The Full Federal Court has ordered a Japanese manufacturer of electrical components, Yazaki Corporation, to pay a record AUD 46 million penalty for cartel conduct involving the coordination of quotations with a competitor. This is the largest penalty awarded to date for a breach of the Australian cartel laws and is significantly higher than the AUD 36 million penalty imposed on Visy Recycling in 2007. It is a clear signal that the Courts are prepared to impose increasingly sizeable penalties to deter businesses from engaging in such conduct.
The case is also significant as the Full Court held that the local Australian subsidiary had breached the cartel laws by giving effect to the cartel arrangement entered into by its overseas parent company, even though the local subsidiary had no knowledge of the unlawful arrangement.
Key issues on appeal
The ACCC's case related to the supply of wire harnesses, which are electrical systems that distribute power and signals in motor vehicles, to the Toyota Motor Corporation for use in the manufacture in Australia of various models of the Toyota Camry. The Australian Competition and Consumer Commission (ACCC) brought proceedings against both the parent company and its Australian subsidiary, alleging they had breached the prohibitions against cartel conduct in the Competition and Consumer Act 2010 (CCA) by seeking to co-ordinate quotes provided to Toyota with a competitor over a number of years.
At first instance, the ACCC succeeded in its case against the parent company with penalties of AUD 9.5 million imposed, but had its claim against the Australian subsidiary dismissed on the basis that the Australian subsidiary did not have knowledge of the unlawful arrangement and therefore could not be liable for giving effect to that arrangement. The ACCC appealed.
There were two key issues on appeal:
- First, can a company be liable under the CCA for giving effect to a cartel arrangement in circumstances where it has no knowledge of that arrangement?
- Second, for the purpose of determining the maximum penalty, how is 10% of group turnover in Australia calculated and does it include turnover from business activities unrelated to the conduct?
Is knowledge required to give effect to a cartel arrangement?
At first instance, the Court held that while the parent company had breached the prohibitions against cartel conduct in the CCA, its Australian subsidiary which submitted quotes to Toyota at the direction of its parent company had not. The Court held that as the subsidiary had no knowledge of the cartel arrangement it therefore could not have given effect to it. The ACCC appealed this finding.
The Full Court upheld the ACCC's appeal, holding that the ordinary meaning of "give effect to" does not necessarily import a knowledge requirement. The Full Court observed that "[t]here is nothing inherently incongruent or anomalous with the proposition that an entity could play a role in giving effect to a cartel arrangement – for instance, at the direction of its controlling parent – without necessarily possessing subjective knowledge of that arrangement." The Court also observed that the nature of cartel arrangements is surreptitious and their chief architects may indeed be unwilling to disclose their existence to other parties, including to related companies.
The Full Court held that in this case the Australian subsidiary had in fact given effect to the cartel arrangement, as the relevant cartel conduct necessarily involved the subsidiary's participation in submitting quotes to Toyota at the parent company's direction.
This finding has significant consequences for Australian subsidiaries of foreign corporations acting upon the direction of those corporations. It confirms that Australian subsidiaries may be in breach of the CCA where they act at the parent company's direction in giving effect to a cartel arrangement, even where they do not have knowledge of the cartel that their parent is party to.
Is all Australian turnover included in calculating the maximum penalty?
The maximum penalties for companies that contravene the prohibitions against cartel and other anti-competitive conduct in the CCA are the greater of AUD 10 million, or 3 times the value of the benefit of the contravening conduct, or (if that cannot be determined) 10% of annual group turnover in Australia in the preceding 12 months.
In this case, the trial judge held that the maximum penalty was AUD 10 million per contravention. This was based on a finding that when calculating annual group turnover in Australia it is only relevant to consider the business activities that the defendant entity carries on, and the turnover associated with other business activities of related bodies corporate should be excluded. The Full Federal Court rejected this approach and held that when calculating annual turnover, all business activities of the defendant entity and its related bodies corporate connected with Australia should be taken into account. This includes business activities which are unrelated to the contravening conduct. On this basis, the maximum penalty in respect of each of contravention was around AUD 17 million, with a total maximum penalty of AUD 87.4 million.
The Full Court fixed the penalty at AUD 46 million, observing that only a very large penalty would have the necessary deterrent effect for large global companies.