KEY POINTS:
The Commerce Commission is taking three international airlines to court alleging poor disclosure as it probes claims of a price-fixing cartel in the $400 million air cargo market.
The commission said it has filed criminal charges in Auckland District Court against Cathay Pacific Airways, Singapore Airlines and Aerolineas Argentinas.
The charges allege non-compliance with notices seeking documents and information issued under the Commerce Act in October 2007.
If the airlines are found to be in breach of section 103 of the Commerce Act they can be fined up to $30,000.
One of the airlines charged, Cathay Pacific, says it has been co-operating with the commission, but after taking legal advice had decided not to provide information about activities outside New Zealand's legal jurisdiction.
The commission declined to comment on the air cargo market investigation but said if it concluded there was a breach of the Commerce Act proceedings would be filed in the High Court later this year.
The commission today defended the use of statutory notices.
"Any failure to comply with commission statutory notices that form part of a commission investigation is a serious enforcement issue," said chairwoman Paula Rebstock.
"Cartels are insidious and cause extensive damage to the New Zealand economy. They are difficult to detect and extremely difficult to investigate because of their secretive nature."
The commission is investigating allegations that certain airlines have colluded and reached agreements and understandings on the level of cargo rates, including fuel surcharges on international flights to and from New Zealand.
Airlines earn more than an estimated $400 million each year transporting air cargo to and from New Zealand. A number of airlines are cooperating with the commission's investigation.
Overseas competition authorities are also investigating the air cargo market.
In the United States British Airways, Korean Air, Qantas and Japan Airlines have settled and agreed to pay record fines.
In total, the US courts have already awarded penalties of US$1.2 ($1.57) billion against airlines for participation in a cartel that has increased air cargo rates to and from the United States.
Companies or individuals who bring a cartel to the commission's attention can gain immunity from prosecution through the commission's leniency programme.
A response to the Commerce Commission was released by Cathay Pacific this afternoon, under the name of the airline's country manager David Figgins.
"Cathay Pacific can confirm that it has received a notice of court proceedings from the Commerce Commission of New Zealand with regard to the Commission's investigation of the airline's air cargo operations in New Zealand. The Commission alleges that the airline has failed to provide full disclosure of information relating to these operations, as well as those outside of New Zealand."
"We are disappointed and concerned by the Commission's decision to involve Cathay Pacific in a test case seeking extra-territorial investigative and judicial powers. The company will vigorously contest the case."
"Cathay Pacific has cooperated fully and constructively with the Commerce Commission during its investigation, as it has with authorities investigating air cargo issues in other jurisdictions."
The statement went on to say that the airline had never sought to delay or frustrate the Commission's investigation and had provided it with a "wealth of documentation" relating to its air cargo business.
But, on the advice of "eminent counsel" here in New Zealand, it had not provided information relating to activities beyond this country's legal jurisdiction.
"We have carefully explained our position to the Commission and have sought, without success, to resolve the matter through a proposal that we believe would enable the Commission to progress its investigation. We do not understand why our proposal is unacceptable to the Commission when similar proposals have been acceptable to regulators in other jurisdictions."
"In light of the Commission's decision to take the matter to court, we are left with no alternative but to oppose its application to seek extra-territorial jurisdiction and have instructed counsel accordingly."
In March this year Air NZ said it had been asked by cartel investigators from the European Union to answer questions about the freight business.
It said it had made no financial contingency for any fines if it is found guilty of being part of a cartel.
European Union investigators issued a "statement of objection" to Air New Zealand just after Christmas.
Airline chief executive Rob Fyfe said it was an issue that was being taken "very seriously" and Air NZ was co- operating with the authorities in all the jurisdictions that were investigating.
The investigation was launched by the European Union on Valentine's Day 2006 with raids on airline offices and was backed up by the United States Justice Department and other government bodies in Europe, Asia and the New Zealand Commerce Commission.
It has become one of the world's most far-reaching cartel case and centres on claims airlines collaborated to fix prices, partly attributed to fuel surcharges and security charges after September 2001.
Qantas has paid a A$61 million ($71 million) fine in the US and lifted its contingency provisions for any further fines from A$47 million to A$111 million to pay possible fines.
Two of its staff and four former workers individually face fines or jail in the US after further action there.
Fyfe said at the time his airline was in a different position. "We haven't set any figure aside at this stage, clearly there's an investigation going on - we have been named as a party of interest but there's nothing at this stage that allows us to identify a potential financial cost associated with that investigation."
Asked if there was any concern staff could be individually liable, Fyfe said there were very strong internal protocols against illegal behaviour.
"All our people are aware of their legal responsibilities and I would hope all our employees would have adhered to those protocols. Where people have knowingly breached the law I think it's appropriate that the authorities seek the appropriate remedies."
- NZPA / NZ HERALD STAFF
