WELCOME
This is the first of a new, quarterly update targeted at in-house legal and compliance teams and covering ‘must know’ recent developments in competition litigation and enforcement.
Each quarter, we’ll offer an insight into a current and important development. This quarter, we look at a string of recent cartel cases where the ACCC has brought “attempt to induce” claims in a strategy that appears intended to push the boundaries of cartel liability and to avoid the challenges of establishing a concerted practice. This one will be especially important for compliance leaders and in-house lawyers advising sales or channel management teams.
We then offer an “In case you missed it” overview of the most important recent competition cases and enforcement developments over the last quarter, what they mean for you, and some upcoming themes worth keeping an eye on.
We hope you find the Rap Sheet helpful and on point.
ENFORCEMENT IN FOCUS
What happened to an “understanding” or a “concerted practice”? The ACCC’s not-so-subtle attempt to push the boundaries of cartel conduct
An important recent trend in ACCC enforcement has been the use the “attempt” and “attempt to induce” provisions in s76(1)(b) and (d) of the Competition and Consumer Act 2010 (the Act), to seek to broaden the traditional scope of cartel conduct.
Over the last 12 months, there have been a string of prosecutions by the ACCC of allegations of ‘attempts’ or ‘attempts to induce’ cartel conduct. The cases include:
- ACCC v Qteq Pty Ltd (attempt to induce boycotts, market sharing and bid rigging)
- ACCC v Ashton Raggatt McDougall Pty Ltd (attempt to induce bid rigging)
- ACCC v Delta Building Automation Pty Ltd (attempt to induce bid rigging and price fixing)
This reflects an apparent strategy by the ACCC to widen the scope of cartel conduct to capture behaviour that previously may have been seen as only preparatory or otherwise lacking in a sufficient level of commitment to establish an ‘understanding’.
Why the change in focus from the ACCC? The new focus on attempts to induce cartel conduct has occurred in the context of a decision of O’Bryan J in ACCC v BlueScope Steel Limited (No. 5) [2022] FCA 1475 (BlueScope), handed down on 9 December 2022. BlueScope involved allegations by the ACCC that BlueScope had attempted to induce cartel conduct in the form of fixing or controlling the domestic price for flat steel products.
The penalty judgement followed, more recently, on 23 August 2023 with penalties of $57.5m imposed on BlueScope and an individual penalty of $500,000 for the former BlueScope general manager involved in the conduct, Mr Jason Ellis. Both the judgement on liability and penalty in BlueScope are on appeal.
To understand the implications of this development, it is worth taking a moment to reflect on the facts and the central finding of O’Bryan J on the question of what is needed to become liable for an “attempt to induce an understanding.”
The facts
The case related to the sale of flat steel products in Australia. During the relevant period, BlueScope operated a dual distribution model by which it distributed flat steel products directly and through a network of local Australian distributors. The ACCC’s central allegation was that Mr Ellis, who was the sales and marketing manager for flat steel products, engaged with distributors (and an overseas trader and steel mill) in a manner that amounted to an attempt to induce an understanding containing a cartel provision.
The ACCC’s central allegations were that:
- Mr Ellis circulated a recommended resale price list to distributors, which the ACCC argued was an attempt to induce them to use the recommended prices as a benchmark to support raising domestic flat steel prices
- Mr Ellis used threats of anti-dumping action against overseas steel manufacturers to try to persuade them to increase the prices for imported flat steel products.
The ACCC did not allege that the attempts were successful.
What was in dispute?
At the heart of the dispute was the meaning of “understanding” as the term is used in s 45 and the cartel provisions in the Act.
Before BlueScope, the nature of an ‘understanding’ had been relatively settled as requiring an acceptance by the parties to it of some meeting of the minds, involving a form of shared commitment to act in a certain way. Whether that commitment needed to be mutual or if it was enough if assumed by only one of the parties remained uncertain (see ACCC v Olex Australia Pty Ltd [2017] FCA 222 per Beach J at [477]).
The essential need for commitment was famously described by the Full Federal Court in the Egg Corporation case as follows (at [95]):
Indeed, it was this challenge – of establishing a sufficient level of commitment rather than merely persuasion or expectation – that had frustrated the ACCC in a series of cases during the 2010s and that led to it calling for a looser basis for liability in the form of a ‘concerted practices’ concept introduced into the Act in 2017, following the Harper Review.
However, in BlueScope, O’Bryan J moved distinctly away from the traditional position in Egg Corporation. This appeared to be made easier by the fact that the ACCC was not seeking to establish that any understanding had actually been reached. Rather, the allegation was only that an attempt to induce such an understanding had occurred.
Taking these elements together (“understanding”, “attempt” and “inducement”), O’Bryan J found (at [145] and [147]):
If upheld on appeal, this approach materially extends the potential scope of cartel liability. This perhaps also undermines the future use and utility of the concerted practices provision, which had been designed by the Harper Review to capture cases that fell below the level of commitment required in Egg Corporation.
What does it mean for you?
The BlueScope judgement and the run of recent, smaller cases, shows the way in which the ACCC is using s76(1)(b) and (d) to reduce the threshold for liability through a combination of legal elements:
- The ACCC is pressing for an approach to “understanding” that does not demand evidence of commitment or obligation. Quite where this leaves concerted practices remains to be seen.
- This may be easier when bringing ‘attempt’ cases, because to do so it is not necessary to show that any understanding was ever actually entered into or even likely. This potentially reduces the scrutiny that would otherwise apply to evidence of commitment or moral obligation.
- Finally, the ACCC appears to favour ‘attempt to induce’ cases because they can be targeted at early, unilateral conduct and, at least currently, requires only evidence that one party took some initial steps to persuade another to reach some kind of non-committal, but common, understanding. Of course, for those advising real commercial folk engaged in real commercial deals, this creates a legal standard for cartel conduct that is unhelpfully wishy-washy.
We make the following practical observations on what all of this means for Australian corporates:
Cartel risk is heightened in all engagements with competitors, even unilateral ones.
Mere persuasion, without any attempt to seek a commitment by a competitor to act, could be enough. Circulating a price list or making a general comment at an industry event could raise a risk if they are seen as an attempt to persuade competitors to change their behaviour.
It is no longer clear whether there is a need for a commitment (either actual or attempted) to be liable for cartel conduct.
At least until an appeal decision in BlueScope, there is now a risk of contravention even if you did not seek or expect any commitment from the other party to act in a certain way.
The risk is especially acute for firms with dual distribution channel relationships – and compliance teams would be advised to refresh training to staff working in those channels.
Where your customer is also a competitor, the risks are amplified. Suppliers routinely talk to their distributors about strategies to help them improve retail prices or margins. It is commonplace to use recommended retail price lists and to discuss about how a distributor might target markets or customer segments. These form part of most distribution and channel management strategies.
However, if channel discussions are characterised by the ACCC as involving a supplier trying to persuade distributors to act in a way that controls downstream retail prices then there is a heightened risk of prosecution.
Now turning to other recent developments.
IN CASE YOU MISSED IT
ACCC v Delta Building Automation
One of the ‘attempt to induce’ cases discussed above. This case involved two small, rival suppliers of building management and security systems for government buildings. The conduct arose in the lead up to a tender process undertaken by the National Gallery for a replacement of its building management system.
Ultimately, liability turned on a single, disputed conversation in a Canberra coffee shop. In finding that Delta and its managing director were liable for attempting to induce a cartel, Bromwich J drew upon the “keenly awaited decision” of O’Bryan J in BlueScope. In doing so, however, Bromwich J followed more closely the traditional view in Egg Corporation that any understanding required a commitment and that at least one party must “assume an obligation (whether legal or moral in nature) to act in a certain way” (see [50]). Nonetheless, the case offers an example of the extension of cartel conduct into behaviour that, historically, would likely have been viewed as preparatory and insufficient to ground a cartel. It is also evidence, if more was needed, that the coffee in our nation’s capital is not just bad, but legally risky.
ACCC v Swift Networks
A bid rigging case involving two IT vendors (Swift and DXC) in Western Australia, who colluded in responding to a competitive bid process run by Rio Tinto in relation to IT services to two of its mine sites. Swift admitted the contraventions and a penalty of $1.2 was the subject of joint submissions. It is not stated, but we assume DXC was an immunity applicant.
One point of interest. Swift was also a supplier to DXC and the two managers involved in the conduct therefore had legitimate reasons for communicating. However, Colvin J dismissed an argument that this was a matter that should mitigate penalty. To the contrary, where a commercial relationship exists that increases the risk of cartel conduct, his Honour found the importance of compliance should be greater (at [16]):
ACCC v Mastercard
The only s 46 case brought by the ACCC to date in which liability is contested was due to come to trial in July 2024 (the only other ACCC s 46 prosecution since the Harper reforms changed the test, ACCC v Tasports, was resolved through a s87B undertaking). However, delays with evidence and discovery have led for the timetable to be pushed back into March 2025.
The Epic tour
The global Epic litigation finally comes to Australia next year, where it is scheduled for a 16-week hearing commencing on 18 March. The s 46 trial, the first contested s 46 case under the new provision, promises to be a blockbuster. The most recent case management hearing on 28 September directed that the two parallel private suits (Epic v Apple and Epic v Google) be jointly heard, alongside two parallel class actions against Apple and Google, respectively. We’ll no doubt have more to say about Epic next time.
Resale price maintenance
Long the forgotten child of Part IV of the Act, the ACCC appears to have targeted resale price maintenance over the last six months, including accepting s87B undertakings from a couple of suppliers (bike importer Hornet Industries and lighting distributor Brilliant Lighting) as part of resolving investigations. It also revoked a resale price maintenance notification (Graco Australia).
Increased ACCC use of data analysis in enforcement
An important “under the radar” development over the last 12 months has been the increased use by the ACCC of data analytics to identify investigation and enforcement targets. While the ACCC has long used internet “sweeps” to identify consumer law issues, in more recent times it has developed an internal capability to interrogate other data to identify trends that may suggest anti-competitive conduct. This has been done, for example, in relation to public tender data to identify potential bid rigging in such processes.
ACCC Annual Report
For those who are particularly keen, the ACCC published its 2022-23 Annual Report on 20 October – it can be found here. While a total of $142.3m in penalties were achieved over the financial year, only $5.78m related to competition matters with the bulk resulting from consumer law enforcement. Although, this predated the penalty judgement in Bluescope, which was handed down in August.
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