On 30 October 2014, in an expedited full court hearing in the Federal Court, two sons of former NSW government minister Eddie Obeid argued their appeal of a decision confirming the validity of a compulsory examination notice (“s 155 notice”) issued by the ACCC. Back in August, we reported on the first instance judgment of Justice Farrell where she dismissed the application by Moses and Paul Obeid.
The s 155 notice and the ACCC’s allegations
The ACCC has a broad power to issue a notice for the provision of information, the production of documents or the giving of evidence to anyone it believes is capable of doing so. The only limitation is that the information, documents or evidence must relate to a “matter that constitutes, or may constitute, a contravention of the Act” (emphasis added). In this case, the ACCC alleged that the “matter” under investigation is a potential cartel arrangement between 2 coal exploration companies who were competing for the acquisition of “services”. These services were specified in the s 155 notice as “the right to apply for the necessary approvals for mining activities in the Relevant Areas from the Crown” (“Specified Services”).
The ACCC argued that the possible contravention related to bids for an exploration licence: after bids were lodged, an Obeid-related company reached an arrangement with a competitor in the bid process that they (the Obeid-related company) would withdraw from the bid process in return for which the other company would grant the Obeid-related company a joint venture interest in the exploration company. As a result the ACCC alleges breaches of:
- the prohibition on anti-competitive arrangements in section 45 of the Competition and Consumer Act 2010 (Cth) (“CCA”); and
- the civil (section 44ZZRK) and criminal (section 44ZZRG) prohibitions on giving effect to arrangements containing a cartel provision.
Two key issues were raised in the full day’s argument before Chief Justice Allsop and Justices Middleton and Mansfield:
1. Did the Specified Services fall within the meaning of “services” under s 4(1) of the CCA, and were those services supplied in trade or commerce?
In considering this issue, the Full Court spent considerable time understanding the nature of the bidding process in order to determine what “service” was provided and whether it was supplied “in trade or commerce”. The Court stressed the importance of understanding the “essential character” of the service, in the context of the Mining Act as a whole, in order to understand the nature of the Minister’s decision. In this case, the Department had stated to participating parties that the successful applicant would be awarded an exploration license. In other words, the granting of ministerial consent and the exploration licence was combined into once step. Therefore, the call for an expression of interest (“EOI”) meant that the parties would bid competitively for the Minister’s consent knowing that it would carry with it the right to realise valuable opportunities with the property of the Crown. As such, the parties were said to be competing in practical terms with each other to get the exploration licence, that is, the necessary approval. This was the Specified Service.
The arguments of the Appellants were based on a strict textual analysis of the meaning of “services” and what amounted to services being “provided, granted or conferred”. It was contended that the absence of the words “acquire or accept,” provided further support for a “supply-side” focus of “in trade or commerce”. In contrast, the facts at issue here dealt with the acquisition of services. Counsel for the ACCC argued that where government activity appears ‘business like’ the facts must be closely analysed. Here, the regularity of conduct of this kind and the greater use of commercial (rather than public interest) criteria in evaluating the consent applications were said to be relevant. Therefore, the ACCC submitted that it could not be said that the facts cannot be capable of being characterised as being “in trade or commerce” even with the Appellant’s supply side focus.
2. Did the contract, arrangement or understanding (“CAU”) specified in the notices actually contain a “cartel provision”?
Counsel for the Appellant argued that a CAU would only be caught by the “purpose condition” under s 44ZZRD3(c) if the CAU was reached prior to a request for bids being made – contending that a purpose of engaging in bid-rigging could not be held if bids had been made prior to any CAU being reached. As such, they argued, an agreement to withdraw a bid that was submitted without any collusion cannot be caught by the cartel provisions.
Counsel for the ACCC argued that it is more appropriate to see a bid as a process and a “continuing act” rather than a discrete event: in fact, it may even be easier to form a CAU after bids are first submitted because a leader may then know how many (and which) participants to accommodate. Counsel argued that Appellant’s construction is completely at odds with the purpose of the provision.
Judgment has been reserved.
Why this appeal is of interest?
The Full Court hearing is particularly exciting because:
- section 155 notices are rarely challenged. Usually this is because the ACCC only needs to prove that the “matter” in question “may constitute” a contravention of the CCA;
- this is only the second opportunity for the new big rigging provisions under the CCA to be considered; and
- the case involves the potential for criminal findings.
It will be very interesting to see how the full court grapples with the questions on appeal– it will certainly provide guidance for future cases, especially since prosecution of cartels is a priority for the ACCC.