Jurisdiction - Australia
Australia – Federal Court Orders Flight Centre Pay AUD 11m And Explains What’s Needed To Claim Higher Penalties.

23 May, 2014


Legal News & Analysis – Asia Pacific – Australia – Competition & Antitrust



  • In the latest development in the reach for our prohibitions on price fixing, the Federal Court has ordered AUD 11m for attempts by Flight Centre to induce price fixing arrangements with Singapore Airlines, Emirates and Malaysian Airlines.
  • Since 1 January 2007, the maximum penalty available for the contravention of key competition provisions has been the greatest of AUD 10m and, if the total value of the benefit attributable to the conduct can be determined, three times the value of the benefit or, if not, 10% of the annual turnover of the corporation.
  • This is the first judgment to consider what the ACCC must reveal in its claim in order to pursue more than AUD 10m in penalty for each contravention.  
  • Justice Logan held that because the ACCC had not pleaded its case correctly at the outset, it was unable to claim a maximum penalty in excess of AUD 10m. Thus we are yet to see a contested case where the higher maximum penalty is applied.
  • Flight Centre has appealed both the primary and penalty decisions against it. But the battle is not over, with the ACCC lodging a cross-appeal in relation to the penalty arguing that the AUD 11m penalty imposed against Flight Centre is too low.
  • The appeal judgment is expected to provide important clarification on the law relating to price fixing where a party has a dual relationship with its supplier who is also a competitor. It will also provide guidance on what the ACCC must do if it is to seek to rely on the powers of the Court to order penalties above $10 million for a contravention of the Competition and Consumer Act 2010 (the Act).
  • This note deals with the penalty issue, a very important issue given the potential for very high maximum penalties.


Pecuniary Penalties For Competition Law Breaches


Until the end of 2006, a maximum pecuniary penalty of AUD 10m could be imposed on a corporation for a contravention of the competition provisions of the Act.1


A corporation can be liable to a pecuniary penalty merely for attempting to contravene the Act – it matters not if the attempt is unsuccessful and no actual contravention occurred.


Following a recommendation of the Dawson Review, the pecuniary penalties regime in the Act was amended to allow for substantially higher penalties. This is consistent with the intention to provide greater deterrence to engage in anticompetitive conduct and in particular, cartel conduct.


From 1 January 2007, the maximum pecuniary penalty available became the greatest of:


  • AUD 10m, and
  • if the court can determine the value of the direct or indirect benefit obtained by the corporation (and its related entities) that is reasonably attributable to the contravention, three times that total value, or
  • if the court cannot determine the value of the benefit, 10% of the annual turnover of the corporation and related corporations during the 12 months ending at the end of the month in which the contravention occurred.


With these amendments, if either of the alternative bases for assessing penalty apply (i.e. value of the benefit or group annual turnover), it is evident that the maximum penalty for a contravention can be very large indeed.


What Maximum Penalty Should Apply To Flight Centre’s Contraventions?


Following his finding in December 2013 that Flight Centre had attempted to induce a price fixing arrangement on six occasions,2 the ACCC and Flight Centre made divergent submissions in relation to the maximum pecuniary penalty that should apply in respect of four of the six contraventions. The earlier contraventions occurred prior to 1 January 2007 and therefore each of these contraventions had a maximum penalty of AUD 10m.3  


In short, Flight Centre contended that the applicable maximum was AUD 10m per contravention (i.e. a total maximum of AUD 50m). In contrast, the ACCC argued that the court should adopt the 10% of turnover measure, and argued that the total maximum penalty was AUD 323m.


Key Findings Regarding The Higher Maximum Penalty


Justice Logan stated that:


‘…if it can be shown by the Commission that a contravener, or a body corporate related to the contravener, obtained, directly or indirectly, a benefit that is reasonably attributable to a particular contravention, the body corporate can, depending upon the value of the benefit or size of its annual turnover, as defined, be exposed to a maximum penalty greater than AUD 10m in respect of that contravention.4


In those circumstances, Justice Logan held that it was a precondition to the ACCC being able to seek a higher maximum penalty that it specifically allege in its claim that there was such a benefit (or as he described it an ‘aggravating circumstance’).


Flight Centre submitted that it was procedurally unfair for the ACCC to be permitted to advance a case that the higher maximum penalties should apply. The aggravating circumstance (that would attract a higher penalty) was not alleged in the ACCC’s statement of claim (i.e. in the pleading of a case) and Flight Centre was not alerted to it when the ACCC set out the relief it sought.


In making its submission, Flight Centre drew the Court’s attention to the requirements in the Federal Court Rules regarding how a claim should be set out in the statement of claim. These Rules require that a pleading:


  • state the specific relief sought or claimed,
  • not be evasive or ambiguous, and
  • not be likely to cause prejudice, embarrassment or delay in the proceeding.


The Rules also provide that a party is not entitled to seek any additional relief to the relief that is claimed in the originating application and require that a party plead a fact if failure to plead the fact may take another party by surprise.


Justice Logan agreed that the ACCC’s failure to plead the ‘aggravating circumstance’ constituted a denial of procedural fairness. In particular, his Honour found that Flight Centre was denied the opportunity to decide whether some issues other than just liability either could or should go to separate trial.5 In addition, his Honour found that the failure to plead an aggravating circumstance may impact upon what is or is not directly relevant to a fact in issue and on whether to seek discovery.6


Justice Logan also found that the ACCC failed to raise the issue of higher maximum penalties in a timely fashion.


Ultimately, Justice Logan rejected the ACCC’s claim for a higher maximum penalty because the way it had presented its case in its formal claim was deficient – the ACCC failed to allege that Flight Centre obtained a benefit that was reasonably attributable to the contravention. This meant that it was procedurally unfair to allow the ACCC to make a claim for higher pecuniary penalties at such a late stage (i.e. following the principal judgment).


It is not surprising that the ACCC is seeking to test this finding on appeal, particularly where His Honour acknowledged that the ACCC had shown an identifiable but unquantifiable benefit to Flight Centre7 and had led evidence as to Flight Centre’s maximum turnover.8


Discussion Of The Applicability Of Criminal Cases


Justice Logan drew the ACCC’s and Flight Centre’s attention to a trilogy of criminal cases where the necessity of pleading a circumstance of aggravation and the consequences with respect to maximum penalty of not doing so, were discussed by the High Court.9


His Honour expressed the view that it was difficult to see why the content of the procedural fairness obligation should differ as between a criminal proceeding and civil penalty proceeding.10


Justice Logan noted that the requirement in the criminal jurisdiction to plead a circumstance of aggravation, even if it goes only to the applicable maximum penalty, serves the procedural fairness end of alerting the accused from the outset to the jeopardy in which they are placed by the proceeding.11 By analogy, Justice Logan noted that the matters in the pecuniary penalty provision in the Act which serve to increase the maximum applicable penalty were questions of fact affecting liability and therefore, should be set out in the ACCC’s claim at the outset.


Sentencing Ranges


Both the ACCC and Flight Centre made submissions about what they considered was the applicable range within which the penalty should lie. However, Justice Logan refused to take those submissions into account.12


In doing so, he relied on a criminal law case, Barbaro v The Queen,13 in which the High Court determined that the prosecution is not permitted or required to submit its opinion on the range of sentences that could be imposed.


Interestingly, Justice Logan did not hesitate to follow Barbaro, despite wanting to make it very clear that his finding that the ACCC’s failure to plead the aggravating circumstance constituted a denial of procedural fairness did not rely on principles set out in criminal law cases.14


Justice Logan’s approach in following Barbaro is to be contrasted with that of Justice Middleton in another Federal Court decision handed down just one week later.15Justice Middleton considered that the High Court in Barbaro did not intend to exclude the making of submissions by parties in a civil context as to the appropriate orders. He instead relied on Full Federal Court cases which supported the practice of parties making submissions as to the appropriate penalty in civil proceedings.16


Take Aways


Subject to the outcome of the appeal, the penalty judgment against Flight Centre clarifies that:


  1. for the ACCC to claim in excess of AUD 10m for conduct that contravenes the competition provisions of the Act, it must state that in its claim from the outset,
  2. the ACCC must also set out details of the benefit that is reasonably attributable to the contravention along with other facts in support of the higher maximum penalty,
  3. the requirement to do so is grounded in the procedural fairness obligation found in the court rules, rather than by analogy to criminal law cases (i.e. the obligation cannot be avoided by seeking to distinguish the facts of the case at hand), and  
  4. submissions by the parties as to the applicable penalty range may not necessarily be taken into account in a civil penalty hearing. Although, some doubt has been thrown on the approach taken by Justice Logan in this respect, with a recent Federal Court decision expressly departing from that approach.


Since the Flight Centre penalty decision was handed down, Flight Centre has lodged an appeal and the ACCC has lodged a cross-appeal. It will be interesting to see how if at all the principles set out in the penalty decision will be affected by the appeal.


End Notes:


  1. In 2006 the Act was the Trade Practices Act 1974. A maximum penalty of $750,000 applies to the secondary boycott provisions in the Act.
  2. Australian Competition and Consumer Commission v Flight Centre Limited (No 2)[2013] FCA 1313.
  3. The first contravention occurred more than six years prior to the commencement of proceedings and therefore, a penalty was not recoverable in relation to this contravention.
  4. Australian Competition and Consumer Commission v Flight Centre Limited (No 3)[2014] FCA 292, [8].
  5. Ibid, [26].
  6. Ibid.
  7. Ibid, [10].
  8. Ibid, [13].
  9. Kingswell v R (1985) 159 CLR 264; R v Meaton (1986) 160 CLR 359; Cheng v R(2000) 2003 CLR 248.
  10. Australian Competition and Consumer Commission v Flight Centre Limited (No 3)[2014] FCA 292, [40].
  11. Ibid, [39].
  12. Ibid, [56].
  13. Barbaro v The Queen (2014) 88 ALJR 372 (‘Barbaro’).
  14. Australian Competition and Consumer Commission v Flight Centre Limited (No 3)[2014] FCA 292, [32].
  15. Australian Competition and Consumer Commission v Energy Australia Pty Ltd[2014] FCA 336. In those proceedings, the ACCC and Energy Australia agreed a statement of facts and proposed orders, including the appropriate pecuniary penalty.
  16. Ibid, [113]-[152], particularly [143] and [150].


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For further information, please contact:


Chris Jose, Partner, Herbert Smith Freehills

[email protected]


Paul Hughes, Herbert Smith Freehills

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