Australian Competition and Consumer Commission (ACCC) chairman Rod Sims has made it clear that 'Pursuing cartel conduct, which is so detrimental to the competitive process, will always be an enforcement priority for the ACCC.'1 In recent years, however, there has been growing public concern that the regulator's purportedly tough stance on these anti-competitive practices was doing little to dissuade corporations, particularly multinational corporations, from undermining the competitive balance of the Australian market.
On 26 March 2018, the Organisation for Economic Co-operation and Development (OECD) published its much anticipated report on Pecuniary Penalties for Competition Law Infringements in Australia (OECD Report). It found that in Australia, both the maximum and average penalties imposed by the Courts for competition law breaches are significantly lower than in the OECD jurisdictions considered, especially for large firms or for long-standing anti-competitive behaviour. The European Union, Germany, Japan, Korea, the United Kingdom and the United States were selected for the analysis because of the comparable state of their competition law regimes.
The OECD Report explains at page 8: 'Looking at the amounts of penalties imposed in Australia in a number of cartel cases up to November 2017 – which exclude more recent cases that are still under appeal – and the base fine that would have been applied in the comparator jurisdictions, the average pecuniary penalty in Australia was AUD 25.4 million (Australian dollars), while the average base penalty in the comparator jurisdictions would have been AUD 320.4 million.'2
It was also highlighted by the Report that while most OECD countries impose financial penalties according to a set methodology which considers the size of the infringing company and its product sales, Australia relies upon the Federal Court to determine penalties following an 'instinctive synthesis' of various factors.
However, a recent Federal Court of Australia case demonstrates that the Court may have an increasing appetite for imposing larger fines.
Australian Competition and Consumer Commission v Yazaki Corporation
Viewed against the background of the OECD Report, the record $46 million fine handed down by the Full Federal Court in ACCC v Yazaki may well mark a shift in judicial attitude towards cartel conduct.
At first instance, Besanko J made declarations that Yazaki Corporation (Yazaki) entered into a cartel agreement with Sumitomo Electric Industries Ltd (Sumitomo) to respect each other's incumbency in particular geographic markets for wire harnesses, which was put into effect by the companies' Australian subsidiaries in response to requests for tender from Toyota in respect of the 2002, 2006 and 2011 Toyota Camry. His Honour considered that a maximum total penalty of $20 million was applicable in respect of two courses of conduct by Yazaki and ultimately ordered it to pay a fine of $9.5 million.
Both parties appealed against that decision on numerous grounds. The focus of the ACCC's grounds of appeal were directed at a finding that the fine was manifestly inadequate.
Rather than just the two courses of conduct identified by Besanko J, the Full Federal Court was prepared to recognise five discrete contraventions of the Australian Competition and Consumer Act 2010 (Cth) (Act), notwithstanding that the conduct which gave rise to each contravention overlapped in some respects. It also found that proceeding on the basis that each course of conduct was punishable by a maximum penalty of $10 million was incorrect when consideration was given to the proper construction of sections 76(1A)(b) and 76(5) of the Act.
Section 76(1A)(b) sets out alternative bases for calculating the maximum pecuniary penalty, being:
- $10,000,000, or
- if the Court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission – 3 times the value of that benefit, or
- if the Court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the act or omission occurred.
Relevantly, for the purpose of that section, section 76(5) sets out how 'annual turnover' is to be quantified. The Full Court held that, properly construed, section 76(5) required a calculation of 'annual turnover' to include the turnover of related bodies corporate (subject to some specific exceptions) to the infringing body corporate (i.e. the subsidiaries of the infringing body corporate). This construction was influenced by the recognition that the purpose of the section was to set the maximum penalty and not to fix the penalty itself.
Adopting the above construction, the Full Federal Court found that the five contraventions it identified were instead punishable by a maximum total penalty of $87,411,359.30, and ultimately ordered that Yazaki pay $46 million. Yazaki was penalised:
- $14 million for making the cartel in response to Toyota's request for tender for the supply of wire harnesses for the 2011 Camry
- $12 million for giving effect to the cartel by discussing and agreeing with Sumitomo the prices they would submit for the request for tender
- $12 million for giving effect to the cartel by submitting the agreed prices
- $4 million for directing its subsidiary to submit the agreed prices to Toyota's Australian subsidiary, and
- $4 million for causing its subsidiary to submit the agreed prices to Toyota's Australian subsidiary.
Impact on Current Prosecutions
By demonstrating a willingness to interpret the applicable statutory provisions consistently with the submissions of the ACCC, the Full Federal Court has put on notice all companies doing business in Australia that breaches of anti-cartel legislation may now attract more significant penalties than previously.
Lessons for Business
ACCC v Yazaki raises important questions for businesses about their governance. The significant penalties that may be imposed by courts means that there is now more imperative for corporations to have strong policies in place to deal with collusive practices. It is also clear that overseas corporations may be held to account by the ACCC where their activities affect competition in an Australian market. Caution should therefore be exercised in respect of business practices which may be acceptable in corporations' home jurisdictions, but which nonetheless constitute a contravention of the Act.
As part of the International Fraud Group established by London firm Mishcon de Reya, McCullough Robertson is well placed to advise on any issues relating to anti-competitive behaviour.
A link to the decision of the Full Federal Court may be viewed here – Australian Competition and Consumer Commission v Yazaki Corporation  FCAFC 73
We would like to acknowledge the contributions of Intern Ben Previtera.
2 http://www.oecd.org/daf/competition/Australia-Pecuniary-Penalties-OECD-Report-2018.pdf .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.