United States: The Full Federal Court Fries And Scrambles The ACCC's Case

Last Updated: November 30 2017
Article by Prudence Smith and Nicolas Taylor

Summary

On 25 September 2017, the Full Federal Court dismissed the ACCC's appeal of the primary judge's decision dismissing the ACCC's case against AECL and other participants in the egg industry (Australian Competition and Consumer Commission v Australian Egg Corporation Limited [2017] FCAFC 152). This case explores the role played by industry bodies and their conduct with their members and thresholds of what constitutes an attempt under Australia's cartel laws. 

Facts

The Australian Egg Corporation Limited ("AECL") is an industry body that monitors egg production and the demand for eggs in Australia. In 2011, the board of AECL became aware that there was an oversupply of eggs. On 19 January 2012, the AECL recorded and approved, in its board minutes, that there would be a meeting of the top 25 egg producers to encourage destocking and egg disposal. On 25 January 2012 in its fortnightly publication Eggcorp EggsPress, the AECL requested a meeting of the top 25 egg producers to meet and seek a "path forward ... in a coordinated and consolidated fashion". On 8 February 2012 at a summit with 22 people from 19 egg producers in attendance, discussions and presentations were made regarding egg oversupply.

The ACCC Case and Primary Judge's Findings

The ACCC alleged that AECL (and other participants) had attempted to induce egg producers to enter into an arrangement to cull hens or dispose of eggs to reduce the number of eggs available for supply in Australia. The primary judge drew a distinction between a situation where industry participants were brought to an appreciation that it was in their interest to act in a particular way and where industry participants were invited to agree to act in a particular way with the expectation of reciprocal conduct by others. The latter situation would be a contravention of cartel laws, whereas the former was not. This distinction was upheld by the Full Federal Court.

The primary judge considered that the 25 January 2012 publication was capable of an innocent explanation, being the simultaneous adoption of different strategies in a planned way. The reference to an independent auditor to monitor the culling of hen flocks was also considered to be capable of innocent explanation. Taking into account AECL's role as a trade association, the primary judge held that trade associations were able to examine the profitability of their members and make production and pricing decisions to maintain profitability. Additionally, the primary judge held that the ACCC failed to establish that AECL and the managing director of AECL had the intention to induce egg producers to enter into an agreement or understanding.

Full Federal Court

On appeal by the ACCC, the Full Federal Court observed that an industry body could perform an educative or information-providing role to its members without contravening cartel laws. This included an industry body providing information to its members and making suggestions that its members examine present practices and consider changing them.

The Full Court further held:

  • The primary judge did not err in dealing with the case on the basis that mutuality or reciprocity of obligations to the arrangement or understanding was necessary;
  • The fact that egg producers voluntarily and independently reduced hen numbers did not mean there was contravening conduct. This was not a voluntary arrangement that had the purpose of restricting or limiting the supply of eggs;
  • The summit was a call to action with information being provided in support of the call; and
  • The primary judge was correct in his approach of carefully weighing the issues and deciding that there was no intention to prove there was an attempt.

Note: Whilst the conduct may not have been caught under the cartel laws, the new concerted practice provisions will form part of the new competitive bill, discussed earlier, they have caught the conduct of the industry association. 

William Maher and Matthew Whitaker, associates in our Sydney Office, and Jay Tseng, an associate in our Hong Kong Office, assisted with the preparation of this Update.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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