The Federal Court has this week made orders that Colgate-Palmolive Pty Ltd (Colgate) pay total penalties of $18 million for breach of the cartel provisions of the Trade Practice Act 1974 (now known as the Competition and Consumer Act 2010) (the Competition Act).
The original allegations made against Colgate by the ACCC arose out of an industry-wide switch from standard domestic laundry detergents to ultra-concentrated products, across popular brands such as Cold Power, Radiant and Omo.
The Court’s penalties are a timely reminder for all businesses and trade associations in Australia that they need to remain vigilant about the risk that industry-wide initiatives or engagement with competitors and other market participants could constitute cartel behaviour.
This article looks at what has happened and what businesses need to know.
In December 2013, the ACCC filed proceedings against Colgate and PZ Cussons Australia Pty Ltd (Cussons), alleging that Colgate, Cussons and Unilever Australia Limited (Unilever) had entered into cartel and other anti-competitive arrangements.
The alleged cartel arrangements were based on Colgate, Cussons and Unilever:
The ACCC alleged that Mr Paul Ansell (a former sales director of Colgate) and Woolworths Limited (Woolworths) were knowingly involved in these alleged arrangements. The ACCC therefore included Woolworths and Mr Ansell in the proceedings.
The ACCC alleged that the conduct took place when information was passed between the competing suppliers. The information was allegedly passed through an industry association, through phone calls and discussions that took place directly between senior managers of the competing suppliers and through the involvement of the suppliers’ mutual customer, Woolworths.
Unilever was granted immunity under the ACCC’s Immunity Policy as it was the first member of the alleged cartel to notify the ACCC of the conduct.
At the time, the ACCC highlighted the fact that ultra-concentrated products are cheaper to produce, store and transport. This should therefore have resulted in a benefit for consumers, but the alleged arrangements prevented this benefit from being passed on. It also resulted in less consumer choice on pricing, package volumes and strength of product. The ACCC highlighted the difference with New Zealand, where consumers had benefitted from significant discounting when similar products had come on to the market.
Colgate has now admitted to entering into these arrangements, which limited the supply and controlled the price of laundry detergents. As a result, Colgate and the ACCC made a joint submission to the Court about appropriate penalties.
The penalties ordered against Colgate include $12 million for withholding supply and $6 million for the sharing of information. In addition, Colgate is required to pay $450,000 towards the ACCC’s costs and to update its Competition Act compliance training program.
The ACCC has also resolved the allegations against Mr Ansell, which has resulted in his disqualification from managing corporations for seven years.
What happens next
The ACCC’s case against Cussons and Woolworths is still pending and due to be heard in June 2016.
In the meantime, the ACCC also has an appeal pending in another case, involving the Australian Egg Corporation Limited. This case centres on alleged “attempted” cartel behaviour, aimed at reducing oversupply in the egg market and which again took place in the context of meetings of a trade association.
It is also worth noting that the Government has endorsed key recommendations relating to cartel issues arising out of the recent Competition Policy Review (also referred to as the Harper Review). As a result, the Competition Act may be amended in future:
Key points for businesses to note
This latest update is a good reminder for businesses to consider their exposure to risks in this area:
For more information, please contact:
Simon Champion | Partner
T: +61 2 8035 7926