Introduction

The days of executives meeting in dark, smoke-filled private rooms to form cartels via "wink and nod" arrangements may no longer be the norm.1 The consequences of being caught are too severe (up to 10 years imprisonment for individuals)2 and knowledge of and compliance with the law would appear to be improving. The investigative and detection powers of the Australian Competition and Consumer Commission (ACCC) are increasingly pervasive3 and its Immunity Policy for Cartel Conduct creates strong incentives for competitors to report their conduct if it could constitute cartel conduct in order to attain the holy grail of immunity ahead of other cartel members.4

Three recent cases all commenced by the ACCC however demonstrate that cartel conduct may still be rife. Not as a result of covert meetings between competitors but in circumstances where industry associations take steps to reform their industry with the input and participation of its members (who are competitors). In fact, the cartel that has resulted in the largest fines in Australia, namely the airline freight cartel had its origins at the industry association (IATA) meeting.

In the three recent cases conduct has been alleged by the ACCC to constitute cartel conduct (and even “attempted” cartel conduct) despite being undertaken in the open, meetings and discussions being well-documented, relevant stakeholders having taken legal advice and individuals genuinely believing they are acting in the broader interests of the industry and perhaps even the interests of the public.

So when will an industry reform with the involvement of an industry body constitute cartel conduct and when will it be legitimate behaviour? 

We examine the three cases below.

Hatching a plan to save the egg industry - attempted cartel?

In ACCC v Australia Egg Corporation Limited5, the ACCC commenced proceedings for “attempted” cartel conduct against the egg industry’s national association, the Australian Egg Corporation Limited (AECL) and three individual respondents including the Managing Director of the AECL and two other directors of the AECL who were also directors of competing egg producers. Those egg producers were also respondents in the proceeding.

The facts

The AECL is an industry body representing the interests of the egg industry. It receives funding from the Commonwealth Government for research, development and promotion and its principal functions are the collection, analysis and communication of information relevant to the egg industry, including crisis and issue management.    

Throughout most of 2011, information collected by AECL indicated that the supply of eggs was exceeding, and was likely to continue to exceed, demand.  The issue of oversupply attracted such concern from the AECL that it decided to call an urgent industry meeting involving the top 25 egg producers “to seek a “path forward” for the egg industry in a coordinated fashion to ensure its profitable sustainability”. In calling the meeting, the AECL stated that “Action is needed by all egg producers to control the oversupply and surplus”.

Prior to the commencement of the industry meeting, the AECL sought legal advice about the legality of the meeting and the action it wanted egg producers to take. Advice was given that producers should “go away and make their own separate decisions” but this advice was not provided to the AECL prior to the meeting. No competition law disclaimer was given at the start of the meeting and the legal advice did not influence what was said at the meeting. At the industry meeting, a number of solutions were discussed with competing egg producers including: culling hens; increasing consumer demands for eggs; and reducing existing inventory by donating eggs to charity groups or dumping/burying eggs.

What did the ACCC allege?

The ACCC alleged that the AECL and the relevant executives had attempted to engage in cartel conduct in contravention of theCompetition and Consumer Act 2010 (Cth) (CCA) by inducing the other egg producers at the industry meeting to enter into a contract, arrangement or understanding that had the purpose of preventing, restricting or limiting the production or supply of eggs.   

What was the decision and reasoning of the court?6

White J found that the evidence did not warrant a finding that the respondents had the requisite intention of inducing the proscribed arrangement.

In particular, his Honour distinguished between:

  • circumstances, on the one hand, 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; and
  • circumstances, on the other hand, in which industry participants are invited to agree to act in a certain way in the expectation of reciprocal conduct by others. 

Conduct of the former kind did not constitute cartel conduct in contravention of the CCA.   

The Court held that there was insufficient evidence to warrant the conclusion that the options proposed to the egg producers were a form of collective action involving reciprocal obligations or understanding by the egg producers that they would pursue either or both of the ‘solutions’ on the understanding that their competitors would do likewise.  

Low voltage cable industry restructure grounded by the ACCC

In December 2014, the ACCC commenced proceedings for alleged cartel conduct in relation to the supply and acquisition of low voltage electrical cable in Australia against:

  • two Australian cable manufacturers, Prysmian Power Cables & Systems Australia Pty Ltd (Prysmian) and Olex Australia Pty Limited (Olex) (together the Manufacturers);
  • three of their major wholesaling customers, Rexel Electrical Supplies Pty Ltd (Rexel), Australian Regional Wholesalers Pty Limited (ARW), Lawrence & Hanson Group Pty Ltd (L&H) (collectively referred to as the Wholesalers);
  • six individual respondents; and
  • the industry association for the Wholesalers namely the Electrical Wholesalers Association of Australia Limited (EWAA).

The ACCC alleged that at the industry association meeting, the respondents entered into an arrangement to control or maintain the price of cutting services provided by Olex and Prysmian (price fixing) and to manipulate the supply of cable to contractors and other end customers (exclusionary conduct). The respondents deny any such arrangement.

When will a decision be delivered?

The proceedings were heard in late 2015 and judgement has been reserved.

ACCC alleges industry alignment in laundry powders was a “dirty play”

In ACCC v Colgate-Palmolive Pty Ltd & Ors7, the ACCC commenced cartel proceedings against Colgate-Palmolive Pty Ltd (Colgate), PZ Cussons Australia Pty Ltd (Cussons) and Woolworths Limited (Woolworths) in relation to an industry-wide transition from standard concentrates to ultra concentrates for domestic laundry detergent powders in early 2009.8

Although Unilever Australia Limited (Unilever) is also alleged to have been a party to the cartel arrangements, it applied for and was granted immunity from prosecution pursuant to the ACCC’s Immunity Policy for Cartel Conduct.

What is the ACCC alleging?

The ACCC Consolidated Statement of Claim alleges that, in early 2008, Colgate was concerned that a staggered industry transition from standard concentrates to ultra concentrates for laundry detergents would result in permanent price reductions and category erosion to the market value of $146 million over a number of years.9

It is alleged that Unilever and Cussons (along with Colgate) were also concerned that if all manufacturers did not transition from standard concentrates to ultra concentrates simultaneously:10

  • consumers would not understand the value proposition of the ultra concentrates on the basis that standard concentrates in larger packages ostensibly represented greater value for money;
  • consequently, standard concentrates would continue to be sold and adequate or optimal market penetration would not be achieved;
  • the manufacturers would suffer losses of volume, profit and margin whilst manufacturers of standard concentrates would achieve increases; and
  • vigorous price competition would result between standard concentrates and ultra concentrates.  

The ACCC Consolidated Statement of Claim alleges that all manufacturers understood that there were significant benefits of transition to ultra concentrates that would be lost without a simultaneous transition namely:11

  • significant cost savings and margin improvements for manufacturers;
  • lower internal logistics and packaging costs for retailers, resulting in gross margin improvements;
  • reduction of shelf-space for retailers;
  • consumer benefits of buying and handling smaller packaging; and
  • environmental benefits to be achieved through reductions in the use of materials for packaging, in phosphate content and transport volumes with attendant reductions in carbon emissions.

As a result of the above considerations, it is alleged in the ACCC Consolidated Statement of Claim that Colgate approached the national industry association for the Australasian hygiene, cosmetic and specialty products industry, Accord Australasia Limited (Accord) with a proposal for a voluntary industry-wide transition from standard concentrates to ultra concentrates.12 It is alleged that the Accord would act as ‘enabler’ of the industry-wide transition13 and on 18 April 2008, Accord circulated the proposal to manufacturers including Colgate, Unilever and Cussons.14 Accord also considered briefing the ACCC about the proposal.15 The ACCC Consolidated Statement of Claim alleges that on 30 April 2008 at an Accord meeting, Colgate, Cussons and Unilever reached an “in-principle” agreement that there would be a simultaneous transition from standard concentrates to ultra concentrates in 2009.16

It is alleged that by 8 August 2008 however, Accord was too slow in implementing the industry reform and accordingly Woolworths was put forward to take a more active role in enabling the industry wide transition17 (which, the ACCC Consolidated Statement of Claim alleges, Woolworths undertook).18

The ACCC Consolidated Statement of Claim alleges that through communications with Woolworths in 2008 and 2009, Unilever, Colgate and Cussons entered and gave effect to the following cartel arrangements that effectively denied Australian consumers the benefits of lower prices for laundry detergent products:19

  • ceasing supply of standards concentrate laundry detergents in the first quarter of 2009 and commencing supply of only ultra concentrates from that time;
  • simultaneously transitioning their laundry detergents to ultra concentrates in accordance with certain product requirements; and
  • selling ultra concentrates for the same price per wash as the equivalent standard concentrate products and not passing on the cost savings to customers.

The respondents deny the allegations. 

When will the matter be heard?

The hearing is listed before Justice Wigney for 8 weeks commencing on 7 June 2016. 

What you need to know

Even a single industry association meeting could be risky

These cases demonstrate that industry association meetings continue to be a risky proposition as they provide a forum for competitors to exchange commercially sensitive information and potentially act in a concerted manner. As industry bodies take more active roles in industry reform, competitors will need to be acutely aware of whether seemingly legitimate industry initiatives may constitute potential cartel conduct.

In each of the three cases above, there was one critical industry association meeting alleged to be central to competitors attempting to reach or allegedly reaching arrangements constituting cartel conduct. While correspondence and discussions around those key meetings are likely to provide additional evidence and may corroborate cartel arrangements, it is clear that a single meeting of competitors even at an industry association meeting can be risky.

Industry associations are unlikely to be immune from the law

Competitors may think that an industry reform proposal has some legitimacy or exception from competition law. For example, in AECL, it was argued that AECL enjoyed crown immunity from the CCA on the basis that it was not carrying on business as it received government funding and otherwise had close links to the government. The Court found it did not enjoy crown immunity for a number of reasons including that the government did not exercise control or direction over the particular decisions or activities of AECL.

The three cases demonstrate that industry associations are not exempt from competition laws but can (with individuals in management positions) be prosecuted for alleged cartel conduct.

Competition law disclaimers need to be clear, upfront, recorded, implemented and most importantly – right!

In AECL, there was no clear evidence that the competition law advice received was considered by the industry body and then relayed to the egg producers before or during the meeting. This is partly as a result of the lack of detail in the meeting minutes which led to a finding that the advice provided was either too late or not relayed.

In Colgate, the ACCC alleges that while Accord considered that it was important to discuss the proposal to transition from standard concentrates to ultra concentrates with the ACCC, it is unclear from the ACCC’s claim whether this competition issue was ever appropriately implemented. If it had been and the ACCC was concerned about the proposal, one would have anticipated that the conduct would not have proceeded or alternatively the parties may have sought authorisation for the transition if they considered the public benefits outweighed the anti-competitive detriments.

In Prysmian, not only were competition law disclaimers made at the relevant industry body meeting, and the Olex and Prysmian attendees had sought competition law advice from their internal legal counsels regarding their attendance at those meetings, but a lawyer was present who provided advice to the attendees about competition law at the 23 June 2011 meeting. It remains to be seen whether this advice was correct and sufficient to ensure there was no breach of the CCA by the relevant parties.

Consider ACCC authorisation for industry reform if the public benefits of the conduct outweigh the anti-competitive detriments

While an argument may be made that each of the above three cases involved conduct that generated public benefits (including efficiencies, environmental benefits and preservation of employment), it is uncertain how those benefits compared to the conduct’s potential anti-competitive detriment.

For example, it may be argued that the benefits of the conduct:

  • in AECL were that a large number of egg producers would be prevented from going out of business due to a significant loss of profits and consequently eggs would continue to be readily available to consumers in regions throughout Australia;
  • in Prysmian were supply chain efficiencies between the Manufacturers and the Wholesalers in the supply of low voltage cables to the end-users, which arguably would have reduced the overall price of cable to end customers;
  • in Colgate were cost savings to manufacturers and retailers, consumer convenience and benefits to the environment.20

In circumstances where industry reform generates public benefits but the conduct may constitute cartel conduct, competitors and any participating industry body should consider whether ACCC authorisation is a viable option.

Continued ACCC focus on “attempted” breaches

Following the ACCC’s case against Flight Centre,21 the AECL case demonstrates that the ACCC continues to be willing to prosecute “attempted” cartel conduct and not only conduct that represents successfully formed cartels.

In “attempted” cartel cases, it is not necessary for a contract, arrangement or understanding to have been made. Rather, it is sufficient to contravene the CCA if steps are taken towards inducing others to engage in contravening conduct. Such steps could involve threats or promises but can also be as subtle as mere persuasion. Further, it is arguable that attempt cases are easier to prove than actual cartels because the ACCC only needs evidence about the intention of individuals which can be inferred from conduct or documents without needing evidentiary material that satisfies each element of cartel conduct.

What you should do

If you or a member of your company is attending an industry meeting, you should ensure:

  • you have approval to attend the meeting from legal advisors;
  • there is a settled agenda for the meeting which is reviewed by legal for approval before your company’s attendance at the meeting;
  • the first item on the agenda is a competition law disclaimer;
  • the meeting organiser reads the competition law disclaimer at the start of the meeting;
  • the meeting is well minuted and you keep detailed notes of the discussion;
  • if there is inappropriate discussion that may be construed as competitors sharing commercially sensitive information, you must excuse yourself immediately from the meeting and have your departure recoded in the minutes;
  • after the meeting obtain the draft minutes for your approval;
  • if you sit on an industry body and also represent a competitor, you should ensure that you wear the correct hat at the correct time and be conscious of the capacity in which you are talking at industry meetings.

Also, remember that:

  • all decisions on price and anything else of competitive significance should be made independently and unilaterally by each competitor in the market;
  • industry standards or initiatives may mute competition that may otherwise occur on certain non-price elements of your goods or services (quality, standard, marketing, composition, etc);
  • the CCA may soon be amended to catch “concerted practices” - conduct between competitors that is regularly and deliberately undertaken in a co-ordinated fashion by two or more firms22 that has the purpose, effect or likely effect of substantially lessening competition.23