ACCC Maintains the Focus on Cartels

In late February, ACCC Chairman Rod Sims outlined the regulator’s competition law priorities for 2016. The release may have been somewhat lost in the media interest storm surrounding the Government’s proposed changes to the misuse of market power prohibition.  However, it is worth paying attention to the ACCC’s stated priorities as they give important insights into the industries that it is focusing on, and the strategies that it is likely to employ to deter anti-competitive behaviour.

Last week, the Turnbull Government nominated Sims for reappointment for a further three-year term from 1 August 2016. It seems likely that he will be reappointed to continue in the role – so what can we expect in the year to come?

As usual, the Commission’s key focus area for competition law is prosecuting cartel conduct, which is viewed around the world as the most damaging ‘hard-core’ anti-competitive practice. There are both civil and criminal prohibitions on cartel conduct under the Competition and Consumer Act 2010 (Cth). The prohibitions, drafted in notoriously lengthy and labyrinthine language, boil down to this: two or more competitors must not agree to fix prices, carve up the market between themselves, restrict their production, or rig bids.

Cartels are inherently difficult to uncover and police: their participants have an interest in keeping them secret to extract maximum shared benefit. A ‘successful’ cartel, even if it is short term, can result in drastic negative impacts on consumers, who bear the brunt of higher prices and reduced supply or quality. This means that investigating collusion is resource-intensive but critical work for any competition regulator. Like others, the ACCC uses an array of tools including its immunity and cooperation policy, which has a strong deterrent effect especially when paired with well-chosen high-profile ‘test cases’, and potentially very high pecuniary penalties.

Sims disclosed that the Commission has around 20 cartel investigations under way, and that it expects one or two criminal prosecutions this year, along with some other important civil proceedings.

Twenty discrete cartel investigations is a substantial number, and suggests that the Commission has committed considerable resources to the cause. It marks a jump from this time last year, when Sims advised that the Commission had ‘around a dozen in depth cartel investigations under way’.

Two recent cases demonstrate that the ACCC is tackling what it sees as cartel conduct in different industries and different commercial arrangements. They also illustrate the real evidentiary hurdles and strategic difficulties that it faces in prosecuting such conduct.

Sims has expressed disappointment at the outcome of the ACCC’s recent cartel proceedings against the Australian Egg Corporation1.  In February, the Federal Court dismissed allegations by the ACCC that the Egg Corporation, an industry lobby group, had attempted to induce egg producers to limit egg production. In 2012, the Egg Corporation held meetings to discuss a looming oversupply of eggs, and proposed possible solutions including that suppliers get rid of excess eggs or cull hens. The ACCC painted this as a classic ‘competitors sitting around a table’ cartel scene. However, the Court held that the Egg Corporation’s conduct fell short of inducing egg suppliers to agree on and commit to any particular strategy. The ACCC has since appealed the decision to the Full Federal Court.

The alleged egg cartel is the second recent case in which the ACCC has argued that there was an ‘attempt’ to induce cartel behaviour. In 2013, the ACCC took a similar approach in its proceedings against Flight Centre2, although in a very different context.

The ACCC alleged that Flight Centre had on several occasions attempted to induce three airlines to fix prices. Unlike the Egg Corporation meetings, the ACCC depicted a sort of ‘vertical’ cartel where Flight Centre separately pressured each airline to commit to selling airfares at lower prices on their websites, so that Flight Centre could still profitably uphold its ‘price beat’ guarantee.  It was successful at first instance. However, in July 2015, the Full Federal Court unanimously upheld an appeal by Flight Centre. It found that Flight Centre was not in competition with the airlines which had appointed Flight Centre as their agent to sell the airfares, and so the cartel prohibitions were not enlivened.

Most recently, on 11 March 2016, the High Court granted the ACCC special leave to appeal the decision of the Full Federal Court, largely on the unresolved questions around whether Flight Centre could ever have been considered a competitor of the airlines in light of their agency relationships.

Both appeals will be ones to watch for this year, as they will illuminate key aspects of the cartel prohibitions.

Aside from these appeals, the ACCC is pursuing its alleged laundry powder cartel case involving Colgate and Cussons, listed for trial in the middle of this year. In April 2016, the Federal Court will hear its bid rigging cartel case against participants in the NSW Government’s tender processes for coal exploration licences in the Bylong Valley, NSW.

The Bylong Valley proceedings, announced in May last year, arise from the Independent Commission Against Corruption’s high-profile investigations into former politician Eddie Obeid and his family. The ACCC will allege that Obeid and family members entered into arrangements with accomplices to rig the bid process for lucrative coal licences at Mt Penny. The alleged plan involved an agreement to pull out of a competitive tender process to guarantee that a rival bidder would succeed, in return for a substantial share of the winning bidder and other financial benefits amounting to $60 million.

Clearly, the Bylong Valley allegations would, if proven, have been a prime candidate for the ACCC to exercise its as yet untested powers to bring criminal cartel proceedings. In addition to the $10 million-plus maximum fine available against the Obeid-related companies, the criminal option would allow the ACCC to refer the matter to the Director of Public Prosecution (DPP) and to seek punishments for executives and individuals of up to 10 years’ jail, and up to $360,000 in penalties.

Unfortunately, however, most of the alleged bid rigging conduct occurred in early June 2009, just before the introduction of the criminal prohibition in late July 2009. We will have to wait and see which case Sims chooses to test these new powers on this year.

Of course, cartels are only one type of anti-competitive conduct.  The Chairman indicated that the ACCC has around 20 investigations into other anti-competitive conduct and practices, which is consistent with previous years. He also noted that the Commission may currently have more union-related major investigations underway than ever before.

Finally, back to section 46. It seems the Commission is not sitting on its hands waiting for the Government to implement its proposed reforms, and currently has active in-depth investigations into misuse of market power allegations.

1 Australian Competition and Consumer Commission v Australian Egg Corporation Limited [2016] FCA 69
2 Flight Centre Limited v Australian Competition and Consumer Commission (2015) 234 FCR 367; [2015] FCAFC 104

Caitlin Davies is a senior lawyer specialising in competition and regulatory law. She has advised on major transactions, including privatisations of government assets and high-profile public and private mergers. She is familiar with the challenges and opportunities facing regulated entities in a wide range of industries including energy, water, ports and broadcasting.

Caitlin is a regular contributor to Insight and other competition law publications. Caitlin has a particular interest in comparative law; she is fluent in French and participated in the Stage International program at the Paris Bar. She is co-editor of Competition Law in the Asia Pacific: A Practical Guide.

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