Australia: Criminalising Cartels - Australia Moves On New Bill

Last Updated: 12 November 2008
Article by Michael Corrigan and Mihkel Wilding

Most Read Contributor in Australia, November 2017

Key Points

  • Liability will be strict as the "dishonesty" test has been removed, making it easier to convict.
  • Some current business arrangements could fall foul of the new Bill.

Following numerous submissions and a period of consultation on the first Exposure Draft of legislation to criminalise serious cartel conduct, the Federal Government has now released a second Exposure Draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008.

While it has stated that it will seek the support of the State and Territory Governments before doing so, the Bill is described as the "final cartels bill" and presumably the Federal Government will resist further changes to the Bill, which is expected to be introduced into Parliament before the end of the year.

While much of the new Bill is similar to the first Exposure Draft (which we looked at here), there are some very important changes:

  • Liability will be "strict" as the "dishonesty" test has been removed, making it easier to convict;
  • The Bill does not distinguish so-called "hardcore" cartels from other cartel conduct;
  • The ACCC will have the power to tap phones and intercept email communications, in addition to its other powers, to investigate alleged cartel conduct;
  • A joint venture defence will be available for both civil and criminal enforcement actions.

Despite these changes, there remain some unanswered questions about how the new criminal cartel regime will operate in practice. The new Bill also raises some difficult compliance challenges for companies in the ordinary course of business, quite apart from any so-called "hardcore" cartel behaviour.

Elements of the criminal offences

Under the Bill, the question of whether or not particular conduct constitutes a criminal offence will turn on the person's "knowledge or belief" that cartel conduct was occurring. The elements of the civil and criminal cartel offences are otherwise the same

Exactly how "knowledge or belief" will be used to differentiate civil and criminal cartel conduct is uncertain, as the standard does not readily distinguish between conduct which is more and less culpable cartel conduct.

A person will be deemed to have "knowledge" of the cartel if the person "is aware that it exists or will exist in the ordinary course of events".

"Belief" is not defined by the Criminal Code, but is understood to require something less than full knowledge - a person may believe that something exists or will exist while at the same time harbouring a doubt about it.

In short, all that is required to attract a criminal prosecution is proof, beyond a reasonable doubt, that:

  • the conduct occurred; and
  • the parties had knowledge or a belief that the specific cartel conduct alleged was occurring, irrespective of whether the parties understood the conduct to be wrongful or illegal.

Criminal penalties

The Bill doubles the maximum penalty for individuals convicted of a criminal cartel offence to 10 years. The maximum penalties for the offences are:

  • for an individual - a maximum term of imprisonment of 10 years and/or a maximum fine of $220,000; and
  • for a corporation - a fine that is the greater of $10 million or three times the value of the benefit from the cartel, or where the value cannot be determined, 10 percent of annual turnover.

These penalties bring Australia into line with other jurisdictions such as the United States, the United Kingdom and Canada, where criminal sanctions for cartels already exist.

Access to ACCC cartel information for "follow on" damages actions

Class action lawyers are likely to be disappointed by the Bill as it clearly favours the ACCC's policy of resisting requests to disclose confidential "protected cartel information" to third parties for use in so called "follow on" cases - usually class actions that are intended to recover damages on behalf of those who have suffered a loss as a consequence of the cartel.

While such disclosure may be made voluntarily by the ACCC, or with leave of the court or tribunal, the Bill spells out an exhaustive list of mandatory factors which must be taken into account before any disclosure can be made. This will afford significant protection to ACCC informants and help to ensure self-reporting to the ACCC is not discouraged.

In practice, while there will be a discretion for the ACCC to disclose "protected cartel information" to a person who has commenced or is considering instituting proceedings, we suspect that this not likely to occur frequently because of the ACCC's long-stated concern that the disclosure of such information could undermine its Immunity Policy.

Defences and exemptions

The Bill confirms that, for both the criminal and civil cartel provisions, certain defences and exemptions will be available in relation to:

  • collective bargaining by small business, if the ACCC is formally notified;
  • ACCC authorisation of arrangements which have sufficient public benefits;
  • joint ventures for the production and/or supply of goods and services;
  • contracts, arrangements or understandings between related bodies corporate.

In addition, the existing exemptions under section 51 of the Act will continue to apply, including the various IP exemptions and the sale of business exemption.

Representative damages proceedings

Under the current law the ACCC can commence representative proceedings on behalf of those who have suffered loss or damage as a consequence of cartel conduct. This power will now be extended to where one or more persons have suffered loss or damage as a result of criminal cartel conduct.

Investigating cartels

The telecommunications interception powers given to the ACCC acknowledges that cracking cartels is more difficult that uncovering other forms of corporate misconduct. These powers will now be available to the ACCC in the investigation of both civil and criminal cartel offences. They will operate concurrently with the ACCC's existing powers to:

  • conduct raids to search for and seize documents; and
  • issue section 155 notices requiring the production of documents, the furnishing of information and / or the attendance of individuals for compulsory examination under oath.

What we still don't know: Interplay of civil and criminal regimes

It is not clear from the Bill how the ACCC and DPP will differentiate matters which could be prosecuted either criminally or on a civil basis - there is likely to be considerable overlap given the removal of the "dishonesty" test and some leeway available to the authorities to decide the manner in which they will pursue cases.

The status of the Memorandum of Understanding between the ACCC and the DPP regarding the handling of a criminal investigation and prosecution also remains unclear. The Federal Government's press release suggests that civil proceedings will be postponed until criminal proceedings are completed. If the defendant corporation or individual is convicted of engaging in criminal cartel conduct, the civil proceedings would be terminated.

ACCC Immunity Policy

No announcement has been made of the arrangements which will be in place to reflect the operation of the ACCC's Immunity Policy in conjunction with the new Bill and how the DPP's role in relation to leniency will apply.

While the ACCC Immunity Policy provides leniency upfront if certain conditions are met, the DPP's Prosecution Policy only provides leniency in limited circumstances and usually at the end of an investigation. If the two policies are not complementary, the sprint to the ACCC's confessional by cartel participants may be deterred.

Issues for company directors and senior management

These obligations will increase the duties of directors to be vigilant about inquiries into conduct which may suggest or imply some collusion or cartel conduct is occurring with a company's competitors.

Company directors and employees who know that their company is engaged in cartel conduct will be forced to make a choice - either seek immunity by reporting the cartel or run the risk of being criminally prosecuted.

The situation is more complicated for company directors and employees who merely suspect that the company may be part of a cartel.

Directors and senior managers will have an increased duty to see that the issues are properly investigated by an independent qualified person and the results briefed to the Board or a special committee of the Board.

Existing arrangements will also need to be reviewed to ensure they do not fall foul of the new law:

  • vertical distribution agreements which impose non-compete restraints on either a supplier or distributor, such as to allocate some exclusive territory or customer segment to a distributor free from competition from the principal, do not seem to be shielded from the new definition of a "market allocation" offence;
  • the current exemption for collective acquisition of goods or services by competitors acting together has been removed from the Bill and this may expose some existing arrangements which rely on the current exemption; and
  • the joint venture defence is only available for joint ventures which produce or supply goods or services, and so some joint ventures will not be able to rely on it.

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.

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