A shot across the bow for cartelists in the RORO criminal proceedings
The Federal Court imposed the first ever criminal penalty for a breach of the cartel offence on Nippon Yusen Kabushiki Kaisha (NYK) on Friday 4 August 2017. Criminal proceedings were commenced against NYK and Kawasaki Kisen Kaisha (K-Line) for giving effect to a cartel provision in 2016 (see our previous blog posts here and here).
On 18 July 2016, NYK pleaded guilty to a single charge of “giving effect” to a cartel reached between companies that supplied shipping services for roll-on, roll-off cargo, primarily cars and trucks. The cartel involved the fixing of freight rates, the rigging of bids and the allocation of customers for the supply of the shipping services to ten major vehicle manufacturers in relation to a number of routes to and from Australia.
Justice Wigney imposed a penalty of $25 million on NYK. This is the second largest penalty to be imposed for a breach of the competition laws (Visy paid a $36 million civil penalty for its role in the cardboard cartel back in 2007) and the first for a criminal offence. His Honour said that but for NYK’s early plea of guilty and its cooperation, the penalty would have been $50 million.
Despite cartel conduct being criminalised in July 2009, this was the first case to consider the principles that apply in determining a criminal penalty. Some interesting aspects emerge from the judgment:
- it is difficult to rely on civil penalty cases to determine the appropriate criminal penalty. Criminal penalties import notions of retribution and rehabilitation, whereas civil penalties focus on deterrence;
- NYK received a 10% (or $5 million) discount to the penalty amount for future cooperation with law enforcement agencies in proceedings against other alleged participants (presumably, this includes K-Line); and
- as the proceedings were criminal, the Commonwealth Director of Public Prosecutions (CDPP) did not make submissions on the amount of the appropriate penalty (see our previous alert on this important difference between civil and criminal proceedings, here). NYK submitted that a penalty of between $20-25 million was appropriate in the circumstances and the Commonwealth DPP didn’t argue the point. This can be contrasted with civil proceedings for cartel conduct where the parties may jointly propose an agreed penalty to the court (although, the court will determine if the proposed penalty is appropriate).
NYK agreed to plead guilty to a single “rolled-up” charge for giving effect to a cartel – this is in circumstances where the particulars and agreed facts indicate that NYK engaged in conduct that gave effect to the cartel on at least 20 separate occasions between 24 July 2009 and 6 September 2012. The maximum penalty which could be applied to the single offence by NYK was $100 million (calculated as 10% of NYK’s annual turnover).
Criminal prosecutions of companies
Justice Wigney noted it was “curious” that the dual civil and criminal regimes for cartel conduct used the same method to calculate the maximum penalty. The main distinction between the criminal and civil regimes is the ten year maximum jail sentence which may be imposed on individuals.
Under the criminal regime, the burden of proof is higher and the company must have intended to give effect to a cartel provision.
So why would the ACCC pursue criminal prosecutions against companies? Justice Wigney noted that a criminal conviction attracts societal condemnation in a way that civil penalties do not.
Going forward, there may also be advantages for the ACCC in securing larger fines under the criminal regime against companies for cartel conduct that has occurred over an extended period of time. The ACCC can only bring civil proceedings within six years from the date of the contravention – no such limit exists under the criminal regime.
The agreed facts noted five other parties to the cartel arrangement with NYK. K-Line was one of the parties identified. A committal proceeding is listed in the Local Court in Sydney on 19 and 20 October for K-Line.
Interestingly, in a speech to the Law Council the day the penalty was imposed, Chairman Rod Sims said that the ACCC had invested considerable resources in building a specialist team of cartel investigators with the capacity to conduct careful and thorough criminal investigations – described as the ACCC’s “criminal cartel machine”. Mr Sims identified that now built, there will be continuing output from this machine and that a number of briefs have already been given to the CDPP.
The imposition of a criminal penalty is a significant moment for the ACCC and the enforcement of the cartel laws in Australia. However, the real test for the ACCC’s criminal cartel machine (and the CDPP) will be when a party contests criminal liability, which may happen in the future even with the cooperation of cartel participants.