Australia: ACCC gears up for Mount Penny cartel case

Clayton Utz Insights
Last Updated: 2 July 2015
Article by Mihkel Wilding and Douglas Thompson

Most Read Contributor in Australia, August 2016

Key Points:

ACCC opts to pursue a civil case in relation to alleged domestic bid rigging conduct involving the Obeid brothers.

Stopping cartel conduct is a key ACCC enforcement priority, and part of that is the public interest in ensuring that government or public tender processes are not undermined by bid rigging or other cartel conduct.

The ACCC's latest enforcement action is court proceedings in the Federal Court against 11 respondents, including Moses and Paul Obeid for alleged bid rigging conduct in relation to the Mt Penny coal exploration licence which was the subject of proceedings before the New South Wales Independent Commission against Corruption (ICAC) in 2013.

The ACCC has pleaded the case against the Obeids under the accessorial liability provisions of the CCA. This requires the ACCC to prove that the Obeids were knowingly concerned in the cartel conduct. Given the complex maze of companies in which the Obeids are alleged to have held an interest at the relevant time, this is unlikely to be an easy task and the case may yield some useful insights into how the courts will apply the law of accessorial liability in these circumstances.

What prompted the cartel investigation into the Obeids?

Investigations by the ICAC into Eddie Obeid have probed various transactions, including the grant of various government licences.

Last year Moses and Paul Obeid attempted to set aside a compulsory notice requiring them to be interviewed by the ACCC in relation to its investigation of potential breaches of the Competition and Consumer Act 2010 (Cth) into the Mount Penny bidding process. Earlier this year the Federal Court confirmed that the notice was valid. The ACCC's case against the Obeids and others comes off the back of those investigations.

ACCC allegations: a rigged tender process

Cartel laws can apply to bids for government licences issued under statute where the bidding process is run on a commercial basis. This includes an arrangement between competitors about a tender after an initial bid has been submitted, as well as where a competitor bids (or doesn't bid) because of some illegal arrangement.

The ACCC alleges that the Obeids and others rigged the tender process for exploration licences in respect of the Mount Penny and Glendon Brook coal tenements in the Bylong Valley, so that the process was not competitive and they would win the tender.

Specifically, the ACCC alleges that in June 2009 Cascade Coal Pty Ltd entered into an arrangement with Loyal Coal Pty Ltd that provided that Loyal would withdraw from the tender process after it had submitted its bid and that Cascade would then grant Buffalo Resources Pty Ltd, an affiliate of Loyal, a 25 per cent interest in its mining venture in respect of Mount Penny coal release area. The ACCC also alleges that Cascade agreed to purchase various properties that were owned by the Obeids and others at four times the land value, as well as taking over the landowners' mortgage obligations.

The first directions hearing took place on 18 June 2015 and involved an application by the Obeids to suppress certain information from the Statement of Claim. That application was declined by Justice Foster on 19 June 2015, who ruled that the application was not necessary to protect the safety of any person or necessary to prevent prejudice to the proper administration of justice.

Civil vs criminal charges for cartel conduct

Since July 2009 the DPP has been able to pursue criminal sanctions for hard core cartel conduct with sanctions including jail of up to 10 years, criminal fines of up to $340,000 per contravention and director disqualification.

The DPP has not yet pursued use of these powers. While the ACCC did consult the DPP about the suitability of the case as a criminal case, because the key cartel conduct in the case took place before criminal sanctions were introduced, a civil case was determined to be more appropriate.1 Despite ICAC's recent findings against the Obeids and others, the complexity of the facts is another factor that would have likely played into this decision.

Commentators have speculated that the first case to seek criminal sanctions will be one where the relevant hard core cartel conduct has clear effects on Australian consumers or markets, regardless of whether the conduct is entirely domestic or has some cross-border element. From a reputational and deterrence perspective, it is important for the DPP (and ACCC) that the first criminal case it prosecutes is successful so that clear message is sent to corporates and individuals that the jail in addition to fines may apply for cartel conduct.

The hearing is scheduled to start before Justice Foster in early April 2016. Given their position at ICAC, the failed attempt to set aside a compulsory notice and the failed application for suppression orders, we expect the Obeids to resolutely defend the allegations against them. Given the number of defendant parties, it will be interesting to see how this plays out.

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Footnote

1Leo Shanahan & Mark Coultan, "ACCC targets Obeid sons over mining licence 'bid-rigging'", The Australian , 26 May 2015 (subscriber-only)

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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