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Who does this affect?

All corporations that carry on business in Australia, as well as their employees, directors and officers personally.

What do you need to do?

Consider the four items on our checklist below, to ensure you are ready for the introduction of criminal penalties for cartel conduct.

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Cartel conduct criminalised in Australia - 17 June 2009

The Federal Parliament has passed the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009. This Act significantly amends Part IV of the Trade Practices Act 1974 (Cth) by introducing parallel civil and criminal sanctions for cartel conduct. Criminalising cartel conduct is long overdue (it was proposed in the Dawson review in 2003), and will bring Australia into line with many other OECD countries.

The new cartel amendments will come into effect 28 days after they receive Royal Assent.

What is a cartel provision?

A ‘cartel provision’ is defined as a provision in a contract, arrangement or understanding between two or more competitors that:

  • has the purpose, or has or is likely to have the effect, of fixing prices, or
  • has the purpose of restricting outputs, allocating customers, or rigging bids.

Key changes

The Trade Practices Act (TPA) will prohibit a person from making, or giving effect to, a contract, arrangement or understanding containing a cartel provision.

The elements of the civil and criminal cartel offences are drafted in similar terms, with the only differences between them being:

  • the criminal cartel offence must be proven beyond a reasonable doubt, whilst a civil cartel contravention need only be proven on the balance of probabilities, and
  • to establish a criminal cartel offence, it is also necessary to prove the requisite fault elements, which are:

 
  • that the relevant contract, arrangement or understanding was made, or given effect to, intentionally, and
  • that the accused knew or believed that the relevant contract arrangement or understanding contained a cartel provision.

Although the civil and criminal cartel offences are similar, the TPA gives no guidance as to whether cartel conduct will be pursued civilly or criminally in a given case - this decision is left to the discretion of the ACCC. The ACCC’s decision whether to proceed with civil or criminal proceedings in a given case will be critical, however the ACCC is yet to give any real guidance regarding how (or when) it will make this decision.

This is an unsatisfactory situation, bearing in mind the seriousness of the outcomes involved, and given that companies may respond differently to the ACCC depending upon whether they are facing civil penalties or a criminal prosecution. (A decision to launch a criminal prosecution is ultimately a matter for the Director of Public Prosecutions).

The Government addressed a number of the concerns previously raised with the drafting of the Cartel Bill, though there are still a few aspects of the cartel provisions that may be problematic in certain situations. In particular, the treatment of joint ventures under the new cartel provisions is likely to lead to difficulties in practice (this is discussed in more detail below).

Penalties for cartel conduct

Once the cartel amendments have commenced, the penalties for cartel conduct will be as follows:

The criminalisation of cartels will test the way the ACCC and the DPP work together. There are concerns that their proposed Memorandum of Understanding and policies may not withstand that test, particularly around the decision of whether to proceed on a civil or criminal basis. Hopefully the ACCC has learnt from some of the shortcomings exposed by the Pratt case. Although the ACCC and DPP have signed a Memorandum of Understanding, the devil will be in the detail of how the ACCC and DPP will work together day-to-day on cartel matters.

Extradition

Criminalisation of cartel conduct will enable Australian executives to be extradited overseas (eg to the USA) to face criminal cartel charges there.

This raises double jeopardy issues, and may also mean that the ACCC will face additional pressure to pursue cartelists criminally, rather than civilly.

Exceptions to the cartel provisions

The new cartel provisions contain exceptions that largely mirror the exceptions to the existing prohibitions on exclusionary provisions and price fixing. These exceptions include:

  • where a collective bargaining notice is in force
  • in certain circumstances, cartel provisions between joint venturer partners (this is discussed in more detail below)
  • resale price maintenance
  • exclusive dealing
  • acquisitions of shares or assets
  • collective acquisition of goods or services
  • arrangements between related companies, and
  • where authorisation has been applied for and the relevant cartel provisions will not take effect until it is received.

Although these arrangements will fall outside the new cartel provisions, they will continue to be regulated by other provisions in Part IV of the TPA.

Joint Ventures

Concerns have been expressed about the unusual drafting of the joint venture defence in the cartel provisions. The cartel joint venture defence is different from the existing joint venture defence to exclusionary provisions, meaning joint venturers will now be required to comply with two different joint venture defences under the TPA in order not to contravene the TPA.

The joint venture defence to the new cartel provisions requires that:

  • the cartel provision is contained within a contract (or in some limited circumstances, an arrangement or understanding)
  • the cartel provision is for the purposes of the joint venture
  • the joint venture is for the production and/or supply of goods or services, and
  • the joint venture is carried on by a body corporate formed by the joint venturers for the purposes of enabling them to conduct the joint venture, or, in the case of an unincorporated joint venture, the joint venture is carried on jointly by the parties to the contract.

The requirements of this joint venture defence may require the restructuring of some joint venture arrangements, and may require joint ventures that were previously informal to become formalised so as to satisfy the requirements of the defence.

If you are involved in joint ventures, you should seek specific legal advice to ensure your joint venture arrangements will benefit from the new joint venture defence for cartel conduct.

Checklist: What should corporations do to prepare for the introduction of cartel criminalisation?

In order to prepare for the criminalisation of cartel conduct, all corporations should:

1. Document any verbal joint venture agreements (or verbal amendments to written contracts) between you and companies that are otherwise your competitors.

2. Review all contracts (or verbal arrangements) involving companies that are otherwise your competitors that:

  • restrict how you conduct your business (eg the prices you charge, the products you acquire or sell, the people from whom you acquire or to whom you sell, or the areas in which you operate), or
  • restrict how another company conducts its business.

3. Update your trade practices compliance program and policies, to ensure they cover the new cartel laws.

4. Ensure your staff are aware of their obligations under the TPA, particularly given that cartel conduct will now attract criminal sanctions.

We have extensive experience assisting clients in this way. Please contact us if we can help you prepare for the criminalisation of cartel conduct.

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.