By Simon Champion, Partner, Warwick Painter, Partner and Gavin Douglas, Partner
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:
- Ceasing to supply the standard strength laundry products and coordinating the switch to the ultra-concentrates to take place in early 2009;
- Transitioning only to ultra-concentrates which met certain product requirements; and
- Selling ultra-concentrates at the same “price per wash” as the standard products and not passing on the cost saving to customers.
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:
- Extending the reach of the Competition Act to include cartel conduct that takes place offshore but which relates to trade with persons who are resident in, or carry on business within, Australia; and
- Catching “concerted practices” – that is regular, deliberately undertaken and co-ordinated conduct between competitors that has the purpose, effect or likely effect of substantially lessening competition.
Key points for businesses to note
This latest update is a good reminder for businesses to consider their exposure to risks in this area:
- It is important that businesses have an effective Competition Act compliance policy and regular training program in place, supported by senior management. This will raise awareness of what constitutes unlawful cartel behaviour and help to build a compliance culture within the organisation. Having these in place may also be a relevant factor in determining the penalties to be imposed if there is a breach of the Competition Act.
- When communicating with competitors, whether directly, or indirectly through a trade association or mutual supplier or customer:
- Remember that exchanges of information that relate to commercially sensitive matters, for example, price, production volumes or future strategies could lead to the formation of a cartel;
- Any discussions or meetings should be held in line with an agenda which has been carefully prepared, if necessary with legal advice;
- The discussions should be accurately recorded in minutes. After the meeting, participants should obtain a copy and check their accuracy;
- Meetings should start with an appropriate competition law warning; and
- Managers should be briefed to avoid any discussion that could constitute cartel behaviour, both during the meeting and afterwards. If the other party raises commercially sensitive topics, the discussion should be terminated.
- Remember that the cartel provisions apply in both directions – both downstream, in dealings that may impact the supply of goods or services to customers, but also upstream, where dealings may impact on the acquisition of goods and services from suppliers.
- In some circumstances, the perceived public or consumer benefit may exceed the anti-competitive effect. In these cases, rather than continue with behaviour which may constitute cartel conduct, businesses can consider applying to the ACCC for authorisation. This may involve a public consultation process.
- In situations where a business may have entered into a cartel, one option may be to seek immunity under the ACCC’s Immunity Policy, as did Unilever in this case. In these situations, the decision to act must be considered carefully but be taken quickly, as immunity is granted to the first party to “blow the whistle”.
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