Author: Prudence Smith – Of Counsel– Jones Day Lawyers*
In December 2014, the Australian Competition and Consumer Commission (ACCC) commenced court action against four companies, six company executives and an industry association operating in the electrical cable industry alleging a cartel. These proceedings are ambitious (the defendants span most of the industry) and stand to become one of the largest cases of its type initiated by the ACCC.
What is cartel conduct?
Cartel conduct refers to several different types of illegal anti-competitive behaviour. A cartel is an arrangement in which ‘competing’ companies surreptitiously agree to engage in conduct that unfairly advantages them. When competitors agree to fix prices, or agree to rig a bidding process, or agree to limit the supply of goods to a marketplace, for example, they are engaging in cartel conduct. Cartels can occur in any marketplace, can occur domestically or internationally, and can involve small or large companies. Investigating cartel conduct is the responsibility of the ACCC.
Why does the ACCC investigate cartel conduct?
Cartel conduct negatively impacts the marketplace and market participants. Members of the cartel gain unfair advantages over their competitors, and market participants and customers outside of the cartel arrangement are disadvantaged in a number of ways. The industry itself is disadvantaged, because cartel conduct discourages research and development, reduces investment by would-be market entrants and artificially increases prices for consumers. More symbolically, cartel conduct offends our standards of ethical business practice.
How does the ACCC investigate cartel conduct?
Cartel participants can request immunity from prosecution if they approach the ACCC with information about a cartel. The ACCC receives several of these immunity requests per month, and most investigations are launched because of an immunity request by a cartel participant. The Electrical Cable cartel case is unique because the investigation was commenced after the ACCC received a number of complaints by customer, and not because of an immunity request. This is a clear warning to companies that the ACCC is becoming more proactive in its investigation of cartel behaviour.
The Electrical Cable cartel case
The ACCC claims that two electrical cable manufacturers – Olex Australia (Olex) and Prysmian Power Cables & Systems (Prysmian) – and two cable wholesalers – Rexel Electrical Supplies (Rexel) and Lawrence & Hanson Group (L&H) – had agreed to operate a cartel. Discussions leading up to the creation of the cartel occurred at meetings facilitated by the Electrical Wholesalers Association of Australia (EWAA), and so the EWAA is also a defendant. Six senior executives of the manufacturing and wholesaling companies are also defendants in the proceedings.
The substance of the allegation is that the cartel engaged in price fixing, bid rigging, and limiting the supply of electrical cable to the market. The allegations relate to the supply of low voltage electrical cables used in homes and in commercial buildings. The cartel spans most of the industry, meaning that the potential harm for customers (commercial contractors, electricians, businesses, and households) is significant.
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*Prudence acknowledges the co-authoring of this article with Willian Maher – Law Clerk.