ACCC v Australian Egg Corporation Ltd

[2017] FCAFC 152 (25 September 2017)

Overview

The ACCC instituted proceedings in the Federal Court on 26 May 2014 alleging that Australian Egg Corporation Limited (AECL) (and its managing director and two directors) and two egg producing companies, Ironside Management Services Pty Ltd (T/A Twelve Oak Poultry) and Farm Pride Foods Limited attempted to induce egg producers who were members of AECL 'to enter into an arrangement to cull hens or otherwise dispose of eggs, for the purpose of reducing the amount of eggs available for supply to consumers and businesses in Australia').

The ACCC alleged that this conduct took place after the introduction of the new cartel laws.

The ACCC sought declarations, injunctions, pecuniary penalties, orders that involved parties establish and maintain a compliance program, adverse publicity orders, community service orders and disqualification from directorship for the three directors alleged to be involved.

In 2016 Justice White dismissed the ACCC's claim. The ACCC appealed and in 2017 the Full Federal Court unanimously (in a joint judgment) dismissed the appeal.

Judgment (Full Federal Court)

The Full Federal Court set out the facts, largely uncontested, and noted that Justice White had considered the following matters relevant to his conclusion:

[para 83] The primary judge considered that the following matters were relevant to his final conclusion. First, the egg industry is generally of a competitive kind and it was likely that individual egg producers would take action only if they perceived it to be in their own individual interest to do so, and practical for them to do so (at [391]). Secondly, the fact that a range of short term solutions were suggested is an indicator that the requisite degree of mutuality or reciprocity was unlikely. Thirdly, the fact that egg producers around Australia operated in separate markets militated against AECL and Mr Kellaway (who would have known that fact) having sought to induce an agreement or understanding of a proscribed kind among the attendees generally. Fourthly, although it was not necessary for the purposes of establishing an attempt to induce a contravention of s 44ZZRJ to establish that a single course of action is proposed, the fact that different options were proposed in the practical context of the Summit (where an agreement or understanding of this type would be difficult to achieve) counted against a finding of attempt. Fifthly, it was relevant that there was no evidence of any proposal having been put to the vote at the Summit or of a call for an indicative show of support, although not as relevant as it would be had there been more detailed direct evidence of what had occurred at the Summit. Sixthly, the role and character of AECL is important. The primary judge said that although AECL was not an egg producer, it was, in a particular way, a participant in the Australian egg industry. Furthermore, AECL does, in some respects, act as an entity representing the Australian egg industry. AECL’s role and character are relevant to the issue because trade associations and their officers may legitimately encourage their members to examine their profitability and to make production and pricing decisions in order to maintain profitability. Providing there is no suggestion of cooperative action, the conduct does not amount to an attempt to induce cartel conduct. Finally, it is relevant that the ACCC’s case did not include an allegation as to the precise form of the alleged intended arrangement or understanding. That is not essential, but its absence makes it “more difficult to be satisfied that the respondents did seek to induce an agreement or understanding which contravened s 44ZZRJ”, or as the primary judge said (at [81]), “the uncertain and general nature of the putative arrangement makes the pinpointing of conduct or words referable to such an arrangement difficult”.

The Full Federal Court noted (at 84) that the primary judge 'expressed his conclusion' as follows:

... I consider that the ACCC evidence does establish conduct by the respondents which could constitute an attempt in the requisite sense. However, in my opinion, the ACCC case falls short of establishing that the respondents who participated in the trial had an intention to bring about an arrangement or understanding with the proscribed qualities and that any proposed an arrangement or understanding between producers for the reduction of the supply of eggs. It does establish that these respondents intended that the Attendees should take action to address and correct the oversupply of eggs but not (to the requisite degree of persuasion) that this action should be pursuant to an agreement or understanding involving reciprocal obligations. [para 403 trial]

Requirements for an attempt

The Full Federal Court then set out, briefly, the relevant principles concerning 'an attempt to induce the making of an arrangement or the reaching of an understanding which contravenes s 44ZZRJ of the Act. Section 76(1) makes it clear that the inducement can be by way of threats, promises or other conduct.' (para 91)

[92] In order to establish an attempt, an applicant must prove both intention and conduct. The intention is to bring about the proscribed result which in this case is the making of an arrangement or the reaching of an understanding within s 44ZZRJ ... It is not necessary in order to establish the relevant intention to prove that it was accompanied by or included an expectation of success or a belief that the purpose would be achieved (Tubemakers at 736 per Toohey J).

[93] The conduct which is necessary to constitute an attempt is a step towards the commission of a contravention, which is immediately and not merely remotely connected with it ... In Australian Competition & Consumer Commission v SIP Australia Pty Limited [2001] FCA 824; (2002) ATPR 41-877 (ACCC v SIP Australia) at 45-015, Goldberg J made the point that what is required for an inducement is that "there be an affirmative or positive act or course of conduct directed to the person who is said to be the object of the inducement". In addition to that point, his Honour also referred to the decision of the Full Court of this Court in the The Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153 at 164 where it was said that mere persuasion, with no promise or threat, may well be an attempt to induce.

[94] For the purposes of both elements of an attempt, that is to say intention and conduct, it is not necessary for the precise terms of the proposed arrangement or understanding to have been formulated. This point was made by the Full Court in Parkfield Operations (at 539) and another way of putting the point is that it is not necessary for an attempt to be made out to establish that the relevant conduct had reached an advanced stage. Having said this, it is perhaps trite to note that the more advanced the conduct, the more likely it is that the inference of the necessary intention will be drawn.

On the requirements for establishing CAU

The Court then discussed whether mutuality or reciprosicity of obligations was needed to establish a CAU.

[95] In order for there to be an arrangement or understanding within s 44ZZRJ, there must be a meeting of minds and this involves a commitment to act in a particular way. A mere expectation as distinct from an assumption of obligation, assurance or undertaking to act in a particular way is not sufficient. Unlike an arrangement, an understanding can be tacit ...

[96] For some time, there has been a debate in the authorities as to whether a meeting of minds involving only one party assuming an obligation as distinct from mutual or reciprocal obligations can constitute an arrangement or understanding of a proscribed kind. The issue has not been authoritatively determined. The courts which have addressed the issue have consistently said that even if the undertaking of a unilateral obligation can constitute a contravening arrangement or understanding, such cases are likely to be rare ... it will not be necessary for us to resolve the issue in this case.

[97] In Service Station Association, one of the respondents, Service Station Association Limited (SSAL), was alleged to be liable to pay a pecuniary penalty by reason of conduct inducing or attempting to induce petrol retailers to fix prices and thereby contravene s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth). SSAL was the trade association of petrol retailers in New South Wales with approximately 1,100 members. The trial judge held that a contravention was not established because the intention of SSAL was not to bring about the making by dealers of the arrangements alleged or the arrival by them at the understanding alleged, but a lawful one of "bring[ing] about a willingness among dealers to examine their individual businesses and the retail prices charged and to increase their retail margins" (Service Station Association at 225). A number of petrol retailers were failing and SSAL recommended that retailers concentrate on profit rather than volume and it published recommended retail prices. The Full Court held that the trial judge had not erred and dismissed the appeal.

[98] It seems clear that an industry body may perform an educative or information providing role towards its members without contravening cartel and associated provisions. As a general proposition, it may be said that an industry body may, in the interests of its members and of the industry, provide information to its members and suggest that they examine their present practices and consider changing them.

The Court then set out the ACCC's submissions.

On claim that AECL encouraged members to behave in a coordinated way

On the claim that once a trade association/industry body goes beyond provision of information it is 'attempting to induce a contravening arrangement or understanding', the Court (at 107) stated

[107] we reject the submission to the extent that it is to the effect that once a trade association or industry body goes beyond the provision of information it is attempting to induce a contravening arrangement or understanding. With respect, we think the primary judge correctly summarised the matter when he said (at [400]):

I accept, nevertheless, the respondents’ submission that the role and character of AECL is important. In particular, I accept the submission made by reference to Trade Practices Commission v Service Station Association Ltd [1993] FCA 405; (1993) 44 FCR 206, that trade associations and their officers may legitimately encourage their members to examine their profitability and to make production and pricing decisions in order to maintain profitability. Conduct of that kind, at least when directed to the decisions of industry participants in their own businesses and without any suggestion of cooperative action, does not amount to cartel conduct, or even an attempt to induce cartel conduct.

The Court the went on to repeat the distinction made by the primary judge (below) that there is a difference between industry participants being brought to appreciate what is in their interests independently of what others are doing and conduct requiring expectation of reciprocity:

[108] The primary judge put the point in a slightly different way (but to the same effect) when he said that conduct whereby industry participants are brought to an appreciation that it is in their interests, independently of what others are doing, to act in a certain way providing it does not involve an expectation of reciprocal conduct by others is lawful (at [388]). ...

In relation tot he role of the auditor, the Court stated:

[117] ... We do not think that voluntary and independent action by each producer in reducing its hen numbers becomes contravening conduct because it is done in the knowledge that there is a mechanism whereby each producer is informed that an industry problem – excess production – is being addressed. We do not think that that involves a provision of the arrangement or understanding which has the purpose of directly or indirectly preventing, restricting or limiting the supply of eggs. ...

Standard of proof

On the issue of standard of proof, the ACCC argued that the primary judge applied the criminal standard (or something akin to it - which they inferred from some comments made) and that he should have applied the civil standard (balance of probabilities). The Court rejected the ACCC's submission, finding the primary judge was aware of the appropriate standard and applied it in this case.

On the issue of error: 'Finely balanced' case

After setting out the role of the Court on appeal, the Court concluded:

[131] It seems to us that it is important to bear in mind that in this case the matter in respect of which the primary judge is said to have failed to draw an appropriate inference is not a matter where there is only one right answer, such as there is where the construction of a document is in issue (an example given by Allsop J in Branir at [25]), where a different view by the appeal court itself establishes error. In this case, the primary judge refused to draw an inference going to the intention of the respective respondents.

[132] It seems to us that the issue of whether the inference of intention should have been drawn was finely balanced. The primary judge carefully weighed all the relevant issues and decided that intention had not been made out. It has not been demonstrated that he erred. The advantages he enjoyed over this Court may have been modest, but, in the absence of a preponderance of view against that taken by the primary judge, we would not interfere with his conclusion. In those circumstances, the appeal must be dismissed.

Federal Court (Justice White)

In conclusion on the circumstantial case Justice White stated (emphasis added):

[379] The circumstantial nature of the ACCC case requires that each of the elements to which the ACCC referred be considered collectively. It is their combined effect which must be assessed. Considered in that way, the ACCC case has some force. I consider that the ACCC has established conduct which, looked at generally, could be characterised as a form of affirmative action directed towards the inducement it alleges.

[380] However, the case also has some limitations and in my opinion does not establish the attempt alleged by the ACCC. In particular, the evidence does not warrant a finding that the respondents who participated in the trial had the intention of inducing a proscribed arrangement or that any conveyed to the Attendees the potential for such an arrangement or understanding.

[381] There is a distinction between a circumstance in which industry participants are brought to an appreciation that it is in their interests, independently of what others are doing, to act in a certain way, on the one hand, and a circumstance in which industry participants are invited to agree to act in a certain way in the expectation of reciprocal conduct by others, on the other. Conduct of the former kind does not contravene s 44ZZRJ. The respondents submitted that the evidence supported only this alternative.

[382] Mr Doyle SC, for AECL and Mr Kellaway, summarised the respondents’ position on this topic by contending that the evidence was “perfectly consistent with the outcome being, “We want everybody to think harder about their own circumstances and what they can do to solve the problem which is, in part, theirs and, in part, the industry’s”. In my opinion, that is an appropriate characterisation of the evidence received in the trial, noting that suggestions and recommendations as to particular conduct which producers could take were also made. ...

[383] The evidence warrants a finding that the means by which egg production could be reduced (removing one hen from each cage and bringing forward the disposal of hens by 6-8 weeks) were canvassed at the Summit, but there is insufficient evidence to warrant the conclusion that these options were propounded as a form of collective action involving reciprocal obligations or understandings by the egg producers. It is one thing to conclude that suggestions, even firmly expressed suggestions, were made that removing a hen from a cage and bringing forward hen disposal were forms of action which producers, making independent judgments about their own commercial interests, could (or even should) adopt: it is another thing to conclude that the respondents were proposing that producers agree that each would pursue either or both of these options on the understanding that their competitors would do likewise. There is no persuasive evidence that a proposal to that effect was articulated.

[384] It is pertinent to this consideration that a considerable focus at the Summit was on those producers who had increased their production rapidly, and in excess of the general increase in demand for eggs. By a number of means, moral pressure was brought to bear on those (unidentified) producers. To my mind, the highlighting by Mr Kellaway of the fact that some producers were more responsible for the oversupply than others is inconsistent with an attempt, at least by him, to induce all producers, including the “innocent” producers, to agree to action to address a problem created by others.

[385] I refer in this respect to Mr Kellaway’s evidence that the Attendees were informed for the first time that some of their number had increased their production very rapidly, despite the warnings about oversupply. Their particular responsibility for the oversupply of eggs was highlighted in the PowerPoint slides for all to see. By this means moral pressure was brought to bear on those “culpable” producers. Those “innocent” attendees who had not increased their production, or had increased it by modest amounts only, were unlikely to be receptive to the notion that they should reduce their production in order to address the problem caused by the “culpable” producers. For them, the more obvious solution was for the “culpable” producers to bring their egg production back to levels which were sustainable. In this respect, the inference arising from Mr Ahmed’s email of 9 February that there had been some disharmony, and possibly “finger pointing”, at the Summit arising from a recognition that some were more responsible than others for the industry’s predicament is pertinent.

[386] To my mind, the fact that Mr Kellaway chose to highlight for the Attendees that some of their members were particularly responsible for the oversupply is inconsistent with him having had an intention to induce all of the Attendees to agree upon a form of mutual and reciprocal action.

[387] The ACCC case placed considerable reliance on Mr Kellaway’s reference to “a path forward in a co-ordinated and consolidated fashion”. I agree that that expression is capable of a sinister connotation in the context of s 44ZZRJ as it may connote co-ordinated action by agreement by the various producers. However, in context it is also readily capable of an innocent explanation. In his slides headed “Solutions”, Mr Kellaway suggested short, medium and long term solutions. Under the heading of short term solutions, he suggested the alternatives of action to reduce production of eggs by the culling of hens, action to increase consumer demand for eggs, and action to reduce the existing inventory of eggs by donations to FoodBank or dumping. These were not mutually exclusive options as each could be pursued simultaneously and in a co-ordinated way. I consider that Mr Kellaway’s reference to “co-ordinated and consolidated” action is capable of referring to the adoption simultaneously of each of these different strategies in a planned way and accordingly does not necessarily have the sinister connotation for which the ACCC contended. At the least, the ACCC case has not negatived this as a reasonable understanding, and it is consistent with Mr Kellaway’s evidence.

[388] I agree with the ACCC that the reference in Mr Kellaway’s slide to an independent auditor is particularly significant. I have already made findings about that. However, the retention of an independent auditor for the identified purpose may also have an “innocent” explanation. The reports of an independent auditor would have provided a means by which AECL, and through it egg producers, would know whether each producer was heeding the AECL’s warnings and whether each was, by voluntary and independent action, reducing its hen numbers. In this way, the proposed retention of an independent auditor does not point persuasively to an intention that producers enter into an agreement or understanding with respect to reduction of hen numbers.

[389] The respondents emphasised the evidence indicating the competitive nature of the egg industry. I have already referred to some of that evidence. The respondents submitted that, given the competitive nature of the industry, it was inherently unlikely that egg producers would co-operate with one another and, accordingly, unlikely that AECL would have expected them to do so.

...

[391] I accept that the egg industry is generally of a competitive kind and that it was likely that individual egg producers would take action only if they perceived it to be in their own individual interest to do so, and practical for them to do so. Accordingly, this submission has some force but its significance should not be overstated. It is very apparent that AECL was making an appeal to the individual interests of the egg producers, by particular reference to the decline in egg prices. The slide presentations of Mr Kellaway and Mr Quirke pointed out in graphic terms the effect on returns to egg producers of the oversupply. This was the same circumstance about which Mr Lendich and Mr Pace had spoken passionately at the Board meeting on 19 January. In my opinion, the evidence shows that AECL was making an appeal by reference not only to the interests of the industry as a whole, but to the interests of each individual egg producer.

[392] The respondents submitted that the circumstance that several short term solutions to the egg oversupply were proposed also made it inappropriate to conclude that anyone could have expected, let alone intended, that the requisite degree of mutuality or reciprocity could be achieved. They noted that one egg producer may, for example, choose to make donations to FoodBank, another to cull hens, and another to cancel or reduce its orders for new hens, and so on. They submitted that AECL’s intention did not go beyond explaining to the selected members the full nature and extent of the oversupply problem and the various actions which AECL itself considered might be undertaken by producers individually, but not collectively, to address the problem.

[393] I agree that these are relevant considerations. The egg producers represented by the Attendees had operations in different parts of Australia and, although the evidence on this topic is limited, it is reasonable to infer that many had their own market or markets which did not coincide fully, or at all, with the market or markets of others. In particular, the evidence does not support a conclusion that there is a single Australian egg market. These circumstances made it likely that the oversupply affected some more than others. Some producers may have had a market for all the eggs they were producing. ... Circumstances of these general kinds must have been known to AECL and Mr Kellaway, and to my mind militate against them having sought to induce an agreement or understanding of a proscribed kind amongst the Attendees generally.

[394] It is true that an attempt to induce a contravention of s 44ZZRJ does not require that a single form of action be proposed. A contravention could occur if one producer agreed on one course of action (earlier culling of hens) and another producer on a different course of action (donation of eggs already produced to FoodBank). However, an agreement or understanding of this kind would be unusual and in the practical context of a meeting such as the Summit, one which would be difficult to achieve. This counts against the respondents having attempted to achieve an agreement or understanding for individual producers to take different forms of action.

...

[400] I accept, nevertheless, the respondents’ submission that the role and character of AECL is important. In particular, I accept the submission made by reference to Trade Practices Commission v Service Station Association Ltd [1993] FCA 405; (1993) 44 FCR 206, that trade associations and their officers may legitimately encourage their members to examine their profitability and to make production and pricing decisions in order to maintain profitability. Conduct of that kind, at least when directed to the decisions of industry participants in their own businesses and without any suggestion of cooperative action, does not amount to cartel conduct, or even an attempt to induce cartel conduct.

[401] The respondents also emphasised that the ACCC pleaded case did not include a contention as to the precise form of the alleged intended arrangement or understanding. Earlier in these reasons, I indicated that I did not regard this consideration as being fatal to the ACCC case. I accept however, the respondents’ submission that this makes it more difficult to be satisfied that the respondents did seek to induce an agreement or understanding which contravened s 44ZZRJ.

...

[403] ... I consider that the ACCC evidence does establish conduct by the respondents which could constitute an attempt in the requisite sense. However, in my opinion, the ACCC case falls short of establishing that the respondents who participated in the trial had an intention to bring about an arrangement or understanding with the proscribed qualities and that any proposed an arrangement or understanding between producers for the reduction of the supply of eggs. It does establish that these respondents intended that the Attendees should take action to address and correct the oversupply of eggs but not (to the requisite degree of persuasion) that this action should be pursuant to an agreement or understanding involving reciprocal obligations.

...

[Note: It is clear that his Honour drew clear distinctions between egg producers being encouraged to pursue individual best interests and being encouraged to collectively act. It is not clear, how, how individual interests are served by reducing their individual output - unless confident other producers would do likewise. This 'distinction' appears to have significantly influenced the outcome of this case. On appeal, the Full Court noted that this 'distinction' played an important part in Justice White's reasoning (para 75) and went on to discuss these passages from the trial judgment.]