Andrew ‘Twiggy’ Forrest has found himself in hot water with the ACCC after comments he made at a business dinner in Shanghai earlier last week which suggested that competing producers ought to limit their levels of production of iron ore. Mr. Forrest, founder of the Fortescue Metals Group, called on iron ore producers to cap production in order to drive prices up: “I’m happy to put that challenge out there, let’s cap our production right here … and we’ll find the iron ore price goes straight back to US$70, US$80, US$90”.
Mr Forrest’s comments come in the context of a significant decrease in the price of Australian iron ore in recent times – a particularly significant economic issue in Australia, given that it impacts directly on the value of Australia’s exports and performance in terms of trade. The iron ore price is currently trading below US$55.
The Competition and Consumer Act 2010 (“CCA”) prohibits output-restricting cartels and the making or giving effect, or attempting to make or give effect to, such arrangements. Therefore, without surprise, the ACCC has quickly begun investigating whether Mr Forrest’s comments constitute cartel conduct. The ACCC chairman Rod Sims has been quoted in the Australian Financial Review reiterating generally the illegality of cartels that seek to engage in anti-competitive arrangements by capping production: “The issue here is whether or not we judge this is an attempt to enter into a collusive arrangement.”
Under the CCA, attempts to engage in anti-competitive agreements are sufficient to contravene the prohibition. Mr Sims was particularly concerned about the indirect effect that such a proposal would have on the prices for goods such as whitegoods and cars, which directly impact on Australian consumers. Cartel provisions are particularly serious – they carry both criminal and civil penalties and may expose companies to civil action by affected parties.
While the ACCC has not given a view on the investigation yet at this early stage, Mr. Forrest has stood by his comments stating that his proposal falls within the exemptions under the CCA which allows “Australian exporters to act in the national interest”. The exception that Mr. Forrest is referring to is set out in section 51(2)(g) of the CCA which provides an exemption from the operation of the cartel prohibitions for arrangements that relate exclusively to exports of goods from Australia notified to the ACCC.
It remains to be seen whether or not the details of any such proposal can legitimately fit into the legal framework prohibiting restrictive trade practices. King & Wood Mallesons senior-competition partner Stephen Ridgeway has been quoted in the AFR stating that “it is doubtful that the exemption will provide complete protection for Mr Forrest… because of [the proposal’s] domestic consequences and effects on other markets,” noting that iron ore is priced on a single, global index. Even if the proposal is permissible under section 51(2)(g) of the CCA, it might nonetheless fall short of antitrust regimes in other jurisdictions such as the PRC and European Union.
On the other hand, Mr. Ridgeway has pointed out “”The real issue here is production signalling, and the difficulty the ACCC will have is showing it was an actual attempt to enter [into] an arrangement or understanding [with Rio and BHP]”.
Fortescue’s CEO Mr. Neville Power has since defended Twiggy’s comments stating that Mr. Forrest was not seriously calling for a cartel and was instead highlighting industry implications of a continued drop in iron ore prices. In any case, the PR debacle serves as an important reminder to executives to consider the legal implications of comments made in public forums – whether or not subject to Chatham House rules.