On 11 January 2008 the Australian Government released for public comment a draft Bill (Bill) in which it proposes to amend the Trade Practices Act 1974 (Act) by introducing two criminal offences relating to cartel conduct. One aspect of the proposed amendments includes a broadening of the extraterritorial application of the Act which will make the accessorial liability provisions applicable to conduct engaged in wholly outside Australia, but which has an effect in an Australian market.
Along with the Bill the Government released a Discussion Paper, which among other matters calls for public comment on the appropriate means of distinguishing the proposed criminal offences from civil prohibitions, and a draft Memorandum of Understanding (MOU) between the Commonwealth Director of Prosecutions and the Australian Competition and Consumer Commission which sets out their proposed respective roles in the investigation and prosecution of cartel offences.
Summary of Provisions
The Bill provides that a person (which includes a corporation and may include an individual in certain circumstances) commits an offence if the person makes, or gives effect to, a contract, arrangement or understanding which contains a cartel provision and does so with the intention of dishonestly obtaining a benefit. The civil penalty provisions mirror the criminal offence except that they do not require the establishment of dishonesty. The determination of dishonesty is a matter for the trier of fact. A prosecution of an individual must be brought before a jury. A cartel provision is a provision relating to:
- restricting outputs in the production and supply chain;
- allocating customers suppliers or territories; or
by parties that are, or would otherwise be, in competition with each other.
The amendments make it clear that they only apply to horizontal conduct by competitors in the same market.
The maximum penalty provided for a breach of a cartel offence by a corporation is the same as that provided for a breach of the civil prohibition and is the greater of:
- if the court can determine the total value of the benefits obtained by one or more persons attributable to the commission off the offence, three times that total value; or, if not so determinable;
- 10% of the corporation's annual turnover for the 12 month period immediately prior to the month in which the offence was committed. For this purpose "annual turnover" includes the total value of supplies made by a corporation and its related bodies corporate in that period, but does not include supplies unconnected with Australia.
The maximum penalties for individuals who commit a cartel offence or who aid or abet, induce or are knowingly concerned in the commission of such an offence by another, are imprisonment for a term of up to five years and/or a penalty of $220,000. The maximum penalty for breach of the civil provision by an individual is $500,000.
Exceptions are proposed for arrangements between related bodies corporate, collective bargaining, and authorised conduct. There is also a defence to the civil liability provisions for a provision in an arrangement, understanding or agreement betewen joint venture parties which does not have the purpose or effect of substantially lessening competition.
The requirement of "dishonesty was included in the proposed cartel offence for the purpose of distinguishing the most serious cases of cartel conduct, and therefore properly the subject of a criminal offence, from conduct which otherwise only merits a civil penalty. The Bill defines "dishonest" to mean:
- dishonest according to the standards of ordinary people; and
- known by the defendant to be dishonest according to the standards of ordinary people.
The subjective element of this test, and its likely impact upon jury deliberations, has been criticised by the Australian High Court in another context1 and it is clear from the Government's Discussion Paper that it is seeking to explore other methods of distinguishing serious cartel conduct.
Some guidance as to what might constitute dishonesty in circumstances of price fixing behaviour is provided by Norris v The Government of the United States of America2 where it was held that price-fixing could constitute the offence of conspiracy to defraud, which offence required a subjective recognition of dishonesty in like terms to the test proposed in the Bill. This case suggests that a jury may readily infer from the efforts of cartelists to keep their conduct secret their intention to deceive customers into believing that legitimate competition existed between them and that the cartelists had an actual and dishonest appreciation that their customers would suffer loss or risk as a result of their price-fixing conduct3.
It is possible however to imagine cases which are less clear in which a defendant advances an explanation for cartel conduct which will make the establishment of subjective intent more difficult. For example, if an individual alleged to be involved in cartel conduct had no knowledge of the offence and came from a jurisdiction where such conduct could legitimately be engaged in, he or she may subjectively and genuinely believe that their actions were honest.
In MacLeod4 the Australian High Court held that the proper course in establishing dishonesty as an element of an offence (other than where the term was otherwise defined by statute) was for the trial judge to identify the alleged knowledge, belief or intent which, if established, would render an act dishonest, for the jury to decide whether the defendant had that knowledge, belief or intent and, if so, whether on that account the act was dishonest according to the standards of ordinary reasonable people. It was not necessary to consider whether the accused realised his act was dishonest by these standards.
The Discussion Paper suggests the alternatives of fraud or secrecy as touchstones in identifying serious cartel conduct and raises the issue as to whether the criminal and civil prohibitions should be distinguished at all. This issue will undoubtedly be the subject of considerable debate before the final Bill is introduced to Parliament.
Extended Meaning Of "Party"
The Bill provides that if a body corporate is a party to a contract, arrangement or understanding (which amounts to a cartel offence) then each of its related bodies corporate are deemed to be a party to that contract arrangement or understanding. This does not mean that the related bodies corporate are guilty of the offence, as it would still be necessary to establish dishonest intent, however it expands potential liability for a cartel offence well beyond the current accessorial liability provisions in the Act.
Extraterritorial Application Of The Act
It has been held that the extraterritorial application of the Act is governed by a particular provision which provides that certain Parts of the Act extend to engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or persons ordinarily resident within Australia5.
The Parts of the Act which the above provision makes applicable to conduct outside Australia do not include those sections of the Act which provide for accessorial liability. Thus persons who aid or abet or are knowingly concerned in cartel activity which has anti-competitive effects in Australia, but do not themselves carry on business in Australia, are not subject to the provisions of the Act as they currently stand. A corporation which, or individual who, engages in business communications with Australia through the telephone or internet may be carrying on business in Australia and may likewise be found to be carrying on business in Australia where a local corporation or individual is merely acting as their agent, however, in the absence of such circumstances, they will have no liability for a breach of the Act even where involved in cartel activity which impacts on Australian markets. This position differs from the "effects" doctrine applicable in the United States which appears to have been adopted recently (at least in respect of residents of Australia engaging in cartel activity which impacts New Zealand markets) by the High Court of New Zealand6.
The Bill includes a provision which will extend the extraterritorial application of the Act by making all other provisions of the Act apply "to the extent to which they relate to" cartel activity (and other prohibitions of anti-competitive conduct) by bodies corporate carrying on business in Australia. We consider that this amendment is likely to be interpreted as applying the accessorial liability provisions to individuals or corporations who plan cartel activity (and other anti-competitive activity) which will affect Australian markets, but do so outside of Australia and do not otherwise carry on business in Australia.
The MOU records the intention of the ACCC and the Commonwealth DPP to only pursue criminal offences in respect of serious cartel conduct. The ACCC will be responsible for the initial investigation of cartel conduct and proposes to refer to the DPP only conduct of a type that can cause large scale or serious economic harm, for example, conduct where the value of the affected commerce would exceed $1 million within a 12 month period.
Just how the Bill will ultimately distinguish between serious or "hard-core" cartel conduct and conduct worthy of civil prosecution only and which matters should be, or will be, the subject of prosecution are likely to remain matters of significant debate.
The Australian Government has called for comments on the Bill to be submitted by 29 February 2008.
1 MacLeod v R (2003) 197 ALR 333
2  EW HC 71
3 Paras [67-68]
4 (2003) 197 ALR 333 at paras 37 and 46
5 Bray v F Hoffman-La Roche Ltd (2002) 190 ALR 1; and see comments by the High Court in ZHU v Treasurer of New South Wales (2004) 218 CLR 530 at para 
6 Commerce Commission v Koppers Arch Wood Protection (NZ) Limited & Ors HC AK CIV. 2005-404-2080 [16 March 2007]
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