Federal Court orders Zelko Lendich to pay $120,000 penalty for attempt to induce cartel arrangement between egg producers

2 May 2016

The Federal Court has ordered Mr Zelko Lendich, who is a former director of the Australian Egg Corporation Limited (AECL) and the former managing director of Farm Pride Foods Ltd (Farm Pride), to pay a pecuniary penalty of $120,000 for an attempt to induce a cartel arrangement between competing egg producers, in proceedings brought by the Australian Competition and Consumer Commission.

The Court declared that between 19 January and 8 February 2012, Mr Lendich attempted to encourage certain egg producers in Australia to enter into an arrangement or arrive at an understanding that would limit the production and supply of eggs in Australia.

The orders were made on the basis of an admission by Mr Lendich that he attempted to induce the egg producers to make a cartel arrangement in contravention of the Competition and Consumer Act 2010 (CCA).

“The ACCC brought this proceeding against the AECL and competing egg producers because it was concerned that the actions of the respondents, including Mr Lendich, if successful, could have reduced the production and supply of eggs and ultimately increased the price for consumers and other businesses,” ACCC Chairman Rod Sims said.

“We consider that this penalty sends a strong deterrence message to directors of industry and business associations, and business managers generally, and underscores the significant legal risks that may arise from bringing competing firms together without appropriate safeguards being in place”.

The Court’s consideration of Mr Lendich’s admission followed its decision on 10 February 2016 dismissing the ACCC’s allegations of an attempt to induce a cartel arrangement involving AECL, Farm Pride, Ironside Management Services Pty Ltd (trading as Twelve Oaks Poultry), Mr James Kellaway (the managing director of AECL) and Mr Jeffrey Ironside (a director of AECL and Twelve Oaks Poultry), because the ACCC had not established that these respondents intended egg producers to enter into an arrangement or understanding involving reciprocal obligations by competing producers.

The ACCC has lodged an appeal from that decision. A hearing date is yet to be scheduled.

In subsequently dealing with the ACCC’s case against Mr Lendich, the Court found Mr Lendich’s admission included an admission of an intention to induce a cartel arrangement or understanding between competing egg producers, and accordingly the Court was prepared to find that Mr Lendich had contravened the CCA.

In addition to imposing a penalty, the Court also made orders that Mr Lendich attend and undertake a compliance program, and pay an agreed amount towards the ACCC’s costs of the proceedings.

Background

The ACCC instituted proceedings in May 2014 alleging that AECL and the five other corporate and individual respondents attempted to induce egg producers who were members of AECL to engage in cartel conduct.

AECL is an industry corporation that collects levies for promotional activities and research and development activities from member egg producers. At the relevant time, AECL had between 100 and 150 egg producer members.

The proceedings concerned allegations by the ACCC that AECL, Farm Pride, and Twelve Oaks Poultry, together with Mr Kellaway, Mr Lendich and Mr Ironside had attempted to induce egg producers who were members of AECL to cull hens or otherwise dispose of eggs, for the purpose of reducing the amount of eggs available for supply to consumers and businesses in Australia.

On 10 February 2016, the Court found that while the ACCC had established that the respondents intended that egg producers should take action to address and correct an oversupply of eggs, it did not establish that this action was intended to be pursuant to an agreement or understanding involving reciprocal obligations by competing producers.

The ACCC instituted proceedings in May 2014 – ACCC takes action following alleged egg cartel attempt

The ACCC’s case was dismissed in February 2016 – Federal Court Finds Australian Egg Corporation and egg producers did not attempt to induce a cartel arrangement

The ACCC appealed the decision in March 2016 – ACCC appeals AECL decision

Release number: 
MR 68/16
ACCC Infocentre: 

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