Australian regulators are getting more aggressive in enforcing its competition laws, demonstrated by a wave of significant enforcement actions reached in just the last couple of months. Multinationals with operations in Australia should heed the warning.
Australia’s antitrust law provisions are governed by the Competition and Consumer Act (CCA), which has been in effect since 2010. The law is predominately comprised of civil prohibitions, with the exception of cartel conduct, in which criminal sanctions may apply.
In Australia, penalties for participating in any anti-competitive activity may only be imposed by a court, and those penalties can be significant. For a company, the maximum civil fine or penalty, per violation, is the greater of AU$10 million (US$7.2 million) or three times the value of the benefit that the company and any related corporate bodies obtained by the violation, or—if the court cannot determine the value of the benefit—10 percent of global annual turnover in the year the conduct took place. Only turnover in relation to goods or services supplied in Australia will be relevant to calculating annual turnover.
Fines or penalties for individuals are also substantial. Individuals may face up to 10 years imprisonment, a fine of AU$340,000 (US$245,531), or both, for criminal violations. The maximum civil penalty for individuals is AU$500,000 (US$361,075).
“Multinational companies that carry on business in Australia, whether directly or indirectly, need to be aware of the CCA and its extra-territorial operation,” says Sar Katdare, a partner with the Australian law firm Johnson Winter & Slattery.
Mergers and acquisitions, arrangements or joint ventures with competitors, or arrangements with customers or suppliers that may adversely affect the competitive state of markets in Australia and other unilateral conduct regarding retail pricing or restrictions on supply or acquisition may all be subject to Australian anti-trust law.
“Multinational companies that carry on business in Australia, whether directly or indirectly, need to be aware of the CCA and its extra-territorial operation.”
Sar Katdare, Partner, Johnson Winter & Slattery
Each February, the Australian Competition and Consumer Commission (ACCC), the country’s competition authority, releases its list of top enforcement priorities for the coming year. “If you’re on that list, you should consider your options and take steps to understand your risk in more detail,” says Kirsten Webb, a partner with Australian law firm Clayton Utz and head of its national competition practice group.
This year, for example, in the area of competition law, specifically, the ACCC said it will continue to focus on cartel conduct, anti-competitive conduct and practices, and misuse of market power. “Detecting and deterring cartel conduct continues to be a major focus for the ACCC, not to mention our international counterparts,” ACCC Chair Rod Sims said in his annual address before the Committee for Economic Development of Australia in February. “We have around 20 cartel investigations under way at any one time, and we expect one or two criminal prosecutions this year and some other important civil proceedings.”
As in other parts of the world, numerous companies across industry sectors in Australia must comply with antitrust standards in other parts of the world, as well, which necessarily affects their assessment of antitrust risk and associated legal analysis. “Engaging local counsel is always a useful step, as there may be intricacies under Australian competition and consumer laws that may need to be addressed depending on your business area,” Webb says.
If a company discovers that it has unwittingly become embroiled in antitrust activity, “the first thing to do is make sure the company has its facts about the conduct straight, in the shortest possible timeframe,” Webb says.
Similar to the United States, Australia has a leniency program that offers full immunity to the first individual or company that blows the whistle on cartel activity, provided that they meet certain criteria. Immunity is available for both civil and criminal infringements.
Below is a partial description of what constitutes cartel activity under the Competition and Consumer Act.
(1) For the purposes of this Act, a provision of a contract, arrangement or understanding is a cartel provision if:
(a) either of the following conditions is satisfied in relation to the provision:
(i) the purpose/effect condition set out in subsection (2);
(ii) the purpose condition set out in subsection (3); and
(b) the competition condition set out in subsection (4) is satisfied in relation to the provision.
(2) The purpose/effect condition is satisfied if the provision has the purpose, or has or is likely to have the effect, of directly or indirectly:
(a) fixing, controlling or maintaining; or
(b) providing for the fixing, controlling or maintaining of; the price for, or a discount, allowance, rebate or credit in relation to:
(c) goods or services supplied, or likely to be supplied, by any or all of the parties to the contract, arrangement or understanding; or
(d) goods or services acquired, or likely to be acquired, by any or all of the parties to the contract, arrangement or understanding; or
(e) goods or services re-supplied, or likely to be re-supplied, by persons or classes of persons to whom those goods or services were supplied by any or all of the parties to the contract, arrangement or understanding; or
(f) goods or services likely to be re-supplied by persons or classes of persons to whom those goods or services are likely to be supplied by any or all of the parties to the contract, arrangement or understanding.
(3) The purpose condition is satisfied if the provision has the purpose of directly or indirectly:
(a) preventing, restricting or limiting:
(i) the production, or likely production, of goods by any or all of the parties to the contract, arrangement or understanding; or
(ii) the capacity, or likely capacity, of any or all of the parties to the contract, arrangement or understanding to supply services; or
(iii) the supply, or likely supply, of goods or services to persons or classes of persons by any or all of the parties to the contract, arrangement or understanding; or
(b) allocating between any or all of the parties to the contract, arrangement or understanding:
(i) the persons or classes of persons who have acquired, or who are likely to acquire, goods or services from any or all of the parties to the contract, arrangement or understanding; or
(ii) the persons or classes of persons who have supplied, or who are likely to supply, goods or services to any or all of the parties to the contract, arrangement or understanding; or
(iii) the geographical areas in which goods or services are supplied, or likely to be supplied, by any or all of the parties to the contract, arrangement or understanding; or
(iv) the geographical areas in which goods or services are acquired, or likely to be acquired, by any or all of the parties to the contract, arrangement or understanding; or
(c) ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services:
(i) one or more parties to the contract, arrangement or understanding bid, but one or more other parties do not; or
(ii) two or more parties to the contract, arrangement or understanding bid, but at least 2 of them do so on the basis that one of those bids is more likely to be successful than the others; or
(iii) two or more parties to the contract, arrangement or understanding bid, but not all of those parties proceed with their bids until the suspension or finalization of the request for bids process; or
(iv) two or more parties to the contract, arrangement or understanding bid and proceed with their bids, but at least two of them proceed with their bids on the basis that one of those bids is more likely to be successful than the others; or
(v) two or more parties to the contract, arrangement or understanding bid, but a material component of at least one of those bids is worked out in accordance with the contract, arrangement or understanding.
Source: Competition and Consumer Act
Thus, when a company discovers it may have been involved in cartel activity, it is vital to be first in the door to seek immunity from the ACCC. “This is likely to require a broad internal investigation into the conduct and may require external counsel to assist,” says Webb.
“An internal investigation is important, because any later reporting companies will have to provide significant and valuable evidence that will assist the ACCC to bring a case against the other cartel members in order to get material reductions in fines,” says Webb. If a company is not first in to cooperate, the extent of leniency afforded will depend partly on the level and degree of cooperation and the time at which cooperation was offered.
To reduce the risk of an antitrust violation, an effective antitrust compliance and audit process is essential. “We repeatedly see examples in Australia of cases where a routine compliance audit was the means by which a company identified problematic conduct, so was able to seek immunity from prosecution. Audits are also important to enable a business to understand the type of risks it faces and to tailor its own compliance efforts accordingly,” says Alice Muhlebach, a partner in the competition and consumer protection group of law firm Ashurst in its Melbourne office.
“It is very important that businesspeople at all levels—and not just the compliance or legal professionals who support them—understand the particular antitrust risks that may arise in their day-to-day dealings, and know how to respond to them, and when to seek advice,” Muhlebach adds. “This requires a genuine understanding of what antitrust risk might ‘look like’ to that person.”
That being said, employee training is also essential. In many cases, antitrust violations are not the result of wilful conduct, “but rather has occurred where the people involved did not understand why their conduct might be illegal,” Muhlebach says.
Having in place a robust antitrust compliance program and cooperating in the event of antitrust investigation in Australia is especially important at a time when the ACCC’s enforcement activity is picking up speed. In the last two months alone, the ACCC has succeeded in bringing several significant actions, which signals that antitrust risks for companies doing business in Australia are increasing.
For example, the Federal Court of Australia in April ordered Cement Australia and four related corporate entities to pay a total penalty of AU$18.6 million for violations of the CCA. The ruling related to proceedings brought by the ACCC in 2008 against Cement Australia and its corporate entities over allegations that the companies entered into agreements to secure contracts between 2002 and 2006 with the purpose or effect of substantially lessening competition in the cement market.
That ruling followed another AU$18 million penalty imposed by the court in the same month, that one against Colgate-Palmolive. It was the third largest penalty ever ordered by the court for breaches of the competition provisions of the CCA.
The ruling resulted from proceedings brought by the ACCC in December 2013 against Colgate-Palmolive, PZ Cussons, Woolworths, and a former sales director of Colgate-Palmolive for entering into covert arrangements designed to control the price and supply of laundry detergents.
Of the total penalty amount against Colgate-Palmolive, AU$6 million was imposed merely for sharing confidential information with its competitors—a valuable warning for other companies doing business in Australia. “The information sharing understanding involved phone calls between senior managers of competing companies, many of which started as social calls, but turned to unlawful exchanges of pricing information,” the ACCC stated.
Additionally, the court ordered the former sales director of Colgate-Palmolive to pay a penalty of AU$75,000 and has been disqualified from managing a company for seven years. Unilever was granted immunity in the case for coming forward with information on the conduct. The ACCC’s case against PZ Cussons and Woolworths will go to trial in June 2016.
The significant penalties ordered by the Federal Court of Australia in the last few months highlight that the ACCC will continue to push for the maximum penalties allowed for breaches of competition law in Australia. Furthermore, the ACCC has signaled that it intends to commence its first prosecution this year under the criminal cartel provisions, which came into force in 2009 and have not, to date, been applied. With this pending watershed enforcement action, all signs point to the ACCC continuing to devote significant resources to investigating and litigating antitrust violations in the months and years to come.