August 2007

The petrol price fixing case - does this change whether you can discuss prices with competitors?

Many of our clients will have followed the Geelong petrol price fixing case with interest, if only because it held some promise to help stamp out the infuriating practice of petrol stations varying their prices from day to day, seemingly at will ? and seemingly "in-sync" with each other.

For those hoping for a successful prosecution, alas, the Federal Court has decided in favour of the petrol companies and the ACCC has announced that it will not appeal the decision.

The allegation made by the ACCC in ACCC v. Leahy Petroleum {2007} FCA 794 was that petrol suppliers in the Geelong area were guilty of numerous price fixing understandings in the period of 1999 and 2000. These understandings were alleged to have breached section 45A of the Trade Practices Act 1974 (Cth) (TPA), the effect of which is to prohibit price fixing contracts arrangements and understandings between competitors.

It has long been well understood that sec 45A is broadly cast so that it is not necessary for there to be a binding agreement between the competitors for the prohibition to bite. An "arrangement" or an understanding" is something less than a binding contract and was widely regarded as encompassing so-called "nod and wink" arrangements.

This in turn led us to recommend a pragmatic approach to the prohibition. The golden rule long has been: "Never even discuss prices with competitors!" Breaking that rule would expose you to the inference that, if your pricing subsequently fell into line with that of your competitor, there is an arrangement or understanding in breach of sec 45A.

The seriousness of the penalties has no doubt contributed to a conservative approach to this issue. Breach of sec 45A is a very serious matter indeed. It is regarded by the ACCC as one of the most serious breaches of the TPA that can be committed. Penalties can be imposed up to $10 million for companies and $500K for directors and other officers involved in the contravention.

In ACCC v. Leahy, several "whistle blower" employees of the petrol companies (holding leniency agreements from the ACCC) gave evidence that pricing had been discussed by the petrol companies with each other. Despite the fact that synchronised pricing then ensued and on many occasions, the court was unable to find that an "arrangement or understanding" was present.

The judge found that the whistle-blower evidence was less than reliable and also, that something more is needed than discussion followed by synchronised pricing. The evidence was that although pricing was discussed it was usually about the fact that one of the retailers had already varied the price of its petrol - and this fell short of the requirements of section 45A.

A commitment or an expectation of some description to manipulate prices was needed and on the evidence this commitment was not present.

The ACCC has stated that it will not appeal the decision largely because it depends so heavily on conclusions of fact that were made by the judge. Such factual conclusions are rarely overturned on appeal; for an appeal to succeed the appellant needs to demonstrate that an error in law was made.

Has the potency of sec 45A been dealt a blow by the court's decision? Perhaps other judges may have been more ready to infer that an illegal arrangement or understanding was present from the fact of the communications and the level of subsequent synchronicity.

But we need to be careful in drawing any conclusions that the law has been altered. It's arguable that the judge was simply applying a "black-letter" approach to the case. Section 45A does require a contract, arrangement or an understanding and other decisions (notably the Radio 2UE case) established that there must be a consensus as to the setting of prices, not just a mere hope that this would ensue.

So what does all this mean in practice? The conceptual leap from:

  • a discussion of prices followed by synchronised price setting (or pricing with some other pattern), to

  • a discussion that creates a consensus and expectation that prices will be set at agreed levels,

is not all that much of a leap at all. The outcome of this kind of analysis could turn on as little as the use of one or two words in a particular context.

In practice, it remains extremely risky to discuss pricing with competitors. Even though the petrol retailers in Leahy escaped by the proverbial coat of lacquer, it was certainly an experience they would rather have done without. Court proceedings of this kind are lengthy, distracting, expensive and, yes, stressful ? and are to be avoided!

So in practice, little if anything has changed: Don't discuss prices with competitors!