The Full Federal Court has dismissed the Australian Competition and Consumer Commission’s appeal in ACCC v Colgate-Palmolive (No 4) upholding Justice Wigney’s decision at first instance which found there was insufficient evidence to prove Cussons had engaged in cartel conduct in its transition to ultra-concentrate laundry detergent in March 2009. 

The key issue in this case was whether Cussons had entered into a ‘contract, arrangement or understanding’, for the purposes of the cartel contravention.  Although not expressly required by the legislation, commitment is a concept that is comprised within the terms ‘contract’, ‘arrangement’ and ‘understanding’ under the cartel contravention.  The case law on commitment is well understood.  For a contract, arrangement or understanding to comprise a cartel agreement it must be a consensual dealing between parties involving a ‘meeting of minds’.  

The decision in the Cussons case, now confirmed by the Full Court, is yet another example, in a string of recent contested civil cartel matters, of the Federal Court declining to make findings of commitment in respect of largely circumstantial cases.  In fact, across the past 30 years of civil cartel proceedings, 10 of the 12 failed contested cartel proceedings have failed either primarily, or in large part, due to a lack of proof of  commitment.

The Cussons decision highlights the continuing difficulties of proving collusion where there is weak or limited direct evidence of commitment. 

Key takeaways:

• The Full Court’s decision has confirmed the approach of the trial judge, dismissing all 10 grounds of appeal, including declining to find that the trial judge had set the forensic bar too high for establishing cartel conduct.  
• The Full Court confirmed that there is no requirement to particularise on what date, or by whom, an alleged arrangement or understanding had been made to establish cartel conduct.  The Full Court went on to find that the trial judge did not intend to impose this requirement on the Commission when he observed that a case of collusion pitched in such vague terms had its difficulties. The trial judge had made the observation, at first instance, that the Commission’s case was imprecise and lacking in clarity, including because it failed to allege exactly who had entered into the agreement on behalf of Cussons, and precisely when the alleged agreement was formed.  
• The Full Court also confirmed that whilst evidence of direct communication is not a necessary requirement of proving cartel conduct, the absence of such evidence is not irrelevant and is of practical importance. 

The challenges of proving collusion in ‘pattern of behaviour’ cases

In this case, in which the evidence against Cussons was largely circumstantial, the Commission alleged that the ‘pattern of communications’ between Colgate, Unilever and Cussons, along with Woolworths and Coles, supported an inference that Cussons was a party to a cartel agreement to simultaneously transition to ultra-concentrate laundry detergent in March 2009, at the same time as Unilever and Colgate.  

However, on the facts, it was found that most of the evidence of meetings and communications relied upon did not involve each of Unilever, Colgate and Cussons directly meeting or communicating with each other, but rather meetings or communications between one or other of these parties and Woolworths.  Cussons was also not directly involved in many of the meetings and communications relied on by the Commission.  Arguments that the arrangement was the result of a ‘hub and spoke’ type agreement were also rejected. 

‘Pattern of behaviour’ evidence, like the evidence relied on by the Commission in this case, essentially asks the judge to consider all the various pieces of circumstantial evidence as a single course of conduct to support an inference that a commitment between the parties has been reached, and that a cartel contravention has taken place.  It is likely to be used in circumstances where the precise detail of when the alleged cartel agreement was made, and by whom, is not known.  The use of ‘pattern of behaviour’ evidence to establish commitment under the cartel contravention has had limited success in previous cartel proceedings. It was initially used quite successfully in the Ballarat Petrol Case (ACCC v Leahy Petroleum Pty Ltd (2004) 141 FCR 183), however the subsequent Geelong Petrol Case (ACCC v Leahy Petroleum Pty Ltd (2007) 160 FCR 321), run along similar evidential grounds but with different facts, was not successful.  It has now been used unsuccessfully in the Cussons case.

The Full Court’s decision in Cussons further demonstrates that judges do not seem to like such nebulous formulations to such serious contraventions.  This makes intuitive sense.  Although such particularity is not required under the cartel contravention, where a prosecution is unable to specify approximately when and by whom an alleged cartel agreement was entered into, it will be difficult for a judge to make the necessary findings to the relevant standard of proof.

Cases such as this raise the question of whether a jury, as the trier of fact in the criminal jurisdiction, would feel similarly constrained by a lack of particularity in cartel cases where evidence of commitment is weak.  A jury may not feel so constrained by the technical aspects of commitment that we have seen in the civil jurisdiction to date.  Despite this, there remains an expectation that the additional hurdles of the criminal jurisdiction, with the higher standard of proof and additional fault element, will further elevate the challenges of establishing commitment in these kinds of circumstantial cases. 

Precisely how these matters around proof of commitment will play out in respect of cartel matters prosecuted in the criminal jurisdiction remains to be seen.  

Background

In 2013, the Commission commenced proceeding against Colgate, Cussons and Woolworths, alleging that Cussons, Colgate and Unilever (together, the Suppliers) had engaged in cartel conduct by agreeing to withhold ultra-concentrate laundry detergent from the market until a date in March 2009.  

In 2016, Colgate and Woolworths admitted to the conduct and agreed to pay the penalties of $18 million and $9 million respectively. 

Cussons contested the matter and in December 2017, the Federal Court dismissed the case against it (ACCC v Colgate Palmolive (No. 4) [2017] FCA 1590), finding that there was insufficient evidence to prove that Cussons had committed to an anti-competitive arrangement with the other laundry detergent suppliers.  

The Commission appealed that decision, with the appeal hearing taking place on 20-22 August 2018. 

The Facts

By at least January 2008, all three Suppliers were aware of the international trend towards the introduction of ultra-concentrates.  The only real issue was when the transition would take place. By late 2007 or early 2008 each of the detergent manufacturers was actively considering how the transition would be managed.  Relevantly, Woolworths and Coles conducted two reviews per year for laundry products which they sold.  These were called ‘range reviews’.  There was a major range review held in February and a minor one typically held in July.  It was established, on the facts, that each of the Suppliers understood that if they were going to make a major change to their product range, such as switching to ultra-concentrates, they would have to meet the retailers’ timetable, including their review timetable.

In March 2008, Colgate approached Accord (an industry body) proposing that Accord lead a ‘sustainability initiative’ to assist the industry transition from standard to ultra-concentrate detergent, on the basis that it had significant economic benefits in terms of manufacturing costs, less packaging and higher margins, as well as environmental benefits.  But there was also a risk that the transition would give rise to a spectre of customer confusion, which meant that if only some Suppliers moved to introduce ultra-concentrate but some chose not to, that the latter might increase their market share to the detriment of the former.  The proposal covered all Suppliers and retailers of laundry detergent.

In April 2008, Accord forwarded a proposal, drafted by Colgate, to Unilever, Cussons and Colgate, suggesting that a meeting take place between the Suppliers on 30 April 2008.  At that time, Cussons received internal advice that the initiative may raise competition concerns.  Nonetheless, later in April, Accord and each of the Suppliers met to discuss the initiative. Whilst, on the evidence, there appeared to be some general consensus at this meeting that Accord should lead the industry wide initiative in order to avoid any consumer confusion that might arise from the transition, no agreement was reached.  

Between May and August 2008, a series of meetings and events then took place between the Suppliers, and Woolworths and Coles, including: 

• Cussons met separately with Coles and Woolworths to discuss the transition to ultra-concentrate, during which Coles’ and Woolworths’ representatives made indications as to Unilever and Colgate’s approach, such that Cussons became aware that Unilever and Colgate would likely transition in February 2009 and that Unilever and Colgate would cease supplying standard concentrate entirely; 
• Unilever and Colgate were in frequent discussions with each other regarding their respective transitions; 
• on two occasions in late August 2008, a Unilever representative attempted to solicit information from a Cussons representative regarding Cussons’s transition timing.  On both occasions the evidence showed that Cussons responded vaguely and did not disclose sensitive information; and
• internal Unilever discussions suggested that Cussons may be a disrupter in the market, and attempt to enter with ultra-concentrate first.

In late August 2008, Accord circulated to the Suppliers a revised proposal which included guidelines for concentrated detergent formulas and an efficiency logo for consumers.  However, at this time, Cussons withdrew any support for the proposal, and no agreement in any form was reached.

There was evidence that in August 2008 both Colgate and Unilever were increasingly clear that the transition date would be in early March 2009. However, there was a lack of evidence linking Cussons to this knowledge with the evidence demonstrating that Cussons remained unclear on when the precise transition date with Woolworths would be.  

Further, in October 2008, Cussons engaged in an internal brainstorming session (referred to as ’war gaming’), the purpose of which was to consider different scenarios that Cussons might have to respond to after the ultra-concentrates were launched.  Internal documents at this time suggested that Cussons did not know what price the other Suppliers were going to charge for their ultra-concentrates, how big the powder scoop would be, what performance or environmental claims might be made, or what the concentration level would be (‘ultra’ encompassed, as it turns out, a range of higher strength powders).

The Suppliers began introducing their ultra-concentrate products around February/March 2009, with Metcash continuing to purchase standard concentrates for some time after. 

There was no real dispute about the primary facts upon which the Commission relied.  Rather, the debate lay in what inferences could be drawn from those facts.

First Instance Decision

On the facts, Justice Wigney ultimately found that the substantive behaviour of the Suppliers with respect to the transition to ultra-concentrates was explicable without reference to any collusive arrangement or understanding.  Rather than being the result of a cartel agreement, the Suppliers’ conduct was found to be an “individually economically rational response to underlying market forces”.  The reasons for this included that, contrary to the view of the Commission, there was no economic incentive for any individual supplier to delay the introduction of ultra-concentrates, and there were clear economic benefits to transitioning.  Importantly, Justice Wigney accepted that the correct approach was not to consider the conduct relevant to how the firms would have behaved had they acted completely unilaterally, stating “[a] world of unilateral conduct is not necessarily the same as a world without any collusive agreement, arrangement or understanding”.  Justice Wigney also found that the timing of the transition to ultra-concentrates was largely driven by the retailers (ie Woolworths and Coles), and not by any agreement entered into by Cussons.  

In making these findings, Justice Wigney pointed to significant deficiencies in the Commission’s evidence, which was an entirely circumstantial case.  His Honour noted that despite there having been extensive section 155 information requests, and witness testimonies from Unilever (the immunity applicant), there was no direct evidence provided against Cussons.  In addition, his Honour criticised the Commission’s case for being imprecise and lacking in clarity, because (amongst other things) it failed to allege exactly who had entered into the agreement on behalf of Cussons, and precisely when the alleged agreement was formed.

Appeal Decision

The Full Federal Court dismissed all 10 grounds of the Commission’s appeal, including holding that: 

• The trial judge had correctly applied the legal principles governing what amounts to an arrangement or understanding for the purposes of the cartel prohibition, and had not required the Commission to essentially prove the requirements for a ‘contract’ to establish an ‘arrangement or understanding’.  The Full Court found that the trial judge had not demanded “a contractual level of certainty” from the Commission’s case when making the observation that the Commission was unable to identify when and by whom the alleged agreement had been made, but rather was simply commenting on the “obvious weakness” of the Commission’s case.
• The trial judge did not “erroneously emphasise” the absence of direct communication between the Suppliers regarding the alleged agreement.  The Full Court noted that whilst direct communication evidence is not necessary as a matter of law for the Commission to prove the existence of an ‘understanding’, it does not follow that the absence of direct communications is irrelevant. As a matter of obiter, the Full Court noted that direct communication may, in a practical sense, be required to demonstrate the existence of an ’arrangement’. 
• The trial judge did not err in observing that the Cussons’ brainstorming session (referred to as ‘war gaming’) was inconsistent with the existence of an arrangement or understanding.  The Commission had argued that the war gaming session evidenced Cussons strategizing on what steps it would take if another participant of the alleged agreement cheated.  The trial judge had found, and the Full Court agreed, that the Commission’s interpretation of the evidence was inconsistent with documentary and testimonial evidence, and further, was never put to any of the Cussons’ witnesses.
• The trial judge had not sought to substitute some higher standard of “irrevocable commitment” in noting the absence of “any commitment, obligation or moral or legal duty to the other suppliers in respect of the transition”. Given this, there was no error.

The Full Court also affirmed that parallel conduct, by itself, is insufficient evidence to establish the existence of a cartel contract, arrangement or understanding.  The Commission had argued that the trial judge had erred in dismissing the parallel conduct evidence in this case, by incorrectly stating that “any parallel conduct was explicable on grounds that had nothing to do with any arrangement or understanding”.  The Commission argued that his Honour erred by asking himself whether there was any ”reasonable hypothesis consistent with innocence,” when instead he should have asked himself whether the ‘more probable’ inference arising from the parallel conduct was the existence of the alleged agreement. 

The Full Court rejected this argument, noting that his Honour was not suggesting that parallel conduct was capable of being explained on other innocent bases, rather he was saying that it was explained on those bases.  The Full Court pointed to the trial judge’s introductory statement on this issue: 

“The problem for the Commission is that its submissions concerning the circumstantial significance of parallel conduct that it asserts occurred in this case are not supported by its own economic evidence, and are significantly undermined by the unchallenged evidence adduced by Cussons”.

The Full Court further noted that the Commission had not tested any of the economic grounds which explained the parallel conduct under cross examination.  This significantly weakened the Commission’s argument that the parallel conduct inferred the existence of an arrangement or understanding between the Suppliers. 

The Commission also challenged several findings of fact by the trial judge which were also dismissed, including the finding that it was Woolworths and Coles who drove the timing of the transition to ultra-concentrates. The Full Court noted that the Commission was not able to point to any error in the trial judge’s inferences (amongst other things) which would enliven the Full Court’s jurisdiction on that point, and agreed with the trial judge’s findings.