The Federal Court has ordered Cryosite Limited to pay $1.05 million in penalties for engaging in cartel conduct in its asset sale agreement with Cell Care Australia Pty Ltd.
The Court held, by consent, that Cryosite engaged in cartel conduct when it signed an agreement in June 2017 to sell the assets of its private cord blood and tissue banking business to Cell Care with a clause requiring Cryosite to refer all customer enquiries to Cell Care before the sale was completed, and when it subsequently gave effect to that provision.
When merger or acquisition parties are competitors and they combine or coordinate their conduct before the actual completion of the transaction, this is known as gun jumping.
Cryosite admitted that the clause in its contract was designed to restrict or limit the supply of cord blood and tissue banking services by Cryosite, and to allocate potential customers to Cell Care.
Cryosite also admitted that it gave effect to the cartel provision by ceasing to supply private cord blood and tissue banking services to new customers from the date it signed the sale agreement, setting up a system to refer enquiries from potential customers to Cell Care, and referring enquiries to Cell Care in July and August 2017.
This cartel conduct resulted in Cryosite ceasing to compete with Cell Care even though the proposed sale had not yet been completed.
The Court noted: “Market sharing, including when it is undertaken in the context of a proposed or anticipated sale of business, is cartel conduct. And cartel conduct of its nature causes serious harm to consumers, other businesses and the economy.”
While the penalties are at the lower end of the available maximum, the Court observed, “in light of Cryosite’s size and financial position, the proposed penalties 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”.
“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,” ACCC Commissioner Sarah Court said.
“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,” Ms Court said.
“This outcome should be a strong reminder to competing companies that they must conduct themselves at arm’s length until a deal has been completed.”
The Court also ordered Cryosite to pay $50,000 towards the ACCC’s costs.
Notes to Editors:
The penalties ordered were based on admissions made by Cryosite and joint submissions on penalty made by Cryosite and the ACCC.
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