As all Australians would be aware, Peters is one of the largest suppliers of single serve ice cream products in Australia, including brand names such as “Drumstick”, “Maxibon” and “Frosty Fruits”. Peters uses PFD Food Services Pty Ltd (PFD), along with its frozen transport trucks, to distribute its ice-cream products to P&C retailers throughout Australia – including, for example to Woolworths, Coles Express, Caltex and 7-Eleven.

The alleged conduct

The ACCC allege that between about November 2014 and December 2019 (the Relevant Period), Peters engaged in exclusive dealing by entering into and giving effect to a distribution agreement with PFD, in which Peters supplied its ice cream products on the condition that PFD would not distribute competing ice cream products to other areas in Australia (without Peters' consent).

During the term of the distribution agreement, PFD made requests to distribute competing ice cream products, but these requests were rejected by Peters. In its Concise Statement filed to commence these proceedings, the ACCC referred to the example of Regal Cream Products Pty Ltd (Bulla), who during the Relevant Period had sought to obtain distribution from PFD to Caltex and Woolworths. Allegedly, PFD told Bulla that, after checking with Peters, it was unable to distribute Bulla's products due to the exclusive arrangement with Peters. Bulla was then unable to find another commercially viable way to distribute its products, and accordingly did not distribute its products to national P&C retailers. ACCC argues that "but for the exclusive dealing agreement, other new entrants, such as Bulla, would or would likely have entered or expanded in the market and competed substantially against Peters."

The ACCC alleges that, for new entrants in this market, PFD was the only distributor capable of distributing single-wrapped ice cream products to national P&C retailers on a commercially viable basis (as other distributors did not have a national frozen food route to these retailers). Therefore, new entrants would incur the substantial cost of establishing their own distribution network to distribute these types of products nationally. ACCC argues that this conduct effectively raises the barriers of entry, hindering or preventing potential new entrants into the market.

It is also alleged that a substantial purpose of Peters engaging in this conduct was to protect its market position from competitors, being one of only two major suppliers of single-wrapped ice creams, who together held a combined market share of over 95% during the Relevant Period.

As the ACCC Chair Rod Sims stated in the ACCC's media release, “We allege that this conduct reduced competition, and may have deprived ice cream lovers of a variety of choice or the benefit of lower prices when purchasing an ice cream at one of these stores".

The legal position

As per section 47(1) of the Act, a company is not, in trade or commerce, to engage in the practice of exclusive dealing.

Exclusive dealing arises if the company supplies, or offers to supply, goods or services (including set at a particular price or offered as a discount, allowance, rebate or credit) on the condition that the supplier (or a related body corporate of the supplier):

1. Will not (or will not to a certain extent), acquire or re-supply goods or services directly or indirectly from a competitor of the supplying company;
2. Will not (or will not to a certain extent), re-supply goods or services to:
   
   1. any person;
   2. to a particular persons or classes of persons; or
   3. in particular places or classes of places.

However, the above will only be classified as exclusive dealing in contravention of section 47(1) if the company's conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition (including if the conduct, in addition with other conduct of the same or similar kind, together has this effect).

As outlined above, it is the ACCC's position that Peters' contravened section 47(1) of the Act by its conduct in the Relevant Period having the purpose of substantially lessening competition (satisfying the criteria in section 47(10) of the Act) and engaged in exclusive dealing by:

• offering to supply and/or supplying its ice-cream products to PFD on the condition that PFD would not re-supply/acquire its ice cream products to/from Peters' competitors.
• offering to acquire and/or acquiring distribution services with PFD on the condition that PFD would not supply distribution services for ice-cream products that competed with Peters to:
  
  
  
  • suppliers that distributed competed with Peters' products; and/or
  • particular classes of places, namely the locations as defined in the distribution agreement.

Key takeaways

A contravention of section 47 of the Act for exclusive dealing can lead to high pecuniary penalties, being a maximum of:

• $10,000,000 for corporations. However, noting that if the Court can determine that a "reasonably attributable" benefit was obtained, the Court can order a penalty of up to 3 times this value ($30,000,000), or if the Court cannot determine a benefit, can rather order a penalty of 10% of the corporation's annual turnover in the preceding 12 months.
• $500,000 for individuals.

Accordingly, ensuring your current business practices (such as your contractual arrangements) are not anti-competitive is incredibly important to avoid the scrutiny of the ACCC and the high penalties that can be imposed.

We await Peters' response to the ACCC's allegations and whether it concedes that it's conduct was anti-competitive or what arguments it raises in its defence – so watch this space.

McCabe Curwood has extensive experience in assisting clients in relation to their obligations under the Competition and Consumer Act 2010 (Cth). Please get in touch with our Litigation and Dispute Resolution group today to discuss any of the issues raised in this article.