Legislation for the criminalisation of cartels is set to be introduced into Federal Parliament prior to the end of the year with the Government releasing an exposure draft of proposed amendments to the Trade Practices Act 1974 (TPA). Consultation with interested parties on the initial draft bill released earlier this year raised serious concerns as to the subjective nature of the test of criminality, in particular, the concept of an intention to dishonestly obtain a gain and the failure to distinguish criminal from civil prohibitions.1
The exposure draft contains three important changes:
- Removal of the "dishonesty" requirement to prove criminal cartel provisions;
- Extension of the gaol term from five to ten years; and
- An extension of the joint venture defence to criminal proceedings.
The prohibitions under proposed sections 44ZZRA to 44ZZRP are significant amendments to Part IV of the TPA. The prohibition, to be known as a "cartel provision", is one that relates to:
- price fixing;
- the restriction of outputs in the production and supply chain;
- the allocation of customers, suppliers or territories; or
by parties that are, or would otherwise be, in competition with each other. A corporation must not make, or give effect to, a contract, arrangement or understanding that contains a cartel provision.
The cartel provision is made out subject to prescribed conditions with respect to the purpose or effect of directly or indirectly fixing, or providing for the fixing, controlling or maintaining of a price, discount, allowance, rebate or credit, in order to directly or indirectly prevent, restrict or limit, allocate or bid in relation to the supply or acquisition of goods. These conditions are subject to the satisfaction of the competition condition prescribed for under the proposed section 44ZZRD(4). The competition condition is lengthy, but relevantly extends to the supply, acquisition, and re-supply, and the preventing, restricting or limiting of the capacity of goods or services.
Corporations should also be aware that the proposed amendments provide, in some circumstances, that it is immaterial whether individual identities involved in the making of any agreement can be ascertained. It is also notable that the definition of a "party" extends to each body corporate related to that body corporate that is a party to a contract, arrangement or understanding. A joint venture defence is available and provides an exemption to the criminal cartel provisions for arrangements between related bodies corporate where the conduct is for the purposes of the joint venture and does not have the purpose or effect of substantially lessening competition.
The current exposure draft disposes of the previously proposed "dishonesty" intention as the criterion for establishing a criminal offence, and proffers the adoption of fault elements specified under the Criminal Code. The intention, that is, the "knowledge or belief" (section 44ZZRF(2)) of an individual will now be the precursor to any action by the Director of Public Prosecutions (DPP) for a cartel offence, the burden of proof being beyond reasonable doubt. The analogous threshold seeks to create consistency between the criminal provisions TPA and the Criminal Code.
Civil action does not require the knowledge or belief element to be established and the standard of proof for civil proceedings is on the balance of probabilities.
The maximum gaol term for cartel conduct has been increased from the previously proposed five year term, to ten years, bringing it in line with the United States and best practice standards globally. The monetary fine for an individual is up to $220,000. The criminal penalty for a corporation is in line with that of any civil action, with a maximum fine that is the greater of $10 million or three times the value of the benefit from the cartel, or where that value cannot be determined, ten percent of annual turnover.
Criminal conduct may have taken the limelight with respect to cartel offences, but civil action will still be of importance and heavily enforced by the ACCC. Although section 45A of the TPA will be repealed, a scheme of civil prohibitions mirroring the elements of the new criminal offences has been proposed. The ACCC does not need to demonstrate the fault element of knowledge or belief in pursuing a civil proceeding, and the standard of proof is lower, being on the balance of probabilities. The institution of criminal proceedings does not preclude civil action from being taken by the ACCC with any civil proceedings able to be postponed while criminal action is completed.
Notably, the proposed changes provide no avenue for the exemption of collective acquisitions from the cartel provisions or the agreements on price between related bodies corporate, having potential implications for franchisees. Further, the proposed amendments fail to adequately address the residual overlap between the proposed cartel and existing provisions in the TPA with respect to collective boycotts.
The increased gaol term also brings cartel conduct within the threshold requirements for accessing telecommunications inception powers through the Telecommunications (Inception and Access) Act 1979. This provides the Australian Competition and Consumer Commission (ACCC), in conjunction with the Federal Police, the ability to tap telephones to assist in providing proof of cartel arrangements.
The amendments proposed to the TPA are substantial and prescriptive, and the impending introduction of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 into Parliament is likely to result in some debate. For executives of corporations, the implementation of the new cartel provisions is no longer an issue for the corporation alone, criminal sanctions for individuals is now one step closer.
Note: This provides an overview only of a subset of the amendments to the proposed cartel provisions under the TPA. The final bill proposed for introduction can be viewed at: http://www.treasury.gov.au/contentitem.asp?NavId=006&ContentID=1426
1 For further details please refer to Deacons Competition and Consumer Law Update, February 2008 - http://www.deacons.com.au/UploadedContent/NewsPDFs/CC_03_0208.html
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.