22 November 2022
Lawn Solutions Australia Group Pty Ltd (LSA) has provided a court-enforceable undertaking to address the Australian Competition and Consumer Commission’s (ACCC) concerns the turf breeder may have engaged in a concerted practice.
LSA, which develops, licenses and markets instant turf grass products, and has contractual relationships with a large number of growers and resellers, drew the ACCC’s attention for the way it communicated the prices for turf.
It comes after LSA circulated price surveys on various occasions between November 2017 and May 2021 which identified the current prices of LSA growers and resellers in the Sydney region, as well as information about customer service and product offerings.
LSA then requested that growers and resellers set their prices in line with its recommended retail prices (RRP) and put pressure on individual growers or resellers to increase prices if they sold turf below the RRP.
The ACCC was also concerned about direct and indirect communications LSA had with a rival turf breeder about the prices of the competitor’s turf.
Section 45 of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition. Of particular relevance here is section 45(1)(c) of the CCA, which prohibits concerted practices.
The CCA does not define what a concerted practice is. However, in its Guidelines on Concerted Practice, the ACCC indicates that a concerted practice may be thought of as any form of cooperation between two or more firms (or people) or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition.
In LSA’s case, its most successful product is Sir Walter turf. Since their exclusive licence ended in 2018, LSA had contractual relationships with businesses which grow and sell the variety and with unrelated business which sell the turf grown by LSA growers.
These growers and resellers are part of the same network, in that LSA communicates with them to ensure adherence to prescribed quality standards, marketing, facilitating sales and operating their businesses. However, they compete with each other in relation to the retail sale of turf in geographic markets in Australia.
Here, the ACCC was concerned LSA had/or attempted to engage with one or more persons in a concerted practice, including persons who supply turf in the greater Sydney region of NSW, in circumstances where LSA’s exchange of price information to its growers and resellers had the capacity, and from the ACCC’s perspective appeared to have been intended, to suppress or hinder price competition, by facilitating cooperation between competitors.
Following an ACCC investigation, LSA acknowledged that its conduct had the capacity to suppress or hinder price competition under section 45(1)(c) of the CCA.
To address the ACCC’s concerns, LSA provided the ACCC with a section 87B undertaking that it would cease:
LSA has further undertaken to provide regular practical compliance training on competition law in Part IV of the CCA to its staff and LSA growers for a period of 3 years.
The concerted practice provision is a relatively recent addition to the CCA and so far, the ACCC hasn’t initiated any court proceedings under the section.
In fact, this enforcement action against LSA for concerted practice concerns is just the second example since its introduction, after the ACCC accepted undertakings from two Sydney roofing companies in 2019 for discussions on social media about setting minimum rates for the repair of hail-damaged homes were likely to constitute an attempt to fix prices.
Given this latest successful outcome by the ACCC, and the recent penalty increases for CCA breaches, companies should remain vigilant in minimising the risk of concerted practice contraventions, and any associated ACCC investigation or enforcement action.
In taking this action, the ACCC has clarified that where products are sold to retail customers through licensed retailers or intermediaries, businesses risk engaging in unlawful concerted practice if their conduct facilitates cooperation between those retailers or intermediaries, by replacing or reducing competitive, independent decision making.
Particular care, therefore, should be taken around the manner in which RRP is shared.
The ACCC also acknowledged that there are ways LSA could have informed growers and resellers about the RRP and provided more general education about how to run profitable business, including how to set prices at sustainable levels, without engaging in the conduct that gave rise to the concerted practice concerns.
Further, the ACCC recognised in its Guidelines on Concerted Practices that there are ways of minimising the concerted practice risks associated with sharing competitive information that have been compiled through industry surveys. These can include ensuring that survey results are:
Understanding and complying with the concerted practices provision will enable all corporations to compete fairly, and ensure businesses stay out of the weeds.
Our team can assist you in understanding the prohibitions against concerted practices and other restrictive trade practices under Part IV of the CCA and providing compliance training for your teams to ensure they are aware of these risks. In particular, we can assist in identifying and managing the risks associated with communications or cooperative behaviour that is likely to substitute, cooperation in place of the uncertainty of competition. If you have any questions, please contact us or send in your enquiry here.
Authors: Joanne Jary & Kayla Plunkett
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.