Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Cartels volume discussing topics including leniency systems, enforcement trends, judicial review and compliance developments within key jurisdictions worldwide.
GTDT: What kinds of infringement has the antitrust authority been focusing on recently? Have any industry sectors been under particular scrutiny?
Patrick Gay and Sarah Benbow: The priorities of the Australian Competition and Consumer Commission (ACCC) are reflected in its Compliance and Enforcement Policy and Priorities, which is published annually. Unsurprisingly, the investigation and enforcement of cartel conduct continues to be an enduring priority for the ACCC.
In terms of priority industries, the ACCC has announced that its particular focus for 2018 will include energy (as an essential service), financial services, digital platforms, agriculture and commercial construction. The ACCC is conducting ongoing market inquiries into many of these sectors, including electricity, gas, dairy, financial services (mortgage rates and insurance) and digital platforms. These inquiries, conducted pursuant to terms of reference set by the Australian federal government, provide the ACCC with extensive powers to investigate a particular sector, including through the ability to compel market participants to provide information and documents.
These priority industries will not necessarily be the subject of any cartel investigation. However, it is apparent that the ACCC will continue to consider and investigate the possibility of collusive behaviour within the financial services sector in particular.
In recent public statements, ACCC officials have commented on a culture of collaboration and even collusion between traders across financial institutions. The Australian government has recently funded the creation of a Financial Services Unit within the ACCC. While the Financial Services Unit is not restricted to the potential investigation of cartel conduct within the financial services sector (indeed, its first major output has been the release of its Interim Report on the Residential Mortgage Price Inquiry, which considers the broader conditions for competition in regards to residential mortgages), we understand that the ACCC is utilising its growing expertise in the area to consider potential collusive conduct. A focus on financial services raises the interesting issue of cooperation and potential conflict with the financial services regulator (the Australian Securities and Investments Commission (ASIC)). As the ACCC has noted, similar conduct might be considered to be a cartel arrangement under Australia’s competition law or market manipulation under its corporations law.
In addition to cartel enforcement, the ACCC is also focusing on enforcing the new law relating to concerted practices and the amended law relating to misuses of market power. These laws were introduced following the Harper Review of Australia’s competition law and took effect last year. The introduction of a prohibition against concerted practices is intended to remedy what the ACCC perceived was a ‘gap’ in Australia’s competition law – catching anticompetitive conduct such as information sharing that fell short of a contract, arrangement or understanding (and therefore did not amount to cartel conduct). Concerted practices are only prohibited under Australian law where they have the purpose or effect of substantially lessening competition.
The ACCC will also continue to focus on consumer-related issues in 2018, particularly in relation to new car retailing, broadband services and misrepresentations regarding the availability of consumer guarantees.
GTDT: What do recent investigations in your jurisdiction teach us?
PG & SB: Cartel investigations in Australia are typically triggered by a complaint by a customer or competitor, an immunity application or a referral from an overseas competition regulator. They may also arise as a result of a tip-off from an anonymous whistle-blower, but this is less common.
The ACCC publishes high-level data in relation to the use of its dawn raid powers in its annual report. This reflects relatively little use of these powers in the cartel context over the past few years. Consistent with the information in the annual report, our experience is that the ACCC’s usual practice is to require the production of documents by issuing a notice under its compulsory information gathering powers, rather than through dawn raids.
Responding to an ACCC notice typically imposes a substantial burden on the resources of the recipient of the notice. Even in cartel matters, the ACCC may response positively to reasonable requests to minimise any unnecessary burden on the recipient of a notice. The ACCC may agree to variations to a notice to produce documents or in certain circumstances, issue a notice in draft form and allow a party to comment on the draft. Our recent experience suggests that the ACCC’s resources are challenged when seeking to undertake multi-day raids involving extensive physical and electronic data. This may, in part, explain its preference for relying on the compulsory notice process.
GTDT: How is the leniency system developing, and which factors should clients consider before applying for leniency?
PG & SB: The ACCC immunity and cooperation policy for cartel conduct sets out its approach in relation to applications for immunity from ACCC-initiated civil proceedings by those involved in cartel conduct, and how cooperation provided to the ACCC by cartel participants will be recognised.
Immunity is usually only available to the first party to approach the ACCC, and only where the ACCC has not yet received written legal advice that it has reasonable grounds to institute proceedings in relation to the cartel conduct in question. The ACCC also works closely with the Commonwealth Director of Public Prosecutions (CDPP), which is responsible for prosecuting criminal cartel conduct and for granting immunity or leniency in relation to criminal conduct.
The ACCC and CDPP have entered into a memorandum of understanding that governs their relationship and the type of conduct that the ACCC will refer to the CDPP for criminal consideration (‘serious cartel matters’).
Whether a cartel matter is prosecuted by the ACCC as a civil cartel, or by the CDPP as a criminal cartel, is determined by the ACCC and CDPP in consultation with each other. The ACCC will refer matters to the CDPP for consideration for criminal prosecution in appropriate cases.
Unsurprisingly, relevant considerations taken into account ahead of applying for immunity include the nature of the conduct, the strength of the evidence and the existence of any incriminating documents.
Leniency applications are also based on similar factors, including an assessment on the extent of any discount that the ACCC will be prepared to propose for cooperation. Any penalty will be imposed by the Federal Court and not the ACCC. In this respect, where the ACCC offers a discount, it is committing to make a submission to the Court that the Court should accept a discount to the penalty that would otherwise apply by reason of a party’s cooperation.
A key issue, in the context of immunity from a criminal prosecution, is whether the CDPP also agrees to the terms of the immunity. Leniency applications are more complicated in criminal cases as, in theory, the CDPP may adopt a different approach to the ACCC.
Finally, whether immunity is being sought in other jurisdictions in respect of the same broad conduct is another key factor to consider. In this regard, parties should be aware that the ACCC will cooperate with overseas regulators, including by disclosing confidential information. It also has a number of bilateral cooperation agreements or treatises with foreign governments and agencies. As a consequence, parties should consider applying for immunity in multiple jurisdictions if necessary.
“While a criminal cartel prohibition was introduced into Australian law in July 2009, there were no criminal prosecutions until recently.”
GTDT: What means exist in your jurisdiction to speed up or streamline the authority’s decision-making, and what are your experiences in this regard?
PG & SB: The ACCC has the power to resolve a matter administratively (without going to court) by accepting a court-enforceable undertaking from the parties involved in the infringing conduct. Such undertakings usually include a commitment not to engage in the infringing conduct and also often include some form of remedial action, such as the reimbursement of customers who have suffered loss as a result of the conduct. However, it is unlikely that the ACCC would be willing to resolve a cartel matter in this manner owing to the seriousness of the conduct and the perceived need for strong deterrence.
In order to speed up the resolution of a cartel matter, parties can engage in settlement discussions with the ACCC. The nature of settlement discussions necessarily focuses on coming to an agreement regarding the conduct to be admitted as well as the time period for the contraventions. Once the ACCC and the company has, in principle, reached an agreement, a statement of facts and admissions will be drafted. This is the subject of negotiation and agreement with the ACCC. In addition to signing the agreed statement of facts, the company will ordinarily be required to make a public statement making admissions and acknowledging the contravening conduct. A hearing as to penalties based on an agreed statement of facts will then take place. The quantum of penalties is ultimately decided by the Federal Court.
GTDT: Tell us about the authority’s most important decisions over the year. What made them so significant?
PG & SB: While a criminal cartel prohibition was introduced into Australian law in July 2009, there were no criminal prosecutions until recently. The fact of criminal convictions and prosecutions is clearly the most significant development in the cartel space in Australia. Over the past three years, the ACCC has built a dedicated cartel enforcement unit, which is now fully operational and yielding positive results.
In August 2017, the Federal Court convicted Japanese shipping company Nippon Usen Kabushiki Kaisha (NYK) of criminal cartel conduct relating to the shipping of vehicles to Australia by NYK and other shipping lines from locations in Asia, the US and Europe. NYK, which had pled guilty to the charges and received a 50 per cent penalty discount, was fined A$25 million – the second-highest ever fine for cartel conduct. Very recently, on 5 April 2018, another shipping company involved in the cartel, K-Line, entered a guilty plea in the Federal Court.
In February 2018, criminal cartel charges were laid against Country Care, a supplier of assisted technology products used for rehabilitation and aged care. What is of particular note in this matter is that in addition to the corporate defendant, criminal cartel charges have also been brought against its managing director and an employee. This is the first time that criminal charges have been brought against individuals in Australia. The CDPP and ACCC are alleging that Country Care and its employees engaged in cartel conduct involving price fixing and bidding for New South Wales health tenders. The managing director of the company is facing 48 accessorial charges (aiding, abetting, counselling or procuring the cartel conduct) and the employee is facing 44 accessorial charges. The first mention of the matter was recently heard in the Magistrates’ Court of Victoria.
The Chairman of the ACCC, Rod Sims, has said that he expects a further three or four criminal cartel prosecutions to be launched against high-profile Australian companies this year and that these prosecutions will involve charges against individual executives. Mr Sims has made it clear that he considers that custodial sentences for individuals in prominent companies are necessary in order to provide appropriate deterrence for cartel conduct in Australia. It will be interesting to see how the Country Care case plays out before the Federal Court.
Other recent cartel cases have reinforced the need for commitment and reciprocal obligations between competitors in order for a contract, arrangement or understanding to exist. The failure of the ACCC to prove this element of the cartel offence led to it losing two recent cases involving allegations of hub and spoke cartels. In September 2017 the full Federal Court dismissed an appeal by the ACCC against its earlier dismissal against the Australian Egg Corporation, an industry body, and others for attempts to induce cartel conduct between egg producers. At first instance, the judge held that while the Australian Egg Corporation had attempted to induce egg producers to limit their supply of eggs, it had not attempted to induce the producers to enter into an agreement or understanding with each other involving reciprocal obligations. It was not enough that the corporation had procured that egg producers limit supply in an independent and voluntary manner based on their independent circumstances – this did not amount to cooperative action.
The ACCC appealed the first instance decision, seeking clarification regarding the requirements for proving attempts to induce cartel conduct and, in particular, whether it is necessary to demonstrate that the proposed agreement or understanding involved reciprocal obligations to limit supply. In dismissing the ACCC’s appeal, the full Federal Court confirmed that, in this case (based on the pleadings), it was necessary for the ACCC to prove reciprocal obligations between the parties.
The ACCC also recently lost its case against Cussons for allegedly participating in a hub-and-spoke cartel relating to laundry detergent, facilitated by Woolworths and an industry body. Cussons was the only party to defend the cartel allegations, with another participant, Colgate-Palmolive, having pleaded guilty and received an A$18 million fine. The third participant, Unilever, was the immunity applicant and was therefore not subject to a penalty. Woolworths also admitted its involvement in facilitating the cartel and was subject to a A$9 million fine – the largest fine to date for accessorial liability for competition law infringements.
In dismissing the ACCC’s case against Cussons, the Court found that there was no evidence of the parties having the requisite commitment and reciprocal obligations for there to be a contract, arrangement or understanding between them. The Court found that a hope or expectation that each competitor would enter into the same vertical arrangement with a third party (ie, Woolworths) was found to be insufficient to establish an understanding between them. The ACCC has appealed the decision on the basis that there was sufficient evidence for the Court to infer an understanding between the parties.
GTDT: What is the level of judicial review in your jurisdiction? Were there any notable challenges to the authority’s decisions in the courts over the past year?
PG & SB: The ACCC does not have any power to issue decisions for infringements of Australia’s competition laws. For both antitrust and merger cases, the ACCC must bring an action in the Federal Court to obtain an infringement decision and a penalty or remedy. As previously noted, for criminal cartel matters, the ACCC must refer the matter to the CDPP, which has the sole power to prosecute criminal cartel conduct.
The ACCC has indicated that it intends to appeal decisions of the Federal Court relating to the quantum of the penalties it has imposed for competition law infringements. The ACCC has long been advocating for increased penalties for competition law infringements in Australia. These penalties are substantially lower in Australia than they are in other jurisdictions, such as the European Union and United States. A recent Organisation for Economic Co-operation and Development (OECD) report on Australian penalties for competition law infringements found that equivalent penalties in jurisdictions such as the EU, US, Japan and Britain were 12.6 times the penalties awarded in Australia. The report also found that the average penalty awarded in Australia for cartel conduct is A$25.4 million, compared with the equivalent base penalty in the comparable countries of A$320 million. The highest penalty ever awarded in Australia for cartel conduct is A$36 million for Visy’s participation in a packaging cartel with Amcor that lasted almost five years. The ACCC is concerned that the lower penalties in Australia are viewed by companies as an acceptable cost of doing business in Australia and are not sufficient to have a real deterrent effect. The ACCC has indicated that it will be seeking penalties in the hundreds of millions of dollars in the future.
GTDT: How is private cartel enforcement developing in your jurisdiction?
PG & SB: Australia’s competition laws permit private enforcement action by parties that have suffered, or are likely to suffer, loss or damage caused by cartel conduct. The fact that the ACCC or CDPP is bringing (or brought) proceedings in relation to the conduct does not prevent a private party from bringing their own action. Additionally, the fact that a party has obtained leniency or immunity from the ACCC or CDPP for the conduct does not protect them from private enforcement action. Nevertheless, there has been limited private enforcement action for cartel conduct in Australia. Class actions backed by litigation funders have not yet developed in Australia in the same manner that they have in the UK and the US.
Potential litigants do not have any right to access the ACCC’s investigation files, although some access may be sought under relevant freedom of information legislation. The ACCC has generally been reluctant to provide information to private litigants on the basis that it could potentially prejudice the attractiveness of its immunity and leniency policy owing to the risk of follow-on damages claims. There are also legislative restrictions on the ability of a private litigant to obtain ‘protected cartel information’ from the ACCC, including through a subpoena.
Another factor that has potentially limited private enforcement action in Australia relates to the position of the Federal Court in relation to findings of fact against a corporation in one proceeding – typically an ACCC proceeding – to be used as evidence against a corporation in a subsequent damages case. A number of cases had concluded that the ability of private litigants to rely on these provisions did not extend to agreed statements of fact in circumstances where a matter is settled prior to a contested hearing. Following the Harper Review, the Competition and Consumer Act has recently been amended to clarify that a party bringing certain proceedings (such as an action for damages) may rely on both admissions of fact and findings of fact made in certain other proceedings. It will be interesting to see what (if any) impact this has on private actions.
GTDT: What developments do you see in antitrust compliance?
PG & SB: We have assisted many clients in reviewing and updating their compliance policies and training in preparation for and following the implementation of the new laws relating to concerted practices and misuse of market power. Some clients have even undertaken a broader review of their business activities to identify competition law compliance ‘blind spots’ or areas of risk. This has been a particular focus for some financial services companies as worldwide competition law enforcement action challenges some historical business practices in this sector.
The challenges many clients face in this regard is the uncertainty concerning how the new concerted practices and misuse of market power laws will be enforced by the ACCC and applied by the courts. Both of these new laws adopt the concept of substantial lessening of competition (SLC), which is well established in Australian competition law. However, beyond this, there will undoubtedly be a period of uncertainty for clients. For example, to see how the Federal Court applies the new SLC test to unilateral strategies of a company with market power. The explanatory memorandum for the legislative amendments concluded that it would not be possible to prescribe specific forms of conduct that always will or will not contravene the amended prohibition on misuses of market power, and that a holistic assessment of the conduct would be required.
Additionally, the explanatory memorandum notes that the concept of concerted practices is well established and understood in EU competition law. However, the ACCC will always have to prove that the practice had the object or effect of substantially lessening competition – which distinguishes the Australian provision from the established EU jurisprudence.
Companies operating in the ACCC’s priority sectors (eg, energy and financial services) and in industries subject to market inquiries are facing substantial compliance and regulatory pressures. Despite the Harper Review having recognised the burden of responding to ACCC mandatory notices requiring the production of information and documents (and therefore recommending they are issued sparingly), the ACCC has been heavily utilising these powers – including on a rolling basis as part of its market inquiries. Responding to these types of notices can often require substantial input from both the in-house legal and compliance teams as well as the company’s business teams. We have seen many clients bolster their in-house compliance capabilities in response to these pressures.
GTDT: What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?
PG & SB: If the Country Care case is contested it will provide insights into the CDPP’s and ACCC’s approach to these cases and the reactions of the courts and juries to these types of charges. It will likely shape how the ACCC and CDPP position the next round of cartel cases that it has foreshadowed.
It will also be interesting to see how the courts respond to the ACCC’s continued push for increased penalties and whether this gains further momentum following the OECD’s report highlighting the disparity between Australian and comparable overseas penalties.
Clearly, the ACCC and CDPP’s willingness to pursue criminal cartel proceedings and a sustained position from the ACCC to obtain higher penalties will have an impact on clients caught up in alleged cartel activity.
“The ACCC does not have any power to issue decisions for infringements of Australia’s competition laws.”
The Inside Track
What was the most interesting case you worked on recently?
The focus on financial services by both the ACCC and ASIC is raising significant and interesting issues in the context of investigations. We are seeing situations in which it is not necessarily certain whether a matter will be approached from a competition law perspective or be determined by ASIC. While ASIC and the ACCC are close collaborators, there is clearly some scope for regulatory competition between them. The extent to which the ACCC could be said to be expanding its remit has been an interesting and significant development in matters that we have been involved.
If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?
The ACCC is a sophisticated regulatory entity, including in respect of cartel enforcement, and does a good job of communicating its approach to enforcement matters to businesses and the legal community. That said, as advisers, greater certainty regarding the application of the leniency policy and the interaction between the ACCC and the CDPP would be useful. Of course, a call for more transparent and certain outcomes is a familiar refrain from many advisers in multiple jurisdictions.