September 2009

Cartel Conduct Criminalised under Trade Practices Reforms

Overview

Recent reforms to the Trade Practices Act, [1] have introduced criminal penalties alongside civil prohibitions, for proscribed forms of cartel conduct. The key provisions within the amending legislation, the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009, came into operation on 24 July 2009.

Cartels are anti-competitive arrangements between two or more competitive businesses. Individuals or corporations now face both civil and criminal penalties, if they make or give effect to a contract, arrangement or understanding between two or more competitors which contains a "cartel provision". A "cartel provision" is defined as a provision that has the purpose or is likely to have the affect of:

• price fixing; [2] or
• restricting outputs in the production and supply chain; [3] or
• allocating customers, suppliers or territories; or
• bid-rigging. [4]

The penalties for individuals convicted of a criminal cartel offence include a maximum sentence of 10 years' imprisonment and a fine of up to $220,000 per offence. [5] Corporations face, the greater of: $10 million, three times the benefit obtained by the offence or 10 % of the corporate group's annual turnover. [6] However, parties can avoid penalties for alleged cartel conduct if they successfully make out one of the statutory exceptions.

Since the revision of the cartel laws, the ACCC has released new guidelines to inform businesses about how it will investigate cartel conduct [7] and the application process for immunities from penalties. [8]

The Federal Court has also been given jurisdiction with respect to the new criminal cartel offences.

Key Changes

Criminal Offences

To be guilty of a criminal offence under the new provisions, it must be established that:

• the individual or corporation intended to enter into a contract, arrangement or understanding; and
• that they knew or believed that the contract, arrangement or understanding contained a cartel provision. [9]

Penalties apply both in relation to making a contract, arrangement or understanding which contains a cartel provision, and giving effect to a cartel provision in a contract, arrangement or understanding. [10] The criminal cartel offence must be proven beyond reasonable doubt and a unanimous jury verdict is required. [11]

Civil Prohibitions

The civil prohibitions [12] mirror the criminal offences, however the elements of knowledge and intention do not need to be met. To establish a civil prohibition, prosecution will need to prove contravention on the balance of probabilities. [13]

Penalties

Individuals can be imprisoned for up to 10 years, or be fined up to $220,000 per contravention for a criminal offence. Furthermore, individuals may face up to $500,000 per contravention under a civil prohibition. Penalties for corporations are the same for both a civil or criminal offence; for each contravention, a corporation will face the greater of:

• $10 million;
• Three times the total value of the benefits obtained as a result of cartel conduct; or
• 10% of the corporate group's annual turnover in the 12 month period during which the offence occurred. [14]

Exceptions to cartel provisions

Parties can avoid penalties under these new provisions, if they can establish one of the various exceptions to cartel conduct listed in the Trade Practices Act.

These exceptions relate to:

• Conduct subject to a collective bargaining notice: if there is a collective bargaining notice in place, businesses will be exempt from both civil and criminal penalties if the conduct relates to: price fixing, restricting outputs and allocating customers, suppliers or territories, but not bid-rigging. [15]
• Conduct subject to authorisation: penalties will not apply if the contract, arrangement or understanding contains a condition that the cartel provision will not come into force until the party is granted an authorisation to act. This exception applies where the authorisation relates to: price fixing, restricting outputs, allocating customers, supplies or territories and bid rigging. [16]
• Joint ventures: in some circumstances, cartel provisions between joint venture partners will be exempt from penalties. The party claiming the exception must establish that:
  • the cartel provision is within a contract, or an arrangement or understanding intended to be a contract;
  • the cartel provision is for the purposes of the joint venture; and
  • the joint venture relates to the joint production or supply of goods or services. [17]
• Agreements between related bodies corporate: agreements exclusively between related corporate bodies will not attract penalties under the cartel provisions. [18]
• Collective acquisition of goods or services: criminal offences and civil prohibitions in relation to price fixing do not apply if the agreement relates to the price of goods or services which are to be acquired jointly by competitors, or to the joint advertising of the re-supply price of jointly-acquired goods. [19]

ACCC Investigation Powers & Conferral of Immunities

Investigations in Cartel Conduct

The ACCC has numerous powers under the Trade Practice Act that it can utilise to investigate possible contraventions of both the criminal cartel offence and civil cartel prohibition provisions. Under section 155, the ACCC can issue notices requiring parties to provide documentation, information or give evidence under oath. This section was revised under the recent legislative amendments in order for the ACCC to investigate in relation to the new criminal offences.

Furthermore, the ACCC's search warrant powers have also been expanded, and a warrant can now be obtained from a magistrate in relation to the seizure of electronic information. [20] Under the new laws, whilst the ACCC still retains the power to pursue civil penalty proceedings, it is precluded from maintaining such an action if a party has already been criminally convicted. [21]

In exercising its investigative duties in relation to cartel conduct, the ACCC is of the opinion that serious cartel conduct that has the potential to cause large scale economic harm, should attract criminal prosecution whenever possible. [22] When assessing the nature of the conduct in question, the ACCC will take into consideration:

• the duration of the conduct and its impact on the market;
• the detriment to the public;
• whether the parties involved have previously participated in a cartel;
• whether the value of the commerce from the cartel exceeds $1 million in 12 months. [23]

The ACCC will then refer a matter involving serious cartel conduct to the Commonwealth Director of Public Prosecutions (' CDPP ') who will advise the ACCC whether criminal prosecution should be commenced. Any criminal proceedings will be instituted by the CDPP.

Immunity Policy for Cartel Conduct

Parties can apply to the ACCC for immunity from ACCC-initiated civil proceedings in relation to alleged cartel conduct. A corporation who is party to a cartel, will be eligible for this immunity where it:

• admits that its conduct may contravene the Trade Practices Act;
• is the first person to apply for immunity in relation to the cartel in question;
• has not coerced others into participating in the cartel;
• has ceased or plans to cease its involvement in the cartel;
• admission's are a truly corporate act; and
• undertakes to provide full disclosure and cooperate with the ACCC. [24]

Directors, officers or employees of a corporation engaged in cartel conduct, may also apply for immunity from the ACCC, and, aside from the corporate act requirement, must meet the same criteria as required for corporations. [25]

The Director of Public Prosecutions can grant immunity from criminal prosecution in accordance with the Public Prosecution Policy of the Commonwealth. [26] If the ACCC makes a recommendation to the CDPP in relation to persons implicated in serious cartel conduct, the CDPP will consider an application for immunity, by applying the same criteria contained in the ACCC's immunity policy, outlined above. [27]

Avoiding cartel prosecution

Individuals and corporations can reduce the risk of facing criminal and civil penalties, if they refrain from engaging in conduct that is likely to attract 'cartel' status. To avoid being classed as part of a cartel, businesses:

• should make pricing decisions independently from competitors;
• should compete genuinely in tender processes;
• refrain from entering into agreements with competitors regarding prices of goods or services, or how you will approach a tender process; and
• should not divide up customers with competitors. [28]

Stephens Lawyers & Consultants have a high level of expertise in trade practices and competition law.

Our lawyers represent leading companies in both litigious and commercial matters, and have significant experience in writing submissions to government on behalf of clients.

For further information contact:

Stephens Lawyers & Consultants

Level 3, 530 Lonsdale Street

Melbourne VIC 3000

Phone: (03) 8636 9100

Fax: (03) 8636 9199

Email: stephens@stephens.com.au

Website: www.stephens.com.au

All Correspondence to:

PO Box 13286

Melbourne Law Courts

Melbourne VIC 8010

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© Stephens Lawyers & Consultants, September 2009.

Researched and written by Colette Downie, edited by Katarina Klaric.

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