Australia: Cartel conduct – is your industry association sailing too close to the wind?

Last Updated: 25 May 2017
Article by Nathan Cecil and Stephanie Triefus
Most Read Contributor in Australia, May 2017

The line between permissible cooperation between industry participants and cartel conduct can be a fine one. Trade associations may sometimes provide a forum for competitors to discuss matters or co-ordinate their behaviour in relation to issues of common interest. There is always a risk that such forums and discussions could easily go too far and result in prohibited anti-competitive conduct.

The Australian Competition and Consumer Commission (ACCC) is no stranger to investigating the conduct of industry bodies for potential cartel conduct and has said "the ACCC will act if it suspects an industry association or any other forum is being used as an apparatus for collusion." 1

The ACCC has recently brought cartel conduct prosecutions arising from the activities of three such trade associations. In this article we look at where you need to draw the line and how to manage your involvement in trade associations to avoid being prosecuted for cartel or related conduct.

The penalties for cartel conduct are severe for both companies and individuals and can include criminal prosecution. We have developed the following pointers to help you, your industry association and its members stay out of the ACCC's firing line.

Do not join a trade association which has an anti-competitive object

Always consider whether there is a justifiable commercial reason to participate in a trade association's activities or meetings. Only participate in a meeting if a clear agenda has been set down in advance and the items do not encourage anti-competitive discussion or conduct (see below). Meetings should be prefaced with a competition law compliance statement and disclaimer/warning in relation to anti-competitive conduct, which is recorded in the minutes.

If establishing or chairing an association, take a responsible and proactive approach to compliance

A leader of an infringing association is likely to be sanctioned more heavily than its other members. If you are establishing or chairing an association, ensure that the association has and complies with a code of conduct which sets out expectations for compliance with competition law and procedures for dealing with non-compliance. Take active steps in dealing with any anti-competitive conduct of which you become aware and keep records of your response and remedy action.

Never participate in anti-competitive conduct

Even if your association is exempted from some cartel conduct prohibitions by virtue of, for example, the liner conference provisions of Part X of the Competition and Consumer Act 2010 (Cth) (CCA), you should remain vigilant to ensure that the rules of the exemption are strictly adhered to.

Unless your association has been granted an exemption, never participate in the following activities:

  • Price fixing (for example, agreeing on surcharges, fares, rates or other elements of pricing)
  • Market or customer sharing (for example, allocating routes, segments or customers between companies)
  • Systematic and regular exchange of competitively sensitive information with no justifiable purpose other than co-ordinating commercial practices with competitors
  • Limiting production or capacity fixing with other competing companies
  • Bid rigging
  • Collective boycotting or other co-ordinated measures intended to eliminate competitors; or
  • Standard setting (for example, standard terms and conditions must not establish uniform price tariffs).

If it becomes clear that the association is being used for the above activities, it may best to withdraw membership of the association and keep a record of the withdrawal and reasons.

It can be difficult to distinguish between acceptable industry association activities and anti-competitive conduct. For example, as seen in the below cases, industry associations often gather to discuss developments in the industry, such as changes to supply and demand. Although it can be challenging for the ACCC to prove cartel conduct, it does not pay to pique their interest by engaging in discussions which skirt the edge of anti-competitive conduct. For example, discussions where it is noted that "something must be done" about over-supply of the market, and members are told to go away and independently consider actions such as reducing inventory. Even if these decisions are taken independently, they may appear to be concerted cartel conduct.

Do not discuss competitively sensitive matters

If competitively sensitive matters are raised in a conversation, whether during the meeting or informally:

  • Immediately put an end to the conversation
  • If the conversation persists, leave the meeting and ensure your objection and departure are recorded in the minutes
  • Keep an internal record of the incident.

Commercially sensitive information is information:

  • Which a company would not, in the ordinary course of business, wish to be public knowledge as competitors may adapt their competitive behaviour
  • Which may contribute to another party changing a commercial decision or strategy
  • Of which a current or potential customer or supplier may object to the release.

Examples of association conduct leading to prosecution

ACCC v Olex Australia Pty Ltd [2017] FCA 222

In 2011, representatives of Olex and Prysmian Power Cables & Systems Australia Pty Ltd (Prysmian) attended a meeting of the directors of the EWAA where the attendees discussed a possible restructure of the cable industry to address increasing competition from imported cable. A series of detailed proposals were developed for how such a restructure might be achieved. The ACCC alleged that Olex, Prymsian and the wholesalers made or arrived at an understanding to the effect that fees would be increased without objection from the wholesalers and the wholesalers would maintain or increase volumes of cable acquired from Olex and Prysmian. The allegations were derived from minutes of various meetings of the association where these issues were discussed and no objections recorded, as well as circumstantial evidence pointing towards concerted fee increases. Olex and the other defendants argued that there was no understanding or arrangement and the conduct was independent.

The ACCC's case ultimately failed due to lack of clear evidence as to what was said by whom. However, the litigation process has been long and undoubtedly costly for the members of the EWAA.

ACCC v Australian Egg Corporation Limited (AECL) [2016] FCA 69

In order to address a situation where supply of eggs was likely to exceed demand, the AECL called an urgent industry meeting "to seek a 'path forward' for the egg industry in a coordinated fashion to ensure its profitable sustainability" because "action is needed by all egg producers to control the oversupply and surplus". At the meeting, solutions such as hen culling, increasing demand and reducing inventory were discussed. The ACCC alleged that the AECL had attempted to induce competing egg producers to enter into an understanding that had the purpose of limiting the production or supply of eggs, which many of them did following the meeting.

There was insufficient evidence for the Court to hold that the conduct was cartel conduct which involved reciprocal understanding and obligation between the companies to reduce production and the claim was dismissed. The ACCC appealed the decision and judgment has yet to be handed down.

ACCC v Tasmanian Salmon Growers Association (TSGA) [2003] FCA 788

The TSGA sought undertakings from its members that they would cull salmon stocks in order to reduce supply. Legal advice had been sought, but the TSGA did not properly brief their lawyers, who advised on the basis that the TSGA would only recommend that the members cull, not seek their agreement to cull. Due to cooperation with the ACCC, no penalty was sought. But the TSGA members were required to contribute to the ACCC's costs and establish a trade practices compliance program.

History may repeat itself

With the expected repeal of the cartel exemption for liner shipping conferences under Part X of the CCA and with recent media reports of collective road transport industry response to the increase in certain road tolls, it is clear that ongoing care and caution in relation to cartel compliance needs to be taken in many industry sector trade associations. There is no suggestion that those associations have or will contravene the law, but it is clear that:

  • If Part X is repealed, shipping lines will need to adapt quickly and unlearn the freedom with which they have been able to discuss pricing to date
  • Costs, levies and imposts on industry and their impact on service terms and pricing are hot issues within the transport and logistics sector and discussion of such issues runs the risk of sailing very close to the wind from a compliance perspective.

Even where the conduct of a trade association and its members is ultimately cleared, the time and substantial costs involved in defending such actions suggest that a better approach would be to ensure that any potential cartel discussions are given a very wide berth or legal clearance is obtained before they occur.

How we can help

Our industry specialists are experienced in advising both industry associations and their members on competition law compliance issues as well as dealing with ACCC investigations when they arise. If you are unsure whether collective discussion on certain matters is sailing too close to the wind, it is best to seek legal advice about what is or isn't likely to be cartel conduct in your specific circumstances.

Footnote

1 https://www.accc.gov.au/media-release/accc-takes-action-against-electrical-cable-suppliers-for-alleged-cartel

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.

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Authors
Nathan Cecil
Stephanie Triefus
 
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