The Australian Competition and Consumer Commission (ACCC) has long agitated for criminal penalties in serious cartel cases, particularly in price fixing cases. It was a strong recommendation of the last major review of the Trade Practices Act (TPA), conducted in 2003 by the Dawson Committee. It was, however, one of the few recommendations that the last government failed to implement before leaving office on 24 November 2007. The new Labor Government has moved quickly, in what it must see as an important measure to protect working families from this rapacious practice. The Government issued an exposure draft of a Bill that would make various forms of cartel behaviour criminal and has called for submissions. The Government expects to legislate before the end of this year.
Making cartel behaviour criminal achieves one thing it sends a message that this type of conduct is serious and unacceptable in modern corporate Australia. That is fine as far as it goes, although one could identify many forms of conduct that deserve the social opprobrium of criminality in preference to price fixing.
Beyond that, criminality will achieve little. This writer queries whether it will make admissions (confessions), like we saw with Richard Pratt, less likely. From a technical perspective, criminal prosecutions will be that much more difficult to prove. Not only will it require proof beyond reasonable doubt, but courts will be much less prepared to draw inferences of fact based on circumstantial evidence than is currently the case. The Geelong petrol price fix illustrates that courts are often unlikely to infer an agreement to fix price, despite in that case the participants having rung each other on numerous occasions and changing price contemporaneously. In criminal trials, a court will draw an inference only if the facts exclude all reasonable hypotheses consistent with innocence. It will necessarily be less likely that contracts, arrangements or undertakings will be established in these cases.
The sleeper in the proposed amendments to the TPA lies in the new civil prohibitions that replace or (in the case of collective boycotts) sit beside the existing prohibitions. In this regard, the Bill creates two new prohibitions:
(a) entering into a contract, arrangement or understanding that contains a so-called Cartel Provision; and
(b) the giving effect to a Cartel Provision.
For the sake of clarity, these prohibitions are distinguished from the criminal offences by the added requirement in the criminal provisions that the perpetrator enter into the agreement or give effect to the Cartel Provision with the intention of dishonestly obtaining a benefit.
The notion of a Cartel Provision encompasses price fixing and various manifestations of what is currently defined as a collective boycott, which, under the proposal, will include preventing, restricting or limiting production, capacity or supply and allocating customers, suppliers or territory, in addition to bid rigging in tenders. The debate on the Government's proposal has centred on criminality, but these civil prohibitions
raise important issues for corporate Australia. Significantly, they will render unlawful conduct that is currently perfectly legal unless it substantially lessens competition (which is rarely the case).
Conduct now made illegal/legally prohibited
- Market sharing (of either customers or territories) is generally only unlawful at present if it substantially lessens competition, given the lack of particularity of those affected. Market sharing will clearly be unlawful, if not illegal, under the Bill.
- Standard boycotts (where competitors agree simply not to deal with someone) are unlawful per se only where the intended object is to exclude the affected person, rather than achieve some other commercial objective. Under the Bill, all standard boycotts will be unlawful, if not illegal.
- Competitors agreeing on a maximum price is not currently unlawful unless it substantially lessens competition. The Bill does not yet make any provision for a carve-out from the prohibition against price fixing and, therefore, will be unlawful, if not illegal.
- Buying groups are currently exempt from the prohibition against price fixing. Under the Bill, there is no such defence, potentially requiring all buying groups to lodge Collective Bargaining Notifications.
- On-selling supply restrictions in supply agreements between a supplier and a reseller are generally unlawful only if they substantially lessen competition, given a carve-out in section 45(6) from the prohibition against collective boycotts. The Billmakes no provision for this carve-out. Those restrictions may therefore be unlawful, if not illegal.
- Joint venturers agreeing not to supply individually raises issues under the prohibition against collective boycotts, but section 76C currently applies so that it is unlawful only if it substantially lessens competition. A similar defence is included in the Bill; however, it applies only to unincorporated joint ventures. This would leave incorporated joint ventures exposed.
- There are numerous situations that will not constitute a collective boycott because the immediate parties to the Agreement do not compete and are unlikely to compete.1 Under the Bill, an offence is committed if any related company of any two parties to the Agreement compete or are likely to compete. This would mean that both prohibitions will apply in cases the law simply does not affect at present.
- The application of the prohibition against price fixing to the resupply of goods or services is substantially broader than is presently the case. Currently, under section 45A(7), an agreement amounts to price fixing if it has the purpose or likely effect of fixing price on goods or services resupplied by any person to whom the parties have supplied those goods or services. Under the Bill, the prohibition will apply to any goods or services resupplied by any person acquiring those goods or services from, not only the parties to the agreement, but any of their related companies.
Some of these implications may be inadvertent and we would expect the Government to address them in the consultation process. However, a number are intentional. One of those has to be market sharing. Corporates should therefore realise that this Bill will mean an increase in their risk profile.
1 The existing prohibition will apply if a company related to party A competes with any one of the other immediate parties to the Agreement
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.