On 23 November 2022, Abraham J of the Federal Court of Australia ordered overhead crane company NQCranes Pty Ltd (NQCranes) to pay a $1 million pecuniary penalty for making a contract or arrangement with MHE-Demag Australia Pty Ltd (Demag) containing a cartel provision, contrary to the Competition and Consumer Act 2010 (Cth) (CCA).

The penalty — which was agreed between the parties — was determined by Abraham J to be appropriate having regard to a number of mitigating factors, including the isolated nature of the conduct and the fact that the conduct only constituted the formation of, and not the giving effect to, a cartel.

The fact the ACCC commenced against NQCranes but not Demag suggests that Demag may have sought and been granted immunity by the ACCC in exchange for co-operation. This reinforces recent comments by Chair Gina Cass-Gottlieb that while there may have been a recent downward trend in immunity applications, they continue to be filed.

Background

NQCranes and Demag competed with one another in relation to the supply of new overhead cranes, the servicing of overhead cranes, and the supply of spare parts for overhead cranes in the area south of Gladstone, Queensland, and in Newcastle (the Relevant Areas). Overhead cranes are typically used in large warehouses, storage facilities, and in major mining and construction projects.

In 2015, the NQCranes and Demag negotiated in relation to the potential distribution of Demag’s products by NQCranes. This culminated in a Distribution Agreement in August 2016, which relevantly contained a clause known as the ‘Co-Ordinated Approach Provision’:

For Territory 2 [NQCranes] and [Demag] will operate in the Service Markets in a co-ordinated approach so that their current customers are not targeted by the other. For potential future customers the two organizations will ensure their energies are focused on the service competitors and not each other.

Following enforcement action commenced by the ACCC in October 2020, NQCranes admitted that this clause had the purpose of sharing potential clients located in the Relevant Areas between it and Demag, and of ensuring that neither party targeted each other’s current customers, in contravention of ss 44ZZRD(1) and 44ZZRJ of the CCA.

The ACCC and NQCranes proposed an agreed penalty of $1 million to the Court, jointly submitting that it would be sufficient to achieve specific and general deterrence.

Decision

In assessing whether the proposed penalty was appropriate, Abraham J commenced by identifying that the maximum penalty for the contravention was $10 million, under s 76(1A)(aa)(i) of the CCA. Section 76(1A)(aa) relevantly provides that the maximum pecuniary penalty payable by a body corporate is the greatest of the following:

(i) $10 million;

(ii) if the court can determine the total value of the benefits that have been obtained by one or more persons and that are reasonably attributable to the act or omission – 3 times that total value; or

(iii) if the Court cannot determine the total value of those benefits, 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the act or omission occurred.

The basis for the $10 million maximum penalty is not discussed in the judgment. The maximum could reflect the fact that:

  • the benefits could be determined, sub-section (ii) was engaged, but the benefits were determined to be zero. This is a possibility because the offending conduct related to entering into the impugned agreement (and not giving effect to it); or
  • the benefits could not be determined, sub-section (iii) was engaged, but 10% of NQCranes’ annual turnover did not exceed $10 million.

Her Honour emphasised the deterrent object of pecuniary penalties, by reference to the High Court’s recent decision in Australian Building and Construction Commission v Pattinson, as well as citing the well-established factors underlying the assessment of an appropriate penalty. Her Honour also applied the principles recently considered in Volkswagen Aktiengellschaft v ACCC with respect to agreed penalties involving a regulator. Those principles include the fact that it is highly desirable for the Court to accept an agreed penalty, recognising that the penalty most likely was a result of ‘compromise and pragmatism on the part of the regulator’, balanced with the need to be wary of the possibility that the regulator may have been ‘too pragmatic’.

Mitigating Factors

Justice Abraham identified several mitigating factors relevant to the determination of whether the proposed penalty was appropriate, including:

  • the conduct was not deliberate, in the sense that senior management of NQCranes were unaware that the agreement was capable of contravening the CCA (though they did appreciate the practical meaning and effect of the Co-Ordinated Approach Provision);
  • the isolated nature of the contravening conduct, being limited to the making of a contract or arrangement, and being limited in duration and scope;
  • the fact that Demag was responsible for proposing the Co-Ordinated Approach Provision;
  • the absence of any prior contraventions of the CCA by NQCranes; and
  • the level of NQCranes’ co-operation with the ACCC throughout the investigation and proceeding.

Accordingly, her Honour concluded that the proposed penalty of $1 million was appropriate in all the circumstances. Her Honour also made orders compelling NQCranes to establish and maintain a competition law education, training and compliance program.

Payment Plan

A unique feature of the case was the parties’ proposal for NQCranes to pay the $1 million penalty over a period of five years. The parties adduced evidence to the effect that NQCranes’ financial position was such that it would face solvency issues if it were required to pay the penalty immediately. Justice Abraham accepted that evidence and permitted NQCranes to pay the penalty in five instalments over five years. Her Honour emphasised, however, that NQCranes’ financial position “does not excuse its contravening conduct, nor lessen the primary importance of deterrence in the penalty imposed”.

Key takeaways

Justice Abraham’s decision demonstrates the flexibility available for the payment of a pecuniary penalty in the event of demonstrated financial difficulty, while confirming that the overarching importance of deterrence means that a risk of insolvency is not a reason to reduce the quantum of that penalty.