Price parity or "most favoured nation" clauses in a
vertical pricing arrangements could breach Australia's
price-fixing laws following the Australian Competition and Consumer
Commission's High Court victory this morning (Australian
Competition and Consumer Commission v Flight Centre Travel 
The Court gave separate judgments, and the full impact of the
decision on particular arrangements will require much analysis, but
this much is clear: its impact goes far wider than the travel
industry - these clauses can be found in long-term supply
contracts, or those underpinning financial advice, broking,
insurance, price comparison sites and online marketplaces.
And the Court's decision could also potentially affect many
principal / agent relationships, as it has found that principals
and agents can, in certain circumstances, be in competition against
each other, which could mean wholesale changes to the
arrangements by which an agent sells the principal's product
and sets the price for it.
The attempt at price parity between Flight Centre and
Flight Centre entered into a standard form Passenger Sales
Agency Agreement with the International Air Transport Association,
which did so on behalf of its member airlines.
Under this agreement Flight Centre was not required to sell any
particular ticket, or even any tickets at all from any of the
airlines. It could sell any tickets at any price it chose. The
airlines also were not obliged to deal solely with Flight Centre;
they could, and did, provide tickets to other travel agents or sell
them directly to the public.
Flight Centre offered customers a "price beat
guarantee". Concerned that it was being undercut by the
airlines which offered discount tickets directly to customers, and
thus forced to sell tickets at a lower price which affected its
profit margins, Flight Centre tried to get three airlines to agree
to stop offering international airline tickets directly to
customers at prices lower than the fares published to travel
The ACCC alleged that this contravened the ban on price-fixing
in section 45A of the Trade Practices Act (now the Competition and
Consumer Act 2010 (Cth)). The Federal Court agreed, imposing
penalties of $11m, a decision that was then overturned on appeal.
The High Court agreed with the trial judge, although on a different
analysis of the market.
Price fixing under the Australian Competition and Consumer Act
Under the CCA, a corporation is prohibited from making a
contract or arrangement, or arriving at an understanding, if a
provision of the proposed contract, arrangement or understanding
has the purpose, or would have or be likely to have the effect, of
substantially lessening competition in an Australian market.
Under the law as it was at the time (before the 2009 cartel laws
were introduced), any contract, arrangement or understanding
between parties who were competitors which fixed or controlled
prices charged to customers was deemed to be a contravention.
The critical question in this case was whether Flight Centre was
in competition with the airlines in offering airfares to Australian
consumers, which meant considering what services were actually
being offered and supplied.
The High Court majority found:
contrary to Flight Centre's arguments, Flight Centre was in
competition with airlines in the market for the supply of
international airline tickets because the airlines sell their fares
direct to the public;
even if Flight Centre was the airlines' agent (and not all
judges thought it was), the Act does not carve out principal /
agent arrangements from its anti-competitive provisions. A
principal and agent can be in competition with each other; and
Flight Centre's attempt to get airlines' agreement to
price parity, if successful, would have fixed or put an agreed
floor under air fares, which was a contravention.
How the Flight Centre decision will affect price parity / MFN
clauses and principal / agent relationships generally
As the High Court gave separate judgments, with slightly
different analyses, its full impact will take some time to reveal
itself. What we can say now is:
any principal / agent relationship in which the parties could
conceivably be in competition with each other; or
any price parity or MFN clause;
must be reviewed now.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
Persons listed may not be admitted in all states and
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
European competition authorities are also serious about resale price maintenance or suppliers fixing resellers’ prices.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).