- Recent amendments to the Trade Practices Act 1974 (Cth) (TPA) introducing new criminal offences and civil penalty provisions for cartel conduct came into effect on 24 July 2009
- Joint venture parties should review the scope of their collaborative conduct and the way it is documented in their agreements to ensure that any conduct that might come within the cartel law is expressly included in the agreement between them
- Cartel provisions agreed by joint venture parties must also retain a sufficient nexus to the joint venture activity if they are to enjoy the benefits of the joint venture exception
Amendments to the Trade Practices Act 1974 (Cth) (TPA) came into effect on 24 July 2009 introducing new criminal offences and civil penalty provisions for cartel conduct, which is defined to prohibit agreements and activities between competitors in a wide range of situations. Mining joint ventures which were excluded from the per se prohibition under the previous legislation will, subject to some important qualifications, continue to enjoy protection from the cartel prohibitions.
Key changes to the law
The new cartel legislation focuses on the activity of competitors who make or give effect to, a contract, arrangement or understanding that contains a ‘cartel provision’. A cartel provision is one that:
- fixes prices
- restricts outputs in the production and supply chain
- allocates customers, suppliers or territories, or
- involves bid-rigging.
If parties would be competitors but for an agreement between them, then the cartel legislation may also apply.1
If conduct comes within the cartel law, it is illegal per se regardless of whether it has any anticompetitive purpose or effect.
When compared to the previous law, the new prohibitions on cartel provisions:
- cover a broader scope of conduct, extending beyond price fixing to other cartel conduct
- most significantly, are backed by both criminal and civil sanctions, including imprisonment for individuals
- use the words ‘directly or indirectly’, so that an arrangement with an indirect purpose will now constitute a breach, and
- potentially have extended reach to conduct outside of Australia.
The previous prohibition on price fixing has been replaced by the new cartel law. The prohibition of exclusionary provisions (ie provisions with the purpose of preventing, restricting or limiting supply or acquisition) is being retained and continues to operate as a civil prohibition, although conduct that may give rise to an exclusionary provision may also come within the new cartel law.
The ACCC has said that ‘serious cartel conduct’ will be prosecuted. A criminal offence requires an intention to make or give effect to such an agreement and knowledge or belief that the agreement contains a cartel provision.
Individuals involved in criminal cartel conduct will face jail terms of up to 10 years and fines of up to $220,000 and for civil cartel conduct penalties of up to $500,000. Individuals may not be able to be indemnified by the corporation for pecuniary penalties imposed.
Corporations involved in cartel activity will face penalties up to a maximum of:
- $10 million, or
- three times the benefit obtained from the conduct, or
- if the benefit gained can not be established, 10 per cent of annual group turnover during the last 12 months.
Joint venture exception
There has always been an inherent tension between prohibitions on illegal cartel activity and legitimate (and economically beneficial) joint venture conduct.
The economic significance of joint venture activity in the Australian economy has, since 1978, led to specific carve outs from TPA prohibitions for joint ventures. Within these joint venture exceptions, collaborative conduct that involves cartel conduct (such as fixing prices of joint venture output) is still subject to a competition test but is not considered illegal per se.
There have been different approaches in dealing with joint ventures in the history of the TPA. The new cartel law seeks to strike a balance between deterring and prohibiting harmful cartel behaviour, while providing sufficient flexibility to allow firms to participate in potentially beneficial strategic alliances within a joint venture. However, the carve out for joint ventures has been extensively reframed under the new law.
A party seeking to rely on the new joint venture exception in any proceeding bears an evidential burden to establish that:
- the parties are engaged in a joint venture
- the cartel provision is ‘for the purposes’ of a joint venture
- the joint venture is for the production and/or supply of goods or services—a joint venture dealing only with acquisitions is not a relevant joint venture
- the joint venture is carried on jointly by the parties to the relevant contract, and
- the cartel provision is contained in a contract (or that they intended it to be in a contract at the time they entered into the arrangement or understanding).
If the joint venture exception can be established, there will be no contravention of the cartel provisions. But, it will still benecessary to consider whether the conduct substantially lessens competition.
Some potential impacts in a mining context
The collaborative nature of mining joint ventures means the new cartel law may apply to activity by joint venture parties.
In most cases, the parties to a joint venture will continue to be able to rely upon an exception for their joint venture conduct and be removed from the cartel prohibitions.
The output from a mining joint venture may be taken separately by each of the participants with each joint venture party free to dispose of it, potentially, in competition with each other. In that circumstance, if the competing joint venture parties agree between themselves who they will supply or at what price they will supply, this will be a prohibited cartel provision unless it comes within a relevant exception.
Specific features of some joint venture arrangements may need to be reviewed to ensure that the technical requirements of the new exception are satisfied.
For example, it is a central feature of the new joint venture exception that the relevant ‘cartel provision’ be within a contract (and not merely in an arrangement or understanding) between the parties. While it would usually be the case that a mining joint venture will be the subject of a contract, it may not be the case that the scope of all collaborative activity by the joint venture parties has necessarily been agreed in advance or documented.
This technical requirement in the new joint venture exception means that if the agreement between joint venture parties does not include provisions that could be a cartel provision (such as fixing prices for joint venture output or decisions on who to buy from and who to sell to), this may lead to doubt as to whether the joint venture exception applies.
In those circumstances it may be prudent for joint venture parties to review the scope of their collaborative activity and the way it is documented. If that activity includes a cartel provision, it should be expressly included in an agreement between them and, preferably, documented in a written agreement.
Of course, it is also necessary that the cartel provision be for the purposes of the joint venture. Cartel provisions agreed by joint venture parties must retain a sufficient nexus to the joint venture activity if they are to enjoy the benefits of the joint venture exception.
This issue may arise, for example:
- in the context of restraints on competitive activity by joint venture parties where the scope of those restraints (geographically or otherwise) goes beyond the legitimate concern of the joint venture—the joint venture cannot be used as a vehicle to restrain individual competition by participants beyond the purposes of the joint venture, or
- where the full scope of the joint activity (such as joint marketing) is not documented in the joint venture agreements or within the stated objectives of the joint venture—in those circumstances it will be necessary to consider whether the joint marketing is for the purposes of the joint venture and whether additional documentation is required in order to bring the conduct within the joint venture exception.
More generally, companies should assess their compliance programs and ensure that employees are aware of their obligations under the TPA and the new cartel amendments.