Australia: Global shipping line the first (for now) to be penalised for criminal cartel conduct in Australia

Last Updated: 8 August 2016
Article by Nathan Cecil and Dilip Ramaswamy

Nippon Yusen Kabushiki Kaisha (NYK) has become the first company to be successfully prosecuted by the Australian Competition and Consumer Commission (ACCC) under the criminal cartel provisions of the Competition and Consumer Act (CCA).

The decision comes on the shoulders of similar prosecutions in Japan and the US. In 2014, NYK was fined $US59.4 million after it admitted to being involved in agreements to fix prices, allocate customers, rig bids and exchange customer pricing information in relation to its international roll-on, roll-off vehicle carriage services.

What is criminal cartel conduct?

Cartel conduct is a restrictive trade practice that is prohibited by the CCA. A cartel refers to a situation where businesses agree to act together instead of competing with each other. The primary motive for this is to increase profits for members of the cartel.

The main examples of cartel conduct include:

  1. price fixing - when competitors agree on a pricing structure, rather than competing against each other;
  2. sharing markets - when competitors agree to divide a market so participants are sheltered from competition;
  3. rigging bids - when suppliers communicate before lodging their bids and agree among themselves who will win, on what terms and at what price; and
  4. constraining supply - where competitors agree to control the output or limit the amount of goods and services available to buyers.

The CCA enforces both civil and criminal penalties for businesses and individuals who participate in a cartel. The ACCC, as the corporate regulator, is responsible for investigating cartel conduct, managing the immunity process, taking proceedings in the Federal Court in respect of civil cartel contraventions and referring serious cartel conduct to the Commonwealth Director of Public Prosecutions for consideration for prosecution.

Potential range of penalties for cartel conduct

The maximum fine for each criminal cartel offence for corporations is the greater of:

  1. AU$10,000,000;
  2. three times the total value of the benefits obtained by one or more persons and that are reasonably attributable to the offence or contravention; or
  3. where benefits cannot be fully determined, 10 per cent of the annual turnover of the company (including related corporate bodies) in the preceding 12 months.

The ACCC may also seek further penalties in addition to the above, including injunctions, orders disqualifying a person from managing corporations and community service orders.

NYK's conduct

ACCC's prosecution of NYK relates to cartel conduct in connection with the shipping of imported vehicles, including cars, trucks, and buses, from Japan, India, Thailand, Indonesia, Europe and the United States to Australia between July 2009 and September 2012. We understand that the complaints include allegations of bid rigging and collusion in relation to contracts for carriage with major automotive manufacturers.

The charge was laid by the Commonwealth Director of Public Prosecutions on 14 July 2016. It appears that the corporate regulator is continuing to investigate the other corporations and individuals who are alleged to have conspired with NYK to act anti-competitively.

The matter is scheduled for a hearing on 12 September 2016 and it is expected that sentencing will be announced at a later date.

Comment

Illegal cartel conduct is a serious matter and subject to substantial penalties. However, NYK (and perhaps the other lines which are being investigated) could potentially have avoided this prosecution.

In Australia, international liner shipping operators are able to engage in what would otherwise be illegal cartel conduct if they first register any agreement with their competitors with the Registrar of Liner Shipping and agree to negotiate in good faith with Shippers regarding service levels and rates.

Liner shipping discussion and conference agreements are able to be registered in Australia under Part X of the CCA. Once registered, the conference participants are permitted to engage in exactly the kind of conduct for which NYK has been prosecuted and are immune from any sanctions.

Had NYK and its cartel partners registered their agreement, it may be that this prosecution would never have arisen.

However, registered liner shipping conference participants must still be careful to ensure that they keep their registrations and any variations up to date and comply with certain notice and negotiation requirements regarding rates and any changes to service levels. The ACCC has recently issued a warning letter to the shipping industry reminding liner carriers of their ongoing obligations under Part X, after investigations revealed that some conferences may have been being conducted not strictly in accordance with the conditions which apply to them.

How our Transport team can help

We routinely advise Carriers and other participants in the Transport sector on competition law compliance issues, including the negotiation, preparation, registration and conduct of registered liner conference agreements under Part X of the CCA.

Given the substantial penalties that can apply for illegal or unregistered cartel conduct and given that the ACCC has said that it is continuing to investigate a number of further criminal cartel complaints, we recommend that any organisation considering any form of cooperation or relationship with any competitor first seeks legal advice in order to ensure that this does not result in exposure for anti-competitive conduct.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Nathan Cecil
 
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