The criminalisation of cartel conduct has become a reality in Australia. The Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Amendment Act) comes into effect on 24 July 2009. From that date price fixing and related conduct can attract criminal liability, including imprisonment for up to 10 years for individuals.
Existing agreements and arrangements will be covered by the new criminal provisions
Giving effect to existing agreements or arrangements after 24 July 2009 where these contain a 'cartel provision' could be a criminal offence. This could be the case even if the agreement or arrangement was entered into before 24 July 2009.
The winding road to cartel criminalisation
Criminal liability for cartel behaviour is the culmination of work by the current and previous Federal Governments and has been discussed in several of our previous updates. An exposure draft of the proposed legislation (discussed here) prepared under the Howard Government was released in January 2008. The exposure draft drew wide ranging criticism and a substantial rewrite of the Bill had its first reading in December 2008 (that version is discussed here). In February 2009 it became clear that the Bill would pass through the Senate without significant changes when the Senate Economics Committee recommended that the Bill be passed without amendment (the implications are discussed here). The final Act that is discussed in this update includes some amendments to address issues in the Bill's joint venture exceptions.
The new criminal offences
The Amendment Act establishes two new offences in the Trade Practices Act 1974 (TPA). A person will commit a criminal offence if that person:
- makes a contract or arrangement, or arrives at an understanding, that contains a 'cartel provision'; or
- gives effect to a 'cartel provision' of a contract, arrangement or understanding.
The general principles of criminal responsibility in the Commonwealth Criminal Code will also apply. In particular, in addition to physically making or giving effect to a cartel provision, a defendant must also have known or believed that the contract arrangement or understanding contained a cartel provision.
'Knowledge' is a relatively well-defined concept in criminal law and would require that a defendant was consciously aware, at the time a contract, arrangement or understanding was entered into or given effect to, that the contract arrangement or understanding contained (or would in the ordinary course of events contain) a cartel provision. The concept of 'belief' is not as well defined. It will require less certainty by the defendant that a contract, arrangement or understanding contained a cartel provision, but it is unclear precisely what level of belief is required and what facts must be believed (for example, will it be defence if the defendant mistakenly believed that one of the exceptions applied). However, recklessness or suspicion that a contract contained a cartel provision is unlikely to amount to 'belief'.
Penalties now include up to 10 years in prison
The maximum penalties for the new criminal offences are:
- For an individual: a term of imprisonment of 10 years and a fine of $220,000; and
- For a corporation: a fine that is the greater of:
- $10 million; or
- 3 times the value of the benefit from the cartel or, where the value of the benefit cannot be determined, 10% of annual corporate group turnover.
What is a 'cartel provision'?
A 'cartel provision' must be a provision of a contract, arrangement or understanding entered into by parties that are, or would be, in competition with each other. In addition, one of the following needs to apply:
- the provision has the effect or likely effect of fixing, controlling or maintaining prices; or
- the provision has one of the following purposes:
- fixing, controlling or maintaining prices;
- preventing or limiting production or supply;
- allocating customers, suppliers or territories; or
Depending on the approach taken by the ACCC and the Courts to the new amendments, this definition of cartel provision could expand the scope of what was previously prohibited under the existing civil provisions of the TPA.
Parallel civil cartel provisions will operate alongside the criminal provisions. These civil provisions will draw on the same definition of the term 'cartel provision' that is used in the criminal provisions.
Penalties for the civil cartel contraventions mirror those for the criminal offences except that for individuals there is no imprisonment and the maximum fine is $500,000. These civil penalties are unchanged from the penalties for breaches of existing civil price fixing prohibitions in the TPA.
Exceptions and defences
There are several specific exceptions to the new cartel amendments. A number of these exemptions preserve the role of other parts of the TPA:
The proposed exception for joint ventures initially raised serious issues (discussed here), particularly for parties making or giving effect to arrangements or understandings about joint ventures but where a contract had not been made. A late amendment addressed the joint venture exception by extending it to an arrangement or understanding that parties intended to be, and reasonably believed was, a contract. However, this amendment did not address the main criticisms, and wholly non-contractual joint ventures will be subject to the new cartel provisions, even though they were previously exempted.
Bolstered enforcement powers
The Amendment Act also amends the Telecommunications (Interception and Access) Act 1979 to allow the ACCC to use telecommunications interception (eg phone tapping) powers to investigate cartel conduct. This amendment adds to the powers already held by the ACCC under section 155 of the TPA to require information and documents and to interrogate a person and under sections 154 to 154ZC to search for and seize evidence.
How might you prepare for the changes?
We suggest that existing arrangements and agreements should be reviewed for compliance with the Amendment Act. We suggest such a review because the Amendment Act applies to giving effect to existing arrangements, the new prohibitions are potentially broader than those that applied previously and the exemptions and defences are now potentially narrower.
Another possible action point, given the stringent new criminal penalties, would be to review existing trade practices compliance programmes to ensure that staff are aware of how the law applies to them and how to minimise risks of breaching prohibitions against cartel conduct.
Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.