30 April 2016

Soapsuds Cartel and Cement

The Federal Court has made orders that Colgate-Palmolive Pty Ltd pay aggregate penalties of $18 million for anti-competitive activity - centred on cartel provisions of the Trade Practices Act 1974 (Cth), precursor of the current Competition and Consumer Act 2010 (Cth).

Unilever applied for immunity under the Australian Competition & Consumer Commission's’ Immunity Policy for Cartel Conduct. Colgate admitted to entering understandings with competitors that limited the supply, and controlled the price, of laundry detergents - a consumer staple. Colgate agreed with the ACCC to joint submissions on penalty being put to the court ($12 million for an understanding to withhold supply and $6 million for the information sharing understanding). Action against cartel members PZ Cussons Australia Pty Ltd and Woolworths is listed for hearing in June 2016

In ordering the penalties against Colgate the Court described the conduct as serious and the penalty as significant but proportionate.

ACCC Chair Rod Sims commented
The information sharing understanding involved phone calls between senior managers of competing companies, many of which started as social calls, but turned to unlawful exchanges of pricing information. Any contact between competitors carries risk and while discussion of price is particularly serious, there are many topics which may lead to an anticompetitive understanding.
This is the equal third largest penalty that the court has ordered for breaches of the competition provisions of the Act and is an indicator of how seriously the court views the conduct.
These penalties were based on Colgate’s turnover, under the current penalty regime for anticompetitive conduct. The ACCC regards this regime as a key tool in obtaining appropriate penalties for breaches of the Act.
Colgate admitted that it made, and gave effect to, an understanding with Unilever Australia Limited (Unilever) and PZ Cussons whereby they agreed to cease supplying standard concentrate laundry detergents in early 2009 and supply only ultra concentrates from that time.

Colgate also admitted that it and Unilever shared sensitive market information, including information about when they would increase the price of their laundry detergents through telephone contact between  senior Colgate and Unilever executives.

By consent the ACCC resolved its proceedings against former Colgate sales director Paul Ansell,who admitted to being knowingly concerned in the conduct. Ansell is disqualified from managing corporations for seven years and is to pay a contribution of $75,000 towards the ACCC’s costs.

The Federal Court also made other orders by consent that Colgate update its trade practices compliance program and maintain that program for three years and pay a contribution of $450,000 towards the ACCC’s costs.

The ACCC has meanwhile stated
The Federal Court has ordered penalties totalling $18.6 million against Cement Australia Pty Ltd and related companies, for numerous contraventions of section 45 of the Trade Practices Act 1974, in proceedings brought by the Australian Competition and Consumer Commission.
... “It is extremely important for the ACCC to take action whenever the competitive process is damaged by any behaviour that substantially lessens competition. The operation of our market economy depends upon competition to drive innovation and benefit consumers,” ACCC Chairman Rod Sims said. “It has been a very long road for the ACCC, and the penalty judgment is an important milestone in the proceedings,” Mr Sims said.
The ACCC first brought the proceedings in 2008 against five related corporate respondents; Cement Australia Pty Ltd (currently 50% owned by Holcim and 50% owned by the Heidelberg Cement’s subsidiary Hanson), Cement Australia Holdings Pty Ltd, Cement Australia Queensland Pty Ltd (formerly Queensland Cement Ltd), Pozzolanic Enterprises Pty Ltd and Pozzolanic Industries Pty Ltd. The proceedings relate to contracts that were entered into by Cement Australia between 2002 and 2006 with the operators of the Millmerran, Tarong, Tarong North, and Swanbank power stations in South East Queensland to acquire flyash (no allegations were made by the ACCC against the power stations). Flyash is a by-product of burning black coal at power stations, and can be used as a cheap partial substitute for cement in ready-mix concrete.
Following a lengthy fully contested hearing, the Court found numerous contraventions of s 45 of the Act by all companies but Cement Australia Holdings Pty Ltd. The extent of the findings in this matter demonstrate the significance of this competition case. Justice Greenwood found that the conduct had the purpose and effect of preventing a competitor from entering the market by preventing them from obtaining direct access to a source of flyash in South East Queensland.
As a result, Justice Greenwood found that the contracts had both the purpose and effect of substantially lessening competition. In reaching this conclusion, Justice Greenwood observed that Pozzolanic Enterprises Pty Ltd and Cement Australia Pty Ltd enjoyed such a substantial market share, and exercised such a substantial degree of influence upon pricing in the South East Queensland concrete grade flyash market, that the competitive effect of new entry by a competitor would have been significant.