Powers and Penalties — the Harper Review’s key enforcement recommendations

Published On 16/04/2015 | By KWM | Enforcement, Litigation, Reform

There has been significant debate over the ACCC’s enforcement powers and penalties for breaches of competition law for a number of years.

The lack of any prosecution for cartel conduct under the 2009 criminal regime has been regularly highlighted, and Federal Court commentary on the inadequacy of penalties in the context of unconscionable conduct led to speculation that the Harper Report might contain a rethink of existing penalty and enforcement provisions.

However, the Panel’s recommended reforms have proved to be modest — the proposals address practical issues and inconsistencies rather than reshaping the pre-existing approach to enforcement and penalties.

This post discusses current trends in enforcement and penalties before considering the Harper Review’s recommendations in more detail.

Trends in enforcement powers and penalties

In the video above, King & Wood Mallesons partners Peta Stevenson and Lisa Huett discuss the ACCC’s present enforcement powers and recent trends in penalties. Peta and Lisa observe that the ACCC already possesses broad-information gathering powers and is committed to ensuring that those powers are respected. They also discuss the general support for present penalty levels and the scope for upward pressure on penalties within the present penalty regime.

Finessing of existing investigative powers

The Harper Review’s Final Report (discussed in detail in our earlier alert) contains some modest but important changes to the ACCC’s investigative powers.

Under s 155 of the Competition and Consumer Act 2010 (Cth) (CCA), the ACCC can compel a person to produce documents or answer questions under oath if it believes they are capable of providing information relating to a matter that may constitute a breach of the Act. The Panel’s recommendations resolve some practical issues which have affected the ACCC’s information gathering powers to date and inconsistencies with other regulatory regimes:

  • Greater penalties under s 155 — the Harper Panel’s Final Report recommends that fines for non-compliance with s 155 notices be increased to the same levels as those that apply to ASIC notices. The current penalty for non-compliance with a s 155 notice is 12 months’ imprisonment or a fine of up to $3,400 (for individuals) or $17,000 (for corporations). Under the proposed changes, these figures would be lifted to $17,000 (for individuals) and $85,000 (for corporations). As we noted in a previous post, there is presently separate repeal day legislation before Parliament which would allow the ACCC to seek orders from a court requiring an individual to comply with a s 155 notice.
  • Defence of ‘reasonable search’ — in its Final Report, the Panel hardened its position on overly onerous s 155 notices by recommending that the CCA be amended to provide a defence of “reasonable search” in order to ease the regulatory burden of s 155. While its Draft Report had left open the possibility of confining the scope of the obligation to comply with s 155 notices through a non-legislative policy or guideline, in its Final Report it found that it was important that any limiting provision be contained in the CCA itself. Crucially, the defence of “reasonable search” does not appear in the repeal day legislation that proposes to amend the CCA in a number of respects, which is presently before Parliament and is the subject of an inquiry by the Senate Economics Legislation Committee.
  • Extending s 155 powers to undertakings — the Harper Panel’s Report recommends that the ACCC’s powers under s 155 be extended to cover potential non-compliance with enforceable undertakings given under s 87B. This recommendation was not included in the Draft Report and addresses an ambiguity in the scope of the Commission’s information-gathering powers, which was exposed by observations in the Federal Court’s decision in ACCC v StoresOnline International, Inc. In practice, the ACCC has often included a provision in recent undertakings allowing it to direct the party which proffered the undertaking to provide information on compliance.

In addition to the specific recommendations above, the Panel observed that the ACCC was under an ‘important responsibility’ to frame s 155 notices in the narrowest form possible each time a notice is issued.

Limited changes to penalties

The Harper Review did not recommend any major changes to the level of maximum penalties under the CCA, noting that ‘there appears to be general approval of the severity of the sanctions for contravention of the competition law’.

However, it did recommend two minor changes to penalties associated with particular provisions, which were arguably out of step with those that apply to comparable breaches of the CCA and other legislation:

  • Secondary boycotts — the Report recommends that penalties for breaches of the secondary boycott provisions be brought into line with those that apply to the other competition provisions in the CCA. Presently, the maximum penalty for breaching the secondary boycott provisions is $750,000 for corporations and $500,000 for individuals. If the Panel’s recommendation is implemented the penalty for corporations will increase to the greater of $10 million, three times the gain from the contravention or, where gain cannot be readily ascertained, 10 per cent of the corporation’s annual turnover. This recommendation follows the filing, late last year, of the first action under the secondary boycott provisions in eight years (see our earlier post).
  • Non-compliance with s 155 — as noted above, the Committee recommended an increase to penalties for non-compliance with s 155.

In its Final Report, the Committee also maintained its position that divestiture remedies should not be available for misuse of market power. As we noted in a previous alert, Senator Xenophon introduced a private member’s Bill last year which would allow the court to order that a corporation which contravenes s 46 reduce its power in, or share of, the relevant market. Submissions to the Harper Review had called for the same power. However, the Harper Review’s Final Report took the same position as the Senate Economics Legislation Committee, which recommended that no such remedy be introduced.

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