ACCC v Cryosite Ltd
[2019] FCA 116 (13 February 2019)
Snapshot
Federal Court of Australia
Year
2019
Citations
[2019] FCA 116
Judge
Justice
Beach
Issues
Cartel conduct
Gun jumping
Hearing
13 February 2019
Judgment
9 March 2017
File
VID830/2018
11 July 2018
Competition legislation considered
Competition and Consumer Act 2010 (Cth)
s 44ZZRD
s
44ZZRJ
s
44ZZRK
s
76
Applicant
ACCC
Respondent
Cryosite Limited
Counsel for ACCC
Mr M I Borsky QC
Ms A Muhlebach
Solicitor for ACCC
Corrs Chambers Westgarth
Counsel for the respondent
Mr C M Caleo QC
Dr C G Button SC
Solicitor for the respondent
Minter Ellison
Facts
In 2018 The ACCC instituted proceedings against Cryosite for alleged cartel conduct relating to an asset sale agreement with Cell Care Australia.
The asset sale agreement 'required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed' and the ACCC alleges that this constituted 'gun jumping' and amounted to 'cartel conduct because it restricted or limited Cryosite’s supply of cord blood and tissue banking services and allocated potential customers from Cryosite to Cell Care'.
Admission and orders
Cryosite admitted the contravention. The Federal Court ordered Cryosite to pay $1.05m in penalties for cartel conduct relating to its asset sale agreement with Cell Care.
Following the decision, ACCC Commissioner, Sarah Court, said:
When companies jump the gun and coordinate or integrate competing businesses before finalising an acquisition between them, this can lead to permanent structural change in the market
Such cartel behaviour, which had the effect of ‘gun jumping’, undermines the effective functioning of the ACCC and the merger process
We want to be clear that parties to a transaction must remain independent and continue to act as competitors, even after they have signed a business or share sale agreement, until the deal is completed.
On this issue of penalty Justice Beach observed:
[49] ... the penalty to be imposed for cartel conduct of the kind I am considering ahead of a proposed sale or its completion needs to be sufficiently high to deter businesses who may otherwise be able to circumvent the proper application of s 50 and its associated divestiture remedy or at the least render less effective or nugatory such a remedy.
[50] Further, any penalty must be sufficient to overcome the broader incentives to businesses to prematurely coordinate or integrate their businesses ahead of the completion of a sale in a manner which has an anti-competitive purpose or effect. ...
In this case, although the penalty imposed was just over 10% of the maximum available for the contravention, Justice Beach observed that, in light of the size and financial position of Cryosite, the penalty 'could not reasonably be regarded as an acceptable cost of doing business, and could be expected to render any risk/benefit analysis materially less palatable to other potential wrongdoers.' (para 88).
Judgment
Justice Beach delivered his judgment on 13 February 2018.
Keywords
COMPETITION – cartel conduct – restricting or limiting supply – market sharing – contract containing a cartel provision – conduct giving effect to cartel provision – pecuniary penalty
Legislation
Competition and Consumer Act 2010 (Cth) ss 44ZZRD, 44ZZRJ, 44ZZRK, 76
Declarations and orders
The Court declares that:
1. On 23 June 2017 the Respondent (Cryosite), by entering into the “Cord Blood and Tissue Banking asset sale agreement” (Sale Agreement) with Cell Care Australia Pty Ltd (Cell Care), which contained a clause requiring Cryosite to refer all sales enquiries in relation to its cord blood and tissue (CBT) banking business to Cell Care during the period before the date on which the asset sale under that agreement was to be completed (Cryosite restraint), made a contract which contained a provision that had the purpose, directly or indirectly, of:
(a) restricting or limiting Cryosite’s supply or likely supply of CBT banking services within the meaning of s 44ZZRD(3)(a)(iii) of the Competition and Consumer Act 2010 (Cth) (CCA); and
(b) allocating between Cryosite and Cell Care (that is, to Cell Care) persons who were likely to acquire CBT banking services from Cryosite within the meaning of s 44ZZRD(3)(b)(i) of the CCA,
and thereby contravened s 44ZZRJ of the CCA.
2. During the period from 23 June 2017 to and including August 2017 Cryosite gave effect to the Cryosite restraint by:
(a) establishing and implementing a process by which Cryosite staff would refer customer enquiries to Cell Care;
(b) referring customers who contacted Cryosite to Cell Care;
(c) reporting to Cell Care in relation to customers Cryosite had referred to Cell Care; and
(d) ceasing to provide CBT banking services to new customers,
and thereby engaged in conduct in contravention of s 44ZZRK of the CCA.
The Court orders that:
3. Cryosite pay to the Commonwealth of Australia a pecuniary penalty of:
(a) $600,000 in respect of the contravention of s 44ZZRJ of the CCA referred to in paragraph 1 of this Order; and
(b) $450,000 in respect of the contraventions of s 44ZZRK of the CCA referred to in paragraph 2 of this Order,
in accordance with the following timetable:
(c) $200,000 must be paid within 30 days of the date of this Order; and
(d) the balance of the sum of the amounts in paragraphs (a) and (b) must be paid in 10 equal annual instalments, with the first instalment to be paid on or by 13 March 2020, and the subsequent instalments to be paid on or by 13 March of each of the years from 2021 to 2029.
4. Cryosite pay the ACCC’s costs of this proceeding in the sum of $50,000 within 30 days of the date of this Order.
Media and commentary
ACCC
ACCC, 'Cryosite to pay $1.05m for 'gun jumping' cartel conduct (13 Feb 2019)