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Australia – Tenderers Need To Avoid “Bid Rigging”.

6 November, 2013

 

Legal News & Analysis – Asia Pacific – Australia – TMT

 

Parties involved in joint tendering or marketing activity need to ensure that they do not breach the “cartel” or “exclusionary” provisions of the Competition and Consumer Act, as highlighted in a recent decision of the Federal Court of Australia. Sections 44ZZRJ and 44ZZRK prohibits a corporation entering into a contract or arrangement, or arriving at an understanding, involving a “cartel provision”. By virtue of section 44ZZRD, a “cartel provision” will exist where an arrangement involves two or more parties which are “likely to be” or which, but for the arrangement, “would be likely to be” in competition with each other in relation to the supply of goods or services and the effect, inter-alia is to fix, control or maintain the price by ensuring that one of the parties refrains from bidding or that one of the bidders is more likely to be successful than the other.


In Norcast S.AR.L v Bradken Limited (No 2) [2013] FCA 235, the applicant did not invite the respondent to bid for the purchase of a subsidiary due to a history of bad relations between the two. The respondent accordingly approached a private equity fund, Castle Harlan, to in effect purchase the subsidiary as an intermediary. Castle Harlan purchased the subsidiary for US $190 million and then on-sold it to the respondent for US $212.4 million. The court held that this constituted a bid rigging arrangement whereby Castle Harlan had agreed to bid for the subsidiary and the respondent had agreed not to bid for the subsidiary. Damages representing the difference between the purchase price paid by Castle Harlan and the on-sale price to the respondent were awarded to the applicant. Central to the finding was the court’s conclusion that it was “at least possible” that the respondent and the intermediary would have been in competition with each other in relation to the purchase, and that this was sufficient to satisfy the requirement that the two were “likely” to be in competition with each other in relation to the supply or acquisition of the company. The decision is subject to appeal.


This decision holds clear implications for contractual arrangements relevant to the IT industry. Whilst it remains acceptable for a company with specific skills to tender on the basis that it will subcontract for certain other skills required by the customer which the tenderer does not possess, it may constitute an infringement of the Act if (as is often the case) a proposed subcontractor agrees not to submit a competing tender either by itself or as part of another consortium. The decision has potential implications in relation to agreements for collaborative tendering, joint marketing, and general distribution arrangements involving IT products and services.

 

  • View the decision on AustLii here.

 

 

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For further information, please contact:

 

Gordon Hughes, Partner, Ashurst
[email protected]

 

Ashurst TMT Practice Profile in Australia

 

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