Collective arrangements under the spotlight – joint venture exemption considered
The Federal Court has published its reasons in ACCC v Cascade Coal Pty Ltd (No 1)1 (Cascade). The ACCC’s application was dismissed with costs. While the relevant provisions of the Act have been amended following the Harper Review in November 2017, the reasons offer useful guidance on the following aspects of the Competition and Consumer Act 2010 (Cth) (Act):
- the joint venture defence; and
- whether parties are competitors.
The ACCC has appealed the decision.
The ‘joint venture defence’ is a defence which exempts certain dealings among or between competitors which may otherwise contravene the cartel provisions of the Act. The lack of any judicial consideration on the scope and breadth of this defence has meant that there has been considerable uncertainty with regard to its application.
The ‘competition condition’ is a threshold element in determining whether the cartel provisions apply to dealings between parties. Parties must be competitors in order to attract the operation of the cartel provisions under the Act.
We provided an update of the Harper amendments here. Cascade presents an opportunity for these key issues to be ventilated before a Court, albeit in respect of provisions which have since been amended.
On 22 May 2015, the ACCC commenced proceedings for alleged bid rigging conduct. In general terms, ‘bid rigging’ is a form of cartel conduct and occurs when two competitors agree or reach an understanding they will not compete with each other for a tender. The conduct related to government tenders in 2009 for mining exploration licences in the Mount Penny and Glendon Brook regions of New South Wales.
The ACCC alleged that during the tender process, rival mining companies Cascade Coal Pty Ltd (Cascade) and Loyal Coal Pty Ltd (Loyal) and their associates, gave effect to a contract, arrangement or understanding (CAU) that contained a cartel provision. Specifically, it was alleged that the parties entered into a CAU on the following terms:
- Loyal would withdraw its tender bids and refrain from pursuing any bids in the Mount Penny and Glendon Brook regions;
- Cascade would grant one of Loyal’s associates a 25 per cent interest in the mining venture; and
- Cascade would purchase private land at four times its land value and take over the mortgages.
At the time the CAU was entered into, members of the family who owned the private land, which was well-positioned in the Mount Penny region, were the majority owners of Loyal. Four days after the CAU was formed, Loyal withdrew its bid and Cascade won the tender.
The ACCC commenced proceedings against eleven respondents and, on 5 April 2016, Loyal admitted it had entered into a CAU with Cascade.
The ACCC alleged that the CAU amounted to bid rigging. In reply, the respondents argued that:
- Loyal could not be a competitor in the tender because it was an associate of Loyal that had submitted the bid;
- Loyal could never be a ‘likely competitor’ because it was not positioned to secure the funds necessary to win the bid;
- the respondents did not ‘give effect’ to a cartel provision because they were complying with the landowner’s agreement; and
- the proposed arrangement was a joint venture, and therefore any CAU was exempt from contravening the Act on a per se basis.
‘Are or are likely to be in competition’
The ‘competition condition’ will be satisfied where two of the parties to a CAU ‘are or are likely to be’ in competition with each other.
The threshold is presently a low one. In Norcast S.ár.L v Bradken Limited (No 2)2, the Court took the view that ‘likely’ means a mere ‘possibility that is not remote’.
Joint venture defence – legislative context
Section 4J of the Act provides that a reference to a joint venture is a reference to ‘an activity in trade or commerce carried on jointly by two or more persons, whether or not in partnership’.
Section 4J has not been amended following the Harper Review.
There has been some uncertainty as to which collective activities should be regarded as joint ventures (and be potentially exempt from the cartel provisions) and those which should not be (and be condemned).
Some commentators are of the view that the parties to a CAU must be able to establish that the joint venture’s activities are separate to those activities undertaken by each party to the CAU in their own capacity – if one party could undertake all of the activities of the asserted ‘joint venture’, it would be unlikely to be deemed a legitimate joint venture for the purposes of the Act.
Other views emphasise the degree of integration between or among the parties, such as the integration of production, managerial, distribution, financial assets or other operational assets.
These views are concerned with identifying whether a joint venture is a ‘legitimate’ collective activity as distinct from a sham to mask what might be collusive activity between or among competitors.
The Court found that the relevant market was the market for the allocation of an exploration licence in the Mount Penny and Glendon Brook regions.
The Court took the view that, on the facts, the parties were not in the same market. This view was formed on the basis that only one of the parties to the CAU was in a position to take advantage of the exploration licence. It followed that the other parties were not, in fact, competitors.
As the competition condition was not satisfied, the joint venture defence did not need to be relied upon. Despite this, Justice Foster has offered guidance on the scope of the pre-Harper joint venture defence.
Joint venture guidance
The judgement indicates that the joint venture defence has a potentially broad operation and captures a wide variety of collaborative arrangements.
In making an assessment of whether the joint venture defence applied, the Court offered the following guidance:
- even though the contributions of each party to the joint venture may commence in the future, the joint venture defence may still apply before those contributions have begun;3
- the fact that one party to the joint venture contributes ideas, assets or skills that are ultimately not used, does not change the nature of the arrangement between the parties;4
- the subjective view of each party to a joint venture is relevant, though not determinative;5
- the joint venture activity need not be carried on by all parties to the joint venture.6 That is, not all the parties to the joint venture were required to engage in the physical activity concerning the exploration of Mount Penny;
- a promise not to compete may satisfy the ‘for the purposes of the joint venture’ requirement.7 That is, the promise not to compete (ie a withdrawal from the tender process) was to ensure that the activities of the joint venture were not contradicted or undermined; and
- an alleged cartel provision cannot have the purpose, effect or likely effect of substantially lessening competition if it can be shown that its purpose is to contribute to the foundation, viability and success of the joint venture.
Changes to the joint venture defence were adopted in November 2017. The current joint venture defence exempts parties from liability for cartel conduct if a CAU is:
- for the purposes of a joint venture;
- reasonably necessary for undertaking the joint venture;
- for the production of goods and/or the supply or acquisition of goods and services; and
- not carried on for the purpose of substantially lessening competition in the market.8
There does not appear to be any reason why the Court’s comments on the pre-Harper joint venture defence cannot be applied to the post-Harper provisions with significant weight. While there have been some changes, important key terms, including the term ‘for the purposes of a joint venture,’ have been retained. Notably, section 4J, which contains the definition of ‘joint venture’, has also not been amended.
The ACCC lodged its appeal on 3 August 2018. It appears that these matters will now be considered by the Full Federal Court.
1 FCA 607.
2 FCA 235.
3ACCC v Cascade Coal Pty Ltd (No 3)  FCA 1019, ,
8CCA, section 76C.
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