ACCC’s electrical cartel zapped out by the Federal Court

On 9 March 2017, the Federal Court of Australia dismissed allegations brought by the Australian Competition and Consumer Commission (ACCC) against Australia’s largest cable manufacturers, Olex Australia Pty Limited (Olex) and Prysmian Power Cables & Systems Australia Pty Limited (Prysmian) (together the Manufacturers), three electrical cable wholesalers, Rexel Electrical Suppliers Pty Ltd (Rexel), Australian regional Wholesalers Pty Limited (ARW) and Lawrence & Hanson Group Pty Ltd (L&H), (together the Wholesalers) and six individual respondents for cartel conduct – a cartel that the ACCC considered so serious that it, in consultation with the CDPP, deliberated prosecuting as a criminal action initially.

The Federal Court also dismissed separate allegations that Rexel and Prysmian engaged in bid rigging in relation to the supply of electrical cable for an upgrade of the Kurnell Refinery in Botany Bay, NSW.

What you need to know

• It is an intensively fact rich enquiry as to whether there is an understanding between competitors and clear evidence of an understanding will be required before a contravention can be made out.
• Whilst parallel conduct is not itself compelling evidence of collusion, the new proposed concerted practices prohibition may however catch certain forms of parallel conduct that fall short of an “understanding”. As the proposed prohibition is imminent, businesses will need to undertake the relevant training to understand the effect of this new law.
• Companies should obtain legal advice to ensure any parallel conduct is legitimate market matching conduct and not a concerted practice.

The primary allegations

The ACCC alleged that at a meeting of the Electrical Wholesalers Association of Australia (EWAA) on 23 June 2011 where the Wholesalers invited the Manufacturers to attend to discuss potential restructuring of the cable industry, the Wholesalers and Manufacturers together came to an alleged arrangement or understanding which had the purpose of:

1. preventing, restricting, or limiting the supply of electrical cable by Olex and Prysmian directly to contractors and other end-customers;
2. allocating electrical contractors and other customers to the Wholesalers;
3. preventing, restricting, or limiting the acquisition of electrical cable by the Wholesalers from suppliers other than Olex and Prysmian, and
4. fixing, controlling, or maintaining the price of cutting services provided by Olex and Prysmian.

The facts

The foundation of the ACCC’s principal case concerned an alleged “agreement” where the Manufacturers would increase their fee for cutting services and introduce a minimum order value for the supply of low voltage cable in Australia and the Wholesalers would either not reduce of their purchases of cable from the Manufacturers or, as later argued by the ACCC, not object to these changes.

This agreement was allegedly made during a 23 June 2011 industry association meeting of the EWAA. The alleged purpose of the “agreement” was for the Manufacturers to restrict or limit its supply to contractors and end-users and channel majority of its supply of low voltage cable through the Wholesalers – the effect of which was to manipulate the supply of low voltage cables to contractors and end-users to the Wholesalers.

The ACCC’s case was based mostly on circumstantial evidence derived from a “plethora of documents” sourced from different entities and authors tendered before the Court.

The decision

The Court found that the ACCC, despite given leave by the Court to amend its pleadings several times, failed to discharge its onus in proving that all respondents, as pleaded, were party to the alleged agreement as:

1. there was very little, if any, probative evidence that Prysmian was a party to the relevant arrangement or understanding that both Prysmian and Olex would increase the price of their respective cutting services -  whilst Prysmian did “follow” Olex in increasing its cutting fees, Justice Beach stated that “parallel conduct is not compelling evidence of collusion”;
2. the ACCC failed to prove that Olex was party to any agreement or understanding as the evidence before the Court showed that Olex had in substance unilaterally determined prior to the 23 June 2011 meeting to increase its cutting fee and introduce a minimum order value;
3. the ACCC did not plead an agreement between Wholesalers only and as the Court found that neither Olex or Prysmian were party to any agreement or understanding, the ACCC’s case as pleaded failed;
4. further there was not sufficient evidence to find that Rexel was party to the relevant arrangement or understanding to manipulate the supply of cable in Australia. As the ACCC’s allegations that the arrangement or understanding was made involving all of the Wholesalers, its allegations that the Wholesalers were parties to any arrangement or understanding failed;
5. the evidence given by the individuals in attendance and the minutes of the meeting did not support the ACCC’s interpretation of events.

Bid rigging

The ACCC also failed in proving separate allegations that Prysmian and Rexel reached an agreement or understanding in relation to a proposed tender for the supply of electrical cables at Caltex’s Kurnell Refinery in Botany Bay, NSW that had the purpose of ensuring that Rexel’s bid was more likely to succeed in winning the tender than Prysmian’s bid.