A recent Federal Court decision highlights the risks involved in covertly buying a competitor's subsidiary. The decision could have implications for the way that acquisitions and tender processes are undertaken, especially when undisclosed bidders are involved.

Norcast v Bradken is the first case to apply new cartel laws that extend the cartel provisions under the Competition and Consumer Act to conduct outside of a formal market. It is also a timely warning for businesses engaging in mergers and acquisitions to tread carefully.


Norcast, a company controlled by Swiss private equity group Pala Investments, decided that it wished to sell its subsidiary Norcast Wear Solutions (NWS), a Canadian mining-related company. Norcast contracted UBS to undertake the sale process and prepare documents and materials in relation to the sale.

Bradken, an Australian mining-related company supplying goods and services relating to grinding mills, was considered a competitor to Norcast. Bradken engaged US private equity investment firm Castle Harlan to obtain information from UBS about the sale of NWS by Norcast.

Bradken's ultimate goal was to buy NWS, but Norcast apparently did not want to sell to Bradken (this view was formed as a result of prior exchanges between Bradken and Norcast).

Bradken therefore engaged Castle Harlan to act on its behalf. The two parties corresponded about the sale and eventually struck a deal that Castle Harlan would bid for NWS. Bradken's involvement was actively concealed. Castle Harlan even allegedly denied an enquiry from UBS that it was planning to on-sell NWS to Bradken.

Castle Harlan bought NWS for A$190 million, but within a day, on-sold it to Bradken for just over A$212 million. Unsurprisingly, Norcast was upset.

Norcast filed proceedings alleging:

  • contravention of the cartel provisions, including those on bid rigging; and
  • misleading or deceptive conduct on the part of both Castle Harlan and Bradken.

Norcast also alleged that Bradken's chief executive officer, Brian Hodges, and chairman, Nick Greiner (a former premier of New South Wales), had been involved in those breaches.

Cartel provisions attract both criminal and civil penalties. However, in this case the Australian Competition and Consumer Commission (ACCC) did not get involved, leaving Norcast to proceed.

In addition to general misleading or deceptive conduct, Norcast alleged bid rigging on the part of Bradken and Castle Harlan. Bid-rigging cartels can be established where:

  • there is a contractual arrangement or understanding between parties;
  • at least two of those parties are in competition or are likely to be in competition with each other in relation to the supply or acquisition of particular goods or services; and
  • a purpose of that contractual arrangement or understanding is to ensure that in the event of a request for bids, one party bids and the others do not.


The court found in favour of Norcast on each of its claims.

The court held that Norcast had established that the bid-rigging provisions were breached. While it was Castle Harlan, not Bradken, that had put in a bid with Norcast, the court argued that this did not matter - only that Norcast's request for bids existed.

Bradken had placed strong emphasis on the lack of connection to Australia, given that only Bradken was based there (and it had not put in a bid). The court was unconvinced, holding that it was irrelevant that Norcast and NWS were companies based overseas (whether in Canada or, ultimately, Switzerland).

The court also found that it was at least possible with respect to the bidding for NWS that Bradken and Castle Harlan could have otherwise been in competition with each other. Bradken had argued that they could not have been in competition and furthermore would not have been in competition with each other in Australia.

The court found that Castle Harlan's and Bradken's silence regarding their arrangements and the particular representations by Castle Harlan to Norcast regarding its intention and ability to fund the transaction constituted misleading or deceptive conduct.

Involvement of Greiner and Hodges
Greiner and Hodges were both found to be involved in the relevant conduct, to have aided and abetted or otherwise been knowingly concerned in the breaches of the act by Bradken (and Castle Harlan). Accordingly, they may be prosecuted by the ACCC in future. However, this may be unlikely as an appeal is pending and the conduct was a one-off occurrence, unlike in other prosecutions (eg, Visy).

The court calculated Norcast's loss as US$22.4 million, which was the difference in the price paid to it by Castle Harlan and the amount that Bradken paid Castle Harlan. Implicitly, according to the court, Bradken would have paid Norcast A$212.4 million had it bid directly for NWS.


The court gave a wide interpretation to the bid-rigging provisions under the act. This was not a case, for example, in which two parties agreed that one would put in a lower bid on a tender and that the other would put in a lower bid on a future tender.

This case stands out with regard to the broad way in which the court rationalised the competition aspect between Castle Harlan and Bradken. Bradken may have been in competition with Norcast, but Castle Harlan was not in the mining and grinding business. The court found that Bradken and Castle Harlan were either 'in competition' or 'likely to be in competition', at least with respect to this transaction. This is a likely point for the appeal, which already has been filed.

The other aspect of the decision which draws attention is the manner in which the court interpreted the relationship between Norcast and Bradken. Bradken perceived that it was being excluded from the transaction based on correspondence with Norcast. The court effectively extended this perception to imply a term in the arrangement between Bradken and Castle Harlan that Bradken would not bid for NWS. However, such a term would be unnecessary if Bradken thought it had no chance of acquiring NWS from Norcast.

If the court's findings are upheld on appeal, the decision could have implications on the way in which acquisitions and tender processes are undertaken, especially when undisclosed bidders are involved. An undisclosed principal and an agent or tendering party will need to ensure that there is no possibility that they are in competition with each other.

In the context of some tenders and auctions, there may be a high risk of contravention of the act, as it may be easier to establish that two parties are 'in competition' or 'likely to be in competition'. This may be particularly true when dealing with acquisitions of real property. In many instances, the use of undisclosed bidders is an appropriate way for a party to acquire goods or services in order to avoid the risk of paying too much for such goods or services. For now, businesses should be wary and review their strategies when engaging in mergers and acquisitions.

For further information on this topic please contact Bill Fragos at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (

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