Sad cracked egg

ACCC cracks down on eggsplosive cartel attempt

Published On 29/05/2014 | By Jax Arnold | Cartels, Enforcement

In egg-citing news out of the Federal Court this week, the ACCC has instituted proceedings against two egg producing companies and the industry body Australian Egg Corporation Limited (AECL) for an attempt to induce AECL members to enter into a cartel arrangement.

Significantly, the named respondents also include the managing director of AECL and two directors of AECL (each of the two directors were also either a director or a former director of one of the egg producing companies named as a respondent).  It appears that the ACCC is naming individuals as respondents more frequently, which could be to increase the deterrent effect of proceedings.

The ACCC alleges that:

  • from November 2010, AECL’s board used AECL member publications to encourage its members to reduce egg production, in order to avoid an oversupply of eggs which would affect egg prices; and
  • in February 2012, AECL held an Egg Oversupply Crisis Meeting, where it sought to create a coordinated approach to reducing the supply of eggs in response to another perceived oversupply.  The director respondents all attended and spoke at the meeting, with one chairing the meeting.

The ACCC alleges that AECL and the other respondents attempted to induce egg producers who were members of AECL to enter into an arrangement to cull hens or dispose of eggs, for the purpose of reducing the supply of eggs.  The ACCC does not allege that this attempt to make a cartel arrangement was successful or given effect to.

In addition to seeking pecuniary penalties, injunctions, the establishment of compliance programs and adverse publicity orders, the ACCC will also seek disqualification orders against the directors and a community service order against AECL.  Disqualification orders are generally reserved for the most egg-ceptional circumstances and their use indicates the ACCC’s commitment to deterring fowl play in the sector.    The ACCC’s media release notes that the Australian egg market had a gross value of $1.672 billion in 2012, with retail egg sales valued at over $566 million in the same year.

Attempts to engage in cartel conduct

The proceedings brought against AECL and the two egg producing companies illustrate the ACCC’s willingness to bring enforcement action for attempts to engage in cartel conduct, even when the attempt was not successful.  It also demonstrates the care that industry associations must take in their publications and meetings not to attempt to coordinate the conduct of competing industry members.

A key issue in the success of the proceedings will be the intention of the respondents.  An “attempt” requires there to be an intention to bring about the making of the alleged cartel arrangement or understanding.  In the 1990s, the ACCC’s predecessor instituted proceedings against an industry association, which included an allegation of an attempt to induce its members to engage in price fixing (Trade Practices Commission v Service Station Association (1993)).  In that case, the Federal Court found that the respondents had not attempted to induce retailers to engage in price fixing because the respondents did not have the intention to bring about the alleged price fixing understanding.  Rather, the Federal Court found that the intention of the respondents was a different lawful one to bring about a willingness among the members to examine their individual businesses and the retail prices charged and to increase their retail margins (even at the expense of volume).

Free range labelling claims

In another egg-citing development this week, the Federal Court also handed down an interlocutory decision in the ACCC’s ongoing proceedings against Pirovic Enterprises, for its alleged misleading and deceptive labelling of free-range eggs (see our previous post). The Court held that one of the ACCC’s key witnesses, whose place of residence is outside Australia, must give evidence in person instead of via audio-visual link.

In making its decision to refuse to accept video-link evidence of the proposed witness, the court relied on several factors:

  • the ACCC had not demonstrated that there were not other appropriately qualified experts who were available to give evidence in person;
  • the ACCC did not make inquiries about the witness’ availability when they initially approached her;
  • it is not clear whether the proposed witness would be giving evidence of facts in issue or opinion evidence;
  • the proposed witness had not produced a report (draft or otherwise) on which the court can rely to provide an indication of the scope of her evidence; and
  • the proposed witness failed to provide adequate reasons for why she could not travel to Australia

If the the expert witness is unable to travel to Australia to be egg-samined, the ACCC will no doubt be scrambling to find a replacement before the full hearing in September.

Photo credit: Image courtesy of caterha (“Agony”) licensed under CC BY 2.0. Remixed to B&W and resized.

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About The Author

is in the Competition litigation team at King & Wood Mallesons. He loves baking and writing a good blog post filled with many a pun.

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