Australia: Cartels

Key points

While legislation containing a form of prohibition of cartel conduct was originally enacted in 1906 in the Australian Industries Protection Act, it was not until 1974 that the first effective prohibition on cartel conduct was introduced in the Australian Trade Practices Act 1974.

The prohibitions on cartel conduct have been actively prosecuted by Australian competition enforcement agencies, and the Federal Court of Australia has imposed significant penalties on companies and individuals who have engaged in cartel conduct, most notably in relation to the local cardboard box cartel, for which a penalty of A$36 million was imposed on a single company, and more recently in the air freight industry, for which more than A$40 million in penalties have been imposed to date.

From 24 July 2009, the making or giving effect to cartel arrangements have been subject to a parallel regime of civil prohibitions and criminal offences. The parallel regime is administered by the Australian Competition and Consumer Commission (ACCC), except for criminal prosecutions which may only be undertaken by the Commonwealth Department of Public Prosecutions (DPP).

The maximum term of imprisonment for an individual who engages in cartel conduct is 10 years for each offence.

As at March 2011, there has been no criminal cartel prosecution brought before the courts. However, according to ACCC Chairman Graeme Samuel AC, ‘this year or next, there will be a criminal prosecution stemming from cartel activity… it is inevitable and it will be significant and there will be big and serious repercussions.’¹

Australia has immunity and leniency policies for cartel conduct, including an amnesty plus regime, which are similar to those in European and North American jurisdictions. The ACCC, which administers the policies, has close ties with other competition agencies in the Asia-Pacific time zone as well as in Europe and North America.

In addition to criminal fines, civil pecuniary penalties and disqualification orders, cartel conduct may result in follow-on actions for private damages. Class actions and litigation funding are an entrenched part of Australia’s litigation landscape.

Prohibitions on cartel conduct

Under the parallel civil and criminal regime, a corporation or individual must not make or give effect to a contract, arrangement or understanding (CAU) that contains a cartel provision.²
A cartel provision is defined by Australia’s Competition and Consumer Act 2010 as a provision of a CAU between actual or potential competitors that has:

• the purpose or likely effect of fixing, controlling or maintaining a price or a component of a price; or
• the purpose of:
• preventing, restricting or limiting production, capacity or supply;
• allocating customers, suppliers or territories; or
• rigging bids.³

While the criminal offences and civil penalty provisions are broadly similar, there are a number of important differences. Criminal liability depends on the prosecution proving additional fault elements beyond reasonable doubt, namely an intention to make or give effect to the CAU and knowledge or belief that the CAU contains a cartel provision.

Defences

It is important to note that there are some exceptions to the prohibition on cartel conduct, including for contractual joint ventures,⁴ agreements solely between related bodies corporate⁵ and conduct that has been authorised on public benefit grounds by the ACCC.⁶
There are also anti-overlap provisions which provide that where cartel conduct also constitutes resale price maintenance or exclusive dealing, or where cartel conduct provides, directly or indirectly, for the acquisition of shares or assets under the Act, the conduct will not be subject to the parallel civil and criminal regime of prohibitions on cartel conduct.
Although these types of conduct may fall outside the cartel provisions, they are regulated by other provisions of the Competition and Consumer Act.

Contract, arrangement or understanding

A key concept in the definition of cartel conduct is that of a CAU. While none of these terms are defined in the Competition and Consumer Act, for a CAU to be established, the courts have required there to be a meeting of the minds (by way of some communication) and a commitment to act in a certain way. It is insufficient that parties merely hold independent beliefs, or if there is a mere hope that something will be done.
Where there is little or no direct evidence of the alleged CAU, an arrangement or understanding can be inferred from conduct and the circumstances, including parallel conduct, joint action, collusion, similar pricing structures, or opportunities for the parties to reach an understanding.⁷
One important development in this area relates to proposed price signalling reforms. Both the Federal Government and the Opposition have announced draft legislation intended to deal with perceived gaps in the enforceability of the Act. If the Government’s draft legislation is enacted then it would not be necessary for the ACCC to demonstrate an understanding between two competitors. See further below.

Jurisdiction

Australia’s prohibitions on cartel conduct are capable of applying to global cartels. They can apply where the cartel conduct is engaged in outside Australia by corporations incorporated in Australia or carrying on business in Australia, or registered as foreign corporations in Australia or by individuals that are Australian citizens or ordinarily resident within Australia.

Further, the prohibitions on cartel conduct will apply in cases where the conduct can be said to occur ‘in’ Australia; for example where a corporation is involved in communications targeted towards Australia or the implementation of conduct in Australia, or where there is an Australian subsidiary or agent that implements its parent’s conduct such that the conduct can be said to be the conduct of the corporation in Australia.

One recent example of the Competition and Consumer Act’s applicability to global cartels can be seen in ACCC v Bridgestone Corporation⁸ where the Federal Court of Australia ordered four foreign based suppliers of marine hose to pay penalties for giving effect to a cartel in Australia even though the CAU containing the cartel provision had been made outside Australia.

Another emerging issue is the possibility of extradition. In March 2010, Ian Norris, former chief executive officer of British engineering firm Morgan Crucible, was extradited from the United Kingdom to the United States of America in relation to cartel conduct. In countries that have criminalised cartel conduct and that have an extradition treaty with Australia, including the United States and United Kingdom, regulators will be able to seek extradition of individuals from Australia for the purposes of criminal cartel proceedings overseas. The DPP will be able to seek the extradition of individuals from overseas for the purposes of Australian criminal cartel proceedings.

International cooperation

A number of memoranda of understanding and international agreements form the basis for international cooperation between Australian authorities and authorities in other jurisdictions including New Zealand, the European Union, the United Kingdom, Canada, South Korea, Chinese Taipei (Taiwan), Fiji and Papua New Guinea. Australia has also signed a bilateral treaty on mutual antitrust enforcement with the United States and provisions of the Australia-United States Free Trade Agreement require cooperation on investigation and enforcement matters.

The obligations set out in these treaties are supported by a number of pieces of domestic legislation, particularly the Mutual Assistance in Business Regulation Act 1992 (Cth) and the Mutual Assistance in Criminal Matters Act 1987 (Cth). The ACCC is also empowered to share protected information with foreign antitrust authorities under section 155AAA(12)(n) of the Competition and Consumer Act. However, it is the ACCC’s policy to refrain from sharing information provided by cartel immunity applicants with regulators in other jurisdictions without the consent of the applicant for immunity, unless required to do so by law.

Investigatory powers

The ACCC has robust investigatory powers. Section 155 of the Competition and Consumer Act gives the ACCC the power to require a person to provide information, produce documents or appear before it where it has reason to believe that they are capable of providing information or documents relating to a contravention or possible contravention of the Act. The person can be required to give evidence under oath or affirmation when they appear and they cannot resist answering questions or providing documents on the basis that doing so may result in self-incrimination. However, information obtained under this power is not admissible in evidence against the person in criminal proceedings, including for cartel conduct. A person also does not have to provide documents that are subject to legal professional privilege.

In addition to its section 155 powers, the ACCC is able to obtain search warrants, which empower it to enter and search premises unannounced and seize or make copies of material. It may also obtain telephone interception and surveillance warrants, but only for the purposes of investigating a criminal contravention of the Competition and Consumer Act.

Enforcement and penalties

The enforcement procedures and penalties for cartel conduct depend on the nature of the conduct in question. If the conduct is considered to be ‘serious cartel conduct’, the ACCC will seek to have the parties prosecuted criminally. Less serious conduct will be pursued under civil penalty provisions.

Serious cartel conduct

Conduct will be considered serious cartel conduct if it:

• caused, or has the potential to cause, large scale or serious economic harm;
• was long-standing;
• had a significant impact on the market in which it occurred;
• caused, or could have caused, significant detriment to the public or a class of the public;
• caused, or could have caused, significant loss or damage to one or more customers of the alleged participants;
• involved a person or company that has previously been found to have participated in or has admitted to participating in a cartel; or
• affected A$1 million of commerce within a 12 month period or involved A$1 million of bids, in the case of bid rigging, within a 12 month period.

Relationship between the ACCC and the DPP

If the conduct is found to be serious, the ACCC will investigate it before referring it to the DPP, which will conduct any criminal prosecution. If the DPP decides not to prosecute, the ACCC may still decide to pursue civil penalties against the accused.
A criminal prosecution requires the proof of additional elements and the prosecution must meet a higher standard of proof (see above).
A limitation period of six years applies to civil contraventions but there is no limitation period for criminal contraventions.

ACCC’s guidelines

Given the recent introduction of the criminal cartel offences and parallel civil penalty provisions, the ACCC has issued guidelines as to how it will conduct cartel investigations, as well as a guide for consumers. The Guidelines set out the basis on which it will determine matters to be ‘serious’ cartel conduct appropriate for criminal investigation, and supplement the Memorandum of Understanding between the ACCC and the DPP.

Penalties

There are differences in the penalties that may be imposed under the two regimes. Under both the civil and criminal regimes corporations face maximum fines and pecuniary penalties of the greater of:

• A$10 million;
• three times the value of the benefits obtained through the cartel conduct; or
• 10 per cent of the corporate group’s annual turnover attributable to Australia.

Until 2007, corporate civil penalties were capped at A$10 million.

Individuals face up to 10 years in prison and/or fines of A$220,000 under the criminal regime and pecuniary penalties of up to A$500,000 under the civil regime.

The ACCC can also seek injunctions to restrain future breaches of the Act and may consider accepting undertakings in some circumstances. It may also agree a civil penalty with the person or corporation who has contravened the Act, although the court must ultimately accept the penalty.

In determining the appropriate level of the penalty, courts will consider:

• the size of the company involved;
• the degree of the company’s market power;
• the nature and duration of the contravention;
• the nature and extent of the damage caused by the contravention;
• whether the company or individual has previously been found to have engaged in similar conduct;
• whether the company or individual has a corporate culture of compliance; and
• whether the company or individual cooperated with the ACCC’s investigation.

There have been no criminal prosecutions since the criminal regime commenced in 2009, though the ACCC’s current chairman, Graeme Samuel AC, has said on a number of occasions that it is likely that a prosecution will take place in 2011 or 2012. In contrast, there have been a number of recent cases that have resulted in the imposition of substantial civil penalties.

2010 saw the imposition of the first significant penalty under the new penalties regime (A$9 million for one breach), although the contravention related to unilateral conduct. Accordingly, the full effect of the new penalties regime for breaches of the cartel provisions of the Act has yet to be felt.

However, the ACCC’s prosecution of cartel conduct taking place before 2007 has resulted in the imposition of significant fines:

• In February 2011, suppliers of photocopying paper were required to pay penalties of A$4.2 million, adding to A$4 million in penalties already imposed on other members of the cartel.
• The ACCC’s prosecution of the air cargo cartel has resulted in the imposition of A$40 million in penalties to date, with a number of proceedings still on foot.
• In June 2010, four suppliers of marine hose were required to pay a total of A$8.24 million in penalties for giving effect to a cartel arrangement which involved the Australian market.
• In April 2010, proceedings against members of a Western Australian commercial air conditioning cartel were finalised. Members of the cartel had engaged in bid-rigging and price fixing in relation to projects valued at A$129 million and were required to pay a total of A$9.27 million in penalties.
• In November 2007, a penalty of A$36 million was imposed on Visy for engaging in price fixing and market sharing in the cardboard packaging industry. Two Visy executives were required to pay pecuniary penalties of A$1.5 million and A$500,000 respectively.

There have also been some recent indications that the level of penalties may increase in the future. The ACCC has indicated on numerous occasions that it is committed to achieving higher penalties, and the Federal Court has remarked that ‘penalties in Australia are still something of a light touch notwithstanding the new penalty regime.’ It is expected that both the ACCC and the court will seek to give effect to parliament’s intention that the new penalty regime result in higher penalties.

Immunity and leniency

Given the ACCC’s commitment to criminal prosecution and higher penalties, the immunity and leniency regimes managed by the ACCC are of increasing importance.

While all applications for both civil and criminal immunity must be made to the ACCC, there is a division of responsibility in relation to granting immunity. The ACCC will grant immunity from civil proceedings in accordance with its Immunity Policy for Cartel Conduct. However, if the ACCC determines that the conduct in question amounts to serious cartel conduct (see above) and refers the matter to the DPP, it will also make a recommendation to the DPP in relation to immunity from criminal proceedings. The DPP will take the ACCC’s recommendation into account but will make an independent decision about whether to grant immunity, in accordance with the Prosecution Policy of the Commonwealth, which incorporates the same principles expressed in the ACCC Immunity Policy.

Among the conditions for immunity is the requirement that the applicant be ‘first in’. The Immunity Policy establishes a marker system which allows an applicant to hold its place in the ‘immunity queue’ for a limited period of time (usually 28 days) in order to allow it to complete internal investigations before perfecting its immunity application.

Other conditions for immunity include that:

• the ACCC does not already have enough evidence to commence a prosecution;
• the applicant was not a clear leader of the cartel and did not coerce others to take part; and
• the applicant must admit its conduct and commit itself to full disclosure and cooperation with the ACCC throughout the investigation and any subsequent prosecutions.

This requirement of full cooperation places a heavy burden on immunity applicants and their employees. However, the consequence of gaining immunity is full immunity from ACCC initiated civil proceedings and criminal proceedings undertaken by the DPP.

The immunity generally extends to current and former directors, officers and employees, as long as the disclosures are a truly corporate act.

One of the limitations of the immunity regime is that it does not limit the rights of injured third parties to launch proceedings to recover damages. The status of private actions for damages is explored below.

For those corporations and individuals who fail to ‘get in first’ and secure immunity, the ACCC’s Cooperation Policy for Enforcement Matters provides a mechanism through which a cooperative party can receive more lenient treatment than would otherwise be the case. Factors indicating when leniency will be granted include:

• the value and importance of the evidence;
• whether prompt and effective action was taken to terminate involvement in contravening conduct; and
• the applicant’s willingness to provide full and frank disclosure and cooperation.

The ACCC’s Immunity Policy includes an amnesty regime plus for cartelists who are not eligible for immunity in a cartel already being investigated by the ACCC but who provide the ACCC with evidence of a second cartel, of which the ACCC was not previously aware. If they satisfy the ACCC’s amnesty plus policy, they gain immunity from prosecution for both cartels.
The immunity regime has undoubtedly increased the effectiveness of ACCC investigations. Since June 2003, the ACCC has granted conditional immunity to 36 applicants and a majority of the 33 first instance proceedings in relation to alleged cartel matters arose from cartel immunity applications.⁹

Private actions

Anyone who suffers loss or damage as a result of cartel conduct can recover the amount of their loss or damage in a private action. Private litigants can also obtain declarations, injunctions and ancillary orders.

The ACCC also has the power to commence representative proceedings on behalf of a group that has suffered loss or damage as a result of cartel conduct.

A limitation of six years applies to all civil actions for cartel conduct, starting from the point in time at which the cause of action accrues. While it is not settled law in Australia, arguably, the cause of action only accrues, and the loss or damage is only suffered, when the claimant becomes aware of the cartel.¹⁰

While there have as yet been no private actions that have continued to the award of damages (that is, not settled), in recent years there has been an increase in class action litigation over cartel conduct. Class actions have tended to follow ACCC investigations as there is no restriction on private actions against parties who have been subject to criminal or civil enforcement proceedings. Findings of fact in enforcement proceedings can, in some circumstances, be admissible as prima facie evidence of those facts in private proceedings.

Representative actions are ‘opt-out’ and there is a presumption that litigation will continue on a representative basis unless the respondent establishes that it would be inappropriate for claims to be pursued in this way. Actions that are currently on foot include proceedings to recover damages following ACCC investigations into the air cargo cartel and the rubber chemicals cartel.

In March 2011, a class action against cardboard box manufacturers Amcor and Visy settled for A$95 million, with Amcor to pay A$63.3 million and Visy to pay A$31.7 million. At the time of writing, the settlement was still subject to court approval and other individual claims remain on foot. In October 2006, a class action against vitamin manufacturers was settled for A$30.5 million, following successful civil proceedings brought by the ACCC.

Damages awarded in private proceedings, including representative proceedings, are assessed on a compensatory basis. A claimant can only recover the amount of loss or damage suffered by them by reason of the cartel conduct. Punitive or exemplary damages are not awarded.

Future developments

Reform

On 12 December 2010, the Federal Government released an Exposure Draft Bill to amend the Competition and Consumer Act to outlaw price signalling as part of its Competitive and Sustainable Banking System Package following the global financial crisis. This was followed by a slightly ammended Bill that was introduced to parliament on 24 March 2011. Under the proposed amendments corporations would be prohibited, per se, from making private disclosures to competitors of information relating to prices, rebates, allowances or credits in relation to the supply or acquisition of prescribed goods or services.¹¹ Corporations would also be prohibited from making disclosures of prices, rebates, allowances, credits, the capacity of an organisation to acquire or supply prescribed goods or services, or the corporation’s commercial strategy in relation to the prescribed goods or services for the purposes of substantially lessening competition in a market.¹²

Under the proposed scheme, there would be a number of general defences that are applicable to both provisions, including that disclosure was accidental, that the disclosure was to a related body corporate and that the disclosure was authorised by law. There would also be a number of defences that apply specifically to the per se prohibition, including that the information was provided to a person who is to resupply the goods, that the information was disclosed to a joint venture partner, that the disclosure is in connection with the acquisition of shares or assets and that the corporation did not and could not be expected to have known that the person to whom they disclosed information was a competitor.

As drafted, the new prohibitions are only intended to apply to goods and services of the classes prescribed by regulation.¹³ The government has stated that the tough new reforms will apply initially to banks, with the capacity for other sectors to be specified in future after further review and detailed consideration.¹⁴ Given the concern around other industries such as the petrol sector, there is uncertainty as to how far the law will stretch in the future.

Case law

The competition bar will closely watch the progress of the air cargo and rubber chemical class actions. If these cases go to trial, they are expected to clarify the law in a number of areas including the availability of a ‘pass through defence’ under the Act. The pass through defence is used by respondents in cartel class actions to restrict the quantum of damages claimed by applicants to the extent that the applicants have passed on increased prices to their own customers. In the US, respondents cannot rely on a pass through defence in a claim for damages made from direct purchasers under federal law.

Notes

1

Olga Galacho, ‘Samuel’s Vow: I Will Get Cartels’, Herald Sun (online), 31 January 2011, http://www.heraldsun.com.au/ipad/samuels-vow-i-will-get-cartels/story-fn6bn4mv-1225997082977

2

Competition and Consumer Act 2010 (Cth) ss 44ZZRF, 44ZZRG, 44ZZRJ, 44ZZRK.

3

Competition and Consumer Act 2010 (Cth) s 44ZZRD.

4

Competition and Consumer Act 2010 (Cth) ss 44ZZRO and 44ZZRP.

5

Competition and Consumer Act 2010 (Cth) s 44ZZRN

6

Competition and Consumer Act 2010 (Cth) s 44ZZRM.

7

TPC v David Jones (1986) 13 FCR 446.

8

(2010) 186 FCR 214.

9

L Huett, D Poddar and M Bond, ‘Australia’ in J Buhart and KL Arquit (eds) Leniency Regimes: Jurisdictional Comparisons (The European Lawyer, 3rd ed, 2010).

10

Energex Ltd v Alstom Australia Ltd (2004) 225 ALR 504, 520-3.

11

Competition and Consumer Amendment Bill (No. 1) 2011 (Cth), Schedule 1, section 44ZZW.

12

Competition and Consumer Amendment Bill (No. 1) 2011 (Cth), Schedule 1, section 44ZZX.

13

Competition and Consumer Amendment Bill (No. 1) 2011 (Cth), Schedule 1, section 44ZZT.

14

http://www.treasury.gov.au/banking/content/report/report_06.htm.