Trade and Transport Bulletin - Air cargo and the ACCC's use of section 155 notices

The recent Federal Court decision in Korean Air Lines v ACCC (No 3) [2008] FCA 701 demonstrates the growing trend for parties to appeal against the Australian Competition and Consumer Commission's (ACCC's) power in issuing notices for information after it has initiated an investigation. In this case, the Federal Court considered the power of the ACCC in issuing Korean Air Lines Co Ltd (KAL) with a section 155 notice.

Background

The ACCC is conferred with broad powers under section 155 of the Trade Practices Act 1974 (TPA) to investigate matters which may constitute a contravention of that Act.  Section 155 allows the ACCC to issue a notice (155 Notice), requiring individuals and/or corporations to produce documents, furnish information, and/or attend an interview on a matter that may constitute a contravention of the TPA.

155 Notices are typically issued during an investigation to assist the ACCC in determining whether it considers a contravention of the TPA has occurred.  However, whether the ACCC can issue a 155 Notice after deciding to institute proceedings remains unresolved.

The growing trend

The KAL challenge reflects a growing trend for companies to challenge the power of the ACCC to issue notices under section 155 of the TPA.  Singapore Airlines and Emirates have also recently instituted proceedings challenging 155 Notices arising out of an ACCC investigation of the air cargo industry. 

The rise in challenges to 155 Notices may be explained by various factors including:

• The ACCC's desire to crack down on major cartels, an objective that requires investigations of large, well resourced companies.
• The TPA amendments in July 2007 conferring the ACCC with greater power to share information with foreign regulators, which may increase the compliance risks for multi-national companies.
• The increasing prevalence of class actions against companies found guilty of anti-competitive behaviour.

As a result of this trend, we expect both increased interest in the grounds available to airlines and other alleged cartel participants to challenge 155 Notices, and increased guidance from the courts regarding the powers of the ACCC under section 155 of the TPA.

Grounds for review

The Administrative Decisions (Judicial Review) Act 1977 (Cth) sections 5(1)(d),(e) and 5(2)(c), provides various grounds on which a party may seek review of a decision by the ACCC to issue a 155 Notice.  This includes the grounds that the decision to issue a 155 Notice was made for an improper purpose and that the decision was beyond the ACCC's powers.

Notices issued to KAL

As is set out in the judgment of Justice Jacobson in Korean Air Lines v ACCC:

• The ACCC had been investigating alleged cartel activity by a large number of international airlines since February 2006 and served a 155 Notice on KAL in March 2007.  Apparently, KAL provided the information and documents sought in that notice.
• On 31 October 2007, the ACCC issued another 155 Notice (Second Notice) to Korean Air Lines (KAL) seeking information on certain tonnages and revenues of KAL's operations over the relevant period.

Judgment

The Court primarily considered two alternative arguments raised by KAL that the ACCC's decision to issue the Second Notice was either beyond its powers or made for an improper purpose.

Purpose of obtaining evidence relevant to penalty

First, KAL contended that ACCC's purpose in issuing the Second Notice was not to establish whether KAL had breached the TPA, but to provide evidence on what penalty should be imposed for that breach.  Indeed, it was conceded by the ACCC that the information sought by the Second Notice was not required to establish a contravention of section 45 of the TPA.  On this basis, KAL argued that the decision to issue the Second Notice was made for an improper purpose because that decision:

'Did not turn upon the need for information so as to enable the ACCC to determine whether it had sufficient evidence to establish a contravention of section 45.'

In this respect, the Court followed the conclusion of Justice Deane in TPC v Pioneer Concrete (Vic) Pty Ltd (1982) 55 FLR 77 that the power conferred by section 155 of the TPA is to be used only for the purpose of determining whether the ACCC should institute proceedings.

However, the Court ruled against KAL for the reasons that:

• Determining whether to issue proceedings is a broader question than determining whether the Act has been contravened.  In particular, the ACCC retains a discretion on whether it should institute proceedings even if it considers a breach has occurred.  The Court found that the evidence sought by the Second Notice (that is, the size of KAL's 'footprint' in Australia) was relevant to the exercise of this discretion.
• The ACCC may legitimately issue 155 Notices to obtain evidence that may be tendered in penalty proceedings regarding the quantum of any penalty.

Can the ACCC issue 155 Notices after deciding to institute proceedings?

Second, KAL contended that the ACCC had decided to issue proceedings prior to its decision to issue the Second Notice.  On this premise, KAL argued that the ACCC's decision to issue the Second Notice was beyond the ACCC's power, or made for an improper purpose, because:

'The decision having already been taken to commence proceedings, the ACCC's power to issue the Notice was exhausted or spent.'

However, the Court ruled against KAL on the basis of its finding that, as a matter of fact, the ACCC had not decided to institute proceedings by 31 October 2007.  The Court noted the ruling in Kotan Holdings Pty Ltd v TPC (1991) 30 FCR 511, that the power to institute proceedings resides not with the officers of the ACCC, but with its Commissioners.  In the circumstances at hand, KAL argued there had been a firm intention, contemplation or expectation amongst officers of the ACCC to commence proceedings but was ultimately unable to provide sufficiently compelling evidence that the ACCC had made a decision to commence proceedings.

Given this factual finding, Justice Jacobson did not need to determine whether a decision by the ACCC to institute proceedings in a matter prevents it from after that point issuing 155 Notices for that matter.  However, Justice Jacobson nevertheless made strong comments to the effect that this would not necessarily be the case and that in his view:

'The question of whether the power has been exercised for an improper purpose is a matter to be decided in all the circumstances.'

As a result, it remains open for parties to argue that a decision by the ACCC to institute proceedings in a matter prevents it from thereafter issuing 155 Notices for that matter.  However, the judgment in Korean Air Lines v ACCC emphasises that what a Court may actually decide on this issue is by no means clear cut.

Conclusion

It is likely that further aspects of the ACCC's power under section 155 will be judicially considered if, as currently appears to be the trend, companies continue to challenge decisions of the ACCC to issue 155 Notices.

For more information, please contact:

Alec White, Solicitor
Tel +61 3 9274 5144
alec.white@dlaphillipsfox.com

Fleur Gibbons, Partner
Tel +61 3 9274 5840
fleur.gibbons@dlaphillipsfox.com