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Cartel conduct

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Overview

cartelsCartel conduct is prohibited in a variety of ways in Australia. Most directly, it is prohibited by Part IV, Division 1 of the Competition and Consumer Act, which defines and prohibits, both civilly and criminally, cartel conduct. The definition of cartel conduct is lengthy (it runs to 36 paragraphs), but encompasses agreements between competitors to:

  • fix prices
  • divide markets
  • rig bids or
  • restrict outputs. sec

Conduct falling within this definition of 'cartel conduct' is prohibited per se. Anti-competitive conduct which falls outside the definition of cartel conduct, or which benefits from an exemption from the per se prohibition, may still contravene other provisions in the Competition and Consumer Act; most notably section 45 which prohibits anti-competitive agreements and, following changes commencing 6 November 2017, also prohibits anti-competitive concerted practices..

Note: The Harper Review Final Report recommended significant changes designed to simplify Australia's cartel laws. View overview of recommendations and government response (PDF).

Legislation was passed in October 2017 giving effect to many of these recommendations. View the Competition and Consumer (Competition Policy Reform) Act 2017.

The ACCC has also developed a cartel immunity policy which is available to the first party to come forward, subject to certain criteria. In addition, parties who cooperate may benefit from the ACCC's cooperation Policy.

 

The legislation

Part IV Restrictive Trade Practices
Division 1 Cartel conduct

As part of the simplification process to be brought about as part of the Harper reforms, these provisions will soon be re-numbered. For example, section 44ZZRD (defining cartel conduct) will become 45AD). In most cases the renumbering simply involves replacing '4ZZR' in the current provisions with '5A' (eg, 44ZZRF becomes 45AF).  Unfortunately that only works up until s 44ZZRP!

Division 1 - Cartel Conduct

Subdivision A - Introduction

This sub-division includes the core definitional provision - s 44ZZRD

Subdivision B - Offences etc.

This sub-division includes the core criminal offence provisions (44ZZRF Making a contract etc. containing a cartel provision and 44ZZRG Giving effect to a cartel provision) and related provisions

Subdivision C - Civil penalty provisions

This sub-division contains the core criminal offence provisions (44ZZRJ Making a contract etc. containing a cartel provision and 44ZZRK Giving effect to a cartel provision ) and related provisions

Subdivision D - Exceptions

Division 2 Other Provisions

45 Contracts, arrangements or understandings that restrict dealings or affect competition

See further anti-competitive agreements legislation page.

Note that section 45 has been extended to capture anti-competitive concerted practices (6 November 2017)

Part VI Enforcement and Remedies

Section 79

This provision provides for penalties against persons who have attempted to contravene or been involved in the contravention of the cartel offences.

It provides for a term of imprisonment of not more than 10 years or a fine not exceeding 2,000 penalty units (the value of a penalty unit is currently $210 with the result that the maximum fine for an individual is $420,000 per offence)

Repealed provision

Until 2009 price fixing was prohibited by s 45 of the (then) Trade Practices Act 1974 with the aid of section 45A. Section 45A deemed certain price fixing activity to substantially lessen competition for purposes of the general prohibition against anti-competitive agreements in section 45. The core components of the current prohibition against price fixing cartels are substantially the same as those that were contained in sections 45/45A with the result that much of the case law associated with those provisions remains relevant to the interpretation of the current cartel laws:

 

The prohibition

Summary

Australia's competition laws are contained in the Competition and Consumer Act 2010 (Cth).

Division 1 of Part IV of the CCA (sections 44ZZRA - 44ZZRV) now contains the primary prohibition on cartel conduct (in the form of price fixing, bid rigging, market division and restricting outputs) in Australia. This Division was inserted by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 and entered into operation on 24 July 2009. It replaced the former s 45A which deemed certain price fixing arrangements between competitors to have the purpose, effect or likely effect of substantially lessening competition.

The criminal and civil prohibitions are the same, save for an additional fault element of 'knowledge or belief' in relation to the criminal offence.

Cartel conduct is defined in s 45AD (previously s 44ZZRD) as including four forms of activity: price fixing, market division, restricting outputs and bid rigging. This conduct is prohibited where made or given effect to in a 'contract, arrangement or understanding' and two or more of the parties involved are competitors (or would be but for the conduct). In relation to price fixing the provision must have the 'purpose or effect' of price fixing; in relation to the other forms of conduct the provision must have the requisite 'purpose'. Price fixing is defined in the same way in s 44ZZRD as it was in the former s 45A.

Contract, arrangement or understanding

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

The final element - 'commitment' - has proven the most controversial and has, in part, led to a recommendation to extend anti-competitive conduct prohibitions (but not the direct cartel prohibitions) to 'concerted practices'.

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 recommended that the threshold be altered so that the competition condition be satisfied only where corporations are 'in competition with each other 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). Although this change appeared in Exposure Draft legislation (which would have repealed s 44ZZRB defining likely as 'a possibility that is not remote', it did not appear in the final bill).

Definition of cartel conduct

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) recommended that 'likely to be in competition' be assessed on the balance of probabilities (p 363 final report). Although the government initially accepted this recommendation, it was removed from the implementation bill prior to its passage in October 2017.

Criminal offence (fault elements)

HandcuffsIt 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'.

For details about penalties, including criminal penalties, see criminal penalty tab below.

Contract, arrangement or understanding

AgreementIn 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

Competition - businessmen raceTo 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 recommended that the threshold be altered so that the competition condition be satisfied only where corporations are 'in competition with each other 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). See further Competition and Consumer Amendment (Competition Policy Reform) Act 2018.

Agency arrangements

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 was accepted by the Government. For undisclosed reasons this change was removed from the final bill which passed through Parliament in October 2017.

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 appealed the Flight Centre decision to the High Court and succeeded; the Court found Flight Centre was in competition with the airlines with respect to the sale of tickets (contractual rights to travel).

 

Exemptions 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 and notification

Parties may seek authorisation (on public benefit grounds) for proposed cartel conduct.

Small business may also provide a collective bargaining notification to the ACCC.

Authorisation

Approved stampParties may seek authorisation from the ACCC for cartel conduct under s 88(1) 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.

Effective 6 November 207, section 90(7) (read with s 90(7)(a)) provides that the ACCC must not grant authorisation in respect of a provision of a proposed cartel agreement unless satisfied in all the circumstances that the 'conduct would result, or be likely to result, in a benefit to the public' and 'the benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct'.

Notification (small business)

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)

 

Immunity and cooperation policy

Immunity - vaccinationThe ACCC has developed a policy to encourage cooperation and, in the case of cartels, an immunity policy to encourage whistleblowers.

See also MOU between CDPP and ACCC

For more details on the immunity and cooperation policy see the separate immunity page.

On 4 August 2017 the ACCC announced it would be conducting another review of its cartel immunity and cooperation policy in light of recent experiences with criminal cartel investigations: Rod Sims, Law Council of Australia Speech, 4 August 2017.

 

Penalties for contravention | Private remedies

cartelsApplication 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 2,000 penalty units* per offence (currently $420,000) per offence or up to 10 years imprisonment are available for individuals found to have committed a cartel offence (section 79).

The first criminal conviction occurred on 3 August 2017 and involved Nippon Yusen Kabushiki Kaisha (NYK) involvement in a shipping cartel. The matter was not contested and NYK received a 50% reduction in penalty for pleading guilty and cooperating. The fine imposed (incorporating the discount) was $25 million. See CDPP v Nippon Yusen Kabushiki Kaisha Federal Court of Australia [2017] FCA 876.

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 penalties page.

* On 1 July 2017 the amount of a penalty unit increased from $180 to $210, resulting in an increase of the maximum criminal fine from $360,000 to $420,000. From 2020 the government will automatically index penalty units every three years based on the consumer price index.

Criminal offence

HandcuffsIt 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.

Individuals

Section 79 provides for penalties against persons who have attempted to contravene or been involved in the contravention of the cartel offences. It provides for a term of imprisonment of not more than 10 years or a fine not exceeding 2,000 penalty units (the value of a penalty unit is currently $210 with the result that the maximum fine for an individual is $420,000 per offence)

Civil penalties

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.

 

Guidance

Image of whiteboard guide

On 25 October 2017 the ACCC issued 'interim' guidelines addressing the introduction on a prohibition on concerted practices. Concerted practices do not form part of the cartel prohibitions in Division 1, but instead will be prohibited under s 45 if it is also demonstrated they have a purpose or effect of substantailly lessening competition.

See Interim guidelines on concerted practices. These follow a draft framework released in October 2016 for consultation.

The concerted practices guidance has had a significant overhaul since the release of the draft framework. There is more detail (beyond just examples) of what might constitute a concerted practice and 'engaging in a concerted practice'. There's also more information and what might constitute having the purpose, effect or likely effect of substantially lessening competition.' Some of the 'examples' of risky conduct from the framework remain, but there are also new examples. The 'priority' factors for ACCC investigation and enforcement are the same, but some additional guidance about issues that may impact on the likelihood of enforcement action have been inserted; they include concerted practices 'considered as part of broader ACCC investigations', evidence 'beyond independent behaviour' and the information recipient's 'response to the receipt of information'.

 

Cases

Links to some of the key cases relating to cartels in Australia are provided below.

There have been no High Court cases dealing with the dedicated cartel provisions in Division 1 of Part IV. Many of the elements of the previous price fixing provision in s 45A of the Trade Practices Act have been retained for the new cartel provision and therefore remain relevant - these cases are therefore included in this list and clearly labelled as relating to s 45/45A.

High Court cases

Aeroplane

ACCC v Flight Centre Limited (No 2) [2016] HCA 49
Section 45/45A: Attempted price fixing - inducement - competitors - market definition - vertical supply arrangement (focus on whether Flight Centre was acting of agent of airlines and whether this prevented them being competitors; majority held it did not prevent them being competitors)

 

 

Air New Zealand plane

Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC [2017] HCA 21
Section 45/45A: Price fixing; 'market in Australia'; s 4E

 

Federal Court (Full bench) (chronological)

Broken eggs

ACCC v Australian Egg Corporation Limited [2017] FCAFC 152 (25 September 2017)
Cartel provisions: Allegations of attempting to induce cartel conduct (dismissed)

 

Service station

Apco Service Stations Pty Ltd v ACCC [2005] FCAFC 161
Section 45/45A (Contract, arrangement or understanding)
Meaning of arrangement or understanding

 

 

 

Beer

TPC v Nicholas Enterprises (1979) 40 FLR 83
Section 45/45A (Contract, arrangement or understanding)
Contract, arrangement or understanding

 

Petrol

TPC v Service Station Association Ltd (1993) 44 FCR 206
Section 45/45A (Contract, arrangement or understanding)
Contract, arrangement or understanding

 

Piggy bank

ACCC v ANZ Ltd [2013] FCA 1206; [2015] FCAFC 103
Section 45/45A (Competitors)
Price fixing - competitors - market definition - vertical supply arrangement
Compare Flight Centre (High Court, above)

 

 

 

Radio

Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1983) 68 FLR 70 (external)
Section 45/45A (Fixing, controlling, maintaning price)
Joint advertising scheme - whether price fixing

 

Federal Court

NYK Ship

Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876
Cartel provisions
First criminal cartel conviction; $25m penalty (50%discount for guilty plea)

 

Electrical cable

ACCC v Olex Australia Pty Ltd [2017] FCA 222
Cartel provisions
Considered whether there was a cartel or boycott (exclusionary provision)
Case dismissed

 

Mining

Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235 (19 March 2013)
Cartel provisions
Bid rigging - contract arrangement understanding - competitors - anti-overlap

 

Petrol pumps

ACCC v Leahy Petroleum Pty Ltd [2007] FCA 794
Section 45/45A - Price fixing
Meaning of arrangement or understanding

 

Construction

ACCC v TF Woollam & Son Pty Ltd [2011] FCA 973 (24 August 2011)
Section 45/45A - Price fixing
Price fixing - cover pricing in building tenders

 

 

Cardboard box

ACCC v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617
Section 45/45A - Price fixing
Price fixing - remedies

 

 

Bed sheets

TPC v David Jones (Australia) Pty Ltd (1986) 13 FCR 446
Section 45/45A - Price fixing
Establishing collusion; price fixing

 

Electricity meter

TPC v Email Ltd (1980) 43 FLR 383
Section 45/45A - Price fixing
Establishing collusion; price fixing

 

History of the provision

HistoryThe current cartel laws were introduced by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 and came into operation on 24 July 2009. They were amended as part of the Harper Reforms on 6 November 2017.

These laws were part of the package of reforms which separately defined cartel conduct and created an offence together with parallel civil cartel prohibitions. These collectively replaced the former s 45A which dealt directly with price-fixing.

The reforms were initially recommend by the Dawson Committee as part of its 2002-2003 inquiry into the Competition Law provisions of the Trade Practices Act.

 

Reports

There have been a number of reports dealing with cartel conduct, or aspects of the cartel prohibition. These include:

Harper Report (2014-2015)

Dawson Report (2002-2003) (Chapter 10 discussing penalties for cartels)

Inquiry into the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (Senate Report)

See generally the main reports page.

 

Reading

For a comprehensive discussion of Australia's cartel laws see: Beaton-Wells and Fisse, Australian Cartel Regulation: Law, Policy and Practice in an International Context (Cambridge University Press, 2011)

For research and commentary on cartel law in Australia see the reading room.

See also

External linkACCC Cartels information page

External linkThe Cartel Project
Launched April 2009 this is the home page for an "interdisciplinary empirical research project [which] will investigate how and why criminalisation of serious cartel conduct has become bipartisan policy in Australia."