Daniel Marks and Emily Jenvey review amendments to the Trade Practices Act, which criminalises cartel conduct.
The fix is off
The new Labor government has acted swiftly in an endeavour to fulfil its election promise to criminalise cartel conduct. The government has released for public comment the exposure draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008. The Bill seeks to create a new criminal regime in addition to redefining the current civil liability provisions relating to cartel conduct under the Trade Practices Act (TPA).
If the proposed legislation is enacted Australian cartel law will be brought into line with jurisdictions such as the US and the UK, where cartel conduct is already criminalised.
The new regime: key elements The Bill proposes the introduction of new provisions to the TPA and the deletion of the existing prohibitions on price fixing under section 45A to create a dual criminal and civil liability regime relating to cartel conduct. The new provisions will operate in conjunction with the current prohibition on collective boycotts known as the 'exclusionary provisions' under section 4D.
The proposed legislation will create an offence to make or give effect to a contract, arrangement or understanding (CAU) that contains a 'cartel provision'.
The term 'cartel provision' is extensively defined under the Bill but in simple terms is a provision that has the purpose, effect or likely effect of:
fixing prices for the supply, resupply or purchase of goods or services
restricting or limiting production of goods or capacity to supply goods or services
allocating customers, suppliers and geographical areas in connection with the supply or purchase of goods or services
bid-rigging by parties that are, or are likely to be, in competition with each other.
The concept of 'dishonesty' is the prime means of differentiating between the criminal and civil regimes relating to cartel conduct. That is, the Bill seeks to impose a criminal offence if a CAU containing a cartel provision is made with the intention of dishonestly obtaining a benefit.
The criminal cartel offences and civil penalty prohibitions will apply to corporations as well as individuals who engage in the proscribed conduct. Further, a word of warning for related body corporates of companies that enter into CAUs containing cartel provisions, they will be deemed to be a party to the CAU.
Dishonesty element The Bill proposes that 'dishonesty' means dishonest according to the standards of ordinary people, and known by the defendant to be dishonest according to those standards.
Several commentators have argued that the concept of dishonesty is problematic, and an unnecessary element of a criminal cartel offence.
For example, cartel conduct can result in large-scale or serious economic harm even if there is no intention to dishonestly obtain a gain. Conversely, an intention to dishonestly obtain a gain may not necessarily result in large-scale or serious economic harm.
Critics of the proposed dishonesty test have also expressed concerns about the 'standards of ordinary people' criteria. This legal concept is undefined. It has the potential to create difficulties for judges and juries in assessing culpability, and for businesses and their advisers in determining whether they are acting lawfully. The subjective limb of the dishonesty test (that is, 'known by the defendant to be dishonest according to the standards of ordinary people') is more problematic and difficult to satisfy. Satisfying the uncertain concept of dishonesty to the higher 'beyond reasonable doubt' standard of proof required for a criminal conviction will be challenging.
Many commentators have suggested that the dishonesty element proposed in the Bill be scrapped and that a completely different method be used to differentiate between criminal and civil cartel conduct. One solution advocated is to adopt a similar approach to the US Sherman Act 1890 (where there is not a distinguishing element between civil and criminal offences).
Defences and penalties The proposed criminal and civil offences will not apply to cartel provisions that are subject to the collective bargaining notification regime or authorisation process, nor to CAUs between related bodies corporate. The Bill also creates a defence to the civil penalty provisions for joint ventures that do not substantially lessen competition. Curiously, this defence is not mirrored for the criminal offences.
Under the Bill, corporations found liable under the criminal or civil regimes will be subject to a fine. The fine will not exceed $10 million; three times the value of the benefit from the cartel; or where the value of the benefit cannot be determined, 10 per cent of the annual turnover of the Australian corporate group. It is unclear why the maximum fines for the civil penalties are the same as those for criminal cartel conduct. Presumably the maximum fine for the criminal offence should be higher than the maximum fine for the civil penalty prohibitions to reflect the seriousness of criminal cartel conduct.
A more illogical feature of the Bill is a maximum fine of $220,000 for individuals convicted of contravening the criminal cartel offences, less than half the maximum pecuniary penalty of $500,000 for the contravention of the civil penalty prohibitions. This is inconsistent with the government's and the ACCC's purported views that criminal cartel conduct offences are more serious than other cartel or anti-competitive conduct. However, individuals who are convicted under the criminal provisions are also liable to face up to five years' imprisonment.
Investigation and prosecution of the proposed new offences A draft memorandum of understanding (MOU) between the (ACCC) and the Commonwealth director of public prosecutions (DPP) was released alongside the Bill. The MOU sets out the policy for enforcement of the new offences and the roles of, and the relationship between, the ACCC and DPP. The ACCC will be responsible for investigating and gathering evidence of any alleged criminal cartel conduct. The DPP will be responsible for prose-cuting the new criminal cartel offences. The ACCC will continue to prosecute the civil cartel offences.
Where to from here? While the long-awaited release of the Bill and accompanying documents indicates that the new government is committed to taking cartel conduct seriously, there is room for improvement. The government has expressed an intention to legislate the Bill this year, but commentators concerned with its perceived short-comings have stressed the importance of the government considering submissions closely and not acting hastily in its legislative response.
If the Bill is legislated, the changes to the TPA will be complex and far-reaching, with cartel conduct being defined in more specific ways than under the existing legislation. Certain arrangements that may have been considered lawful under the existing regime could be caught under the new provisions on a strict liability basis. Corporations would be well advised to review all existing arrangements to ensure that they do not contravene the new cartel provisions. Particular care should be taken with any joint venture arrangements. A failure to do this could result in costly pecuniary penalties or imprisonment.
Daniel Marks is a special counsel in the corporate and commercial group of law firm Holding Redlich, where he focuses on trade practices, M&A and general corporate and commercial matters. Emily Jenvey is a lawyer in the firm's corporate and commercial group.
