Navigating the Globe: Cartel Enforcement Around the World

Chapter 11: Australia and New Zealand

Presented by the Cartel and Criminal Practice Committee

and the International Committee

March 14, 2013

Presenters

• Shimica Gaskins, Covington & Burling LLP, Washington, D.C. (moderator)

• Marcus Bezzi, ACCC, Sydney • James Craig, Partner, Simpson Grierson,

Auckland • Kathryn Edghill, Truman Hoyle, Sydney • Abbe Hutchins, Ministry of Business, Innovation

and Employment, Wellington • Nicolas (Nick) Taylor, Jones Day, Sydney

Discussion Outline

• Cartel Laws • Investigative Process • Leniency/Immunity Program • Key Issues • Recent Developments

Australia

Cartel Laws • Division 1 of Part IV of the Competition and Consumer Act

2010 (Cth) contains prohibitions on cartel conduct.

• Cartel conduct is both a criminal offence and subject to civil penalties.

• Cartel prohibitions are characterised by complex drafting but effect is to prohibit the making and giving effect to agreements between competitors which contain provisions for: – fixing prices; or – sharing the market (by allocating territories, customers or

suppliers);or – tender or bid rigging; or – restricting output.

Cartel Laws

Prohibitions on: – making a contract, arrangement or understanding which

contains a “cartel provision” (s 44ZZRF (criminal) and s 44ZZRJ (civil));

– giving effect to a “cartel provision” of a contract, arrangement or understanding (s 44ZZRG (criminal) and s 44ZZRK (civil))

Cartel provision: – must satisfy either the “purpose/effect condition” or the

“purpose condition” AND satisfy the “competition condition” (s 44ZZRD(1))

Cartel Laws Purpose/effect condition : provision must have the purpose, effect or likely effect of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of prices for, or discounts, allowances, rebates or credits in relation to goods or services: • supplied/likely to be supplied by any or all of the

parties; • acquired/likely to be acquired by any or all of the

parties; • re-supplied/likely to be re-supplied by persons who

acquired them, or are likely to acquire them, from any or all of the parties

(s 44ZZRD(2))

Cartel Laws Purpose condition - provision must have the purpose of directly or indirectly: • preventing, restricting or limiting production/likely

production, capacity/likely capacity or supply/likely supply of goods or services of any or all parties; or

• allocating customers, suppliers or territories between any or all parties; or

• providing for the rigging of bids/tenders by any or all of the parties

(s 44ZZRD(3))

Cartel Laws Competition condition – at least 2 of the parties to the agreement are, or are likely to be, or but for the agreement, would be or would be likely to be, in competition with each other in respect of the matters which are the subject of the relevant purpose/effect condition, or purpose condition (s 44ZZRD(4))

Fault element for criminal offence– knowledge and belief only

Cartel Laws Limited exceptions: • Collective bargaining notification (s 44ZZRL) • Authorisation by ACCC (s 44ZZRM) • Related bodies corporate (s 44ZZRN) • Joint ventures (s 44ZZRO and s 44ZZRP) Penalties: • Up to 10 years’ imprisonment (hard core cartel conduct); • Fine not to exceed the greater of:

– AUD10 million – 3 times total value of benefit gained (if able to be calculated) – 10% annual turnover in prior 12 month period (if benefit can’t

be calculated)

Investigative Process ACCC has power to require anyone who it reasonably believes may have information or documents or may be able to give evidence relating to a matter which is or may constitute a breach of the CCA to: • furnish such information (in writing and signed); • produce documents; • give evidence on oath (section 155) ACCC may obtain a warrant to enter and search premises and remove documents or things (Part XID of the CCA) Criminal offence – other investigative processes may be used e.g., telephone taps.

Immunity / Leniency Program

• In Australia, upfront civil and criminal immunity is available to the first eligible party to self report their involvement in cartel conduct.

• The ACCC receives applications for both civil and criminal immunity

• The ACCC’s immunity policy sets out the relevant criteria for upfront civil immunity

• The ACCC makes a recommendation to the CDPP to grant upfront criminal immunity. They apply the same criteria under Annexure B of the Prosecution Policy of the Commonwealth.

Immunity/Leniency Program

Hypothetical approach

Marker granted

Proffer and application ACCC considers civil

CDPP considers criminal

Grant of conditional immunity

How it works -overview

ACCC Cartel Immunity hotline +61292303894

• Executives concerned about the potential for imprisonment have greater incentives to seek immunity in the ‘race’ between cartelists, and between employees and their employers. ACCC outreach, including “The Marker” short film, has emphasised this.

• First-in immunity is the key prize and the only way to achieve full immunity

• Second and subsequent parties can still receive discounts based on the scope and extent of their cooperation, although there is no certainty around the levels of discount

Immunity / Leniency Program

Immunity / Leniency Program

• Provide waivers to speak with other regulators – planning of evidence gathering activities – discussion of case theory and other strategic issues

• Produce all relevant documents • Make witnesses available, including those based outside

Australia • Provide more substantive waivers to speak with other

regulators as further information becomes available • Give evidence in proceedings • Timeliness

Key cooperation obligations

Immunity / Leniency Program

• Since September 2005 the ACCC has had over 100 approaches under its immunity policy

• Over 45 approaches since criminalisation of cartel conduct in July 2009

• Average between 1 – 2 approaches per month

• Around half relate to international cartels

A copy of the immunity policy and the interpretation

guidelines can be found at www.accc.gov.au/cartels.

Immunity / Leniency Program

Recent Detection/ Deterrence Work

• ACCC Chairman Sims has made cartel enforcement a major priority for the agency.

• Short film “The Marker” released on the effects of cartel

conduct (2012) - ACCC sent film to the CEOs of Australia’s top 300

companies. • South Australian State Government signed a

Memorandum of Understanding in 2011 to combat cartel conduct (2012)

Click here for Trailer

Recent Administrative Action

• Australia and New Zealand antitrust law differs from other international jurisdictions. • ‘Attempted’ cartels & accessorial conduct is illegal and enforced.

– All Homes case (2013) Attempt to arrive at an understanding where agents would charge at least 2 % of the sale

price of properties.

• A range of formal exemptions on public policy grounds can be applied for: – Queensland Newsagents Federation case (2013) To enable the QNF and its members to collectively negotiate with Tatts Group on fees, levies

and charges. – The Australian Writers’ Guild case (2013) To enable collective negotiation with the Major Performing Arts Board Theatres in Australia

of the terms of engagement of freelance playwrights.

Recent Enforcement Cases

• Yazaki Corporation and its Australian subsidiary, Australian Arrow – Automotive manufacturing industry. – Commenced civil proceedings in late 2012 in relation to conduct between 2003 and 2009. – Pecuniary penalties, declarations, injunctions and costs against Yazaki and Australian Arrow.

• ACCC proceedings against the Airline Cartels – ACCC v British Airways; Qantas Airways; Cargolux Airlines International; Martinair Holland;

Air France; JAL; Korean Air Lines; Malaysian Airline System; Emirates; Cathay Pacific; Singapore Airlines and Thai Airways.

– Cumulative total: $AU95.5 million/$US97.6 million. – 2013 ongoing cases: ACCC v Garuda & Air New Zealand.

• Renegade Gas and Speed-E-Gas – Forklift gas supply industry. – Commenced civil proceedings in mid 2012 in relation to conduct between 2006 and 2011. – Pecuniary penalties against Renegade Gas and Speed-E-Gas as well as banning orders and

pecuniary penalties against former senior executives of both businesses.

• DRS C3 Systems – International military defence training systems industry. – Commenced civil proceedings in 2009 in relation to conduct over a confined period of time. – The Federal Court at Sydney made orders by consent in 2012. – Penalties: $1 million and various restrictions.

• TF Woollam & Son, JM Kelly and Carmichael Builders

– Construction industry. – Commenced civil proceedings in 2009 in relation to cover pricing conduct between 2004 and

2007. – The Federal Court at Brisbane found price fixing and misleading or deceptive conduct in tendering for Government public works projects in Queensland. – Penalties: $1.3 million and two key individuals received penalties totalling $80 000.

Recent Enforcement Cases

Political Imperative to Take First Criminal Prosecution

• In July 2009 Australia introduced criminal penalties for cartel conduct.

• 1st criminal prosecution by ACCC against a cartel still to come.

• Cases take a long time to come through – investigations and prosecution themselves take time but the conduct discovered, even today, may ‘straddle’ the pre- and post-criminalisation date.

• Political imperative to achieve first prosecution.

• Continued use of civil procedures against individuals raises UN Human Rights Convention issues

Recent Cartel Class Actions

• Corrugated Cardboard Boxes (Amcor & Visy) – Started 2006, settled 2011 for AU$95 million/US$96.8 million. – Class: purchasers of corrugated cardboard boxes from 2000 to 2005.

• Rubber Chemicals (Bayer & Chemtura)

– Started 2007, settled 2011 for AU$1.5 million/US$1.53 million. – Class: manufacturers of rubber compounds from 1995 to 2001.

• Fuel & Security Insurance Surcharges for Air Cargo (7 airlines)

– Started 2007 - ongoing. – Class: Australian residents who, from 2000 to 2007, paid for the carriage of

goods to / from Australia by air.

Recent Law Change

• Unusual Australian twist on worldwide trend to focus on information exchange between competitors.

• In 2012, Australia introduced a complex price signalling prohibition. • Two central prohibitions:

– ‘Per se' price signalling conduct (private disclosures); and – Competition-test (public disclosures).

• Prohibition applies only when an industry is specified in regulations and to date the

government has said it will apply only to the banking industry.

Recent Addition to Trans-

Tasman Cooperation

• The Governments of NZ and Australia signed a Memorandum of Understanding on Coordination of Business Law in 2000 to achieve greater consistency in Trans-Tasman application and enforcement of competition law.

• Amendments made in 2012 (Commerce Act 1986) allowed the NZCC to provide

compulsorily-acquired information and investigative assistance to overseas regulators (with whom a cooperation arrangement is entered into).

• In 2013, the ACCC and NZCC signed a cooperation arrangement. • Compulsorily-acquired information is mutually exchanged without the consent of the

parties involved. • However, circumstances exist where it is more appropriate to obtain information

through the use of mandatory information-gathering powers (statute-based) rather than cooperative measures.

New Zealand

Cartel Laws • Commerce Act 1986, section 30

– Contract, arrangement or understanding (can be verbal or written)

– Between competitors – Purpose, effect or likely effect of

• Fixing, controlling or maintaining; • The price of goods or services; or • Any discount, allowance, rebate or credit in relation to goods

or services

• Deemed to substantially lessen competition and breach section 27 of the Commerce Act

Penalties

• Currently only civil penalties • Up to NZ$500,000 for individuals

– Cannot be indemnified by employer – Management banning orders (up to 5 years)

• For corporations, the greater of: – NZ$10 million – Three times commercial gain – 10% of turnover

Damages

• Compensatory damages are also available to anyone who suffered loss as a result of the cartel conduct

• Exemplary damages are also available, even if a pecuniary penalty has been imposed (but this must be taken into account)

Investigative Process • Commerce Commission

– Compulsory provision of information/interviews – section 98

– Search warrants – section 98A

• Criminal offence not to comply, to obstruct the Commerce Commission, or to deceive/mislead the Commerce Commission

Leniency/Immunity Program

• Conditional immunity to the first member of the cartel to approach the Commerce Commission

• The “instigator” or “lead party” is eligible to apply for immunity

• No immunity from third party claims for damages

• More lenient treatment for cartel members who co-operate, but do not have immunity

Leniency/Immunity Program

• Potential leniency applicants who do not have sufficient information can apply for a “marker”

• Applicant must admit a breach of section 30 and cease involvement in the cartel

• Applicants can request a “paperless process” (application and immunity given orally)

Recent Developments - Cartels

• Australia introduced criminal sanctions in 2009 so it was timely for NZ to consider the issue

• Initial stages of the policy process identified issues with

the current legislative regime. There was uncertainty over the scope of the cartel prohibition and whether it prohibited legitimate, pro-competitive conduct

• The focus of the process has been on how to clarify the

law

Recent Developments cont…

• The Commerce (Cartels and Other Matters) Amendment Bill is currently before Parliament

• If enacted, the Bill would: – clarify what constitutes hard-core cartel conduct:

• price fixing, market allocation, output restrictions and bid-rigging

– Introduce an exemption for “collaborative activity” – introduce a clearance regime that would allow parties

to a proposed collaborative arrangement to approach the Commerce Commission to test whether the arrangement is prohibited

– introduce criminal sanctions

Recent Developments cont…

Commerce (International Cooperation and Fees) Amendment Act 2012 •Enables the NZCC to use its statutory powers and information acquired through the use of its statutory powers with other overseas regulators Co-operation arrangement between the ACCC and NZCC – signed 27 February 2013 •Relates to the provision of compulsorily acquired information and investigative assistance

Recent Developments - Cases

Poynter v Commerce Commission (SC) •Poynter was an Australian resident and it was accepted that he was not carrying on business in NZ •Poynter’s participation in the alleged breaches took place out of NZ •However, Poynter had managerial responsibility within a group of companies and the NZCC alleged he was personally liable as a result of directing others in furtherance of a cartel arrangement, albeit while the NZ actors were overseas •SC found that section 4 is exhaustive of the circumstances in which the Act applies to conduct outside NZ. As a result, the Act did not apply to Poynter in his personal capacity

Recent Developments - Cases

Commerce Commission v Visy Board (CA) •Australian cardboard cartel – defendants admitted conduct in Australia •Critical question was whether such cartel conduct was extended by the parties to a market in New Zealand •Whether a person is carrying on business in NZ is a question of fact where a number of factors are relevant. The approach taken requires recognition of the practical modes of transacting business, including advances in communications and other developments in the globalisation of commerce

Recent Developments - Cases

Kuehne + Nagel International AG v Commerce Commission (CA) • Kuehne + Nagel, based in Switzerland, had challenged the

Commission's jurisdiction to bring proceedings against it, on the basis that it was a holding company without involvement in the operation or management of freight forwarding

• Whether conduct was engaged in on behalf of a body corporate is a factual enquiry

• CA cognisant that a subsidiary does not carry on business as an agent merely as a result of the parent/subsidiary relationship

• CA found that the Commission had established good arguable grounds that implementation of the agreements in New Zealand may be attributed to Kuehne + Nagel, through its direction of, or with the consent or agreement of, companies within its corporate group

Recent Developments - Cases

Commerce Commission v Air NZ & Others (HC) •At issue was whether there was a "market in New Zealand"� for the inbound air cargo services •The airlines argued that, for cargo inbound to New Zealand, the competition between the airlines occurred only at overseas ports of origin and not in New Zealand. For these reasons the Commission's inbound price-fixing claims were outside the reach of the Commerce Act •High Court at Auckland decided that inbound air cargo services were supplied in a market in New Zealand

Aus/NZ regimes aligned

• Based on economic principles, similar to those in the US • Aus/NZ governments are committed to a Single

Economic Market – Firms will face the same consequences for the same anti-competitive conduct – e.g. In both countries, the cartel prohibitions are limited to hard-core cartel

conduct based on the OECD recommendation – Close enforcement collaboration facilitated – e.g. Recent cooperation agreement

• Nevertheless, there is a difference in legislative style: • NZ approach to legislative drafting adopts fewer, principle based, concepts • The Australian approach adopts more detailed, tailored, concepts

• Overall, the way in which the legislation is implemented is likely to be similar

Biographies

Kathryn Edghill

Contact: kedghill@trumanhoyle.com.au Tel: +6129226 9869 Mob: +61411287604 Truman Hoyle Level 11, 68 Pitt St Sydney NSW 2000

Kathryn leads the Competition and Regulatory practice at Truman Hoyle . She has over 23 years’ experience acting for some of Australia’s major corporations . Her background in competition law and litigation includes as partner in charge of the national competition and trade practices group of one of Australia’s largest firms. Kathryn specialises in competition law and regularly advises clients on cartel matters, including the application of the ACCC’s immunity policy. She also advises on all other aspects of the Competition and Consumer Act.

Marcus Bezzi Executive General Manager

Enforcement & Compliance ACCC • Marcus has been Executive General Manager,

Enforcement & Compliance at the Australian Competition and Consumer Commission since January 2009. He is responsible for the ACCC's Enforcement & Compliance Division (ECD).

• The ECD enforces compliance with Australia’s consumer protection and competition laws. Among other things, they investigate serious cartel offences, refer criminal conduct for prosecution and take civil enforcement action under the Competition and Consumer Act 2010.

• Marcus is a co-chair of the Cartel Working Group SG-2 (Enforcement Techniques) for the International Competition Network.

Nicolas (Nick) Taylor

Contact njtaylor@jonesday.com Sydney Office (T) +61.2.8272.0715 (M) +61.4.1133.1178 (F) +61.2.8272.0599 Education University of Adelaide (LL.B.1995; B.Ec. 1992) Bar Admissions Solicitor of the Supreme Court of New South Wales

Nick is an Antitrust / Competition Partner of Jones Day’s Sydney Office. He is qualified to practice in Australia and England / Wales. His previous experience includes: • Competition Law Specialist (Asia-Pacific), OECD Paris. • Competition Law Partner, Gilbert + Tobin Sydney. • Foreign Consultant (Antimonopoly Law), King & Wood Beijing. • Acting General Counsel, Australian Payments Clearing Association, Sydney. • Investigations Officer, Mergers, ACCC Melbourne. • Economist, Productivity Commission, Melbourne/ Canberra.

James Craig, Simpson Grierson, New Zealand

DDI: +64 9 977 5125 Mobile: +64 021 497 713 james.craig@simpsongrierson.com

James is a partner in the commercial litigation group at Simpson Grierson, where he specialises in competition law. James provides advice on all aspects of restrictive trade practices and acquisitions under the Commerce Act, and routinely advises on Fair Trading Act issues and disputes. He is experienced in applying for Commerce Commission clearance for acquisitions. He has represented clients in Commerce Commission investigations, and been involved in significant court litigation dealing with Commerce Act and Fair Trading Act claims.

James regularly provides compliance seminars to clients on the Commerce Act and the Fair Trading Act.

Abbe Hutchins Ministry of Business, Innovation and Employment,

New Zealand

• Abbe is a Senior Analyst specialising in competition policy at New Zealand’s Ministry of Business, Innovation and Employment

• Since November 2010, Abbe has led the policy process considering

whether New Zealand should criminalise hard-core cartel conduct • Abbe also leads New Zealand’s negotiation in relation to competition

policy in free trade agreements, including the Trans Pacific Partnership Agreement. As part of her role, she regularly attends meetings and represents New Zealand on the Competition Committee at the OECD

• Prior to working at the Ministry, Abbe worked as a specialist

competition and regulatory lawyer in private practice in Australia. She has also worked in house as legal counsel for the New Zealand Commerce Commission

DDI +64 4 462 4285 abbe.hutchins@med.govt.nz