Not proven – egg cartel claim dismissed


Posted By on 25/02/16 at 4:14 PM

The Federal Court has ruled that the ACCC’s allegation of cartel conduct levied at the Australian Egg Corporation Limited (AECL) was ‘not proven’.

What’s ‘cartel conduct’?

Cartel conduct is prohibited under the Competition and Consumer Act 2010 (the Act). Put simply, businesses enter into a ‘cartel’ when they group together to operate in harmony for the benefit of all, rather than competing against each other. Cartel conduct can take the form of price fixing (ie competitors strike an agreement on who’s going to charge what instead of competing openly), market sharing (ie competitors divvy up the market to protect themselves against competition), bid rigging (ie competing businesses decide amongst themselves who will win a tender and for what price) and controlling or limiting supply of goods and services to consumers in order to protect prices.

In order to prove cartel conduct, the parties must be shown to have entered into an understanding or arrangement that involves reciprocal obligations. These concepts are not spelled out in the Act – but established case law states that there must be clear communication and a ‘meeting of minds’ between the parties, commitment by the parties to the purpose of the arrangement and mutual obligations between them.

What happened … eggsactly?

The ACCC alleged that AECL, Farm Pride Foods Ltd and Ironside Management Services Pty Ltd (trading as Twelve Oaks Poultry) entered into an agreement or understanding to limit egg production in the face of an oversupply that could put downward pressure on prices. A series of meetings took place in 2012 (including a conference attended by the top 25 egg producers in the country), to talk about the oversupply ‘crisis’ in the egg industry. Discussions included options to resolve the oversupply issue (such as culling hens and disposing of eggs).

The ACCC instigated proceedings against the parties, claiming they engaged in cartel conduct by attempting to induce other egg producers to enter into a form of arrangement or understanding that would lead to a reduction in the supply of eggs.

The eggstraordinary outcome

Although the court agreed that there was a ‘call to action’ on the oversupply issue, it found that the ACCC presented insufficient evidence to show that the parties entered into an arrangement with ‘reciprocal obligations’. This is despite one of the respondents, Zelko Lendich (former AECL director) admitting prior to the commencement of the trial that he engaged in conduct designed to limit the supply of eggs.

The ACCC, perhaps signalling an appeal, has said that it will ‘consider the judgement carefully’.

For now, Humpty Dumpty sits comfortably atop the wall.

UPDATE: The ACCC has filed a Notice of Appeal to the Full Federal Court. Said Chairman, Rod Simms, “It’s important that we seek clarity form the Full Court on issues of what will and will not constitute attempted cartel conduct, particularly in the context of conduct by a trade association interacting with its members”. We’ll be watching this one closely.

Naomi Stephens Paralegal

Naomi is a paralegal in the Competition Law & Regulatory Compliance team, focusing on marketing activations, advertising review and trade promotions compliance.  She joined KHQ after having spent... Read More