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ROYAL COMMISSION INTO TRADE UNION GOVERNANCE AND CORRUPTION CONSTRUCTION FORESTRY MINING AND ENERGY UNION

COUNSEL ASSISTING OPENING STATEMENT – 9 JULY 2014

ISSUES RELATING TO BORAL LTD

Today’s hearing will hear evidence from various witnesses from Boral Ltd and its related entities (Boral).

Boral supplies concrete and other products to persons in the construction industry.

The evidence of the Boral witnesses, each of whom has been summonsed to give evidence, will be to the effect that the CFMEU has since February last year black banned Boral products.

The effect of the ban is to inhibit the supply of Boral concrete and other products to certain sites in Melbourne.

The factual background emerging from today’s evidence is as follows.

On or about 14 February 2013 the CFMEU instituted a black ban of Boral products, apparently because of Boral’s association with Grocon. Boral is the exclusive supplier of wet concrete to Grocon in Victoria.

A senior account manager for Boral, Mr Richard Lane, will depose that in the afternoon of

14 February 2013 he received out of the blue three telephone calls from Boral customers advising him that the CFMEU had black banned Boral because of its association with Grocon.

Boral made inquiries of owner-drivers, who confirmed that deliveries by Boral trucks had been banned by the CFMEU from Monday the following week.

The General Manager of Boral Concrete Southern Region, Mr Peter Head, will give evidence that on and from Monday 18 February the following customers of Boral ceased ordering

concrete for on-going major projects in the greater Melbourne metropolitan area: Oceania Universal, Equiset, Drive Projects and Meridian Construction Services. Mr Head’s evidence is that each of these customers was a long-term, established customer of Boral.

Mr Head deposes that in his 10 years’ experience with the concrete industry, and more than

18 years in construction, he has never experienced a situation where a customer purchases concrete from one supplier on a Friday afternoon and then swaps to another supplier on the Monday morning mid-project.

On 28 February 2013 Boral obtained interim injunctive relief against the CFMEU in the Supreme Court of Victoria, restraining it from continuing the black ban in respect of a number of sites.

This interim injunction was extended on 7 March and 5 April 2013. The evidence suggests that the CFMEU did not lift the black ban.

In April 2013 Boral resolved to try to speak to the CFMEU to see whether the union could be persuaded to lift the ban and allow Boral to resume supplies of concrete to Melbourne construction sites.

On 23 April 2013 a meeting took place. It was attended by John Setka and Shaun Reardon on behalf of the CFMEU and Paul Dalton and Peter Head on behalf of Boral. Both Mr Dalton and Mr Head will give evidence as to what occurred at the meeting. That evidence reveals the following.

At the meeting Mr Setka said words to the effect:

We’re at war with Grocon and in a war you cut the supply lines.

Mr Setka said further words to the effect:

All you [Boral] have to do is stop supply to Grocon for a couple of weeks.

Mr Setka said further words to the effect:

All wars end and once peace is established the CFMEU will be at the table to divide up the spoils. The CFMEU will decide who gets what and what market share Boral will get.

Boral did not agree to ceasing supply to Grocon. On the evidence, a number of entities who were prior to the ban Boral customers remain to this day unwilling to acquire concrete or other products from Boral, at least for use in union sites (Boral customers).

Mr Dalton, who is Boral’s Executive General Manager (Southern Region) will give evidence

that the effects of the black ban include:

· Boral being prevented or otherwise hindered from supplying concrete to CFMEU

controlled sites in the Melbourne metropolitan area;

· Boral customers cancelling or discontinuing orders;

· a substantial decline in requests for quotes and orders from Boral;

· a decline in Boral’s market share in Victoria; and

· Boral suffering an estimated loss of earnings before interest and tax of around $8 million (including legal costs of almost $2 million) up to the end of June 2014.

The next task is to identify the legal principles engaged by the above facts.

It should be emphasised that the Commission is only starting this factual inquiry. At this stage no Boral customer has given evidence. The CFMEU has not had the opportunity to present its evidence, test the evidence of Boral, nor propound any defence.

However, bearing those caveats in mind, the above facts potentially give rise to a number of legal issues.

The first relates to whether the boycott provisions of the Competition and Consumer Act

2010 (Cth) (Act) have been and are continuing to be contravened.

Thus section 45D of the Act provides that a person must not, in concert with a second person, engage in conduct that hinders or prevents a third person supplying goods or services to a fourth person, where that conduct has the purpose, effect or likely effect of causing substantial loss or damage to the business of the fourth person.

Also section 45E of the Act provides that a first person must not make a contract or arrangement, or arrive at an understanding, with an organisation of employees or an officer of such an organisation, if the proposed contract, arrangement or understanding contains a provision preventing or hindering the first person from acquiring or continuing to acquire goods or services from the second person.

For the purposes of section 45E, the “first person” includes a person who is accustomed to acquire goods or services from another person – the latter being the “second person” for the purposes of the section.

Applying this to the present facts, the question is whether a Boral customer (the first person) has entered into an arrangement, or arrived at an understanding, with the CFMEU for the purposes of preventing or hindering the Boral customer from acquiring concrete or other products from Boral (the second person).

Another question is whether the above conduct could constitute or give rise to a breach of the cartel provisions in the Act.

These sections are relatively recent, having come into effect on 24 July 2009. However, many elements in them have formed part of the Act for decades. The cartel provisions themselves have not yet been the subject of much case law. In broad terms they prohibit persons from entering into a contract, arrangement or understanding which includes a provision giving rise to a cartel in the broad sense set out in the Act.

Proof of a contravention of these provisions of the Act requires proof of at least three elements.

First, there must be a “contract arrangement or understanding”.

These are words of broad import. Plainly they extend well beyond a formal contract. The words would catch, for example, an informal, unwritten understanding entered into by various individuals.

It may be sufficient to satisfy this element if the CFMEU and Boral’s customers have since 14

February 2013 implemented and put into effect a course of conduct pursuant to which those customers will no longer accept supplies of concrete or other building products from Boral.

Secondly, the contract, arrangement or understanding must include a provision having a purpose of the kind described in section 44ZZRD(2) or (3).

This purpose will be satisfied if, relevantly, the provision has the effect of allocating between the parties to the contract, arrangement or understanding the persons, or classes of persons, who are likely to supply concrete to those parties (see s44ZZRD(3)(b)(ii)).

In the present case the parties to the arrangement or understanding include the Boral customers.

The relevant provision was that the Boral customers cease acquiring concrete or other products from Boral.

The purpose of that provision was to allocate to the Boral customers a particular class of suppliers, namely those suppliers who had the approval of the CFMEU.

Thirdly, at least two of the parties to the arrangement or understanding must be in competition with each other.

As noted above, the Boral customers are parties to the arrangement or understanding. The

Boral customers appear to have been in competition with each other.

The consequences of a contravention of the prohibition on cartel provisions are extremely serious.

Section 44ZZRF of the Act provides that a corporation commits an offence if it makes a contract or arrangement, or arrives at an understanding, which contains a cartel provision. Such an offence is punishable on conviction by a fine not exceeding the greater of $10 million and three times the value of any benefits obtained.

There may be an issue as to whether a trade union is a trading or financial corporation for the purposes of section 44ZZRF.

If it is not, a law reform question would arise as to whether the cartel provisions in the Act should be extended so as to ensure that section 44ZZRF does extend to trade unions.

However this issue does not arise in the present circumstances. As noted above, if there was a relevant understanding or arrangement then at least some of the Boral customers would appear to have been parties to it. The Boral customers appear to be corporations for the purposes of section 44ZZRF.

In any event the Act creates what is known as “The Schedule Version of Part IV”. It contains a version of section 44ZZRF which does not depend on identifying a trading or financial corporation. It applies simply to “persons”, and the CFMEU is a person.

If it were to be established that a Boral customer or the CFMEU had committed an offence under section 44ZZRF by engaging in the above conduct, two provisions become relevant. One section is 44ZZRF(4). It provides that an offence committed by a person other than a body corporate is punishable by 10 years imprisonment or a fine of $340, 000. The other is section 79. It provides that a person who aids, abets, counsels or procures a contravention of, or conspires with others to contravene, a cartel offence provision may be liable for a term of imprisonment not exceeding ten years.

It is important to stress that neither section 44ZZRF(4) nor section 79 of the Act is limited to trading or financial corporations, and would extend to a body corporate or an individual.

Questions also arise as to whether the CFMEU or its officers have committed common law torts such as conspiracy, intimidation and interference with contract.

Lastly, the final witness today will be Mr Mike Kane, the Chief Executive Officer and

Managing Director of Boral.

Mr Kane’s evidence takes the form of a letter to the Commission, which to some extent

summarises the position in which Boral finds itself today.

Mr Kane includes his suggestions for law reform and for other courses of conduct the

Commission may wish to consider.

Among other things, Mr Kane questions whether there should be an investigation as to whether there has been a breach of section 87 of the Crimes Act 1958 (Vic).

This suggestion arises out of the events of the meeting on 23 April 2013, the content of which is summarised above and which will be set out further in the evidence adduced today.

Section 87 of the Crimes Act makes it an offence for a person to blackmail another person.

Mr Kane’s letter to the Commission sets out the possible grounds for a breach of section 87

as follows:

Those grounds are that Mr Setka:

· made a demand, that Boral stop supplying Grocon;

· the demand was unwarranted, in that Mr Setka had no right to make it;

· the demand was made with menaces, in terms of adverse consequences for Boral if it did not accede to the demand; and

· the demand was made with intent to cause loss to another, namely Boral and Grocon.

There is a defence. It only arises if the person making the demand does so in the belief that he has reasonable grounds for making the demand, and the use of the menaces is a proper means of reinforcing the demand. A question which arises is what demands made to cut

the supply lines in an industrial war, the victors in which will divide the market share spoils, can be reasonable or proper.

The penalty for blackmail is 15 years imprisonment.