The High Court recently handed down a judgement finding that a flight booking agency was in breach of competition law, by attempting to engage in price fixing for ticket sales with airlines with whom it was in competition. In this article, Susan Moran, Principal of our dispute resolution team considers the importance of principals and agents structuring their activities and relationships so they either, (1) are not in competition with each other, or (2) if they are in competition, ensure they act independently to set prices for goods and services.
The central question before the High Court was whether Flight Centre and the Airlines were in competition with each other, and what was the relevant market.
In answering this question, the High Court first examined the relationship between the Airlines and Flight Centre. Flight Centre had entered a separate agency agreement with each of the Airlines which established that Flight Centre was the agent of each of the Airlines, who each acted as principal.
Flight Centre argued that it could not be in competition with the Airlines due to this agency relationship, which allowed it to sell flights on behalf of the principal. The High Court rejected this argument holding that there is ‘potential for competition to exist between an agent and a principal’, and that this potential needs to be considered against the background of the general law of agency. The High Court discussed two factors of the general law of agency which are relevant to competition:
However, where an agent is free to exercise its discretion to act in its own interests, as Flight Centre was in the present case, the mere existence of an agency relationship does not preclude the agent from competing with the principal. The High Court held that as Flight Centre was able to determine the price at which they sold the Airline’s tickets, and were not required by contract to prefer the Airline’s interests, the relevant competition existed between the parties.
The High Court held that the market in which the competition existed was the ‘market for supply, to consumers, of contractual rights to international air carriage’, with Flight Centre and the Airlines competing with all sellers of these tickets, including other airlines and other travel agents.
Having established that the relevant element of competition was present, the High Court found that on the basis of the Emails, Flight Centre was in breach of sections 45 and 45A of the TPA, which prohibits proposing to enter an arrangement to fix prices with a competitor.
The implications of the High Court’s decision are significant for business, particularly those businesses who use a ‘dual distribution’ model, involving direct and indirect distribution of goods or services. There is a real risk that ‘principals’ and ‘agents’ in such a relationship may be found to be ‘competitors’, in which case they must be careful to ensure they do not engage in price fixing. It is therefore critical that the parties structure and manage the relationship so that:
As reinforced by the High Court in this judgement, the terms of the contract between the ‘principal’ and ‘agent’ is important in determining whether the parties compete with each other within their given market, as is their actual conduct.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.