The Australian Egg Corporation (AECL), and Australian egg production, is the latest industry to come under scrutiny by the Australian Competition and Consumer Commission (ACCC) for alleged cartel conduct. Cartel conduct occurs when businesses agree to act together rather than competing against each other, with negative outcomes for the market. The ACCC alleges that the AECL attempted to induce egg producers to enter into arrangements to reduce the supply of eggs available to meet consumer demand in order to inflate prices.
In today’s tough economic climate, and in the face of falling profit margins, it is unsurprising that Australian producers are communicating between themselves as to how to survive in an ever more difficult industry. So when does this conduct go from participants in an industry legitimately supporting each other, to anti-competitive behaviour?
The cartel provisions in the Competition and Consumer Act are quite broad, and you may be unwittingly participating in conduct that is closer to the line than you think. Breach of cartel provisions are not only a civil offence, but also amounts to criminal conduct – and that can mean jail time.
What types of conduct do the cartel provisions cover?
Cartel provisions are aimed at preventing anti-competitive conduct within businesses. Australian businesses are expected to compete fairly with each other, and failure to do so may result in cartel conduct. There are four key types of cartel conduct:
- Price fixing - where businesses agree on a pricing structure rather than letting prices be dictated by the market
- Sharing markets - where businesses agree to divide portions of the markets between themselves
- Rigging bids - where suppliers agree between themselves who will win a bid and at what price
- Controlling supply to the market - which has the result of artificially influencing the price paid for goods on the market.
The allegations against the AECL fall within the fourth category. Similarly, in 2002 the Tasmanian Atlantic Salmon industry fell foul of the cartel provisions. Following a period of oversupply and financial difficulty in the industry, the Tasmanian Atlantic Salmon Growers Association decided that if members were to cull their stocks to reduce supply, further price falls would be avoided. The industry obtained legal advice, but failed to properly brief their lawyers. This meant that the advice that the action wouldn’t breach competition laws was incorrect. The ACCC investigated and the culls were stopped. Because the industry showed cooperation with the ACCC and had sought legal advice, penalties were not pursued by the ACCC. However, the industry had to establish a lengthy and expensive trade practice compliance training program as a result of its conduct.
Another example of cartel conduct occurred between 2000 and 2004 when Visy and Amcor worked together to raise the prices of their products and agreed to maintain their respective market shares. The cartel conduct was very deliberate. A person from each company was appointed to coordinate with the other, meeting in secretive places and using methods of communication such as prepaid phones. The ACCC found out about the conduct when Amcor reported it to the ACCC. As a result, Amcor was granted immunity from prosecution. Visy was prosecuted and fined $36million by the Federal Court. Individuals also received fines totalling $2million.
When investigating suspected cartel conduct, the ACCC has the power to:
- compel any person or company to give information (including documents) about a suspected breach of the law
- obtain search warrants for company offices and the premises of company officers
- notify the Australian Federal Police who may be able to pursue the matter using phone taps and other surveillance methods.
Penalties for breach of cartel provisions are severe. An individual can face up to 10 years in jail, and fines of up to $340,000 per criminal offence, and a penalty of up to $500,000 per civil contravention. Corporations face fines of up to $10,000,000 per contravention.
Cartel conduct is a serious matter, and you don’t want to end up with egg on your face by falling on the wrong side of the law.
How to avoid potential anti-competitive behaviour
Avoiding cartel conduct may seem obvious, but the provisions are broader than you may think.
As outlined above, cartel conduct occurs where businesses agree to act together rather than acting competitively. However, it is important to realise that the law extends to ‘arrangements’ and ‘understandings’ as well as written contracts and agreements. This means that you don’t have to agree to something in writing to be engaging in cartel conduct. A verbal understanding with a competitor, or even an unspoken agreement as to how much produce you plan to send to market, or a handshake deal that sets out who you and your neighbour will sell your produce to could be sufficient to constitute cartel conduct, and may land you in hot water.
Also, there is no need for the arrangements or agreements to be successful. If you attempt to enter such arrangements, that can be enough for the ACCC to investigate you, as in the case of the egg cartel. The ACCC has not alleged that the egg cartel was successful, but that has not prevented them from bringing the charges against the AECL.
Finally, as is evident from the Tasmanian Atlantic salmon case and the Amcor and Visy case, a party’s cooperation with the ACCC can have an impact on the level of penalties imposed. This also extends to self reporting – if a party involved in cartel conduct brings it to the attention of the ACCC, this may result in them receiving reduced penalties.
It is important to be aware of what constitutes cartel conduct, and alert to situations that may place you on the wrong side of the law as you conduct your business, particularly in trying market conditions.
Author: Kylie Hall and Nicola Hope
Alistair Salmon, Partner
T +61 2 8083 0467
Ron Eames, Partner
T: +61 7 3135 0629
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed above.