March 2010 saw the first individual deported from the United Kingdom to the United States in relation to cartel conduct. Following the introduction of the Australian criminal cartel regime, executives can now be extradited from Australia to face charges in countries with criminal cartel law including the US and the UK. In this article, we look at this additional reason for caution by all business people in dealings with competitors.
The US Department of Justice (DOJ) has walked a long road to secure the extradition of Ian Norris, former CEO of British engineering firm Morgan Crucible, to face charges in the United States.
In 1998 a Grand Jury began an investigation into a cartel relating to carbon products used in a variety of applications to transfer electric current. In November 2002, a US subsidiary of British engineering company Morgan Crucible, Morganite, pled guilty to one count of price-fixing and two counts of witness tampering, and paid fines of US$11 million.
However, the scope of Morgan Crucible’s plea agreement excluded Norris. In 2003, the DOJ brought criminal obstruction charges against Norris, and two other executives, and Norris was also charged with price-fixing. The other executives - US and Dutch nationals - pled guilty and agreed to serve jail time in the US of between four and six months.
Norris, however, refused to plead to the charges and so extradition proceedings were commenced in the UK courts. The DOJ’s attempts to extradite Norris fell into two phases:
First, in 2005 they sought to extradite Norris on the basis of the price-fixing charge. In proceedings that went all the way to the House of Lords before they were finally resolved, it was found that:
as price-fixing was not a criminal offence in the UK at the time the alleged offences were committed, it was therefore not an extraditable offence; and
participation in a price-fixing cartel as alleged, in the absence of aggravating conduct, did not amount to a conspiracy to defraud under the common law and therefore was not criminally punishable and not an extraditable offence.
Second, from 2008 the DOJ sought to extradite Norris on the obstruction of justice charges, on the basis that there was a comparable criminal offence in place in the UK and therefore the necessary “dual criminality” required by the extradition regime. It was alleged that Norris had:
prepared a ‘script’ containing false information about meetings between Morgan Crucible and its competitors,
distributed the script within the company and to its competitors, with instructions that it be used in answering questions from the DOJ and the Grand Jury,
retired or moved employees not willing to toe the company line, and
formed a task force to destroy or conceal incriminating information.
In March 2010, the DOJ succeeded in establishing before the UK Supreme Court that the obstruction of justice charges were a sufficient basis for extradition. The final appeal also rejected Norris’ claim that extradition would be a breach of his right under the European Convention on Human Rights to a private and family life, and in March 210 the European Court of Human Rights rejected an application for interim measures to prevent the extradition.
Whether a person can be extradited from Australia depends on both Australian law and whether the state seeking extradition has an extradition arrangement with Australia. The Extradition Act 1988 (Cth) requires:
that the request come from an “extradition country”, with whom Australia has a bilateral or multilateral treaty or other form of agreement, and
the Commonwealth Attorney General must be satisfied that:
A detailed description of the Australian extradition regime can be found in our Update on the topic.
Since the Trade Practices Act (Cartel Conduct and Other Measures) Act 2009 entered into force in July 2009, cartel conduct has been a criminal offence in Australia, punishable by criminal penalties or imprisonment of up to 10 years. Further detail on the criminal regime can be found in our Alert.
With the proliferation of criminal cartel regimes around the world (including the US, UK, Canada, France, Japan and Korea, and a regime recently proposed for New Zealand), and the extent of extradition arrangements between countries, there are less and less safe harbours for fugitive white collar criminals.
Similar to the UK, there are also a number of offences in Australia that are commensurate to the obstruction of justice charges brought by the DOJ against Norris. In particular, the offence of attempting to pervert the course of justice is present in the criminal law of both the Commonwealth and the States and territories, and there are particular offences under the Trade Practices Act for failing to comply with a notice to provide information, documents or give evidence or to knowingly furnish information or give evidence which is false or misleading. Even if a country does not have criminal cartel law, there is still the potential for an individual to be extradited from Australia to face such charges.
While the case may only represent a partial victory for the DOJ, it has important implications for all Australian business people:
Government agencies will pursue individuals for their involvement in cartels. To date, the highest fine imposed on an individual for cartel conduct was $1.5 million against the former CEO of Visy Board Pty Ltd , Harry Debney in 2007. However, with the advent of criminal offences in Australia, cartels are no longer just about fines.
Other antitrust agencies are able and willing to pursue foreign nationals for their involvement in cartels that have an effect in their jurisdiction.
It is therefore important, if you operate outside Australian borders, to ensure that your compliance standards meet the requirements of all jurisdictions in which you operate. We can help you in this regard.
As for Ian Norris, on 23 March 2010, he was handed by the London Metropolitan Police to a US marshal at Heathrow airport, on a flight destined for Philadelphia, the state that requested his extradition. He was subsequently granted bail on a security of $1 million, and is subject to house arrest in Washington with electronic monitoring.
Norris’ US lawyers recently filed a notice of motion to dismiss the obstruction charges on the basis that the DOJ failed to show sufficient evidence to indict him in the first place. The battle continues.
AuthorPeta Stevenson, Senior Associate
Trade associations and industry focus groups, which are common place in a myriad of industries, are unquestionably subject to, and must comply with, the provisions of the Trade Practices Act 1974 (Cth) (“TPA”). Despite the benefits that can be gained from these organisations, the potential for these associations to serve as platforms for collusion or market coordination exposes them to significant scrutiny, and this is particularly important in the wake of the criminalisation of cartel behaviour in Australia.
While it has been beyond question that corporate entities (and their representatives) are required to exercise extreme caution in respect of trade association activities, the application of the TPA to associations that regulate professional services providers has arguably been less clear, and has recently been clarified by the ACCC.
On 5 May 2010, the ACCC released guidelines regarding the competitive conduct amongst professionals and their representative associations. The guidelines reflect that associations representing the providers of professional services such as lawyers, accountants, doctors, optometrists or architects are not subject to any lower competition law standards than other industry representative bodies. While the potential negative impact on consumers resulting from price fixing discussions between the manufacturers and suppliers of, for example, a tangible consumer good such as milk or bread, may be easier to contemplate, fixing of prices for the provision of auditing services or legal advice can be equally as harmful.
The guidelines outline the Trade Practices issues that professionals should be aware of when dealing with one another and propose simple ways to minimise the possibility of breaching the TPA. The guidelines acknowledge that professional associations serve to, amongst other things, enforce codes of conduct, provide educational support and implement professional and ethical standards which ultimately benefit or protect clients and the general public. However, in addition to these benefits, it is highlighted that self-regulation and collegiate discussions can inadvertently amount to anti-competitive behaviour and breaches of the TPA.
Briefly, the guidelines set out the parameters in relation to the following issues:
1 Obligations and functions of professional associations - these include transparent and non-restrictive membership criteria and association rules, and the guidelines caution against the use of recommended industry price lists and overly restrictive advertising rules, while recommending educating members about Trade Practices compliance;
2 Cartel behaviour - professionals need to be mindful of making or giving effect to any contract, arrangement or understanding which involves price fixing, market sharing, bid rigging, or output restrictions;
3 Exclusive dealing and collective boycotts - professionals should not make or induce others to make agreements with fellow professionals for the purpose of preventing or restricting dealings with suppliers or customers/clients;
4 Consumer protection considerations - professionals need to be aware of advertising restrictions, including misleading or deceptive advertising, component pricing and comparative pricing; and
5 ACCC notification or authorisation - the availability of ACCC authorisation for particular conduct, such as collective bargaining or negotiating.
Examples of previous matters which have involved medical professionals include:
a recent investigation by the ACCC which resulted in the the conclusion of section 87B undertakings by five doctors from the Kangaroo Island Medical Centre, investigated for reaching an arrangement or understanding with each other in relation to services to be provided to the hospital - the undertakings addressed the ACCC’s concerns in relation to the conduct;
a finding by the Federal Court in 2003 that a Melbourne doctor had attempted to induce boycotts of bulk billing and after hours services at medical centres; and
the ruling by the Federal Court in 2001 against the Australian Medical Association (WA) for price fixing and primary boycotts.
Beyond scrutiny in the medical profession, in an international matter, Portugal’s Competition Authority this month fined the Portuguese Association of Chartered Accountants for anti-competitive behaviour in relation to the market for compulsory education and training courses for trainee accountants. It was found that the Association had prevented competitors from providing these educational courses in competition with the Association, thereby preventing competitors from entering the relevant market.
While trade associations are subject to high levels of scrutiny by the ACCC, particularly in light of the criminalisation of cartel behaviour, the value of these associations should not be ignored or under-estimated. Industry associations may have several legitimate purposes which often facilitate competition and the improvement of issues for the industry and consumers in general. For example, such groups may promote competition in the industry by serving as a vehicle for representations to Government on particular issues of importance to the industry as a whole or may foster technical research which is beneficial to the entire industry, by gathering industry statistics or by conducting economic studies.
In addition, the imposition of minimum service standards in order to maintain quality within the industry and mechanisms for on-going education and apprenticeships within the industry seek to preserve the integrity of a profession and protect consumers and clients, as well as promoting the future of the profession.
It is, therefore, emphasised that it is not the existence of the association that is potentially problematic but rather the conduct of the members.
The recent guidelines highlight the Trade Practices pitfalls which face any trade association, whether it comprises representatives of construction companies, petrol retailers, coal producers, banks, architects, doctors or lawyers, and further highlight the importance of compliance by both the associations and the individual participants involved.
AuthorKim de Kock, Senior Associate
The Competition Commission of South Africa has published revised service standards which set out review periods which the Commission will aim to achieve in its assessment of mergers. These review periods are based on whether the mergers are classified as non-complex, complex or very complex, which is determined according to a number of differentiating factors. The Commission has stressed the importance of merger parties complying with the statutory filing requirements to ensure that the Commission can achieve the new review periods. The Commission has released a practice note which outlines the types of information and documents required for purposes of submitting a complete merger filing.
The Competition Commission of South Africa has announced that it has raided the offices of South African Airways, Mango Airlines and the Airlines Association of South Africa as part of an investigation into collusion in the airlines industry to hike up prices around the soccer world cup period. The Competition Commission was prompted to act after it suspected that South African Airways and Mango Airlines may have withheld information relating to the investigation. The Commission will now analyse seized documents and electronic data to determine whether price fixing, and a consequent contravention of the Competition Act, has taken place.
The UK Office of Fair Trading (OFT) has announced that it is withdrawing its case against four British Airways executives accused of conspiring with Virgin Atlantic to fix the price of fuel surcharges. Prosecuting lawyers said they would not be offering any new evidence. The OFT’s decision came after a substantial volume of new electronic material was discovered from Virgin which showed that on at least one occasion, an increase in the fuel surcharge by Virgin occurred prior to any discussions with British Airways.
This was only the second criminal prosecution brought by the OFT under the new criminal cartel laws.
The OFT has announced an update on its investigation into price-fixing in the UK dairy market. The OFT had accused a number of dairy companies and supermarkets of colluding to raise prices in 2002 and 2003 in milk, butter and cheese products. In 2007/08, the OFT concluded early resolution agreements with most parties who accepted liability in principle for breach of competition laws in exchange for reduced penalties. However, the OFT has now concluded that there is insufficient evidence to support an infringement finding with regard to some of the products and, as a result, individual penalties that a number of early resolution parties had agreed to pay will be reduced.
TheFederal Trade Commission and the Antitrust Division of the Department of Justice have released a proposed revision of the Horizontal Merger Guidelines for public comment. The guidelines set out the process by which horizontal mergers and their likely competitive impacts are evaluated by federal antitrust agencies and should be evaluated by the courts. The revisions are aimed at more accurately reflecting the way agencies currently conduct merger reviews, which has evolved significantly since the guidelines were first issued in 1992 and revised in 1997. The proposed revisions are the result of the agencies’ collective experience since 1992, as well as public comments submitted and workshops that have been conducted in the last 6 months. The closing date for submission of public comments on the guidelines was 20 May 2010.
AuthorAlana Kushnir, Solicitor
The Federal Court in Perth has handed down its final orders in the WA air conditioning cartel case, which was initiated in 2004. The Court found that the respondents had breached the TPA by engaging in bid-rigging and price-fixing conduct in relation to the supply and installation of commercial and industrial air conditioning and mechanical services. The bid rigging conduct in this case involved ‘cover pricing’ which involves parties agreeing amongst themselves which party will submit the lowest tender price for a particular commercial project in order to ensure the lower bidder secures the tender.
A total of $9.2 million in pecuniary penalties was imposed against the participants but one member of the cartel was granted full immunity for being the first party to approach the ACCC and cooperate in providing information required by the ACCC for the purpose of investigation and bringing an action against the cartel members.
In another cartel decision in April, the Federal Court ordered four foreign based suppliers of marine hose to pay penalties exceeding $8 million for engaging in cartel conduct. The cartel conduct in Australia was part of a larger global cartel. The penalties relate only to dealings which gave effect to the cartel, and not to the separate contravention of making a cartel which had occurred outside Australia.
In both cases, the cartel conduct occurred before the 2009 amendments to the TPA introducing the criminal cartel offence. Similar conduct carried out after 24 July 2009 may attract criminal prosecution.
As part of its proposal to privatise electricity in NSW, the NSW Government proposed a ‘co-insurance’ arrangement between the State-owned electricity generators and the future ‘Gentraders’ to manage the risk associated with outages at one of the generators.
Under the NSW Government’s Energy Reform Strategy, the generators will continue to be owned by the NSW Government but the contractual rights to trade the electricity will be held by private companies - so called ‘Gentraders’.
Under the co-insurance arrangements for which ACCC authorisation was sought, Gentraders would be required to provide each other with compensation if the level of electricity produced at one of the generators falls below a certain level. According to the NSW Government, this would minimise the risk associated with Gentrader contracts and would have other public benefits, including facilitating liquid markets for firm contracts, supporting potential new entrants and allowing the NSW Government to offer more valuable Gentrader contracts.
However, a number of industry participants, including potential purchasers of Gentraders, argued against these claims submitting that the arrangements were premature and that it would be more efficient for Gentraders to develop their own arrangements rather than being required to participate in the mandated co-insurance arrangement.
The ACCC considered these submissions and denied the application for authorisation, finding that there was no case for the Gentraders to be required to take part in a co-insurance arrangement that they may not want or need.
Importantly, while the ACCC noted the NSW Government’s statements that if the co-insurance arrangement is not authorised it may be required to reduce the number of Gentrader portfolios (and hence the extent of competition in the market), the ACCC considered that the Energy Reform Strategy could proceed in its current form without the co-insurance arrangement.
The ACCC has conditionally granted authorisation to North West Iron Ore Alliance, a group of small iron ore producers, to collectively negotiate the terms and conditions, including price, for which “above rail” haulage services and “below rail” track access can be sought from BHP Billiton, Rio Tinto and Fortescue Metals Group in the Pilbara region.
The ACCC has granted interim authorisation for the conduct on the basis that it could result in a meaningful improvement in commercial outcomes, transaction cost savings and more efficient infrastructure investment. In addition, given the voluntary nature of the proposed arrangements and the imposition of conditions relating to the coverage or composition of the parties involved, any potential detriment that may arise would be limited.
ACCC closely eyes carbon credits following Court decision on misleading claims
Following the Federal Court’s decision in March this year that Prime Carbon Pty Ltd misled customers about the sale of carbon credits, the ACCC has put companies operating in that market on notice, announcing that it is closely monitoring the carbon credit industry.
Along with other misrepresentations, Prime Carbon was found to have falsely claimed that it was affiliated or associated with the National Stock Exchange of Australia, and that its subsidiary was regulated by the Australian Government.
“Knock, knock”, “ring, ring”: Telco sales agents misled customers
In response to ACCC concerns that telecommunications company People Telecom had transferred customers from competing carriers following potentially misleading claims and without obtaining informed consent, People Telecom has provided the ACCC with a court enforceable undertaking that it will undertake corrective action including refunding and waiving the debts of affected customers.
Between 2006 and March 2009, People Telecom used telemarketers and door-to-door sales agents to promote its telecommunication services, including mobile, fixed phone and data services. The conduct complained of involved signing up customers without their informed consent or after representing that, amongst other things, changing to People Telecom would not compromise any current contractual or billing arrangements with their current carrier.
In addition to paying refunds and permitting transfers away from it to rival carriers without penalty, People Telecom also undertook to implement a compliance program, ensure all telemarketing and door-to-door marketing conduct follow appropriate sales scripts and keep detailed records of all relevant informed consents obtained.
AuthorsJordana Glanz, SolicitorDanet Khuth, Solicitor
Merger Control and Unconscionable Conduct reform27 May 2010
The Competition and Consumer Legislation Amendment Bill was introduced into Parliament on 27 May 2010. The Bill contains the government’s proposals to amend merger law to address so-called ‘creeping acquisitions’ and it also contains principles of interpretation to assist corporations, enforcement agencies and the judiciary in applying the unconscionable conduct provisions in the Trade Practices Act and the Australian Securities and Investment Commission (ASIC) Act.
In respect of ‘creeping acquisitions’, the Bill removes the ‘substantiality’ criterion from the definition of market; making it clear that the ACCC can focus on small and regional markets.
Our publication provides a summary of the background, and importantly, an outline of what the proposed changes would mean in practice for corporations.
NBN Implementation Study - impact and implications11 May 2010
The National Broadband Network Implementation Study was released by the Commonwealth Government on 6 May 2010. Our publication summarises six key areas where the study recommends changes to the position initially put forward by the Government. The Government is currently considering the Study and its recommendations with interested parties invited to provide comments or submissions on the Study and its recommendations by 27 May 2010.
What? No more “TPA”? Minister Emerson Introduces Phase Two of the Australian Consumer Law into Parliament18 March 2010
On 17 March 2010, Minister Emerson introduced the Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 to the House of Representatives. This is “Phase 2” of the Australian Consumer Law reforms. Our publication provides a summary of this Bill including the new unfair practice offences, the new proposed consumer guarantees and proposed national sales regime.
By way of a further update, the Bill was referred to the Senate Economics Legislation Committee on 18 March 2010. This committee released their report on the bill on 21 May 2010 recommending that the Senate pass the Bill, preferably adopting the recommendations contained in the report.
A brave new world - Senate endorses unfair terms legislation17 March 2010
This publication covers the passing of the Trade Practices Amendments (Australian Consumer Law) Bill 2009 (Bill) (Phase 1 of the Australian Consumer Law) by both house of the Australian Parliament on 17 March 2010 (the “Amending Act”). The Amending Act received Royal Assent on 14 April 2010 and certain sections came into effect on 15 April 2010. The unfair contract terms sections of this Amending Act will commence on 1 July 2010 and will apply to all corporations.
Our publication provides guidance on the key changes resulting from the Amending Act including the new national unfair terms regime, new civil penalties and new enforcement powers for regulators.
Government supports proposed reforms to unconscionable conduct and franchising provisions3 March 2010
On 3 March 2010 Minister Emerson released an expert report titled “Strengthening statutory unconscionable conduct and the Franchising Code of Conduct” (February 2010). This outlined an expert panel’s views on proposed reforms to both the unconscionable conduct provisions and franchising provisions of the Trade Practice Act.
Our publication provides further detail on the expert panel’s conclusions as well as the government’s initial response to the findings.
According to the report, a third bill reforming 'unconscionable conduct' provisions is expected later in 2010, so watch this space!
AuthorLeisha Marasinghe, Solicitor
Corporations engage in comparative advertising when they directly or indirectly:
compare features of the corporations’ product or service with a rival product or service; or
compare their current prices to their own previous or future prices.
Comparative advertising can be a persuasive, and consumers tend to perceive comparative advertising as more reliable than traditional advertising methods. As a result, there is greater potential for consumers to be misled by comparative advertising and such advertisements are therefore subject to greater scrutiny.
As with all forms of advertising, comparative advertising must comply with the Trade Practices Act. In particular, section 52 prohibits misleading or deceptive conduct and section 53 prohibits false statements regarding price. A breach of section 53 is a criminal offence with pecuniary penalties attached.
Comparative advertising is legitimate, provided comparisons are conveyed accurately and fairly. The ACCC guidelines “Price Comparison Advertising” emphasise that all “claims must be honest and accurate and must not mislead or deceive consumers”. If comparative pricing is based on fact and “represents real savings”, it is likely to comply with the Trade Practices Act.
Corporations should bear the following in mind in preparing a comparative advertisement:
be specific when relying on market research to establish a comparison with a competitor’s product and ensure representations conform with the market research;
ensure that any scientific testing to support a comparative claim is rigorous and well documented and designed;
ensure disclaimers are sufficiently prominent and readable if intended to be relied upon;
consider the overall representation conveyed by the advertisement; and
price comparisons should be genuine and the savings represented must not create a false impression. The ACCC has indicated that when advertising a discounted price (e.g. 10% off) the discounted price must be a temporary price and the advertised higher price must have applied to the goods for a reasonable period previously.
If in doubt, contact your legal department or legal service provider for further guidance.