Release of Draft Trade Practices amendments in relation to cartel behaviour

On 11 January 2008, Chris Bowen, the Minister for Competition Policy and Consumer Affairs, released the exposure draft Trade Practices Amendment (Cartel Conduct and other Measures) Bill 2008 (the Draft Legislation), with an accompanying discussion paper. The Draft Legislation sets out proposed reforms to the Trade Practices Act (the Act) in relation to cartel behaviour which were recommended by the Dawson Report in 2003. While the Bill has not yet been introduced into Parliament and may be amended as the result of public consultation, it is likely that any final bill will be substantially similar to the Draft Legislation. It is expected that the Bill will be introduced to Parliament later this year.

This article outlines the main changes set out in the Draft Legislation, and the implications for corporations and individuals.

Introduction of two categories of cartel behaviour

The most significant change to the Act resulting from the Draft Legislation will be the introduction of two categories of cartel offences – criminal cartel offences and civil cartel offences.

A person will commit a criminal cartel offence if:

• they make a contract or arrangement or arrive at an understanding, with the intention of dishonestly obtaining a benefit, and the agreement or understanding contains a cartel provision, or
• an agreement or understanding contains a cartel provision and the person gives effect to the cartel provision with the intention of dishonestly obtaining a benefit.

For both a criminal cartel offence and a civil cartel offence, “cartel provision” is defined as being a provision of a contract, arrangement or understanding which relates to:

1. price fixing
2. restricting outputs in the production and supply chain
3. allocating customers, suppliers or territories, or
4. bid rigging

What does “dishonestly obtaining a benefit” mean?

The question of whether a benefit has been obtained dishonestly will be determined in accordance with the definition of “dishonesty” in the Commonwealth Criminal Code Act 1995 and the Corporations Act 2001. Accordingly, the prosecution would need to prove that something was dishonest according to ordinary people’s standards, and was known by the defendant to be dishonest according to ordinary people’s standards.

The Draft Legislation also provides that a corporation may be found guilty of an offence even if obtaining the benefit is impossible and/or the other parties have been acquitted of the offence.

Penalties

The Draft Legislation proposes that the penalties for civil cartel offences would be a fine of $500,000. For corporations the proposed fine is the greater of $10 million or 3 times the value of the benefit obtained from the cartel behaviour by the body corporate and its related body corporates, or, if that value cannot be determined, 10% of the annual turnover of the body corporate and any related bodies corporate for the period of 12 months ending at the end of the month in which the act or omission occurred.

It is proposed that the penalties for criminal cartel offences would be 5 years’ jail and/or a fine of $220,000 for a person. For corporations, the same fine applies as for civil cartel offences mentioned above.

It would still be possible for private actions to be brought to recover damages or seek injunctions, banning orders or other remedies.

Proposed procedures for criminal cartel offences

The Draft Legislation and a draft memorandum of understanding between the Australian Competition and Consumer Commission (ACCC) and the Director of Public Prosecutions (DPP), sets out that the ACCC would investigate all cartel behaviour, and would then determine whether to refer the matter to the DPP for prosecution. In deciding whether to do so, the ACCC would look at the duration and market impact of the cartel conduct, the detriment caused to the public and whether the corporations or people in question had any previous convictions for cartel behaviour. It has been made clear in the discussion paper that a criminal offence is only intended to distinguish the most serious types of cartel conduct.

The discussion paper calls for public comment on how the ACCC should distinguish between criminal and civil cartel behaviour.

Other issues dealt with in the Draft Legislation

The Draft Legislation maintains the current exception from cartel prohibitions for arrangements between related body corporates, and incorporates:

• a joint venture defence from the civil prohibitions where the arrangement does not have the purpose or effect of substantially lessening competition, and
• an exception for collective bargaining arrangements about which the ACCC has been notified and a collective bargaining notice is in force.

The proposed Draft Legislation will have a significant impact on individuals found guilty of engaging in cartel behaviour, as it will increase the penalty to a jail term. It is important to note that the Draft Legislation, if passed in its current form, will be retrospective, and will apply to contracts, arrangements or understandings which contain a cartel provision and were entered into prior to the commencement of the legislation.

Companies, company officers and employees should always be vigilant in identifying potential cartel behaviour. However, the Draft Legislation, if introduced, will increase the importance of doing so even further. If you are concerned about the possible effect of any proposed contract, agreement or understanding, we would be happy to review the arrangement and advise if it risks constituting cartel behaviour, and on ways of avoiding this risk.

For further information, please contact your usual PricewaterhouseCoopers adviser or:

Michael Daniel, Partner PricewaterhouseCoopers Legal Corporate and Commercial Tel +61 2 8266 6618

Sophie Cockayne, Senior Associate PricewaterhouseCoopers Legal Corporate and Commercial Tel +61 2 8266 6642