14 August, 2016
The Federal Court’s recent decision in Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi S.R.L. (No 12) [2016] FCA 822 represents a partial victory for the Australian Competition and Consumer Commission (ACCC) in a cartel case where it had the assistance of an immunity applicant but was hotly contested.
The important issue to understand is why the ACCC only partially succeeded, and the implications this has for business, particularly for foreign owned corporate groups.
The case concerned an alleged global arrangement between certain cable manufacturers that in effect provided for market sharing and bid-rigging. It also concerned a specific arrangement relating to a tender for the supply of cable to Snowy Hydro in September 2003. The ACCC alleged that these arrangements contravened the prohibitions against arrangements containing price-fixing and exclusionary provisions in the former Trade Practices Act 1974 (Cth), now the Competition and Consumer Act 2010 (Cth).
Although the ACCC had the assistance of an immunity applicant, including from an individual who gave evidence at the trial, the ACCC succeeded only against Italian company Prysmian Cavi e Sistemi S.r.L (Prysmian) and not against French company Nexans SA RCS Paris 393 525 852 (Nexans SA).
This note provides a brief summary of the decision, followed by insights regarding the key implications of the decision. In particular, this decision:
- clarifies when a foreign company is carrying on business in Australia, which is relevant to the extraterritorial reach of Australia’s competition laws;
- confirms there is a low threshold for whether a firm is in competition with another firm in the context of a tender – it may be sufficient that a firm has been invited to tender, even if it never lodges a bid; and
- confirms that cartel arrangements or understandings require proof of something more than expectations or knowledge of how competitors will behave – there needs to be proof of a commitment between competitors.
Why did the ACCC only have partial success in this case?
The key allegations
The ACCC alleged an overarching global arrangement or understanding between Nexans SA and a member of the Pirelli group of companies (that is, Prysmian), and Japanese corporations Viscas and Sumitomo (which was later replaced by J-Power Systems Corporation (JPS)). The alleged arrangement provided that as and when tenders or projects for certain land and submarine cables arose, the parties would allocate the tender or project to either the European parties, or the Japanese parties. The party who was allocated to win the tender or project would then provide the other parties with a ‘floor price’ above which they had to bid (if they bid at all).
The ACCC also alleged a specific arrangement concerning a Snowy Hydro Project in September 2003 under which the parties to the overarching agreement allotted the Project to Prysmian.
The ACCC contended that these arrangements involved Nexans SA and Prysmian making and giving effect to arrangements or understandings that contained either price-fixing provisions or exclusionary provisions as prohibited by the former Trade Practices Act.
ACCC failure against Nexans SA
As against Nexans SA, although Justice Besanko was satisfied that a Nexans company was party to the overarching agreement (at [229]), His Honour dismissed the ACCC case because it failed to establish that Nexans SA (the ultimate French parent company) was responsible. That is, the statutory provision that attributes to a company the actions of others (section 84(2)) required the ACCC to establish that a director, employee or agent of Nexans SA, within the scope of their actual or apparent authority:
- engaged in the conduct on behalf of Nexans SA; or
- directed, or consented or agreed to another person doing so.
The difficulty for the ACCC was that it was not able to establish that the individuals involved in the conduct came within this test.
In addition, Justice Besanko was not satisfied that Nexans SA (or any Nexans company for that matter) was party to the Snowy Hydro arrangement. This was because, even if it were inferred that Nexans SA knew about the arrangement, this was not evidence that it had committed not to bid (particularly when it was not even invited to tender).
ACCC success against Prysmian
As against Prysmian, Justice Besanko held that Prysmian made and gave effect to the overarching arrangement, but that it only contravened the prohibition against price-fixing provisions, and not the prohibition against exclusionary provisions.
In relation to price-fixing, Justice Besanko concluded that the overarching arrangement provided for the controlling of prices for land and submarine cables, and that this had the purpose, effect or likely effect of fixing, maintaining or controlling prices within the meaning of section 45A of the former Trade Practices Act (now repealed, but a similar formula is used in the current cartel conduct prohibitions). This was because the arrangement provided for a practice whereby one party would set a ‘floor price’ for a tender, and none of the other parties would then tender below this set price.
In relation to the exclusionary provision issue, Justice Besanko held that the overarching arrangement lacked sufficient particularity concerning the class of customers affected by the restriction. That is, section 4D relevantly requires there to be a purpose of preventing, restricting or limiting supply of goods to particular persons or classes of persons. In this case, the ‘class’ of affected persons included customers ‘throughout the world (other than the United States of America)’, which lacked appropriate geographic particularity (at [182]). This is consistent with High Court authority in Rural Press v ACCC (2003) 216 CLR 53, and remains relevant for the current cartel conduct prohibitions.
As to the Snowy Hydro Project arrangement, Justice Besanko held that it contravened both the prohibitions against exclusionary provisions and price-fixing provisions.
What implications does the Prysmian case have?
The extraterritorial reach of competition law to foreign companies
Section 5 of the Competition and Consumer Act extends the reach of the competition laws to conduct outside Australia by corporations incorporated or carrying on business in Australia.
This decision contains extensive analysis of when a foreign corporation can be said to be carrying on business in
Australia. Although this decision confirms aspects of the earlier decision in Bray v F Hoffman-La Roche Ltd and Others [2002] FCA 243 – namely that this issue is a question of fact, and that a specific ‘place of business’ within Australia is not a requirement (at [248]) – the decision also provides further insight. Specifically:
- a relevant question is whether the Australian subsidiary of a foreign corporation is acting as an agent of the foreign corporation or acting in its own right – in this case, although employees in the foreign company may have had significant influence over its subsidiaries, there was no evidence that they directed the subsidiaries on how they were to proceed commercially;
- the fact that the parent company insured all directors and officers of the group companies, registered trade marks in Australia, and the group identified itself in press releases as having a commercial presence in Australia did not mean that it was carrying on business in Australia; but
- the fact that the parent company provided services to the Australia company, such as financing and centralised cash management functions, sharing of research programs and various administrative services, was sufficient to establish that the foreign parent carried on business in Australia.
Accordingly, multinational corporate groups need to be aware that, if foreign group members provide services to Australian subsidiaries, that conduct in and of itself could be sufficient to establish that the foreign group member is caught by the extraterritorial reach of Australia’s competition laws.
A low threshold for the concept of who is your competitor
This decision highlights that there is a low threshold when determining whether parties to an arrangement are in competition with one another.
Justice Besanko held that for JPS to be viewed as competitive with Prysmian, it was sufficient that JPS was invited to tender for the Snowy Hydro Project at the time of the Snowy Hydro Project Agreement. The fact that JPS ultimately did not lodge a tender was not viewed as relevant. Further, in any event, Justice Besanko held that it could not be inferred that at that time JPS made the Snowy Hydro Project arrangement, it had decided not to lodge a tender in its own right (see [207]). That is, the fact that a firm enters into a bid-rigging arrangement itself could be probative of the fact that it is a competitor or likely competitor of the other parties to the arrangement.
Proof of an arrangement or understanding
Justice Besanko held that Nexans SA was not a party to a specific price-fixing or exclusionary provision agreement concerning the Snowy Hydro Project, because although it may have known about the Snowy Hydro Project (and by implication the relevant arrangement), there was insufficient evidence that Nexans SA committed to an arrangement that allotted the project to Prysmian over another Japanese firm (see [202]).
This highlights the need for proof of commitment or the giving of some assurance or undertaking before it can be said there is an arrangement or understanding for the purpose of the cartel prohibitions in the Competition and Consumer Act. Mere expectations or knowledge of how competitors will behave is insufficient.
For further information, please contact:
Chris Jose, Partner, Herbert Smith Freehills
chris.jose@hsf.com
