Cartels case studies & legal cases

Read about cartel activities the ACCC has investigated.

Bid rigging

Marine Hose Cartel

This case involved price fixing, bid rigging and market sharing by four foreign companies that supplied rubber hosing to transfer oil and gas from production and storage facilities to offshore tankers. The four companies involved (Dunlop Oil & Marine, Bridgestone Corp., Trelleborg Industrie SAS and Parker ITR) each appointed members to a committee that allocated jobs and coordinated bidding and quoting for these jobs. The designated winner of the contract was referred to as the ‘champion’ and the cartel used such codes and other covert tactics to conceal their activities.

The cartel was international and the key meetings were held overseas, but the successful court action was based on the cartel giving effect to their agreement in the Australian market, following global enforcement action taken by competition authorities in the USA, UK, Europe and Japan. In 2010 the Federal Court of Australia made orders restraining the parties from repeating such conduct and imposed penalties exceeding $8 million.

Demolition Cover Pricing

In late 2000, the Commonwealth Department of Defence conducted a tender for demolition and asbestos removal at its Salisbury site in South Australia. The project was valued at over $2 million. McMahon Services and SA Demolition and Salvage, the two companies bidding for the job, along with the preferred asbestos removal subcontractor (D&V Services) met to discuss the tender. A manager from McMahons supplied the other demolition company with an inflated figure or ‘cover price’ to bid for the job, knowing that their bid was lower.

McMahons consequently won the job and awarded the asbestos removal subcontract to D&V Services, as agreed at the meeting.

An insider alerted the ACCC and in 2004 the Federal Court penalised the companies and several key individuals more than $535 000. The companies and individuals also provided undertakings to the Court not to repeat the conduct and agreed to attend compliance training.

Attempted Collusive Quotation

In a remote region of South Australia, a truck and tractor mechanic quoted on the repair to a front end loader. The customer stated that they would seek a competitive quote. As there was only one other operator in the region, the mechanic wrote a note on the quote inviting the other mechanic to ‘cover’ him on this job (quote higher) and that he would return the favour in the future. He asked his secretary to fax the quote to his competitor. The secretary made an error and faxed the note to the customer, who promptly informed the ACCC. The matter was settled by the mechanic giving court enforceable undertakings not to repeat the conduct, among other things.

Brisbane fire protection cartel

For about 10 years until 1997 most of the companies in the fire alarm and fire sprinkler installation industry in Brisbane held regular meetings, at which they agreed to allow certain tenders to be won by particular competitors.

Calling themselves the ‘Sprinkler Coffee Club’ and the ‘Alarms Coffee Club’, the groups would meet up over a cup of coffee at hotels, cafes, and various sporting and social clubs. At these meetings they would share tenders and decide who was to submit ‘cover prices’ to make the tender process look legitimate, while ensuring the agreed company won the tender.

It has been estimated that this conduct affected contracts worth more than $500 million. The Federal Court imposed more than $14 million in penalties on the companies and some of their executives.

Queensland pre-mixed concrete cartel

The Pioneer, Boral and CSR cartel involved bid rigging, price fixing and market sharing in the pre-mixed concrete market in south-east Queensland from 1989 until 1994. The participants had more than 50 regular meetings and phone conversations. In addition to fixing prices, they agreed on market shares and not to compete on specified major projects.

Market shares were maintained by the companies recognising certain customers (referred to as “pets”) as belonging to certain suppliers and agreeing not to compete for their business. The participants even engaged an accountant to monitor market shares so they could enforce compliance with the agreement. The arrangement led to considerable overcharging on major construction jobs, including federal, state and local government projects.

Penalties of $6.6 million were imposed on each company. Penalties were also imposed on six executives, the maximum being $100 000. The case demonstrated a blatant disregard for the law, as each of the corporate groups had previously been found to have engaged in similar conduct.

Heavy Construction Tenders and ‘Loser’s Fees’

The tender for the Commonwealth Office at Haymarket, Sydney, in 1988 led to the exposure of long-term collusive practices by large construction firms. Before the close of tender, the industry association, the Australian Federation of Construction Contractors, called a meeting of the four firms bidding for the contract. It was agreed that the winning firm should pay the three losers $750 000 each, and the AFCC $1 million. The project was worth around $200 million. The transactions were to be concealed by invoices for consultancy services.

The arrangement was exposed by a New South Wales Royal Commission into the construction industry. The Federal Court issued penalties of $1.75 million on the companies and individuals involved. It came out in the case that ‘loser’s fees’ were a common arrangement in the industry.

The court found that there was an expectation (thus an agreement) that these fees were levied in addition to the contract price. As such, they were an imposition on the developer, in this case the Commonwealth government, and therefore on the taxpayer.

Market sharing

Power Transformers Cartel

The major Australian suppliers and manufacturers of both power and distribution transformers were involved in price fixing, bid rigging and market allocation within domestic markets with a combined value of around $160 million per year. The customers affected by the cartel included some of the largest electricity transmission and distribution utilities across Australia, many of them publicly owned, resulting in Australian consumers paying higher electricity bills. A whistleblower alerted the ACCC to the cartel conduct.

The cartel included the principal manufacturers and suppliers of transformers in Australia and covered virtually 100% of the industry, including the ABB companies, Schneider Electric (Aust), Wilson Transformers, Alstom Australia and AW Tyree. The collusion involved executives at the highest level, and featured secret meetings in hotel rooms, airport lounges and private residences in various locations across Australia. These meetings rigged the outcomes of multimillion dollar contracts, with at least 27 tenders being rigged between 1993 and 1999. Some aspects of the cartel ran from 1989 to 1999. A 2004 study by the Australian National University concluded that the cartel extracted an extra $70 million to $80 million from its customers between 1994 and 1999.

The Federal Court imposed penalties of more than $35 million on the participating companies and some of their executives. The Court was particularly scathing about the fact that the arrangement was coordinated by senior executives, including managing directors. Total penalties imposed on individual executives exceeded one million dollars, with the highest being $200 000.

Simsmetal Heavies Competitor

In 1995 a manager from Simsmetal, the largest scrap metal merchant in the southern hemisphere, attempted to coerce a South Australian competitor into a market sharing agreement. He proposed that the two companies would not compete for suppliers of foundry grade scrap steel. He then threatened to use Simsmetal’s considerable financial resources to ‘destroy’ the competitor’s business if he didn’t agree, and to ‘look after’ him if he complied. The smaller operator secretly recorded the demands at the second meeting.

The Federal Court took a dim view of the matter, particularly since it was less than a year after Simsmetal were penalised for similar conduct in Victoria. The Court made an order restraining the company from repeating the conduct, applied a penalty of $2 million and awarded $100 000 towards the ACCC’s costs.

Freight cartel

This case involved TNT Australia, Ansett Industries and Mayne Nickless. In five significant meetings between 1987 and 1990, attended by representatives of each of the companies, a series of agreements were reached to allocate customers and share the market.

The conduct included agreements between the companies not to poach each other’s customers.

When customers moved from one provider to another, the companies balanced their accounts of customers lost and gained, and paid or received compensation. The companies also agreed to ‘burn’ switching customers by deliberately providing poor service in order to compel customers to return to a supplier with which they might have been dissatisfied. In one instance a customer’s perishable freight was intentionally delayed and eventually kept at the back of the freight facility and not sent, to drive them back to their previous freight supplier, who in turn charged higher prices when the customer returned to them.

Each of the companies acted on these agreements on many occasions. The practices were believed to have been in place for 20 years. In 1995, fines of $11 million were imposed.

Industrial Foam Cartel

Joyce Corporation, Foamlite Australia and Vita Pacific all manufactured and supplied flexible polyurethane foam for mainly industrial use in the Queensland market. Several employees of the companies became friends and attended regular luncheons together, where they eventually formed a series of agreements to maintain market shares and to refrain from competing for various customers. The lunch meetings and phone calls between these employees enabled the operation of the cartel. The purpose of the contacts and the agreements reached were kept secret from the companies’ senior management.

It was complaints of breaches of the cartel agreement that eventually brought the cartel to light. In 1998/99 the companies and some of the employees were fined a total of $2.9 million with an additional $150 000 levied for the ACCC’s costs. This case clearly demonstrates that companies are liable for the conduct of employees and senior managers need to ensure that all staff act lawfully.

Output restriction legal cases

Tasmanian Atlantic salmon growers

In 2002 the Tasmanian Atlantic salmon industry was in financial difficulty and decided that supply was outstripping demand. The industry association, the Tasmanian Atlantic Salmon Growers Association (TSGA), decided that if all members culled stocks by around 10 per cent, this would meet demand and avoid further price falls.

It sought legal advice but did not correctly brief its lawyers. The advice that the cull would not breach competition laws was consequently flawed. After a meeting of growers approved the plan, agreements were circulated. One member, Tassal, subsequently culled its stocks.

The ACCC investigated and the cull was stopped. Due to the parlous state of the industry and the fact that legal advice had been sought and cooperation shown, the ACCC chose not to pursue penalties. It instead obtained court orders that the industry establish a trade practice compliance training program and stop any future culls.

Price fixing

International Air Cargo cartel

In June 2006, competition authorities simultaneously raided airline offices in the United States and Europe, in order to investigate claims that many major airlines had colluded in the setting of their fuel and security surcharges. German carrier Lufthansa informed the authorities of the illegal agreements and were granted immunity from prosecution.

Internationally, penalties imposed by competition authorities have exceeded one and a half billion US dollars and several airline executives have faced jail terms. In addition, several airlines have faced class actions and have had to compensate customers measuring hundreds of millions of dollars.

In Australia, the ACCC has pursued 15 local, European and Asian based airlines for price fixing in the Australian air cargo market. The Federal Court has imposed $58 million in penalties to date including a $20 million penalty against Qantas, $5 million against British Airways and $5.5 million against each of Japan Airlines and Korean Airlines. Each penalty was reduced depending on the level of co-operation provided to the ACCC with Qantas receiving the largest discount of 50%. Qantas has also paid several overseas penalties and a senior executive was jailed for 6 months in the United States of America.

Legal proceedings against other airlines are continuing.

Queensland Construction Cover Pricing

Between 2004 and 2007, three construction companies (TF Woollam & Son, JM Kelly and Carmichael Builders) engaged in cover pricing when bidding on four government projects. The companies also misled their clients by signing statements that they had not colluded with their competitors during the bidding process.

Cover pricing is a practice which has developed within the building industry, both in Australia and abroad. It was alleged by the ACCC to have been used in situations where a construction company may not have the time, resources or inclination to prepare an accurate tender, but still wants to be seen as tendering for that project.

In this instance, cover pricing involved discussions between two potential suppliers (builders) in a tender process. Company A does not want to win the contract for reasons identified above and so asks company B (who intends to make a genuine tender) to provide them with a ‘cover price’. Both companies understand that this ‘cover price’ will be higher than company B’s tender price. Once the cover price has been received from company B, company A (should it choose to tender) then submits its tender to the client at a price which is at or above the cover price.

This gives the client the impression that both companies are tendering competitively, but the exchange of the cover price actually ensures that company A's tender price is higher than that of company B and therefore makes it unlikely that company A will be the successful tenderer.

In 2011 the Federal Court described this cover pricing as ‘illegal price controlling conduct’ and the making of the false statements as ‘a betrayal of trust’. The three companies were penalised a total of $1.3 million and two key individuals received penalties totalling $80 000.

Fine Paper Cartel

Between 2000 and 2004, several international companies that supplied paper products formed a cartel known as the AAA club. The secret meetings of this ‘club’ were held in south-east Asian countries, particularly those that had no anti-trust (cartel) laws at the time. The participants made price fixing agreements for the supply of copy and other papers into various markets including Australia.

In 2010 and 2011, several of those companies were penalised more than $8 million by the Federal Court of Australia. The Court also made injunctions restraining the companies from repeating their conduct, and ordered them to pay $550 000 towards the ACCC’s legal costs. Despite the agreements being made outside of the country, Australian laws were breached because the illegal deal was put into effect in the Australian market and harmed local consumers.

Visy and Amcor packaging cartel

Between them, Visy and Amcor controlled around 90 per cent of the corrugated fibre packaging market (the humble cardboard carton), which was worth some $1.8 billion to $2 billion per year.

From 2000 to 2004, the two companies conspired to raise the prices of their products while maintaining their respective market shares.

Both companies nominated executives to consult on and coordinate price rises and collude when negotiating quotes for customers. These executives met regularly and secretly in public places such as hotels and parks, and also communicated using public phones and special prepaid mobiles. When larger customers wished to renegotiate contracts, the two companies swapped information to ensure that the competitor’s quote was higher than the existing price structure (this practice is known as cover pricing).

The scheme was discovered only when Amcor management reported to the ACCC and Amcor was granted immunity from prosecution. Visy eventually admitted its role in the cartel. It was fined $36 million by the Federal Court, and fines to individuals totalled $2 million. Thousands of firms (and ultimately millions of consumers) were significantly overcharged by the cartel. The Federal Court ordered Visy and Amcor to pay $95 million in damages to a customer class action involving more than 4500 businesses.

This is what one of our Federal Court judges, Mr Justice Heerey said in November 2007, when he issued his judgement on this well-known Visy cartel case:

The law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin.

Every day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box. The cartel in this case therefore had the potential for the widest possible effect.

The whole point of price fixing and market sharing is to obtain the benefit of prices greater than those which would be obtained in a competitive market.

The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.

Animal vitamins cartel

Three Australian suppliers of animal vitamins held meetings and telephone conversations during which they agreed on the prices they would charge for certain vitamins. They were the Australian subsidiaries of large foreign companies that had also entered into price fixing and market allocation agreements overseas. The Federal Court imposed penalties of $26 million against the Australian suppliers.

Tubemakers Foundry Cartel

Several companies, including Tubemakers of Australia Ltd, supplied plastic pipes for water and sewerage systems and various fittings and valves for ductile iron cement lined pipes. These products were used, among other things to connect to new housing developments. Officers of the companies met in a Coolangatta restaurant and agreed to raise prices, limit discounts, rig tenders and to avoid competing for each other’s customers. They subsequently met at cafes and restaurants and contacted each other by phone. One of the participants maintained computer software designed to detect any sales that deviated from the agreement so the deal could be enforced.

In 1999 and 2000 the Federal Court imposed penalties of $2.85 million and ordered that $1.23 million be reimbursed to affected customers – mostly local councils. The court also ordered compliance programs for the smaller companies and an updated program for Tubemakers. Of note was the fact that a senior sales manager for Tubemakers acted without the knowledge or approval of the company’s other senior managers and directors.

Alice Springs Car Rental Cartel

The Managing Director of a major car rental company rang his regional manager in Alice Springs and directed him to contact local competitors and propose that they all cease to discount car rentals during the off-peak tourist season. Covert meetings were held at a restaurant, the golf course and at other social functions and the local competitors all agreed to the scheme.

It has been estimated that consumers paid an average of $300 extra per rental while the agreement was in place. In 1998 the companies and some of the individuals involved were penalised a total of $1.54 million.

Industry association legal cases

ACCC v CC Constructions and others (1999)

The tender for the Commonwealth Office at Haymarket, Sydney, in 1988 led to the exposure of long-term collusive practices by large construction firms.

Before the close of tender the industry association, the Australian Federation of Construction Contractors (AFCC), called a meeting of the four firms bidding for the contract. It was agreed that to enable recovery of overheads associated with preparing tenders the winning firm should pay the three losers $750 000 each, and the AFCC $1 million. The project was worth around $200 million. The transactions were to be concealed by invoices for consultancy services.

The arrangement was difficult to detect because it added fixed price components to the final tender prices, which were otherwise prepared in competition with each other. The competitive positions of each of these companies were not disturbed.

The arrangement was exposed by a New South Wales Royal Commission into the construction industry. The Federal Court issued penalties of $1.75 million on the companies and individuals involved. It came out in the case that ‘loser’s fees’ were a common arrangement in the industry.

The court found that there was an expectation (thus an agreement) that these fees were levied in addition to the contract price. As such, they were an imposition on the developer, in this case the Commonwealth government, and therefore on the taxpayer.

ACCC v Tasmanian Salmon Growers Association (TSGA) and others (2003)

When the TSGA proposed that its members cull stocks to reduce supply, it sought legal advice as to whether the scheme would breach the then Trade Practices Act. However, it did not correctly or completely brief its lawyers. The advice it received was based on an understanding that the cull was merely a recommendation to members, whereas the TSGA intended to seek written undertakings from its members to ensure that all complied with the cull. Consequently the advice was flawed.

The ACCC and the Federal Court took this into account, along with the cooperation shown by the parties. No penalties were sought but the court ordered that no future culls be attempted, and that trade practices training be undertaken and compliance programs established. The TSGA and Tassal, the one company that had begun the cull, were ordered to contribute to the ACCC’s costs.

More information