Australian Competition and Consumer Commission v Australian Egg Corporation Limited
[2016] FCA 69
•10 February 2016
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Australian Egg Corporation Limited [2016] FCA 69
File number: SAD 121 of 2014 Judge: WHITE J Date of judgment: 10 February 2016 Catchwords: COMPETITION – allegation of attempt to induce cartel conduct in contravention of the Competition and Consumer Act 2010 (Cth) – whether respondents intended to bring about arrangement or understanding to limit the production or supply of eggs for sale – whether crown immunity applies in the case of the Australian Egg Corporation Ltd – conduct engaged in on behalf of body corporate – whether directors of corporate respondents acting within scope of actual or apparent authority – circumstantial case – attempt to induce cartel conduct not proved Legislation: Competition and Consumer Act 2010 (Cth) ss 2A, 2AP, 4, 44ZZRJ, 44ZZRD, 76, 80, 84
Corporations Act 2001 (Cth)
Egg Industry Services Provision Act 2002 (Cth) ss 6, 7, 9
Egg Industry Services Provision Bill 2002
Egg Industry Services Provision (Transitional and Consequential Provisions) Act 2002 (Cth)
Evidence Act 1996 (Cth) s 140
Fair Trading Act 1987 (NSW)
Primary Industries (Excise) Levies Act 1999
Primary Industries (Excise) Levies Regulations 1999
Primary Industries Levies and Charges Collection Act 1999 (Cth)
Primary Industries Research and Development Act 1989 (Cth) ss 8, 17, 60, 143
Cases cited: Australian Competition and Consumer Commission v Flight Centre Ltd(No 2) [2013] FCA 1313; (2013) 307 ALR 209
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794; (2007) 160 FCR 321
Australian Competition and Consumer Commission v Mobil Oil Australia Ltd (1997) ATPR 41-568
Australian Competition and Consumer Commission v Real Estate Institute of Western Australian Inc [1999] FCA 18; (1999) 161 ALR 79
Australian Competition and Consumer Commission v SIP Australia Pty Ltd [2002] FCA 82
Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2000] FCA 1640; (2000) 186 ALR 731
Australian Securities and Investments Commission v Hellicar [2012] HCA 17, (2012) 247 CLR 345
Bennett v Elysium Noosa Pty Ltd [2012] FCA 211; (2012) 202 FCR 72
Bradken Consolidated Ltd v Broken Hill Propriety Co Ltd (1979) 145 CLR 107
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Bropho v Western Australia (1990) 171 CLR 1
Grain Elevators Board (Victoria) v President, Councillors and Ratepayers of the Shire of Dunmunkle (1946) 73 CLR 70
Heating Centre Pty Ltd v Trade Practice Commission (1986) 9 FCR 153
Inglis v Commonwealth Trading Bank (1969) 119 CLR 334
Jones v Dunkel (1959) 101 CLR 298
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11, (2011) 243 CLR 361
McMullin v ICI Australia Operations Pty Ltd [1997] FCA 541; (1997) 72 FCR 1
NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558; (2000) 107 FCR 270
Norcast S.ár.L v Bradken Ltd (No 2) [2013] FCA 235; (2013) 219 FCR 14
NT Power Generation Pty Ltd v Power & Water Authority [2002] FCAFC 302; (2002) 122 FCR 399
NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48, (2004) 219 CLR 90
R v Toohey; Ex parte Attorney‑General (NT) (1980) 145 CLR 374
RP Data Ltd v State of Queensland [2007] FCA 1639; (2007) 221 FCR 392
Re Burgundy Royale Investments Pty Ltd [1987] FCA 454
Townsville Hospitals Board v Council of the City of Townsville (1982) 149 CLR 282
Trade Practice Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168
Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 7 FCR 534
Trade Practices Commission v Service Station Association Ltd (1992) 109 ALR 465
Trade Practices Commission v Service Station Association Ltd [1993] FCA 405; (1993) 44 FCR 206
Trade Practice Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719
Village Building Co Ltd v Canberra International Airport Pty Ltd (No 2) [2004] FCA 133; (2004) 134 FCR 422
Date of hearing: 20-24 and 28 and 29 April 2015 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Category: Catchwords Number of paragraphs: 427 Counsel for the Applicant: Mr T Duggan SC with Ms N Charlesworth Solicitor for the Applicant: Australian Government Solicitor Counsel for the First and Second Respondents: Mr S Doyle SC Solicitor for the First and Second Respondents: Minter Ellison Counsel for the Third Respondent: Mr D Star with Mr T Goodwin Solicitor for the Third Respondent: B2B Lawyers Counsel for the Fourth Respondent: Ms R Orr QC Solicitor for the Fourth Respondent: Lander & Rogers Lawyers Counsel for the Fifth and Sixth Respondents: Mr P Gray SC with Mr L Merrick Solicitor for the Fifth and Sixth Respondents: Henry Davis York
Table of Corrections 10 March 2016 In paragraph 16, “cause of action” has been replaced with “course of action. 10 March 2016 In the third sentence of paragraph 68, “there by” has been replaced with “there be”. 10 March 2016 In paragraphs 69 and 73, “Trade Practice Commission” has been replaced with “Trade Practices Commission”. 10 March 2016 In the second quote in paragraph 73, “has said” has been replaced with “is said”. 10 March 2016 In paragraph 77, “preparation” has been replaced with “proposition”. 10 March 2016 In the first sentence of paragraph 78, “arrangement of understanding” has been replaced with “arrangement or understanding”. 10 March 2016 In paragraph 95, “2AP” has been replaced with “2A(2)”. 10 March 2016 In paragraph 106, “hen industry” has been replaced with “egg industry”. 10 March 2016 In paragraph 215, “Qurike” has been replaced with “Quirke”. 10 March 2016 In paragraph 244, “I find it have been the fact” has been replaced with “I find it to have been the fact”. ORDERS
SAD 121 of 2014 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant
AND: AUSTRALIAN EGG CORPORATION LIMITED (and others named in the Schedule)
First Respondent
JUDGE:
WHITE J
DATE OF ORDER:
10 FEBRUARY 2016
THE COURT ORDERS THAT:
1.The Applicant’s claims concerning the First, Second, Third, Fifth and Sixth Respondents are dismissed.
2.The Applicant’s claim against the Fourth Respondent is to be listed for hearing of submissions concerning the parties’ agreement with respect to the claim against him.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
Introduction
[1]
The parties
[7]
Agreement between the ACCC and Mr Lendich
[14]
The Australian egg industry
[28]
Overview of the ACCC claims
[33]
The impugned conduct
[58]
Statutory provisions
[59]
Relevant principles
[65]
The evidence in the trial
[82]
The principal issues
[87]
Does the CC Act apply to AECL?
[88]
Is AECL an agent or emanation of the Crown?
[97]
AECL’s origins
[102]
The EISP Act
[109]
AECL’s Constitution and functions
[113]
AECL’s relationships with the Australian Government
[122]
The funding of AECL’s activities
[132]
Determination of whether AECL is an agency or emanation of the Crown
[139]
Is AECL an “authority of the Commonwealth”?
[158]
Was AECL carrying on a business?
[168]
Summary
[182]
The Summit
[183]
The course of events at the Summit
[186]
Mr Kellaway’s presentation
[195]
Mr Quirke’s presentation
[210]
The general discussion
[217]
Mr Ironside’s opening remarks
[239]
An attempt to induce
[245]
The atmosphere of crisis
[248]
AECL custom and practice
[257]
The calling of the Summit
[263]
The contemporaneous statements of purpose
[265]
The reference to an ‘independent auditor’
[280]
Other events at the Summit
[308]
A disclaimer by Mr Ironside?
[313]
Post meeting matters
[338]
Communication management
[350]
The explanation for the Summit
[361]
Consideration of the circumstantial case
[379]
Is the conduct of Mr Bell to be attributed to Farm Pride?
[410]
Summary
[427]
WHITE J:
Introduction
Corporations must not make arrangements or enter into understandings which contain a “cartel provision”: Competition and Consumer Act 2010 (Cth) (the CC Act) s 44ZZRJ. Persons who attempt to induce another to do so are liable to the imposition of a penalty (s 76(1)) and to restraint by injunction (s 80).
A cartel provision includes (relevantly) a provision in an arrangement or understanding which has the purpose of restricting or limiting the production or supply of goods by some or all of the parties to the arrangement or understanding, in circumstances in which at least two of the parties are, or are likely to be, in competition with one another.
The Australian Competition and Consumer Commission (the ACCC) alleges that each of the six respondents attempted to induce the 19 egg producers represented at a meeting on 8 February 2012, all of whom were in competition with at least one other, to make an arrangement, or to enter into an understanding, to limit the supply of eggs, which would contravene s 44ZZRJ. It contends that the conduct constituting the attempt commenced on 19 January 2012 and concluded at the meeting on 8 February 2012, and was directed to eliminating an oversupply of eggs causing downwards pressure on prices. The ACCC alleges that the respondents’ conduct went beyond the dissemination of information to egg producers as to egg inventory levels and called for a form of coordinated and consolidated action to reduce the supply of eggs. It seeks declarations as to the respondents’ conduct, the imposition of penalties, the issue of injunctions and other relief.
The Court ordered that the issues of liability be determined separately from the issues of relief.
Shortly before the trial, the fourth respondent, Mr Lendich, reached agreement with the ACCC which involved an admission by him that he had made an attempt of the kind alleged.
For the reasons which follow, I find that the ACCC has not established its allegations against the remaining respondents.
The parties
The first respondent (AECL) is an unlisted public company limited by guarantee. It does not itself engage in the production, distribution or marketing of eggs but operates as an industry body. It is the “industry services body” for the purposes of the Egg Industry Services Provision Act 2002 (Cth) (the EISP Act) and, as such, receives funding from the Commonwealth Government. That funding is to be expended for defined purposes, including research and development (R&D) and promotion.
The AECL operates as an industry representative body in many senses but is prohibited by its constitution and by the Statutory Funding Agreements (the SFAs) into which it has entered with the Commonwealth from engaging in agri‑political activities.
The AECL provides information to its members, and others, by three publications. The first is a fortnightly email update entitled “EggCorp EggsPress”. The second is a quarterly magazine entitled “Eggstra! Eggstra!”. In addition to being sent to egg producers, these publications are also sent to Government ministers, Commonwealth and State departments and others with some involvement or interest in the egg industry. The third is a monthly publication called the “Layer and Egg Supply Forecast Report” (the Forecast Report) which is sent only to subscribers. Not all egg producers are subscribers.
It will be necessary to consider the functions and objects of the AECL more closely but, for the present, it is sufficient to note that a principal function is the collection, analysis and communication of information relating to the egg industry, including crisis and issue management.
The second respondent, Mr Kellaway, is (and was at relevant times) the Managing Director of AECL. Mr Kellaway gave evidence in the trial.
The third respondent, Farm Pride Foods Ltd (Farm Pride), carries on business as an egg producer and distributor in Victoria and New South Wales. It is said to be the third largest egg producer in Australia. Farm Pride’s directors at relevant times included Mr Lendich, and a Mr Bell. Mr Lendich was also a director of AECL. The ACCC case relied on the conduct of each. Mr Lendich ceased as Managing Director of Farm Pride on 30 April 2014 and by the time of trial had also ceased to be a director of AECL.
The fifth respondent, Ironside Management Services Pty Ltd which trades as Twelve Oaks Poultry (IMS), is an egg producer based in Queensland. The sixth respondent, Mr Ironside, is one of its directors and at relevant times was also chairman of the Board of Directors of AECL. IMS is described as a medium sized egg producer.
Agreement between the ACCC and Mr Lendich
As already noted, shortly before the commencement of the trial on the liability issues on 20 April 2015, the fourth respondent, Mr Lendich, agreed with the ACCC that in the period between 19 January and 8 February 2012 he had attempted to encourage egg producers to enter into an arrangement, or to arrive at an understanding, containing a provision with the purpose of preventing, restricting or limiting the production or supply of eggs. Mr Lendich also agreed that at the time of his attempt the egg producers were corporations at least two of whom were in competition with each other in relation to the production and supply of eggs. The ACCC and Mr Lendich agreed on certain facts relating to his conduct, the orders to be made in respect of the conduct, and on submissions to be made jointly in support of the Court making the agreed orders.
The initial “preference” of the ACCC and Mr Lendich, announced at the commencement of the trial, was that the proceedings concerning Mr Lendich be heard and determined before the trial concerning the remaining respondents. Counsel contemplated that this would have the effect that the trial against the remaining respondents would be delayed while this occurred.
However, counsel for the ACCC also recognised the potential for that course of action to compromise my ability to be the trial Judge and suggested that it may be preferable for another Judge to hear that part of the proceedings which concerns Mr Lendich.
Mr Lendich sought to have the proceedings against him heard and determined as soon as practicable, having regard, amongst other things, to his medical condition. He sought a separate hearing and determination of the proceedings insofar as they concerned him. Ultimately the ACCC supported that position.
Counsel for the ACCC and Mr Lendich emphasised a number of matters in support of this approach. These included the potential unfairness to Mr Lendich if, having agreed facts with the ACCC, the Court may not be willing to act on those facts, wholly or partially, by reason of the evidence it hears in relation to the remaining respondents and, more generally, the reduced attractiveness for one of several respondents in an action of the present kind to reach a settlement with the regulator if effect may not be given to that settlement and, instead, its fate depend on the outcome of the trial concerning the remaining respondents. Counsel also referred to the potential need for a party in this circumstance to remain in the trial in order to safeguard his or her own interests.
The other respondents all submitted that the hearing and determination of the proceedings against Mr Lendich should be deferred until after the hearing and determination of the liability aspects of the ACCC claims against them. They referred, variously, to the interests of the administration of justice in trial judges avoiding creating circumstances in which they may have to disqualify themselves and to the avoidance of the potential for inconsistent verdicts.
I ruled that I would hear the submissions concerning the agreement between the ACCC and Mr Lendich after the determination of the liability aspects against the remaining respondents. My reasons were as follows.
The proceedings had been commenced on 26 May 2014 and, on 18 September 2014, had been listed for trial to commence on 20 April 2015 with 10 days set aside. The ACCC and Mr Lendich reached their agreement on 17 April, just before the scheduled commencement of the trial. Given the arrangements for the trial, I considered it inappropriate for its commencement to be delayed by reason of the relatively late agreement between the ACCC and Mr Lendich.
I also considered severance of the ACCC claims against Mr Lendich to be inappropriate. First, I was not confident that such a severance was practical. However, even if it was, the course proposed by the ACCC and Mr Lendich involved the prospect of there being inconsistent verdicts. That is especially so as it was plain that the ACCC relied on conduct of Mr Lendich in relation to the allegations which it made against AECL and Farm Pride.
Secondly, the proposed agreement between the ACCC and Mr Lendich involves the Court making declarations. The Court will have to consider whether or not those declarations are appropriate, notwithstanding the consent of the ACCC and Mr Lendich: Australian Competition and Consumer Commission v Real Estate Institute of Western Australian Inc [1999] FCA 18; (1999) 161 ALR 79 at [1], [20]‑[21]. The Court will be in a better position to make that assessment once it has heard the evidence to be presented by the ACCC against the remaining respondents. There is at least one instance of the Court declining to make the declarations agreed upon by some parties after hearing the evidence in the trial of the allegations against other parties: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794; (2007) 160 FCR 321.
Thirdly, there is the public interest in the efficient use of judicial resources. It was apparent that the parties proposed tendering a significant amount of evidence, both oral and documentary. In the event that the matter was severed and the proceedings against Mr Lendich referred to another Judge, it may not have been necessary for that Judge to receive all the same material but I thought it likely that the Judge would require at least a significant portion of it. The time and distraction from other work which would be involved in another Judge absorbing this material could be avoided if all aspects of the matter remained before me.
I recognised of course Mr Lendich’s personal interest in having the proceedings against him finalised as soon as practical. However, I did not think that that outweighed the public interest to which I have just referred.
For these reasons, the Court directed that it would hear the submissions of Mr Lendich and the ACCC regarding these matters after it had delivered judgment on the trial of the liability issues involving the remaining respondents. Mr Lendich was then excused and took no further part in the trial.
The ACCC did not seek to adduce evidence of Mr Lendich’s admissions in the trial. Nor did it call him to give evidence in the trial. It was common ground that the admissions by Mr Lendich in his agreement with the ACCC were not evidence against any other respondent.
The Australian egg industry
The Australian egg industry to which these proceedings relate is concerned with the production and distribution of hen eggs to market. Most are sold as fresh eggs but there is a portion of the market concerned with the pulping and processing of eggs.
The principal participants in the industry are hatcheries and egg producers. Hatcheries are engaged in the production of day‑old chicks and, in some instances, the rearing of those chicks to laying age (approximately 16‑18 weeks). Egg producers either rear their own chicks or acquire them from specialist pullet rearers who develop the day‑old chicks to the point‑of‑lay age. Hens are productive until they are about 84 weeks, although there is some decline in productivity from about the age of 75 weeks.
Egg producers produce eggs from layer hens and supply those eggs to distributors or direct to market. There are three main layer farming systems used by egg producers, termed “cage”, “barn laid”, and “free range”.
During 2011 and in early 2012, there were approximately 323 commercial egg producers in Australia and approximately 10 hatcheries. Of the commercial egg producers, approximately 109 were members of AECL. The number of layer hens during 2011 and early 2012 exceeded 15 million at any one point in time.
Egg producers are located in all States and Territories of Australia other than the Australian Capital Territory. The commercial hatcheries are also located at various places around Australia.
Overview of the ACCC claims
The ACCC claim is that throughout most of 2011 and early 2012, the respondents, and in particular the AECL, were concerned about the oversupply of eggs and its effect on prices. The ACCC alleges that between 19 January and 8 February 2012, the respondents took action to address these concerns by encouraging certain egg producers to make an arrangement or arrive at an understanding to limit their production.
I make the following findings of fact by way of overview of the ACCC claims. For the most part, the matters I record in this section of the reasons were uncontroversial.
AECL monitors both egg production and the demand for eggs in Australia. Since 2003, it has engaged International Economics Pty Ltd, trading as The Centre for International Economics (CIE), to provide it periodically with reports regarding, amongst other things, levels of egg production, analyses of egg production and distribution markets in Australia, and forecasts of the demand for, and the supply of, eggs in Australia. Mr Quirke was the principal person within CIE providing the reports, analyses and forecasts to AECL.
The Board of AECL usually meets monthly. During 2011 and the early part of 2012, a standing item on the agendas for its meetings was “Egg Industry KPIs”. Mr Kellaway said that the KPIs on which he reported under this agenda item were chick orders/placements, egg production, egg consumption, national egg inventory levels, retail sales for the three types of eggs (cage, barn laid and free range), and the return on the promotion levy investment by reference to retail egg sales. In addition, the directors received reports from time to time from CIE and discussed matters relevant to the supply and demand, and forecast supply and demand, of eggs.
Throughout most of 2011, the information provided to the Board of AECL indicated that the supply of eggs was exceeding, and was likely to continue to exceed, demand. A recurrent theme at the Board meetings was the addressing of the oversupply.
The following are extracts from the Minutes of the Directors’ Meetings relating to the agenda item “Egg Industry KPIs” which indicate the increasing concern of directors about the oversupply. There was no suggestion that the Minutes were not an accurate record of the matters discussed by the directors.
23 March 2011 Directors discussed the methodology used in calculating the total egg sales figures and requested the clarification of what is included in these figures and how the figures are extrapolated.
Directors also discussed the quantity of eggs currently going to egg product and the camouflage effect that this is having on the current inventory levels. Egg product inventory levels are high with reduced avenues of disposal particularly as large amounts of egg product are being imported and sold at less than Australian manufacturers can produce it at.
It was agreed that an article should be included in EggCorp Eggs Press highlighting the effect on inventory levels of the processing of egg product.
Directors further discussed the need for the education of egg producers on how to manage their production levels and agreed that a meeting should be convened prior to the 15th AECL Forum at which Derek Quirke be invited to speak.
21 April 2011 The Managing Director advised that he is seeking clarification on the methodology used in calculating the total egg sales figures.
It was agreed that the 20 largest egg producers should be asked to provide their chick placement data for the next three years to CIE in order to minimise the large “peaks” and “troughs” in hatchings and hence placements.
Derek Quirke will present at the 15th AECL Industry Forum and will focus on the oversupply issue and how it can be managed.
4 August 2011 The Managing Director commented on the chick placement figures which show a 2.5% average month on month growth since Company operations began.
The directors expressed concern at the early warning signs of an oversupply in Spring 2011. It was suggested that the issue be addressed at the planned workshops to discuss the Quality Assurance program.
1 September 2011 It was noted that September chick orders were revised down approximately 13% compared to the previous report. The Managing Director commented this might be due to the cancellation or postponement of orders.
18 September 2011 It was noted that September chick orders were revised down again while October orders increased on the previous report. The Managing Director commented this is due to the cancellation or postponement of orders.
An update on the egg inventory over the Spring period was provided and to date this year, inventory increases are the steepest they have been for some time.
27 October 2011 The Managing Director noted that 213 eggs per capita is the current level of consumption for October. In October, a record high was reached in inventory levels, coinciding with a record high in production.
August also saw the highest ever record in both the volume and dollar value of free range eggs mainly due to the lower retail price point.
23 November 2011 The Managing Director noted that egg inventories remain at an all‑time high level.
The volume of free‑range eggs sales in September reached another all‑time record high, although due to a decrease in the unit price the sales value was lower.
22 December 2011 The Managing Director noted that egg inventories have declined slightly but remain very high.
The volume of free‑range egg sales in October reached another all‑time record high, while the unit cost for the same fell to the lowest since July 2006.
19 January 2012 The Managing Director noted that egg production and chick placement orders are at an all time high. AECL directors found these over supply figures disturbing and expressed the need to tackle the issue with some urgency.
They identified three solutions to the problem of oversupply: firstly, to discourage backyard egg production, secondly, to set up promotion to increase demand, and most urgently to invite the top 25 egg producers to a meeting to encourage destocking and egg disposal.
(Emphasis added)
The ACCC’s submissions emphasised the italicised portions and, in particular, the solution identified at the meeting on 19 January 2012 of holding a meeting “to encourage destocking and egg disposal”.
The Board action sheet prepared in respect of the meeting of 22 December 2011, showed against the agenda item 2.1 “Egg industry KPIs” the following action:
Alert notice to reduce stock levels to be sent to all egg producers.
The action sheet shows that Mr Kellaway was to take this action. Mr Kellaway deposed that he could not recall whether he had sent an alert notice, and the extensive documentary evidence in the trial did not include a copy of any such notice. However, I think it likely that Mr Kellaway did send the notice. It is improbable that he would not have acted in accordance with the identified action as the Board action sheet shows that the action was to be completed in January 2012. AECL did issue alert notices from time to time, as Mr Kellaway said that he had sent between three and five alert notices during his time as Managing Director.
During 2011, the AECL had held two industry forums: the first on 26 May 2011 and the second on 24 November 2011 at which, amongst other things, forecasts of egg supplies had been presented to those attending who were, in the main, egg producers.
At the industry forum held in Melbourne on 26 May 2011, Mr Quirke made a presentation on, amongst other things, “layer and egg supply forecast”. In that presentation, Mr Quirke reported on a 8.3% increase in egg production in 2011 as well as presenting a projection of the impact this would have on prices “without continued action by industry”.
Mr Quirke also made a presentation at the AECL Industry Forum held in Launceston on 24 November 2011, entitled “layer and egg supply forecasting update”, but the evidence did not indicate the content of his presentation.
The Annual General Meeting of AECL was held on 24 November 2011. The issue of egg oversupply was raised at that meeting also. Under the agenda item “Other business” the minutes record:
Mr James Kellaway proposed that more be done to manage the annual market oversupply by convening a meeting for all egg producers prior to spring each year.
As noted earlier, at their meeting on 19 January 2012, the directors of AECL identified as one of the means of addressing the oversupply problem the inviting (urgently) of the top 25 egg producers to a meeting “to encourage destocking and egg disposal”. Although the minutes do not record a resolution by the directors to act in accordance with that alternative, it can be inferred that they did so. It was customary for the Board to reach decisions by consensus and I am satisfied that it did so on this occasion.
The Board action sheet in respect of the meeting contained the following entry:
Hold EP 25 Summit in early February on over production.
EP was an abbreviation for “egg producers” and the number 25 a reference to the top 25 egg producers.
On the following day (20 January), the AECL by Mr Kellaway sent an email to 25 egg producers with the subject heading “Egg oversupply (crisis) meeting”. The substantive content of the email was as follows:
Dear egg producer,
In light of record levels of production (and increasing) and records levels of egg inventory, the AECL Board has considered it necessary to urgently convene a meeting to:
ŸReview the current oversupply situation (please see attached);
ŸIts impact on producer returns;
ŸThe likely supply scenario for the remainder of 2012; and
ŸHow to resolve the current crisis for the betterment of the egg industry.
In so doing, we are inviting the top 25 egg producers to attend a meeting which will be held in Sydney during the afternoon of either:
ŸWednesday 8 February
ŸThursday 9 February
AECL apologises for the short notice but we consider it CRITICAL that all major egg producers are present to help resolve the current crisis.
Please let me know your preferred date by return e‑mail by Wednesday next week after which, I will let you know of the venue.
Please consider attending this meeting a priority in our diary.
Kind regards
James Kellaway
Managing Director.(Emphasis in the original)
Mr Kellaway confirmed the arrangements for the meeting in an email from AECL on 27 January 2012 under the subject heading “Egg oversupply (crisis) meeting confirmed …”. The substance of the email was as follows:
Dear egg producer
Thank you to those who responded to my e‑mail late last week. Please be advised of the meeting as outlined below:
When: Wednesday 8 February, 2012 @ 1:00pm
Where: Mercure Sydney Airport, 20 Levey Street, Wolli Creek
I envisage the meeting to conclude at 3.30pm after which afternoon tea/coffee will be made available. My apologies for those who nominated the alternate day as their preferred time but I have had to accommodate the majority. It is pleasing to note that we will have most of the 25 egg producers present and some additional producers who wish to attend and contribute to the current industry oversupply challenge.
The agenda for the meeting will to:
Ÿ Review the current oversupply situation;
Ÿ Its impact on producer returns;
Ÿ The likely supply scenario for the remainder of 2012; and
Ÿ How to resolve the current crisis for the betterment of the egg industry.
Kind regards,
James Kellaway
Managing DirectorThe ACCC emphasised the content of the fourth dot point in each of the emails of 20 and 27 January.
Mr Kellaway sent a further email to the top 25 egg producers and one or two others on 31 January 2012. This email also had the subject heading “Egg oversupply (crisis) meeting confirmed …”. The substance of the email was as follows:
Dear egg producer,
Thank you for those who have shown interest in attending this meeting and I look forward to seeing you on Wednesday 8 February @ 1:00pm at the Mercure Sydney Airport Hotel. Please see attached agenda.
The attached agenda was as follows:
AUSTRALIAN EGG CORPORATION LIMITED
EP25 Summit
Egg oversupply (crisis) meeting
Wednesday 8 February, 2012
Commencing at 1.00pm
Mercure Hotel, Sydney Airport
20 Levey Street, Wolli Creek
AGENDA
1.Welcome & introductions
2.Purpose of the summit
3.Status of the current egg supply situation
4.Impact on producer returns (discussion)
5.Likely supply scenario for the remainder of 2012
6.How to resolve the current crisis
7.Other business
8.Next meeting
9.Close
Mr Kellaway also wrote about the foreshadowed meeting in the edition of EggCorp EggsPress distributed on 25 January 2012. He said:
Dear Egg Producer,
Given the significant and now record levels of egg production and egg inventory, AECL has requested a meeting of the top 25 egg producers to seek a “path forward” for the egg industry in a coordinated and consolidated fashion to ensure its profitable sustainability, a key part of the egg industry’s vision. All other egg producers are welcome to join the meeting that will take place in Sydney during early February.
If you wish to attend the summit meeting, please contact me on [phone number] or [email address].
Sincerely,
James Kellaway
Managing Director.
(Emphasis added)
In another section of the same EggCorp EggsPress, producers were informed of the increasing surplus of eggs in the market. The entry was as follows:
Layer & Supply Forecast Report – January
The Forecast Report for January has been distributed to all egg producer subscribers to the service. It paints a daunting picture of record and increasing egg supplies in the market given the chicks that have already been placed and those now on order. Production is now projected to reach 34 million dozen in July this year. Action is needed by all egg producers to control the oversupply and surplus. The best indicator is your cool room and the increasing stocks in inventory. The inventory report suggests that inventory levels are now at record volumes, in excess of 5 million dozen.
For further information, please contact James Kellaway on [telephone number] or [email address].
(Emphasis added)
On 30 January 2012, Mr Kellaway participated in an interview on ABC Radio in which he said that 400,000 to 500,000 birds may need to be culled. Mr Kellaway went on to say:
The margins in this industry, like other fresh perishable type industries, are squeezed. They are low, the margins are not significant. To that extent, any supply or any small chink in the market, can have significant ramifications if it’s sustained over the longer term.
The term “egg oversupply crisis meeting” appears to have been first used in the email from Mr Kellaway on 20 January. Thereafter Mr Kellaway used the term in the documents confirming the arrangements for the meeting and in the circulated agenda for the meeting. The ACCC attached some significance to the term. In order to be a little more neutral, I will use the term “Summit” which was used in the Board Action Sheet.
Some 22 persons (other than Mr Kellaway and Mr Quirke) attended the Summit (the Attendees). They represented 19 egg producers from all States and Territories other than the Australian Capital Territory. The precise capacity in which Mr Lendich, Mr Bell and Mr Ironside attended was an issue in the proceedings.
Mr Ironside chaired the Summit and made some opening remarks. Each of Mr Kellaway and Mr Quirke made PowerPoint presentations. Although some witnesses were uncertain as to the sequence in which the presentations were made, I am satisfied that Mr Kellaway made his first. I will make detailed findings about events at the Summit later.
The impugned conduct
Subject to some qualifications, the conduct upon which the ACCC relies for its allegations is the decision of the Board of AECL on 19 January 2012 to convene the Summit, the convening of that meeting, the edition of EggCorp EggsPress of 25 January 2012, the statements and presentations made at the Summit, and conduct, said to be conduct by omission, of Messrs Kellaway, Lendich, and Ironside in failing to dissociate themselves or AECL from the suggestion that the Attendees should agree upon a limitation on their production. The ACCC also relies on the respective failures of Messrs Lendich and Bell to dissociate Farm Pride, and of Mr Ironside to dissociate IMS, from the same suggestion. The conduct of the respondents said to constitute their respective attempts to induce the contravention of s 44ZZRJ is not identical.
Statutory provisions
Section 44ZZRJ of the CC Act provides:
44ZZRJ Making a contract etc. containing a cartel provision
A corporation contravenes this section if:
(a)the corporation makes a contract or arrangement, or arrives at an understanding; and
(b) the contract, arrangement or understanding contains a cartel provision.
The “cartel provision” to which s 44ZZRJ refers is defined in s 44ZZRD. By subs (1), a provision of a contract, arrangement or understanding is a cartel provision if (relevantly) the “purpose condition” set out in subs (3) and the “competition condition” set out in subs (4) are satisfied in relation to the provision. Section 44ZZRD(3) provides (relevantly):
(3)The purpose condition is satisfied if the provision has the purpose of directly or indirectly:
(a) preventing, restricting or limiting:
(i)the production, or likely production, of goods by any or all of the parties to the contract, arrangement or understanding; or
…
(iii)the supply or likely supply, of goods or services to persons or classes of persons by any or all of the parties to the contract, arrangement or understanding; or
…
By subs (4), the competition condition is satisfied if (relevantly) at least two of the parties to the arrangement or understanding are, or are likely to be, in competition with each other in relation to the production of the goods or the supply of those goods or services, as the case may be. In this case, each respondent admitted that each of the Attendees at the Summit was in competition with at least one other in relation to the production and supply of eggs. Accordingly, this element does not need to be considered further.
Section 44ZZRD(9) provides:
Considering related provisions—purpose condition
(9)For the purposes of this Division, a provision of a contract, arrangement or understanding is taken to have the purpose mentioned in a paragraph of subsection (3) if the provision, when considered together with any or all of the following provisions:
(a) the other provisions of the contract, arrangement or understanding;
(b)the provisions of another contract, arrangement or understanding, if the parties to that other contract, arrangement or understanding consist of or include at least one of the parties to the first‑mentioned contract, arrangement or understanding;
has that purpose.
Section 76(1), which is the source of the Court’s power to impose a penalty, provides (relevantly):
(1)If the Court is satisfied that a person:
…
(d)has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; or
…
the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.
The Court may issue an injunction if satisfied that a person has engaged, or is proposing to engage, in conduct which would constitute “inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene [an identified] provision” (s 80(1)(d)).
Relevant principles
The arrangement or understanding contemplated by s 44ZZRD is something less than a binding contract or agreement. The elements of the proscribed arrangement or understanding (as opposed to the elements of attempting to induce a person to enter into such an arrangement or understanding) were summarised by Gordon J in Norcast S.ár.L v Bradken Ltd (No 2) [2013] FCA 235; (2013) 219 FCR 14 at [263]. Usually evidence is required of a consensus or meeting of the minds of parties under which one party or both assumes an obligation or gives an assurance or undertaking that it will act in a certain way which may not be enforceable at law. A hope or mere expectation that, as a matter of fact, a party will act in a certain way is not sufficient to establish an arrangement or understanding, even if it has been engendered by that party. The necessary consensus or meeting of minds need not involve, although it commonly will, a reciprocity of obligations. An arrangement may be informal and unenforceable, as the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it.
As already noted, the ACCC allegation is that each respondent attempted to induce egg producers to contravene s 44ZZRJ. Because the allegations are of attempts to induce only, it is not necessary for the ACCC to establish that the respondents themselves contravened, or attempted to contravene s 44ZZRJ. Nor is it necessary for the ACCC to show that any of the respondents succeeded in inducing another to enter into an arrangement or understanding which contravened s 44ZZRJ. It is in the very nature of a case founded on an attempt that the attempt may not have succeeded.
For conduct to amount to an attempt, it must involve one or more steps towards the commission of the unlawful act and be immediately, and not merely remotely, connected or preparatory to the commission of the act: Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 7 FCR 534 at 538‑9. In the present case, the ACCC must establish conduct which is immediately connected with the inducing of the egg producers to contravene s 44ZZRJ.
Proof of an attempt to induce a contravention of s 44ZZRJ requires that the ACCC establish both a physical and mental element. As s 76(1)(d) and s 80(1)(d) make plain, the attempt to induce may be made by threats or promises or other means. However, in whatever form it takes, an inducement requires that there be “an affirmative or positive act or course of conduct directed to the person who is said to be the object of the inducement”: Australian Competition and Consumer Commission v SIP Australia Pty Ltd [2002] FCA 824 at [112]; Australian Competition and Consumer Commission v Flight Centre Ltd(No 2) [2013] FCA 1313, (2013) 307 ALR 209 at [155]. Mere persuasion, with no promise or threat, may also be an attempt to induce: Heating Centre Pty Ltd v Trade Practice Commission (1986) 9 FCR 153 at 164.
When the conduct said to constitute the attempt is comprised of words, those words must be so framed as to be persuasive and to convey the potential for an arrangement or an understanding: Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719 at 736. Toohey J went on in Tubemakers to say:
A statement made quite unilaterally of intention to do something or to refrain from doing something, with no suggestion express or implied that others might act in the same way, is hard to visualise as an attempt to make an arrangement or arrive at an understanding …
In relation to the conduct of the corporate respondents, the ACCC relies upon s 84(2) of the CC Act, which provides:
(2) Any conduct engaged in on behalf of a body corporate:
(a)by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or
(b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.
As can be seen, it is critical to the application of subs (2) that the conduct of an individual have been engaged in “on behalf of” the relevant corporate respondent. The phrase “on behalf of” does not have a strict legal meaning: R v Toohey; Ex parte Attorney‑General (NT) (1980) 145 CLR 374 at 386. In NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558; (2000) 107 FCR 270, Lindgren J reviewed several of the authorities and concluded:
[1244]It seems to me that an act is done “on behalf of” a corporation for the purpose of subs 84(2) if either one of two conditions is satisfied: that the actor engaged in the conduct intending to do so “as representative of” or “for” the corporation, or that the actor engaged in the conduct in the course of the corporation’s business, affairs or activities. This view accords with what Kiefel J said in Lisciandro v Official Trustee in Bankruptcy (1995) ATPR 41-436 at 40,903-40,904.
When making the assessment of whether conduct was engaged in on behalf of a corporation, both subjective and objective assessments may be appropriate: Bennett v Elysium Noosa Pty Ltd [2012] FCA 211; (2012) 202 FCR 72 at [207].
The mental element requires the ACCC to prove an intention to bring about an arrangement or understanding with the proscribed qualities. In this respect, Toohey J said in Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183:
Where an attempt to induce is alleged, the submission was that there must be an intention to bring about the required result. I accept that, in the case of attempt, there must be an intention to bring about the prohibited result. I refer to my decision in Trade Practices Commission v Tubemakers of Australia Ltd (supra) in particular at 737 where I said:
“In ordinary parlance, to say that a person has attempted to do something means that he has acted with the purpose of bringing about that which he is said to have attempted. Questions may arise as to what precisely must be proved to establish attempt to commit an offence, but the principle that proof of intent is necessary is well established …”
See also Trade Practices Commission v Service Station Association Ltd (1992) 109 ALR 465 at 486, 488; Australian Competition and Consumer Commission v Visy Paper Pty Ltd [2000] FCA 1640, (2000) 186 ALR 731 at [164].
In the case of the personal respondents, the ACCC is required to establish that each, subjectively, intended to bring about an arrangement or understanding having the proscribed qualities. In relation to the corporate respondents, the ACCC relies again on provisions in s 84 of the CC Act:
(1) If, in:
(a) …
(b)a proceeding under this Part in respect of conduct engaged in by a body corporate, being conduct in relation to which section 44ZZRJ, 44ZZRK, 46 or 46A or Part IVB applies;
it is necessary to establish the state of mind of the body corporate, it is sufficient to show that:
(c)a director, employee or agent of the body corporate engaged in that conduct; and
(d)the director, employee or agent was, in engaging in that conduct, acting within the scope of his or her actual or apparent authority; and
(e) the director, employee or agent had that state of mind.
…
(5)A reference in this section to the state of mind of a person includes a reference to the knowledge, intention, opinion, belief or purpose of the person and the person’s reasons for the person’s intention, opinion, belief or purpose.
Section 84(1) has the effect that the ACCC must not only establish that the particular directors of the corporate respondents had the requisite intention but, in addition, at the time of engaging in the impugned conduct, were acting within the scope of their actual or apparent authority.
Some of the submissions of the respondents were to the effect that it was necessary for the ACCC to adduce evidence, with some particularity, of the proscribed arrangement which it was said that they had attempted to induce. AECL and Mr Kellaway submitted that there must be some evidence of, and particularity as to, what the proscribed arrangement would be. Counsel referred to Tubemakers at 733‑5; to Service Station Association at 483‑4; and to Australian Competition and Consumer Commission v Mobil Oil Australia Ltd (1997) ATPR 41‑568. The respondents submitted that the ACCC had failed to provide evidence with the requisite level of particularity. IMS and Mr Ironside submitted that this lack of precision was fatal to the ACCC case in the sense that it made its allegations unprovable.
In my opinion, none of the authorities stands for the proposition for which counsel contended, and I do not accept it.
In those cases in which the ACCC alleges that an arrangement or understanding had been reached, there must be evidence of a meeting of minds between the parties under which at least one of them assumes an obligation or undertakes to act in a certain way. However, in the case of an alleged attempt, what must be established, relevantly, is that the respondents engaged in conduct (took a step towards) inducing others to reach an agreement or understanding that at least one or more would limit their production or supply. Liability under s 76(1)(b) is established if the respondent engaged in conduct directed towards inducing another to reach an agreement or understanding which has the proscribed qualities. Section 76(1)(d) will be engaged if a respondent has engaged in the requisite conduct with the particular intention, even if the form of the proposed agreement or understanding is unparticularised, undeveloped and inchoate. It is not necessary for the ACCC to establish in addition that the agreement or understanding was to take a particular form or to have a particular content or would involve, as in this case, only particular egg producers.
The approach just outlined is supported by the reasons of the Full Court in Parkfield Operations at 539‑40:
Finally, his Honour thought that there could be no attempt to induce XL to make an arrangement of the kind alleged if there was no arrangement which was in place or could readily be effected. He thought that the evidence established no more than that there was an invitation “to start to see if an arrangement can be made”. We do not think that it was necessary for any arrangement to be in place, or readily able to be effected, with the other retailers. It was sufficient that the respondents sought to persuade XL to enter into an arrangement to increase prices. As was said in Yorke v Lucas (1983) 49 ALR 672 at 681 (affirmed by the High Court, (1985) 59 ALJR 776):
“Inducing a contravention in the context of s 75B(b) connotes, in our view, some act of compulsion by force or threat of force or some act of persuasion or stimulation aimed at ensuring that an act is committed which constitutes a contravention. The word ‘incite’ is akin to ‘induce’, though induce probably covers a wider field.”
We therefore cannot agree with the reasons which led his Honour to the conclusion that the Commission had not established a case against the respondents.
I observe that this passage was applied by Logan J in Flight Centre Ltd (No 2) at [154].
I accept however, the submission of Mr Doyle SC, counsel for AECL and Mr Kellaway, that the uncertain and general nature of the putative arrangement makes the pinpointing of conduct or words referrable to such an arrangement difficult, and that account should be taken of this in the assessment of the evidence.
The evidence in the trial
The ACCC case was entirely documentary. It tendered a substantial volume of documents. The ACCC also provided, helpfully, a document indicating the particular respondents against whom it submitted each document could be used. This had been agreed with the respondents before the trial.
The Court heard oral evidence from five witnesses. AECL led evidence from Mr Ware, one of its directors, and from its Managing Director, Mr Kellaway. Farm Pride led evidence from its director, Mr Bell. IMS led evidence from Mr Ironside. In addition, Mr Gray QC, who appeared for IMS and Mr Ironside, led evidence from a Mr Powter, an attendee at the Summit. Mr Gray said that this evidence was led only in relation to the case against Mr Ironside personally. Given the view which I take of Mr Powter’s evidence, to which I will refer later, it is not necessary to address the significance of this purported limitation.
As a general observation, I consider that the evidence of each of the witnesses was given through, and to an extent affected by, the prism of hindsight. With the exception of Mr Powter and Mr Bell to a certain extent, each of the witnesses had an understanding of the principal issues in the trial and, accordingly, an understanding of where their interests, or the interests of the respondent by whom they were called, lay. This resulted in some evidence which was not reliable or, at least, not wholly reliable. This was particularly so in the case of Mr Ware and Mr Ironside. That is not to say that the evidence was given dishonestly, as it may well have been a consequence of a retrospective rationalisation of the witnesses’ own conduct. I also considered that there was an unusual level of inability to recall by several of the witnesses. My overall impression was that the respondents’ evidence provided the Court with an incomplete, and possibly sanitized, account of what had occurred.
The considerations just mentioned meant that some care has been necessary in determining the evidence which may be accepted.
In assessing the evidence and the matters to be proved by the ACCC, I keep in mind s 140 of the Evidence Act 1995 (Cth) and the Briginshaw principles.
The principal issues
The principal issues to be addressed in these reasons are:
(a)Does the CC Act apply to the conduct of AECL and Mr Kellaway at all?
(b)Did the conduct of each respondent constitute an attempt to induce the making of a proscribed arrangement?
(c)If so, did each respondent have the purpose or intention to limit the production or supply of eggs?
Does the CC Act apply to AECL?
AECL and Mr Kellaway contend that the ACCC claim against them must fail because the CC Act has no application to AECL.
They commenced by referring to the principle that legislation is presumed not to bind the Crown, or its agents or emanations unless it provides, expressly or by necessary implication, to the contrary: Bradken Consolidated Ltd v Broken Hill Propriety Co Ltd (1979) 145 CLR 107 at 123, 129 and 136; Bropho v Western Australia (1990) 171 CLR 1 at 19‑22. However, the application of this principle in a given case is usually a matter of construction of the relevant statute: Bropho at 19; NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48, (2004) 219 CLR 90.
AECL and Mr Kellaway contend that s 2A of the CC Act confirms, by implication, the existence of the general Crown immunity but abrogates its application to an extent.
Section 2A provides:
2A Application of Act to Commonwealth and Commonwealth authorities
(1)Subject to this section and sections 44AC, 44E and 95D, this Act binds the Crown in right of the Commonwealth in so far as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth.
(2) Subject to the succeeding provisions of this section, this Act applies as if:
(a)the Commonwealth, in so far as it carries on a business otherwise than by an authority of the Commonwealth; and
(b)each authority of the Commonwealth (whether or not acting as an agent of the Crown in right of the Commonwealth) in so far as it carries on a business;
were a corporation.
(3)Nothing in this Act makes the Crown in right of the Commonwealth liable to a pecuniary penalty or to be prosecuted for an offence.
(3A)The protection in subsection (3) does not apply to an authority of the Commonwealth.
(4)Part IV does not apply in relation to the business carried on by the Commonwealth in developing, and disposing of interests in, land in the Australian Capital Territory.
As can be seen, s 2A provides that the CC Act binds the Crown in right of the Commonwealth so far as the Crown (including its agents and emanations) carries on a business, whether directly or by an authority of the Commonwealth.
AECL contends that it is an agent or emanation of the Crown in right of the Commonwealth or, in the terminology used in NT Power at [149], is part of “the Crown as executive”. It contends therefore that, in accordance with the principle stated in Bradken Consolidated and Bropho it is not bound by the CC Act.
I am content to proceed on the basis that the effect of s 2A is to confirm, by implication, the application of the general Crown immunity, but to provide for its partial abrogation insofar as the Crown carries on business, either directly or by an “authority of the Commonwealth”.
The submission of AECL and Mr Kellaway raises three subsidiary issues:
(a)Is AECL an agent or emanation of the Crown in the conventional sense?
(b)Alternatively, is AECL a body corporate established for a purpose of the Commonwealth by or under a law of the Commonwealth?
(c)If yes in either case, does AECL carry on a business in the sense contemplated by s 2A(2)?
It is convenient to consider each of these sub‑issues in turn.
Is AECL an agent or emanation of the Crown?
The determination of whether an entity is part of the Crown as executive is to be made by reference to the legislation by which the body is established or governed and, in particular, the legislative intention, the activities which it undertakes and the nature and extent of the governmental or ministerial control over the body. In Inglis v Commonwealth Trading Bank (1969) 119 CLR 334, Kitto J said at 338:
The question is … what intention appears from the provisions relating to the respondent in the relevant statute: is it, on the one hand, an intention that the Commonwealth shall operate in a particular field through a corporation created for the purpose; or is it, on the other hand, an intention to put into the field a corporation to perform its functions independently of the Commonwealth, that is to say otherwise than as a Commonwealth instrument, so that the concept of a Commonwealth activity cannot realistically be applied to that which the corporation does?
The Full Court in Re Burgundy Royale Investments Pty Ltd [1987] FCA 454 at [19] referred to the importance of the extent of Commonwealth control of the entity and its activities
It is well settled that an important question in this enquiry is whether the body whose status is in question is subject to direct ministerial control or is independent of the government and has discretionary powers of its own …
Finkelstein J also emphasised the element of control in NT Power Generation Pty Ltd v Power & Water Authority [2002] FCAFC 302; (2002) 122 FCR 399 at [126]:
… The better approach is to examine the relationship between the corporation and the Crown. If the Crown is able to control the activities of the corporation (whether directly, by instruction or direction, or indirectly, pursuant to a power to remove those in control of its operations otherwise than for misconduct or incapacity) the corporation will usually be the alter ego of the Crown. So in every case where the question arises it is necessary to examine the nature and degree of control that the Crown exercises over the corporation. If the corporation is subject to the same control as a governmental department it is likely to be the alter ego of the Crown. …
Regard must also be had to the observations of Gibbs CJ in the judgment of the Court in Townsville Hospitals Board v Council of the City of Townsville (1982) 149 CLR 282 at 291:
It has more than once been said in the Court that “there is evidence of a strong tendency to regard a statutory corporation formed to carry on public functions as distinct from the Crown unless parliament has by express provision given it the character of a servant of the Crown” … All persons should prima facie be regarded as equal before the law, and no statutory body should be accorded special privileges and immunities unless it clearly appears that it was the intention of the legislature to confer them. It is not typical for the legislature to provide in express terms that a corporation shall have the privileges and immunities of the Crown, and where it does not do so it should not be readily concluded that it had that intention.
In order to apply those principles, it is necessary to make some findings regarding AECL’s origins, constitution, functions and the extent to which it is subject to governmental control.
AECL’s origins
Until the late 1980’s, the egg industry in Australia was regulated under State and Territory legislation and usually by statutory boards. In general, these boards regulated the production, supply and price of eggs. Research and development activities were undertaken primarily by the respective State Departments of Agriculture.
In the late 1980’s, the industry was largely deregulated but some State Governments continued research and development activities.
The Commonwealth Government undertook a more extensive role following the enactment of the Primary Industries Research and Development Act 1989 (Cth) (the PIRD Act). The effect was that from 1989 until 2003, matters of R&D, promotion and provision of services in the Australian egg industry were undertaken by the Rural Industries Research and Development Corporation (the RIRDC) established under the PIRD Act. It had an “egg sub‑program” relating to R&D in the egg industry. In addition, some R&D was carried out by private industry.
In addition to establishing the RIRDC, the PIRD Act provided for the establishment by regulation of research and development corporations (Statutory RDCs) in respect of particlar primary industries or classes of primary industries (s 8). Statutory RDCs have functions which are similar to those of AECL to which I will refer shortly. Their directors were appointed by the Minister. The funding of the Statutory RDCs was by levies imposed on participants in the particular primary industry which were collected by the Commonwealth and by appropriations from general revenue.
AECL has never been a Statutory RDC and a Statutory RDC was never established under the PIRD Act in relation to the egg industry. As noted, it was the RIRDC itself which undertook R&D and promotion in relation to the Australian egg industry.
In 2002, the Australian Egg Industry Association proposed that a company be established to undertake the generic promotion, R&D and service provision to the egg industry. The Australian Government agreed to that proposal and, in particular, that R&D in the egg industry should become the responsibility of the new company.
The new company was AECL. It was incorporated under the Corporations Act 2001 (Cth) on 18 November 2002 as a company limited by guarantee. It is described as an “industry‑owned”, rather than Government‑owned, corporation.
The EISP Act
By s 6 of the EISP Act, the Minister may declare an “eligible body” to be the “industry services body” for the Australian egg industry if satisfied that the declared body will comply with obligations under the “funding contract” contemplated by s 7, and the Commonwealth and the eligible body have entered into such a contract. Section 7 of the EISP Act provides in relation to funding contracts (relevantly):
(1)The Minister may, on behalf of the Commonwealth, enter into a contract for the purposes of this subsection with an eligible body that provides for the Commonwealth to make payments of the following kinds to the body if the body is declared to be the industry services body:
(a) payments referred to as promotion payments;
(b) payments referred to as R&D payments;
(c)payments made in respect of particular financial years, referred to as matching payments.
(2)Before entering into a contract for the purposes of subsection (1), the Minister must be satisfied that the terms of the contract make adequate provision to ensure that:
(a)promotion payments are spent by the body on all or any of the following for the benefit of the Australian egg industry:
(i) the marketing of eggs and egg products;
(ii) the promotion of eggs and egg products;
(iii) the provision of industry services; and
(b)R&D payments are spent by the body on research and development activities for the benefit of the Australian egg industry; and
(c) matching payments are spent by the body on:
(i)research and development activities for the benefit of the Australian egg industry and the Australian community generally; and
(ii)making payments to the Commonwealth under subsection 8(3).
…
At the same time as enacting the EISP Act, the Parliament also enacted the Egg Industry Services Provision (Transitional and Consequential Provisions) Act 2002 (Cth) (the Transitional Act). The principal purpose of that Act was to provide for the transition of the provision of services to the egg industry by the RIRDC to the body declared as the industry services body under the EISP Act. Amongst other things, the Transition Act provided for the Minister to declare that certain assets of the RIRDC used in connection with functions related to the Australian egg industry were to be assets of the entity declared to be the industry services body under the EISP Act. Similarly, the Transition Act provided for a means of transfer of certain liabilities of the RIRDC to the new entity.
The EISP Act itself provides for only a limited form of direct supervision by the Minister. Section 9 permits the Minister to give a written direction to the declared industry services body in only limited circumstances, one of the necessary circumstances being that the direction is in Australia’s national interest because of “exceptional and urgent circumstances”. There was no suggestion in the evidence that the Minister had ever given such a direction.
Section 9 provides expressly that the Minister is not to be taken to be a director of the declared body for the purposes of the Corporations Act 2001 (Cth) merely because of the power it confers on the Minister (subs (5)) and, further, that the Commonwealth is not to be taken to be in a position to exercise control over the declared body merely because of the power it confers on the Minister (subs (6)).
AECL’s Constitution and functions
AECL’s original Constitution was replaced by a revised Constitution on 1 July 2007. It is sufficient for present purposes to refer to the revised Constitution.
Clause 2(a) of the Constitution sets out the objectives of AECL, as follows:
(i)to provide leadership on Industry Service Provision including, Promotion and R&D services that advance the interests of the Australian Egg Industry;
(ii)to receive funds from the Commonwealth of Australia comprising proceeds from the Egg Promotion Levy and Egg R&D Levy and contributions by the Government to R&D in relation to the Australian Egg Industry and account to Members, Government and Parliament of the Commonwealth of Australia for the expenditure of such funds;
(iii)to seek funds from other persons for Promotion, R&D, innovation and other activities;
(iv)to manage funds the Company receives and risks related to the Company’s ongoing expenditure and funding;
(v)to investigate and evaluate the requirements for Industry Service Provision including, Promotion, R&D and innovation in relation to the Australian Egg Industry;
(vi)to provide funds for or carrying out Industry Service Provision including, Promotion, R&D and innovation in relation to the Australian Egg Industry;
(vii)to provide cost‑effective services that enhance the competitiveness of the Australian Egg Industry throughout the Australian Egg Industry’s supply chain;
(viii)to facilitate the dissemination, adoption and commercialisation of the results of Promotion, R&D and innovation in relation to the Australian Egg Industry;
(ix)to manage, develop and exploit intellectual property from Promotion and R&D activities, and to receive the proceeds of such development and exploitation;
(x)to provide services to Australian egg producers; and
(xi)to engage in any other activities in the interests of the Australian Egg Industry, in each case for the benefit of the Australian Egg Industry.
The “Industry Service Provision” referred to in objects (i), (v) and (vi) is defined in cl 1.4 as follows:
Industry Service Provision (as well as including the Promotion and R&D activities defined below) means:
(a)collection of information from a range of sources (including consultation within the Australian Egg Industry, and with other industries, Government, other stakeholders and the public);
(b)the balanced analysis of information in the context of the Australian Egg Industry Environment;
(c)communication of information (including within the Australian Egg Industry and of other industries, Government, other stakeholders and the public); and,
(d)collaborating with Federal and State Governments and their relevant departments and agencies and other organisations in relation to:
(i)animal health and welfare, crisis and issues management and regulatory activities; and
(ii)other activities that may be necessary or convenient for the improvement of the productivity or performance of the Australian Egg Industry.
As can be seen, the principal elements of the “Industry Service Provision” are the collection, analysis and communication of information within the Australian egg industry and collaboration with Federal and State Governments and their agencies in relation to activities which are necessary or appropriate for the improvement of the productivity or performance of the industry.
The term “Australian Egg Industry” used throughout cl 2(a) of the Constitution is defined to mean the “Australian hen egg (including eggs and other egg products) industry”.
The “Egg R&D Levy” (to which reference is made in cl 2(a)(ii)) is defined in cl 1.4 to mean “that part of the laying chickens levy imposed by sub‑clause 3(1) of Sch 16 to the Primary Industries (Excise) Levies Act 1999 (the Levies Act) that is referred to at sub‑clause 4(a) of that Schedule”. The “Egg Promotion Levy” is defined to mean “the Egg Levy as per Sch 27 of the Primary Industries (Excise) Levies Regulations 1999” (the Levies Regulations).
Persons who carry on the business of producing hen eggs in Australia for sale and who are a “Levy Payer” are eligible for membership of AECL providing that they were the owner, at the end of the previous financial year, of laying hens aged over 18 weeks. A “Levy Payer” is a person who is required to pay promotion and/or R&D amounts as defined in the Levies Act and the Primary Industries Levies and Charges Collection Act 1999 (Cth) (the Levies Collection Act). Applications for membership are made to the Board which, once satisfied that an applicant is eligible to be a member of the company, must admit the person as a member.
The Board of AECL also has a discretion to admit persons with a relationship with the Australian Egg Industry as associate members.
Clause 7 provides for members to have voting rights determined by the number of laying hens over the age of 18 weeks owned by each member. For that purpose, members must provide AECL with a registration form stating the number of laying hens over the age of 18 weeks owned by that member at the end of the previous financial year. As well as enabling AECL to determine the voting entitlements of its members, these returns give AECL information as to the number of laying hens in the industry (at least those owned by its members) at the end of each financial year.
The Constitution of AECL provides for directors of two kinds: elected directors and specialist directors. Elected directors are elected by the members at the Annual General Meeting and normally serve a term of two years. Specialist directors are appointed by the Board, although the appointment is subject to ratification at the next Annual General Meeting. Specialist directors also usually serve terms of two years. The Commonwealth does not appoint any of the directors of AECL.
AECL’s relationships with the Australian Government
AECL has a number of significant relationships with the Australian Government.
In early 2003, the Minister declared, pursuant to s 6 of the EISP Act, AECL to be the “industry services body” for the Australian egg industry. Before AECL was so declared, it entered into a Statutory Funding Agreement (SFA) with the Commonwealth. This had a four year term and was replaced by another agreement in 2007. The second SFA was in force at the times relevant to these proceedings.
The establishment of AECL was one step in an integrated sequence of events. The Egg Industry Services Provision Bill 2002 was introduced into the Australian Parliament and read a second time in August 2002. AECL was incorporated on 18 November 2002. The EISP Act came into operation on 2 December 2002 and, on 2 January 2003, AECL entered into the first of its SFAs with the Commonwealth. On 16 January 2003, AECL was declared as the “industry services body” for the Australian egg industry.
Under the SFAs, the Commonwealth makes payments of three kinds to AECL: “Promotion payments”, “R&D payments”, and “Matching payments”. The SFAs bind AECL to spend the Promotion payments on the marketing and promotion of eggs and egg products and the provision of industry services; to spend the R&D payments on research and development activities for the benefit of the Australian egg industry; and, subject to one qualification, to spend the Matching payments on R&D.
The terms of the SFAs permit the Commonwealth to exercise oversight of AECL’s activities.
The principal elements of the first SFA were:
(a)AECL was required to develop and adopt a rolling three year strategic plan [cll 9.1‑9.3];
(b)AECL was required to develop and adopt annual operating plans [cll 9.4‑9.5];
(c)AECL was required to submit its strategic and operational plans to the Commonwealth within seven days of their adoption [cl 9.6];
(d)The Commonwealth would pay to AECL the Promotion payments, R&D payments and the Matching payments [cl 4.1];
(e)AECL was to expend the funds provided by the Commonwealth only on approved activities (broadly speaking promotion and R&D) and in accordance with the strategic plan and the operating plan, as well as guidelines provided by the Commonwealth to AECL [cl 5.1];
(f)AECL was prohibited from spending any of the funds on “Agri‑Political activity”, being activity intended by AECL to exert political influence on Government or to advantage one political party or political candidate over another [cll 5.9, 8.2];
(g)AECL was, at the end of reach six month period, to provide the Commonwealth with a statement of its financial performance and a statement of its financial position [cl 11.2];
(h)The chairperson of AECL or the Managing Director was to meet with the Minister or the Minister’s authorised representative at not less than six monthly intervals [cl 11.6];
(i)AECL was to undergo a three yearly performance review, with a copy of the report of the independent reviewer provided to the Commonwealth [cl 12.4‑12.6];
(j)The Commonwealth could from time to time conduct its own performance review of AECL, and AECL was to provide reasonable assistance with respect to such review [cl 12.7];
(k)AECL agreed to permit the Commonwealth to monitor its compliance with the terms of the SFA including by providing such access and such information as the Commonwealth reasonably required in that respect [cl 13];
(l)The parties agreed that the SFA did not create a relationship of employment, agency or partnership between them [cl 21].
In addition, a schedule to the SFA contained requirements as to the content of the AECL Constitution, including requirements with respect to membership and directorships.
AECL and the Commonwealth entered into the second SFA in 2007, relating to the four year period between 2007 and 2011. This SFA continues in force presently. The second SFA includes many of the terms found in the first but required, in addition, that in preparing the strategic plan, AECL was to consult also with the Minister [cl 7.4]. Clause 9 of the second SFA required reporting by the AECL to the Commonwealth in a number of ways: providing a copy of the annual report to the Minister [cl 9.1]; providing financial information at six monthly intervals to the Commonwealth [cl 9.2]; providing the Commonwealth with any other report which the Commonwealth may require from time to time [cl 9.5]; and the AECL chairperson or his or her nominee meeting with the Minister’s nominee at not more than six monthly intervals [cl 9.6]. In addition, cl 10 required AECL to provide all reasonable assistance requested by the Commonwealth in respect of any evaluation or enquiry concerning its performance under the SFA and to obtain an independent performance review of its activities by March 2011 [cl 10].
The three yearly performance reviews contemplated by the SFAs were carried out in October 2006 and May 2011. The review in October 2006 described AECL as “a small autonomous industry service provider”. The review also noted that AECL “has represented egg producers with Federal and State Governments in relation to animal health and welfare, crisis and issues management and regulatory activities”.
Mr Kellaway’s evidence (which on this topic I accept) indicates that the AECL has complied, and continues to comply, with its obligations under the SFAs. It has prepared strategic and operating plans which it submits to the Department of Agriculture Fisheries and Forestry (DAFF) for review and comment; it provides financial reports to DAFF every six months as well as providing its annual report; Mr Kellaway and Mr Ironside attend meetings with the Minister’s nominee twice yearly (in fact it is customary for between five to eight DAFF representatives to attend); the agenda for the six monthly meetings is set by DAFF in consultation with AECL; AECL has commissioned the independent performance reviews and liaises with DAFF regarding amendments to its Constitution.
The funding of AECL’s activities
The principal sources of funding for AECL are the statutory levies collected and paid to by the Australian Government. AECL receives the “Laying Chicken levy” which is payable by proprietors of hatcheries under Sch 16 to the Levies Act at the rate set out in Sch 16 of the Levies Regulations and the “Egg Promotion levy” payable by producers of eggs under Sch 27 to the Levies Act at the rate set out in Pt 4 of Sch 27 of the Levies Regulations. The Egg Promotion Levy is presently 32.5 cents per chick purchased. It is paid by the hatcheries who deliver chicks to the egg producers.
Because the Laying Chicken levy is largely invested in R&D related programs, it is sometimes referred to as the R&D levy. The Egg Promotion levy is largely invested in marketing programs and promotional campaigns.
In addition to these statutory levies, AECL receives Matching payments from the Australian Government to be applied to R&D activities in agreed program areas. The R&D levy is presently 7.2 cents per chick. It is matched dollar for dollar by the Australian Government up to 0.5% of the gross value of egg production in Australia. Matching payments are based on expenditure for R&D rather than on income received from the payment of levies.
I also observe that, if the respondents did have the concern to which Mr Ware deposed, namely, that the egg producers were not reading the information contained in EggCorp EggsPress and Eggstra Eggstra, they could have adopted the same means of communication which they did adopt in relation to the calling of the Summit itself, namely, an email to each of the top 25 egg producers. The circumstance that the respondents chose instead to call a Summit is, to my mind, inconsistent with it being held for information sharing purposes only.
I also consider that the content of the agenda circulated by Mr Kellaway for the Summit is inconsistent with a contemplation that the meeting would only be for the purpose of disseminating information. It contemplated that there would be discussion on the impact of the oversupply on producer returns and of means to “resolve the current crisis”.
I accept that it was appropriate for AECL to provide egg producers with information and forecasts regarding egg production and the demand for eggs. Obviously enough, information of this kind would be useful to the individual egg producers because it would assist them to make more informed business decisions. However, as indicated, the evidence already summarised indicates that AECL went beyond merely providing useful information.
It is also pertinent, in my opinion, that none of the contemporaneous documents contained a statement to the effect that information was being provided to the egg producers for information purposes or for them to use as they saw fit in their own businesses. On the contrary, the tenor of the AECL documents was to the effect that the oversupply crisis was an industry problem to be tackled by those producers who had the majority of the market.
For these reasons, I do not accept the respondents’ submissions to the effect that the Summit was for information dissemination or information sharing purposes only. It was essentially a call to action with the information being provided in support of that call. That conclusion does not by itself determine the question of whether the respondents, or any of them, proposed a form of proscribed collective action with the proscribed intention.
Consideration of the circumstantial case
The circumstantial nature of the ACCC case requires that each of the elements to which the ACCC referred be considered collectively. It is their combined effect which must be assessed. Considered in that way, the ACCC case has some force. I consider that the ACCC has established conduct which, looked at generally, could be characterised as a form of affirmative action directed towards the inducement it alleges.
However, the case also has some limitations and in my opinion does not establish the attempt alleged by the ACCC. In particular, the evidence does not warrant a finding that the respondents who participated in the trial had the intention of inducing a proscribed arrangement or that any conveyed to the Attendees the potential for such an arrangement or understanding.
There is a distinction between a circumstance in which industry participants are brought to an appreciation that it is in their interests, independently of what others are doing, to act in a certain way, on the one hand, and a circumstance in which industry participants are invited to agree to act in a certain way in the expectation of reciprocal conduct by others, on the other. Conduct of the former kind does not contravene s 44ZZRJ. The respondents submitted that the evidence supported only this alternative.
Mr Doyle SC, for AECL and Mr Kellaway, summarised the respondents’ position on this topic by contending that the evidence was “perfectly consistent with the outcome being, “We want everybody to think harder about their own circumstances and what they can do to solve the problem which is, in part, theirs and, in part, the industry’s”. In my opinion, that is an appropriate characterisation of the evidence received in the trial, noting that suggestions and recommendations as to particular conduct which producers could take were also made. I also note again that the admissions by Mr Lendich in his agreement with the ACCC were not put into evidence against the remaining respondents.
The evidence warrants a finding that the means by which egg production could be reduced (removing one hen from each cage and bringing forward the disposal of hens by 6‑8 weeks) were canvassed at the Summit, but there is insufficient evidence to warrant the conclusion that these options were propounded as a form of collective action involving reciprocal obligations or understandings by the egg producers. It is one thing to conclude that suggestions, even firmly expressed suggestions, were made that removing a hen from a cage and bringing forward hen disposal were forms of action which producers, making independent judgments about their own commercial interests, could (or even should) adopt: it is another thing to conclude that the respondents were proposing that producers agree that each would pursue either or both of these options on the understanding that their competitors would do likewise. There is no persuasive evidence that a proposal to that effect was articulated.
It is pertinent to this consideration that a considerable focus at the Summit was on those producers who had increased their production rapidly, and in excess of the general increase in demand for eggs. By a number of means, moral pressure was brought to bear on those (unidentified) producers. To my mind, the highlighting by Mr Kellaway of the fact that some producers were more responsible for the oversupply than others is inconsistent with an attempt, at least by him, to induce all producers, including the “innocent” producers, to agree to action to address a problem created by others.
I refer in this respect to Mr Kellaway’s evidence that the Attendees were informed for the first time that some of their number had increased their production very rapidly, despite the warnings about oversupply. Their particular responsibility for the oversupply of eggs was highlighted in the PowerPoint slides for all to see. By this means moral pressure was brought to bear on those “culpable” producers. Those “innocent” attendees who had not increased their production, or had increased it by modest amounts only, were unlikely to be receptive to the notion that they should reduce their production in order to address the problem caused by the “culpable” producers. For them, the more obvious solution was for the “culpable” producers to bring their egg production back to levels which were sustainable. In this respect, the inference arising from Mr Ahmed’s email of 9 February that there had been some disharmony, and possibly “finger pointing”, at the Summit arising from a recognition that some were more responsible than others for the industry’s predicament is pertinent.
To my mind, the fact that Mr Kellaway chose to highlight for the Attendees that some of their members were particularly responsible for the oversupply is inconsistent with him having had an intention to induce all of the Attendees to agree upon a form of mutual and reciprocal action.
The ACCC case placed considerable reliance on Mr Kellaway’s reference to “a path forward in a co‑ordinated and consolidated fashion”. I agree that that expression is capable of a sinister connotation in the context of s 44ZZRJ as it may connote co‑ordinated action by agreement by the various producers. However, in context it is also readily capable of an innocent explanation. In his slides headed “Solutions”, Mr Kellaway suggested short, medium and long term solutions. Under the heading of short term solutions, he suggested the alternatives of action to reduce production of eggs by the culling of hens, action to increase consumer demand for eggs, and action to reduce the existing inventory of eggs by donations to FoodBank or dumping. These were not mutually exclusive options as each could be pursued simultaneously and in a co‑ordinated way. I consider that Mr Kellaway’s reference to “co‑ordinated and consolidated” action is capable of referring to the adoption simultaneously of each of these different strategies in a planned way and accordingly does not necessarily have the sinister connotation for which the ACCC contended. At the least, the ACCC case has not negatived this as a reasonable understanding, and it is consistent with Mr Kellaway’s evidence.
I agree with the ACCC that the reference in Mr Kellaway’s slide to an independent auditor is particularly significant. I have already made findings about that. However, the retention of an independent auditor for the identified purpose may also have an “innocent” explanation. The reports of an independent auditor would have provided a means by which AECL, and through it egg producers, would know whether each producer was heeding the AECL’s warnings and whether each was, by voluntary and independent action, reducing its hen numbers. In this way, the proposed retention of an independent auditor does not point persuasively to an intention that producers enter into an agreement or understanding with respect to reduction of hen numbers.
The respondents emphasised the evidence indicating the competitive nature of the egg industry. I have already referred to some of that evidence. The respondents submitted that, given the competitive nature of the industry, it was inherently unlikely that egg producers would co‑operate with one another and, accordingly, unlikely that AECL would have expected them to do so.
AECL and Mr Kellaway, in particular, submitted that this was an important aspect of the factual matrix against which the contemporaneous statements relied upon by the ACCC were to be assessed. This provided an explanation, they submitted, for the absence of statements by Mr Kellaway or others to the effect that AECL expected the Attendees would act on the information only when it was in their own individual commercial interest to do so. Such statements were unnecessary given what was known to all at the Summit about the nature of the industry. Similarly, this knowledge made it unlikely that AECL or Mr Kellaway would have been proposing some form of collective action.
I accept that the egg industry is generally of a competitive kind and that it was likely that individual egg producers would take action only if they perceived it to be in their own individual interest to do so, and practical for them to do so. Accordingly, this submission has some force but its significance should not be overstated. It is very apparent that AECL was making an appeal to the individual interests of the egg producers, by particular reference to the decline in egg prices. The slide presentations of Mr Kellaway and Mr Quirke pointed out in graphic terms the effect on returns to egg producers of the oversupply. This was the same circumstance about which Mr Lendich and Mr Pace had spoken passionately at the Board meeting on 19 January. In my opinion, the evidence shows that AECL was making an appeal by reference not only to the interests of the industry as a whole, but to the interests of each individual egg producer.
The respondents submitted that the circumstance that several short term solutions to the egg oversupply were proposed also made it inappropriate to conclude that anyone could have expected, let alone intended, that the requisite degree of mutuality or reciprocity could be achieved. They noted that one egg producer may, for example, choose to make donations to FoodBank, another to cull hens, and another to cancel or reduce its orders for new hens, and so on. They submitted that AECL’s intention did not go beyond explaining to the selected members the full nature and extent of the oversupply problem and the various actions which AECL itself considered might be undertaken by producers individually, but not collectively, to address the problem.
I agree that these are relevant considerations. The egg producers represented by the Attendees had operations in different parts of Australia and, although the evidence on this topic is limited, it is reasonable to infer that many had their own market or markets which did not coincide fully, or at all, with the market or markets of others. In particular, the evidence does not support a conclusion that there is a single Australian egg market. These circumstances made it likely that the oversupply affected some more than others. Some producers may have had a market for all the eggs they were producing. Twelve Oaks, operated by IMS, provides an example as its operations had been significantly damaged by Cyclone Yasi. I accept Mr Ironside’s evidence that Twelve Oaks was still seeking to return to its pre‑cyclone levels of production. Circumstances of these general kinds must have been known to AECL and Mr Kellaway, and to my mind militate against them having sought to induce an agreement or understanding of a proscribed kind amongst the Attendees generally.
It is true that an attempt to induce a contravention of s 44ZZRJ does not require that a single form of action be proposed. A contravention could occur if one producer agreed on one course of action (earlier culling of hens) and another producer on a different course of action (donation of eggs already produced to FoodBank). However, an agreement or understanding of this kind would be unusual and in the practical context of a meeting such as the Summit, one which would be difficult to achieve. This counts against the respondents having attempted to achieve an agreement or understanding for individual producers to take different forms of action.
The respondents emphasised that there was no evidence of any proposal having been put to a vote at the Summit, nor any evidence of a call for an indicative show of support.
I accept that that is so, while keeping in mind that the ACCC case turns very much on the inferences said to arise from the written material. The absence of evidence of the kind to which the respondents refer is not so significant in that context. If there was more detailed direct evidence of what had occurred at the Summit, the absence of evidence of a particular proposal being formulated and put to the meeting would be more significant. In this regard, the evidence concerning Mr Lendich’s suggestion that one bird be removed from each cage is pertinent. The oral evidence from the Attendees at the Summit did not indicate what, if any, response was made this suggestion. It is possible, as Mr Ironside said in his evidence, that Mr Lendich’s suggestion was not regarded as practical, or as favouring unduly those who produced barn laid or free range eggs over cage egg producers.
AECL and Mr Kellaway emphasised that AECL was not an industry participant and not an industry representative body. They submitted that AECL had nothing to gain by suggesting or encouraging collective action. In addition, AECL and Mr Kellaway submitted, that while it may be natural to infer some intention and expectation of reciprocity or mutuality in the case of suggested solutions to industry problems made solely by industry participants, such an inference did not arise in the case of communications from a non‑participant such as AECL. It is more natural to expect that it would encourage action in accordance with the interests of the individual participants and circumstances and without any expectation of reciprocity or mutuality between them. These submissions were part of the wider submission of AECL and Mr Kellaway to the effect that the fact that individual action by multiple egg producers may have more general benefits for the industry did not mean that those individual actions acquired a collective character.
I accept that AECL was not an industry participant in the sense that it was not an egg producer. However, that does not mean that AECL was not a participant in the egg industry at all. The evidence already summarised indicates that AECL was, in a particular way, a participant in the Australian egg industry. One could hardly give an accurate description of the Australian egg industry without including a summary of the activities of AECL.
The question of whether AECL is an “industry representative body” involves definitional issues which, to my mind, it is unnecessary to address as I consider that the evidence already summarised indicates that AECL does, in some respects, act as an entity representing the Australian egg industry.
I accept, nevertheless, the respondents’ submission that the role and character of AECL is important. In particular, I accept the submission made by reference to Trade Practices Commission v Service Station Association Ltd [1993] FCA 405; (1993) 44 FCR 206, that trade associations and their officers may legitimately encourage their members to examine their profitability and to make production and pricing decisions in order to maintain profitability. Conduct of that kind, at least when directed to the decisions of industry participants in their own businesses and without any suggestion of cooperative action, does not amount to cartel conduct, or even an attempt to induce cartel conduct.
The respondents also emphasised that the ACCC pleaded case did not include a contention as to the precise form of the alleged intended arrangement or understanding. Earlier in these reasons, I indicated that I did not regard this consideration as being fatal to the ACCC case. I accept however, the respondents’ submission that this makes it more difficult to be satisfied that the respondents did seek to induce an agreement or understanding which contravened s 44ZZRJ.
Finally, I note again that the acknowledgement by Mr Lendich of his contravention does not bind any of the other respondents. Despite the ACCC having reached an agreement with Mr Lendich, it did not seek to adduce any evidence from him in the trial. It is not possible to conclude, on the basis only of the evidence received in the trial, that Mr Lendich had the requisite intention.
As already indicated, I consider that the ACCC evidence does establish conduct by the respondents which could constitute an attempt in the requisite sense. However, in my opinion, the ACCC case falls short of establishing that the respondents who participated in the trial had an intention to bring about an arrangement or understanding with the proscribed qualities and that any proposed an arrangement or understanding between producers for the reduction of the supply of eggs. It does establish that these respondents intended that the Attendees should take action to address and correct the oversupply of eggs but not (to the requisite degree of persuasion) that this action should be pursuant to an agreement or understanding involving reciprocal obligations.
The ACCC case, as presented and on my findings, was strongest as against AECL and Mr Kellaway. Although I consider that that case has some force, I am not satisfied, to the requisite degree of persuasion, that AECL and Mr Kellaway took the action they did with the intention of inducing Attendees to reach an agreement or understanding for a form of collective action. The case against them fails.
Although I regarded a number of the aspects of the evidence of Mr Ironside as unreliable, I am not persuaded that the ACCC has established the attempt by him and IMS which it alleges. It has not established particular conduct of Mr Ironside which would warrant a finding that he had made such an attempt or that he had the requisite intention.
I reach the same conclusion with respect to Farm Pride, although in its case, I have made findings about conduct by Mr Lendich at the 19 January Board meeting and at the Summit. I am not satisfied that these findings, by themselves, warrant the finding of the alleged attempt.
This conclusion is not inconsistent with the Court acting in due course on the agreement reached between the ACCC and Mr Lendich. In the case against Mr Lendich, the Court can rely on the additional material comprised in his admissions.
In these circumstances, it is unnecessary to consider the ACCC submission that conduct constituting an attempt could be constituted, at least in part, by an omission by a respondent to disassociate himself from statements or conduct of another.
Having regard to this conclusion, it is not necessary to consider whether conduct of Mr Lendich and Mr Ironside is to be attributed to Farm Pride and IMS respectively. However, in case the matter goes further, I set out in the next section my conclusions concerning the ACCC claim that Mr Bell’s conduct should be attributed to Farm Pride. I add that, had it been necessary to do so, I would have found that Mr Lendich’s conduct was to be attributed to both AECL and Farm Pride and Mr Ironside’s conduct to both AECL and IMS.
Is the conduct of Mr Bell to be attributed to Farm Pride?
I am satisfied that, although Mr Bell was a director of Farm Pride at relevant times, he did not attend, or participate in, the 8 February Meeting in that capacity. In the language of s 84(2)(a), Mr Bell was not, in attending and speaking at the meeting, acting within the scope of his actual or apparent authority as a non‑executive director of Farm Pride. Consequently his conduct at the meeting cannot be attributed to Farm Pride.
Quite apart from that consideration, I do not consider that the conduct of Mr Bell on which the ACCC relies can reasonably be characterised as an attempt to induce the egg producers present at the 8 February Meeting to enter into an agreement or understanding with the proscribed qualities.
My reasons for these conclusions follow.
Mr Bell lives in Western Australia. Since March 1998, he has been the Managing Director of AAA Egg Company Pty Ltd, a company involved in egg production and other hen related businesses. He is also a director of Altona Hatchery Pty Ltd, a company in Western Australia involved in the production of chicks and the rearing of pullets. In addition, Mr Bell is a director of companies in South Australia (Days Eggs Pty Ltd) and Tasmania (Pure Foods Eggs Pty Ltd) which are involved in the production and/or marketing of eggs.
Mr Bell received Mr Kellaway’s email of 20 January 2012 inviting him to attend an oversupply crisis meeting. That was the first he had heard of the proposed meeting. Mr Bell had not had any discussions with Mr Lendich about a meeting to address issues of oversupply and it had not been discussed at any Farm Pride Board meeting.
On 23 January 2012, Mr Bell responded to Mr Kellaway’s email saying:
Thank you for [the] advice of the producer meeting to be held on either 8th or 9th February. I have made a diary note of this and will await further confirmation. I would think I would be able to attend or have a proxy to attend.
My associated companies have always had the policy of turning off the tap when the tank is full. We realised many years ago that the bottom line was always better in depleting flocks instead of forcing eggs into the market. This has worked well for us but has cost us some market share over the years. We also do not make a noise about it as competitors take this as a signal that they shouldn’t take any action.
Mr Kellaway’s response to Mr Bell on 24 January 2012 was as follows:
Dear Peter, thank you for this and I will firm up the meeting date in the next 36 hours.
Despite the terms of his email of 23 January 2012, Mr Bell deposed that initially he had been inclined not to attend the meeting. He considered that he already had a sufficient understanding of the issues involved. However, at the Board meeting of AAA Egg Company on 27 January 2012, the Chairman suggested that he should attend “to be updated on industry statistics in relation to supply”. Mr Bell deposed that he had raised the proposed meeting at the AAA Egg Company Board meeting because he considered that he had been invited in his capacity as Managing Director of that company, rather than in any other capacity.
I accept Mr Bell’s evidence about these matters. It is confirmed by the contemporaneous documents. On 27 January 2012, Mr Bell sent an email to Mr Jones, the Managing Director of Pure Foods. Mr Jones had informed Mr Bell that the proposed meeting dates of 8 and 9 February did not suit him. Mr Bell’s email to Mr Jones said (relevantly):
[A]s we already quit birds as needed it is irrelevant for AAA to attend. However I probably will go to show my concerns.
Have been to these before and are meant to be a forum to air the issue.
Mr Bell sent a further email to Mr Jones on 30 January 2012 which said (relevantly):
Reference the meeting for AECL to be held in Sydney on Wednesday 8th February. I note you won’t be attending …
As you know I think my presence at the AECL meeting would be redundant but the chairman told me I should be there. Waffle waffle.
Let me know your thoughts.
I consider that these emails confirm Mr Bell’s understanding at the time was that he was being invited in his capacity as Managing Director of AAA Egg Company. They are also inconsistent with Mr Bell having, at the time, the purpose or intention of encouraging those at the meeting to enter into an agreement or understanding to limit supply.
Mr Bell deposed, and I accept, that he did not discuss his attendance at the 8 February Meeting at any Board meeting of Farm Pride, and that his attendance was not the subject of any approval by Farm Pride. The costs of his attendance were paid by AAA Egg Company and not Farm Pride. It is not plausible that Mr Bell was invited in his capacity as a non‑executive director of Farm Pride. I note in this respect that none of the other non‑executive directors of Farm Pride were invited. Mr Bell did not report to Farm Pride on the 8 February Meeting but did report to the next meeting of the directors of AAA Egg Company.
There is no suggestion in the evidence that Mr Bell said anything at the 8 February Meeting which indicated that he was there as a representative of Farm Pride.
It is pertinent, but not conclusive, that Farm Pride does not assert that Mr Bell attended the 8 February Meeting as its representative.
Given these matters, it cannot reasonably be held that Mr Bell attended the 8 February Meeting in his capacity as director of Farm Pride. In these circumstances, his conduct (whether by omission or otherwise) cannot be attributed to Farm Pride.
Further, the evidence does not indicate any conduct by Mr Bell which could reasonably be regarded as encouragement to those at the meeting to enter into an agreement to limit the supply of eggs. In assessing the evidence on this topic, I take into account that Mr Bell was a recipient of Mr Kellaway’s emails of 20, 27 and 31 January 2012 and a likely recipient of the EggCorp EggsPress distributed on 25 January 2012, and was also a recipient of the Forecast Reports.
Mr Bell said that he did not speak at the 8 February Meeting other than for the purpose of introducing himself. However, Mr Kellaway said that Mr Bell had spoken briefly, saying words to the effect of “we do what we think is appropriate in the West”. The tenor of that statement is, in my opinion, consistent with Mr Bell’s statement to Mr Kellaway in the email of 23 January about the policy of his company when faced with oversupply. That is to say, it reduces its own production but does so discretely so as not to give a signal to its competitors.
I am inclined to think that Mr Kellaway is more likely to be correct in his recollection of what Mr Bell said, as it is unlikely to be something which he has misremembered or reconstructed. However, the words which Mr Kellaway attributes to Mr Bell cannot reasonably be regarded as an attempt to induce an understanding of the kind alleged by the ACCC.
Summary
For the reasons given above, the ACCC claims against AECL, Mr Kellaway, Farm Pride, IMS and Mr Ironside are dismissed. I will hear from the parties as to costs and any other matters. The ACCC claim against Mr Lendich will be listed for further hearing having regard to the agreement it reached with Mr Lendich and his admissions.
I certify that the preceding four hundred and twenty-seven (427) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate:
Dated: 10 February 2016
SCHEDULE OF PARTIES
SAD 121 of 2014 Respondents
Second Respondent:
JAMES DALE KELLAWAY
Third Respondent
FARM PRIDE FOODS LTD
Fourth Respondent
ZELKO LENDICH
Fifth Respondent:
IRONSIDE MANAGEMENT SERVICES PTY LTD
Sixth Respondent:
JEFFREY WILLIAM IRONSIDE
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