ACCC Washes Out In Action Against Cussons

By Megan Teh, Lawyer, MST Lawyers and Louise Wolf, Senior Associate, MST Lawyers

On 22 December 2017, the Federal Court found PZ Cussons Australia Pty Ltd (Cussons) did not engage in cartel conduct despite replacing its standard concentrate laundry powder with ultra concentrated laundry powder at almost the same time as Colgate-Palmolive Pty Ltd (Colgate) and Unilever Australia Limited (Unilever).

Background

In 2009, there was a notable change in the laundry powder market in Australia. Three of the largest manufacturers and suppliers of laundry detergents in Australia (Colgate, Unilever and Cussons) each began supplying ultra concentrated laundry powder and simultaneously ceased providing their standard concentration laundry powder to the major retailers (Woolworths, Coles and Metcash).

In 2013, the ACCC initiated proceedings against Colgate, Cussons, Woolworths and a former Colgate executive, Mr Paul Ansell for alleged contraventions of the Competition and Consumer Act 2010 (Cth) (the Act). Specifically, the ACCC alleged that Colgate and Cussons entered into cartel conduct when they both changed the supply of standard concentrate laundry powder to an ultra concentrated formula and that Woolworths and Mr Ansell were knowingly concerned in the contraventions. The ACCC did not take action against Unilever because Unilever had immunity under the ACCC’s Immunity and Cooperation Policy for Cartel Conduct.

Before the hearing, Colgate admitted to engaging in cartel conduct and agreed to pay a penalty of $18 million. Woolworths and Mr Ansell also admitted to being knowingly concerned in cartel conduct. Woolworths agreed to pay a penalty of $9 million. Mr Ansell was ordered to pay $75,000 of the ACCC’s costs and was disqualified from managing a corporation for seven years. Only Cussons defended the allegations.

The Decision

The key issue, in this case, was whether Cussons had entered into an arrangement or understanding with other members of the alleged cartel.

The ACCC argued that Cussons entered into an arrangement or understanding via both direct and indirect communications through an intermediary (initially through the industry association and later through Woolworths).  In relation to the use of an intermediary, the ACCC argued that this was a ‘hub and spoke’ cartel as follows:

  • the suppliers (Colgate and Cussons – the ‘spokes’) passed on information to the intermediary (Woolworths – the ‘hub’) with the expectation that the intermediary would pass on the information to the other suppliers and that the information would induce the other suppliers to behave in a certain way; and
  • the suppliers supplied information with the knowledge and intention that other suppliers would act upon the information that was passed on to them.

The Court held that there was no such arrangement or understanding. In particular, it found that a hope or expectation that another party would act or not act in a certain way would be insufficient evidence of such an arrangement or understanding.  Cussons may have expected that other members of the alleged cartel were transitioning to ultra concentrate laundry powder at the same time, but this did not constitute an arrangement or understanding. Further facts supporting this finding included:

  • it being favourable to Woolworths for all of its suppliers to transition to ultra concentrate formulations;
  • it being favourable for all of the suppliers to transition to ultra concentrate formulations;
  • lack of evidence of information that was passed on to Colgate and Unilever that was an inducement for them to act in a certain way; and
  • lack of evidence that the information Cussons received from Woolworths was known to be at the request (direct or indirect) of Colgate and Unilever.

Lessons to be learned

The ACCC’s action was dismissed by the Federal Court because the ACCC failed to prove that there was an agreement or understanding among the members of the alleged cartel.  

However, the conduct in question took place in 2009, before the recent amendments to the Act.  The new section 45(1)(c) of the Act introduced a new offence of ‘concerted practice’.  Concerted practice does not require proof of an agreement between competitors.  It captures cooperative behaviour or communication between separate entities (not just competitors) which falls short of an agreement or understanding.  The types of conduct which could constitute concerted practice are broad and could include any form of cooperation between two or more persons, or conduct that would be likely to establish such cooperation, which has the purpose, effect or likely effect of substantially lessening competition.  

Under the concerted practice provision, businesses must now be mindful of whether their conduct has the purpose, effect or likely effect of substantially lessening competition. If so, businesses need to be aware that any communication or cooperative behaviour, (even cooperative behaviour which falls short of an agreement or understanding, may still be captured by the Act.   

Where the conduct does not have the purpose, effect or likely effect of substantially lessening competition, it may still fall within the ambit of a cartel provision if it involves the competitors engaging in one of the following forms of activity:

  • price fixing;
  • market division;
  • output restriction; and
  • bid rigging,

but only if there is an agreement or understanding between competitors, including via intermediaries.   

In such circumstances, having written records of clear instructions given to any parties who are intermediaries that:

  • they must not pass any information to your competitors that might induce them to act in a certain way, and
  • they must not pass any information about your competitors to you.  

If you have queries about any past or planned communications with competitors or intermediaries, or any queries about competition law, please contact our Corporate and Commercial team by email or call us on +61 3 8540 0200.