Monday, 24 September 2012

The Gathering Storm – an update on the LIBOR Scandal


Introduction

On the eve the of Royal Bank of Scotland’s (RBS’s) multi-million dollar settlement with regulators in relation to the LIBOR scandal,[1] it seems an opportune time to provide an update on developments in the LIBOR scandal. In the August 2012 edition of the CCH Competition and Consumer Law Tracker (click here) I provided an introduction to the LIBOR rate rigging scandal as well as an update of developments since the Barclays Bank $US450 million settlement.[2] In this article, I will be providing an update of developments in the various LIBOR investigations since early August 2012 as well as some additional background information which completes the LIBOR scandal story so far.


Secret LIBOR Committee


The most significant development which has occurred in the last month has been the revelations of the existence of a “secret LIBOR committee”[3]. As reported by various news services in late August 2012, the British Banker’s Association had apparently established a Foreign Exchange and Money Markets Committee (FEMMC) some years ago which had:

…sole responsibility for all aspects of the functioning and development of Libor...Its functions include the design of the benchmark, which banks sit on the panels that determine the rate, and scrutiny of all rates submitted.[4]
The FEMMC comprised of senior executives from a number of the world’s largest banks who met every two months at an undisclosed location to discuss the LIBOR. The members of the FEMMC were secret, as was the identity of its Chairman. The FEMMC also apparently had a practice of not keeping any minutes of its meetings.

The main significance from an antitrust perspective of the existence of the FEMMC is that it will make it exceedingly difficult for the senior executives of the participating banks to claim they had no knowledge of the LIBOR manipulation. This is because the senior executives on this committee had the apparent role of scrutinising the LIBOR submissions to make sure that they accurately reflected borrowing costs.

There is little doubt that antitrust regulators such as the Antitrust Division of the Department of Justice (US DOJ) will be showing a great deal of interest in the activities of the FEMMC.


High balling the LIBOR


Much of the initial focus of the media and academic writers in relation to the LIBOR has been on the likelihood of the LIBOR being manipulated downwards or “low-balled” during the Global Financial Crisis (GFC). The view was that the participating banks wanted to “low-ball” the LIBOR to convince the markets that they were financially strong. An incidental event of this low-balling was that derivatives traders saw the opportunity of making money from “betting” on lower LIBOR rates.

A potentially unintended (but not unforeseeable) consequence of “low-balling” the LIBOR was that financial institutions, such as the Baltimore Bank, which referenced the LIBOR in their loans, ended up getting lower returns than they should have, because of the lower LIBOR interest rates.

However, recently there has been a growing amount of speculation that the participating banks may have been driving up or “high-balling” the LIBOR before the GFC [5]. The obvious consequence of “high-balling” the LIBOR is that the participating banks would have made more money as lenders of funds. The other obvious consequence of the “high-balling” of the LIBOR was that borrowers would have paid more than they should have.

It is the possibility that the LIBOR may have been overstated in the period 2005 to 2008 which is creating the most interest amongst antitrust and financial regulators. This is because one consequence of “high-balling” the LIBOR would be that “mum and dad” borrowers may have paid significantly more for their mortgages than they should have. If such consumer detriment can be proven, it will be a significant aggravating factor in the minds regulators, which will ultimately increase the size and severity of the penalties sought by anti-trust and financial regulators.


More subpoenas, more investigations

On 9 August 2012, JP Morgan Chase announced that it had received subpoenas, requests for documents and requests to interview staff from the following regulators in relation to the LIBOR scandal:[6]

  • US DOJ;
  • Commodity Futures Trading Commission (CFTC);
  • Securities and Exchange Commission (US SEC);
  • UK Financial Services Authority (FSA);
  • Canadian Competition Bureau (Bureau); and
  • Swiss Competition Commission.
Since the first article about the LIBOR scandal in the CCH Competition and Consumer Law Tracker in August 2012, a number of additional regulators now appear to be involved in the LIBOR scandal, including the US SEC, the Bureau and Swiss Competition Commission.

JP Morgan also disclosed that it had received enquiries in relation to the European and Japanese versions of the LIBOR, namely the EURIBOR and the TIBOR.

Other banks to announce that they had received subpoenas from various antitrust regulators include Deutsche Bank, HSBC, Royal Bank of Scotland, and UBS AG. Barclays Bank announced it had also received subpoenas, which shows that even after the July settlement, it is still a long way from putting this matter behind it.


US DOJ


The US DOJ has also empanelled a grand jury in Washington DC in relation to the LIBOR scandal. It is generally understood that this grand jury is deliberating on the likelihood that the participating banks have engaged in cartel conduct in breach of section 1 of US Sherman Act 1890 [7].

Having said that, it is likely that this grand jury is looking at a broader range of issues, than just antitrust allegations.

What should be noted is that the $US160 million settlement between the US DOJ and Barclays that was entered into on 27 June 2012 did not relate to potential antitrust concerns. Rather it was a settlement between the US DOJ’s Criminal Fraud Section and Barclays in relation to the banks fraudulent manipulation of the LIBOR.

The US DOJ's Criminal Fraud Section agreed not to criminally prosecute Barclays for any crimes relates to Barclay’s fraudulent submissions of benchmark interest rates, including LIBOR and EURIBOR. In return Barclays agreed to pay a financial penalty of $US160 million and to continue co-operating in the agency’s on-going criminal investigation of the LIBOR scandal [8].

The settlement agreement between the Fraud Section and Barclays, the agency made the following observations about Barclay’s co-operation:

Barclays's cooperation stands out as a particularly significant consideration in the Fraud Section's decision to enter into this Agreement. After government authorities began investigating allegations that banks had engaged in manipulation of benchmark interest rates, Barclays was the first bank to cooperate in a meaningful way in disclosing its conduct relating to LIBOR and EURIBOR. Its disclosure included relevant facts that at the time had not come to the government's attention. Barclays's cooperation has been of substantial value in furthering the Fraud Section's investigation of the conduct relevant to this Agreement. From the outset of the investigation to the present, Barclays's cooperation has been extraordinary and extensive, in terms of the quality and type of information and assistance provided to the Fraud Section. To date, the nature and value of Barclays's cooperation has exceeded what other entities have provided in the course of this investigation.[9]
Relevantly, despite the apparently high level of cooperation provided by Barclays to the Fraud Section it was still fined $US 160 million. This suggests that the likely fines which will be sought by regulators from non-cooperating banks will be many times larger than Barclay’s $US160 million fine.

There is also a very significant carve-out in the Barclays settlement with the Fraud Section. Namely that:

This Agreement does not provide any protection against prosecution for any crimes except as set forth above, and applies only to Barclays and not to any other entities or to any individuals, including but not limited to employees or officers of Barclays..[10]
In other words, the settlement is limited to fraud and violations of the laws governing securities and commodities markets and not to any potential antitrust violations which may have occurred.


Canadian Competition Bureau


The Bureau has also commenced an investigation into an alleged cartel in relation to the LIBOR rate in breach of section 45 of the Canadian Competition Act (1985).

This investigation was commenced after the Bureau received an immunity application in relation to cartel conduct from one of the participating banks. In documents filed by the Bureau, the Bureau states:[11]

The Bureau became aware of this matter after one of the Participant Banks in the Alleged Offences (the “Cooperating Party”) approached the Bureau pursuant to the Immunity Program.

On January 5, 2011, the Bureau granted the Cooperating Party a “first-in marker” under the Immunity Program.

While the identity of the party which has sought immunity remains confidential, the participating banks which have subsequently been ordered to produce documents in relation to the alleged cartel is public – namely:
  • HSBC Bank Canada;
  • Deutsche Bank
  • JP Morgan;
  • Royal Bank of Scotland; and
  • Citibank.
The Bureau’s court documents provide further details of the alleged cartel conduct which is the subject of their investigation:[12]
Counsel for the Cooperating Party has proffered that, during the Material Time, the Participant Banks communicated with each other and through the Cash Brokers to form agreements to fix the setting of Yen LIBOR. Counsel for the Cooperating Party proffered that this was done for the purpose of benefiting trading positions, held by the Participant Banks, on IRDs. By manipulating Yen LIBOR, the Participant Banks affected all IRDs that use Yen LIBOR as a basis for their price, including IRDs with Canadian counterparties. 

Counsel for the Coopeting Party has proffered that the alleged communications and agreements in relation to Yen LIBOR occurred outside Canada but affected IRDs based on Yen LIBOR on a worldwide basis, including in Canada.
In other words, the cooperating bank has claimed that six global banks formed a worldwide cartel to set the price of Yen LIBOR for the purpose of benefiting their respective trading positions. Furthermore, while this conduct did not occur in Canada, the Bureau claims that the cartel had an impact on Canada and as such is subject to the Competition Act.


European Commission

The EC's approach to LIBOR manipulation has been less clear. News reports indicated that the EC raided the premises of a number of participating banks as long ago as 18 October 2011, including Deutsche Bank’s London offices.[13] Since that time, there has not been a great deal of information concerning the EC’s investigations.

It appears that the EC’s first concern was that the participating banks’ conduct may not have been captured by its existing EC proposals for criminal prohibitions on insider trading and market manipulation. Accordingly, the EC’s initial focus was to take steps to amend these proposed laws to ensure that they dealt adequately with the manipulation of benchmarks.

In addition, the EC recently issued a consultation document on the “Regulation of Indices”, in which they are seeking comment from various stakeholders on finding an alternative to the LIBOR[14].

However, in a speech in July 2012, Joaquín Alumina, the Vice President of the European Commission responsible for Competition Policy made a number of comments about the EC’s current cartel investigations into the LIBOR scandal:[15]

...the most notable antitrust cases are those related to the LIBOR scandal that has recently hit the headlines.
The story is quite shocking and brings us back to the banking industry’s most irresponsible behaviour of the past.
Many public authorities around the world are taking action against the manipulation of benchmark financial rates and the first fines have already been imposed by financial regulators in the UK and the USA.
Let me clarify that these authorities fall into three different categories:
First, antitrust authorities, including the European Commission;
Second, authorities dealing with fraud and other forms of criminal conduct, such as the US Department of Justice, Fraud Division; and
Third, financial regulators, such as the Financial Services Agency in the UK and the Commodity Futures Trading Commission in the US.
The importance of transactions in financial derivative products is enormous. In 2011, interest-rate derivatives had a gross market value of $20 trillion.
These are products that are traded every day on a global basis, involving companies such as banks, pension funds, and also industrial firms seeking to hedge their exposure. They play a key role in the management of risk in our economy. The alleged rate-rigging is a major competition concern.
This is why we started investigating a number of banks last year for their possible concerted manipulation of benchmarks such as LIBOR, EURIBOR and TIBOR – the Tokyo rate – for several currencies.
We are focussing our investigations on suspected cartel arrangements involving financial derivatives related to these benchmark rates, including possible collusion over the setting of the rates.
The investigations have top priority, because this sort of collusion can seriously harm competition worldwide and on our continent in particular.
Again, if our concerns are confirmed, we will take the necessary actions to bring these practices to an end and prompt a change of culture in the banking sector.
As is apparent from Alumina’s comments, the EC’s antitrust investigations of the LIBOR scandal are a “top priority”.


Class Actions


As at 16 August 2012, a total of 30 class actions had been filed in the US against the participating banks in relation to the LIBOR scandal[16]. These class actions have alleged a variety of causes of action, including contraventions of section 1 of the Sherman Act and they are all seeking treble damages against the participating banks.

In most cases, the class action participants are lending institutions who claimed to have suffered loss from the suppression of the LIBOR. However, a number of class actions have been commenced by derivatives traders who purchased and sold exchange traded LIBOR based derivatives.


Challenges


Regulators

There are a number of significant challenges facing the regulators currently investigating the LIBOR scandal.

The main challenge will be to ensure that they do not get in each other’s way in their various investigations. This is a significant problem because there appears to be an almost unparalleled number of regulators in the field at the same time, investigating the same conduct and seeking to do deals with the same witnesses. At last count, the following regulators were all investigating the LIBOR:

  1. US DOJ;
  2. US SEC;
  3. US CFTC;
  4. UK FSA;
  5. Serious Fraud Office;
  6. Canadian Competition Bureau;
  7. Swiss Competition Bureau;
  8. European Commission;
  9. Swiss FINMA; and
  10. Japanese Fair Trading Commission.
It is vitally important for these regulators to attempt to coordinate their investigatory efforts so that they do not inadvertently delay or even derail another regulator’s investigation. This will involve sharing both prospective witnesses and as much documentary evidence as is permitted under various national legislative regimes.

Another issue which the regulators will have to guard against is giving immunities to the wrong participating banks. As with every cartel, there are leaders and followers. Accordingly, in their haste to build their cases, regulators will have to guard against giving an immunity to a participating bank which may have been the leader or ringleader of the cartel. If this happens, such an immunity may undermine the actions taken by other regulators against the true ringleader of the cartel.

In this regard, there is evidence that the regulators are coordinating their investigations. As stated in the Canadian Competition Bureau filing:[17]

116. The alleged conspiracy is international in nature and is currently being investigated in foreign jurisdictions that are identified in Exhibit II. The Bureau is coordinating its investigation of the alleged international conspiracy and cooperating with these foreign jurisdictions.
117. As the information in Exhibit II identifies the foreign jurisdictions and contains information relating to their ongoing investigations, the Exhibit, if disclosed, could compromise the nature and extent of these investigations. As it is anticipated that some of the evidence gathered through the investigations in one or more of the foreign jurisdictions may be shared with the Bureau to further the Bureau's investigation, the information in Exhibit II, if disclosed, could also compromise the nature and extent of the Bureau's investigation into this international cartel. The Bureau has an obligation to the foreign jurisdictions to keep any information provided by them to the Bureau confidential.
While this is good news for those who want to ensure that the LIBOR scandal is quickly and effectively investigated it is bad news for the participating banks.

Participating banks

There are an enormous number of challenges facing the participating banks. It will be all but impossible for participating banks to organise a “group settlement” with a number of regulators, as Barclays did with the US FSA, CFTC and the US DOJ Fraud Section. Such “group settlements” take a considerable amount of time to organise and one thing the participating banks do not have is time.

Therefore, the participating banks will have to make a strategic decision whether to give up or whether to fight to the end. If they decide to “give up” the strategy must be to approach the regulators which can seek the most significant penalties and try to do a deal for immunity or leniency. Clearly, in the antitrust world this means that the participating banks need to try to do a deal with the Antitrust Division of US DOJ, which can seek large criminal penalties and jail time for cartel conduct, and the EC, which can impose and regularly does impose enormous civil pecuniary penalties.

However, in the US system it is only the first through the door which gets immunity, so it is very likely that the first immunity has already been granted to one of the participating banks. Therefore, the best that the rest of the participating banks can hope for is to get leniency.

The participating banks could seek to make an application under the US DOJ’s Amnesty Plus program.[18] This program provides immunity for cartel members who are able to inform the US DOJ first of another cartel in which the applicant has been a participant.

In the EC, the approach to immunity is quite similar to the US. The main difference is that they have a sliding scale type policy in relation to the grant of leniency. The first company to inform the Commission of an undetected cartel by providing sufficient information to allow the Commission to launch an inspection at the premises of the companies allegedly involved in the cartel will obtain a full immunity.

Companies which approach the EC after immunity has been granted, can still obtain relief where the evidence they provide represents “significant added value”. As stated by the EC:[19]

Evidence is considered to be of a "significant added value" for the Commission when it reinforces its ability to prove the infringement. The first company to meet these conditions is granted 30 to 50% reduction, the second 20 to 30% and subsequent companies up to 20%.


Conclusions


The LIBOR scandal continues to gain momentum. It is likely that over the next two months a number of the participating banks and regulators will announce multi-million dollar settlements. However, regulators must not negotiate the same types of settlements as was accepted by the US DOJ Fraud Section. Effectively, the US DOJ Fraud Section accepted a $US160 million settlement in return for the agency agreeing not take a criminal prosecution against Barclays Bank or any of its employees for what appears to have been serious, long-running and blatant multi-million dollar fraud.

It is simply not appropriate for any regulator with criminal jurisdiction to allow any of the participating banks to “buy their way out” of fraud or cartel conduct. The only appropriate sanctions which regulators with criminal jurisdiction should be pursuing are criminal convictions, with significant jail time. Only in this way will these regulators achieve the proper goals of regulatory action – namely, specific and general deterrence. Indeed, only by seeking criminal penalties and jail time will these regulators make it clear to the world’s largest banks that compliance with laws is not simply a cost of doing business but rather a moral imperative.




[1] RBS faces Libor fine of up to $480 million – FT, Reuters, dated 8 September 2012 - http://uk.reuters.com/article/2012/09/08/uk-rbs-libor-idUKBRE88708N20120908
[2] Michael Terceiro, Low-balling the LIBOR – the LIBOR rate rigging scandal, CCH Competition and Consumer Law Tracker, Issue 8, 23 August 2012 - http://competitionandconsumerprotectionlaw.blogspot.com.au/2012/08/low-balling-libor-libor-rate-rigging.html
[3] This is Actually Real: The First Rule of Libor Club is You Do Not Talk About LIBOR Club, Business Insider, 21 August 2012 - http://www.businessinsider.com/the-secret-british-bankers-associations-foreign-exchange-and-money-markets-libor-committee-2012-8
[4] Secret Libor committee clings to anonymity after rigging scandal, Bloomberg, 21 August 2012 - http://www.northjersey.com/news/166934256_Secret_Libor_committee_clings_to_anonymity_after_rigging_scandal.html
[5] Matthew Jensen, The Uses of LIBOR and the Victims of its Manipulation: A Primer, The American, dated 23 August 2012 - http://www.american.com/archive/2012/august/the-uses-of-libor-and-the-victims-of-its-manipulation-a-primer
[6] JPMorgan Chase Libor Subpoenas Coming from Everybody in the World, Huff Post, 9 August 2012 - http://www.huffingtonpost.com/2012/08/09/jpmorgan-chase-libor-subpoenas_n_1760015.html
[7] Libor price fixing case is getting work for lawyers, Reuters, 11 July 2012 - http://www.reuters.com/article/2012/07/11/us-usa-crime-libor-idUSBRE86A19P20120711
[8] Letter from US Department of Justice, Criminal Division to Barclays Bank PLC, US DOJ, dated 26 June 2012 - http://online.wsj.com/public/resources/documents/Barclays_agreement.pdf
[9] Ibid., pp. 1-2.
[10] Ibid. p. 2.
[11] Affidavit of Brian Elliott in the Matter of the Competition Act, R.S.C. 1985, c. C-34, as amended, dated 19 May 2012 at http://wallstreetonparade.com/wp-content/uploads/2012/07/AffidavitofBrianElliott-May182011.pdf
[12] Ibid., p. 11.
[13] Deutsche Bank’s London Offices Were Raided Yesterday in an Euribor Investigation, Business Insider, 19 October 2011 - http://articles.businessinsider.com/2011-10-19/wall_street/30296755_1_libor-interest-rates-banks
[14] Consultation Document on the Regulation of Indices, European Commission, 5 September 2012 - http://ec.europa.eu/internal_market/consultations/docs/2012/benchmarks/consultation-document_en.pdf
[15] Speech by Joaquín Alumina, the Vice President of the European Commission responsible for Competition Policy ,The New Portuguese Competition Law, European Commission, 13 July 2012 - http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/12/558
[16] LIBOR-Based Financial Instruments Antirust Litigation: Some Complaints of Possible Reading Interest, Legal Research Plus, Stamford Law School, 16 August 2012 - http://legalresearchplus.com/2012/08/16/libor-based-financial-instruments-antitust-litigation-some-complaints-of-possible-reading-interest/
[17] Op. cit., footnote 12, p. 33.
[18] Speech by Scott Hammond, Measuring the Value of Second-In Cooperation in Corporate Plea Negotiations, Antitrust Division, US DOJ, at http://www.justice.gov/atr/public/speeches/215514.htm
[19] Leniency Policy, European Commission - http://ec.europa.eu/competition/cartels/leniency/leniency.html

Monday, 17 September 2012

Unfinished Business: The Hold Cleaning Case - Part 4 - Conclusions


Part 4: Conclusions

Aftermath
After Justice Hill’s decision the ACCC issued what I think must be one of the longest news releases in the history of the ACCC or the TPC:

Court imposes penalties and costs of $210,000 for breach of secondary boycott provisions of Trade Practices Act on MUA[1]
In a precedent setting case, Justice Hill of the Federal Court of Australia has ordered that the Maritime Union of Australia pay penalties and costs totalling $210,000 for breach of the secondary boycott provisions of the Trade Practices Act 1974. He also made declarations that the union's conduct constituted undue harassment and coercion in breach of the Act. 
"As part of the orders, the court has imposed permanent injunctions restraining the MUA from engaging in undue harassment or coercion in connection with the supply of hold cleaning services to shipowners, charterers or their agents", ACCC Chairman, Professor Allan Fels, said today. "The court noted that the MUA had admitted to breaching section 45DB of the Act in relation to boycott conduct on two separate occasions and found the admissions to be properly made.
"In relation to the boycott conduct, the court imposed a penalty of $150,000 on the union. This is the first time a penalty has been imposed for a breach of section 45DB. 
"The behaviour involved especially serious coercion and undue harassment and it is appropriate that the Federal Court has held that this breaches section 60.
"This is particularly serious, intentional behaviour which has no place in Australian life".
After an extensive investigation, the ACCC commenced legal action on 14 April 2000 alleging that the MUA, and a number of senior officials breached section 45DB of the Act by unlawfully hindering and preventing, or attempting to hinder and prevent, vessels from sailing unless the ship owner/charterer agreed to use MUA labour to clean the vessel's holds. It was alleged that on a number of occasions, where such demands were not accepted, various forms of unlawful action to stop the vessel sailing followed (i.e. pickets, threats of pickets, action to delay, demands for payment in lieu of cleaning). The ACCC further alleged that certain aspects of the conduct amounted to undue harassment and coercion, in breach of section 60 of the Act.

In general terms, section 45DB prohibits persons from hindering or preventing the movement of goods between Australia and places outside Australia. Section 60 prohibits the use of physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer.

The ACCC believes that the means adopted by the MUA to ensure shippers use MUA labour to clean holds had the potential to affect, and had in fact affected, the ability of companies to conduct international trade and commerce. This resulted in a loss of international reputation and direct financial cost, leading to an overall reduction in consumer welfare.
Justice Hill made orders in which:
  • it is noted that the MUA admits to contravening section 45DB of the Act on two separate occasions and that two of its senior officials admit to being knowingly concerned in these contraventions
  • it is ordered that the MUA will pay a penalty of $150,000 in relation to the two section 45DB claims
  • it is declared that the MUA contravened sections 45DB and 60 of the Act on two separate occasions, that two of its senior officials were knowingly concerned in the MUA’s section 45DB contraventions and that one of its senior officials was knowingly concerned in the MUA’s section 60 contraventions
  • it is noted that the MUA and three of its senior officials have undertaken to the court not to engage or attempt to engage in similar conduct in the future in relation to section 45DB of the Act
  • it is noted that the MUA has undertaken to implement a trade practices compliance program
  • it is ordered that the MUA and one of its senior officials be permanently restrained from using undue harassment or coercion in connection with the supply of hold cleaning services to ship owners, charterers or their servants
  • it is ordered that the MUA will pay the ACCC’s costs in relation to the contraventions of section 60 of the Act and will contribute $60,000 towards the ACCC’s costs in relation to the section 45DB claim
  • it is ordered that the MUA publish a notice to its members and employees informing them of these orders and the ramifications of breaching them
The undertakings given to the court by the MUA and its senior officials will ensure that a company’s ability to conduct international trade and commerce, and the passage of ships containing goods bound for import or export, will not be adversely affected as a result of boycott action by MUA members. The undertakings will also ensure that shipowners will be able to enforce their right to choose who cleans their ship’s holds without interference by the union.
The ACCC took proceedings in relation to section 60 not only to ensure that conduct that may amount to undue harassment or coercion was not used to detract from a person’s ability to make effective independent business decisions, but also to obtain judicial clarification as to the realms of conduct which may amount to undue harassment or coercion".
The maximum pecuniary penalty available for a breach of section 45DB of the Act is $750,000 per contravention. No criminal fine was sought in relation to section 60.
This case follows orders by Justice French in the Federal Court, Perth in August 2000 that a debt collection agency, Cash Return Mercantile Pty Limited, and its former agent, Sharyn McCaskey, had engaged in undue harassment or coercion and is an important expansion of the realm of conduct to which section 60 of the Act applies. That case was the first of its kind under the Act. The MUA case, the second, is the first concerning a trade union and trade union officials"

Conclusions


The ACCC’s case against the MUA in relation to hold cleaning was a very successful case in a number of respects. Not only was the MUA ordered to pay a total pecuniary penalty of $150,000 for two breaches of section 45DB, but the ACCC also established that a number of MUA officials had been knowingly concerned in contraventions of both sections 45DB and 60.

It was also the first time that:
  • a pecuniary penalty had been imposed for a contravention of section 45DB; and 
  • section 60 had been used to attack the illegitimate use of picket lines by a trade union.
However, the most significant achievement of the hold cleaning case was that it actually succeeded in stamping out the practice of holding cleaning in Australia. By publicly exposing this outrageous practice through the courts and the media, the ACCC was able to force the MUA to formally abandon the conduct and take steps to make sure that such conduct never happened again.

The hold cleaning case was one of the most personally satisfying cases in which I have been involved. It was an excellent outcome for the ACCC and the industry. It was also a good outcome for the union movement. Unfortunately, when thuggish and extortionate practices are engaged in by even one union, such practices have a tendency to put the entire union movement in a very negative light. In this regard, the ACCC did the union movement a favor by taking action to stop the illegitimate and ugly practice of hold cleaning, once and for all.

The success of the hold cleaning case also made up, in a large way, for my personal disappointments about the MUA settlement following the Waterfront case. The MUA had been able to settle the Waterfront case on very favourable terms and with an enhanced reputation. However, these benefits were short-lived. The MUA came crashing back down to earth following the hold cleaning case, as the truth about some of its less savory practices became known. I was personally satisfied that the ACCC’s “unfinished business” with the MUA was now complete.



[1] Court imposes penalties & costs of $210,000 for breach of secondary boycott provisions of Trade Practices Act on MUA, ACCC News Release at http://www.accc.gov.au/content/index.phtml/itemId/87905/fromItemId/378012

Wednesday, 12 September 2012

Unfinished Business: The Hold Cleaning Case - Part 3 - The Judgment


Part 3: The Judgment

ACCC v Maritime Union of Australia[1]


As stated in the earlier post, the ACCC had commenced legal proceedings against the MUA and a number of MUA officials, namely:
  • Mr Derrick Newlyn, the South Australian Branch Secretary of the MUA;
  • Mr Michael O’Leary, National Organiser of the MUA;
  • Mr James Boyle, Branch Secretary of the Northern New South Wales Branch of the MUA
We had commenced legal proceedings against these three individuals because they were involved in a number of the incidents we had pleaded. However, they were also the MUA officials with regular and long running involvement in hold cleaning demands. Mr Newlyn was involved in hold cleaning demands in South Australia, while Mr Boyle was heavily involved in such conduct in Newcastle. Mr O’Leary was also involved in most hold cleaning demands as the person who spoke for MUA head office in support to the local hold cleaning demands.

The ACCC had alleged a number of contraventions of section 45DB of the TPA in relation to “Star Sea Bird and the “Anangel Eagle”. The ACCC also alleged that the MUA had engaged in contraventions of section 60 in relation to the “Star Sea Bird” and the “Jian Qiang”.

Prior to the trial, the MUA agreed to settle parts of the ACCC’s case. The MUA admitted that it had it had engaged in contraventions of section 45DB by engaging in conduct for the purpose, and having the effect, of substantially hindering the operators the Star Sea Bird and the Anangel Eagle vessels from engaging in trade or commerce involving the movement of goods between Australia and places outside Australia

Newlyn and Boyle also admitted that they had been knowingly concerned with the section 45DB contraventions involving the Star Sea Bird and Anangel Eagle respectively.

The MUA agreed to pay a penalty of $75,000 for each of the two s45DB contraventions - a total pecuniary penalty of $150,000.

The MUA however did not agree to settle the ACCC’s section 60 allegations. Therefore, this issue had to be decided by Justice Hill.


Justice Hill’s judgment


The following extracts from Hill J’s judgment provide a good description of MUA’s approach to hold cleaning demands:
Star Sea Bird
24 On 6 March 1999, some 45 minutes before the "Star Sea Bird" was due to leave the port, a picket line was formed at the main gate to the access road leading to the berth where the vessel was moored. The picket line was manned by persons who were members of the MUA including Mr McNeela and a Mr Ridgeway. The mooring gang rostered on that day to release the lines of the vessel arrived at the berth by launch. I would infer that they did so to avoid having to go through the picket line. The Division Manager of port operations, Captain Shipp, requested the mooring gang to release the lines to the vessel. The request was refused. A member of the mooring gang said that the vessel would be released if the agent gave a letter of undertaking to the union that shore labour would be engaged at the next port to clean the holds. No such undertaking was given. Captain Shipp again requested the gang members to release the lines. They again refused. A member of the gang (a Mr Crompton) said that there might be problems if the gang crossed the picket line. They could be in for a hiding and have their cars damaged. I should say that in allowing the words of the gang member to this effect to be given in evidence I did so not as evidence that gang members might in fact be in for a hiding or have their cars damaged, but rather as evidence of their state of mind, one of fear.

25 A meeting was then held between Mr Ridgeway and Mr McNeela…and representatives of the ship's charterer and of Ports Corp (SA), the port authority, to discuss a resolution of the dispute. While this meeting was taking place, Mr Crompton rang Mr Newlyn and was told that he should await "instructions" from Mr Ridgeway, who attended the meeting because he was to act in the position of Assistant Branch official of the South Australian Branch of the MUA from 8 March 1999.

26 Shortly after Mr Ridgeway asked Mr Travis whether it was his intention to engage shore-based labour and Mr Travis said that it was not, either in Adelaide or any other Australian port. Mr Ridgeway then said that the picket would remain in force.


27 A short time later arrangements were made with the port authority to have a mooring gang available the following morning to release the "Star Sea Bird". It departed Adelaide at approximately 7.30 am. As a result, Star Shipping incurred a loss of $17,610.62 made up of lost time, pilotage and tug cancellation fees and legal fees.
Jian Qiang
35 Approximately 35 minutes before the vessel was to depart a picket line formed at the main gate to the access road leading to the berth where the vessel was then moored. It was manned by members of the MUA, including Mr Newlyn. Members of the mooring gang employed by Ports Corp (SA) on that day to release the lines to the vessel were each members of the MUA. When requested to release the lines all but one refused. Two of the gang said that if they crossed the picket line they would be harassed. Another member said that if they did so they would have a problem. Again evidence of what was said by these gang members was admitted not as evidence of the fact that this would happen, but as evidence of their state of mind, ie as evidence of the fear they had of crossing the picket line. One gang member said that he would if instructed by his employer. For this he was called by Mr Newlyn "a dog, slime and a scab".
36 Later that evening Mr Travis contacted Mr O'Leary and told him that Western Bulk Carriers had put the vessel off-hire that evening. He referred to there being a dispute as to which charter party would be responsible for any hold cleaning. There was then a discussion as to what would be a reasonable cost to clean the vessel. Mr O'Leary suggested a contractor, Mathews Bros Pty Ltd, and later, when telephoned by Mr Travis again, advised that the cost would be $20,000. Later a representative of Lauritzen, Mr Kjaer-Petersen, had a conversation with Mr Travis. Mr Travis told Mr Petersen that it was no longer possible for the vessel to leave port and to have its holds cleaned at sea. He said that he had spoken to Mr O'Leary and that it was agreed that the cleaning could be carried out at a cost of $20,000, a figure substantially below the historical cost of hold cleaning in Adelaide. Mr Travis was then authorised by Mr Petersen to make the necessary arrangements with Mathews Bros for the cleaning of the holds by shore-based labour, notwithstanding that Mr Petersen expressed the view that he was not happy that Lauritzen was being forced to pay the cleaning costs. In the result, the vessel was re-delivered on 2 May 1998 with holds uncleaned to Lauritzen and then moved to Berth 27 where it was cleaned by shore-based labour prior to being loaded with barley.
Anangle Eagle.
42 A picket was then formed comprised of members of the MUA some 15 minutes before the vessel was due to leave the port. Soon afterwards, a representative of Adsteam approached one of the members of the picket line and asked him who he was representing or who sent him. He asked whether the picketer intended to prevent the ship from sailing and to advise the names of the picketers. The man replied that the questioner should speak to Mr Boyle for information.
43 The mooring gang (employed by Lovett McCracken & Bray) arrived some time later as the port programme was running late. The gang were also members of the MUA. Shortly thereafter the members of the mooring gang refused to release the lines because members of the MUA who were part of the picket line were seated on, or standing in, the vicinity of the bollards. The members of the mooring gang, the tugs and the pilots all left the wharf soon after.
44 Later that afternoon Adsteam arranged with Lovett McCracken & Bray to provide mooring personnel to release the lines so as to permit the departure of the vessel the following morning, that is, the morning of 9 August 1997. A picket line was again formed manned by members of the MUA. When the new mooring gang arrived they too were members of the MUA. They refused to release the lines because members of the MUA who were part of the picket line were seated on, or standing near, the bollards. The mooring gang, the tugs and pilots left the wharf around five minutes later. Mr Walker then spoke to one of the men who had been sitting on the bollard. The picketer asked at what time Adsteam was going to try again to sail the vessel. Mr Walker said that he was awaiting instructions from the ship's operator. He was told: "Whatever time, day or night, we'll be back."
45 Star Shipping instructed Adsteam to engage a firm to undertake minimal hold cleaning at a cost of $7,000. The vessel sailed for Burnie approximately three hours after the cleaning was completed. It is agreed that on each occasion the picket line was formed to incite and encourage, and did incite and encourage, the mooring gang to refuse to attend and release the lines unless hold cleaning using shore-based labour was undertaken. It was a result of this conduct that the vessel was delayed in leaving the port and that loss, damage and inconvenience was caused to Star Shipping and/or Aberfoyle. The loss incurred by Star Shipping was in the order of $22,000 comprised of the ship's time, cleaning costs, deferment of pilotage, site occupancy, overtime payments and legal advice.
As is apparent from these three descriptions, the MUA followed a similar pattern when making their hold cleaning demands. If the ship owner did not agree to using the MUA to do the hold cleaning, MUA employees would appear at the time the vessel was due to sail and prevent the vessel sailing by either threatening the linesmen, forming a picket line or obstructing the linesmen by sitting on the bollards. They would do this until the vessel missed its window for sailing from the port.

As a result, the ship-owner would not only have to book another time slot for the vessel to sail, but they would have to pay for all the services which had been booked for the departure, such as linesman, tug boats, pilot charges, which could not be provided due to the picket line or obstruction. The ship owners would also lose money because that the vessel had to be berthed for another 24 hours due to the delay, as well as charter party costs to the period of the delay.

The MUA would keep turning up every time the vessel was due to sail and prevent it from sailing until the ship owner finally capitulated.

Justice Hill’s first task was to determine the meaning of the words “harassment” and ‘coercion” in section 60. In this regard, he stated:
62 The word "harassment" in my view connotes conduct which can be less serious than conduct which amounts to coercion. The word "harassment" means in the present context persistent disturbance or torment. In the case of a person employed to recover money owing to others, as was the first Respondent in McCaskey, it can extend to cases where there are frequent unwelcome approaches requesting payment of a debt. However, such unwelcome approaches would not constitute undue harassment, at least where the demands made are legitimate and reasonably made. On the other hand where the frequency, nature or content of such communications is such that they are calculated to intimidate or demoralise, tire out or exhaust a debtor, rather than merely to convey the demand for recovery, the conduct will constitute undue harassment (see per French J in McCaskey at [48]). Generally it can be said that a person will be harassed by another when the former is troubled repeatedly by the latter. The reasonableness of the conduct will be relevant to whether what is harassment constitutes undue harassment…

63 "Coercion" on the other hand carries with it the connotation of force or compulsion or threats of force or compulsion negating choice or freedom to act.. A person may be coerced by another to do something or refrain from doing something, that is to say the former is constrained or restrained from doing something or made to do something by force or threat of force or other compulsion. Whether or not repetition is involved in the concept of harassment, and it usually will be, it is not in the concept of coercion.
In other words, harassment under section 60 is less threatening than coercion. However, harassment will involve a person repeatedly “troubling” or interfering with another person. If the demand is being made in relation to a legitimate matter, such as a valid debt, the conduct can still be “harassment” if the frequency of contact is unreasonable. On the other hand, if the demand is illegitimate the conduct will become undue harassment.

Coercion involves a greater degree of compulsion or force than harassment. The main distinction is that coercion does not require repetition of the conduct – ie: a one off act by a party may constitute coercion within the meaning of section 60.

Justice Hill concluded that the formation of a picket line, as had occurred in the present case, undoubtedly constituted “both coercion and undue coercion” within the meaning of section 60:
65. …The formation of a picket line to prevent access to a vessel for the purpose of allowing that vessel to depart, and in circumstances where the picket line is capable of engendering fear in the mind of those in the mooring gang employed to release the vessel for departure and thus prevent the departure from occurring, will constitute both coercion and undue coercion, at least where it is directed at compelling those responsible for the vessel the departure of which is affected to depart from their decision to have the holds cleaned at sea and instead to have the holds cleaned by shore-based labour.

This was a very significant finding as it indicated that section 60 could be used in relation to picket lines where the conduct of the parties on the picket line was aimed at coercing other individuals into engaging or refraining from engaging in particular conduct.

The only remaining issue to be determined by Hill J was whether section 60 applied to the MUA's conduct. This turned on whether section 6(2)(b)(1) could be used to extend the operation of section 60 to the MUA’s conduct in making the hold cleaning demands.

Counsel for the MUA, Julian Burnside QC, had argued that section 6(2)(b)(1) could only apply if these was a real and direct relationship between the conduct and international trade. Burnside QC argued that in the particular section 60 cases pleaded by the ACCC, the relationship was too remote.

Justice Hill rejected these submissions. He concluded that the relationship to international trade did not have to be direct for section 6(2)9b)(1) to apply. Accordingly, the fact that the vessels had been sailing to another Australia port before sailing overseas did not take them outside the scope of section 60, by virtue of the extended operation of the TPA.

Wednesday, 5 September 2012

Unfinished Business: The Hold Cleaning Case - Part 2 - The Litigation


Part 2: The Litigation

Commencement of proceedings

We commenced legal proceedings against the MUA and three senior MUA officials on 17 April 2000: The MUA officers were:
  • Mr Derrick Newlyn, the South Australian Branch Secretary of the MUA; 
  • Mr James Boyle, Branch Secretary of the Northern New South Wales Branch of the MUA; and 
  • Mr Michael O’Leary, National Organiser of the MUA.
It had taken us about 18 months to prepare and file the case, which was very quick given we had also been running the Sydney Mergers and Asset Sales Branch for most of that time.

In about March 2000, I moved from the Sydney Mergers and Asset Sales Branch to GST Operations after being asked to head up the ACCC’s GST enforcement. Even though I became the National GST Enforcement Coordinator in about April 2000, I kept working on the MUA hold cleaning case, which I considered as my pet project.

On the institution of legal proceedings, the ACCC issued the following news release:
ACCC institutes legal proceedings against MUA for hold cleaning demands[1] 
The Australian Competition and Consumer Commission has instituted legal proceedings against the Maritime Union of Australia and three senior MUA officials in relation to primary boycott conduct, ACCC Chairman, Professor Allan Fels, said today.

The ACCC has alleged the MUA, and a number of its officials and members, have been engaged in a pattern of conduct whereby they unlawfully hindered and prevented, or attempted to hinder and prevent, vessels from sailing from various Australian ports unless the ship owner agreed to use MUA labour to clean the hold of the vessel.

The practice of hold cleaning has a long history. Demands for hold cleaning work were considered by Justice Sweeney in the 1976 Final Report of the Royal Commission into Alleged Payments to Maritime Unions and again by Mr Frank Costigan in the 1984 Final Report of the Royal Commission into the Activities of the Federated Ship Painters and Dockers Union.

The ACCC concerns relate to the means by which hold cleaning work is demanded by the MUA.

The practice of making a hold cleaning demand involves a union official or officials and members demanding that hold cleaning work which may be required by a ship operator be performed by particular union labour. In the past, such demands were made by officials and members of the Painters and Dockers Union.

The ACCC alleges that in recent times officials and members of the MUA have made unlawful demands for hold cleaning work. The ACCC alleges that on a number of occasions when a demand was not acceded to it was followed by various forms of unlawful action to prevent the vessel from sailing. In some instances, it has been alleged that persons have unlawfully sat on the bollards where the vessel was tied to the wharf so as to prevent the linesmen from releasing the lines.

After an extensive investigation the ACCC formed the view that there had been a number of contraventions of 45DB(1) of the Trade Practice Act 1974. Accordingly, on 2 December 1999 the ACCC wrote to John Coombs, National Secretary of the MUA, to raise its concerns about hold cleaning in accordance with the clause 1 of the Alternative Dispute Resolution Procedure established by the ACCC and the MUA on 7 September 1998. (Mr Coombs is not one of the three senior officials of the union against whom proceedings have been instituted).

The ACCC proposed to the MUA, pursuant to clause 2 of the ADRP, that a meeting be held as soon as practicable to discuss the allegations in more detail and to explore practical steps to cease or otherwise remedy any breach of the Act by the MUA or to otherwise satisfy the ACCC that legal proceedings are not appropriate.

After some preliminary discussions, the MUA rejected the ACCC's settlement proposal. Accordingly, the ACCC believed it had no option but to institute legal proceedings under section 45DB and section 60 of the Act. In general terms, section 45DB prohibits persons from hindering or preventing the movement of goods between Australia and places outside Australia whilst section 60 prohibits the use of physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer.

The ACCC will be seeking injunctions, declarations, findings of fact, the implementation of a trade practices compliance program, penalties and costs.
A notable aspect of the ACCC’s news release was the reference to the ACCC’s attempts to resolve the matter by invoking the clause 1 of the Alternative Dispute Resolution Procedure which had been established by the ACCC and the MUA as part of the Waterfront Dispute settlement. We found these meetings with the MUA to be quite pointless in terms of having any constructive dialogue with them about the ACCC’s concerns. Unfortunately, the MUA’s attitude throughout the lead up to the commencement of litigation was that they were “bullet proof”.

No sooner had we instituted legal proceedings than the MUA launched a media campaign accusing the ACCC of being part of yet another grand conspiracy. The MUA claimed that the ACCC’s case had been commenced to coincide with the recent release of particular documents about the Waterfront Dispute to the Opposition transport spokesman.

While the claim was laughable, given the time it takes to prepare complex Part IV cases cases, the ACCC was so incensed by the allegations that it decided to issue the following news release in response:

Maritime Union of Australia case innuendo[2]
The Maritime Union of Australia has accused the Australian Competition and Consumer Commission of conducting a political exercise against the union in regard to the ACCC's legal proceedings against the MUA yesterday (Australian Financial Review, p3).

"There is no justification, no skerrick of a reason for this innuendo", ACCC Chairman, Professor Allan Fels, said today. "We are simply, as always, upholding the law of the land, a law passed by Parliament, without fear or favour.
 
"There is a suggestion, for example, that the timing of this case is connected to the apparent release of documents to the Opposition transport spokesman regarding the 1998 dispute. 
"I, and so far as I know others at the ACCC, were not aware that the Opposition was obtaining these documents and, in any case, it would not have had any effect on the ACCC's decision to institute legal proceedings nor any effect on timing.
"The ACCC's timing was driven by the breakdown of talks with the MUA. In particular, the MUA wrote to the ACCC in a letter received on 6 April advising that it rejected the ACCC's proposals for settlement that had been under discussion since last year. The ACCC instituted proceedings as soon as legally practicable after this date, ie 17 April.
"The ACCC does not generally propose to engage in ongoing public exchanges with the MUA about the litigation. However, the MUA claims that its actions in extracting money from shipowners are really to protect the environment and that the ACCC is placing the environment at risk in a political exercise.
"The ACCC's role is to uphold the law. If there is unlawful action taken then the ACCC 's role is to take appropriate legal action. It regards the actions of the union as unlawful and negotiations to resolve the matter failed.
"Whilst the ACCC regards the union's boycott motives as economic, the ACCC notes the union's claims of environmental justification. It would have been open to the union to seek authorisation for its actions on environmental grounds and this was put to the union.
"Authorisation of unlawful or anti-competitive action is permitted under the Trade Practices Act 1974 if there is a benefit to public that outweighs any anti-competitive effect of the conduct.
"Moreover the MUA is not above the law. If it wants to play a law enforcement role by establishing and enforcing its own environmental protection safeguards by means which may be unlawful, it needs authorisation rather to take the law into its own hands.
"The ACCC understands that there are environmental laws and regulations that relate to the issues raised by the MUA. If these do not work well, as the union claims, the proper course is to get them improved. Alternatively, if private enforcement of the environment law by the MUA is the true and only aim of the boycott, authorisation should have been sought.
As is apparent from the above news release, the ACCC also took the opportunity to attack the MUA’s claims that their hold cleaning demands were somehow linked to a desire to protect the environment. Indeed, one senior MUA official said to me shortly after we had commenced legal proceedings that by the end of the trial he would have “greenies climbing over the roof of the courthouse” (which surprised me somewhat given the MUA’s long held concern about safety issues.).

The reality was that most of the MUA businesses which were engaged in hold cleaning were highly unprofessional in the way they carried out the work. They also had a much worse track-record than their non-MUA competitors in terms of discharging cleaning effluent from the holds into the harbour.

We had established an excellent legal team to run the litigation. We had briefed the Australian Government Solicitor as the lawyers on the case and retained David Yates SC, Peter Renehan and David Godwin as our counsel. This proved to be a very good team which the ACCC used again in its liquor cases against Liquorland Australia Limited and Woolworths Limited a few years later.[3]

While the case was ultimately transferred from me to the Sydney Enforcement Branch, I continued to work with a small enforcement team in a consultancy-type role.

This arrangement continued for some time until I had a run in with the Enforcement Director who had “notional” control of the case. I had been unhappy about a couple strategic decisions which he had made in relation to the case, which I believed were wrong and demonstrated his total lack of understanding of the case. I told him my views in no uncertain terms.

Unfortunately, this individual complained about my allegedly disrespectful conduct to the then Regional Director, who decided, in the best traditions of a “Dirty” Harry Callaghan B-Grade flick to “take me off the case due to my failure to respect authority”. However, in true “Dirty” Harry Callaghan tradition I kept working on the case for some time “behind the scenes” and “on my own time”.

Having said that, the two enforcement staff who had carriage of the hold cleaning case on a day-to-day basis were exceptionally capable and hard-working officers. They did a fantastic job in preparing the case and most importantly winning over the confidence of the various industry witnesses who the ACCC needed to give evidence if the ACCC was going to win the case.





[1] ACCC institutes legal proceedings against MUA for hold cleaning demands, ACCC News Release, 17 April 2000 - http://www.accc.gov.au/content/index.phtml/itemId/323079/fromItemId/378010
[2] Maritime Union of Australia case innuendo, ACCC News Release, 18 April 2000 – at http://www.accc.gov.au/content/index.phtml/itemId/323077/fromItemId/378010

[3] Federal Court penalises Liquorland $4.75 million for anti-competitive liquor deals – at http://www.accc.gov.au/content/index.phtml/itemId/687035/fromItemId/620299 and Woolworths penalised $7 million for anticompetitive liquor deals at http://www.accc.gov.au/content/index.phtml/itemId/773813/fromItemId/720536


Sunday, 2 September 2012

Unfinished Business: The Hold Cleaning Case - Part 1 - The Investigation


Part 1: The Investigation

Introduction


As stated in the final post of the Untold Story: The ACCC’s Role in the Waterfront Dispute,[1] some ACCC staff, primarily me, were quite unhappy with the settlement reached with the MUA in the Waterfront Dispute. We believed that the MUA had more or less gotten off scot-free, considering that it had engaged in a large number of blatant breaches of the TPA.

Accordingly, the first thing we did once the settlement with the MUA in relation to the Waterfront Dispute had been signed off, was pick up our pens and recommence work on our hold cleaning investigation.


Background


As stated in an earlier Untold Story post,[2] the practice of demanding payment for cleaning out the holds of vessels had been around for a very long time. The practice started in Sydney’s Balmain in 1900 with the establishment of the Balmain Labourers Union whose members were engaged primarily in painting, cleaning, docking and undocking of vessels.

The Painters and Dockers came to prominence in 1980 when it became the subject of the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union, better known as the Costigan Royal Commission.

We were very surprised to discover that this illegal practice, which had been exposed by the Costigan Royal Commission in 1984, was still continuing unabated in a number of Australian ports in 1997. The practice of either forcing vessel owners to use MUA labour to carry out necessary or unnecessary hold cleaning work or demanding payment for hold cleaning work already carried out by another cleaning company was occurring quite regularly in the bulk cargo ports in Western Australia, South Australia, Newcastle and Port Kembla.


The Investigation

Once the Waterfront Dispute was over, my Waterfront team (which by that stage consisted of my Assistant Director and me) went back to our usual job of running the Sydney Mergers and Asset Sales Branch. However, we also dug out the hundreds of pages of section 155 documents we had obtained a year before from various market participants. We resumed our painstaking review of these documents in an attempt to identify potential contraventions of the TPA.

We were quite understaffed in Mergers, so finding the time to investigate and prepare the hold cleaning case against the MUA was very difficult. The only way we could conduct our mergers work and the hold cleaning investigation at the same time, was to work on mergers until about 6pm or 7pm and then to commence the hold cleaning investigation at about 7pm each night. We would continue to work on this investigation until 11 or 12pm.

The first task was to review hundreds of pages of section 155 documents, consisting primarily of telexes and facsimiles from shipping agents and ship owners. We would try to match up the documentary evidence provided by a ship owner with the documents generated by the shipping agent in relation to the same hold cleaning demand.

The second task was to re-engage with the industry. This involved contacting various potential witnesses and explaining to them that the ACCC had decided to reopen its hold cleaning investigation. Some industry participants were unwilling to help as they suspected that our case would only result in a slap on the wrist for the MUA. Other industry participants had a higher opinion of the ACCC after the Waterfront Dispute as they had been impressed by our determination in holding out for an outcome for small business victims of the dispute.

Obviously, winning over market participants is a very important part of running any case, as you will be relying on these market participants to be your witnesses in any future litigation.


Framing the contraventions

The focus of our investigation had been on instances of primary boycotts in breach of section 45DB of the TPA. As explained in the Untold Story, this provision stated:
(1) A person must not, in concert with another person, engage in conduct for the purpose, and having or likely to have the effect, of preventing or substantially hindering a third person (who is not an employer of the first person) from engaging in trade or commerce involving the movement of goods between Australia and places outside Australia.

Our argument was that the MUA had engaged in conduct which had prevented and substantially hindered ship owners from engaging in trade or commerce involving the movement of bulk goods between Australia and places outside Australia.

While this contravention was generally quite easy to prove, the main difficulty arose in relation to proving that two MUA officers or employees had acted in concert. Often the ship owner would simply capitulate once they had received a threat from a single local MUA official. Unfortunately, we could not pursue these types of allegations because:
  • we could not prove that two MUA officials or employees had acted in concert and 
  • we could not prove that the movement of goods had been hindered or prevented.
Therefore, we had to focus our case on incidents where:
  • we could clearly identify at least two MUA officials or employees acting in concert; and
  • we could show the vessel carrying the relevant goods had been prevented or significantly hindered from sailing by the conduct of the MUA officials or employees.
ACCC staff were also keen to explore whether other provisions of the TPA could be applied to the conduct. The main section of the TPA which ACCC staff we were keen to pursue was section 60 which provided (at that time):
A corporation shall not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods and services by a consumer.
The reasons ACCC staff were keen to use section 60 was because:
  • the section seemed to more accurately reflect the conduct which the MUA was engaging in, which was thuggish and threatening behaviour; and 
  • section 45DB had only been in the TPA since 1996 so we were unable to use it in relation to hold cleaning demands which had occurred prior to that date. However, section 60 had been in the TPA for a long time so we were able to use the section in relation to demands which had occurred prior to 1996. 
However, there were a few obstacles to using section 60 in relation to hold cleaning conduct.

The first obstacle was that the supply had to be “to a consumer”. On first glance, this did not seem to be a proper characterisation of the “transaction” between the MUA and a ship owner. However, this ended up not being a problem where the value of the transaction was less than $40,000 as such transactions were deemed to be "consumer transactions" under section 4B of the TPA. This did mean that we had to abandon potential section 60 claims in relation to hold cleaning demands where the MUA had demanded or been paid more than $40,000.

The second obstacle was that under section 60 the entity contravening the provision had to be a corporation, which the MUA was not. Therefore, the only way we could use section 60 was to rely on the extended operation of the TPA as set out in section 6.

We sought to use section 6(2)(b)(i), which extended the operation of the TPA to conduct involving trade and commerce between Australia and places outside Australia.

We also believed we could use section 6(3), which extended the operation of section 60 to conduct involving the use of postal, telegraphic or telephonic services, as long as we could prove that an MUA official or employee had used a relevant "service" to make the hold cleaning demand. In other words, we could only pursue section 60 cases where the MUA officer or employee had engaged in some part of the conduct by sending a letter through the mail, making a telephone call or even sending a facsimile.

While it took a great deal of argument to convince the ACCC’s counsel that section 60 could and should be used, they ultimately agreed to include some section 60 claims in the case against the MUA.

ACCC staff had also wanted to explore the use of section 58 of the TPA in relation to the MUA’s hold cleaning conduct. Section 58 prohibits blowing or accepting payment for a good or service when the party accepting the payment does not intend to supply that good or service.

The reason that the ACCC was interested in this provision was because of instances of the MUA demanding payment from ship owners for hold cleaning where the service had already been provided by another cleaning company. In other words, there were instances of the MUA seeking to extract payment from a ship owner even though they had used another company rather than MUA labour to clean their holds.

ACCC staff believed that as it was impossible in these circumstances for the MUA to provide the service of hold cleaning for the vessel (as the holds had already been cleaned) the MUA were accepting payment in circumstances where they knew they could not carry out the hold cleaning work. While such conduct is more appropriately described as “extortion”, we believed that we could attack this conduct under section 58 because the MUA were accepting payment for hold cleaning services when it clearly had no intention of supplying hold cleaning services.

Despite the best efforts of the ACCC to convince counsel to include a section 58 claim in our case, we were not successful. In hindsight, this was probably a good decision, as such a claim may have been seen by the court as stretching the purpose of section 58 to absolute breaking -point.