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Cartels | Prohibited conduct

 

Core prohibition

Cartel conduct is defined and prohibited in Part IV, Division 1 of the Competition and Consumer Act 2010 (Cth) (CCA). This captures agreements between competitors which fix prices, divide markets, rig bids or restrict outputs. Conduct falling within this definition of 'cartel conduct' is prohibited per se, subject to anti-overap and other exemptions. It is possible for cartel conduct to be 'authorised' on public benefit grounds in advance of the conduct occurring.

 

Definition and prohibition of cartel conduct

Definition

Section 44ZZRD of the CCA provides that a provision of a contract, arrangement or understanding is a cartel provision if it satisfies:

  1. either the 'purpose/effect' condition or the 'purpose' condition; and
  2. the 'competition condition'

Purpose/effect condition (s 44ZZRD(2))

The 'purpose/effect' condition is satisfies if the provision has the purpose, or is likely to have had the effect of fixing, controlling or maintaining prices (or disounts, allowance, rebates etc) in relation to goods or services to be supplied or acquired by any of the parties.

Purpose condition (s 44ZZRD(3))

The 'purpose' condition is satisfied if the provision has the purpose of

  • preventing, restricting or limiting production, capacity or supply;
  • allocating customers or supplies between any or all of the parties to the agreement (by class or geographic area); or
  • rigging bids

Competition condition (s 44ZZRD(4))

The competition condition is satisfied if two or more of the parties to the agreement are competitors (or are likely to be competitors, or would be competitors but for the provision). See separate discussion below.

In the first case to consider this requirement in the new cartel laws, Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235 (19 March 2013), it was held that 'likely to be in competition' in this context means a 'possibility that is not remote'.

Note: This has been criticised as setting the threshold too low, with the result that the Harper Report (2015) has recommended that 'likely to be in competition' be assessed on the balance of probabilities (p 363 final report).

Criminal prohibition (offences)

It is an indictable offence to make (s 44ZZRF) or give effect to (s 44ZZRG) a contract, arrangement or understanding containing a cartel provision.

To constitute an offence a 'fault element' must be established and this is defined as 'knowledge or belief'.

An offence is punishable on conviction by a fine not exceeding the greater of (ss 44ZZRG(3)) and ss 44ZZRF(3) respectively):

'(a) $10,000,000;

(b) if the court can determine the total value of the benefits that:

(i) have been obtained by one or more persons; and

(ii) are reasonably attributable to the commission

3 times that total value;

(c) if the court cannot determine the total value of those benefits—10% of the corporation’s annual turnover during the 12-month period ending at the end of the month in which the corporation committed, or began committing, the offence.'

Section 44ZZRH makes clear that a corporation may be guilty of an offence even if other parties are parties who are not criminally responsible or have been acquitted of the offence unless all other parties to the agreement have been acquitted and a finding of guilt would be inconsistent with their acquittal.

Section 44ZZRI makes provides that a court may make related civil orders against a person prosecuted against ss 44ZZRG or 44ZZRG.

Civil prohibition

In substance the civil prohibition mirrors the criminal prohibition against making or giving effect to cartel provisions (ss 44ZZRJ and 44ZZRK respectively). However, it is not necessary to prove a 'fault element' for the civil prohibitions.

 

Contract, arrangement or understanding

In order to constitute a prohibited cartel provision, the provision must be contained in a 'contract, arrangement or understanding'. Mere parallel conduct or concerted practice is insufficient.

In ACCC v Leahy Petroleum Pty Ltd [2007] FCA 794 the Federal Court held that in order for a 'contract, arrangement or understanding' to exist, the following elements must be present:

  • Communication
  • Consensus
  • Commitment

Communication may be express or implied; this requirement has not attracted much criticism. Similarly, it is not controversial that consent to engage in a course of action is required.

The final element, commitment, has proven controversial. Mere expectation or hope that another party will act (or refrain from acting) is insuffiicent).

Decisions in high profile petrol cases (Leahy and Apco), which failed because this element was not satisfied, led to a review of the 'meaning of understanding' and has featured in a number of other inquiries, most recently the Harper Review. To date, there has been no change in the law, save for the introduction of narrow, industry specific (banking), price signalling laws, which are likely to be repealed in the near future.

 

Competition condition

To be caught by the definition of cartel conduct in the Act, the contract, arrangement or understanding must be between parties, two or more of whom are, or are likely to be (or would be but for the provision) in competition in relation to the supply or acquisition of the relevant goods or services (the 'competition condition') (s 44ZZRD(4))

In Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235 (19 March 2013) the threshold was held to be quite low, with the Court at first instance holding that 'likely to be in competition' in this context meant a 'possibility that is not remote'.

The Harper Panel has recommended that the threshold be altered so that the competition condition be satisfied only where corporations are 'in competition with each otehr or are likely to be in competition with each other, where likelihood is assessed on the balance of probabilities (that is, more likely than not)' (p 363 Final Report; emphasis added)

Agency agreements

In recent years an issue has arisen about whether agency-type arrangements in which the principal also competes (or may compete) with the agent, can constitute cartel conduct.  There is currently no specific exemption for vertical supply arrangements of this nature, although the Harper Panel (2015) has recommended the addition of such an exemption and this has been accepted by the Government.

The issue has been highlighted by two cases brought by the ACCC pursuant to the previous price fixing provision (s 45A). Despite being considered under this provision, the issue would be equally applicable to the new cartel laws.

The cases were ACCC v ANZ Ltd [2013] FCA 1206; [2015] FCAFC 103 and ACCC v Flight Centre Limited (No 2) [2013] FCA 1313; [2015] FCAFC 104.  Despite raising similar issues about whether suppliers competed with their agents for purposes of the cartel laws, at trial the ACCC succeed in the Flight Centre case and failed in the ANZ case; this raised concerns about inconsistency and both cases were appealed to the Full Federal Court.  The ACCC was unsuccessful in its appeal against the ANZ decision and Flight Centre was successful in its appeal.  The appeals were both heard by the same members of the Court and judgment was delivered on the same day. The ACCC has, however, been granted leave to appeal to the High Court in relation to the Flight Centre decision which is scheduled to be heard before the Court on 27 July 2016.

Exceptions and anti-overlap

There are a number of exceptions to Part IV, including the cartel provisions.

The general Part IV exceptions are contained in section 51.

In relation to Part IV Division 1 conduct (cartels) exceptions (relating to anti-overlap and joint ventures) are contained in subdivision D.

 

Authorisation

Parties may seek authorisation from the ACCC for cartel conduct under s 88(1A) of the Act. While an authorisation is in force the cartel provisions will not prevent a corporation entering into or giving effect to the provision in the contract, arrangement or understanding that has been authorised.

Section 90(5A) provides that the ACCC must not grant authorisation in respect of a provision of a proposed cartel agreement unless satisfied that the provision would result, or be likely to result, in a benefit to the public that would outweigh the detriment to the public constituted by any lessening of competition that would, or would be likely to, result from making or giving effect to the cartel provision.

In addition, section 90(5B) provides that the ACCC must not grant authorisation in respect of a provision of an agreement that is or may be a cartel provision unless satisfied the provision has resulted, or is likely to result, in a benefit to the public and that benefit outweighs, or would outweigh the detriment to the public constituted by any lessening of competition that would, or would be likely to, result from giving effect to the cartel provision.

 

Small business collective bargaining

Parties may notify the ACCC if they wish to engage in collective bargaining for the supply or acquisition of goods or services (s 93AB(1A)); if the ACCC does not object to the notification then the parties may engage in the conduct without contravening the cartel provisions.

This collective bargaining notification option is only available where it is reasonably expected that the supply or acquisition contract (or contracts) involved will not exceed $3m (or such other sum as prescribed by regulation) within a 12 month period. Industries which currently benefit from higher thresholds under regulations are:

  • Petrol retailing ($15m)
  • New motor vehicle retailing ($20m)
  • Farm machinery retailing ($10m)
  • Primary production ($5m)

The ACCC may only object to a notification if 'satisfied that any benefit to the public that has resulted or is likely to result or would result or be likely to result from the provision does not or would not outweigh the detriment to the public that has resulted or is likely to result or would result or be likely to result from the provision', give the corporation a written notice (the objection notice) stating that it is so satisfied' (s 93AC)

 

Penalties and remedies for contravention

Application may be made to the Federal Court for the following:

  • Injunction (section 80)
  • Pecuniary penalties for breach (section 76)
  • Divestiture (section 81)
  • Damages (by persons who suffer loss and damage as a result) (six year limitation period) (section 82)
  • Disqualification from directorship (section 86E)
  • Non-punitive orders (such as community service order) (section 86C)
  • Other orders (Court may make 'such orders as it thinks appropriate') (section 87)

In addition, criminal penalties of up to $220,000 per offence or up to 10 years imprisonment are available for individuals found to have committed a cartel offence.

The civil penalties for making or giving effect to a cartel provision are the same as those currently available for other contraventions of Part IV. View remedies page.