Obeid v Australian Competition and Consumer Commission

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FEDERAL COURT OF AUSTRALIA

Obeid v Australian Competition and Consumer Commission [2014] FCA 839

Citation: Obeid v Australian Competition and Consumer Commission [2014] FCA 839
Parties: MOSES EDWARD OBEID and PAUL OBEID v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION and DELIA ANN RICKARD
File number: NSD 490 of 2014
Judge: FARRELL J
Date of judgment: 8 August 2014
Catchwords:

TRADE PRACTICES – challenge to validity of notices issued pursuant to s 155 of the Competition and Consumer Act 2010 (Cth) – whether notices identify a matter that constitutes or may constitute a contravention of the Act – alleged anti-competitive contract, arrangement or understanding in contravention of s 45 – alleged cartel conduct under ss 44ZZRG or 44ZZRK – contract, arrangement or understanding entered into in relation to tender process conducted under the Mining Act 1992 (NSW) – definition of “services” under s 4(1) of the Competition and Consumer Act 2010 (Cth) – nature of services specified in the s 155 notices – whether identified conduct within ordinary meaning of “services”

TRADE PRACTICES – definition of “services” – whether ordinary meaning of services restricted to activities undertaken “in trade or commerce” – whether identified services conducted in trade and commerce – competitive tender process

Legislation: Coal Acquisition Act 1981 (NSW)
Competition and Consumer Act 2010 (Cth)
Mining Act 1922 (NSW)
Mining Regulations 2003 (NSW)
Trade Practices Act 1965 (Cth)
Trade Practices Act 1974 (Cth)
Trade Practices Amendment Act 1977 (Cth)
Trade Practices Amendment Bill 1977 (Cth)
Cases cited:

Adamson v New South Wales Rugby League Limited (1991) 31 FCR 242
Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability and Environment [2010] VSC 513
Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62
Commissioner of Taxation (Cth) v St. Hubert’s Island Pty Limited (in liq) (1978) 138 CLR 210
Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594
Employers’ Mutual Indemnity Association Limited v Federal Commissioner of Taxation (1943) 68 CLR 165
Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281
IW v City of Perth (1997) 191 CLR 1
Kline v Official Secretary to the Governor General (2013) 249 CLR 645
Quadramain Pty Ltd v Sevastapol Investments Pty Ltd (1976) 133 CLR 390
Queensland Aggregates Pty Ltd v Trade Practices Commission (1981) 38 ALR 217
R v Entry Clearance Officer; Ex parte Amin [1983] 2 AC 818
Revesby Credit Union Co-operative Limited v Federal Commissioner of Taxation (1965) 112 CLR 564
RP Data Ltd v State of Queensland (2007) [2007] FCA 1639
SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357
Seven Network Ltd v Australian Competition and Consumer Commission (2004) 140 FCR 170
State of New South Wales v RT & YE Falls Investments Pty Ltd (2003) 57 NSWLR 1
Street v Luna Park Sydney Pty Ltd  [2009] NSWSC 1
Thiess v Collector of Customs [2014] HCA 12
Unilan Holdings Pty Ltd v Kerin (1992) 35 FCR 272

Pearce DC and Geddes RS, Statutory Interpretation in Australia (7th edition,…

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Details
Case
[2014] FCA 839
Decision Date

CaseChat Overview and Summary

In Obeid v Australian Competition and Consumer Commission, the parties engaged in a dispute concerning whether certain services specified in notices issued by the ACCC fell within the meaning of "services" in the Competition and Consumer Act 2010 (Cth) and whether the notices disclosed a possible contravention of the Act. The applicants argued that the services in question, namely the right to apply for necessary approvals for mining activities, were not "services" in trade or commerce. They further contended that the notices did not disclose a possible contravention of the Act because the specified cartel arrangements did not meet the legal criteria for such contraventions. The court had to decide if the services in question constituted "services" within the meaning of the Act and if the notices sufficiently disclosed possible contraventions of the Act.

The court examined the nature of the services in question and their relation to the mining activities. It concluded that the services, which included the right to apply for approvals and the payment of certain fees, were indeed "services" in trade or commerce as they involved a contractual exchange of value. The court found that the services were integral to the process of obtaining mining approvals and therefore had the character of an exaction in the nature of a levy or tribute. Consequently, the court rejected the argument that these services were not remuneration for the specified activities. Additionally, the court held that the notices sufficiently disclosed possible contraventions of the Act, as the alleged cartel conduct and breaches of the Act relied on the same set of circumstances.

The court dismissed the applicants' application and ordered them to pay the respondent's costs. The decision underscores the importance of correctly identifying services under the Competition and Consumer Act and ensuring that notices issued by the ACCC adequately disclose potential contraventions of the Act.

Orders

Orders of the court

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Background

Background to the litigation

The grounds pursued by the applicants are narrowly cast: (1)whether the “services” specified in the Notices, namely “the right to apply for the necessary approvals for mining activities in the Relevant Areas from the Crown” fall within the meaning of “services” in s 4(1) of the CC Act and, more particularly, whether those services are “in trade or commerce”; if not, they say there can be no contravention of s 45 or ss 44ZZRG or 44ZZRK; and (2)whether the CAU specified in the Notices contained a “cartel provision”, and more particularly a “purpose condition”, within the meaning of s 44ZZRD, which is a precondition to contravention of ss 44ZZRG and 44ZZRK. BACKGROUND The background events, as the parties have agreed (without admissions) that they should be understood for the purposes of the application, were set out in [3] to [20] of the ACCC’s submissions, with the addition of the information in 16A:3.The background to this matter was the subject of investigation and report by the Independent Commission Against Corruption (ICAC) which report was published in July 2013 and entitled “Investigation into the Conduct of Ian McDonald, Edward Obeid Senior, Moses Obeid and others” (Joint Tender Bundle (JTB), tab 19, (ICAC report)). For present purposes, a sufficient description of that background is as follows.4.Under s22 of the Mining Act, the Minister may grant or refuse an application for an exploration licence. Sections 13 – 15 of the Mining Act provide two methods by which applications for exploration licences may be made. First, ss 13(1) – (3) provide for any person to apply for an exploration licence, however, s 13(4) provides to the effect that where an application relates to land within a mineral allocation area, an application cannot be made except with the consent of the Minister. Sections 14 and 15 provide for public tenders for exploration licences. 5.On 9 September 2008, the New South Wales Department of Primary Industries (DPI) invited expressions of interest (EOI) from a select group of persons for exploration licences under the Mining Act in respect of 11 coal exploration areas, including an area described as Mount Penny and an area described as Glendon Brook (JTB, tab 1). This invitation was overtaken by another issued in January 2009 (JTB, tab 5). Mount Penny is located near the town of Bylong, NSW (Mount Penny area). Glendon Brook is located near the town of Singleton, NSW (Glendon Brook area). One of the persons invited to submit an EOI (not originally, but subsequently) was Cascade Coal Pty Limited (Cascade). 6.By inviting EOIs from a limited class of persons, the DPI did not pursue the process of public tenders for exploration licences provided for in ss 14 – 15 of the Mining Act. On the basis that the Mount Penny area and the Glendon Brook area were “land within a mineral allocation area”, the DPI treated the EOIs as applications for consent to apply for an exploration licence under s13(4) of the Mining Act which, if successful, may be followed by an application for, and grant of, a licence. 7.Prior to the issue of the invitations for EOIs, [in August 2008] Monaro Mining entered into an agreement with Voope Pty Limited (Voope) which ICAC described as allowing Voope “to acquire 80% of the benefit acquired by Monaro Mining [from the mining venture] at no cost” (ICAC report, p91). ICAC found that Voope was a company associated with the Obeid family (ICAC report, p13). Also, the Obeid family (or companies associated with them) owned or had interests in properties which covered a substantial proportion of the Mount Penny area (Mount Penny properties) (ICAC report, p75).8.The invitation for EOIs stated that the successful applicant would, within 30 days of the grant or transfer of the exploration licence, or the Minister granting consent to apply for a new exploration licence, be required to pay an assessment fee of $10,000, one-off payments (which, in relation to the Mount Penny and Glendon Brook areas, were identified as $1 million and $300,000 respectively), such additional financial contributions as were included in the EOI and the standard Application for Exploration Licence fee of $600 plus $600 per square kilometre (ICAC report, p93, tab 2, p9).9.The closing date for the receipt by the DPI of EOIs (as extended) was 16 February 2009 (ICAC report, p106). Both Monaro Mining and Cascade submitted EOIs in relation to (inter alia) the Mount Penny and Glendon Brook areas. In its EOI for the Mount Penny area dated 21 November 2008, Monaro Mining specified an additional financial contribution of $25 million (JTB, tab 3, p21). In its EOI for the Glendon Brook area, Monaro Mining offered an additional financial contribution of $5 million (JTB, tab 8, p19). Monaro Mining stated in its EOI that, if successful, it would ask that the exploration licence be awarded to one of its wholly owned subsidiaries, which (in the events which happened) was to be Monaro Coal Pty Limited (Monaro Coal) (JTB, tab 3, p21). In its EOI of 16 February 2009, Cascade did not provide for a specific additional financial contribution, but offered to negotiate for one once relevant mine development plans had been determined (JTB, tab 7, p 31).10.By May 2009, the Committee within DPI considering the EOIs had decided that Monaro Mining should succeed in relation to the EOI for (inter alia) the Mount Penny and the Glendon Brook areas (ICAC report, p106). A critical factor in its decision (if not the decisive factor) was that the additional financial contributions offered by Monaro Mining were superior to the other bidders (JTB, tab 8, p19 – 20).11.However, ICAC found that five things then happened. First, on 22 May 2009 Monaro Mining and Voope entered into an agreement by which Voope assumed responsibility and control of Monaro Mining’s EOI, Monaro Coal changed its name to Loyal Coal Pty Limited (Loyal) and all the shares in Loyal were transferred to Voope (ICAC report, p107 - 108). Second, between 28 May 2009 and 31 May 2009, the then Minister for Primary Industries and Mineral Resources, the Hon Ian Macdonald (the Minister), informed Mr Moses Obeid of the result of the evaluations of the EOIs by the DPI (ICAC report, p112). Third, a series of meetings occurred in May and June 2009 between members and associates of the Obeid family and officers of Cascade (ICAC report, p 109 – 110). Fourth, Buffalo Resources Pty Limited (Buffalo) was incorporated on 3 June 2009. The shareholders and directors of Buffalo were persons associated with the Obeid family. ICAC found that Buffalo was controlled and (subject to another person’s interest) owned by the Obeid family (ICAC report p110). Fifth, on 5 June 2009, Cascade entered two agreements, the first with Buffalo (the purported joint venture agreement) and the second with the entities that owned the Mount Penny properties (the property agreement) (ICAC report, p110 – 111); JTB, tab 9 and tab 10)).12.The purported joint venture agreement was “intended to outline the commercial terms on which both Buffalo and Cascade intend to establish a joint venture with the specific purpose of exploring and developing the Mount Penny Coal Release Area (“the Area”) (JTB, tab 9). The key terms of the purported joint venture agreement were to the following effect:a) subject to Cascade being granted an exploration licence, Cascade and Buffalo agreed to form a purported joint venture company or unincorporated purported joint venture (JV) to explore and develop the exploration licence and pursue the grant of mining approval over the Area and pursue the grant of exploration licences and mining approvals over certain identified areas contiguous to the Area (contiguous areas);b) in consideration of Buffalo and (inter alia) Loyal withdrawing Loyal’s EOI in relation to the Mount Penny and Glendon Brook areas and undertaking not to pursue the grant of mining rights to the Area, any contiguous areas or the Glendon Brook area, Cascade agreed to:i. vest 100% of its interest in the exploration licence(s) granted as a result of the EOI process in the JV; andii. grant Buffalo a 25% interest in the JV.13.The purported joint venture agreement was amended on 6 June 2009. Those amendments removed the reference to an unincorporated purported joint venture and provided for Buffalo to pay a consideration of $1 for its 25% interest in the JV. They also provided for Buffalo’s contribution to the JV to consist of assisting Cascade to explore and develop the exploration licence, assisting Cascade to obtain mining approvals and making available its expert knowledge of the Area with further exploration and review of the contiguous areas (JTB, tab 11).14.ICAC found that the key components of the property agreement were that, if Cascade won its bid for the Mount Penny exploration licence, it would purchase the Mount Penny properties for four times their market value (ICAC report, p111). The Property agreement also provided for Cascade to assist the owners of the Mount Penny properties to refinance the mortgages on their properties at an interest rate of 0% or, at its option, pay all interest on the existing mortgages (JTB, tab 10).15.On 9 June 2009, Loyal wrote to the DPI and withdrew its EOI for (inter alia) the Mount Penny and Glendon Brook areas (JTB, tab 12).16.On 19 June 2009 the Director General of the DPI wrote to Cascade informing it that it had been selected as the successful EOI applicant for the awarding of exploration licences for the Mount Penny and Glendon Brook areas and inviting it to apply for the exploration licences for those areas. The Director General was a delegate of the Minister for (inter alia) the granting of consent under s 13(4) of the Mining Act (JTB, tab 4). Cascade was required to pay the sums of $1,010,000 (in relation to Mount Penny) and $310,000 (in relation to Glendon Brook), being the assessment fees of $10,000 and the one-off payments of $1 million and $300,000 for Mount Penny and Glendon Brook respectively, as well as the standard application fee for an exploration licence (JTB, tab 13 and 14).[16AOn 10 August 2009, the DPI wrote to Mr John McGuigan, a director of Cascade, confirming that the Minister had given consent pursuant to s 13(4) of the Mining Act for Cascade to apply for an exploration licence for coal over the Mount Penny area. (JTB, tab 15E). On 24 August 2009, Mr McGuigan wrote to the DPI attaching the application by Cascade for the Mt Penny licence, related information and prescribed fees and asking for the exploration licence for Mt Penny to issue in the name of Mt Penny Coal Pty. Ltd (JTB, tab 15).]17.On 21 October 2009 the Minister issued exploration licences under s22 of the Mining Act to Glendon Brook Coal Pty Limited (in respect of the Glendon Brook area) and Mt Penny Coal (in respect of the Mount Penny area) (the Licences). Both of those companies were subsidiaries of Cascade. The Licences were contained in deeds executed by officers of the Cascade subsidiaries and the delegate of the Minister. Clause 2 of the Licences required the licence holder to pay to the Minister in Sydney royalties at the rates specified in respect of minerals recovered from the land (JTB, tab 16 and 17).18.ICAC found that Cascade thereafter spent millions of dollars on exploration activities at Mount Penny and, another Cascade subsidiary, Mount Penny Properties Pty Limited, spent over $500,000 making monthly mortgage repayments on the Mount Penny properties (ICAC report, p120).19.On 11 May 2010 Buffalo wrote to Cascade, referring to the purported joint venture agreement of 5 June 2009 and stating that, in entering into the purported joint venture agreement, Buffalo was acting as bare trustee and that Buffalo was to be replaced as trustee of that trust and all its rights and obligations assumed by South East Investments Pty Limited (South East) (JTB, tab 18). That letter was signed and acknowledged on behalf of Cascade. ICAC found that South East was an Obeid associated company (ICAC report, p 14).20.In February 2011, ICAC commenced an investigation in connection with the above matters and, in July 2013, delivered its report. In its report (at p113) ICAC noted a submission by Counsel Assisting that “the agreement for Monaro Mining to withdraw its bid was arguably an illegal agreement, in the sense that it breached Part IV of the Trade Practices Act 1974”.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

I consider that the Section 7 Payments (with the possible exception of the Additional Financial Contribution) and the licence fees mentioned in Section 7 of the EOI do have the character of an exaction in the nature of a levy or tribute with the result that it would not be “idle speculation” to consider that these payments are remuneration for the Specified Services within paragraph (a)(iii) of the Revised Contracts Extension.CONCLUSION For these reasons I am not satisfied that the Notices are invalid because of a failure to disclose a “matter that constitutes or may constitute a contravention of” the CC Act. I am not satisfied that the Specified Services are not “services” within s 4(1) of the CC Act. The applicants did not otherwise challenge the Notices relating to a possible contravention of s 45. The ACCC suggests that it is not necessary for me to deal with the issue of whether the Notices disclose possible contravention of ss 44ZZRG and 44ZZRK if the applicants fail in their challenge based on the definition of “services”. I accept this submission because it is apparent from the face of the Notices that the alleged contraventions under s 45 and the cartel conduct provisions rely on the circumstances alleged in paragraph 1 of the Notices so that the applicants would be required to provide the same material in response to the “cartel conduct” and the s 45 “matters” set out in the Notices. This is not a strike out application and it should not be treated as one. I therefore dismiss the application and order that the applicants pay the respondent’s costs as agreed or taxed.

Ratio Decidendi

Legal Principle Established

On 24 August 2009, Cascade wrote to the DPI attaching the application by Cascade for the exploration licence for the Mt Penny area, together with related information and Section 7 Payments, and asking for the exploration licence to be issued to a subsidiary. On 21 October 2009 the Minister issued exploration licences under s 22 of the Mining Act to subsidiaries of Cascade. The licences were contained in deeds executed by officers of the Cascade subsidiaries and the delegate of the Minister. Consideration The EOI Information Documents set out the primary obligations of the successful applicant and expressly state that the successful applicant “will be awarded a coal exploration licence for the area(s) for an initial period up to five years, pursuant to the Mining Act 1992” and that the exploration licences “over these areas will be awarded by part transfer of the existing titles held by the Crown where applicable or the grant of a new exploration title”. The EOI Information Documents do not address in any detail the requirement to obtain Ministerial Consent; it is merely a trigger for Section 7 Payments by the successful applicant. The grant of Ministerial Consent to the successful applicant appears to be an assumption of the EOI Information Document. The correspondence between the DPI and Cascade treats the application for a licence in required form as mechanical because the EOI Information Document and the EOI submitted in response to it addressed the material issues. For instance, the correspondence indicates that although the licences would be subject to conditions, the conditions would be as outlined in the EOI Information Documents or otherwise standard so that there was certainty about how this mechanical issue would be addressed. In the events which occurred, the Minister and Cascade acted consistently with the process outlined in the EOI Information Documents. It therefore appears that a contract may have been formed on 19 June 2009 when the DPI notified Cascade that it was the successful applicant for the Relevant Areas and invited Cascade to lodge applications in the required form for exploration licences together with required Section 7 Payments. Alternatively, a contract may have been formed on 10 August 2009 when the DPI confirmed that Ministerial Consent had been given. Consistent with the EOI Information Documents, Cascade as the successful applicant was then obliged to make the Section 7 Payments and had the right to lodge an application for the exploration licences. It is likely that if the Minister had refused to grant an exploration licence following receipt of an application in required form and the Section 7 Payments from the successful applicant, the NSW Government would have been contractually liable. At the very least, as a result of the EOI Process Cascade (or its nominated subsidiary) had the right to make an application for the exploration licences.Finding on the nature of the Specified Services I reject the applicants’ contention that the “services” specified in the Notices should be characterised as the right to apply for Ministerial Consent. There is nothing in the Mining Act which indicates that an application must be made for Ministerial Consent; contrast s 13(1) which specifically envisages applications for exploration licences. It is possible to view the EOIs as applications for Ministerial Consent ancillary to the awarding of the exploration licences. I consider that it was implicit in the EOI Information Documents that Ministerial Consent would be given to the successful applicant without the need for any further application or negotiation of any material terms; the grant would be on the terms of the EOI and the EOI Information Documents. On this basis, I reject the applicants’ arguments that the Specified Services should be characterised as a mere opportunity to negotiate which could not amount to “services” for that reason: see Adamson v New South Wales Rugby League Limited (1991) 31 FCR 242 at 262 per Wilcox J (Sheppard and Gummow JJ agreeing) (Adamson).