It’s Question Time on alleged Cartel Conduct Obeid family members must attend examinations after the ACCC’s section 155 notices are upheld.
The Australian Competition and Consumer Commission (ACCC) has a statutory power to issue compulsory notices pursuant to section 155 of the Competition and Consumer Act 2010 (CCA). These notices may require the production of documents, the provision of information, or that someone attend an examination and answer questions.
Challenges to notices issued by the ACCC are not overly common. In the early days of the provision, challenges focussed on practice and procedure preceding the issue of the notice – for example, did the issuing Chairman have the requisite degree of suspicion that a contravention had occurred,1 or was the notice too burdensome. More recently challenges have focussed on the contravention described in the notice itself – i.e. were the matters identified in the notice capable of amounting to a contravention of the CCA2 - either because the words themselves may not provide sufficient clarity as to what is required to be produced, or because the conduct, facts and circumstances described would not satisfy certain necessary integers of the statutory contraventions being investigated.
In its recent decision of Obeid v Australian Competition and Consumer Commission3 (Obeid), the Full Court of the Federal Court of Australia upheld the validity of compulsory examination notices (Notices).
The Notices were issued to Paul and Moses Obeid, sons of the former NSW government minister Eddie Obeid (the Obeids), as part of the ACCC’s investigation into possible contraventions of the prohibition on anti-competitive arrangements in section 45 of the CCA and the civil and criminal prohibitions on “giving effect to” arrangements containing a “cartel provision” in section 44ZZRK and 44ZZRG of the CCA.
The conduct that the ACCC was investigating related to a contract, arrangement or understanding (CAU) entered into between two companies, Cascade Coal Pty Limited (Cascade) and Buffalo Pty Limited (Buffalo) 4 in respect of a tender process conducted by the NSW governmental Department of Primary Industries (DPI) in 2009 for an exploration licence in, amongst others, an area in the Mount Penny coal tenement in the Bylong Valley and an area in Glendon Brooke, located near Singleton, New South Wales.
The ACCC’s investigation was off the back of an enquiry by the Independent Commission against Corruption (ICAC) which found that Mr Eddie Obeid, his son Moses Obeid and the then mining minister Ian McDonald, amongst others, had engaged in corrupt conduct in relation to the grant of a coal exploration licence.5
The Notices required the Obeids to attend the ACCC offices, give evidence and produce documents in compulsory examinations. The Obeids challenged the validity of the Notices on the basis that they did not specify a “matter that constitutes or may constitute a contravention” of section 44ZZRK, 44ZZRG or section 45 the CCA”.6
The issues for consideration at first instance by Justice Farrell included:
- whether the “services” specified in the Notices, being the right to apply for the necessary approvals for mining activities in Mount Penny and Glendon Brook from the Crown fell within the meaning of “services” as contemplated by section 4 of the CCA, including whether those services were “provided, granted or conferred in trade or commerce”; and
- whether the CAU referred to in the Notices contained a “cartel provision” within the meaning of section 44ZZRD of the CCA, specifically whether the “purpose” condition in section 44ZZRD was satisfied.
On 8 August 2014, Justice Farrell dismissed the Obeids’ challenge to the validity of the Notices. Her Honour rejected the narrow construction of “services” submitted by the Obeids.7 Her Honour considered the facts in the context of earlier cases where Ministerial Consent and an application for an exploration licence bore a “regulatory character”. This excluded them from being considered as being undertaken in “trade or commerce”.8 Her Honour considered whether other factors applied and held that the services of the DPI and the Minister bore a trading or commercial character and came within the definition of section 4 of the CCA.
THE OBEIDS’ APPEAL
The Obeids appealed to the Full Federal Court and relied on the same submissions that they had relied upon at first instance, namely that the “services” specified in the Notices were not in “trade or commerce” within the meaning of section 4 of the CCA because:
- the activities of the DPI and the Minister, as the supplier of the alleged services, were said to be no more than the rights and benefits provided by the Minister as part of the exercise or potential exercise of statutory power and that the exercise by the Minister of this power did not have a trading or commercial character;
- even if the services may be in relation to commercial activities of other parties, such as Loyal and Cascade, the exercise or potential exercise by the Minister of statutory authority is not in trade or commerce; and
- the reference in section 4 of the CCA to rights, benefits, privileges or facilities being provided, granted or conferred indicate that the question must be determined from the ‘supply’ side rather than from the perspective of the ‘acquirer’ of the services. Accordingly, the businesses of Loyal and Cascade can have no relevance to the question.9
The Obeids’ submissions on appeal rose and fell on the ambit of the definition of “services” within the meaning of the CCA. “Services” are defined by section 4 of the CCA as including “any rights (including rights in relation to, and interest in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce” and include rights, benefits, privileges or facilities that are, or are to be, granted or conferred under various types of contracts.10
The Obeids further submitted that as the “services” were not contemplated by section 4 of the CCA, there is no “market” or “competition in any market”; and the two companies referred to in the Notices were not said to be in “competition” with each other for the purpose of section 4D(2) of the CCA. Accordingly, it was argued there was no exclusionary provision for the purpose of section 45 of the CCA and there was no cartel provision within the meaning of section 44ZZRD of the CCA.
In a joint judgment, Chief Justice Allsop, Justices Mansfield and Middleton dismissed the Obeids’ appeal.
The Full Court’s decision is instructive for various reasons.
MINISTER’S ACTIONS IN ADOPTING THE EOI PROCESS WAS IN TRADE OR COMMERCE
The Full Court distinguished the present case from two other factual scenarios: a) situations where there was a mere application for a licence renewal or approval in a statutory or regulatory context;11 and b) situations where the Minister was merely engaging in a process that involved deliberations by the Minister in the exercise of his duty.12
The Full Court explained that in adopting the Expression of Interest Process (EOI Process), the DPI and “the Minister set out a commercial basis for approval of the right to explore for the State’s coal reserves” in circumstances where “the Minister involved himself in the providing of a right, benefit or privilege in a commercial setting”. In undertaking the EOI Process, the Minister was engaging on a commercial basis with those companies that were invited to provide EOIs.13
Accordingly, the Full Court concluded that, having regard to section 4 of the CCA, the Minister was, in trade or commerce, providing “the right to participate in the EOI Process, which involved applying for the Minister’s consent leading to the grant of the necessary approvals for mining activities”.14
CARTEL PROVISIONS NOT LIMITED TO THE SUPPLY OF “SERVICES”
The Full Court confirmed that the substantive provisions of the CCA are not restricted to a consideration of only the supply side of services.
The reference in section 4 of the CCA to the phrase “provided, granted or conferred” was taken by the Court to be used in connection with “trade or commerce” and this indicated that the “relationship or dealing as a whole must be of a trading or commercial nature, and not that the right, benefit, privilege or facility be a trading or commercial activity of the supplier”.15 As submitted by the ACCC, accepted by Farrell J at first instance and referred to by the Full Court, the reference in section 4D(1)(b) (being the definition of an “exclusionary provision”) is to both the acquisition of services as well as the supply of services.
Accordingly, the Full Court was satisfied that the Notices were valid.16
FORMATION OF A CAU DOES NOT NEED TO PRECEDE ACT OF BID RIGGING
The Obeids submitted that the words “ensuring” and “in the event of” a request for bids implied a temporal element into the construction of section 44ZZRD(3)(c) such that a CAU needed to have come into existence before the relevant “request for bids”.
The Notices referred to the fact that a CAU had been made on or around 5 June 2009. The invitations for EOI occurred earlier
The Full Court confirmed that there was nothing in the text or context of section 44ZZRD(3)(c) that restricted its operation to instances where the request for bids is made after the CAU is made or arrived at by the parties.17
The phrase “ensuring that in the event of a request for bids” is directed to the effect of a CAU reached by the parties in relation to a bid and the effect will depend upon the CAU in question and the nature of the bid (which may not necessarily be a one-off event and may be seen as a continuing tender process).
The Court clarified that section 44ZZRD(3)(c) did not need to have a temporal connotation in order to make grammatical sense and that there was no purpose or logical reason to differentiate between situations where the bid is made before or after the CAU is formed.18
IMPLICATIONS OF DECISION IN OBEID APPEAL
The Full Court’s decision in Obeid is only the second decision to consider and clarify the meaning of section 44ZZRD(3)(c) of the CCA. The other decision to do this was the first instance decision of Gordon J in Norcast S.ár.L v Bradken Limited (No 2) (Norcast).19
The key take-aways from both of these decisions, insofar as interpreting the meaning of “services” in the context of cartel conduct and legitimately navigating requests for bids from the government or otherwise are as follows:
- A Minister’s actions in exercising a statutory power may, in certain circumstances, take on a trading or commercial character such as to fall within the ambit of “services” that are contemplated by the CCA as being the provision, granting or conferral of a right “in trade or commerce”;
- The reference to “request for bids” in section 44ZZRD(3)(c) does not need to be a request for bids that is directed to individual parties to an alleged CAU;20
- A “request for bids” does not need to be made in Australia.21 The territorial coverage of section 44ZZRD(3)(c) is governed by section 5 of the CCA;
- There is no ‘temporal element’ to section 44ZZRD(3)(c) such that CAU’s that are made, formed or entered into after a request for bids has been issued are excluded from the ambit of a “cartel provision”. Section 44ZZRD(3)(c) applies to CAUs made, formed or entered into before and after a request for bids has been issued.
- The Court’s analysis of the commercial activities contemplated by section 44ZZRD(3)(c) is not solely restricted to an analysis of the “supply” of goods or services. To interpret section 44ZZRD(3) (c) in terms of an analysis of the relevant commercial activities of the provider of “services” in isolation from the acquirer would be artificial, would undermine the object of the cartel provisions and would give it an interpretation that would be “perilously close to capricious”.22
In this way, both Obeid and Norcast provide greater clarity to assist commercial entities from falling foul of the prohibitions on cartel conduct. Obeid in particular clarifies the ACCC’s powers of investigation into governmental activities and dispositions of assets or licensing of rights and decisions by a Minister which have a trading or commercial character.