This Friday 24 July 2009, will see significant amendments to the Trade Practices Act come into effect that re-write the rules for many joint ventures and other arrangements between competitors. With criminal prosecutions and possible prison sentences at stake, all corporate counsel and senior managers should familiarise themselves with these changes.
In short, the new cartel legislation provides that any arrangement between competitors that has the purpose or effect of fixing prices (for sales or purchases), sharing markets, controlling output and co-operating on bids is a criminal offence. Even where the necessary intent is absent, severe civil penalties may still be imposed on companies and individuals.
Clients should also be aware that the legal definition of “competitor” is often significantly broader than what most commercial people consider to be the case for their business. Moreover, it is not necessary that your company be one of the competitors: a tripartite agreement in which only two parties are competitors will still result in liability for the third non-competitor.
Most importantly, the long-established exception for joint ventures has been significantly narrowed. It will apply only where the contravening arrangement is the subject of and expressly dealt with in a contract. Informal arrangements and any other forms of agreement, be they Heads of Agreement, MOUs or even Deeds, will not in themselves be sufficient. Moreover, there is even a degree of risk attached to pre-contractual negotiations, as they themselves may be viewed as unlawful.
While these changes have been greatly criticised for making many common commercial arrangements a potential criminal offence, it is vital that all businesses be aware of the issue and how to manage it.
Businesses must now ask themselves the following question:
Are you party to any current or proposed commercial arrangement that involves two or more parties in the same or similar industries that is either:
- not documented at all;
- documented in any form other than valid binding contract; or is
- documented in a contract but omits or insufficiently deals with terms about pricing (on sales or acquisitions), customers, suppliers, marketing or sales regions, output control or bidding on tenders?
Clients are strongly advised to seek urgent legal advice if the answer to this question is anything other than a confident “No”.