Legislation to amend the competition law provisions of the Trade Practices Act 1974 (Act) was recently introduced into parliament.
With respect to penalties, the Trade Practices Legislation Amendment Bill (Bill) proposes significantly to increase the maximum pecuniary penalties that can be imposed on individuals and corporations found in contravention of the Act. For a corporation, the maximum pecuniary penalty for each contravention will be the greater of $10 million and three times the 'benefit' the corporation gains as a result of the contravention (or, if this cannot be readily ascertained, 10 per cent of the annual Australian turnover of the company and its related bodies). For an individual, the maximum penalty remains $500,000. In addition, the Bill proposes to grant power to the Federal Court (on application by the Australian Competition and Consumer Commission (ACCC)) to disqualify a person from managing a corporation, if the person has engaged or attempted to engage in anti-competitive conduct. Criminal penalties for breach of Part IV of the Act are not part of the current amendment package.
In relation to the new enforcement provisions, the Bill proposes to alter the powers of the ACCC to enter and search premises. The amendments require that either a search warrant be granted by a magistrate prior to entry, or that the voluntary consent of the occupier of the premises be obtained by the investigator. One issue arising from the Bill is whether the proposed amendments will alter the right of individuals or corporations to claim legal professional privilege over documents that appear to be included in the search warrant. The proposed amendments provide some clarity as to the protection of privileged documents from the exercise by the ACCC of its powers under section 155 of the Act, but no similar clarity is given in respect of the exercise of the new propsed search and seizure powers. This results in an unfortunate degree of uncertainty.
This article outlines the changes, discusses what these changes will mean for business, and raises some potential issues and concerns with the new process.
What are the current penalties?
Currently, criminal penalties cannot be imposed on a person for the contravention of the competition law provisions of the Act because their enforcement is by way of civil proceedings only.1 The Federal Court (Court) may make the following orders with respect to a contravention:
- Pecuniary penalty—a maximum of $10 million for a corporation and $500,000 for an individual, for each act or omission.
- Compensation—the Court may order a defendant to pay compensation to a person or corporation that has suffered loss or damage as a result of the breach.
- Community service order.
- Probation order—this could require, for example, that a defendant attend a trade practices awareness program or that a corporation implement compliance programs. An order requiring the disclosure of information or an order requiring the publication of an advertisement in specified terms (eg corrective advertising) can also be made.
- Divestiture order—this is available only in cases where an acquisition of shares or other assets leads to a substantial lessening of competition. Such an order is implemented by forcing the sale of some or all of the shares or other assets that were unlawfully acquired. Alternatively, under section 81 of the Act, the Court may declare an acquisition to be void.
What are the proposed new penalties?
The Bill proposes to increase the maximum pecuniary penalty for corporations found to be involved in anti-competitive arrangements (other than breaches of sections 45D, 45E or 45EA) to the greater of:
- $10 million
- three times the 'benefit' the corporation gains from the contravention, and
- if a court is unable readily to ascertain the 'benefit', the maximum penalty is 10 per cent of the annual Australian turnover of the company, including its related bodies, during the period of the contravention.
For an individual, the maximum penalty remains $500,000 for each act or omission in contravention of the competition law provisions of the Act2.
The Bill proposes a new section to prohibit corporations from indemnifying an officer, employee or agent of the company, either directly or indirectly, against a pecuniary penalty imposed by the Court. Therefore, corporations will be prohibited from paying for the legal costs of persons found in breach of the Act or providing violators with indirect compensation, such as extended leave and other non-financial reimbursements.
Under the proposed amendments, the ACCC will be able to seek a court order to disqualify a person from managing a corporation if he or she has contravened, attempted to contravene, or has in any way been involved in a contravention of, the competition law provisions of the Act. The period of disqualification will be determined by the Court, taking into account a number of factors, including:
- the person's conduct in relation to the management, business or property of the corporation, and
- any other material the Court considers appropriate.
The government has stated that it is still considering the imposition of criminal penalties for parties involved in serious cartel behaviour. In keeping with the recommendations of the Dawson Committee, the government considers that a definition of 'hard–core' cartels and a procedure that combines criminal sanctions with a workable leniency policy must be developed. Adequately addressing these issues may prove to be a difficult task, especially as it will require a coordinated approach by the various government agencies involved in the process, including the Department of Public Prosecutions, the Attorney General's Department, Treasury, and the ACCC.
Why have these changes been suggested?
The Bill proposes the implementation of many of the recommendations contained in the Report of the Review of the Competition Provisions of the Trade Practices Act (Dawson Review) released on 13 April 2003, which was chaired by retired High Court Judge, Sir Darryl Dawson. In relation to the penalty regime, the Dawson Review saw a need to link more explicitly the penalty imposed on an individual or a corporation to the actual conduct in contravention of the Act. To this end, it recommended that the Act be amended to empower courts to impose a maximum monetary penalty that is either a multiple of the benefit acquired as a result of the conduct or a proportion of the corporation's turnover.3
The increase in pecuniary penalties for breaches of the Act is consistent with a number of submissions to the Dawson Review, including one made by the ACCC. The ACCC argued that the current maximum penalty of $10 million is less than one fifth of the daily turnover of Australia's largest corporations, and is therefore an insufficient deterrent against prohibited conduct. The Dawson Review agreed, and quoted a Norwegian study which found that: 'The most important principle of levying fines is that the expected loss for violating the law should exceed the gain.' The proposed amendments are also consistent with a shift towards higher civil penalties in a number of overseas jurisdictions, such as the United States, the European Union and New Zealand.
The Dawson Review considered that the introduction of a power to make a disqualification order against directors found to have contravened the Act would also have a considerable deterrent effect.
Issues arising from the proposed changes to penalties
The Bill raises a number of potential issues in relation to the imposition of penalties for breaches of the Act. These include the following:
- While it is generally accepted that an effective sanction for cartel activity should take into account the benefit derived from the cartel, it may prove to be a very difficult task for courts to estimate the gain made by a corporation as a result of the prohibited conduct. This may increase further the role of judicial discretion in the imposition of penalties.
- Under the proposed amendments, judges will be required first to turn their minds to the question of estimating the benefit from the prohibited conduct. It is only if judges cannot determine the benefit, that they will be able to apply a penalty based on the turnover of the corporation and its related entities in Australia. However, because of the difficulty in effectively identifying and quantifying the benefit arising from prohibited conduct, there may be a tendency by judges to impose the latter penalty by default, possibly resulting in a substantial increase in the penalties.
- The increase in maximum pecuniary penalties is likely to increase the power of the ACCC in its negotiations with contravening parties.
- An indication of how the ACCC will use its ability to seek disqualification orders is provided by cases dealing with a similarly worded provision in the Corporations Law. The most serious breaches, leading to the longest periods of disqualification of 25 years or more, are instances where:
-large financial losses were incurred
-there was a high propensity that defendants may engage in similar activities or conduct
-the activities were undertaken in fields in which there was potential to do great financial damage, such as in management and financial consultancy
-there was a lack of contrition or remorse
-there was a disregard for law and compliance with corporate regulations
-dishonesty and intent to defraud were found, and
-there had been previous convictions and contraventions for similar activities.4
- The Dawson Review recognised a number of hurdles to be overcome before criminal penalties for 'hard-core' cartel conduct could be introduced. These include arriving at a satisfactory definition of 'hard-core' cartels, co-ordinating the various roles of different government agencies involved in the implementation of criminal sanctions, and the adoption of a workable Leniency Policy.
- The ACCC has released a leniency policy in June 20035. The policy promises immunity from (currently civil) proceedings to individuals and corporations that first disclose a cartel to the ACCC.
The Bill proposes to introduce a new enforcement regime to replace the current ACCC
powers to enter premises and inspect documents.
What are the current enforcement powers of the ACCC?
Section 155(2) of the Act currently empowers an ACCC Commissioner to authorise a member of staff to enter premises, inspect documents in the possession of a person, and make copies or take extracts from those documents without the need of a warrant. This power may be exercised only for the purpose of establishing whether a person has in the past, or is currently, engaging in prohibited conduct. It is an offence to obstruct or hinder an inspection.
What are the proposed search and seizure powers of the ACCC?
Under the proposed amendments, the ACCC will be required to obtain either the voluntary consent of the occupier, or a warrant from a magistrate, before entering and searching any premises. In that respect the amendments will restrict the power of the ACCC because it will be required to obtain a warrant in order to enter premises without the occupier's consent. However, under the new regime the ACCC is given greater powers once a warrant has been granted. The amendments extend the ACCC's power to include not only searching for and copying documents, but also seizing evidentiary material.
Entry with voluntary consent
The new section provides that inspectors and their assistants may enter the property if they have reasonable grounds for suspecting that there is evidential material on the premises and they obtain the voluntary consent of the occupier. The occupier must be informed that consent may be withheld.
Once on the premises, inspectors must once again ask for consent before seizing any material explaining the purpose for which it is required. If evidential material is accessible only through the operation of electronic equipment, an inspector may print the information and remove the document, or copy the information to a disk or other storage device and remove that device.
Entry under a search warrant
If consent is not sought, or has been denied, the ACCC must obtain a warrant from a magistrate. Once a warrant has been obtained, the ACCC is granted powers to enter, search, and seize any evidentiary material on the premises. This is to be done by either removing copies of the material specified in the warrant, or operating electronic equipment either to print the information or to copy it to a disk or other storage device. In some cases it will be possible to remove evidentiary material that is not specified in the warrant.
Persons present on the premises must answer questions or produce evidence to which the warrant relates. Failure to do so can invoke a penalty of up to $3,300. If the occupier obstructs the search, his or her right to observe the execution of the warrant is terminated. The investigator, and his or her assistants may use reasonable force in response to non-compliance with the terms of the search warrant.
Why have these changes been suggested?
The Dawson Review expressed concern that section 155(2) of the Act is not subject to adequate safeguards. It considered that there is a need to match the regulatory power of the executive body with appropriate accountability to the judicial branch. The proposed amendments acknowledge that, while the ACCC needs broad powers to investigate and effectively to prosecute contraventions of the Act, the regulator should be accountable in the exercise of such powers.
Issues arising out of the ACCC powers under section 155 and the new provision
The Bill raises the following potential issues in relation to the ACCC's enforcement powers:
- Important questions arise in relation to the rights of occupiers of premises being searched by the ACCC. In particular, do occupiers have a right to claim legal professional privilege in relation to documents created for the dominant purpose of obtaining legal advice? The general law supports the view that search and seizure powers created by legislation, such as thos included in the new provisions, do not grant an unrestricted power of seach and entry but are subject to the right to claim legal professional privilege. The High Court has resolved this issue in relation to privileged documents obtained under section 155 in the case Daniels Corporation International Pty Ltd v ACCC,6 which held that the common law right to privilege is fundamental and cannot be abolished by legislative provisions except by express language or clear and unmistakable implication7Through section 155 (7B), the Bill proposes an amendment that expressly preserves privilege in respect of the compulsory powers under section 155, but does not expressly preserve it in respect of other compulsory powers, including the new search and seizure power. This could give rise to an argument of construction off the legislation that parliament did not intend to preserve the privilege in the latter case.
- In relation to entry with consent by the ACCC, it is unclear what would happen if consent is withdrawn half-way through a search, for example, after consultation with a lawyer.
- It is uncertain in what circumstances the ACCC will use its power to require a person to attend an interview and answer questions or, alternatively, provide information 'on the spot' during a search.
- The proposed section 155 (7B) which purports to preserve privilege in relation to section 155 is limited to apply only to the obtaining of documents and therefore only partly clarifies the position in relation to privileged evidence more generally. Under section 155 the ACCC can seek not only documents but also has powers to seek a broad range of information and can call people to give evidence. As drafted, the proposed amendment deals only with the question of privileged documents; the question remains as to whether privilege applies to prevent a recipient of a section 155 notice having to disclose privileged information not contained in a document. For example, the amendment does not deal with the situation where a person giving evidence before the ACCC is asked to disclose privileged information.
1. Section 78 of the Trade Practices Act 1974.
2. The penalty for giving false or misleading information to the ACCC or the Australian Competition Tribunal in relation to matters dealing with merger clearances and authorisations (a new offence created by section 95AZN of the Bill) is not to exceed $33,000 for a corporation and $6,600 for an individual.
3. Dawson Review, p 164.
4. ASIC v Adler (2002) NSWSC 483; ASC v Donovan (1998) 28 ACSR 583; ASC v Roussi (1999) 32 ACSR 568; Re Gold Coast Holdings Pty Ltd; ASIC v Papotto (2000) 35 ACSR 107
5. See Freehills Competition Law publication 'Spilling the beans on cartels: A new recipe for dealing with the ACCC?', 1 April 2004, available at www.freehills.com
6. Daniels Corporation International Pty Ltd v ACCC (2002) 192 ALR 561
7. Baker v Campbell (1983) 153 CLR 52); Commissioner of Taxation v Citibank (1989) 20 FCR 403) and Kennedy v Wallace  FCA 332
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