited to that. I have always understood that it included reference to competition to provide those services.

MR SHEAHAN: Of course, yes. We do not disagree with that, your Honour.

GORDON J: That is the competition, in a sense, between suppliers to the acquirers – that is, we compete, we market. That included their rivalrous behaviour because it is the very conduct that led to the choosing where to go.

MR SHEAHAN: Again, we agree. We agree. We also see possibly some significance in the discussion in paragraphs 70 and 71 of Castlemaine Tooheys v Williams & Hodgson.

GORDON J: Sorry, where are we now?

MR SHEAHAN: In Flight Centre, I am sorry, at paragraphs [70] and [71]. The warnings against permitting economic theory to do violence to commercial reality - Castlemaine Tooheys was a case under section 47 where the plaintiff sought to disaggregate a contract for goods sold and delivered, the goods being beer, into a contract for the sale of goods and a contract for the delivery of beer. The court rejected the attempt to disaggregate. Delivery, Justice Wilson said, was an essential and inseparable concomitant of the contract for supply and delivery of the beer - goods sold and delivered.

We mention it because, from the respondent’s perspective, the appellants seek to do something similar here. To characterise a local Hong Kong market – to characterise the market as a local Hong Kong market, when any commercial assessment of the patterns of sale, of rivalrous behaviour, the interactions between customer and supplier, were treated as a transnational market or transnational product, in which Australia, an activity in Australia was an inseparable concomitant of all the other activities that were pertinent.

BELL J: I do not understand there to be any issue about the rivalrous, competitive behaviour in terms of dealing with the big shippers in Australia. It is really the second sentence in paragraph [66]:

A market for the supply of services is a market in which those services are supplied -

and in which they are substitutable for. So it comes back to this idea of – on your analysis - - -

MR SHEAHAN: On our analysis we say it would be artificial to describe these services as only supplied in Hong Kong – artificial and uncommercial. It would be, to use the language of their Honours, deconstructing and reconstructing the supply of service in a way that involved economic theory doing violence to commercial reality.

BELL J: It does give a somewhat different slant to the concept of substitutability, does it not, because all those who are suppliers are in Hong Kong and that is where one goes to give effect to the decision that has been informed by the poor service at the Sydney port.

MR SHEAHAN: All the suppliers are relevantly in Hong Kong. But in terms of meaningfully identifying the geographic dimension of the market, that is not the end of the inquiry, in our respectful submission, on the authorities or in terms of economic principle. Even if it were, we would say, question 1: it is not the end of the inquiry when you come to ask the question “Is the market as defined a market in Australia?”

In relation to Taprobane, can I just say briefly, because it is relied upon against us, it concerned packaged holidays and it was sold by an agent in Western Australia. Singapore Airlines was dominant in providing services of this kind in the Maldives and the question was whether it had market power in a market.

What the appellants rely on, we think, is that the market as it was defined was not said to include the Maldives, even though the services in critical respects were provided there. The short answer to that is there was no question in the case about whether the markets were in the Maldives; the question was about competition in Australia.

In any event, there was, as appears expressly in the reasons, no real dispute about market definition and its geographic aspect. It was an Australia-wide market. The market was extended from Western Australia to Australia because of downstream considerations. The functional market was extended to include consumers. Consumers were all around the country. Therefore the meaningful market for supply of these travel packages was an Australian market, not a west Australian market.

The case is another one where it really turned on – most cases do – the product market definition. In the end, the product was defined as not package tours to the Maldives but all island destinations. Once you defined the product market to be all island destinations, Singapore Airlines market power disappeared.

So there is nothing that our learned friends on analysis get from Taprobane. What we get, we submit, is quite considerable, as witnessed the passage that we took your Honours to most recently, the reference in defining “geographic market” to the range of activities that are engaged in as part of the rivalrous behaviour of the suppliers of the service and their interaction with the customers for the service and the source of demand.

Can I go – and this will be where we end – to the foreign decisions relied upon by our learned friends? The American decisions relied upon by Mr Hutley, we think, on analysis, do not assist. On analysis, they are all consistent with delimiting the geographic dimension by reference to the location of customers of the suppliers of the goods or services.

Indeed, I think your Honour Justice Gordon yesterday put the proposition a bit like that to my learned friend, Mr Hutley, at transcript 59, 2610. I think he might have accepted something like it in response at the top of the next page. At any rate, he seemed to accept that the airlines here have part of their customer base here and they competed for the custom market of the shippers in Sydney and so on.

But, looking at the American decisions, Tampa concerned goods sold – coal – and can we ask your Honours to go behind tab 4 in the Garuda supplementary authorities to page 328 in the middle of the page to the statement of principle – discussing the principles as a reference to United States v Columbia Steel in which the Supreme Court decided:

the relevant market to be the competitive area in which Consolidated marketed its products –

It does not matter, for our purposes, as we have said already, whether “marketed” means promoted or “marketed” means sold. It is the outward looking – you start from the position of the supplier and look out and the process of looking out takes you to, in the end, the limits of your geographic dimension. When you stop having sales, when you stop bothering to promote then you have reached the boundaries of your market definition.

The actual circumstances in Tampa, to a modern eye, really hardly raised a question at all. The question was whether the parties were tying up, inconsistently with the Clayton Act, a volume of coal. The only point was that the volume of coal that was tied up was an amount equivalent to the annual consumption of the Florida peninsula.

The problem was, there being no evidence of any coal supplies in the Florida Peninsula, there were 700 in the Appalachian region across seven states who could supply coal into Florida and were keen to – 700 – as appears from page 331. So the market was not confined to the location of the mines. It covered, implicitly, much of the country, including the whole of Florida because that is where the customers were. There is no coal mine in Florida. The coal was mined somewhere else but the market extended to Florida.

In the US banking cases, properly understood, they also identify the relevant market with the location of the customers who were regarded as relevant and in some of the cases they divide the customers up into particular groups and different geographic definitions depending upon the group, but the point that we make appears perhaps most clearly from the judgment in the Phillipsburg decision, which I do not think your Honours were taken to in any detail yesterday, behind tab 6 at page 363. This is the most recent in the series. Immediately after the highlighting at the top:

In locating “the market area in which the seller operates,” it is important to consider the places from which it draws its business, the location of its offices, and where it seeks business.

So the places from which it draws its business – that is, the location of its customers - the places where it seeks its business, the places to which it promotes its business, marketing in both its limbs. Then towards the end of that paragraph there is a reference to:

the banks found it necessary to open branches in the suburbs because, as a witness testified, that is “where the customers are.”

The banks would go to the customers and the market was defined accordingly. As for the European decision, Atlantic Containers, our learned friends seem to want to make two points about it. The first is that the majority might have misunderstood a quote that appears in the reasons of the majority at paragraph 147, even though it reflected what the Commission had said in the quote in paragraph 141 at the top of page 812.

I think by the end of the discussion yesterday it had emerged that it was not clear – first, that it was not clear that there was any misunderstanding because it was not clear in precisely which sense marketing was used here. Secondly, in any event, as we submit it does not matter in what sense marketing was used because whether as sales or whether as promotion they are both equally material aspects in identifying at their outer limits the fuzziness of the geographic market delineation, and relevantly, both aspects, sales and promotion, occurred relevantly in Australia in this case.

A focus on the location of customers is consistent with the approach in the Australian authorities in Fortescue, the relevant passage of which appears also in the Full Court’s reasons at paragraph 136. The Tribunal quoted the New Zealand High Court quoting the Tribunal:

The geographic market area is the area of effective competition in which sellers and buyers operate. What is relevant, as a starting point, are actual sales patterns, the location of customers and the place where sales take place, and any geographical boundaries that limit trade.

Finally on this subject, in terms of the way the courts and tribunals describe market definition, geographic delineation in this country, may we remind your Honours of the descriptions that we have extracted from such decisions in our written submissions in response to Garuda where there are just a couple of passages dealing with market. In paragraph 14 we address some examples that Garuda has given and note the market definitions that were adopted in those cases. In QCMA:

the market was not confined to the location of –

this or that flour miller:

but extended to the area in which flour from relevant mills was despatched to customers (which extended across Queensland and the Northern Rivers of NSW)

A similar area-wide market in Australian Meat Holdings - it is odd that so many of these decisions come from Queensland - QIW Retailers v Davids

we have mentioned already. The market for grocery products was not confined to the location of the wholesalers and their warehouses.

KIEFEL CJ: Something about collusion in Queensland, I think.

MR SHEAHAN: Heaven forfend, your Honours. It was not where QIW had its warehouse at Rocklea or Davids had its at Loganlea, but the whole of the Queensland and northern New South Wales area; similarly in Boral. Your Honours, on market issues, those are our submissions.

KIEFEL CJ: Thank you. Mr Halley, could you tell us how long you are likely to be?

MR HALLEY: Not very long at all. I would anticipate no more than about 40 minutes.

KIEFEL CJ: Forty minutes?

MR HALLEY: At the outside.

KIEFEL CJ: Could other counsel please give us an indication of the length of reply?

MR WALKER: I think about 30.

KIEFEL CJ: Thank you. We will sit through till 1 o’clock, thank you, Mr Halley.

MR HALLEY: If your Honours please. I propose to deal first very briefly with foreign state compulsion and then move to inconsistency. With respect to foreign state compulsion we see there are two critical issues. The first is what, if any, requirements were imposed on the appellants by the Hong Kong Civil Aviation Department with respect to the imposition of surcharges, and the second was the conduct of the appellants, in a relevant sense, voluntary?

We submit that the factual findings of the primary judge clearly establish three propositions. First, there was no requirement on the airlines to impose or agree to impose fuel surcharges at all. Second, there was no requirement to impose or agree to impose an approved fuel surcharge. So, the fact that a fuel surcharge had been approved did not carry with it any requirement on the part of the Hong Kong Civil Aviation Department that that surcharge be imposed. The third, that there was no requirement imposed on the airlines seeking approval of an index mechanism to file a joint application, and we submit that an informal practice of the Hong Kong Civil Aviation Department cannot give rise to any compulsion, properly so-called, on the part of a state.

Moving then to the issue of the voluntary nature of the conduct of the airlines, we submit that the factual findings that we set out, particularly in our submissions at paragraphs 44 to 46, clearly establish that it was the airlines independently of any motivation or requirement of the Hong Kong CAD that participated in the conduct. There are just several short passages I would like to take your Honours to in the primary judge’s judgment just to highlight matters that we have not otherwise reproduced in our submissions.

If your Honours could turn to volume 2 of the appeal book at page 520 and your Honours will see at paragraph 492 the primary judge commences an analysis:

BACKGROUND TO THE UNDERSTANDINGS ALLEGED BY THE COMMISSION –

before him. Your Honours will see reference at 494 and 496 to the adoption of what was known as resolution 116ss which provided for a common index mechanism to be used by all airlines through the IATA rate fixing process.

Your Honours will see at 501 on page 522 that “IATA applied to the US Department of Transport” for approval and antitrust indemnity but that was denied, and your Honours will see that the difficulties with the application was it failed “to readjust as quickly when prices moved down” and, more significantly, we submit, “and its failure to take into account the airlines fuel hedging programmes”.

But turning then to the particular understandings that his Honour addressed in the context of Hong Kong, your Honours will see at 508 reference to The Commission’s case in Hong Kong”, and then your Honours in the fourth line will see the primary judge stated:

As I have explained above in Chapter 6.2 the HK CAD provided commercial incentives to airlines who wished to use an index methodology to determine surcharges . . . to apply jointly for approval. This attitude of the HK CAD provided fertile soil in which price fixing was likely to be facilitated.

Then, in 509:

By 2000 the airlines operating out of Hong Kong who were members of the HK BAR CSC were meeting on a regular basis to agree upon the surcharge mechanisms they would collectively ask the HK CAD to approve.

Then, over the page at 511, his Honour noted:

The workings of the HK BAR CSC were heavily documented in contemporaneous records. Throughout the period in question there was no competition law in Hong Kong and much of the material which is available shows plainly that, as a group, the airlines were agreeing the surcharge they wished to see approved. This was not seriously contestable to my mind.

Then what follows is a very detailed analysis of the particular meetings; findings as to which airlines were found to be parties to which arrangements. The matter then, we say, clearly on the findings, that the airlines wished - in particular Air New Zealand and relevantly Garuda for present purposes - wished to impose by reference to a common surcharge mechanism, and that is the course that they chose, and that otherwise the requirements of the Hong Kong CAD simply were the facilitating measure by which they had to obtain approval to then do what they always wished to do. We say that is why the primary judge and the Full Court had no difficulty in finding that there was no relevant compulsion and that the foreign state compulsion defences simply were not made out.

If, your Honours, I could then turn to the question of inconsistency. We submit first with respect to inconsistency that the alleged inconsistency does not arise in the present case. Your Honours will recall that Article 6 of the Australia-Indonesia ASA is concerned with reaching agreement on tariffs. The primary judge found at – and I will just give your Honours the references - at 415 to 417 at page 497 of volume 2, that tariffs under the Australia-Indonesia ASA included fuel surcharges.

There was no express definition of tariff in the ASA, but the primary judge found – and there is no contest – that the practical operation of the ASA meant that one had to include fuel surcharges within the concept of tariff, otherwise the airlines would be able to circumvent the provisions of the ASA by agreeing surcharges independently of the tariff provisions.

But significantly, for present purposes, the primary judge then found at 421 and 425, which is at page 498 of volume 2, that tariffs were minima under the ASAs and he relied on the expert evidence and came to those conclusions, so that a tariff was a minima, a minimum amount that could be charged. The impugned conduct in this case which was found to give rise to the understandings that were reached and giving effect, was collective understanding to charge specific fuel surcharges, not to set tariffs by way of minima under the ASAs but, rather, collective understandings to charge specific fuel surcharges.

We say in that context it is not at all surprising that the primary judge found that the participants at the Indonesian Air Cargo Representative Board meetings – that is the ACRB meetings – at which the impugned understandings in Indonesia were reached, did not understand themselves – that is, the airlines – did not understand themselves to be engaging in tariff agreements under the relevant ASAs outside the IATA structure. If I could take your Honours very briefly to that finding, it is in volume 2 at page 714.

At paragraph 1260, your Honours will see that the primary judge there deals with the airlines’ contentions concerning the claim that they advanced before him that the conduct had been rendered lawful by an authorisation granted to Qantas. That is the Qantas authorisation. Your Honours will see the Qantas authorisation at 1261. This is important because it draws a distinction between an agreement on a tariff and an agreement to impose a tariff or to impose a tariff in a particular amount.

Your Honours will see that the authorisation that was granted to Qantas permitted giving effect to tariff agreements but only on the basis that – and your Honours will see this at page 715:

on condition that in both circumstances there is no requirement on carriers or agents –

• to charge the fares . . . that have been set by the agreements;
  
• not to advertise . . . [the] tariffs they are actually charging -
  

And then, at 1268, is the finding that I referred to before I took your Honours to these passages:

In particular -

the primary judge found:

the participants at the meetings –

and your Honours will see there what is read – what is set out:

[they] did not understand themselves to be engaging in tariff agreements under the relevant ASAs outside the IATA structure. They understood themselves to be at the local collective airline body dealing with cargo related issues at the relevant airport.

At 1269 there is again reference to the fact that the Qantas authorisation for the tariff arrangements could not include or was provided on the basis that there was no requirement that any particular tariff be so agreed.

So, we say in that context, although it is a nice intellectual argument, it simply does not arise on the facts in this case, that is, that there is an inconsistency between the provisions of the ANA and the Trade Practices Act relevant to the conduct that was found to have been engaged in by the airlines in this case. So if the airlines did not engage in the conduct pursuant to tariff procedures, they engaged in the conduct independently of any tariff procedures or requirements under the ASAs.

Our second proposition with respect to inconsistency is that there is no textual or other inconsistency. The textual is straightforward; I think that is common ground. The other inconsistency by reason of the practical operation is more involved. But we submit that, properly analysed and understood, that a failure by a designated airline to reach an agreement on tariffs in itself, that is, the failure to reach agreement, cannot give rise to a conclusion that the airline has failed to comply or conform with Article 6 of the ASA by reason of the cascading series of alternatives that are set out in Article 6 for tariffs to be set.

To make good that proposition, could I ask your Honours to turn to volume 6 of the appeal book at page 1858? Your Honours will see that that is the Australia-Indonesia ASA, and if your Honours could turn to page 1861, your Honours will see at the foot of the page Article 6, subparagraph (1) notes that:

The tariffs . . . shall be established at reasonable levels –

and indicates what regard has to be had to which factors. Then, more significantly in subparagraph (2) on page 1862 at about line 14:

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, 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 –

But then (3), significantly:

If the designated airlines concerned cannot agree on the tariffs, or if the aeronautical authorities of either Contracting Party do not approve the tariffs submitted to them . . . the aeronautical authorities of the Contracting Parties shall endeavour to reach agreement on those tariffs.

And then (4):

If agreement under paragraph (3) of this Article cannot be reached –

(4) provides for the dispute to be settled in accordance with the provisions of Article 9, which is the dispute resolution procedure.

Now, a failure to reach agreement in itself, we say, is not fairly capable of giving rise to a conclusion that that airline has in any way exposed a contracting party to contravene the ASA or has exposed itself to the risk of a suspension of its licence because it has failed to comply with or conform to the provisions of the ASA. And we say that because any agreement on its face clearly requires agreement with a third or another party.

And it is not a failure to agree, we say, that might give rise to any failure to comply or conform, but it may be, as the Full Court speculated, a failure to take reasonable steps to reach agreement and a failure to take reasonable steps to reach agreement may constitute a failure to comply or conform. But, as the Full Court pointed out, if the basis upon which those steps were not taken was because it would expose the participant or the airline to a contravention of the Trade Practices Act, that would provide a basis upon which the airline could contend that it had taken whatever steps were reasonable in the circumstances.

Now, the matter is even, we say, more sharply focused in the present case because the tariff that is being agreed or sought to be agreed pursuant to these provisions if they applied, is not a tariff simpliciter in the sense that it is a tariff that is necessary to put into place to enable the services to be provided at all. Your Honours will recall my learned friend, Mr Hutley, took your Honours briefly to Article 5 – sorry, Article 3(5) and 3(5) which is on page 1860 provides that the airlines can only operate the 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 that if an airline operated a service without an Article 6 tariff there would be a failure to comply or conform clearly to the provisions of Article 3(5).

Now, in this case, what the airlines were concerned with were additional supplemental surcharges on top of the existing freight rates so that there was no possible contravention of Article 3(5) if the airlines were not able to reach agreement on a fuel surcharge as an addition to the tariff. So that in those circumstances, we would submit it is even more difficult to construe Article 6 in the context of a supplemental, if I can describe it as such, tariff, as a failure to agree such a supplemental tariff would put the airline at risk of a loss of its licence because of a failure to comply or conform.

Contrary to the submissions of my learned friend, Mr Hutley, yesterday, we do not accept that Article 3(6) has any work to play in terms of ameliorating that consequence. If the airline cannot reach agreement on a tariff if there is already a tariff in place, there is no contravention of Article 3(5), in our submission.

The third proposition we advance with respect to inconsistency is that any potential inconsistency is to be resolved in favour of the provisions of Part IV of the Trade Practices Act. We submit that an analysis of the statutory provisions in the Trade Practices Act evinces a clear legislative intention that all conduct giving rise to a contravention of Part IV is, in substance, actionable unless such conduct is expressly excluded by a provision of the Trade Practices Act.

Before I go to the provisions of the Trade Practices Act, could I hand up to your Honours – and we have provided copies earlier in the week and I think we might have some additional copies now for my learned friends – copies of the explanatory memorandum to the Competition Policy Reform Bill 1995 and the second reading speech for the Competition Policy Reform Bill 1995. If I might hand up, also, the second reading speech.

Section 51(1C), your Honours, was inserted in the Trade Practices Act pursuant to the Competition Policy Reform Bill and if I could ask your Honours, very briefly with respect to the second reading speech, to go to page 2798, in the right-hand column, your Honours will see the second paragraph, and I read:

Presently, the Commonwealth, the states and territories can legislate or make regulations which provide for exemptions from the competitive conduct rules of the Trade Practices Act. Under this bill, the potential for such exemptions from the Trade Practices Act will be considerably restricted. The Commonwealth and participating states and territories will only be able to make exemptions by laws which expressly refer to the Trade Practices Act. Existing laws which do not comply with this new requirement will cease to provide exemption after three years.

So, to the extent that one can determine or evince a legislative intent in the second reading speech, we say that is a powerful indication that the provisions – the restricted trade practices – provisions in the trade practices were to apply, except to the extent there was a specific exemption.

Then, if your Honours were to turn briefly to the explanatory memorandum, your Honours will see the description at page 9 of the explanatory memorandum, clause 15, exceptions, which is the second page of the bundle I provided. Your Honours will see there what is said with respect to the introduction of 51(1C) and the introduction of limitations on the operations otherwise of subsection 51(1).

Then, your Honours, turning to the legislation itself, the Trade Practices Act, if your Honours could turn to section 51 itself. Your Honours will have been taken to 51(1), 51(1C). For present purposes, if your Honours could turn to 51(2), your Honours will there see a specific enumeration of matters to which regard shall not be had, and they are identified with precision, in subparagraphs (a) to (g), and then further evincing the requirement for specific exclusions.

If your Honours could turn to section 45(5) of the Trade Practices Act, your Honours will see then again from subsection (5) down to subsection (9) further specific exceptions from the operations of, in this case, section 45 but part of the prohibitions in Part IV on restrictive trade practices.

Then in section 5 of the Trade Practices Act, if your Honours could turn to that next, this is the territorial section dealing with extended application of Parts IV, IVA, V, VB and VC, your Honours will in particular note subsection (5):

The Minister shall give a consent under subsection (3) or (4) -

So this is the consent to bring an action where there is a claim under section 82 pursuant to sub (3) or a claim for an order under subsection 87(1) or (1)(a) and your Honours will see that in sub (4). So:

The Minister shall give a consent under subsection (3) or (4) in respect of the proceeding unless, in the opinion of the Minister:

(a) the law of the country in which the conduct concerned was engaged in required or specifically authorised the engaging in of the conduct; and

(b) it is not in the national interest that the consent be given.

So that again, specific attention not only to specific exceptions but in this case extraterritorial limitations that may arise in the context of laws of other countries that may be inconsistent laws of practice. Then we say significantly the Act itself provides a mechanism by which firms that might otherwise fall foul of the restrictive practices provisions can approach the Commission for authorisation, as they did, or that is Qantas did in the Qantas authorisation.

So if one is seeking approval of contracts or arrangements or understandings, such as tariff discussions that might contravene the restrictive trade practices provisions, there is express provision within the statute for that matter to be raised with the Commission and authorisations provided, which is exactly what occurred with respect to Qantas and the Qantas authorisation.

Then we say significantly too in the Trade Practices Act there is an entire part, Part X, dealing with international liner shipping conference agreements which provide specific and particular measures and provisions by which that conduct is permitted but there is an entire regime pursuant to which the intention and object of the Act can be preserved, notwithstanding the prima facie collision between conference agreements for outbound shipping and the restrictive trade practices provisions in Part IV. Again, we say the legislature has turned its mind to specific issues by way of exception or by way of inclusion, perhaps, by reason of Part X to provide a mechanism in addition to resolve matters that cannot otherwise be resolved through section 88.

Now, the respondents – sorry, the appellants contend that both the primary judge and the Full Court - and when I say appellants, in this case it is Garuda, Air New Zealand does not raise this point - Garuda contends that any inconsistency that cannot be cured by applying 51(1C) and that the primary judge and Full Court were in error in doing so because, first, the ANA did not purport to authorise any conduct. We submit that the combined effect of sections 12 and 13 of the Air Navigation Act is that Garuda was permitted to operate scheduled international air services over or into Australian territory on the basis that it complied with or otherwise conformed to the terms and conditions of the Australia-Indonesia ASA.

So, to develop our written submissions and outline, we do not say that as a general proposition any requirement carries with it an authorisation, but in the specific circumstances of sections 12 and 13 read together, that is their combined effect.

Yesterday my learned friend, Mr Hutley, posited an example of a federal law that might require a person to be admitted in a State in order to appear in this Court and submitted that such law would not authorise that person’s admission and submitted it merely operates as a circumstance. Bearing in mind the difficulty of analogies and how far they might go, we would submit that that might more closely be represented in the current context as a federal law that required a person to do X, Y and Z in order to appear in this Court would, we say, authorise that person to engage in X, Y or Z.

Secondly, it is said, particularly orally yesterday by Mr Hutley and my learned friend and in the outline, that section 51(1) is concerned with exceptions rather than inconsistency between statutes and therefore 51(1C) has nothing to say in the present context. We say that the means by which 51(1C) seeks to address inconsistency and the legislature in particular, is to identify that conduct that must be disregarded by a court in deciding whether a contravention has occurred by reference to the provisions of other statutes that expressly authorise that conduct and make specific reference to the Trade Practices Act.

Now, it might be thought that that was a very high hurdle because the prospect of a statute expressly authorising per se conduct and referring to the Trade Practices Act might be thought to be unlikely, but we say that that is consistent with the legislative intent, which is that restrictive trade practices are to be outlawed, except to the extent that specific exceptions apply in particular circumstances. So we do not cavil with the proposition that it is a high hurdle.

It was also submitted yesterday, in particular, and before – I am not suggesting it is new – that there was an implied repeal. The consequence of our submissions is that there would be an implied repeal of 13(b) of the Air Navigation Act because there would be no work for it left to do if airlines were not able to enter into the tariff arrangements contemplated. We say that is not the case, that there are other provisions in the Air Services Agreement.

If I could take your Honours, very briefly, to that again, volume 6 at page 1861. Your Honours will see Article 5, which imposes obligations which, to use the language that I think has developed, speak to the designated airlines because the designated airlines of course are not parties to the ASA. But subparagraphs (2) and (3) – I will not read those, but your Honours can see subparagraphs (2) and (3) impose what might be described as matters that speak to the airlines with respect to the manner in which they conducted their businesses.

So, to the extent that the airlines failed to comply or conform to that, there would be some very real work to do for 13(b) and also to the extent that the airlines, with respect to Article 2, sought to operate outside the very limited rights otherwise set out in (2)(a) to (c) and that is made clear by reference to Article 2(3), the airlines do not have any further rights; in particular, the freedom of being able to pick up passengers at an overseas destination and carry them to another port within that overseas destination so, effectively, domestic travel or matters of that sort.

Now, that then brings us, your Honour, to the contention that the solution if 51(1C) does not apply, which we contest and support the position taken by both the primary judge and the Full Court as to its application, but if that is not available for whatever reason, Garuda submits that the maxim of the general provision should be read down to accord continuing operation to the specific should apply as a means of resolving the inconsistency and reference is made to, in particular, Commissioner of Police (NSW) v Eaton [2013] HCA 2; (2013) 252 CLR 1.

Now, that was a case, as your Honours will recall, which was concerned with the general provisions in the IR Act with respect to dismissal and the specific power of dismissal contained in the Police Act. We submit that Justice Heydon resolved that issue at 21 of his judgment on the basis that the general provisions re dismissal in the Industrial Relations Act must give way to the specific power of dismissal in the Police Act.

So, relevantly, and critically, the subject matter was the same, a power of dismissal. Quite different to the current case where, we submit, any attempt to characterise one or either of the Trade Practices Act or the Air Navigation Act as specific and general simply does not work. Your Honours, I see the time.

KIEFEL CJ: Yes, we will adjourn until 2.00 pm.

AT 1.00 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

MR SHEAHAN: Can I just interrupt to make an offer of more paper to the Court in light of one of Justice Gordon’s questions to me? We could provide the Court with the trial submissions on “market” which have footnotes in them. For the most part they include some extracts from the text of the relevant document to give it a bit of content as opposed to merely

being document RDs. It is a matter for your Honours. Or you can think about it and let us know later and we will do it, if you wish.

KIEFEL CJ: I do not think we will require them, thank you.

MR HALLEY: Thank you, your Honour. Your Honours, I was addressing on Commissioner of Police v Eaton and had just come to the judgment of the plurality. The approach taken by the plurality was to refer to the general power of dismissal of an employee in the Industrial Relations Act and contrast that to the specific power of dismissal of police constables in the Police Act. They did that at paragraphs 40 to 41 and 43.

But ultimately the plurality confirmed, and we submit with respect is the correct position, that the question of inconsistency ultimately is to be determined by reference to legislative intention. We submit that is the approach to take in this case and that in order to achieve a harmonious construction or solution to the inconsistency, the approach of the primary judge and the Full Court in effectively reading down a discretionary power of the Minister under section 13(b) of the Air Navigation Act so that it could not, with the Minister acting reasonably, be based on a decision that the airline had failed to conform or comply with a provision of the ASA between Indonesia and Australia on the basis that to do so would have put it in contravention of a provision of Part IV.

We say that achieves a harmonious construction with minimal tension with the legislative intention of the Trade Practices Act and the ANA, that the ANA’s principal concern or the object of the Act is to provide a regime for the operation of international air services, the object of the Trade Practices Act relevantly in the context of the restrictive trade practices provisions is to ensure that collusive conduct does not take place.

The alternative propounded by the appellant, Garuda, for the reasons that the primary judge in a particular – or both really, the majority and the Full Court – presents a far more dramatic approach which is to effectively exclude from the provisions of Part IV international air services provided pursuant to an ASA in the form of a Bermuda One-type agreement, and we say that is a far more radical departure - a far more radical approach to seeking to construe the statutes in a harmonious fashion. Your Honours, that is all we wish to say with respect to compulsion and inconsistency. If your Honours please.

KIEFEL CJ: Thank you. Yes, Mr Walker.

MR WALKER: If it please the Court. Your Honours, may we first go to a question raised concerning the possible influence downstream whether by demand or otherwise. It is very clear from the way in which that matter was addressed below that that only ever remained theoretical. It did not apply in this case.

We have provided transcript which I do not – we have provided transcript to your Honours which I will not read. For the record, it is 2235 through to 2273 selected, so it is 2235 to 2237, 2272 to 2273 where there are exchanges which started with a reference to the pleadings and to the way in which the case had been conducted and concludes with our learned friend Mr Halley’s acceptance that there would be no suggestion that there were such downstream markets, functional markets, and on the basis of such markets that there is an Australian dimension. So, theoretical possibilities, yes, application in this case, no, and you see that recorded again in the reasons of the learned trial judge, in particular, paragraphs 333 and 334 which I do not need to take your Honours to.

Next, may I turn to a couple of the ways in which the principal dispute between the parties in this Court fell to be expressed by our learned friend, Mr Sheahan. He referred to the substitution possibilities existing as much in Australia as in Hong Kong because, among other things, things happen in Australia and decisions are made in Australia. He referred as well to the process of substitution taking place in Australia. Your Honours will recall the Chief Justice’s reference to that being the location of persons who are making switching decisions, perhaps.

Now, in our submission, it is critical to understand what is being referred to so far as the economic theory which this Court’s doctrine says is a way in which to understand the word “market” where it is used in the Act. How does that operate when one is using the abstraction substitution? Substitution, as opposed to substitutability, actually refers to the outcome of what we have called switching decisions, which could just as readily be called “choice” and all those expressions are found.

That in turn, is the means by which where there are substitutable offerings, which includes near enough to substitutable to be competitive, where they are made available so that by choosing one rather than the other, there is effected what is called substitution.

Without repeating the way we put it in-chief but reminding your Honours of it, it is in our submission quite impractical, commercially unreal and bearing no relation to any previous understanding of the economics in question to regard substitution, so understood, as occurring anywhere else than in Hong Kong. There is no substitution that occurs after the airline is chosen.

It is for those reasons, in our submission, that there is in reality a kind of conflation at the heart of our learned friend’s argument on this important point. It conflates two quite distinct concepts which are operating at different levels in the reasoning.

There is of course performance by suppliers of transport from Hong Kong to Sydney at all points between Hong Kong and Sydney including origin and destination. There is performance and because it is not a monopoly there is performance by more than one possible supplier. Furthermore, performance, quality of service, is one of the ways, along obviously with price, that one offering may appear more attractive than another. Reputation, for example, as well as advertising can affect a choice, a switch in decision, something which leads to a substitution.

It is true, of course, as we assert, that the performance of the services agreed to be supplied will display as a matter of history and will contain in prospect, according to the vaunting of the offering by the supplier, will contain an opportunity for would-be customers to compare. So, of course the place or places where comparable performance takes place in all transport industries will include every location along the transport route and in that sense of course it is true that every point, every location, is as important as the other.

The notion of transport is obviously contradicted by a physical interruption or the arrival of the consignment in fragments. So, in our submission, that is a concept which says nothing other than the way in which transport services are performed or are promised to be performed will be part of the comparison which is presumably the means by which a would-be customer chooses which supplier.

But the actual substitution of substitutable – among substitutable offerings is of course done at only one place where that choice is made, and that conflation, in our submission, has led to the straightforward proposition which appeared in the original form of the pleadings and throughout the particulars of the Commission’s case, which put to the forefront the provision of transport services in Hong Kong, in the airspace on the way to Australia and on land at the airport in Australia as being the reason why this was a market in Australia.

Another reason was because there was demand for the service in Australia, that last of course being neatly bookended by the fact that there was also, on the findings, demand in China, but, in our submission, neither of those observations assisting in locating the field, arena or place, space – to use another metaphor – where there is, as Justice Keane suggested there might be, consideration of the interplay of buyers and sellers, the interplay or demonstration of supply and demand at work.

Thus, for example, when, in the American case, the economist Southern Powder River Basin Coal was offered for sale to people who wanted to use it in power stations in many different places because it was where it was mined that it was made available by its suppliers, it was not the location of customers in the sense of where they wanted to take the coal back to in order to burn it but rather the location of the interplay between them as customers and the suppliers.

That is why Professors Church and Gilbert, in the passages we drew to attention in-chief, had little doubt that it is the location of the suppliers, which is perhaps shorthand for the place where suppliers meet customers and that is why a case will be different if the supplier is, as it were, peripatetic – competing, obviously enough, with other people who are prepared to be peripatetic, move around in the case of some of the examples given in-chief. Professor Gilbert explains the application of the orthodox economic theory upon which our case depends in the context of the Southern Powder River Basin Coal Case in volume 4 of the appeal book, page 1023, paragraph 31 – I will not take your Honours to it.

That, in our submission, is an important illustration of the fact that location of customers is itself an expression that needs to be unpacked. If location of customers was informative of the geographic dimension of that coal market, it is not where their power stations were, assuming that is how you would locate a power generator corporation. It is where they acted as, took on the character of customers, and that is where they met the suppliers. The suppliers did not go out to the power stations; the power station owners came into the supplier and that provided the geographic dimension.

It is not to the point that of course those customers, those scattered power station owners, are correctly called participants in the market. Their various physical locations did not, in the case of those facts and that orthodox analysis, provide the boundaries of the geographic market.

So, in the passage that the Full Court quote in the majority’s paragraph 136 from Fortescue in this Court, as your Honours will recall apropos the New Zealand case, as it were, the common point between the two Antipodean approaches, that passage in Fortescue, yes, refers to “location of customers”. Immediately before, it refers to “the place where sales take place” and a sale, of course, is where a supplier consummates a transaction with a customer.

The location of customers, again, is not to be understood in that generalised passage in Fortescue as to be, as it were, completely distinct from, arbitrarily different from, the place where sales take place. All of it is looking for the location of that place or space, metaphorical as those expressions may be, where there is this interplay of buyers and sellers which is the essence of competition which it is the purpose of these provisions to protect or enhance.

To put it another way, when you unpack the phrase “location of customers”, you are not examining all the places - physical places - whence they come, but rather the place where the people who may come from all sorts of places nonetheless assume the character of customers. Otherwise, of course, odd and utterly useless from the point of view of competition provisions would emerge, say, in an ordinary product market, that is, product as opposed to service, the market for some portable, durable good. No one has hitherto ever supposed that in order to understand the geographic dimension of that market or, as we would put it, the location of the market, that you examine all the places to which those customers take back their portable, durable good, in order to enjoy it. The market for souvenirs - - -

KEANE J: But is it not a bit different where you have got a transport service?

MR WALKER: Yes, it is.

KEANE J: Because it is necessarily between two termini?

MR WALKER: Quite so. Absolutely, your Honour, I accept entirely that the point about a transport service is that there is an obvious in-your-face geographic aspect to the product description or product dimension. It is of the very nature of a transport service that at least two places are involved: origin and destination.

Why I went to the simple product case of the portable, durable good is to illustrate that when one is talking about location of customers, some care has to be taken not to identify a person indelibly as a customer and then to say that his, her or its residence, for example, or an example I have just given - the place where they use that which they have acquired - is therefore where they are located qua customer. That will produce willy-nilly absurd outcomes whereby the market for Opera House snow domes is something that extends to Helsinki because tourists come from Finland.

Yes, it is absolutely of the essence and is, with respect, at the very heart of the issues joined in this argument that this is a transport offering. As we said in-chief, that does not mean that there will be, as it were, special law for the identification of a market with respect to transport. There is, however, the kind of economics about which the experts did give evidence, and that does become, as a matter of law, part of the analytical approach this Court should apply to the statutory question: was this a market in Australia?

In our submission, it is clear, given the answer or answers my learned friend gave to a number of questions from your Honours, that there is no avoiding substitutability or substitution in that analysis of location. That is, you cannot discard it, but in ways that we submit have not been identified in a usefully predictive fashion, that is, in the way one would look for in a law, apparently there are other things which may alter the outcome from what would be produced by asking where may substitution occur, which is our simple approach to the question of location.

Now, on substitutability, another passage in Flight Centre that we respectfully commend is a discussion by Justice Nettle in paragraphs 126 and 127 which, with respect, is an approach that this Court would find useful in the quite different context of the argument of this case. In our submission, it is particularly informative with respect to what our learned friend, Mr Sheahan, put concerning the expanding or inclusive addition to the definition by the phrase “or otherwise competitive” that your Honours will recall from this morning.

It is very difficult to understand how competition, which may result in the kind of exhibited elasticity which will produce switching from one to another and which will therefore provide a constraint on price increases, for example, or service decreases – it is quite impossible to suppose how that may operate without choice – choice is of its essence – and it is impossible to understand how choice can be sensible to suppose occurring at all unless there is something in the nature of substitutability. No one will choose a supposed rival offering if in fact it is not in any sense substitutable for the first one.

It is for those reasons, in our submission, that, in truth, what has appeared at times, particularly in the written submissions, to be a yawning gulf between the parties is not so great at all. Substitutability is going to be at the heart of – that is, at the centre or core – of the question concerning competition, and competition is the activity or phenomenon which falls to be located.

Now, it is at that point that, in our submission, it is worth noting that the emphasis our learned friend has certainly put on the geographical aspect of the product dimension, is one that seems to be a rerun of an argument mounted below and rejected by the majority below. Could I take your Honours, please, to the appeal book page 815? Picking it up at paragraph 158, the expression their Honours attribute to the Commission’s submission was that:

the sphere of operation of a service –

the sphere of operation of a service – so that will include Hong Kong, all points in between to Sydney:

is conclusive of the geographic dimension of the market.

I note their Honours are emphasising the word “conclusive”. Nonetheless, they say:

we reject the Commission’s submission that the geographic dimension of the market . . . includes Australia simply because part of the suite of services, even an important part, is provided in Australia. There need not be “one to one correspondence” of the product dimension and geographic dimension of the market, a concept rightly rejected by Professor Gilbert -

including in the passage to which I gave reference earlier concerning the American coal case. Then, in paragraph 159, their Honours correctly, with respect, note the passage that both I and my learned friend, Mr Hutley, have drawn to attention, pointing out as a matter of the relevant economics, which as a matter of law need to be incorporated into the understanding of the word “market” that one finds in the Atlantic Container Line Case as well as their Honours’ observation concerning Taprobane.

But, in our submission, what one is left with (a) by our friends’ argument which does, in fact, go beyond the reasoning and is, in fact, is opposite from the reasoning of the majority in the Full Court – but what we can also say about the Full Court’s final decision, notwithstanding their observations in 158 and 159, is that no guidance is given. The indicator of error is that we are left, after apparent contest about substitutability, with common ground that hits at the core or centre of the question.

Apparently, it will not be decisive – that is the place where substitution may occur – it will not be decisive – that is why we lost. The place where services are provided, or places where services are provided is not conclusive and there not be a one to one correspondence. In other words, that is not at the central core of the question.

What we are not told in the reasons is, as a matter of the economics, let alone, therefore, of the legal meaning of the word “market” in a statute that uses an economic term of art, that is the word “market”, we are not told how one moves from those negative propositions to an understanding of how the definition applies when it calls for a location.

Now, your Honours will recall that our learned friend, with great respect, eloquently called in aid the accepted metaphorical character still of the word “market” and referred to the Chief Justice and Justice Gageler’s observations in Flight Centre, which reminds one that concepts which are metaphorical and abstractions are not always easily translated to cadastrally identified locations. That is true and my learned friend used a very common example for law students of a chose in action.

But we are not engaged in an exercise which involves anything as artificial as locating for the purposes of private international law a chose in action by reference, for example, to the location of the person who needs to be sued in order to manifest the chose in action - nothing so artificial at all. This is, we are told, a matter of economic reality, which means ultimately the conduct of persons which has as its focus that aspect of activity in people’s dealings with each other, which is called competition, which is displayed, as I say, by the possibility of substitution.

That, in our submission, does not call for anything artificial on our part nor does the epithet “narrow” apply to the way in which we approach the matter. Rather, we say, having described – if one must use the language, having defined the market; “described” would be a better way to name what we are doing – having described the market, how do you describe something which displays as its location Australia or Australia as well as other places – that does not matter?

In our submission, the need to do so is not lessened in any regard by the fact that it is an abstraction to which physical location may not be the most obvious aspect of its usage in ordinary language. The market in hardback novels now that Amazon has its reach may be quite difficult physically to describe in terms of location. It does not mean we cannot all loosely talk about the market for hardback novels.

But this is a statute that plainly shows Parliament confronting or taking that concept, that abstraction called a market, and then insisting for reasons presumably to do with the self-understood pretentions of a national legislature in relation to conduct extending beyond the boundaries of the territory over which that Parliament is sovereign, so the extraterritoriality concept, in order to control that they chose, among quite a smorgasbord of possibilities, simply to say “a market in Australia”. They did not say “supplies to Australia”. They did not say “participants including Australians”.

They certainly did not say “effects in Australia” and they did not say “demand in Australia”. All of those possibilities, no doubt drafted better than I have just sketched them, could have been used for the nexus to limit what might otherwise have been seen as a universal claim to control market conduct by the Australian Parliament.

It is for those reasons, in our submission, that it is not to the point, however eloquently, to show that these are concepts and abstractions to which it may be quite awkward immediately to attach geographical location. That is absolutely not to the point. That may explain why an argument about it comes to this Court; that is, it is difficult, at least once.

In our submission, the assignment given by the terms of the statute is unmistakeable. We have to ask is this in Australia? It is for those reasons, because it is ultimately about conduct and relationships, that one should be asking purposively for provisions that get to control, after all, competition, where is it that the competition can be seen in action? That of course is, and is only, where substitution is possible.

It is for those reasons, in our submission, that your Honours should resist the invitation to sever, as it were, the conventional or common notion of the analytical tool, second level as it may be, the geographical dimension of a market, from the statutory question is this a market in Australia? That is for this reason. They are just analytical tools. They are not enacted text. We entirely align ourselves with the way our learned friend put it. They are just heuristic devices.

But they are tools and devices which are authoritatively resorted to by the courts in this country because they are useful and informative and enable one to understand something which is an economic concept not defined in economic terms or anthropological terms by the statute and, in our submission, it is as clear as one can get that the tool which is geographical dimension of a market answers the question, where does the conduct which constitutes the market take place, just as the product dimension answers the question, what is the subject matter of the conduct which comprises the market in this case, just as the functional question answers the question, at what level in terms of levels of trade does the conduct which comprises the market take place? Temporal dimension; similar question.

But, having answered the question where, whatever falls out by way of the factual description, including in a transport case, whatever falls out should enable one there and then by resort to a map to say this is a market in Australia. That is an approach which, in our submission, calls in aid the established approach to geographical dimension which notes, with great respect, the correctness of the proposition that the geographical aspect of the product dimension does not supply in a one to one correspondence the geographical dimension of the market in question – paragraphs 158 and 159 of the majority – and produces something which is in accordance then with well-understood technique predictive for those who need to conform their conduct to the law that applies to them. That is what the phrase “market in Australia” is doing. Does this law apply to us or not?

In our submission, ranged against us is an approach which, as these not conclusive and not decisive, negative aspects, does not have a description which enables any predictive force to be given to an understanding of the meaning of the word “market”. In our submission, that is an invidious vagueness which is indicative of error.

In closing, one is reminded of the difficulty with approaching matters in that fashion, in an utterly different context in the judges’ superannuation case, Austin [2003] HCA 3; 215 CLR 185 at 269 in paragraph 182, the deploring of the drafting of laws which mark out the line of citizens’ conduct preferably by visible directions rather than turning the citizen loose into the wilds of perpetual conjecture.

The approach which is urged against us and which the reasons and outcome of the majority of the Full Court in this case actually yield is a real conjecture about whether this would be a market in Australia if one has to apply this to different facts with foreign connections in future.

Your Honours, I referred to the pleadings. I am reminded I have some references. I do not need to take you to them. The original allegation was in paragraph 44 which you will find in volume 1 at page 23. Particulars were given in volume 1 at pages 104 to 106. Professor Church’s evidence had raised the possibility of theoretical downstream, with which I commenced my reply. That you will find in volume 4 at pages 1153 to 1155, and the abandonment, as we call it, is what you will see in the transcript which I handed up earlier.

There were questions asked about Professor Williams and his evidence. May I just give you some references and summary? As we understand the course of events, it includes these following cardinal points. In cross-examination - volume 5, page 1511, lines 18 to 33 – I think Justice Nettle has raised this – Dr Williams accepted that the activities methodology that he was advocating had been rejected by the Tribunal in the Services Sydney Case. He said at 1527, lines 7 to 14, that he was unable to reconcile his activities approach with the result of market definition in Taprobane.

Professor Church said in cross-examination that the economic principles governing market definition were well-settled - that is volume 5, 1531; that he had never seen a respectable economist put up the activities approach suggested by Dr Williams - volume 5, page 1434, lines 18 to 24; and that the activities approach would not produce the correct answer to the market definition inquiry - volume 5, page 1434, lines 30 to 36; that the activities approach, Dr Williams’ approach, was not reflected in the merger guidelines of the US, Canadian, European or Australian authorities -

volume 5, page 1435, lines 28 to 45; and that there was on the other hand no substantive dispute between Professors Church and Gilbert as to the content of the relevant market definition principles, only the outcome of their application in the present case – that is volume 5, page 1431, lines 4 to 16.

Professor Gilbert for his part advanced a similar position in relation to orthodoxy; that is, Dr Williams was heterodox, and you will see that in volume 4, page 1017, paragraph 9, and 1065 to 1072, paragraphs – I think the whole of those pages in his report. May it please the Court.

KIEFEL CJ: Thank you, Mr Walker. Yes, Mr Hutley.

MR HUTLEY: When section 4E defines “market” as a market in Australia it does not posit any two-stage or multiple-stage test. It is one exercise which is to be undertaken by the court in every case. It is the exercise to be taken by the court in every case. It is part of – it is the process of market definition. That will disclose whether the market is in Australia. Thus, the posited assumption that one identifies the market and then engages in some, in effect, characterisation issue such as was undertaken by the Full Court in one of their alternative ways of answering this question is textually impermissible on the definition clause which is section 4E.

KIEFEL CJ: Is that actually what their Honours did, though, under their seven reasons. Did they group it together?

MR HUTLEY: Your Honour, they said, in effect, it is two. They said it is either the market becomes in Australia because of those seven reasons or by way – insofar as the geographic components involved. That is what they said would achieve that or they seem to contemplate that you could do it by characterisation exercise beyond the definition of “market”.

KIEFEL CJ: But on your submission their Honours did not actually identify the market. Is that what you are saying?

MR HUTLEY: Your Honour, in our respectful submission, to the extent that it is put there are two tests. We say that is wrong. We say it is answered by market definition, one step test. The Full Court said they had achieved that because they said the extent of the market would be defined by reference to their seven propositions. We say they are wrong as a matter of process of market definition.

We say that the error is shown by the manner in which our learned friends in their submission, deploy the various concepts of customers, supply, performance and, to some extent, marketing and by that we understand them to mean advertising. We submit that unless economic discipline is applied in the way that has been advanced by the appellants, the definition of “market”, which is required in every case, and it is a market in Australia exercise, will become incoherent.

It will not matter about selling snow globes to Finland. It will be about market power in Australia. If Maggie Beer’s restaurant in South Australia is advertised nationwide for customers to come to South Australia and use it, does that mean because there are potential customers in Brisbane, Melbourne and Sydney, she is engaged in - her restaurant is in a national market for restaurants, a Sydney market for restaurants or what?

KIEFEL CJ: Probably a market in supermarkets.

MR HUTLEY: I am sorry.

KIEFEL CJ: National supermarkets.

MR HUTLEY: I am talking about the restaurant, your Honour.

KIEFEL CJ: Yes.

MR HUTLEY: I understand, but, your Honour, with respect, that is the incoherence which will be brought into this exercise and the coherence is maintained through QCMA through the concept of the act of economic substitution and the place of it. That is why customers are only meaningful - they are evidentiary and very important evidentiary about where a market, but their significance becomes, from the point of view, for example, of the extent of the market, where they are sited where supply takes place.

That is the use of it there. Advertising is evidentially useful in many ways in finding out the metes and bounds of a market because it is evidentially of assistance in finding out where the acts of exchange are taking place. But, in our respectful submission, if one succumbs to this as it were rich textured submission of our learned friends where it is a rich amalgam of taking into account bits and pieces of here and there, any process of rational determination of the metes and bounds, no matter how uncertain that is in a given case, would become completely incoherent because my learned friend says, in a sense, you look at it, the bits and pieces here and there, as one thing or another and then one, in effect, develops a feel, as if the.....or the extent is sufficiently identified.

In our respectful submission, that is not and my learned friends never addressed what we submit was the correct question, which no one has yet addressed, posited by his Honour the trial judge at first instance at 321. It is not addressed; it is never addressed because the moment you address that correct question of supply – not performance, supply – performance, there is no supply economically or relevantly occurring after Hong Kong.

There is certainly performance because there is no rivalry in mid-air. The rivalry is over. Obviously they are competing for future sales in the way that my learned friends have, but any economic rivalry is at an end and it is the sliding between competition, performance, supply, customers, advertising and marketing which in effect gives the appeal to this exercise by our learned friends, such appeal as it has, and necessarily makes incoherent any process of determining where a market is.

Imagine trying to find them if there was a question as to market power of real estate agents in Melbourne or Sydney. The mere fact that people from China may want to, in effect, buy properties in Sydney – China would not be a problem but questions of Northern Territory, Melbourne, Sydney would immediately, according to our learned friends, become highly relevant to the situs of the market and the market power of real estate agents in Sydney - immediately, without any investigation as to why, because it is part of the rich textured analysis.

What one needs to concentrate on and what our learned friends are in effect devoted to diverting attention from is the act of supply and the constraints at that point because at the moment that occurs there is not one fact that takes you away from Hong Kong, as we have submitted.

If our principal submission is where a market is is where – what its geographical metes and bounds, and I will not say anything beyond what my learned friend, Mr Walker, has submitted in reply, that is the end of it. That is not to say there is a whole lot of evidentiary matters of interest when you are actually trying to find out where a market is but once you have found that, that is the end of it, in our respectful submission. That is all we wish to say by way of reply.

Now, can we deal shortly with the submissions of my learned friend, Mr Halley, on the other issue. Firstly, he submitted that, because a tariff is a minimum, all the cases against us was that we agreed we charge - these charges would be imposed at, that is the end of the case. That ignores the way the case was pleaded at paragraphs 77, 79, 83, 86, 89, 92, 95 and 98 where it was said that the charges would be maintained at no less than the agreed figure.

Now, the trial judge found and there is no debate, at paragraphs 415 to 417, that a surcharge was a tariff. If my client, as they are entitled to do, were minded to impose a surcharge, they were obliged to do it by agreement. That is Article 6. And they had to do that, unless they could not achieve consensus, and that was found by the Full Court at paragraph 207 and also by the trial judge at paragraph 152. That is why the trial judge found that inconsistency arose and that is where we get to.

So, in effect, there is no way of diverting from the problem. The problem arises and we have said what we have said about inconsistency. I need only deal with our learned friend’s reference to other provisions of the Trade Practices Act as indicating that it was intended that the Trade Practices Act, as it were, deal with and be taken to have dealt with, to the benefit of the Trade Practices Act, the operation of the Trade Practices Act with all and every conflict. Firstly, sections 45(5) to (9), they merely, in effect, avoid internal duplication of liability within respect of the various sections of the Act as it were between 45, 46, 47 and the like and that does not assist one at all.

Now, the next one is section 88 where it says that because one can get authorisations that must indicate that one was always intended that if conduct was made per se illegal by the Act, that is some conduct under a federal legislation authorised by a federal legislation was made per se illegal under an Act, you could always – since the Act had been repealed, you could always go off and get authorisation under the Trade Practices Act.

Now, in a sense, a moment’s reflection shows that the argument proves too much because if one is contemplating a federal Act which authorises conduct, that is, it makes lawful by federal Act the conduct. If one assumes – and that in fact is made – if the Trade Practices Act survived, unlawful, our learned friend’s argument is the Trade Practices Act affects a repeal of the earlier Act and you can go and get a section 88 authorisation. But the problem is if you are only able to do the earlier Act because the federal Act had authorised it, you cannot go and get a section 88 authorisation to do it. So, section 88 is utterly irrelevant to the question of construction.

Now, the next point - and in fact it pins against, as it were, the conclusion, because it proves too much - the question, if there is a conflict between a federal Act which specifically authorises an event, which is a per se breach, there is a conflict and its very specificity not having been addressed by the Trade Practices Act as it could be, suggests, in accordance with the authorities in this Court, its likely continuation. The inability to get authorisation would tend to advance our argument.

Then my learned friends point to Part X. Part X, as your Honours know, dealt with a particular field of endeavour that was, in effect, trading conferences involving shipping of a certain variety – basically outward shipping. That was before the legislation wholly dealt with “by contract”

and therefore necessarily would have been engaged with by the Act and therefore, as a scheme, had to be dealt with by the Act.

Of course, we are dealing with the exact contrary where the conduct with which one is concerned – the variety with which one is concerned is one brought about by federal legislation and therefore does not need to be dealt with expressly in the Act; it can be left to the principles of legislation being read together, which is in effect the background against which all federal legislation is enacted. So, in our respectful submission, Part X does not take it any further. Unless I can be of further assistance, those are our submissions.

KIEFEL CJ: Thank you, Mr Hutley. The Court reserves its decision in this matter and will adjourn until 10.15 am on Tuesday, 7 March.

AT 2.56 PM THE MATTER WAS ADJOURNED