15 April, 2012

WHAT YOU NEED TO KNOW

• Companies are on notice that the ACCC will continue aggressive cartel enforcement in 2013.
• It is not just international price fixing cartels by major corporations that are being targeted by the ACCC:

   

  • Cartel conduct also covers bid rigging, market sharing and output restrictions.
  • The ACCC is also actively pursuing “smaller” localised cartels.

YOU NEED TO DO

• Watch this space in 2013 – there are a number of important cartel proceedings awaiting judgment.
• Take the opportunity to confirm you have appropriate compliance procedures in place to: 

   

  • Avoid potential cartel conduct before it arises, including seeking early competition law advice on how to structure arrangements to reduce cartel risk, or seeking authorisation for proposed cartel conduct.
  • Detect cartel conduct early and seek immediate advice on options (eg, cartel immunity application) .

Cartels to remain ACCC priority in 2013

The ACCC’s recently published 2013 Compliance and Enforcement Policy confirms that cartel conduct will continue to be a key enforcement priority for the ACCC, described by ACCC Chairman Rod Sims as “so detrimental to consumer welfare that the ACCC will always assess [it] as a priority.” This follows the ACCC’s highly proactive enforcement and education program on cartel conduct pursued throughout 2012, which included:

• Commencement and continuation of cartel conduct proceedings in a number of industries, including a number of important ongoing cases to look out for in 2013 (discussed below);
• A direct mail and email campaign warning 2,500 executives in the heavy construction and construction supply industries of the criminal penalties associated with cartel conduct; and
• A short film titled “The Marker” sent by the ACCC to CEOs of the top 300 ASX listed companies.

The ACCC’s publicity campaign followed 2010 research by Melbourne University Law School that found:

• 58% of businesses did not know that fixing prices, rigging bids, sharing markets and restricting supply is a criminal offence that can result in 10 year jail sentences for individuals; and
• Of the 42% of businesses that understood the potential criminal nature of cartel conduct, almost one in 10 said they would still be likely to join a cartel if the opportunity arose.

In a speech given to the IBA Competition Conference on 21 March 2013, Rod Sims stated that the ACCC has more than 10 in-depth cartel investigations underway, some confined to local conduct and others that relate to international conduct. He also confirmed that the ACCC’s cartel conduct immunity policy continues to be its lead source of information for cartel investigations and proceedings, with more than 100 approaches under this policy since 2005.

Recap – what is cartel conduct?

The Competition and Consumer Act 2010 (“CCA”) prohibits cartel conduct, which arises where two or more competing corporations have an agreement, arrangement or understanding that has the purpose, effect or likely effect of price fixing, or the purpose of big rigging, market sharing or restricting output.

Cartel conduct can be prosecuted either civilly or criminally, with the following maximum penalties per contravention for corporations and individuals:

Individuals involved in cartel conduct can also be disqualified from managing corporations.

Observations on current proceedings

We set out below a number of important observations that can be drawn from the ongoing cartel proceedings outlined above. Various pending judgments could also potentially have wide ranging ramifications for Australian business:

• Pending decisions in the Flight Centre case and ANZ Banking case are expected to clarify the application of cartel laws to arrangements where sales are made on commission (and supplier-distributor relationships more generally), and may have important implications beyond travel agents and the banking industry respectively.
• While a number of current ACCC proceedings follow similar prosecutions of alleged global cartels overseas (eg, Air Cargo case, Prysmian case), the Supagas /Speed-e-Gas case signals that the ACCC is prepared to pursue “smaller” cartels for more localised conduct.
• It is not just pricing fixing that is illegal under the CCA – the ACCC is also actively pursuing other types of cartel conduct including bid rigging, market sharing and output restriction.
• The class action against various airlines following the ACCC’s proceedings in the Air Cargo case highlights that businesses that engage in cartel conduct potentially face significant costs above pecuniary penalties imposed by the court. Similarly, in May 2011, a $95m settlement was approved for a class action against cardboard box manufacturers Visy ($31.7m settlement, following a $36m penalty in ACCC cartel proceedings) and Amcor ($63.3m settlement, following a successful ACCC cartel immunity application). If the Air Cargo class action proceeds to judgment, it may also clarify the availability of the “pass through” defence under Australian competition law, to restrict the damages available to claimants.
• The Prysmian case has already yielded important case law clarifying the ACCC’s ability to proceed against international cartel participants and the limited availability of legal professional privilege and public interest immunity to prevent the disclosure of confidential cartel information.
• The ACCC’s cartel immunity policy continues to be a significant source of information for ACCC investigations and proceedings.
• Although there have been no criminal prosecutions for cartel conduct since it was criminalised in 2009:
  • Significant civil penalties are being imposed by Australian courts (eg, total $98.5m to date in the Air Cargo case).
  • The ACCC continues to seek sanctions against individuals involved in cartel conduct, including declarations, injunctions, pecuniary penalties and banning orders.
  • The ACCC has made it clear that it will pursue more serious matters criminally, with Rod Sims stating in a speech on 27 February 2013 that “[t]he ACCC is confident that as matters involving conduct beyond July 2009 become more prevalent in the matters reported, we will see an increase in the immunity applications received and the matters that might be pursued criminally”.
• The Supagas/Speed-e-Gas case and Yazaki case allegedly involve cartel conduct which occurred partly in the period after the commencement of the new cartel provisions in July 2009, and are expected to provide a useful insight into the Court’s approach to determining penalties under the new regime. In the Marine Hose Cartel case in 2010 (ACCC v Bridgestone Corporation), Justice Finkelstein observed that “penalties in Australia are still something of a light touch notwithstanding the new penalty regime”.
• The ACCC’s current focus on cartel conduct is a timely reminder for large and small businesses alike to ensure that they have appropriate compliance procedures in place to:
  • Ensure that their employees are aware of the cartel prohibitions under the CCA;
  • Avoid potential cartel conduct before it arises, including seeking early competition law advice on how to structure arrangements to reduce cartel risk, or seeking authorisation for proposed cartel conduct; and
  • Detect cartel conduct early and seek immediate advice on potential options (eg, cartel immunity application).​

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For further information, please contact: