- Australian Antitrust Enforcer Pursues Alleged Egg Cartel
- May 10, 2016 | Authors: Prudence Smith; Nick Taylor
- Law Firm: Jones Day - Sydney, New South Wales Office
The Australian Competition and Consumer Commission (the ACCC) has announced it will appeal the Federal Court's decision dismissing the ACCC's proceedings against the Australian Egg Corporation Limited (AECL), a trade association for egg producers, and four other corporate and individual respondents.
Last month the court found that the Respondents, including the Managing Director of AECL, a director of AECL and Twelve Oaks Poultry and the Managing Director of Farm Pride Foods, did not engage in cartel conduct despite admissions of one of the directors to the allegations in an agreement with the ACCC prior to the trial.
The ACCC instituted proceedings in May 2014 alleging that the AECL and five other corporate and individual Respondents attempted to induce egg producers to cull hens or otherwise dispose of eggs to reduce the number of eggs available for supply to customers and businesses in Australia, increasing egg prices.
The ACCC alleged that the Respondents took action to address concerns about egg oversupply by calling a meeting of AECL members, attempting to reach an agreement to limit production or supply of eggs, which would be unlawful under the Competition and Consumer Act 2010 (Cth) (the Act). The ACCC's case included the following circumstantial evidence:
- AECL member publications in which the AECL board encouraged members to reduce egg production, to avoid oversupply that would affect egg prices.
- An "Egg Oversupply Crisis Meeting" held by the AECL and attended by egg producers, where the AECL allegedly sought a coordinated approach by egg producers to reducing the supply of eggs.
- A series of AECL Board meetings, attended by the individual Respondents, in which the oversupply of eggs and its effect on prices were discussed.
In considering the evidence, the court found that, although the Managing Director of AECL urged the members to make "a path forward in a coordinated and consolidated fashion," this did not have the requisite ill-intent required by the law. Instead, the court found that his intentions were innocent and he was referring to the adoption of different strategies intended only to reduce the production of eggs.
The ACCC's case was strongest against the AECL and its managing director; however, the Court was not satisfied they took action with the intention of inducing members to reach an agreement involving reciprocal obligations by competing producers. The claims against the other Respondents were also dismissed, as the ACCC was not able to establish particular conduct that would constitute an attempt, except for the claim against one other individual which will be listed for further hearing.
In its announcement, the ACCC reaffirmed its focus on cartel enforcement and noted the risks associated with trade association membership, as certain interactions between members and associations may constitute attempted cartel conduct. This serves as a strong warning to trade associations and their members. Trade associations are recognized to provide numerous benefits to industries, but present antitrust risk if a forum for conduct that may be perceived as collusive.
The ACCC can pursue individuals and not just corporations under the Australian cartel provisions. There are serious ramifications for individuals found guilty of cartel conduct such as criminal penalties of up to 10 years in jail and/or fines of up to $360,000, or a civil pecuniary penalty of up to $500,000. It is also illegal for a person to be indemnified by a corporation against legal costs and any financial penalty under the Act.
The Australia egg litigation follows a string of recent cases in which the ACCC has prosecuted individuals for cartel conduct. Fines were imposed on individuals involved in corrugated fiber packaging cartel (totaling $2 million in 2007). Federal Court penalties levied against two key individuals ($80,000) in the construction industry in 2011 for cover pricing (where a contractor, who wants to bid but has no intention to win, asks another contractor to ensure that its tender is higher, removing competition between the two contractors). In late 2014, the ACCC also commenced action against six company executives in the electrical cable industry for alleged cartel and exclusionary conduct by limiting the supply of electrical cable to contractors and restricting wholesalers from buying cable from other suppliers.
The ACCC has again publicly identified cartel conduct as a priority in 2016, indicating that only full compliance with the Act will be a guarantee to staying out of the court. Corporations or individuals concerned that their involvement in trade associations or other meetings with competitors may involve cartel conduct should seek legal advice. Any suspected involvement in cartel conduct should be reported to the ACCC without delay as the party that is the first to report the misconduct may be able to secure immunity from actions by the authorities.