19 Mar 2015

Bidding for Mt Penny: s. 155 notices and alleged breaches of competition laws in bidding processes

by Mihkel Wilding, Douglas Thompson

A novel attempt to set aside a section 155 notice only shows how hard it is to do so.

Competition laws apply to bids for government licences issued under statute where the bidding and licence-issuing process is run on a commercial basis, with the consequence that the Australian Competition and Consumer Commission can issue notices requiring documents to be produced and people to attend for interview if it believes there may have been a breach of competition law under section 155 of the Competition and Consumer Act 2010 (Cth).

In addition, the cartel provisions can apply to an arrangement between competitors about a tender after the initial bid has been submitted.

How far these powers go was recently considered in Obeid v Australian Competition and Consumer Commission [2014] FCAFC 155.

The Mount Penny bidding process

Investigations by the New South Wales Independent Commission against Corruption (ICAC) into former New South Wales Labor minister Eddie Obeid have probed various transactions, including the grant of various government licences.

Following a report by the ICAC that found Mr Obeid and his relations had a controlling interest in two companies involved in a bidding process for exploratory coal licences in Mount Penny, New South Wales, the ACCC served notices on his sons Moses and Paul Obeid, seeking information about possible breaches of the Competition and Consumer Act.

The notices were issued under section 155 of the Act, which provides the ACCC with broad powers to require the provision of information, production of documents or giving of evidence if it has reason to believe may contravene the Act.

The conduct being investigated was an alleged arrangement that led to an Obeid-controlled company, Monaro Coal Pty Limited, withdrawing from the bidding process, leaving a non-Obeid company, Cascade Coal Pty Ltd, to be the sole applicant for the licence. The non-Obeid company then entered into a joint venture with another Obeid-controlled entity, Buffalo Resources Pty Ltd, to mine the Mount Penny area.

The focus of this case was on whether the ACCC had the power to issue the notices to the Obeid brothers.

Why the Obeids challenged the notice

The Obeids sought declarations that the notices were not validly issued under section 163A(1)(aa) of the Competition and Consumer Act, using a slightly novel argument. Its thrust was that the "services" specified in the notices were not "in trade or commerce" as required by the definition of "services" in section 4(1) of the Act, and so could never amount to a contravention.

The Obeids also argued that the arrangement between the competitors specified in the notices did not satisfy the purpose element required in order to establish a cartel provision under the Act.

Services argument

The Full Court of the Federal Court found that when the Obeids were participating in the tender process they were engaged in trade or commerce. The licence process was not a mere application for a licence renewal or approval in a statutory or regulatory context. By its nature, it was a commercial process where the Minister set out a commercial basis for approval of the right to explore for the State's coal reserves. The Department of Primary Industries tender process for the granting of the exploratory licences was designed to function as a revenue raising tool. The Court also found that the companies involved in the agreement were competing with each other for the approval and in doing so the Minister was providing a right, benefit or privilege within the definition of services in section 4(1) of the Competition and Consumer Act.

Purpose argument

The Obeids submitted that the words "ensuring" and "in the event" of in the relevant provisions can only apply if a bid is made after an arrangement is formed. As in this case no bids were made after the alleged arrangement was formed, the Obeids argued that there was no collusion when bids were made and that, therefore, the purpose element for a cartel provision could not be satisfied.

The Court rejected this argument. It held that there was no temporal element to the language and that there was no logical reason to differentiate between bids made before or after an arrangement is formed. In doing so, it recognised that bids may not necessarily be a one-off event but an ongoing or continuing process.

The difficulty of challenging a section 155 notice

The ACCC's power to issue notices is a broad power but one which the Court recognises "is a drastic one which must be exercised with care". Despite this, successfully challenging a notice is rare.

The Obeid case proves the rule rather than the exception. Uncertainty or ambiguity are not reasons in and of themselves for invalidating a notice unless the uncertainty or ambiguity renders the notice meaningless. Notices are not to be read in a "precious", "over-technical" or "hypercritical" way.

The notice in this case required Paul and Moses Obeid to be interviewed by the ACCC. Many notices, however, require companies or individuals to produce information or documents under a tight deadline. For large companies in particular, a significant amount of unrecoverable time and money is often spent in responding to notices. As a general rule, the larger the company, the more the ACCC expects good record-keeping systems and procedures to be in place, and the higher the compliance burden generally is in discharging the obligation to respond.

This issue of the burden of responding to a notice is something that the Harper Review is considering. In its draft report issued in September 2014 the Panel recommended that the ACCC should review its guidelines on section 155 notices as to having regard to the increasing burden imposed by notices in the digital age. In particular, it noted that the obligation to produce documents in response to a section 155 notice should be qualified by an obligation to undertake a reasonable search, taking into account factors such as the number of documents involved and the ease and cost of retrieving the documents. The final report of the Harper Review Panel is expected this month.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.