A nod and a wince? A New Zealand understanding of ACCC v Hutchison

Introduction

Understanding what is a “contract, arrangement or understanding” (CAU) is crucial for businesses to comply with competition law. While the concept of a “contract” is well-understood, its less formal siblings “arrangement” and “understanding” can be harder to pin down. Knowing where the line is, in particular between an understanding and no CAU at all, is very important.

The High Court of Australia’s (HCA’s) recent decision in ACCC v Hutchison; ACCC v CFMEU[i] (HCA Judgment) is a case in point. While this case was decided under Australian law, it is likely to be persuasive in New Zealand, where the essential components of what comprises a CAU under New Zealand’s equivalent legislation – the Commerce Act – are the same.

This article describes the key facts and findings of the courts relevant to their findings on whether the CFMEU and Hutchison had reached an understanding, and the implications for the law in New Zealand.[ii]

Executive Summary

An employment union (CFMEU) threatened the head contractor on a building site (Hutchison) that it would shut the site down if a sub-contractor (WPI) continued to work on the site. Hutchison did not communicate any agreement or assent to the CFMEU, but terminated WPI’s contract. By a 4-1 decision, the HCA found that the CFMEU and Hutchison did not arrive at an understanding to terminate WPI and prevent it from working on the Hutchison site. The key reason was the absence of a communication from Hutchison to the CFMEU assenting to the CFMEU’s demands.

The HCA Judgment provides clarification on what constitutes an “understanding” under the Competition and Consumer Act (CCA) in the context of a threat or ultimatum, and is likely to be persuasive in New Zealand given the essential elements for finding the existence of a CAU are the same in this country. The key points for New Zealand businesses arising out of the HCA’s decision are:

1. Without more, a unilateral threat or ultimatum is unlikely to be sufficient to give rise to an understanding. There is no special class of CAUs entered into following a threat or ultimatum.
2. A meeting of minds requires assent to be communicated, whether by words or actions. However, where the person making the demand or issuing the ultimatum dispenses with the need for assent to be communicated, acting in accordance with a demand could constitute both entry and giving effect to a CAU. Such dispensation may be inferred, but will depend on the facts in each case.
3. When issuing (or receiving) ultimatums, be conscious that your words and actions could lead to a CAU. Consider whether this is what you want, especially if you are communicating with a competitor. Entering into a CAU means potentially being subject to the general prohibition on CAUs that substantially lessen competition under section 27 of the Commerce Act. If with a competitor, the cartel provisions under section 30 could potentially apply.
4. Even if no CAU is reached, the making of threats or ultimatums could give rise to accessorial liability as an attempt to reach an agreement under section 80(1)(b) of the Commerce Act, or an inducement via a threat under section 80(1)(d).

The case is also a good reminder, when looking at CAUs, of the importance of being able to identify:

1. what the relevant provision is;
2. when the CAU was entered into;
3. how it was entered into (explicitly, by words or implicitly, by actions); and
4. by whose words or actions.

This will be a more difficult task in the case of implicit communication, and in such cases an enquiry will be needed into (a) what other explanations there may be for the actions of the parties, and (b) whether these actions are more or less likely to be explicable by reasons other than the existence of a CAU.

What happened?

Hutchison was the head contractor of a large construction project in Queensland, the Southport project. Hutchison had entered into an Enterprise Bargaining Agreement (EBA) with the CFMEU.

In March 2016, following a tender for waterproofing work that it needed to be done at the site, Hutchison awarded the contract to a WPI. WPI did not have an EBA, and there had been no consultation with the CFMEU about WPI working on the site, as was required under the enterprise agreement between Hutchison and the CFMEU.

The CFMEU evidently did not have a favourable view of WPI, and there had been issues on other worksites with WPI not paying its staff their full entitlements.

WPI performed some waterproofing work on the site between April and May 2016, but in late May or early June 2016 the CFMEU organiser complained to a team leader at Hutchison that WPI did not have an EBA.

On 11 June 2016, the CFMEU delegate on the Southport site approached the Hutchison project manager and told him he was under “strict instructions” from the CFMEU organiser to “sit the site down if WPI come on site”. A reason given was that WPI did not have an EBA.

How the project manager reacted at the time is unknown but, importantly, there was no evidence that he communicated agreement with the CFMEU’s demands. Two days later on 13 June 2016 he reported to the Hutchison team leader the threat of industrial action due to WPI not having an EBA.

The project manager, who was found to have no awareness of any understanding between the CFMEU and Hutchison, tried to help WPI get an EBA, but was told by the CFMEU organiser “[WPI] won’t be doing your waterproofing, [they] won’t be able to get an EBA”. The organiser instead suggested to the project manager that Hutchison use another company that did have an EBA.

In late June 2016 WPI was informed by the CFMEU representative at the Southport project site that it needed to speak with another CFMEU representative to “get a go ahead with work”. WPI was, however, unable to contact that representative, or the CFMEU organiser in their stead, who did not return its calls. A 13 July 2016 email sent from Hutchison to the CFMEU urgently sought to rectify matters, but this also went unanswered.

By this time, the Southport project was experiencing delays because WPI could not come onto the site and complete necessary waterproofing work. The project manager reported this to his team leader, who instructed him to get another waterproofing contractor.

About a week later the project manager again spoke with his team leader, this time about terminating WPI’s contract and was told to “deal with it”. Hutchison’s contract was terminated on 26 July 2016.

The ACCC’s case

The ACCC alleged that the above conduct amounted to a breach by Hutchison of sections 45E(3) and 45EA of the CCA. It also alleged that the CFMEU was knowingly concerned in, or party to, and induced Hutchinson’s alleged contraventions.

Section 45E(3) of the CCA provides that where a person “has been accustomed, or is under an obligation, to acquire goods or services from another person”, that first person “must not make a contract or arrangement, or arrive at an understanding” with an organisation of employees if “the proposed contract, arrangement or understanding contains a provision included for the purpose, or for purposes including the purpose”, of “preventing or hindering the first person from acquiring or continuing to acquire such goods or services from the second person”.

Section 45EA prohibits the giving effect to a contract, arrangement or understanding to which section 45E(3) applies.

Put simply and adapted to the present situation, if a construction company has been using a sub-contractor on site, it cannot then reach a CAU with a union that it will stop using that sub-contractor. The Explanatory Memorandum to the introduction of the provision states that:

“New section 45E is directed at situations where a person capitulates in order to avoid loss or damage as a result of threatened industrial action against the target.”[iii]

While there are no equivalent provisions in the Commerce Act, the concept “contract, arrangement or understanding” has been interpreted in essentially the same way in both countries.

The Federal Court finds for the ACCC [iv]

At first instance, Crosbie J in the Federal Court found for the ACCC.

At [320] of the judgment Her Honour sets out the legal principles relevant to the concept of arrangement or understanding, as expounded by Gordon J (as Her Honour then was) in Norcast S.ár.L v Bradken (No 2), emphasising the following passage:

“A meeting of minds may be proved by independent facts and from inferences drawn from primary facts including, without limitation, evidence of joint action by the parties in relation to relevant matters, evidence of parallel conduct and evidence of collusion between the parties.”[v] (original emphasis)

Her Honour went on to cite the judgment of Isaacs J said in R v Associated Northern Collieries:

“Community of purpose may be proved by independent facts, but it need not be. If the other defendant is shown to be committing other acts, tending to the same end, then though primarily each set of acts is attributable to the person whose acts they are, and to him alone, there may be such a concurrence of time, character, direction and result as naturally to lead to the inference that these separate acts were the outcome of pre-concert, or some mutual contemporaneous engagement, or that they were themselves the manifestations of mutual consent to carry out a common purpose, thus forming as well as evidencing a combination to effect the one object towards which the separate acts are found to converge.”[vi] (emphasis added)

Applying the above to the facts of the case, Her Honour found that, “considered as a whole”, the evidence was sufficient to give rise to an inference that the CFMEU and Hutchison had arrived at an understanding that Hutchison would terminate WPI and WPI would do no more work on the Southport site.[vii]

Her Honour did not specify between who from the parties, or when, the understanding was arrived at, but rather inferred the existence of an understanding from the surrounding circumstances. Her Honour also did not consider the fact that the project manager was unaware that a CAU had been entered into to be a bar to finding a CAU.

The Full Federal Court finds for Hutchison + CFMEU [viii]

Wigney, Bromwich and Anderson JJ sitting in the Full Federal Court disagreed with Crosbie J’s analysis. Whereas Crosbie J took an holistic approach to determining whether the parties had reached an understanding, Bromwich and Anderson JJ, and Wigney J in a separate judgment, took a more forensic approach and examined the sequence of events to determine whether and when an understanding may have been reached, and between which representatives of the parties. Upon doing so, their Honours found that there was insufficient evidence that an understanding had been reached between the CFMEU and Hutchison.

Bromwich and Anderson JJ summarised their difficulty with the primary judge’s findings as follows:

“[a] central problem with the primary judge’s reasoning is the absence of an isolation of a sufficient basis for an inference of assent that went beyond succumbing to the ongoing demands and even threats of the CFMEU, including practical impediments to WPI working on the site, sufficient to rise to the level of the more probable explanation being that the expectation was exceeded, and an agreement or understanding encompassing the proscribed provision being made or reached.  Absent that, the alternative benign explanation of Hutchinson merely succumbing could not be displaced as being at least equally likely.”[ix]

In other words, there was not enough evidence to suggest that Hutchison did anything that went beyond taking a commercial decision to terminate WPI and avoid industrial action based on the information communicated to it by the CFMEU. Its actions fell short of communicating assent, and so no understanding was arrived at.

The High Court finds for Hutchison + CFMEU

The majority in the High Court – Gagelar, Gleeson and Beech-Jones JJ – upheld the decision of the Full Federal Court, agreeing that the evidence was not sufficient to establish a meeting of minds between the parties. It agreed there had been no explicit or tacit communication from Hutchison, which was required to find a meeting of minds and therefore an understanding between the CFMEU and Hutchison.

As regards threats, the majority found that:

“… there is no special category of understandings that are arrived at because of a threat or, more specifically, a threat of industrial action. The act of a person succumbing to a threat does not, without more, amount to arrival at an understanding to do what is demanded. The act may be explicable as a rational, commercial response to the threat rather than a form of collusive behaviour aimed at achieving a proscribed purpose.”[x]

In a separate judgment, Edelman J analysed the facts through the lens of the contract law principles of offer and acceptance, but ultimately reached the same conclusion as the majority.

In His Honour’s view, the references to “consensus” and “meeting of minds” in the cases must be understood as a reference to the concept of “reciprocity” in the contract law sense.[xi] Using this framework, His Honour opined that:

“[a]lthough an offeror can dispense with any need for notification of acceptance, the general principle or “ordinary rule”… is that “an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together… But there are some circumstances where such dispensation will be easily inferred… in some cases involving an implied promise by A to refrain from threatened conduct in exchange for demanded performance by B. In every instance, all the circumstances will need to be considered to determine whether the person making the offer has expressly or impliedly intimated that “performance of the condition is a sufficient acceptance without notification”. In such circumstances, “the same act is at once sufficient for both acceptance and performance”.^[xii] (footnotes omitted)

This then leads to His Honour’s obiter comment that the case might have been decided differently if the ACCC had been able to adduce evidence that the CFMEU had dispensed with the requirement for reciprocity from Hutchison, i.e., to communicate its assent to the CFMEU’s demand.[xiii]

In a dissenting judgment, Stewart J finds that the approach to interpreting the words “contract, arrangement or understanding” adopted in cartel cases is not appropriate in the context of section 45E(3), which concerns threats and capitulation.[xiv] His Honour finds that the facts of this case are squarely the type of conduct that the provision is aimed at, and finds in favour of the ACCC.

Implications for New Zealand businesses

While New Zealand has no equivalent provision to section 45E(3) or 45EA in the Commerce Act, it does have the concept of “contract, arrangement or understanding”. Separate lines of authority have, understandably, developed in New Zealand and Australia since the seminal UK case In re British Basic Slag,[xv] but the essential requirements are the same: there needs to be a meeting of minds (consensus) involving a commitment from one or more parties to act a certain way in future. What constitutes a ‘meeting of minds’ can be as little as a ‘nod and a wink’ but there needs to be some form of communication between the parties, whether explicit or implicit.[xvi]

Given this, the takeaways from this case for New Zealand businesses are:

1. Without more, a unilateral threat or ultimatum is unlikely to be sufficient to give rise to an understanding. There is no special class of CAUs entered into following a threat or ultimatum.
2. A meeting of minds requires assent to be communicated, whether by words or actions. However, where the person making the demand or issuing the ultimatum dispenses with the need for assent to be communicated, acting in accordance with a demand could constitute both entry and giving effect to a CAU. Such dispensation can be inferred, but will depend on the facts.
3. When issuing (or receiving) ultimatums, be conscious that your words and actions could lead to a CAU. Consider whether this is what you want, especially if you are communicating with a competitor. Entering into a CAU means potentially being subject to the general prohibition on CAUs that substantially lessen competition under section 27 of the Commerce Act. If with a competitor, the cartel provisions under section 30 could potentially apply.
4. Even if no CAU is reached, the making of threats or ultimatums could give rise to accessorial liability as an attempt to reach an agreement under section 80(1)(b) of the Commerce Act, or an inducement via a threat under section 80(1)(d).

The case is also a good reminder, when looking at CAUs, of the importance of being able to identify:

1. what the relevant provision is;
2. when the CAU was entered into;
3. how it was entered into (explicitly, by words or implicitly, by actions); and
4. by whose words or actions.

This will be a more difficult task in the case of implicit communication, and in such cases an enquiry will be needed into (a) what other explanations there may be for the actions of the parties, and (b) whether these actions are more or less likely to be explicable by reasons other than the existence of a CAU.

End notes