No dirty laundry here: Full Court dismisses cartel allegations against Cussons despite $27 million penalties paid by other respondents

Minimal direct communication

The ACCC and Cussons accepted that an arrangement generally requires some level of negotiation or communication by the parties.  The parties also conceded that both an arrangement and understanding involved a "meeting of the minds".  Although not a legal requirement, the court drew attention to the lack of direct contact between Cussons and the other Suppliers when considering this.  The court identified only seven instances of direct communication between Cussons and the other Suppliers, including several meetings and telephone calls.  The court found that the minimal direct communication, together with its non-committal nature, was a major weakness in the ACCC's case against Cussons.  

The treatment of this evidence signals to businesses that merely attending a meeting or engaging in a phone call in which potential cartel conduct is discussed, will not necessarily support a claim that there was a cartel arrangement or understanding. 

Strategic brainstorming

Cussons adduced evidence of "war-gaming" sessions which assisted in distancing itself from any allegations of cartel conduct.  On 21 October 2008, Cussons held an internal war-gaming exercise with its employees involved in the shift to ultra-concentrates.  The purpose of the exercise was to workshop how Cussons would compete in different hypothetical scenarios and how its competitors might respond after the launch of ultra-concentrates.

The court accepted that this evidence was inconsistent with the notion that Cussons had arrived at an arrangement or understanding with the other Suppliers.  If such an arrangement or understanding had in fact been reached, it would have been unnecessary for Cussons to engage in this kind of strategic brainstorming.  

This finding underlines the fact that practical evidence about how a business behaved is directly relevant to testing the case theory put forward by the ACCC.

Employee communications protocol

There was evidence that in late September 2018, Cussons had established a strict communication policy for employees working on the transition to ultra-concentrates.  Essentially, the policy prohibited Cussons employees from communicating with competitors about the launch of ultra-concentrates.  This enabled Cussons to distance itself from allegations of any collusive behaviour with the other Suppliers.

Cussons' legal advice

The lack of commitment by Cussons to any arrangement or understanding was further supported by the fact that it received independent legal advice in April and August 2008.  The initial advice warned Cussons that any proposal between itself and the other Suppliers could give rise to competition law risks, and that Cussons should not agree or even give the impression of agreeing to any part of such a proposal.

The later legal advice instructed Cussons that whilst it could attend meetings with competitors, it should not engage in discussions of sensitive matters, such as pricing, and should not agree to anything.  In fact, the court accepted evidence that during a meeting on 25 August 2008, Cussons strenuously noted its objection to aspects of the proposal being discussed, and indicated that its objection was being driven by legal advice.  Cussons instead proposed a counter-arrangement in which the Suppliers would stagger their respective transitions to ultra-concentrates. 

Economic evidence

The court rejected the ACCC's argument that the parallel conduct of Cussons and the Suppliers – that is, the transitioning to ultra-concentrates at approximately the same time – was substantially consistent with the allegation that there was an arrangement or understanding.  

The court agreed with the trial judge that the ACCC's "submissions concerning the circumstantial significance of the parallel conduct… are not supported by its own economic evidence, and are significantly undermined by the unchallenged evidence adduced by Cussons".  On the other hand, Cussons was able to bring its own economic evidence which showed that the parallel conduct would have occurred anyway in the absence of any arrangement or understanding.  

Essentially, the economic evidence brought by Cussons demonstrated that the parallel conduct occurred as a legitimate response to market forces at the time (including the timing of Woolworths' major annual review of its range of products), rather than pursuant to an illegal arrangement or understanding.

Interaction with other respondents

The court based part of its reasoning on how Cussons was perceived by the other Suppliers.  The evidence demonstrated that the ACCC's allegations of the role played by Cussons were overstated.  

For example, there was evidence that in August 2008, Colgate believed Cussons was acting as a "rogue player" for its own commercial purposes.  There was additional evidence that in September 2008, Unilever conducted stress-tests in response to the hypothetical situation that Cussons would not also simultaneously transition to ultra-concentrates.  The court accepted that Unilever was unsure of Cussons' intentions.  Internal emails from December 2008 also showed that Unilever thought that Cussons might be acting on its own, as a rogue player.

Although there was evidence of incidents suggesting that an arrangement or understanding existed between Colgate and Unilever, these incidents did not involve Cussons and in fact, never came to Cussons' knowledge.

In August 2008, although Colgate and Unilever were increasingly sure that the transition date was going to be March 2009, internal Cussons documents demonstrated that they were still unsure about when Woolworths' start date for stocking the new products would be.  

There was further evidence which demonstrated that Cussons was not privy to an arrangement or understanding with Colgate and Unilever. The court accepted that Cussons did not know what price the other Suppliers were setting their ultra-concentrates at, the size of the powder scoop, what performance or environmental claims might be made on the packaging, or what the concentration level would be.

Key practical takeaways for managing cartel and concerted practices risks

With ACCC chairman Rod Sims emphasising that cartel conduct will continue to be an enduring enforcement and compliance priority, businesses should expect the ACCC to take an even tougher stance against cartels.

It is worth noting that the ACCC took action against Cussons prior to the introduction of the prohibition against anti-competitive concerted practices in November 2017.  The Cussons judgment highlights the difficulty of proving that an  arrangement or understanding existed.  Instead of having to prove a "meeting of the minds" between competitors, the ACCC can now institute proceedings against parties who engage in conduct with the purpose or likely effect of substantially lessening competition, even if there is no arrangement or understanding between them.  

Although the ACCC is yet to bring proceedings under the new laws, businesses should be aware of the significantly wider scope under which concerted practices allegations may be brought.  We expect to see significant ACCC enforcement action regarding exchanges of competitively sensitive information between competitors, both directly with each other and indirectly through third parties, to test the scope of the new concerted practices prohibition. 

Cussons was effectively able to point to proactive measures it took to distance itself from the cartel arrangement or understanding.  

The relevant practical steps other businesses may consider taking when faced with risks of cartel conduct and concerted practices include:

• minimise direct communications with competitors, whether via meetings, emails or telephone calls, and clearly document all communications to reduce any risk of ambiguity about what was discussed;
• implement and enforce a strict communications protocol for employees at all levels in the business who may have discussions with competitors – in some instances, it may be necessary to prohibit discussions about a particular topic or product entirely;
• consider providing specialised training to senior business representatives on how to appropriately communicate with competitors in order to mitigate any risks of appearing to agree or commit to plans or strategies;
• seek out competition law advice regarding any proposed agreement with a competitor and be able to demonstrate having acted in accordance with that advice, where appropriate;
• state clearly any objections to an inappropriate proposal or to the receipt of commercially sensitive information – it is important to ensure this stance is reflected in the correspondence between competitors, minutes of any meetings and subsequent internal documents or memoranda; 
• ensure any internal papers reflect a genuine commercial purpose and effect that is not anti-competitive; and
• if threatened with competition law proceedings, gather evidence of any actions or discussions that would not have taken place if the alleged wrongdoing had actually occurred – for example, Cussons was able to point to internal workshops which were inconsistent with collectively agreeing to a market approach or strategy.

Although these examples are not exhaustive, they are real and practical commercial processes which can be put in place to lessen the risk of an adverse finding of cartel conduct, as the Cussons decision demonstrates.  

In addition, we would recommend establishing protocols governing discussions between competitors, including merger parties pre-completion and participants of trade association meetings.  Businesses should be aware of and trained on the new concerted practices prohibitions as well as the cartel prohibitions.