While Australia’s competition law system is highly advanced and accords with international practice, it has some differences with other comparable jurisdictions. One notable difference is the method for applying sanctions.
In most jurisdictions, pecuniary penalties are set by reference to a detailed and publically available methodology that focuses on the size of the infringing company, the economic impact of the company’s conduct and the seriousness and duration of the infringement. In contrast, pecuniary penalties in Australia are determined by the court exercising a discretionary judgment, which synthesises all factors and principles relevant to a particular case in a process of “instinctive synthesis”.
In 2017, the Organisation for Economic Co-operation and Development (OECD) was tasked to undertake a study of how Australia compares internationally in its sanctioning practices for breaches of competition law, particularly regarding the imposition of pecuniary penalties. The OECD’s report, “Pecuniary Penalties for Competition Law Infringements in Australia” (Report), released on 26 March 2018, found two main differences between Australia and other comparable jurisdictions. Firstly, both the maximum and average pecuniary penalties imposed by Australian courts for breaches of competition law are substantially lower than those imposed in other comparable jurisdictions, particularly for large companies or for anti-competitive conduct that has lasted a long time. Secondly, Australia does not follow a structured methodology for the determination of pecuniary penalties.
The ACCC is set to re-think the way it approaches pecuniary penalties and is now more likely to pursue cases to hearing, particularly against larger companies and seek significant penalties, as opposed to agreeing them in advance with the infringing company (unless it obtains what it considers to be an appropriate penalty). The penalties awarded by the courts may also substantially increase as a result.
The Report’s findings and recommendations
The significant difference in the amount of pecuniary penalties in Australia and the other OECD jurisdictions used for comparative purposes (the European Union, Germany, Japan, Korea, the United Kingdom and the United States) was revealed by analysing a sample of five major Australian cartel cases up to November 2017. By comparing the penalties imposed by Australian courts against the penalty that would have resulted from the fines regime in the other comparator jurisdictions, the Report found that the average pecuniary penalty in Australia was $25.4 million, whilst the average base penalty in the comparator jurisdictions for the same conduct would have been $320.4 million. This means that the average Australian penalty would have to increase by a factor of 12.6 times to reach the level of the average pecuniary penalty that applies in the comparator jurisdictions.
The Report found that whilst penalties for breaches of competition laws had significantly increased around the developed world, that was not the case in Australia. Australia had lower pecuniary penalties despite its competition law allowing for pecuniary penalties at the same, if not higher, level than in the comparator jurisdictions.
Prior to 2007, Australian courts only had the power to impose pecuniary penalties on companies up to a maximum of $10 million per contravention. Following legislative reforms, it was possible for the court to impose higher pecuniary penalties and, in 2009, criminal sanctions were introduced for cartel offences. Australia’s maximum pecuniary penalties are currently set at the greater of $10 million, three times the gain derived from the illegal conduct or 10% of annual turnover in the 12 months preceding the year in which the breach occurred.
The largest collusion pecuniary penalty in Australia to date, $36 million, was imposed by the Federal Court against the packaging company Visy in 2007 as a result of a cartel it conducted with Amcor. Some other significant pecuniary penalties include Colgate Palmolive ($18 million), Woolworths ($9 million), Cement Australia ($18.6 million) and Cabcharge ($15 million). Most recently, on 4 April 2018, the Full Federal Court ordered Flight Centre to pay pecuniary penalties totalling $12.5 million for attempting to induce three international airlines to enter into price fixing arrangements between 2005 and 2009. Those pecuniary penalties compare with the US$2.7 billion the European Union imposed on Google’s parent company, Alphabet, in 2017, the US$925 million penalty imposed on Citicorp in the United States in 2017, and the US$109.4 million the United Kingdom regulators imposed on Pfizer in 2016.
The Report observed that the significant shortfall in Australian penalties was partly due to the residual effects of the pre-2007 statutory regime which, as referred to above had, set a maximum penalty amount but did not take into account the size of the infringing company’s conduct and accordingly resulted in proportionally low penalties being imposed on large companies. The Report found that even after the 2007 legislative reforms, this did not result in any significant uplift in the pecuniary penalties being imposed, as subsequent court judgments merely followed the pre-2007 precedent. The Report recommended that the pecuniary penalty imposed on larger companies should be proportionally larger than those imposed on small or medium sized companies for the same or similar conduct. The Report indicated that the ACCC may not have given sufficient weight to this factor in making its submissions on penalties to the courts.
The Report made two key recommendations. Firstly, it noted that an assessment of penalty must commence with a base fine set by reference to a measure of turnover or value of commerce affected. This base fine can then be modified to take account of mitigating and aggravating circumstances and, in many jurisdictions, also to reflect other factors deemed to be of importance. Such an approach avoids instances where a proportionally low penalty is imposed on large companies.
Secondly, the Report noted that most OECD countries’ pecuniary penalty regimes have a set of detailed and publically available methodology which lays out the expected sanctions for certain breaches and an assessment of sales of the infringing company’s product. In contrast, Australia lacks public guidance in the form of internal rules or guidelines with respect to the calculation of pecuniary penalties compared to other OECD jurisdictions. The Report considered that public guidance would be beneficial in creating a more transparent and predictable penalty framework, ultimately promoting deterrence.
The ACCC’s response
Following the release of the Report, the ACCC has indicated that it will now seek to pursue higher pecuniary penalties to address the disparity between Australia and other OECD jurisdictions and, in doing so, improve the deterrent value of sanctions imposed for breaches of Australia’s competition law. As deterrence is the principle consideration for imposing pecuniary penalties, the ACCC considers that the ability of current penalty levels in Australia to deter similar future conduct is compromised.
In a speech at the OECD Workshop on Australian Pecuniary Penalties for Competition Law Infringement on 26 March 2018, the Chairman of the ACCC, Mr Rod Sims elaborated on the ACCC’s response to the Report, noting that Australia’s current pecuniary penalty regime is too low to be a serious deterrent for big businesses and that penalties for breaches of Australia’s competition law cannot be simply be “an acceptable cost of doing business in Australia”, but must be “large enough to be noticed by senior management and company boards, and also shareholders. That is certainly not the case now.” Unlike the OECD jurisdictions considered in the Report, in Australia it is up to the courts, not the ACCC, to impose penalties for competition law breaches, “although the ACCC has a role in making submissions to the court as to the appropriate penalty”. Mr Sims acknowledged that the ACCC may not have pursued tough penalties with enough vigour, stating that “we acknowledge the OECD’s comment that in the past we may not have given the size of the contravening corporation sufficient weight in our penalty submissions to the court.” There is evidence that the ACCC’s practice of negotiating penalties with companies who have breached the competition law may have resulted in penalties that were too low. For example, in ACCC v Australia and New Zealand Banking Group Limited  FCA 1516, a cartel case where the Federal Court ordered penalties of $9 million against ANZ and $6 million against Macquarie, Justice Wigney observed that the agreed penalties were at the very bottom of the range of appropriate penalties and that he would have ordered a much higher penalty had there been no agreed penalty. The ANZ was found to have engaged in 10 incidents of collusion and, in the same year had made $8 billion profit.
Mr Sims warned that the ACCC will now “have to be a little less likely to settle cases unless we get appropriate penalties” and that the ACCC would now begin pursuing penalties in the hundreds of millions in the case of the largest companies, closer to the maximum of 10% turnover.
Mr Sims stated that the Report’s two key recommendations merit active consideration. The base fine approach provides a “vital point for debate and discussion” and if it is applied in Australia, companies with smaller turnover will likely end up with similar penalties compared to those currently imposed, whereas companies with larger turnover will generally end up with much higher penalties.