BlueScope and former GM held to have engaged in cartel conduct in steely battle with the ACCC

Articles Written by Aldo Nicotra (Chairman), Alanna Harrigan (Associate), Katia Zotova (Associate)

On 9 December 2022, O’Bryan J handed down judgement in Australian Competition and Consumer Commission v BlueScope Steel Limited (No 5) [2022] FCA 1475 (ACCC v BlueScope).

The proceedings were brought by the Australian Competition and Consumer Commission (ACCC) who alleged that during a 10-month period between September 2013 until June 2014 (the Relevant Period), BlueScope Steel Limited (BlueScope) and Jason Thomas Ellis (Mr Ellis), BlueScope’s then General Manager of Sales and Marketing, contravened the Competition and Consumer Act 2010 (Cth) (CCA) by attempting to induce certain suppliers of flat steel products in Australia (being eight domestic flat steel distributers, one import trader, and one international manufacturer, together the Counterparties) into an understanding with BlueScope that contained a “price fixing” cartel provision.

The court found for the ACCC. A hearing about the penalties is scheduled for April 3, 2023.

What constitutes the cartel provision?

The CCA prohibits competitors or potential competitors from making or giving effect to contracts, arrangements or understandings:

(a) for the purpose, or with the effect or likely effect, of fixing prices; or

(b) for the purpose of bid rigging, market sharing or restricting outputs or acquisitions.

For two parties to be relevantly competitive under the cartel provisions they must be actual or potential competitors in the supply or acquisition of the goods or services that are the subject of the relevant restraint and there must be an Australian nexus. Cartel conduct is prohibited per se, that is, regardless of whether it, in fact, harms competition.

A person (including a body corporate) who was aided, abetted, counselled, procured or induced a corporation to contravene the cartel provisions, conspired with others to do so, or was knowingly concerned in a contravention is taken to have contravened the CCA and is punishable accordingly.

BlueScope’s conduct

Following the global financial crisis, demand for steel declined globally and resulted in an over-supply of steel and distribution capacity. The ACCC alleged that, in response to this, Mr Ellis attempted to induce the Counterparties to set their prices for flat steel products at or above BlueScope’s recommended resale price (RRP) thereby increasing the value of flat steel products to BlueScope and the Counterparties.

Recommended Resale Price

The ACCC alleged that Mr Ellis’ strategy was to promote the RRP which was to be used by BlueScope and the Counterparties as a benchmark for raising their prices for the supply of flat steel products in Australia. From the price lists provided in December 2013 and onwards, BlueScope and Mr Ellis promoted the RRPs to the distributors by ”revising them upwards” and increasing distributors’ discounts so the distributors’ net prices would remain largely unchanged. If the distributors set their prices according to the RRPs, the difference between the list prices and the net prices would allow the distributors to earn a gross margin of 13% to 15% over the cost of steal.

The ACCC did not allege that the attempts were successful or that any arrangements or understandings were ultimately arrived at between BlueScope and the Counterparts.

BlueScope did not dispute the existence and promotion of the RRP, or that the use of the RRP was promoted to distributors as a way of distributors increasing their prices. However, BlueScope argued that the RRP was not used to attempt to induce the Counterparties to set their prices for flat steel products at or above BlueScope’s recommended resale price. The RRP rather served as “recommended price which distributors could choose to take into account in making their own pricing decisions” and that it was “entirely a matter for distributors as to whether they chose to use the price lists in that way”[1].

The court however found that it was plainly clear from evidence that the commercial object of the strategy was to assist the distributors to increase their margins. The level of “managerial investment”[2] by Mr Ellis and steps undertaken by BlueScope in the Relevant Period demonstrated the strategy of trying to make a change to the market conditions in light of commercial and financial pressures facing BlueScope.

However, not all recommended resale price practices are unlawful[3]. The practice of a supplier publicising its recommended resale prices to the ultimate consumer of its product is well known in commerce. It promotes the supplier’s view of the value of its products in the market for its own benefit and the benefit of its distributors or retailers.

What was unusual in ACCC v BlueScope is that it involved BlueScope providing recommended resale prices not only to distributors who were reselling BlueScope products, but also to distributors who were not reselling BlueScope products but were selling imported products in competition with distributors who were reselling BlueScope products. Also, notably, BlueScope did not dispute that it was in competition with other distributors of flat steel products for the supply of some flat steel products to some distribution customers in Australia. 

Not necessary to ‘reach’ an understanding – only necessary to be in ‘contemplation’

BlueScope argued that the ACCC’s case was flawed due to the facts that:

  • neither BlueScope nor Mr Ellis sought any commitment from the Counterparties as to the prices they would charge for flat steel products,
  • the Counterparties did not nonetheless give any such commitment; and
  • neither BlueScope nor Mr Ellis offered anything in return for such a commitment.

The court did not accept these submissions and noted that “an attempt to induce a price fixing understanding does not require assent to be achieved” and that it is unnecessary for the conduct to have “reached an advanced stage or that the precise terms of the proposed understanding have been formulated”[4].

The court  found that while ultimate assent may be communicated, it is only necessary that an unlawful understanding be in contemplation and be the intended object of the attempts to induce. He noted that “it is not sufficient to intend merely that the counterparty consider whether they should increase their prices”, rather that, the intention must be directed to the ultimate end of inducing the reaching of an understanding containing a cartel provision”[5].

Why is it important?

The decision emphasises that an attempt to induce an understanding that contains a cartel provision (in this case a price fixing understanding) does not require any of the below:

  • mutual assent or commitment to be achieved between the parties;
  • advanced stage on the terms of the proposed understanding;
  • for an inducement to be proposed or offered; or
  • for one party to expressly ask another party for a commitment.

What do you need to do?

Be mindful when exchanging strategic and sensitive commercial information, especially recommending resale prices.

Industry-wide communications and communications with competitors should be proactively managed to limit the exchange of strategic and sensitive commercial information which could soften competition or undermine independent decision making. Such engagement with competitors may give rise to cartel or concerted practices risk.

In-house legal teams are an essential first point of call to assess the level of competition law risk associated with a particular project and determine whether any risk can be effectively mitigated.

[1] At [627]

[2] At [1439]

[3] Section 45AD(6) of CCA

[4] At [1421]

[5] At [1422]

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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