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.


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.

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Nathan Cecil
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