Australia: AU$25 million criminal cartel conviction for liner shipping operator

Last Updated: 3 September 2017
Article by Nathan Cecil

Global shipping line Nippon Yusen Kabushiki Kaisha (NYK) has been found guilty of criminal cartel conduct and fined AU$25 million.

This is the first criminal cartel prosecution and conviction in Australia since the introduction of criminal cartel liability in 2009, and the second highest penalty ever imposed under Australian competition laws. We have previously summarised the prosecution here.

The criminal cartel conduct

The Court found that there were five shipping lines party to the cartel provisions the subject of the prosecution, each of them major shipping lines involved in the car carrier trade. A similar charge has been entered against K Line and the ACCC has advised that it is continuing to investigate the conduct of the other lines involved.

The unlawful conduct related to fixing freight rates, bid rigging and customer allocation in respect of shipping services supplied to ten major vehicle manufacturers and covering shipments from India, Thailand, Japan, Indonesia, North America and Europe during 2010-2012.

The Court found that "it is likely that the anti-competitive effect of the offending conduct resulted in higher freight rates on the subject shipping routes to Australia" and "this was an extremely serious offence against Australia's laws prohibiting cartel conduct".

The Court noted that the shipping lines were involved in a number of vessel sharing agreements which covered scheduling and operational matters, not including pricing, all of which were lawful.

The Court also noted that three of the shipping lines were party to a conference agreement registered under Part X of Australia's Competition and Consumer Act and which provided certain exemptions from the Australian cartel provisions. That conference agreement permitted the lines concerned to "agree on freight rates, referred to as tariffs, for the supply of shipping services on routes from Japan, Korea, China, Taiwan, Hong Kong, Borneo and the Philippines to Australia". As such, pricing conduct under that registered conference agreement was lawful and not the subject of the charges.

The Court found that since at least February 1997, NYK and a number of other lines were party to an arrangement or understanding by which they agreed not to seek to alter their existing market shares or otherwise win existing business from each other and which contained provisions by which the participants would:

  • share information about and agree on freight rates and freight rate changes and agree collectively to submit bids and enter into awarded contracts on the basis of those rates, with the purpose, effect or likely effect of directly or indirectly fixing, controlling or maintaining freight prices
  • share information about requests for and agree on how they would collectively respond to bids and submit bids and enter into awarded contracts on the basis of those bids, with the purpose or effect of controlling which bid was likely to be successful
  • agree to allocate customer or potential customers on particular routes, with the purpose or effect of lessening competition as between the lines for those customers and routes.

The Court noted that NYK had implemented a program of competition law and cartel compliance education and training, but this failed to cause the relevant employees to cease communicating with each other on pricing issues.

Further, the Court found that in 2011, NYK Senior Management were informed of the likelihood that employees were communicating with other lines on pricing, which would contravene Japanese anti-trust law. The Court found that, as a result, NYK resolved that:

  • any such pricing communication between lines should be conducted at a Manager level or above only; and
  • such communications should not be documented in any way.

Cooperation and rectification

When notified of the Australian Competition and Consumer Commission's (ACCC) investigation into the conduct in 2012, NYK immediately offered to cooperate fully with the ACCC and did so throughout the period of the investigation.

NYK pleaded guilty to the charge, after having been found guilty of similar breaches in Japan, US and South Africa, facing ongoing cartel prosecution in Chile and being involved in cartel prosecution in China (but being awarded immunity for its information and cooperation).

NYK gave detailed evidence from very senior representatives as to its contrition and the extensive steps that it had taken to ensure that similar conduct did not occur again, including establishing a Compliance Executive Committee which, along with NYK senior management, independent directors and external lawyers, monitored NYK's competition law compliance.

Penalty

The maximum penalty was AU$100 million.

After weighing up the severity of the conduct against NYK's contrition, cooperation and remedial conduct, the Court held that the appropriate penalty was AU$25 million, but warned that this incorporated "a global discount of 50% for NYK's early plea of guilty and past and future assistance and cooperation, together with the contrition inherent in the early plea and cooperation: meaning that but for the early plea and past and future cooperation, the fine would have been $50 million".

Lessons learned

At least from an Australian perspective, much of the wrongful conduct could have been excused if NYK and the other lines with whom it was cooperating had registered their agreement under the Australian competition laws. Australian competition laws currently exempt vessel sharing agreements and discussion agreements from anti-competition sanctions, as long as those agreements are first registered and notified to the representative importer/exporter bodies (and see our following article). The Court noted that NYK was a party to such a registered conference agreement (vessel sharing and discussion agreement) in respect of some of its trades and that no complaint or prosecution had been brought in respect of any conduct under that conference agreement, as it was exempt from prosecution.

The case also highlights the critical importance of having in place a comprehensive and rigorous competition law compliance framework, with a quality assurance or compliance performance monitoring and rectification component. NYK did have in place a comprehensive training and compliance framework. However, it was not effectively being monitored to ensure that it was being followed in practice. Equally important, when it was uncovered that non-compliant conduct was taking place, rectification action to avoid it continuing to happen into the future was not taken.

Finally, the case demonstrates that when a breach has occurred, the best approach is to cooperate with the authorities, rather than try and misdirect them during any investigation. NYK's open cooperation and willingness to review it compliance framework once the issue was raised by the authorities resulted in a discount on the penalty that would otherwise have been imposed on it of AU$25 million!

The future of liner shipping cooperation in Australia

Part X of the Competition and Consumer Act permits competitor shipping lines to obtain exemption from competition laws for conduct which would otherwise be considered anti-competitive.

The exemptions from prosecution permit competitor lines to engage in administrative, scheduling, capacity, cost/profit pooling, bid and pricing coordination. In order to obtain the exemptions, cooperating lines must register their vessel sharing or discussion agreements with the Registrar of Liner Shipping, notify them to the representative importer/exporter bodies and undertake good faith negotiations with those bodies in relation to service levels and any fixed pricing components.

However, that framework is about to change.

After years of sustained criticism of the justification and benefits of permitting such cooperation, the Australian Government has recently passed legislation which will repeal the Part X regime and replace it with some form of block exemption regime. This change is expected to be implemented in 2018. The body which will set the limits of and administer the block exemption regime is the ACCC, which has been the most vocal critic of the Part X regime for decades.

The ACCC is yet to commence industry consultation on the structure and extent of the block exemption which it will eventually issue. One of the central issues is whether the Australian block exemption will permit merely administrative, scheduling and capacity coordination (commonly classed as vessel sharing agreements) or also permit cost/profit pooling and pricing coordination (commonly classed as discussion agreements). What is certain, especially in light of the ACCC's recent criminal cartel prosecutions (see our above article) is that the ACCC is actively targeting cartel cooperation in the shipping sector.

Any cooperation activity falling outside the block exemption will be subject to Australian competition laws and the ordinary and rigorous notification or approvals process if parties do wish it to continue.

The Australian situation forms part of a rising tide of reconsideration of the justification and benefits of competition law exemption for liner shipping conferences. On this front, we have no doubt that the ACCC will be closely monitoring developments in jurisdictions which are grappling with the same issues, in particular:

  • Hong Kong, which has just issued its decision to grant a five year liner shipping block exemption for vessel sharing agreements, but not for discussion agreements; and
  • New Zealand, which is expected to introduce a block exemption for liner shipping, after having first resolved to remove all competition law exemptions for liner shipping entirely. The Government's position was amended after both Shipper and Carrier interests expressed the need to retain some form of permitted cooperation in order to ensure the continued viability of reliable shipping services.

What this means for you

The final scope of the Australian block exemption will have a significant impact on the conduct of liner shipping cooperation for services to/from Australia. Regardless of the final form that the block exemption takes, it will mark a significant shift from the current regime and require substantial commercial and compliance adjustment from the ground up.

From a commercial perspective for international shipping companies, consistency and commercial certainty are often valued above all else. If the Australian block exemption was substantially more restrictive than the competition law regimes of other countries connected to the Australian trade, this could cause complication and uncertainty over how shipping lines conduct their business in those other jurisdictions.

It is essential that any shipping lines trading to/from Australia take an active role in the debate on the shape of the Australian block exemption, both through their representative bodies and independently.

All lines should ensure that they are on the ACCC's consultation radar and that they file considered submissions once the public consultation period opens. Anecdotal evidence suggests that Australian Shipper interests likewise don't want a block exemption regime which constrains shipping lines from cooperating fully on all matters of administrative, scheduling and capacity coordination. Those Shipper interests should be encouraged to file supporting submissions.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nathan Cecil
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.