The Full Federal Court has imposed a record penalty for cartel conduct of $46 million in a case that also confirmed that a broad interpretation is to be given to the cartel prohibitions.
The case involved an appeal from an earlier decision in which the ACCC succeeding in proving that Yazaki, a Japanese company that supplied wire harnesses for motor vehicles, had engaged in cartel conduct with one of its competitors in relation to tenders to Toyota for wire harnesses for its motor vehicles.
This decision emphasises the importance of compliance with Australia’s competition laws and the ongoing efforts of the ACCC to seek increasingly large penalties for breaches.
Maximum penalties are calculated based on turnover of entire corporate groups
The penalty ordered at first instance was $9.5 million, compared to what the court at first instance found was a maximum penalty of $20 million (ie $10 million for each of two contraventions). This maximum penalty was calculated based only on the turnover of the Australian subsidiary in relation to supplies made to Toyota, as the trial judge concluded that supplies made to other customers were not part of the ‘enterprise’ involved in the cartel conduct, and therefore should be excluded from the calculation of the maximum penalty.
The ACCC challenged these conclusions on appeal, arguing that there were more than two contraventions, and that the calculation of turnover should not be limited purely to supplies made to Toyota, but should instead consider the turnover of the broader corporate group.
The maximum penalty per contravention for cartel conduct is the greater of:
- $10 million; or
- If the Court can determine the total value of the benefits obtained from the contravention, three times that gain; or
- If the Court cannot determine the total value of those benefits, 10% of the annual turnover of the body corporate during the last 12 months from the end of the month in which the contravention occurred.
It was accepted that paragraph (b) was inapplicable to this case, and therefore the Court carefully examined the wording of the CCA in relation to how turnover should be determined.
Ultimately, the Court held that turnover should be assessed by reference to the turnover of the broader corporate group involving all customers, not just (in this case) the supplies made to Toyota which were the subject of the relevant cartel conduct. This is a broader approach than was taken by the trial judge, and it is likely to result in much greater maximum penalties for cartel conduct involving large or multinational companies.
The Court also concluded that rather than the two contraventions originally found to have occurred by the trial judge, there were in fact five contraventions that had occurred.
Combining these two conclusions, the maximum penalty in this case was held to be roughly $87.4 million (ie about $17 million for each of five contraventions). Against this significantly enlarged potential maximum penalty, the Court imposed a penalty of $46 million, which is now the highest penalty ever imposed for cartel conduct in Australia.
The Court noted that a ‘very sizeable’ penalty was required in order to achieve both specific deterrence to Yazaki, and general deterrence for other global multinational companies that may consider engaging in cartel conduct in the future. The Court also noted that cartel conduct is generally viewed as the most serious type of breach of the competition laws, and that it is hard to identify, with cartel conduct often only coming to light years after it occurs. Another interesting element in this case is that, despite being a large multinational corporation, Yazaki had no competition law compliance program or training in place at the time of these contraventions, and this was taken into account by the Court in determining penalty.
Corporations can ‘give effect to’ agreements they do not know about
The Australian subsidiary of Yazaki argued that it had not ‘given effect’ to the cartel agreement entered into in Japan by its parent company, as the Australian subsidiary did not know of the cartel agreement that its parent company had entered into overseas.
The ACCC argued that the prohibitions on cartel conduct would be of diminished significance if an Australian subsidiary could avoid liability because it did not know about cartel agreements entered into by its parent company overseas, even though those agreements were given effect to in Australia.
The court concluded that the ordinary meaning of the phrase ‘give effect to’ does not necessarily include a knowledge requirement, nor does it necessarily require a consideration of the subjective intentions underlying the relevant conduct. The court also noted that the cartel provisions must be interpreted in a way that makes their enforcement effective.
Based on the ordinary meaning of the phrase ‘give effect to’, as well as the context of the relevant provision, the court determined that having knowledge of an agreement is not a requirement in order to give effect to it. The court noted that the presence of knowledge of the cartel agreement may be relevant to whether the company in question had ‘given effect to’ a cartel provision, however held this is not a mandatory requirement for this prohibition on cartel conduct to be engaged.
Markets need not be defined for some cartel prohibitions
A key issue in this case was whether the ACCC was required to define a market, as opposed to simply demonstrating that the conduct involved competitors, in order to establish a breach of the prohibition on the now-repealed prohibition on exclusionary provisions. This issue is significant as defining the relevant market commonly occupies a significant amount of time and expense in competition cases.
The Court analysed a number of current and former Competition and Consumer Act provisions in considering this issue. Ultimately, the Court concluded that there was no requirement to define a market in order to prove a contravention of the prohibition against exclusionary provisions.
The definition of an exclusionary provision, which was contained in the former s4D of the CCA, referred to contracts or arrangements between persons who were ‘competitive with’ each other, and ‘in competition’ with each other, but did not contain any reference to a ‘market’. In deciding that there was no requirement to define a market, the Court rejected what it described as a ‘narrow, literal meaning’ of the former s4D that involved and ‘artificial reading of the statutory provisions’.
This article was written by Anthony Haly, Partner.
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