On 20 November 2014, the Full Federal Court handed down its unanimous judgment dismissing the appeal of Paul and Moses Obeid, whilst simultaneously upholding the validity of the compulsory examination notice. (“s 155 notice”) We have previously reported on the first instance judgment and appeal proceedings.
The compulsory examination notice
Section 155 of the Competition and Consumer Act 2010 (‘the Act’) confers upon the ACCC a broad investigative power to obtain information, documents and evidence relating to anti-competitive behaviour or cartel conduct. In issuing a section 155 notice, the only limitation is that the materials supplied must relate to a ‘matter that constitutes or may constitute a contravention of this Act’. This is a relatively low threshold, and does not require there to have been an actual breach of the Act, but only that there is a reason to believe the person may be capable of surmising such material.
In the Obeids’ case, the s 155 notice specifically related to the bidding process for a mine exploration licence between two companies, in which company A allegedly withdrew its bid in exchange for a stake in the company B by way of a joint venture. The s 155 notice was issued as part of an ACCC investigation into possible anti-competitive behaviour (s 45) and/or cartel conduct (ss 44ZRG and 44ZRK) between the two companies.
The appeal judgment
Both at first instance and on appeal, the Obeids argued that a bid for a mining exploration licence was not conduct in relation to a ‘service’ under s 4 of the Act, and as such was not caught by the Act (including s 155).
The following three issues were raised on appeal:
1. What is the “specified service” in the context of a bid for an exploratory mining licence, and did it fall within the definition of “service” under s 4(1) of the Act?
The Full Federal Court upheld the first instance decision of Justice Farrell. The specific nature of the “service” that Obeid was bidding for was held to include: (a) ministerial consent given to the successful applicant under the EOI process and (b) the statutory right to apply for the exploration licences for the relevant areas.
The Full Court took into consideration the legislative history of the NSW Mining Act as well as the ordinary meaning of the word “services” as including the notion of “assistance or accommodation being made available.” The conclusion was that the minister’s consent and the right to apply for an exploration licence can be construed as a service in that each is a “helpful act” or “assistance” towards a possible grant of the licence in the future.
Practically, the court has indicated that a broad view of the word “service” should be adopted in considering the scope of application of the Act
2. Does the governmental or statutory nature of ministerial consent invalidate it as a service (which requires a “trading or commercial” character)
This contention by the Obeids was also rejected on appeal for two main reasons:
- First, the court found that the limited tender process for the exploration licence is used by the Department of Primary Industries (“DPI”) as a revenue raising tool. This makes it commercial in nature.
- Secondly, the DPI’s practice of awarding the exploratory licence to the bidder with the highest Additional Financial Contribution sum also satisfies the commercial character of the EOI process.
The Court’s finding in this regard follows on from decisions in respect of the application of the Act to conduct by government entities more generally where they ‘carry on business’, which is seen as a harder test to satisfy than conduct ‘in trade or commerce’. Importantly, the Draft Report recently released by the Competition Policy Review Panel has recommended that the Act should be amended to apply to government entities where they undertake activities in trade or commerce.
3. Anti-cartel provisions in the bidding process (s 44ZZRD(3)(c))
The court also rejected Obeids’ therd argument that s 44ZZRD(3), which prohibits anti-competitive bidding behaviour, has a temporal element, thus restricting the operation of the section to bids made after an anti-competitive contract, understanding or arrangement (“CAU”) had been formed. Rather, the court adopted the view that the submission of a bid is part of a continuing tendering process and not a one-off event.
This decision reminds us that even where companies have not formed a CAU at the time of placing the bid, they may still be caught by s 44ZZRD (3) in respect of other conduct undertaken in the course of the broader bidding process.
Practical Implications for companies
This appeal decision is significant and reminds corporations and individuals alike that, in practical terms, it is difficult to invalidate a s 155 notice. The ACCC’s powers to issue a s 155 notice are broad, and the regulator will stand by its decisions.
More broadly, the Full Court’s judgment is important as it emphasises that the Court will view the bidding process as a whole; any anti-competitive CAU formed at any point in the bidding process will be subject to the anti-cartel provisions.