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Focus: Criminal cartel legislation passed by Parliament

17 June 2009

In brief: The Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) was passed by both Houses of Parliament this week. Most operative provisions of the Act, which introduces new civil and criminal offences, will come into effect 28 days after it receives Royal Assent. Partner Wendy Peter (view CV) and Lawyer Alexander Gelis report.

How does it affect you?

  • The Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (the Cartel Act) amends the Trade Practices Act 1974 (Cth) to introduce two new criminal cartel offences and two new civil cartel offences, each involving making or giving effect to a contract, arrangement or understanding with a competitor that contains a 'cartel provision'. 
  • Individuals convicted of criminal cartel offences face a maximum sentence of 10 years' imprisonment and a fine of up to $220,000 for each offence. The maximum fines for corporations will be: the greater of $10 million, three times the benefit or 10 per cent of the annual group Australian sales turnover.
  • The joint venture defence to the cartel offences was recently amended, but remains significantly different from the existing joint venture defences to the competition law prohibitions in the Trade Practices Act.
  • The Federal Court will be given jurisdiction in respect of the new criminal cartel offences, and new procedures will be introduced for criminal proceedings commenced in the Federal Court.

Cartel Act passed by Parliament

Having passed through the House of Representatives in February 2009, the Cartel Bill was passed by the Senate on 15 June 2009. The House of Representatives passed the Senate's amendments yesterday.

The Cartel Act introduces:

  • two new criminal cartel offences that involve the making or giving effect to a contract, arrangement or understanding containing a cartel provision, where the parties intend to enter into a contract arrangement or understanding and have knowledge or belief that it contains a cartel provision; and
  • two new civil cartel offences, which mirror the criminal offences but do not require the fault elements of intention and knowledge or belief to be established.

A cartel provision is defined as a provision in a contract, arrangement or understanding between competitors that has:

  • the purpose or effect of fixing, controlling or maintaining prices for goods or services supplied or acquired or re-supplied by a customer; or
  • the purpose of preventing, restricting or limiting the production of goods or capacity to supply services, or allocating customers, suppliers or territories, or bid rigging.

This means that arrangements between competitors that fix prices, restrict output in the production and supply chain, allocate customers, suppliers or territories, or rig bids, will potentially amount to criminal offences.

The new provisions repeal the current price fixing prohibition, but the current exclusionary provision prohibition will continue to apply. The amendments also provide for certain conduct to be exempt from the ambit of these new offences, including exclusive dealing, share and asset acquisitions, setting a maximum price and resale price maintenance.

Individuals convicted of criminal cartel offences face up to 10 years' imprisonment and fines of up to $220,000 for each offence, with exposure to penalties of up to $500,000 for civil cartel offences. The maximum fine for corporations found to have committed a criminal cartel offence remains the same as the existing competition law penalties: the greater of $10 million per offence, three times the benefit of the cartel conduct or 10 per cent of the annual Australian group sales turnover.

The provisions introducing the new cartel offences will come into effect 28 days after the Cartel Act receives Royal Assent. From the commencement of these provisions, it will be a criminal offence to make or give effect to a cartel provision in a contract, arrangement or understanding. This means that the prohibition on giving effect to a cartel provision applies even if the arrangement was made before the commencement of the new provisions.

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Amendments to the joint venture exception

The Cartel Act includes a joint venture defence to the cartel offences. As originally drafted, this defence was criticised as being too restrictive, since it was limited to contracts (and did not extend to less formal arrangements), and applied only to joint ventures for the production and/or supply of goods or services, and so potentially did not protect arrangements between joint venturers to acquire inputs for the joint venture activity.

In response to these criticisms, the draft legislation was amended to extend the defence to arrangements between joint venturers who have failed to enter into a contract but 'intended' and 'reasonably believed' they had done so at the time that they entered into the arrangement.

A Supplementary Explanatory Memorandum was also released, which notes that where acquisitions (such as inputs) by a joint venture are provided for in a joint venture contract, and the joint venture is for the production or supply of goods or services, such acquisitions are also intended to be included in the joint venture exception to cartel provisions. Unfortunately, this amendment to the Explanatory Memorandum may only be considered where the meaning of the legislation is uncertain, so it does not offer joint venturers any meaningful protection.

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Federal Court criminal jurisdiction

The Cartel Act vests indictable jurisdiction in the Federal Court for the new criminal cartel offences. Prosecutions in respect of criminal cartel offences may be commenced by the Commonwealth Director of Public Prosecutions in a state or territory Supreme Court or in the Federal Court. To provide for this new jurisdiction, the Federal Court of Australia Amendments (Criminal Jurisdiction) Bill 2008, which has not yet been passed by the Senate, contains a procedural framework for the Federal Court, which will be dealing with indictable criminal offences for the first time. The Federal Court Bill includes provisions dealing with pre-trial proceedings, bail, the empanelling of juries, conduct of trials, sentencing and appeals.

Published 17 June 2009

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