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31 May 2008

Five things you need to know about…penalties and remedies

Individuals and corporations who breach the Trade Practices Act 1974 (Cth) (TPA) risk being exposed to various sanctions including: pecuniary penalties, fines, imprisonment, injunctions, divestiture, undertakings, community service or adverse publicity orders in addition to a wide range of other orders.

While you are probably aware of the financial consequences of breaching the TPA you should also remember that the other consequences of a breach have the ability to inflict substantial damage on the reputation of those involved.

Fines and pecuniary penalties under the TPA

The financial consequences of breaching the TPA can be severe, including significant fines for both corporations and individuals.

Potential penalties for corporations were increased last year to the greatest of:

  • $10 million
  • three times the gain from the contravention, or
  • if the gain cannot be assessed by the court, 10% of the annual turnover for the body corporate (and related bodies corporate).

Any individual who has been involved in a relevant breach, or attempted breach, may be subject to a penalty of up to $500,000.

Importantly, the Court may have regard to a submission from the Australian Competition and Consumer Commission (ACCC) as to what they think the appropriate penalty should be. For this reason any person or business involved in a contravention of the TPA should keep in mind the ACCC’s cooperation policy for enforcement matters.

Jail - new criminal penalties for cartel conduct

Currently, jail time may be imposed for certain offences in the TPA including non compliance with a notice issued by the ACCC under section 155 and offences relating to contempt of court and non-payment of fines, among other offences.

This year, the Government introduced the exposure draft Trade Practices Amendment (Cartel Conduct and other Measures) Bill 2008 (Bill), which if enacted, will criminalise cartel conduct. Under the Bill, individuals found guilty of serious cartel conduct may face imprisonment of up to 5 years and/or criminal fines of up to $220,000.

Corporations found guilty of a serious cartel offence would be subject to fines of the greater of $10 million or three times the gain from the cartel or, if that gain cannot be assessed, 10% of the annual turnover of the Australian corporate group. The criminalisation of the penalty also means that the individual (or corporation) will have a criminal conviction recorded against them.

Disqualification from being a director

On application by the ACCC, the Court may make an order disqualifying a person from managing corporations for a period that the Court thinks appropriate, if the Court is satisfied that:

  • the person has contravened, has attempted to contravene or has been involved in a contravention of Part IV of the TPA, and
  • the disqualification is justified.

In determining whether the disqualification is justified, the Court may have regard to the person’s conduct in relation to the management, business or property of the corporation in addition to any other matters that the Court thinks are appropriate.

A company cannot indemnify its officers

A company cannot indemnify its officers for liability to pay a pecuniary penalty under section 76 for a contravention of Part IV of the TPA, by virtue of section 77A of the TPA. This means that if an officer of a company is found to have contravened the TPA, it is illegal for a company to help the officer by paying the fine or their legal costs and any agreement purporting to provide this type of indemnity will be void,

Accessorial liability

A person (or corporation) may also be liable as an accessory to a contravention of Part IV of the TPA if they are found to have:

  • aided, abetted, counselled or procured, or
  • induced, or
  • been directly or indirectly knowingly concerned, or
  • conspired with others,

to effect the contravention of Part IV. It is also important to remember that an accessory may be liable for the same penalties to those which would be applicable if the accessorial party was primarily responsible for the contravention.

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.