Focus: Extending the reach of Australia's cartel laws and the first criminal prosecution
28 July 2016
In brief: Recent decisions handed down in separate cartel proceedings confirm that Australian courts will take a broad approach to the extraterritorial ambit of Australia's competition laws. This means that more foreign businesses could be caught by Australia's criminal and civil cartel laws. These decisions coincide with the commencement of the first criminal cartel case in Australia. Partner Kon Stellios (view CV) and Senior Associate Amanda Richman report on these developments and their implications.
- Broad approach to the extraterritorial ambit of Australia's competition laws
- The first criminal cartel proceedings in Australia
How does it affect you?
- More conduct which takes place outside Australia will be caught by Australia's competition laws, including the cartel laws. Foreign entities with Australian subsidiaries need to be particularly careful as they could be primarily liable for any cartel conduct engaged in by them outside Australia. For example, supplying corporate services to an Australian subsidiary or directing it when dealing with a global customer may, in certain circumstances, be sufficient to subject the parent company to Australia's competition laws.
- The criminal cartel charge laid against global shipping company Nippon Yusen Kabushiki Kaisha (NYK) (which has pleaded guilty) provides the first opportunity to ascertain how the Australian courts address the issue of fines in the context of criminal cartel proceedings. This could also be the beginning of a stream of criminal cartel charges.1
Conduct outside Australia can be caught by Australia's cartel laws if it is engaged in by Australian companies or by foreign corporations 'carrying on business' or 'otherwise connected' with Australia. There have been two recent Federal Court decisions dealing with the circumstances in which a foreign corporation will be found to be 'carrying on business' in Australia. The first concerned the alleged cartel in the submarine and land cable industry and the second concerned the alleged wire harness cartel.
A foreign parent will be considered to be carrying on business in Australia where an Australian subsidiary acts on its behalf as agent. In these recent decisions, the court found that the parent company was carrying on business in Australia even though its local subsidiary was not acting as its agent.
Land and submarine cable industry
In ACCC v Prysmian2, the ACCC alleged that Italian-based company Prysmian, and French-based company Nexans SA, had given effect to price fixing and market sharing agreements in respect of the supply of land and submarine cables. In this case, the ACCC commenced proceedings against the ultimate parent company in the respective corporate groups of Prysmian and Nexans. While they each had local Australian subsidiaries, the ACCC did not join those subsidiaries to the proceeding.
The ACCC was successful against Prysmian. Prysmian admitted that it was 'carrying on business' in Australia at the relevant time. The issue therefore was whether Prysmian was a party to the market sharing and price fixing agreements alleged by the ACCC. The court found that it was.
By contrast, Nexans SA successfully defended its proceedings on the basis that there was no evidence that Nexans SA itself was involved in the relevant agreements. While it was therefore unnecessary for the court to determine whether Nexans SA was 'carrying on business' in Australia at the relevant time, the court proceeded to address this issue and found that it was. This was on the basis that Nexans SA was providing services to its subsidiary in Australia. The services included R&D, engineering work, technical assistance, patent protection, group-wide procurement negotiations, and use of shared expert services.
Wire harness industry
In ACCC v Yazaki3, the court considered whether the Japanese company Yazaki was carrying on business in Australia. In that case, Yazaki's Australian subsidiary was not a party to the proceedings.
The court found that the Australian subsidiary was not conducting business in Australia as agent for the Japanese parent company. Nevertheless, the court concluded that the Japanese parent corporation was 'carrying on business' in Australia in dealing with the Toyota Motor Corporation including because:
- Yazaki was responsible for the relationship with Toyota and continued to have ongoing responsibility on pricing insofar as the relationship with Toyota Australia was concerned.
- After the award of the global tender, Yazaki's Australian subsidiary was responsible for quotations to Toyota Australia but these were based on the global tender (although price adjustments were allowed on factors such as local design requirements and exchange fluctuations).
- Yazaki's Australian subsidiary was required to seek Yazaki’s approval to submit price down reductions to Toyota Australia and had frequent and regular communications with Yazaki concerning the Toyota business and provided it with financial information on a regular basis.
The Commonwealth Director of Public Prosecutions has laid charges for the first time since the criminal cartel laws were introduced in 2009.4 The charges against global shipping company NYK follow an ACCC investigation into NYK's transportation of imported vehicles to car manufacturers between July 2009 and September 2012. NYK has faced charges in other jurisdictions, including the US. In Australia, NYK faces fines of up to $10 million, three times the benefit obtained from the offence, or 10 per cent of its Australian annual turnover.
The Australian proceedings will test, for the first time, how fines are to be determined under the criminal cartel laws. When civil proceedings are brought by the ACCC, the regulator and respondents can make submissions to the court regarding appropriate penalties.5 This has supported a long and established practice of respondents negotiating settlements with the regulator and making joint submissions on an agreed penalty. However, this practice is not possible in criminal proceedings where the courts are generally not permitted to receive or consider submissions made by a prosecutor as to a specific fine that should be imposed, or a range within which the fine should fall.6
The matter against NYK is listed for a further directions hearing in September 2016. It remains to be seen how the court deals with fines in criminal cartel matters including for 'cooperating' defendants.
The law on the application of Australia's cartel laws is developing quickly and this is likely to continue, particularly in respect of the criminal cartel provisions. The ACCC continues to enforce the cartel provisions as a priority area and has indicated that it has a number of investigations currently on foot. Businesses in Australia and overseas should watch these developments carefully as the cartel laws have broad extraterritorial reach and the consequences of non-compliance are significant.
- ACCC Chairman Rod Sims has been reported saying that the ACCC has 10 to 12 other cartel investigations, and it is trying to lay the platform for a continuing stream of criminal cartel cases. See Misa Han, 'ACCC bags first criminal cartel case against Nippon Yusen Kabushiki Kaisha' The Australian Financial Reivew (18 July 2016).
- Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi S.R.L. (No 12)  FCA 822.
- Australian Competition and Consumer Commission v Yazaki Corporation (No 2)  FCA 1304.
- Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth).
- Construction, Forestry, Mining and Energy Union & Anor v Director, Fair Work Building Industry Inspectorate  HCA 46.
- Barbaro v The Queen (2014) 253 CLR 58.
- Kon StelliosPartner,
Ph: +61 2 9230 4897
- Fiona CrosbieChairman,
Ph: +61 2 9230 4383
- Carolyn OddiePartner,
Ph: +61 2 9230 4203
- Ted HillPartner,
Ph: +61 3 9613 8588
- John HedgePartner,
Ph: +61 7 3334 3171
- Jacqueline DownesPartner, Practice Leader, Competition, Consumer & Regulatory,
Ph: +61 2 9230 4850
You can leave a comment on this publication below. Please note, we are not able to provide specific legal advice in this forum. If you would like advice relating to this topic, contact one of the authors directly. Please do not include links to websites or your comment may not be published.