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Focus: Competition Law – January 2008

Criminalisation of cartels draft Bill released

In brief: The Federal Government has released the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 for public comment. The draft Bill proposes two new criminal offences to deal with serious cartel conduct. Partner David Brewster (view CV), Lawyer Helen Anness and Law Clerk Maya Tal report.

• Background
• Key elements of the new offences
• Investigation and prosecution
• Dishonesty
• Telephone interception
• Conclusion

Background

The Federal Government has released an exposure draft Bill for public comment as the first step in its proposed criminalisation of serious cartel conduct. The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (the draft Bill), which largely replicates the model mooted by the previous Coalition Federal Government in 2005, was released by Assistant Treasurer Chris Bowen on 11 January 2008.

The draft Bill is accompanied by a discussion paper outlining its key elements and a proposed Memorandum of Understanding (the MOU) between the Australian Competition and Consumer Commission (the ACCC) and the Commonwealth Director of Public Prosecutions (the DPP ) to facilitate the implementation of criminal prohibitions.

The genesis of the draft Bill can be traced to 2003, when the Review of Competition Provisions of the Trade Practices Act 1974 (the Dawson Review) recommended introducing criminal penalties into Australian law for hard core cartel conduct.

Key elements of the new offences

The draft Bill proposes that two criminal offences be introduced into Part IV of the Trade Practices Act 1974 (Cth) (the TPA) and the Competition Code: (i) making, and (ii) giving effect to, a contract, arrangement or understanding containing a cartel provision, with the intention of dishonestly obtaining a benefit.

A cartel provision is one to fix prices, restrict outputs, allocate customers, suppliers or territories, or rig bids by parties that are, or would otherwise be, in competition with one another. The offences apply to corporations carrying on business in Australia and their employees, but the legislation will not operate retrospectively. Individuals found to breach the new criminal offences will face up to five years' imprisonment and a fine of up to $220,000. Corporations can be fined the greater of $10 million or three times the value of the benefit from the cartel or, where the value cannot be determined, 10 per cent of annual turnover of the Australian corporate group.

The criminal offences will operate alongside new civil prohibitions, which mirror the criminal offences but for the requirement to act with the intention of dishonestly obtaining a benefit. The maximum pecuniary penalties proposed for the new civil prohibitions are the same as those applicable to existing civil breaches, ie for corporations, the greater of $10 million or three times the value of the benefit from the cartel or, where the value cannot be determined, 10 per cent of annual turnover and, for individuals, $500,000.

The draft Bill exempts criminal and civil penalties for notified collective bargaining, conduct authorised by the ACCC, and arrangements between related body corporates. It also reiterates the existing defence for civil liability for joint ventures that do not have the purpose or effect of substantially lessening competition.

While breaches of the civil prohibitions will be brought before a judge in the Federal Court, the criminal offences will be prosecuted in front of a jury in either the Federal Court or a Supreme Court. The elements of the criminal offence must be established beyond reasonable doubt as opposed to the civil standard of the balance of probabilities.

Investigation and prosecution

A proposed MOU between the ACCC and DPP will specify the responsibility of each agency, establish standards of cooperation and channels of communication, and is intended to facilitate the implementation of an effective immunity policy. The ACCC will investigate potential offences and decide whether to refer a serious case to the DPP, which will then be responsible for prosecuting offenders.

The ACCC and DPP will consider, for example, whether the offending conduct is longstanding and its market impact, as well as the scale of detriment to consumers of the public and previous involvement in cartel conduct. The ACCC will also take into account in its reference decision whether the value of affected commerce exceeds $1 million within a 12-month period, or whether the value of a bid or series of bids exceeds $1 million within a 12-month period. The ACCC will retain the ability to grant immunity from civil proceedings, but the DPP will manage immunity from criminal proceedings.

While the draft Bill enhances the ACCC's search and seizure and information-gathering powers, it also contains provisions relating to the protection of information received by the ACCC in confidence concerning a potential breach.

Dishonesty

The draft Bill adopts dishonesty as a means of distinguishing between the criminal and civil offences, with the Federal Government seeking comments on whether this is the appropriate test. This approach follows the example of the Enterprise Act 2002, which was brought into force in the United Kingdom in June 2003 to make it a criminal offence to dishonestly agree to engage in price fixing, restrictions of supply or production, market-sharing or bid-rigging. The test for dishonesty (both in the UK and under the draft Bill in Australia) is whether conduct is dishonest according to the standards of ordinary people and is known by the defendant to be dishonest according to the standards of ordinary people.

Concern has been raised that the dishonesty requirement of the new criminal offences is unnecessary and is likely to be problematic to prove before a jury, in particular as it has a subjective element, ie the defendant must have known the conduct was dishonest to ordinary standards. There has been a delayed use in the UK of the criminal provisions, which has arguably resulted from the high threshold for proving dishonesty.

The UK provisions remain untested but recent activity by the UK regulator, the Office of Fair Trading (the OFT), which has now begun to instigate criminal proceedings, may disprove some of the concerns raised with the dishonesty requirement. The OFT announced in August 2007 that it is conducting a criminal investigation into collusion between British Airways and Virgin over the price of long-haul passenger fuel surcharges (although no charges against individuals are proposed) and in December 2007 that it has brought charges against three UK businessmen for allocating markets and customers, restricting supplies, fixing prices and rigging bids for the supply of marine hosing used to transfer oil. Dishonesty may still result in evidential difficulties before a jury in the UK but it does not seem to be hampering the OFT's efforts to bring charges.

In a different context (an extradition case, Norris v US, where the United States is seeking to show that conduct before June 2003 can be captured by the pre-existing criminal offence of conspiracy to defraud), the English courts have had some opportunity to consider what constitutes a dishonest cartel. Although this case remains subject to appeal, the argument seems to have been dismissed that deception beyond mere secrecy must be shown to establish dishonesty.

By comparison, a number of jurisdictions where criminal sanctions have been introduced successfully, including in particular the US, do not require dishonesty to be shown to distinguish conduct from a civil breach.

Telephone interception

Whereas the proposed cartel offences impose a maximum five years imprisonment, telephone tapping powers under current legislation are only available if the offence is punishable by imprisonment of seven years or more. Authorities would still be able to access stored communication and data accompanying the communication and may also invoke listening, tracking and optical surveillance devices (other than telephone interception). The Federal Government is seeking views on whether increased interception powers could be justified for an offence with a shorter jail term than seven years.

Conclusion

Comments are invited on any matters related to the initiatives contained in the draft Bill and, specifically, on two particular questions, namely: (i) how to distinguish criminal from civil prohibitions; and (ii) whether telephone interception warrants should be available for the new criminal cartel offences. The deadline for submissions is close of business on 29 February 2008.

For further information, please contact:

• David BrewsterPartner, Melbourne
  Ph: +61 3 9613 8707
  David.Brewster@aar.com.au
• Carolyn OddiePartner, Sydney
  Ph: +61 2 9230 4203
  Carolyn.Oddie@aar.com.au
• Peter JamesPartner, Brisbane
  Ph: +61 7 3334 3360
  Peter.James@aar.com.au

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