Welcome to the second edition of the Rap Sheet, our quarterly G+T update targeted at in-house legal and compliance teams covering ‘must know’ recent developments in competition litigation and enforcement.

What a quarter it has been. In this Rap Sheet, we offer a deep dive on the important decision of the Full Federal Court in J Hutchinson Pty Ltd v Australian Competition and Consumer Commission [2024] FCAFC 18 (Hutchinson). The Hutchinson judgment follows a string of recent cases discussed in our last Rap Sheet that have pushed the boundaries of what constitutes an “understanding” for the purpose of the cartel provisions. Hutchinson offers a secondary boycott case that may indicate the pendulum swinging back to a more conventional approach, with the Full Court finding that a unilateral demand to which another party succumbs does not amount to an understanding for the purposes of Part IV. The ACCC has since announced it will seek special leave to send Hutchinson upstairs.

Beyond Hutchison, we offer an update on recent Part IV enforcement developments including the ACCC’s annual enforcement priorities announced by Chair Gina Cass-Gottlieb at the annual CEDA lunch on 7 March, which suggests an agenda again heavily weighted toward consumer law (see our update).

Although new Part IV enforcement by the ACCC remained quiet, private litigation continued in earnest as the 16-week, aptly named, Epic litigation kicked off in in Melbourne and the first private litigation under s 50 seeking divestment in over 40 years commenced in Brickworks. We’ll give you just what you need to know. 

Finally, for those who missed it, G+T published last month its annual competition insights and observations for 2024, which can be downloaded here.

Much to savour. 

 

 

Enforcement in focus

Hutchinson – is the pendulum swinging back?

On 29 February 2024, the Full Federal Court handed down judgment in Hutchinson, upholding an appeal against a decision of Justice Downes at first instance that had found that a head construction contractor, J Hutchinson Pty Ltd (Hutchinson) had reached an understanding with the Construction, Forestry and Maritime Employees Union (CFMEU) that constituted secondary boycott conduct in contravention of sections 45E(3) and 45EA of the Competition and Consumer Act 2010 (Cth) (the CCA).

The matters in dispute centred on the meaning of “understanding” and its application to cases where unilateral conduct by one party (i.e. threats) were acted upon by another. In that sense, there are parallels with the string of recent “attempt to induce an understanding” cases where the ACCC had successfully prosecuted unilateral conduct under the cartel provisions – cases discussed in our previous Rap Sheet update, including the judgment of O’Bryan J in ACCC v BlueScope Steel Limited (No. 5) [2022] FCA 1475 (BlueScope). BlueScope is also on appeal. 

Briefly, the facts

Hutchinson was head contractor for a Southpoint construction project in Brisbane. The CFMEU represented workers on the site. Hutchinson engaged a subcontractor, Waterproofing Industries Qld Pty Ltd (WPI), to provide waterproofing services on the project. WPI did not have an enterprise bargaining agreement (EBA) with the CFMEU. In engaging WPI, Hutchinson did not consult with the CFMEU as it was required to do under its EBA.

Upon learning that Hutchinson had engaged WPI, the CFMEU delegate for the site told Hutchinson’s project manager that the CFMEU would “sit the job down if WPI come on site”. WPI did not perform further work on the site and, some weeks later, Hutchinson terminated its contract with WPI.

First instance, a win for the ACCC

The central question was whether the facts supported an inference that Hutchinson and the CFMEU had arrived at an “understanding” that contained a secondary boycott provision – i.e. by which Hutchinson agreed not to acquire services from WPI. Hutchinson denied the allegations and argued that its decision to terminate the contract with WPI was a unilateral commercial decision to avoid potentially costly and inconvenient industrial action threatened by the CFMEU. 

At first instance, Downes J upheld the ACCC’s case and found an understanding had been reached. Her Honour imposed penalties on both Hutchinson and CFMEU (which was found to have induced and been knowingly concerned in the conduct). 

On appeal – the pendulum swings back?

Both Hutchinson and the CFMEU appealed the decision, with the primary basis for the appeal being that it was not open to Downes J to infer from the primary facts as found that there was any “meeting of minds” or consensus between Hutchinson and the CFMEU concerning the termination of the contract with WPI. 

A second issue was also raised. Unlike contracts or written arrangements, by their nature, understandings are often unwritten and therefore prosecution will rely upon inferences being drawn by the Court from conduct (i.e. parties acting in a certain way following a meeting or discussion). A further basis for the appeal was then even if it was open for the trial judge to infer the existence of an arrangement or understanding between Hutchinson and CFMEU, there was an equally available if not more probable inference which explained the events. 

The Full Court (comprising Wigney, Bromwich and Anderson JJ) upheld Hutchison’s appeal. Wigney offered a separate judgment, although agreed on the central issues. 

Does succumbing to a threat amount to an understanding?

On the primary question, the Full Court returned to, and emphasised, the conventional importance of mutuality in the sense of a meeting of the minds in establishing an arrangement or understanding. While referring to BlueScope, the judgments nonetheless reiterate the essential elements of an understanding including:

• each party must have subjective knowledge or awareness of the arrangement or understanding; and

• there needs to be some communication of assent to a course of action as part of there being a commitment to that action taking place, so that:
  • a mere hope or expectation that the other party will act in a certain way is not enough; and

  • merely parallel or acquiescent conduct (including succumbing to a threat) can never suffice on its own (although they may serve as evidence).

Wigney J (at [36]–[38]) was critical of the first instance reasoning as being “expressed at a high level of generality”, including being “opaque as to when, where, and how, the arrangement or understanding was made or arrived at”, as well as by whom.

The Court pointed to a number of features that mitigated against the ACCC case, including:

• the primary Hutchinson employee involved was found not to be aware of the alleged arrangement or understanding, and indeed, was attempting to assist WPI to return to the site; and

• the various communications between Hutchinson and CFMEU, after the key conversation in which the threat to ‘stand down’ the job was made, did not amount to a manifestation of assent or agreement by Hutchinson to the CFMEU.

What inferences can be drawn where there are competing explanations for conduct?

In considering whether the evidence the ACCC relied upon was sufficient to support the inference that a prohibited understanding had been reached, Wigney J emphasised the relevant standard of proof to be applied (at [51]): 

 

These proceedings involved serious civil penalty allegations, requiring evidence of sufficient quality for the Court to be satisfied that there been a contravention on the balance of probabilities. The majority commented that (at [177]),

 

Applying the principles to the facts, the Full Court found that there was an insufficient basis for an inference that went beyond Hutchinson merely unilaterally succumbing to strong-armed threats by the CFMEU when terminating WPI’s contract. There was not enough to satisfy the Court that an understanding had been reached to this effect. Importantly, the Full Court found that where conduct (in this case, termination of WPI’s contract) is arrived at through a party succumbing to a unilateral demand by another party – the capitulation may or may not involve the necessary meeting of the minds. 

Where to from here and what does it mean for you?

The ACCC has indicated that it will seek special leave to appeal to the High Court to “obtain the High Court’s ruling on what is required to demonstrate the parties have reached an anti-competitive arrangement or understanding”.  This will be the first time the big house has been asked to consider the meaning of “understanding” this century. Remarkably, for a term that’s been so contentious for so long – and has been flayed repeatedly in the Federal Court over that time – we can only find one occasion in the last 25 years where the term has been meaningfully considered by the High Court and that was a brief reference by French CJ and Kiefel J in ACCC v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305. A High Court ruling that addresses the term is therefore long overdue.

The ACCC’s timing is also interesting, with the BlueScope decision already the subject of an appeal, likely to be heard by the Full Federal Court later this year. 

Overall, Hutchinson highlights the ongoing uncertainty and unpredictability of what is a fundamental concept within the CCA – what degree of “common purpose” or “common mind” is needed to be subject to the competition provisions of Part IV?

For plaintiffs in private litigation, and especially those looking to infer an anti-competitive arrangement from a meeting together with subsequent conduct, it highlights the need to be precise and well-defined in identifying and pleading the relevant form of communications, the persons who have the relevant state of mind and the basis for establishing some kind of assent. It will also be necessary in these cases to squarely address other probable explanations for conduct that compete or conflict with any inferences of a contravention.

For defendants, and those facing ACCC prosecution, the case may mark a shift back to a more conventional approach, which focuses on requiring the ACCC to establish a genuine ‘meeting of the minds’. Pointing to subsequent conduct as evidence of state of mind, will not be enough.

For the ACCC, perhaps it offers some encouragement to dust off the concerted practices provisions, which have been largely unloved by the regulator since they were introduced in 2017? 

Now turning to other recent developments.

In case you missed it

ACCC’s 2024-25 compliance and enforcement priorities

On 7 March 2024, ACCC Chair Gina Cass-Gottlieb announced the ACCC’s 2024-25 compliance and enforcement priorities. The key themes underpinning the priorities — sustainability, cost-of-living pressures and the digital economy — all appear to reinforce that the ACCC’s primary focus remains on consumer protection issues rather than Part IV.

When asked about the slowdown in competition enforcement activity in recent times at a Senate estimates hearing on 13 February 2024, Chair Cass-Gottlieb pointed to the Peter’s and Mastercard proceedings and foreshadowed “a series of significant ones that we are working forward to be able to commence”. She did, however, acknowledge that competition cases involve “a significant degree of complexity because of each of the elements that are required” and that the ACCC has “a very strong pipeline of consumer matters, undoubtedly, it has always been the pattern that there have been more of those cases because of the complexity of the competition cases”. Similar comments were made by the Chair at the CEDA enforcement lunch.

Second largest criminal penalties and strong individual sentences in the waste management cartel: CDPP v Bingo, Aussie Skips, Tartak and Roussakis

On 23 February 2024, the Federal Court convicted and sentenced Bingo Industries (Bingo) and Aussie Skips Bin Services and Aussie Skips Recycling (together, Aussie Skips), as well as their respective CEOs, Mr Daniel Tartak and Mr Emmanuel Roussakis, for criminal cartel offences relating to a price fixing arrangement for demolition waste services in Sydney.

Each company pleaded guilty to having fixed and increased prices with the other, with Bingo fined $30 million (the second largest penalty imposed for criminal cartel offences under the Act) and Aussie Skips fined $3.5 million. The discrepancy is explained by the fact that Bingo was sentenced for two offences (making and giving effect to a cartel arrangement) whereas Aussie Skips was only charged with the offence of making a cartel arrangement.

In similar fashion, Mr Tartak received a higher sentence and penalty than Mr Roussakis because he was involved in both of Bingo’s offences. Mr Tartak was sentenced to two years’ imprisonment and fined $100,000, while Mr Roussakis was sentenced to 18 months’ imprisonment and fined $75,000. Both will serve their sentences in the community and have been disqualified from managing corporations for five years.

On 22 March 2024, Aussie Skips filed an application for leave to appeal the $3.5 million penalty ordered against it. 

A rare RPM prosecution: ACCC v Techtronic

On 30 November 2023, the Federal Court imposed a $15 million penalty on power tool supplier Techtronic for engaging in resale price maintenance (RPM) conduct in relation to Milwaukee branded products. This represents the highest penalty imposed for RPM in Australia.

Techtronic admitted to entering into 97 agreements over a five-year period with retailers and dealers which restricted the sale of the products below a specified minimum price. Techtronic also admitted to enforcing the restrictive provisions 29 times, including by issuing warnings for actual or potential non-compliance and withholding supply from two dealers. 

In addition to the penalty, Techtronic was ordered to post corrective notices on its website and to dealers, contribute $400,000 to the ACCC’s costs and implement a revised compliance program for three years.

There is something about power tools. Those with long memories will recall that the market for power tools was also where the ACCC granted the first authorisation for resale price maintenance (involving the distribution of Festool power tools by dealers of Tooltechnic in 2015). Black and Decker also had an RPM notification briefly in place governing its distribution of Dewalt branded power tools in 2019, until it was revoked by the ACCC in mid-2020.

First private s 50 litigation in over 40 years: Brickworks v BGC

In bold private litigation, on 1 September 2023, Australia’s largest brick manufacturer, Brickworks, and its subsidiary, Austral Bricks, commenced proceedings in the Federal Court against rival BGC, accusing it of predatory pricing in the clay bricks market in Western Australia and alleging that an earlier acquisition by BGC of Midland Brick in April 2021 constituted a contravention of s 50.

The s 50 prosecution is the first of its kind in over 40 years as Brickwork argues that the deal resulted in a reduction of 3 to 2 in the relevant market. Brickworks seeks damages and orders requiring BGC to divest Midland Brick. 

Interestingly, the ACCC cleared the transaction in December 2020 on the basis of a “failing firm” argument and, predictably, it has been the subject of subpoenas. The private action comes at an interesting and delicate time for the ACCC, as it argues publicly that the current merger test, together with the need to satisfy an evidentiary standard in the Federal Court, makes it too hard to challenge anticompetitive mergers. Brickworks evidently disagrees.

The matter has been set down for a 7-week trial commencing in March 2025.

Another private s 46 proceeding: Sinclair v Sony

On 21 December 2023, Jordan Sinclair, a representative applicant, commenced a class action against Sony Interactive Entertainment and its UK subsidiaries (together, Sony). The class action appears to be modelled on the proceedings against Apple and Google, being an in-platform purchase case accusing Sony of misusing its market power, engaging in exclusive dealing and entering into contracts or arrangements that affected competition by requiring digital games and add-ons to be purchased and sold only via its PlayStation Store.

This follows in the wake of similar proceedings in the UK.

Epic v Apple and Google

The highly anticipated, “mega” section 46 litigation involving Epic, Apple and Google finally commenced on 18 March 2024. 

Highlights from the parties’ opening submissions are as follows:

• Epic argued that Apple and Google stifle competition by imposing restrictive contracts with developers and restricting app distribution and in-app payment solutions. While security protections were cited as the key reason for these exclusions, Epic pointed out that Apple’s restrictions do not apply to the Mac OS, and that Apple has allowed alternative in-app payment solutions, third-party app stores and sideloading for users in the European Union in response to its designated gatekeeper status under the Digital Markets Act (DMA), all without compromising security. Further, when Epic walked Justice Beach through the process of ‘sideloading’ Epic’s popular Fortnite game from its website rather than the Google Play Store to demonstrate in-built friction, Justice Beach remarked upon seeing a second warning that “I might have been discouraged long before then”.

• The lead applicants in the follow-on class actions have sought to emphasise the “important public interest” in their cases, with potentially up to 150,000 developers and 15 million Australian consumers involved, pushing back against criticisms from Google that they are “opportunistic” in nature (echoing previous comments from Justice Beach about the class actions being “parasitic”). While the class actions are seeking to rely on Epic’s evidence, Justice Beach has warned this evidence will not be sufficient to establish their case on overcharging of commissions in and of itself. 

• Apple hit back at Epic’s security claims, arguing that Apple devices are less safe for users in the European Union because the DMA has exposed users to risks such as scams and data breaches. Additionally, Apple has asserted that it does not have market power on the basis of a broad market definition and by seeking to cast doubt on its own profit calculation methodology, although these claims have been met with scepticism by Justice Beach. Further, correspondence in which Apple’s US lawyers referred to a submission in the Australian proceedings as part of a “global effort to undermine or evade Apple’s rules” prompted Justice Beach to express concern about the proceedings being leveraged to exert pressure on Epic.

• Perhaps learning from Apple’s experience in its opening remarks on market definition, Google attempted to define the relevant markets in a less nebulous fashion. Google also criticised Apple for seemingly having a policy to avoid naming Google or Android in internal documents, asserting there is vigorous competition between the digital giants. Google has foreshadowed that its internal documents will reveal references to the competitive threat of Apple and iOS and will not show “any indication of a monopolist resting on its laurels”. Finally, Google sought to distinguish itself from Apple in an attempt to demonstrate that it faces competitive constraints, pointing out that it is possible to sideload Fortnite on Android and claiming that it experiences intra-Android and home screen competition.

We will have more to say as the trial unfolds in the next edition of the Rap Sheet.