In February, ACCC Chairman Rod Sims made clear that in 2016 “detecting and deterring cartel conduct continues to be a major focus for the ACCC”.1 Consistent with this enforcement priority, on 2 March 2016 the ACCC filed an appeal from the Federal Court’s decision dismissing the ACCC’s proceedings against the Australian Egg Corporation and other respondents in the egg cartel case.2

Despite finding that Australian Egg Corporation Limited (AECL), the egg industry body, had arranged a “crisis meeting” of the nation’s top egg producers with the aim of correcting a perceived oversupply of eggs, the Federal Court was not satisfied that this amounted to an attempt to induce an ‘arrangement or understanding’ as required by section 44ZZRJ of the Competition and Consumer Act 2010 (Cth) (CCA).

A hard-boiled case for the ACCC

Background

The facts of the case were not in dispute in the proceedings and centred upon the conduct of AECL and several of its directors, as well as two other leading egg production firms and their directors. Throughout 2011, the directors of AECL had become increasingly concerned about a perceived oversupply of eggs in Australia which, if realised, would cause considerable harm to an industry already operating with very narrow margins. After much hand-wringing, a “crisis meeting” involving the top 25 Australian egg producers was convened by the Managing Director of AECL in January 2012, the purpose of which was described by AECL as follows:

“…to seek a path forward for the egg industry in a coordinated and consolidated fashion to ensure its profitable sustainability”.

During the meeting, several options for dealing with the oversupply were presented and discussed, including the disposal of eggs by donation or dumping, culling between 400,000 and 500,000 hens and the use of independent auditors to track and monitor the effectiveness of any steps taken by the various industry participants.

The ACCC’s case

The ACCC alleged that AECL, it’s directors and the other respondents had an engaged in an attempt to induce a breach of section 44ZZRJ, by taking steps to induce the 19 other participants at the crisis meeting to enter into an arrangement or understanding to limit the supply of eggs.3

The ACCC presented a strong circumstantial case to the Court. Central to the case was the existence of an “atmosphere of crisis” engendered by the language used by AECL in correspondence with the egg producers, which it was argued, supported a conclusion that the conduct of the respondents was directed toward a “call to action” by the egg producers. The ACCC pointed to the practice of AECL periodically advising egg producers to limit egg production through its fortnightly and quarterly publications (“Eggstra Eggstra” and “EggCorp EggsPress”), as support for its theory that in early 2012, the respondents had attempted to induce egg producers to take collective action to limit supply. The ACCC also relied on references made during the crisis meeting to the retention of an independent auditor as support for a finding that the respondents contemplated an auditor being retained to monitor compliance by each egg producer with its commitments under an arrangement or understanding to reduce hen numbers.

The Federal Court’s Decision

The Court found that the conduct of AECL and the other respondents was indeed capable of characterisation as “affirmative action toward [the] inducement”, but that the evidence fell short of establishing that the respondents had the requisite intention to bring about an arrangement or understanding. The Court found that the discussion and presentations made during the crisis meeting were directed principally toward “culpable” egg producers who had rapidly increased their egg production. This was held to be inconsistent with an intention to induce all of the attendees at the crisis meeting to agree upon mutual action to address the oversupply.

The absence of reciprocity and commitment among the egg producers was ultimately decisive for the Court. To that end White J made clear the following:

“There is a distinction between a circumstance in which industry participants are brought to an appreciation that it is in their interests, independently of what others are doing, to act in a certain way, on the one hand, and a circumstance in which industry participants are invited to agree to act in a certain way in the expectation of reciprocal conduct by others, on the other. Conduct of the former kind does not contravene s44ZZRJ.”4

Walking on egg-shells: a new prohibition against concerted practices is coming

The Federal Court’s decision in the egg cartel case underscores the limitations under Australian law of proving an arrangement or understanding required to establish cartel conduct and anti-competitive agreements, which requires a level of commitment or sense of “moral obligation” between the parties that the Court found lacking here. This limitation has been a significant challenge in establishing any agreement or understanding in a number of prior cases, including the well-known petrol cases.5

In November 2015, the Turnbull government accepted the Harper Review’s recommendation to create a new civil prohibition against concerted practices under a revised section 45 of the CCA, which would broaden the ACCC’s ability to prosecute what it considered to be collusive conduct that nevertheless fell short of the definitions of contract, arrangement or understanding.6 The model legislation put forward by the Harper Review proposes that looser forms of collusion (termed ‘concerted practices’) would be prohibited where they were entered into with the purpose, effect or likely effect of substantially lessening competition. Such a prohibition will bring Australia into line with the competition law regimes in the EU and UK, where a broad prohibition against less formal arrangements not reaching the status of an agreement is well established.7 Just how Australian Courts will interpret the concept of a concerted practice is not yet clear, though the Courts may well be influenced by the reasoning of the European Court of Justice, with its finding in the Polypropylene Case that concerted practices require both an element of concertation as well as subsequent conduct in the market, and a relationship of cause and effect between the two.8

Under the existing law it is plain that the ACCC will continue to face challenges whenever it attempts to prove the existence of arrangement or understanding in the absence of reciprocal obligations between respondents. The ACCC’s appeal in the egg cartel case will shine a spotlight on these issues.