The ACCC has achieved an important early victory in its ongoing civil case against Paul and Moses Obeid and 9 other respondents, with Loyal Coal Pty Ltd (Loyal)1 – a company formerly controlled by the Obeid family – admitting to contraventions of the Competition and Consumer Act 2010 (Cth) (CCA) by entering and giving effect to an understanding containing an exclusionary provision.
The settlement came at the outset of a four-week hearing in the Federal Court, where the ACCC sought to establish allegations of cartel conduct against Cascade Coal Pty Ltd (Cascade), the Obeids and other respondents for their part in colluding to rig the tender process for lucrative coal exploration licences in the NSW Bylong Valley. Judgment in the matter is now reserved.
Loyal’s Admissions to the ACCC
Loyal has admitted that in early June 2009, the company:
- entered into an understanding with Cascade which provided that Loyal would withdraw from a tender process for mining exploration licences over the Mount Penny and Glendon Brook coal tenements and refrain from pursuing any competing bids. In exchange, Cascade would grant Loyal a 25 per cent stake in its mining project in the Mount Penny coal release area to another company associated with the Obeids, Buffalo Resources Pty Ltd (Buffalo); and
- gave effect to the understanding by withdrawing from the tender process.
Thereafter, Cascade was successful in the tender and proceeded to grant a 25 per cent stake in the Mount Penny coal release to Buffalo.
The ACCC settled with Loyal on the basis that it had contravened the prohibitions against making or giving effect to an exclusionary provision, but not for any breach of the civil cartel prohibitions (specifically, section 44ZZRK).
The ACCC’s decision to resolve proceedings with Loyal in this way is interesting in two key respects.
Firstly, the Harper Review had recommended removing the sections of the CCA that prohibit exclusionary provisions (sections 45(2)(a)(i) and 45(2)(b)(i) in conjunction with section 4D), and addressing any resulting gap in the law by amending the definition of cartel conduct.2 Part of a broader suite of changes aimed at simplifying Part IV of the CCA, these amendments are supported by the Federal Government and are expected to proceed to draft legislation later in 2016.3
Secondly, it appears that the ACCC was influenced by the fact that Loyal is now controlled by a new parent company, Whitehaven Coal Limited, which the ACCC acknowledged “was not in any way involved in, or aware of the conduct”.4 While the terms of the settlement are not yet known, the potentially favourable outcome attained by Loyal in avoiding the opprobrium of a cartel finding underscores potential benefits of cooperation and early resolution of proceedings with the ACCC.5
A History of Dirty Dealings
ICAC and Operation Jasper
The current Federal Court proceedings follow a series of high profile investigations conducted by the NSW Independent Commission Against Corruption (ICAC) into, among other things, the conduct of Obeid family patriarch Eddie Obeid, his sons Paul and Moses Obeid and the family’s business and political interests.
ICAC’s Operation Jasper examined the circumstances surrounding the award of the coal exploration licences for Mount Penny and Glendon Brook, and made findings of corrupt conduct against several individuals including Eddie Obeid, former NSW Minister Ian MacDonald and directors of Cascade. The NSW government subsequently introduced amending legislation to cancel the exploration licences and protect the state from all associated civil liability.5
The ACCC carried out its own investigations in 2014 and commenced proceedings against the alleged bid rigging conduct in May 2015.
Challenge to a Section 155 Notice
In May 2014, in the course of the ACCC’s investigation, Paul and Moses Obeid sought to have two compulsory section 155 notices declared invalid. In an application to the Federal Court, the Obeids argued that the ACCC notices failed to disclose a matter which may constitute a contravention of the CCA. In particular, it was submitted that the “services” specified in the section 155 notices (namely, the right to apply for the necessary approvals for mining activities from the NSW government) were not in “trade or commerce” as required by section 4(1) of the CCA.
On appeal, the Full Federal Court agreed with the judge at first instance and dismissed these arguments, finding that the requirement that services be provided in “trade or commerce” should not be interpreted solely in relation to the activities of the supplier but also by reference to the acquirer of the services.6
Mining for Trouble: Criminal Cartels
Since the introduction of the cartel offences to Part IV of the CCA in July 2009, a suitable test case has been sought for Australia’s first criminal cartel prosecution. Given the seriousness of the allegations in the Bylong Valley case, there was initial speculation that the ACCC would refer the matter to the Commonwealth Director of Public Prosecutions (CDPP) to pursue individual penalties of up to 10 years jail and fines of up to $360,000 per contravention, as well as director disqualification.7
When announcing the commencement of proceedings, the ACCC acknowledged that while it had consulted with the CDPP and undertaken a “detailed evaluation of the circumstances and evidence”, it had decided to pursue civil proceedings rather than criminal enforcement. The key reason given by the ACCC was that a significant portion of the alleged cartel conduct took place prior to the introduction of the criminal cartel provisions.8
Australia’s First Criminal Cartel Prosecution: a government procurement case?
Outlining the ACCC’s 2016 enforcement and compliance priorities in February, ACCC Chairman Rod Sims revealed that “around 20” cartel investigations were currently underway and that he expected that there would be “one or two criminal prosecutions” later this year.9
In the United States, imposing jail terms for hard core cartel conduct has been a long standing feature of the enforcement system. In combination with other elements, including treble damages for private claimants, a destabilising cartel immunity policy and large corporate and individual penalties, the risks associated with detection are designed to heavily outweigh potential gains.
In Australia, the ACCC’s priority of deterring cartel conduct has been greatly supported by its own immunity policy, as well as meaningful increases to penalties for contravention in recent years. Although certain actors in the Bylong Valley case may have avoided becoming Australia’s first criminal cartel defendants, the vulnerability of government procurement processes to anticompetitive behaviour and the procession of scandals exposed in recent years means this area may yet prove fertile ground for an inaugural criminal cartel prosecution. In 2016, the ACCC has indicated that it will be looking closely at all manner of tender processes for signs of breach of the competition laws. We will be watching these developments and events in the Bylong Valley case closely as they unfold.