ACCC beaten by egg producers in the Full Court

Published On 28/09/2017 | By Rob Hirst | Cartels, Enforcement, Litigation

On 25 September 2017, the Full Court of the Federal Court dismissed the ACCC’s appeal against the Federal Court’s earlier dismissal of the ACCC’s case against the Australian Egg Corporation Limited (AECL) and others for “attempts to induce” cartel conduct.

At first instance

The ACCC alleged that AECL had attempted to induce egg producers to enter into an arrangement or understanding to reduce the supply of eggs by culling hens or disposing of eggs in breach of the cartel conduct provisions. AECL is an industry body that provides information, marketing and representation to its members.

Mr Zelko Lendich – one of the respondents and a former director of AECL – had admitted to attempting to induce cartel conduct and had been ordered to pay a pecuniary penalty of $120,000.

The ACCC’s case against AECL and the other respondents was dismissed at first instance. White J held that while AECL had attempted to induce egg producers to limit the supply of eggs, it had not attempted to induce the egg producers to enter into an agreement or understanding involving reciprocal obligations.

By pleading an ‘attempt’ to induce cartel conduct, the ACCC was required to establish that AECL intended to bring about an arrangement or understanding between competing egg producers to limit supply. It was not enough to establish that AECL intended for egg producers to limit supply in an independent and voluntary manner based on their individual circumstances. White J held that industry bodies such as AECL could legitimately encourage members to make production and pricing decisions to maintain profitability so long as they do not suggest cooperative action.

On appeal

According to ACCC Chairman Rod Sims, the ACCC appealed to seek clarity around the requirements for proving attempts to induce cartel conduct. In particular, whether it was necessary to demonstrate that the proposed agreement or understanding involved reciprocal obligations to limit supply.

In dismissing the appeal, the Full Court held that it was necessary to show reciprocal obligations in this case (because of the way in which the ACCC ran the matter), but has left open the possibility that a unilateral obligation could be sufficient in some circumstances.

The Full Court also conceded that the issue of whether to draw an inference to support the requisite intention had been very finely balanced, but declined to disturb White J’s findings.

A gap in the cartel regime?

While the ACCC will carefully review the Full Court’s judgment (leaving open the possibility that it may seek special leave to appeal to the High Court), Rod Sims has said that this case highlights the need for the concerted practices prohibition in the Competition Policy Reform Bill to be introduced.

This new provision will prohibit ‘concerted practices’ which have the purpose, effect or likely effect of substantially lessening competition. Concerted practices is intended to catch conduct that falls short of a contract, arrangement or understanding as it does not require the formality of a contract, the express communication of an arrangement, or the commitment of an understanding.

Sim’s statement suggests that the ACCC thinks that AECL’s conduct would have been caught by the concerted practices prohibition. However, even if the conduct in the Egg case involved a concerted practice, the ACCC would have faced the additional hurdle of proving that the conduct had the purpose, effect or likely effect of substantially lessening competition. This SLC test is a relatively high bar and, in the absence of a clear purpose, would require expert evidence to be presented on the structure and dimensions of the egg market in Australia and the likely effect of AECL’s proposals to reduce supply.

We will continue to monitor the Bill’s progress. It was passed by the House of Representatives on 5 September 2017 and is scheduled for consideration by the Senate when it next sits in mid-October.

Picture: Courtesy Flickr / Stacy Spensley (image resized and changed to greyscale)

About The Author

is a solicitor in the competition team in the Sydney office of King & Wood Mallesons.

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