Sparks fly as Court zaps ACCC’s power cables cartel case
On 9 March 2017, the Federal Court of Australia dismissed proceedings brought by the ACCC against a number of electrical cable manufacturers and wholesalers, and their executives, for alleged cartel and exclusionary conduct in relation to the acquisition and supply of electrical cable throughout Australia.
In his judgment, Justice Beach dismissed all charges against the parties, including:
- Australia’s two largest electrical cable manufacturers, Olex Australia Pty Ltd and Prysmian Cables & Systems Pty Ltd;
- electrical cable wholesalers, Rexel Electrical Supplies Pty Ltd and Lawrence & Hanson Group Pty Ltd (Wholesalers); and
- an industry association, the Electrical Wholesalers Association of Australia (EWAA).
In zapping the ACCC’s case, the Court dismissed allegations that:
- Prysmian, Olex and the Wholesalers made and gave effect to an arrangement which had the purpose of fixing prices, preventing, restricting or limiting the supply and acquisition of electrical cable, and allocating customers;
- the various individuals and EWAA were accessories to that conduct; and
- Rexel and Prysmian engaged in bid rigging conduct in response to a request for proposals from Caltex for the supply of electrical cable for its Kurnell Refinery in Botany Bay, New South Wales.
It is not clear whether, after re-charging its proverbial batteries, the ACCC will appeal the Federal Court decision. However ACCC Chairman, Rod Sims, has stated that “the ACCC is carefully considering this judgment”.
The “charge” sheet – primary case
The ACCC commenced proceedings in December 2014 alleging that, during 2011, Olex, Prysmian and the Wholesalers entered into and gave effect to an arrangement that included provisions which had the purpose of:
- preventing, restricting, or limiting the supply of electrical cable by Olex and Prysmian directly to contractors and other end-customers;
- allocating electrical contractors and other customers to the Wholesalers;
- preventing, restricting, or limiting the acquisition of electrical cable by the Wholesalers from suppliers other than Olex and Prysmian, and
- fixing, controlling, or maintaining the price of cutting services provided by Olex and Prysmian.
The ACCC contended that the conduct primarily took place at, and was facilitated by, industry association meetings of EWAA. In particular, it was alleged that during certain EWAA meetings, the respondents proposed to restructure the cable industry so that suppliers of electrical cable (i.e. Prysmian and Olex) would reduce direct supply to contractors and end-users and instead sell directly to the Wholesalers. In effect, this would curtail Prysmian and Olex’s sales to anyone other than the Wholesalers, and the members of EWAA (including the Wholesalers) would support Prysmian and Olex.
The ACCC suggested that this industry restructure was sparked by surging competition from importers of electrical cables which had resulted in Prysmian and Olex’s share of supply to wholesalers decreasing significantly.
Inherent challenges in relying on circumstantial evidence – the civil standard of proof applies regardless
The ACCC’s case was principally based on what it alleged was said and agreed by various representatives of the respondents at one of the EWAA meetings in June 2011, and the case was largely grounded in circumstantial evidence in the form of “voluminous documentary material tendered” and oral testimony provided by witnesses.
In finding for the respondents, the Court found that there “were a number of insurmountable difficulties for the ACCC” to prove its case, including evidence provided by persons present at the June 2011 EWAA meeting, and the finalised minutes of that meeting (read further below), not supporting the ACCC’s allegations. Justice Beach noted that the respondents had “with some justification, contended that many of the documents [tendered by the ACCC] could not connect the various respondents with each other in such a way as to give rise to the contraventions alleged”.
In addition, His Honour stated that “all witnesses called at trial gave evidence which was largely adverse to the ACCC’s case” and this included both the ACCC’s witnesses (including one witness who had been granted immunity) as well as those called by the respondents.
Although the Court had some sympathy for the challenges associated with relying on circumstantial evidence (which is not unexpected in these types of investigations), Justice Beach stated that to “recognise such realities does not relieve the ACCC of discharging its onus, particularly in relation to meeting the standard of proof required to be met in the present context given the seriousness of the allegations made”.
In considering all of the evidence, and the probative value of its combined weight, the Court ultimately concluded that the “ACCC’s case did not withstand analysis”.
Interestingly, certain respondents (including Olex) initially considered seeking to substantiate a “no case submission” after the close of the ACCC’s case. However, they ultimately pulled the plug on that course of action.
No arrangement or understanding – parallel conduct is not compelling evidence of collusion
Part of the ACCC’s case theory was that during the meeting in June 2011, Olex stated that it was proposing to increase its fees for certain services and that Prysmian was a party to that arrangement or understanding. However, Olex adduced evidence that indicated Olex had no expectation about what Prysmian might do in relation to the proposed fee increase, and indeed suspected that Prysmian may have seen an opportunity to undercut Olex.
Although Prysmian did effectively “follow” Olex by increasing its fees, Justice Beach dismissed the allegation that Prysmian was a party to any arrangement or understanding and stated that “parallel conduct is not compelling evidence of collusion”. This is supported by the fact that other cable suppliers, Advance and General Cable, also followed Olex’s fee increase, but it was not alleged that they were parties to any collusion.
In dismissing the ACCC’s case, the Court found that neither Prysmian nor Olex were a party to any arrangement or understanding and, given they were not parties to any arrangement or understanding, it followed that the Wholesalers were also not parties to any arrangements.
Some further points of interest to note about the case:
- the ACCC did not plead that there was a separate arrangement or understanding between the Wholesalers only (i.e. separate from Olex and Prysmian);
- the ACCC’s case required that all of the Wholesalers were parties to the arrangement or understanding (i.e. it was not contended that “one or more” of the Wholesalers engaged in the alleged conduct); and
- the ACCC did not plead an attempt to engage in cartel conduct.
Alterations to draft minutes of the meeting – “consciousness of guilt” theory
The ACCC contended that alterations made by the respondents to minutes of the June 2011 EWAA meeting “demonstrated some consciousness of guilt”. His Honour acknowledged that the “consciousness of guilt” theory had “superficial allure”, but found that it was ultimately not sustainable and the allegations were not made out.
By way of background, in August 2011, the ACCC wrote to Olex and Prysmian requesting a range of information concerning the increased fees implemented by both parties. The ACCC contended that amendments to later versions of June 2011 meeting minutes (some of which occurred after the ACCC issued letters to Olex and Prysmian), including the signed version, were attempts to sanitise the initial draft minutes circulated due to concerns of possible price fixing arrangements between Olex and Prysmian.
However, the fact that the final signed minutes stated that Prysmian and Olex were present at the June 2011 meeting, and no amendments were made to “sanitise” the presence of two competitors, was sufficiently persuasive for his Honour to dismiss the allegations. The Court also found that there were certain contextual reasons that explained why the minutes were amended.
This decision serves as an important reminder that companies should take care to ensure that they keep accurate written records of any meetings, especially when competitors are present. Although preparation and approval of minutes in “final form” can be perceived as burdensome, meeting minutes provide a contemporaneous record of matters discussed by participants and are an important tool to defend any organisational actions (or inaction).
Separate bid rigging allegation – also zapped
Separately, the ACCC alleged that Prysmian and Rexel had engaged in bid rigging in response to a request for proposal issued by Caltex Refineries (NSW) Pty Ltd in relation to the supply of electrical cables at its Kurnell Refinery in Botany Bay, New South Wales.
The ACCC alleged that before submitting bids, Prysmian and Rexel reached an arrangement or understanding that had the purpose of ensuring that Rexel’s bid was more likely to succeed than Prysmian’s bid and that, by making and giving effect to that arrangement or understanding, they had contravened Australia’s competition laws.
Although the Court dismissed this allegation, this is not the first time Prysmian has found itself in the crosshairs of the ACCC for bid rigging allegations. As we previously reported in 2016, the Federal Court found that Prysmian’s foreign parent had engaged in cartel conduct in relation to the supply of high voltage land and submarine cables in Australia.