Formulating joint bids under Australia’s new cartel laws

By Penelope Jessup, Blake Dawson
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It is not uncommon for competitors to join forces in bidding for a company or responding to tenders.

Since July 2009, the introduction of criminal cartel offences and a new exception for joint ventures has increased the risk that competitors who participate in joint bids in Australia may fall foul of the law. This is because a number of joint bidding practices may be classified as cartel provisions under the new legislation.

Previously, while joint bid arrangements could fall within the prohibition on exclusionary provisions, a broader joint venture exception was available. Under the new law, however, some such practices may not attract the protection of the joint venture exception to cartel conduct.

Problematic joint bids

Under the new cartel laws, agreements between joint bidders not to bid or compete against the joint bid while it is under way, or not to bid for the assets for a period after the joint bid lapses or is rejected, are highly likely to contravene the prohibitions on cartel provisions unless an exception such as the joint venture exception applies.

Penelope Jessup
Foreign Lawyer
Blake Dawson

A provision of an agreement between competitors that might otherwise be a cartel provision is “excepted” under the new law if the parties to the arrangement are in a joint venture and certain other requirements are met.

In summary, the parties will only obtain the benefit of the exception if the joint venture is for the purpose of the production and/or supply of goods or services, and if the cartel provision is set out in a contract and is for the purpose of a joint venture.

Production or supply?

The first issue to be determined is, therefore, whether a joint bid is a joint venture for the production or supply of goods or services.

Typically, parties who are looking to acquire and operate assets as a joint venture will bid together in a bid or tender in order to increase their chances of success.

At the bidding stage, however, it is uncertain whether the parties are as yet in a joint venture for the “production and/or supply of goods or services”, as required to attract the joint venture exception.

To increase the likelihood of the joint venture exception applying, joint bidders should consider whether they can legitimately cast the purpose of their joint bid as for the “production and/or supply of goods or services”. For example, the parties may frame the purpose of the joint bid as being to supply services to each other in order to increase the likelihood of the parties jointly winning the bid or tender.

Ultimate purpose

Alternatively, the purpose of the joint bid may be framed with regard to the ultimate purpose, namely the joint operation of the relevant assets and therefore the production and/or supply of goods or services.

Should the exception not apply, any agreements or communications between joint bidders who are also competitors could be open to allegations of cartel conduct.

The joint venture exception

It then remains to be determined whether the joint bid arrangements fall within the joint venture exception.

Is it in a contract?

Assuming that the joint bid may be classified as a joint venture, the exception to cartel conduct still only applies where the parties have made their arrangements in a contract (including for example, any restraint on either of them responding to a tender outside the joint bid).

Where joint bidders have appointed a joint representative to make decisions on their behalf, the decisions of the representative are taken to be agreements between the competitors for the purposes of the cartel provisions, and must be provided for in a contract.

Defining the purpose

Ultimately, in order to obtain the benefit of the exception, any “cartel provision” that the parties agree to must be for the purpose of the joint venture. Whether a cartel provision is for the purpose of a joint venture or not will depend on a number of factors including:

  • the scope of the joint venture activities, as described in the contract;
  • whether the provision is necessary for the success of the joint venture, or is of a more ancillary nature;
  • what the provision achieves in light of the purpose of the joint venture; and
  • whether the parties would have entered into the joint venture in the absence of the provision.

A restraint that is clearly directed towards protecting the parties’ investment in the joint venture, for example, by restraining the parties from participating in other competing bids, may more readily be seen as being for the purposes of the joint venture.

On the other hand, a restraint on the parties’ commercial activities generally (which would usually be conducted in competition with one another), or a lengthy restraint applying after the joint bidding arrangement is dissolved, is likely to be problematic, particularly if the restraint is not connected in any way to the success of the bid.

Recommended actions

Competitors or potential competitors who participate together in joint bids should review their contractual arrangements and protocols to ensure they do not fall foul of the new cartel laws.

In drafting provisions that comply with the law, it will be important also to consider a range of company law restrictions and requirements, including the prohibition on insider trading, and possible exemptions from takeovers reporting requirements and restrictions if the joint bidders’ existing combined interest in a target exceeds 20%.

Penelope Jessup is a foreign Lawyer in Blake Dawson’s Shanghai office.

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