Cartel Conduct: The $50 Million Risk

While legitimate discussions between competitors are not uncommon, crossing the line into cartel conduct can have significant consequences for companies and individuals alike. Armed with a new penalty regime and an increasing trend towards criminal enforcement, the ACCC is leaving no stone unturned in its pursuit of cartelists.

Gina Cass-Gottlieb, Chair of Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), describes cartel conduct as ‘intrinsically harmful to our economy, restricting competition, choice and increasing price…1 The ACCC takes a tough stance on this enduring priority area, pursuing civil and criminal action against cartelists, regardless of the size of the business or relevant market. With a new penalty regime in place, including $50 million in penalties for companies, and up to $2.5 million and 10 years in jail for individuals, it is more important than ever to advise your clients about the risks of cartel conduct.

This article will outline the elements of cartel conduct and share examples of circumstances in which commercial lawyers should be alive to the possibility of cartel activity.

Elements

Part IV of the Competition and Consumer Act 2010 (Cth) (the Act) provides a framework for companies to lawfully engage with each other, including prohibiting collusion between competitors, otherwise known as cartel conduct.

Cartel conduct occurs when parties make a contract, arrangement or understanding containing a cartel provision,2 (Section 45AF: offence provision; section 45AJ: civil penalty provision) give effect to a cartel provision3 (Section 45AG: offence provision; section 45AK civil penalty provision.) or attempt to do the same.4 (Section 79 of the Act.)

Contract, arrangement or understanding
A contract has its normal common law meaning, whereas an arrangement or understanding can be much more informal, only requiring a “meeting of the minds” and a commitment to act by at least one party.5 (ACCC v Australian Egg Corporation Ltd [2017] FCAFC 152 [95].) This could comprise an informal arrangement with some form of express communication,6 (ACCC v Leahy Petroleum Pty Ltd [2007] FCA 794 [26].) or a tacit understanding which can arise without express communication.7 (ACCC v Australian Egg Corporation Ltd [2017] FCAFC 152 [95]).

Cartel Provision
To enliven the cartel conduct provisions of the Act, at least two of the parties to the contract arrangement or understanding must be in competition for the production, supply or acquisition of goods or services. This can include companies that are currently competing with each other, that are likely to, or that would compete but for the contract, arrangement or understanding.8 (Subsection 45AD(4)).

Further, the contract, arrangement or understanding between competitors must have:

• The purpose, effect or likely effect of fixing, controlling or maintaining prices,9 (Subsection 45AD(2)) or
• The purpose of directly or indirectly:
  • preventing, restricting or limiting the amount of goods produced or services supplied or acquired (output restriction),10 (Subsection 45AD(3)(a)) or
  • allocating customers or geographical areas to certain parties (market sharing),11 (Subsection 45AD(3)(b)) or
  • ensuring that, in the event of a request for bids, certain parties’ bids are more likely to be successful than others (bid rigging).12 (Subsection 45AD(3)(c).)

Cartel Hotspots

Transactions
Lawyers advising on transactions should consider all aspects of competition law, including cartel conduct.

In ACCC v Cryosite Ltd, Cell Care Australia Pty Ltd 13 ([2019] FCA 116) Cell Care Australia and Cryosite were competitors in the collection and storage of cord blood and tissue containing stem cells. In 2017, Cell Care sought to acquire Cryosite. In a practice known as “gun jumping”, between entering into the sale agreement and completion of the sale, the contract provided that Cryosite would direct all new customers to Cell Care. Cryosite directed 12 customers to Cell Care during this period. The ACCC was alerted to the proposed acquisition and ultimately instituted proceedings against Cryosite for cartel conduct. Cryosite admitted the sale agreement had the purpose of restricting output (i.e. Cryosite would not supply services to new customers) and market sharing (i.e all new customers were allocated to Cell Care). Cryosite had received legal advice regarding the sale but, presumably, the lawyers did not consider cartel conduct. 14 (Ibid [9]). Cryosite was ordered to pay over $1 million in penalties and the deal fell through.

Tender processes
All clients involved in tender processes, either as the acquirer or the supplier, should be aware of the cartel conduct prohibitions.

A recent example is the ACCC’s successful prosecution of Delta Building Automation.15 (Australian Competition and Consumer Commission v Delta Building Automation Pty Ltd [2023] FCA 880). The sole director of Delta organised a coffee meeting with a competitor’s general manager. During that meeting, the director offered to compensate its competitor if it agreed to refrain from submitting a quote in response to a tender. The competitor immediately rejected the offer and the meeting ended after 20 minutes. The Federal Court found Delta attempted to induce a competitor to enter into a cartel and ordered the company to pay a penalty of $1.5 million and the director to pay a penalty of $120,000.

Although the obligation to avoid bid rigging sits with suppliers, it is also important that acquirers have an understanding of indicators that bid rigging may be occurring in their tender processes.

Provide Clear Guidance

If your clients have any kind of relationship with competitors, including personal relationships, ensure you provide them with clear guidance about what can and can’t be discussed.

If you hold concerns your client may have crossed the line, consider seeking assistance from a lawyer practicing competition law. There are exceptions to cartel conduct and the ACCC offers leniency and authorisation in certain circumstances.

Madelaine Holt
Principal, Holt Advisory