Hutchinson Builders v ACCC: Full Court finds termination of subcontract did not contravene “boycotting” laws; clears Hutchies of wrongdoing

Hutchinson Builders (Hutchies) is Australia’s largest privately owned construction company. Throughout its 110+ year history it has delivered countless significant projects across Australia. One such project, which was the subject of the Full Court’s decision in J Hutchinson Pty Ltd v ACCC, was a construction project located in South Brisbane known as the “Southpoint Project”. Hutchies was the head contractor for the Southpoint Project. In that role it engaged and acquired services from various subcontractors, including a small waterproofing company called Waterproofing Industries Qld Pty Ltd (WPI).

Hutchies engaged WPI in March 2016 to provide waterproofing services on the Southpoint Project. WPI was different from other (generally larger) subcontractors that Hutchies engaged on the Southpoint Project. It did not have an enterprise bargaining agreement (EBA) with the Construction, Forestry, Mining and Energy Union (CFMEU). It also notably did not pay its workers the same rates, or give its workers the same entitlements, as other subcontractors that had EBAs with the CFMEU. For example, it was not registered with, and did not make contributions to, certain superannuation and other funds.[1]

Termination of WPI

The CFMEU did not have a favourable view of WPI, or the way it treated its workers. After learning that Hutchies engaged WPI to provide waterproofing services on the Southpoint Project, it raised concerns about Hutchies’ engagement of WPI. In that regard, Hutchies’ own EBA with the CFMEU contained a “pay parity” provision, which in certain circumstances, required Hutchies to ensure that its subcontractors’ employees would “receive terms and conditions of engagement (or terms no less favourable) as they would receive if they were engaged as employees under this agreement performing the same work.”

The CFMEU foreshadowed the possibility of industrial action if WPI performed further work on the project. Sometime later, in July 2016, Hutchies terminated its subcontract with WPI, invoking a termination for convenience clause.

Alleged “boycott agreement”

A key issue in this case was whether Hutchies’ decision to terminate WPI’s subcontract was the result of an arrangement or understanding with the CFMEU that Hutchies would terminate its subcontract with WPI.

The ACCC alleged it was. It alleged that Hutchies contravened sections 45E(3) and 45EA of the Competition and Consumer Act 2010 (Cth) (CCA) by making, and giving effect to, an arrangement or arriving at an understanding with the CFMEU, containing a “boycott provision” that Hutchies would terminate its subcontract with WPI. It also alleged that the CFMEU induced Hutchies’ contraventions of sections 45E(3) and 45EA by threatening or implying that there would be conflict with, or industrial action by, the CFMEU if Hutchies did not cease using WPI.

Hutchies denied the ACCC’s allegations. It argued that its decision to terminate WPI’s subcontract was not the result of an arrangement or understanding with the CFMEU. Rather, it was a unilateral decision, and there was no meeting of minds (or equivalent) to establish the existence of an agreement or understanding.

What is a “boycott agreement”?

Section 45E(3) of the CCA relevantly provides that in an “acquisition situation” (where one party has been accustomed, or is under an obligation, to acquire goods or services from another person), a party must not make a contract or arrangement, or arrive at an understanding, with another party “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 [party] from acquiring or continuing to acquire such goods or services from the second [party]”. Section 45EA then provides that a party “must not give effect to a provision of a contract, arrangement or understanding if, because of the provision, the making of the contract or arrangement, or the arriving at the understanding, by the [party]” contravened section 45E(3).

For the purposes of section 45E of the CCA, it is well established that an “arrangement” connotes a consensual dealing that lacks some of the essential elements that would otherwise make it a contract. An “understanding” may be less precise and may be tacit, but still requires a meeting of minds and commitment. A mere expectation or hope that a party will act in a certain way is not itself sufficient to establish an arrangement or understanding (even if it has been engendered by that party).

An arrangement or understanding may be proved by circumstantial (rather than direct) evidence.[2]

First instance decision (Downes J)[3]

At first instance the primary judge found there was an arrangement or understanding between Hutchies and the CFMEU, pursuant to which Hutchies would cease to acquire waterproofing services from WPI and terminate the WPI subcontract. That finding was (necessarily) based on inferences.[4] In that regard, her Honour found that the facts and circumstances of the case evidenced “parallel conduct” by Hutchies and the CFMEU “by which they each took steps to exclude WPI from the site and then either prevented, or took no positive steps to allow, WPI to return to the site, with the end result that Hutchinson ceased to acquire waterproofing services from WPI and terminated the WPI subcontract.”[5]

Her Honour’s judgment also relevantly cited authority that where proof of an arrangement or understanding rests on inferences to be drawn from primary facts, it is not sufficient for the circumstances to give rise to conflicting inferences of equal degrees of probability.[6] In relation to this issue, her Honour concluded that “the most probable explanation” for the series of facts which occurred in this case was that there was an arrangement or understanding that Hutchies would no longer acquire waterproofing services from WPI at the Southpoint Project and would terminate the WPI subcontract.[7]

Appeal decision (Wigney, Bromwich and Anderson JJ)[8]

Hutchies and the CFMEU both appealed Justice Downes’ decision. They each argued that the primary judge erred in finding there was an arrangement or understanding between Hutchies and the CFMEU.

Hutchies argued that:

1. The ACCC did not prove the necessary meeting of minds or equivalent to establish the existence of an agreement or understanding. For example, there was no clear evidence about how, when, where and through whom the alleged arrangement was made, or the alleged understanding arrived at. In the circumstances it was not open to the primary judge to infer that there was a “meeting of minds” or consensus between Hutchies and the CFMEU concerning the termination of the contract with WPI. An arrangement or understanding under section 45E of the CCA requires knowledge (or an equivalent state of mind) on both sides as to the subject of that meeting of the minds, which was absent in this case.
2. Moreover, even if it was open to the primary judge to infer that there was a “meeting of minds” or consensus between Hutchies and the CFMEU concerning the termination of WPI’s subcontract, her Honour should not have drawn that inference to the exclusion of other equally probable inferences. Here, an equally or more probable inference was that Hutchies’ termination of the WPI subcontract was a unilateral decision made for commercial reasons.

Reasons

The Full Court accepted Hutchies’ arguments.

In relation to the inference drawn by the primary judge, the Full Court agreed that the primary judge’s finding could not stand; the facts as found by the primary judge could not support an inference, to the requisite standard, that Hutchies and the CFMEU made, or arrived at, the alleged arrangement or understanding.

Justice Wigney commented that the primary judge’s reasoning concerning the drawing of the critical inference “was expressed at a high level of generality”,[9] and observed that the judgment did not identify who was responsible for making the arrangement or arriving at the understanding, or who had the relevant subjective purpose for including the alleged boycott provision. His Honour further observed that the primary judge’s reasons were “opaque as to when, where, and how, the arrangement was made, or the understanding arrived at.”[10] Justices Bromwich and Anderson concurred. They observed that a shortfall in proving the necessary knowledge or awareness component of an alleged arrangement or understanding (on either side) for the necessary meeting of minds is fatal.[11]

In relation to the issue of whether the inference drawn by the primary judge was the most probable, the Full Court agreed that the competing or conflicting inference that Hutchies made a unilateral decision to terminate in light of the CFMEU’s threat of industrial action was “at the very least” equally probable.[12]

Justice Wigney explained that in circumstances where competing or conflicting inferences are open to be drawn from the same set of facts and circumstances, it is not sufficient for the circumstances to simply give rise to “conflicting inferences of equal degrees of probability where one of those inferences does not involve the existence of any arrangement or understanding. The inference that an arrangement or understanding has been made or arrived at must be the more probable inference.”[13] (emphasis added). His Honour considered the fact that WPI did not do any further waterproofing on the Southpoint Project “was equally explicable on the basis that the CFMEU had threatened industrial action if WPI performed any further work on the project. The available inference is that Hutchinson did not ask WPI to perform any further work on the project because it wanted to avoid that industrial action. That inference is at least equally available, if not more probable…”[14]

Justices Bromwich and Anderson delivered similar reasons on this issue. They emphasised that a mere expectation from the CFMEU that Hutchies would ultimately succumb to industrial pressure could not amount to a meeting of minds between the two organisations. Where a finding of a contravention of section 45E is made based upon an inference, the conclusion reached must be the most probable: if another conclusion is equally likely, no arrangement or understanding is established.[15] Their Honours added: “The ACCC’s evidentiary case ultimately rose no higher than demonstrating that the evidence supported this as a possible and plausible explanation for what had taken place, rather than being the most probable. The primary judge’s efforts to find this to be the more probable explanation for what had occurred regrettably fell short of what was required.”[16]

Conclusion

The Full Court accepted Hutchies’ arguments that:

1. It was not open to the primary judge, on the facts of this case, to infer the existence of the arrangement or understanding alleged by the ACCC.
2. Even if it was open to the primary judge to infer this, there was an equally available, if not more probable, inference which explained the events which had occurred.”[17] On that basis, the Full Court allowed Hutchies’ appeal, dismissed the ACCC’s case, set aside the finding of liability and the penalties imposed,[18] and ordered the ACCC to pay Hutchies’ costs.

Key takeaway

The Full Court’s decision in J Hutchinson Pty Ltd v ACCC provides clarity around how section 45E of the CCA (which Justice Wigney fairly described as being “arcane and awkward”)[19] ought to be interpreted and applied. It sets an important precedent, which will provide much needed clarity for the construction industry and other heavily unionised industries.

Notwithstanding this clarity, businesses that are considering whether to cease acquiring goods or services from a supplier should exercise caution before making such decisions – particularly if a third-party stakeholder has had any kind of say with respect to the decision. To avoid potentially severe consequences, business in such situations should seek legal advice before acting.

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Authored by:

Guy Edgecombe, Partner
Mitchell Byram, Director

[1] WPI did not make contributions to funds including Building Employees Redundancy Trust (BERT), Construction Income Protection Queensland Limited (CIPQ) and the Building Employees Welfare Trust (BEWT).
[2] In CEPU v ACCC (2007) 162 FCR 466; [2007] FCAFC 132, Weinberg, Bennett and Rares JJ observed at [136] that: “The activities which the Parliament proscribed in s 45E are often likely to be proved by circumstantial rather than direct evidence, given the nature of proceedings where such conduct is in issue… As is often the case in proceedings where a contract, arrangement or understanding (made or arrived at in contravention of a legislative proscription) must be proved, circumstantial evidence is sometimes the only evidence available.”
[3] ACCC v J Hutchinson Pty Ltd [2022] FCA 98.
[4] There was no direct evidence that there had been some form of communication between Hutchies and the CFMEU which conveyed their consensus or assent in respect of the course of action that was alleged to have been agreed or understood, nor evidence capable of establishing that Hutchies considered itself obliged or duty-bound in some way to terminate its contract with WPI.
[5] [2022] FCA 98 at [338].
[6] [2022] FCA 98 at [114], citing CEPU v ACCC (2007) 162 FCR 466; [2007] FCAFC 132; and [325], citing Norcast v Bradken (2013) 219 FCR 14; [2013] FCA 235.
[7] [2022] FCA 98 at [337]. Her Honour similarly observed at [360] that “the termination of the WPI subcontract by Hutchinson was the most likely, if not inevitable, culmination of the concurrent conduct engaged in by Hutchinson and the CFMEU…”
[8] J Hutchinson Pty Ltd v ACCC [2024] FCAFC 18.
[9] [2024] FCAFC 18 at [36] (Wigney J).
[10] [2024] FCAFC 18 at [37]-[38] (Wigney J).
[11] [2024] FCAFC 18 at [174] (Bromwich and Anderson JJ).
[12] [2024] FCAFC 18 at [5] (Wigney J).
[13] [2024] FCAFC 18 at [51] (Wigney J).
[14] [2024] FCAFC 18 at [72] (Wigney J). See also [5] and [81].
[15] [2024] FCAFC 18 at [152], [171], [176] (Bromwich and Anderson JJ).
[16] [2024] FCAFC 18 at [177] (Bromwich and Anderson JJ).
[17] [2024] FCAFC 18 at [83] (Wigney J).
[18] See ACCC v J Hutchinson Pty Ltd (No 2) [2022] FCA 1007.
[19] [2024] FCAFC 18 at [84] (Wigney J).