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Australian Cartel Regulation

Law, policy and practice in an international context

Cartel regulation is a prime element of competition policy and an essential means ofminimising the adverse effects of cartel activity on economic welfare. However, effec-tive cartel regulation poses distinct challenges for governments, competition authori-ties and commentators across the globe.

In Australian Cartel Regulation, leading competition law experts Caron Beaton-Wellsand Brent Fisse reflect on developments in anti-cartel law in Australia over the last30 years. They provide a comprehensive account of the current law on cartels as wellas discussing key issues that may arise in the future. The impact of the prohibitions, theexceptions, the principles and the rules governing corporate and individual liability;the policies that guide decisions on enforcement, immunity and cooperation; and thesanctions and the implications for compliance and liability control are all criticallyassessed. This definitive volume not only identifies the practical and theoretical issues,but also recommends workable solutions, and does so with the benefit of comparativeanalysis of the anti-cartel laws of major overseas jurisdictions. Many of the issuesidentified and discussed in Australian Cartel Regulation are common to any schemedesigned to regulate cartel conduct.

Caron Beaton-Wells is Associate Professor, Faculty of Law, University of Melbourne.

Brent Fisse is Principal, Brent Fisse Lawyers, and Adjunct Professor of Law, Universityof Sydney.

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http://www.cambridge.org/9780521760898

Australian Cartel RegulationLaw, policy and practice in

an international context

Caron Beaton-WellsBrent Fisse






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Foreword

In 2009, the Australian Parliament finally passed legislation, the Trade PracticesAmendment (Cartel Conduct and Other Measures) Act 2009 (Cth) which imposedcriminal liability for price-fixing, market-sharing, and other forms of cartelactivity.

This legislation has a tortuous history, going back to the Australian Industries Preser-vation Act 1906 (Cth). It would be nice to think that the pace quickened after 2003when the Dawson Committee recommended criminalisation of cartel conduct, partic-ularly when that recommendation was accepted by the Commonwealth Treasurer thesame year. However, as the authors demonstrate, what followed was a saga of ‘secrecy,obfuscation and delay’.

The present work is a welcome attempt to unravel the key issues of law and pol-icy raised by so major a change to the Trade Practices Act 1974 (Cth) (TPA). Theauthors are leading academic and professional competition lawyers in Australia. Theyexplain the new legislation in detail, point out its shortcomings, and propound sensibleimprovements.

Prior to the 2009 Act there was a substantial Australian jurisprudence on cartelconduct in the context of civil liability under the TPA. For example, the concept of‘contract, arrangement or understanding’ with its underlying notion of commitmentwas well developed and understood, as witness the High Court’s refusal of specialleave to appeal from the decision of the Full Court of the Federal Court in Apco ServiceStations Pty Ltd v Australian Competition and Consumer Commission (2005) 159 FCR452, special leave refused [2006] HCA Trans 272.

The task of identifying what cartel conduct was to become subject to criminalsanctions, while at the same time protecting legitimate commercial cooperation suchas joint ventures, was admittedly not an easy one. The opportunity for professionaland public input was limited; as the authors note, a working party appointed by theGovernment to consider the Dawson Committee’s report did not release any discus-sion paper and indeed vigorously opposed a freedom of information application forthe release of its report: Fisse v Secretary, Department of the Treasury (2008) 172FCR 513.

While at least the misguided inclusion of a dishonesty requirement was thank-fully abandoned, the overall result has many deficiencies, as this work convinc-ingly demonstrates. Were the 2009 Act an essay submitted to the authors intheir academic capacity, one suspects the student would be lucky to receive aC minus.

v






vi FOREWORD

A basic problem is that the legislation was fated to be produced in the deeplyentrenched Australian house style for legislative drafting. The authors say that theprovisions

. . . suffer from undue complexity, technicality and prolixity. They have multiple layers,intricate cross relationships, and hidden definitions.

(Another distinguished commentator, Russell Miller in his Annotated Trade PracticesAct, 31st edn, p. 347, tersely describes the four page definition of ‘cartel conduct’ ins 44ZZRD as ‘turgid’.)

As an example, a resolute reader who has struggled through the preceding 10subsections of s 44ZZRD will be met with the following Delphic utterance:

(11) For the purposes of this Division, a provision of a contract, arrangement or understandingis not to be taken not to have the purpose mentioned in a paragraph of subsection (3) byreason only of:

(a) the form of the provision;(b) the form of the contract, arrangement or understanding; or(c) any description given to the provision, or to the contract, arrangement or understand-

ing, by the parties.

The foregoing is not mere donnish disdain. This legislation has serious consequencesfor those who become involved in its application, including those facing imprisonmentor financial ruin. Judges attempting to formulate intelligible directions and juriesattempting to understand and apply those directions have had their tasks made moredifficult by the structure and form of this legislation.

However, I should not leave readers with the impression that this work is confinedto academic criticism or proposals for reform, valuable though it is in those respects. Itis as well a thorough and perceptive analysis of this difficult legislation. In this area ofthe law, one could not of course express hope that the work would achieve a monopoly,or even a substantial degree of market power. Nevertheless, it will without doubt bequickly recognised as indispensable.

The Hon Peter Heerey QCDawson ChambersMelbourneMay 2010






Foreword

The recent surge in countries seeking to criminalise price-fixing is a truly remarkabledevelopment. For more than 100 years, the United States was virtually alone in permit-ting prosecutors to proceed criminally in attacking alleged violations of the antitrustlaws.

However, this generalisation may obscure as much as it reveals. In the United States,fines, as well as prison sentences, constitute criminal penalties. In Europe, however,and in much of the rest of the world (including Australia) that enforces antitrust lawsof some kind or other, fines are a form of civil remedy and the European Commission(as well as the Australian Competition and Consumer Commission) has been able tosecure some very large fines using civil enforcement tools.

So what is really at issue in the recent surge of criminalisation is the use of incar-ceration as a possible penalty for certain antitrust violations. And that is a remedythat, until very recently in the modern era, has rarely been used outside the UnitedStates.1 Even in the US, it was not until the (quite modest) sentences handed out to‘white-collar’ defendants in the so-called ‘Great Electrical Equipment Conspiracy’ inthe 1960s that the public began to think of incarceration as a potential outcome for anindividual convicted of an antitrust violation. This public perception was enhanced in1974 when President Ford signed legislation that changed violations of the ShermanAct from misdemeanors to felonies and increased the maximum jail term from one tothree years (increased to 10 years in 2004).

But for a variety of reasons there has developed over the last 10 or so years a beliefin many modern industrial societies on the need to have incarceration as a potentialsanction for price-fixing and related cartel behavior. In that regard, Australia hascaught up to the US. But there the similarity ends, as this book by Beaton-Wells andFisse clearly demonstrates. There is no separate ‘cartel statute’ under US antitrust law;price-fixing and other cartel activities are covered by the general purpose s 1 of theSherman Act, which outlaws simply ‘every contract, combination in the form of trustor otherwise, or conspiracy in restraint of trade or commerce . . . ’. The statute declaresthat a violator of the statute is deemed to be guilty of a felony but the decision of the DOJwhether to proceed criminally or civilly is a matter of prosecutorial discretion. There isno separate legislation setting out any distinction between criminal and civil offencesand the principal antitrust casebooks used in the US contain few if any significantcourt decisions expounding on the difference. There are cases expounding on thedistinction between conduct that is unlawful per se and conduct that must be proven

1 It is worth noting, however, that under the first recorded antimonopoly act, the Edict of Zeno, a violator could becondemned to permanent exile. See KG Elzinga and W Breit, The Antitrust Penalties, Yale University Press, NewHaven, 1976, pp. 21–2.

vii






viii FOREWORD

to be anti-competitive under the rule of reason but many civil cases (both governmentand private) result in a per se violation. There is of course a difference in the burden ofproof (beyond a reasonable doubt in criminal cases) and at least a nominal requirementof intent for a criminal conviction. But that’s about it. If one had to come up with arough and ready rule on when the government is likely to proceed with (and win) acriminal conviction, it is for agreements on price or output that are naked (i.e. are notassociated even facially with any kind of joint venture) and are done in secret.

So it will come as a shock to the American reader to learn that the new Aus-tralian statute that regulates unlawful cartel activity runs to 13 pages. But that isthe joy of studying comparative law! The US legislative model has a distinctive his-tory and is not transplantable in Australia and other jurisdictions where competitionlegislation is much more prescriptive. Because of the length and complexity of theAustralian legislation, it may not be so surprising that an entire book is needed toexplain and critique it. The work also canvasses issues that are the subject of ongo-ing debate and development around the world, including facilitating practices, jointventures and corporate criminal liability. Hence the student of comparative law, aswell as Australian practitioners and enforcement agencies who need to be knowinglyconcerned in the application of the legislation, will find much to learn from this com-prehensive analysis by Beaton-Wells and Fisse.

George HayEdward Cornell Professor of Law and Professor of EconomicsCornell Law School






Contents

Foreword by The Hon Peter Heerey QC page vForeword by Professor George Hay viiAbout the authors xxiPreface xxiiiAcknowledgements xxvAbbreviations xxix

1 Introduction 11.1 Why focus on anti-cartel law and enforcement? 11.2 A new anti-cartel regime for Australia – background 31.3 Aims, scope and structure of this book 7

2 The legal framework governing cartel conduct 102.1 Introduction – a complex regime 102.2 Outline of the statutory regime 102.3 Coverage of the statutory regime 13

2.3.1 Entity coverage 132.3.2 Territorial coverage 142.3.3 Temporal coverage 18

2.4 The criminal/civil divide 192.4.1 Flaws in the dishonesty proposal 19

2.4.1.1 A dishonesty element is incapable of limiting a cartel offence toserious cartel conduct 20

2.4.1.2 A dishonesty element does not provide a basis for adequatelydifferentiating criminal from civil liability 20

2.4.1.3 The test for dishonesty is uncertain and vulnerable tounmeritorious denials of liability 20

2.4.1.4 A dishonesty element does not accurately label or signal thesubject matter of cartel offences 22

2.4.1.5 Questionable precedent for a dishonesty element in a carteloffence 23

2.4.2 Unworkability of suggested alternatives 232.4.3 Questionable aspects of the current approach 25

2.4.3.1 Both civil and criminal prohibitions suffer from overreach anduncertainty 25

2.4.3.2 The criminal and civil prohibitions are inadequatelydistinguished 27

2.4.3.3 Determination of seriousness should not be left substantially toprosecutorial discretion and/or sentencing 28

2.4.3.4 Provision for authorisation is not a sufficient cure for overreachand uncertainty 31

ix






x CONTENTS

2.4.4 A more comprehensive and systematic approach 312.5 Conclusion 34

3 Collusion (contracts, arrangements, understandings) 363.1 Introduction – the law in flux on collusion 363.2 A spectrum of dealings 393.3 Conceptual boundaries 433.4 Looking overseas for workable models 47

3.4.1 The approach taken in the US and the EU 473.4.2 Equating ‘understanding’ with ‘concerted practice’? 52

3.5 Evidentiary considerations 583.5.1 Problems with the ACCC’s 2007 list of proposed factual matters 593.5.2 Additional complications 65

3.6 Meaning of ‘makes’ a contract or arrangement, ‘arrives at’ anunderstanding or ‘gives effect to’ a provision 673.6.1 ‘Makes’ or ‘arrives at’ 683.6.2 ‘Gives effect to’ 68

3.6.2.1 Purposes of the ‘gives effect to’ offence and prohibitions 693.6.2.2 Meaning of ‘gives effect to’ 69

3.7 Parties to a contract, arrangement or understanding 713.8 Conclusion – the need for clarity and restraint in defining collusion 73

4 Cartel and other provisions 754.1 Introduction – the pivotal element of a provision 754.2 Classification of provisions 76

4.2.1 Basic economic principles relevant to classification 774.2.2 The US approach to classification 794.2.3 The EU approach to classification 834.2.4 The Australian approach to classification 86

4.3 Price-fixing provisions 894.3.1 Price-fixing purpose, effect or likely effect 90

4.3.1.1 Purpose 904.3.1.2 Effect or likely effect 93

4.3.2 Fixing, controlling, maintaining or providing for the fixing, controlling ormaintaining of a price, discount, rebate, allowance or credit 954.3.2.1 Fixing 954.3.2.2 Maintaining 964.3.2.3 Controlling 974.3.2.4 Providing for 994.3.2.5 Price, discount, rebate, allowance or credit 100

4.3.3 Goods or services supplied or acquired, or likely to be supplied oracquired, by the parties to the contract, arrangement or understanding,or re-supplied, or likely to be re-supplied, by persons or classes of personssupplied or likely to be supplied by any or all of the parties 100

4.4 Exclusionary provisions 1024.4.1 Nature of the exclusionary purpose 1044.4.2 Object(s) of the exclusionary purpose 1054.4.3 Reform proposals 108

4.5 Output restriction provisions 1114.5.1 Output restriction purpose 1124.5.2 Production, capacity and supply 114






CONTENTS xi

4.5.2.1 Production 1154.5.2.2 Capacity 1164.5.2.3 Supply 116

4.6 Market allocation provisions 1184.6.1 Market allocation purpose 1194.6.2 Allocation 120

4.7 Bid-rigging provisions 1214.7.1 Bid-rigging purpose 1224.7.2 Joint bidding 125

4.8 SLC provisions 1274.9 Conclusion – the need for reformulation underpinned by a more

principled and more flexible approach 131

5 Fault elements of the cartel offences 1355.1 Introduction – the cartel offences and their physical and

fault elements 1355.2 Fault elements – a quintessential feature of the cartel offences 137

5.2.1 Main fault elements of the cartel offences 1375.2.2 Fault concepts 1375.2.3 Coverage and application of the fault elements 139

5.3 Intention 1405.3.1 Intention to make a contract or arrangement or arrive at an

understanding 1405.3.2 Intention to give effect to a cartel provision 142

5.4 Knowledge or belief that a contract, arrangement or understandingcontains a cartel provision 1425.4.1 The subject matter that must be known or believed 1425.4.2 Knowledge 1435.4.3 Belief 1455.4.4 ‘Wilful blindness’ 1475.4.5 Knowledge or belief as to the purpose of the cartel provision

alleged 1505.4.6 Degree of detail of which D must be aware 151

5.5 Ignorance and mistake of fact or law 1525.5.1 Ignorance or mistake of fact 1525.5.2 Ignorance or mistake of law 153

5.6 Fault elements applicable in relation to a ‘cartel provision’ asreformulated in Chapter 4 155

5.7 Conclusion – the ultimate challenge of formulating workablejury directions 1565.7.1 The complexity of the cartel offences and the failure to reverse engineer

their elements on the basis of conceivably workable jury directions 1565.7.2 Towards model jury directions 157

6 Individual liability for cartel conduct 1586.1 Introduction – the symbol of jail and illusions of individual

accountability 1586.2 Individual liability for cartel conduct as a principal party 159

6.2.1 The basis for individual liability for cartel conduct as a principal party159






xii CONTENTS

6.2.2 Individual liability as a principal party on the basis of personalresponsibility 1606.2.2.1 Introduction 1606.2.2.2 Individual liability for cartel conduct as a principal party for

allowing or authorising cartel conduct 1616.2.3 Individual liability for cartel conduct as a principal on the basis of

vicarious responsibility 1656.3 Individual liability for complicity in cartel conduct 167

6.3.1 The various bases of liability for complicity in cartel conduct 1686.3.2 Physical elements of individual liability for complicity in cartel conduct

on the basis of personal responsibility 1696.3.2.1 Introduction 1696.3.2.2 Liability for complicity on the basis of an omission to

intervene 1706.3.2.3 Is liability for complicity in cartel conduct limited by a special

requirement of wrongfulness? 1736.3.3 Fault elements of individual liability for complicity in cartel conduct on

the basis of personal responsibility 1736.3.3.1 Fault elements of liability for aiding, abetting, counselling or

procuring 1746.3.3.2 Fault elements of being knowingly concerned in a cartel

offence or contravention 1756.3.3.3 Fault elements of complicity in relation to the fault elements of

the principal offence or contravention 1766.3.3.4 Fault elements of complicity in relation to the type of principal

offence or contravention committed 1786.3.3.5 Fault elements of complicity in relation to the mode of

commission of the principal offence or contravention 1796.3.3.6 Ignorance or mistake 181

6.3.4 Liability for complicity in cartel conduct on the basis of vicariousresponsibility 181

6.3.5 Application of exceptions and defences to liability for complicity 1826.3.6 Simplifying and otherwise improving the definition of complicity in

cartel conduct 1826.4 Individual inchoate liability for cartel conduct – attempt, conspiracy,

inducement and attempted inducement 1846.4.1 The thicket of inchoate liability for cartel conduct 1846.4.2 Double inchoate liability 185

6.5 Tacit implication and the problem of the ‘shut-eyed sentry’ 1866.5.1 Shut-eyed sentries and the ‘insulated conductor’ stratagem 1866.5.2 A difficult challenge 189

6.6 Availability of corporate liability and the problem of limited individualaccountability for cartel conduct 1916.6.1 Introduction – corporate versus individual accountability 1916.6.2 Individual accountability for cartel conduct and enforcement

discretion 1926.6.3 Individual accountability for cartel conduct and corporate internal

disciplinary systems 1956.6.4 Individual accountability for cartel conduct, corporate liability and

efficiency 1986.7 Sidewinder liability 199

6.7.1 Offences relating to the administration of justice 200






CONTENTS xiii

6.7.1.1 TPA ss 155(5) and 154R(2) 2006.7.1.2 Criminal Code offences 2016.7.1.3 Crimes Act offences 2026.7.1.4 Offences of concealing or compounding a cartel offence 202

6.7.2 Money laundering and forfeiture of proceeds of crime 2036.7.2.1 Money-laundering offences 2036.7.2.2 Forfeiture orders 204

6.7.3 Offences relating to organised crime 2056.7.3.1 Associating in support of serious organised criminal activity

2056.7.3.2 Supporting a criminal organisation 2056.7.3.3 Directing an activity of a criminal organisation 206

6.8 Conclusion – towards solutions and away from black magic 207

7 Corporate liability 2097.1 Corporate criminal and civil liability under the Australian

anti-cartel regime 2097.1.1 Overview of the TPA provisions relating to corporate liability for

cartel conduct 2097.1.2 Pressure testing the principles and rules relating to corporate

liability 2127.2 Policy reasons for having corporate as well as individual criminal and

civil liability for cartel conduct 2137.2.1 Profoundly suspect individualistic conceptions of liability for cartel

conduct 2137.2.2 Inability of methodological individualism to explain corporate action and

corporate responsibility 2147.2.3 Heroic assumptions about the deterrent capability of individual criminal

liability 2167.2.4 Unfounded assumptions about the deterrent incapability of corporate

criminal liability 2187.2.5 Retributive punishment of corporations and corporate fault 2187.2.6 Corporate criminal liability as a less drastic avenue of deterrence or

retribution than individual criminal liability 2207.2.7 Conclusion as regards the policy of corporate criminal liability for cartel

conduct 2207.3 Corporate capacity to be held criminally or civilly liable for cartel

conduct 2217.3.1 Various rules govern corporate capacity to be held liable under Pt IV of

the TPA 2217.3.2 A corporation must be of the type required for corporate liability under

the TPA 2227.3.3 An unincorporated association is not subject to corporate liability under

the TPA 2237.3.4 Governmental authorities are subject to liability so far as they carry on a

business 2247.3.5 A corporation is not liable for conduct committed before incorporation or

before or after dissolution but a successor corporation may be liable forthe conduct of a predecessor corporation 227

7.4 Principles governing the attribution of conduct and fault to acorporation 229






xiv CONTENTS

7.4.1 Overview of the major issues relating to corporate fault and vicariousresponsibility 229

7.4.2 Should the general principle of corporate fault under the Criminal Codehave been excluded from the cartel offences? 229

7.4.3 Corporate negligence under s 12.4 of the Criminal Code 2327.4.4 Limiting the application of s 84(1) and (2) to cartel offences

where the director, employee or agent acted with intent to benefit thecorporation 233

7.4.5 A defence of corporate reasonable precautions and due diligence 2347.4.5.1 A defence of corporate reasonable precautions and due

diligence – too easy to establish? 2357.4.5.2 A defence of corporate reasonable precautions and due

diligence – an insufficient incentive to prevent the commissionof cartel offences? 238

7.4.5.3 A defence of corporate reasonable precautions and duediligence – an unjustified departure from the general principlerequiring proof of criminal liability beyond a reasonabledoubt? 239

7.4.6 Can vicarious responsibility be imposed in relation to a subjectivefault element by combining the mental states of a number ofrepresentatives to create a collective construct of intention, purpose,knowledge or belief? 240

7.4.7 To what extent does vicarious responsibility extend to unauthorisedconduct? 242

7.4.8 Does vicarious responsibility extend to the conduct and fault of asubsidiary corporation? 244

7.5 Corporate cartel conduct 2467.5.1 Looking beyond the humanoid model of cartel conduct under

the TPA 2467.5.2 Corporateness and the concept of a concerted practice under EU

competition law 2477.5.3 Repeated cartel conduct and the concept of the ‘whole cartel’ 2487.5.4 Corporate ancillary liability 2497.5.5 Corporate ratification and reactive disregard of cartel conduct 250

7.6 Principles governing the attribution of an exception to acorporation 2537.6.1 Whose state of mind counts as that of a corporation where an exception

requires a state of mind? 2537.6.2 A solution 255

7.7 Conclusion – towards greater recognition of the corporateness ofcorporate cartel conduct 256

8 Exceptions 2598.1 Introduction – the importance of exceptions under the anti-cartel

legislation and their current state of disarray 2598.2 Related corporations, dual listed companies and partnerships 262

8.2.1 Related corporations 2628.2.2 Dual listed companies 2648.2.3 Partnerships 266

8.3 Joint ventures 2678.3.1 The joint venture exceptions 2678.3.2 The joint venture requirement 270






CONTENTS xv

8.3.2.1 ‘Joint venture’ 2708.3.2.2 The requirement under ss 44ZZRO and 44ZZRP that the joint

venture be ‘for the production and/or supply of goods orservices’ 273

8.3.3 The requirement of a contract or contract proxy 2748.3.3.1 Retrospective application of the contract requirement 2758.3.3.2 Umbrella joint venture contracts 2768.3.3.3 Pre-contractual joint venture arrangements or

understandings 2798.3.3.4 Contract proxy requirement that each party have the requisite

intention and reasonable belief 2808.3.3.5 The contract requirement is an ineffective response to the

problem of sham joint ventures 2818.3.4 The requirement that the cartel provision or exclusionary provision be

‘for the purposes of a joint venture’ 2828.3.4.1 Obscurities persist 2828.3.4.2 The ‘purposes of the joint venture’ 2848.3.4.3 ‘For the purposes of a joint venture’ 2878.3.4.4 The need or otherwise for a competition test as an element of a

joint venture exception 2918.3.4.5 Creating a new exception for collaborative ventures between

competitors 2928.3.5 Conclusion as regards the joint venture exceptions 295

8.4 Collective bargaining and collective acquisition 2968.4.1 Collective bargaining 2968.4.2 Collective acquisition and joint advertising 298

8.5 Anti-overlap of cartel prohibitions with non-cartel prohibitions 2998.5.1 The anti-overlap exceptions 2998.5.2 Exclusive dealing exceptions 3008.5.3 Acquisition of shares or assets exceptions 3018.5.4 Resale price maintenance exceptions 302

8.6 Supply agreements between competitors 3038.6.1 The failure of the TPA to exclude economically beneficial or innocuous

supply agreements between competitors from the operation of the cartelprohibitions 303

8.6.2 Supply agreements containing a cartel provision that is not covered byany exception other than authorisation 304

8.6.3 Input supply agreements containing a cartel provision that is not coveredby any exception other than authorisation 304

8.6.4 Reciprocal supply agreements containing cartel provisions andexclusionary provisions that are not covered by any exception other thanauthorisation 307

8.6.5 A specific exception for supply agreements between competitors 3078.7 Standard-setting 309

8.7.1 The exception under s 51(2)(c) 3098.7.2 The main issues in standard-setting that have yet to be addressed and

how they should be addressed 3108.8 Intellectual property 312

8.8.1 The exceptions under s 51(3) 3128.8.2 The need for and the implications of fundamentally reassessing the

relationship between intellectual property rights and cartel prohibitions314






xvi CONTENTS

8.9 Export arrangements 3168.9.1 The s 51(2)(g) exception 3168.9.2 Does the s 51(2)(g) exception have a cogent rationale? 317

8.10 Liner cargo shipping services 3188.10.1 The Pt X exemptions 3188.10.2 Are the Pt X exemptions justified? 320

8.11 Underwriting arrangements and funding syndicates 3218.12 Settlement of litigation 3228.13 Authorisation 324

8.13.1 Authorisation under s 88 3248.13.2 Conduct preliminary to a grant of authorisation 3268.13.3 The role of authorisation 327

8.14 Withdrawal 3288.14.1 Withdrawal under the TPA – navigating the maze 3288.14.2 Withdrawal and criminal or civil liability as a principal for making a

contract or arrangement or arriving at an understanding containing acartel provision or exclusionary provision 329

8.14.3 Withdrawal and criminal or civil liability as a principal for giving effect toa cartel provision or exclusionary provision 330

8.14.4 Withdrawal and criminal or civil liability for attempting to commit acartel offence or attempting to contravene a civil prohibition againstcartel conduct 331

8.14.5 Withdrawal and criminal or civil liability for complicity in a cartel offenceor breach of a civil prohibition against cartel conduct 331

8.14.6 Withdrawal and criminal or civil liability for conspiracy to commit acartel offence or conspiracy to contravene a civil prohibition againstcartel conduct 332

8.14.7 Withdrawal and criminal or civil liability for inducing or attempting toinduce the commission of a cartel offence or the contravention of a civilprohibition against cartel conduct 333

8.14.8 Conclusion as regards withdrawal 3338.15 Honest and reasonable conduct that ought fairly to be excused 3338.16 De minimis conduct 3348.17 Conclusion – the need for functional reconstruction 335

9 Enforcement policy 3379.1 Introduction – the role of enforcement policy in an anti-cartel

regime 3379.2 The ACCC’s Compliance and Enforcement Policy 3389.3 The ACCC–CDPP MOU, ACCC Investigation Guidelines and CDPP

Prosecution Policy 3419.3.1 Agency roles 3429.3.2 Decision-making criteria 348

9.3.2.1 Investigation 3499.3.2.2 Referral 3529.3.2.3 Prosecution 358

9.3.3 Dual proceedings 3629.3.3.1 The statutory protection under s 76B 3639.3.3.2 The meaning of ‘substantially the same’ conduct 3649.3.3.3 Concurrent versus sequential proceedings 3659.3.3.4 Civil proceedings after criminal proceedings 3689.3.3.5 Criminal proceedings after civil proceedings 371






CONTENTS xvii

9.4 Conclusion – the need for policy consolidation and extension 375

10 Immunity and cooperation policies 37810.1 Introduction – the role of immunity and cooperation policies in

anti-cartel law enforcement 37810.2 Immunity and cooperation policies under a dual civil/criminal

regime 38010.2.1 Immunity policy 380

10.2.1.1 Immunity from civil proceedings 38310.2.1.2 Immunity from criminal proceedings 388

10.2.2 Cooperation policy 39210.2.2.1 Cooperation in civil proceedings 39410.2.2.2 Cooperation in criminal proceedings 39810.2.2.3 The Canadian approach to cooperation policy 403

10.3 Immunity and cooperation policies and private enforcement 40510.3.1 The ACCC’s traditional approach to disclosure 40710.3.2 The ‘PCI’ scheme 410

10.3.2.1 Section 157C 41210.3.2.2 Section 157B 414

10.3.3 Overseas approaches to disclosure 41510.3.3.1 US 41510.3.3.2 EU 417

10.4 Conclusion – a call for a more coherent and effective approach 419

11 Sanctions 42111.1 Introduction – inadequacies and uncertainties in sanctions

design and application 42111.2 The statutory scheme governing sanctions for cartel conduct 42311.3 Civil sanctions 424

11.3.1 Level of pecuniary penalties against corporations 42411.3.2 Influence of ACCC settlements on penalty assessments 433

11.3.2.1 Approach to ‘negotiated’ penalties 43311.3.2.2 Impact of ‘negotiated’ penalties 436

11.3.3 Approach to penalty assessment 43811.3.3.1 Base fine 44011.3.3.2 Adjustments for aggravating and mitigating factors 44311.3.3.3 Conclusions regarding the approach to penalty

assessment 44511.3.4 Penalty maxima based on benefit and turnover 446

11.3.4.1 The benefit maximum 44711.3.4.2 The turnover maximum 450

11.3.5 Non-monetary sanctions against corporations 45311.3.5.1 Alternatives to monetary penalties under the TPA 45311.3.5.2 Probation orders 45511.3.5.3 Community service orders 45711.3.5.4 Information disclosure orders and advertisement orders 45911.3.5.5 Adverse publicity orders 460

11.3.6 Level of pecuniary penalties against individuals 46211.3.7 Disqualification orders 464

11.3.7.1 Rationale for disqualification orders 46511.3.7.2 Length of disqualification orders 466






xviii CONTENTS

11.3.7.3 Effectiveness of disqualification orders 46911.3.8 Ban on indemnification 470

11.4 Criminal sanctions 47211.4.1 State of federal sentencing law 47211.4.2 Approach to sentencing for cartel offences 47311.4.3 Sentencing purposes 47511.4.4 Sentencing principles 478

11.4.4.1 Proportionality 47811.4.4.2 Totality 48111.4.4.3 Parity 482

11.4.5 Sentencing factors 48311.4.5.1 The nature and circumstances of the offence 48511.4.5.2 Other offences (if any) that are required to be taken into

account 48711.4.5.3 If the offence forms part of a course of conduct consisting of a

series of criminal acts of the same or a similar character – thatcourse of conduct 488

11.4.5.4 The personal circumstances of any victim of the offence 48811.4.5.5 Any loss, injury or damage resulting from the offence 48911.4.5.6 The degree to which the person has shown contrition for the

offence 49211.4.5.7 If the person has pleaded guilty to the charge in respect of the

offence – that fact; and the degree to which the person hascooperated with law enforcement agencies in the investigationof the offence or of other offences 493

11.4.5.8 The deterrent effect that any sentence or order underconsideration may have on the person 496

11.4.5.9 The need to ensure that the person is adequately punished forthe offence 496

11.4.5.10 The character, antecedents, cultural background, age, meansand physical or mental condition of the person 497

11.4.5.11 The prospect of rehabilitation of the person 49811.4.5.12 The probable effect that any sentence or order under

consideration would have on any of the person’s family ordependants 498

11.4.5.13 Factors specific to the sentencing of corporations 49911.4.6 Sentencing options 501

11.4.6.1 General 50111.4.6.2 Fines 50111.4.6.3 Imprisonment 50511.4.6.4 Dismissals, discharges and releases 51211.4.6.5 State and territory options 51411.4.6.6 Non-monetary sanctions against corporations under

the TPA 51511.4.6.7 Other TPA options 515

11.5 The relationship between private actions and the public enforcementregime 51711.5.1 Restitution as a condition of immunity 51811.5.2 Impact of ACCC settlements on private follow-on actions 52211.5.3 Compensation as a relevant factor in setting penalties 524

11.6 Conclusion – the need for greater coherence and certainty 52711.6.1 Civil sanctions 527






CONTENTS xix

11.6.2 Criminal sanctions 52911.6.3 The relationship between private actions and public

sanctions 532

12 Compliance and liability control 53312.1 Introduction – corporate implications of the anti-cartel legislation for

compliance and liability control 53312.2 Compliance and liability control as guides to corporate

internal control 53612.2.1 Compliance 53612.2.2 Liability control 543

12.3 Traps set by the anti-cartel legislation 54812.3.1 Identifying the traps and managing them 54812.3.2 Giving effect to a cartel or other provision 54812.3.3 Cartel provisions and other provisions 54912.3.4 Fault elements of the cartel offences 55112.3.5 Individual liability 55212.3.6 Corporate liability 55212.3.7 Exceptions 55412.3.8 Sidewinder liability 555

12.4 Opportunities for adroit boundary-riding 55612.4.1 Identifying the opportunities 55612.4.2 Commitment to avoid commitment 55912.4.3 Facilitating practices 56012.4.4 JV Ultra-Lights 56212.4.5 Conditions immunised by an intellectual property exception

under s 51(3) 56312.4.6 Insulation of senior managers via the insulated conductor

stratagem 56312.5 Conclusion – the implications of a liability control framework 564

13 Conclusion 56713.1 Reflecting on the aims of this book 56713.2 Critical assumptions 56813.3 The strengths and weaknesses of the Australian anti-cartel regime 571

13.3.1 A comprehensive framework 57113.3.2 Multiple objects and matching modes of enforcement 57213.3.3 Rules reflecting economic seriousness 57313.3.4 Fault-based liability 57413.3.5 Rules that are workable 57513.3.6 Individual accountability 57513.3.7 Corporate accountability 57613.3.8 Enforcement policy 57713.3.9 Immunity and cooperation policy 57713.3.10 Effective sanctions 57813.3.11 Compliance and liability control 579

13.4 Managing the future of the Australian anti-cartel regime 580

Appendix: Trade Practices Act 1974 (Cth) Pt IV Div 1; Pt IV Div 2 s 45 583Index 601






About the authors

Caron Beaton-WellsAssociate Professor Caron Beaton-Wells is a researcher and the Director of Studies incompetition law at the Melbourne Law School, University of Melbourne. She is alsothe Director of the University of Melbourne’s Competition Law & Economics Network.She has published widely in the field, including Proof of Antitrust Markets (2003).Caron has been a member of the Victorian Bar since 1997, practising predominantly infederal jurisdictions (having previously been a solicitor at Mallesons Stephen Jaques).She is a member of the Trade Practices Committee of the Law Council of Australia, theAcademic Society for Competition Law and the American Bar Association’s Sections ofAntitrust Law and International Law and a founding member of the Academic Board ofthe Asian Competition Law and Economics Centre. She has been a Visiting Fellow to theUniversity of Oxford Centre for Competition Law and Policy and St John’s College, hasparticipated in the International Competition Network as a Non-Governmental Advisorand has consulted to the Organisation for Economic Cooperation and Development.

Brent FisseBrent Fisse has extensive experience in trade practices and competition law, corporateregulation and e-commerce. Brent became a partner of Gilbert + Tobin in 1995, afteracting for the firm for two years as a consultant. Since retiring from Gilbert + Tobin in2004, Brent has run his own specialist trade practices advisory practice. He is an adjunctprofessor of law at Sydney University and La Trobe University and has been a SeniorFellow of the Melbourne Law School since 2007. He teaches a postgraduate courseon cartels at the University of Melbourne. He was a professor of law at the Universityof Sydney from 1985 to 1995. Brent is a member of the American Bar AssociationAntitrust Section and the Law Council of Australia’s Trade Practices Committee. Heis a board member of REGNET and the managing director of Lexpert PublicationsPty Ltd. His publications include Corporations, Crime and Accountability (1993) (withJohn Braithwaite).

xxi






Preface

This book is the product of sustained cartel activity between the authors for more thanthree years. Facilitating practices during 2007 led to a mutual commitment in January2008 to tackle the host of problems raised by the exposure draft anti-cartel legislationreleased by the Australian government of the day. The collusion later intensified aswaves of further problems rose from later exposure draft provisions and then from thelegislation enacted in July 2009. Overt acts have proliferated, often at conferences andseminars and in advices. All statements in the pages ahead are those of co-conspirators.No immunity application has been made. Authorisation has not been sought.

We have tried to provide a detailed account and critique of current Australian law.The work is also intended to be constructive where better approaches are needed. Thecritique and the improvements proposed are informed by comparison with approachestaken in the US, Europe, Canada, New Zealand and other jurisdictions. Some of thoseapproaches are themselves less than satisfactory and call for improvement. From thatperspective, Australian cartel regulation may be seen as a test refinery of imported andlocally produced concepts. We leave it to readers to judge whether the resulting spiritis not only output-expanding but also welfare-enhancing.

Many have been knowingly concerned in this project. Some have counselled ourthinking on particular issues. Others have contributed by answering questions, makingcomments and providing references. None has relieved us from full responsibility.We are grateful to all who have assisted. Special mention should be made of PhilipWilliams, who fielded our toughest questions on economic issues. We are indebted alsoto our research assistants – Christopher Tran, Kathryn Tomasic, Neil Brydges, JanetteNankivell and Susan Cirillo. Finally, the book would not have been written but for thepatience and support of Michael, Clare and Mikey, and Heidi, Oscar and Bertie.

Limitation period: the law and policy stated is current as at 30 June 2010.

Caron and BrentMelbourne, SydneyAugust 2010

xxiii






Acknowledgements

The authors would like to acknowledge the authors and organisations that havegranted permission to cite and/or reproduce extracts of their work in this book.

Australian Competition and Consumer Commission

Australian Competition and Consumer Commission, ACCC Approach to CartelInvestigations, 14 July 2009

Australian Competition and Consumer Commission, Compliance and EnforcementPolicy 2009

Australian Competition and Consumer Commission, Cooperation for EnforcementMatters Policy 2002

Australian Competition and Consumer Commission, Immunity Policy for CartelConduct 2005, 2009

Australian Competition and Consumer Commission, ACCC Immunity PolicyInterpretation Guidelines, 2005, 2009

Australian Competition and Consumer Commission, Leniency Policy for CartelConduct, June 2003

Australian Competition and Consumer Commission, Report, Petrol Prices andAustralian Consumers: Report of the ACCC into the Price of Unleaded Petrol,Appendix R, December 2007

Australian Competition and Consumer Commission, Review of ACCC’s Leniency Policyfor Cartel Conduct, Discussion Paper, 24 November 2004

Australian Competition and Consumer Commission, Rural Industry and the TradePractices Act: A Guide for Rural Producers, August 2002

Australian Competition and Consumer Commission and Commonwealth Director ofPublic Prosecutions, Memorandum of Understanding between the CommonwealthDirector of Public Prosecutions and the Australian Competition and ConsumerCommission regarding Serious Cartel Conduct, July 2009

Commonwealth Attorney General’s Department,Copyright Law Branch – Bills and legislation

Copyright Act 1968 (Cth)Corporations Act 2001 (Cth)Crimes Act 1914 (Cth)Criminal Code (Cth)Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth)

xxv






xxvi ACKNOWLEDGEMENTS

Trade Practices Act 1974 (Cth)

Exposure Draft, Trade Practices Amendment (Cartel Conduct and Other Measures)Bill 2008 (Cth), 11 January 2008

Exposure Draft, Trade Practices Amendment (Cartel Conduct and Other Measures)Bill 2008 (Cth), 27 October 2008

Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008All legislative material reproduced in this book is reproduced by permission but does notpurport to be the official or authorised version. It is subject to Commonwealth of Australiacopyright.

Commonwealth Attorney General’s Department,Copyright Law Branch – other various material

Australian Law Reform Commission, Compliance with the Trade Practices Act 1974,Report 68, 1994

Australian Law Reform Commission, Principled Regulation: Federal Civil andAdministrative Penalties in Australia, Report 95, March 2003

Australian Law Reform Commission, Same Crime, Same Time: Sentencing of FederalOffenders, Report 103, 2006

Commonwealth Director of Public Prosecutions Prosecutions Policy of theCommonwealth 1992 (as amended)

Explanatory Memorandum, Exposure Draft, Trade Practices Amendment (CartelConduct and Other Measures) Bill 2008 (Cth)

National Competition Council (Australia), Review of Sections 51(2) and 51(3) of theTrade Practices Act 1974: Final Report, National Competition Council, Melbourne,1999

Productivity Commission, Review of Part X of the Trade Practices Act 1974:International Liner Cargo Shipping, Inquiry Report No. 32, 23 February 2005

Supplementary Explanatory Memorandum, Exposure Draft, Trade PracticesAmendment (Cartel Conduct and Other Measures) Bill 2008 (Cth)

Trade Practices Committee of Review, Review of the Competition Provisions of theTrade Practices Act, 2003

Individual authors

P Cashman and R Abbs, ‘Problems and Prospects for Victims of Cartels: TheStrengths and Limitations of Representative and Class Action Proceedings’, Paperpresented at the Competition Law Conference, Sydney, 23 May 2009

A Fels, ‘The Criminalisation of Serious Cartel Conduct: Issues and Questions forDiscussion’, Paper presented at the 7th Annual University of South Australia TradePractices Workshop, Adelaide, 16–17 October 2009

Justice Finkelstein, ‘Running a Criminal Jury Trial in Cartel Cases: The SpecialProblem of Economic Evidence and Some Proposals for its Judicial Management’,Paper presented at the Law Council Trade Practices Workshop, Perth, September2008






ACKNOWLEDGEMENTS xxvii

Justice Greenwood, ‘Considerations to be Taken into Account in Framing a CartelOffence’, Paper presented at the Competition Law Conference, Sydney, 24 May2008

D Johnston and S Keene, ‘The Long Arm of Accessory Liability in New Zealand –How Far is Too Far?’, Paper presented at the 5th Annual University of SouthAustralia Trade Practices Workshop, Adelaide, 19–20 October 2007

C Jose, ‘TPA Sanctions and the Individual’, Paper presented at the Law Council ofAustralia Trade Practices Workshop, Sydney, 27 August 2005

Justice Lander, ‘Civil Penalties under the Trade Practices Act 1974 (Cth)’, Paperpresented at University of South Australia Annual Trade Practices Workshop,Adelaide, 21–22 October 2005

Justice Middleton, ‘Commentary on the Paper: “The Cartel Offences: An ElementalPathology by Caron Beaton-Wells and Brent Fisse” ’, 4 April 2009, Presented atJoint Law Council of Australia–Federal Court of Australia Workshop on CartelCriminalisation, Adelaide, 4 April 2009

A Nicotra and J O’Regan, ‘Dare to Deem: Does Section 45A Trade Practices ActProhibit “Pro-Competitive” Price Fixing?’, Paper presented at the Law Council ofAustralia Trade Practices Workshop, Canberra, 19 August 2001

M O’Bryan, ‘Dual Litigation (Double Jeopardy)’, Paper presented at the Joint FederalCourt of Australia–Law Council of Australia Workshop on Criminalisation ofCartel Conduct, Adelaide, 3 April 2009

W Reid, ‘Exclusionary Provisions – Dead, Alive or Living in Mexico?’, Paper presentedat the Law Council of Australia Trade Practices Committee Workshop, YarraValley, Victoria, August 2003

W Reid, ‘Cartels – Criminal Sanctions and Immunity Policy’, Paper presented at theCompetition Law Conference, Sydney, 12 November 2005

B Slade and R Ryan, ‘Representative Proceedings in Competition Law’, Paperpresented at the Competition Law Conference, Sydney, 23 May 2009

Justice Weinberg, ‘Criminalisation of Cartel Conduct – Some Pre-Trial ManagementIssues’, Paper presented at the Joint Federal Court of Australia–Law Council ofAustralia Workshop, Adelaide, 3 April 2009






Abbreviations

A New Tax System (Goods and Services Tax) Act 1999(Cth)

GST Act

Accused DActs Interpretation Act 1901 (Cth) Acts Interpretation ActAdministrative Decisions (Judicial Review) Act 1977

(Cth)ADJR Act

Australian Competition and Consumer Commission ACCCAustralian Competition and Consumer Commission,

ACCC Immunity Policy Interpretation Guidelines,July 2009

Interpretation Guidelines

Australian Competition and Consumer Commission,Compliance and Enforcement Policy, 7 April 2009

Compliance andEnforcement Policy

Australian Competition and Consumer Commission,Cooperation Policy for Enforcement Matters,31 July 2002

ACCC Cooperation Policy

Australian Competition and Consumer Commission,Guidelines – ACCC Approach to Cartel Investigations,14 July 2009

ACCC InvestigationGuidelines

Australian Competition and Consumer Commission,Immunity Policy for Cartel Conduct, 26 June 2009

ACCC Immunity Policy

Australian Competition and Consumer Commission,Leniency Policy for Cartel Conduct, 30 June 2003

Leniency Policy

Australian Competition and Consumer Commission,Rural Industry and the Trade Practices Act: A Guidefor Rural Producers, August 2002

ACCC Rural Guideline

Australian Federal Police AFPAustralian Law Reform Commission ALRCAustralian Securities and Investments Commission ASICAustralian Securities and Investments Commission Act

2001 (Cth)ASIC Act

Australian Taxation Office ATOCircuit Layouts Act 1989 (Cth) Circuit Layouts ActCommerce Act 1986 (NZ) Commerce ActCommonwealth Director of Public Prosecutions CDPPCommonwealth Director of Public Prosecutions,

Prosecution Policy of the Commonwealth,November 2008

CDPP Prosecution Policy

xxix






xxx ABBREVIATIONS

Competition Act 1998 (UK) c 41 Competition Act (UK)Competition Act RSC 1985, c C-34 Competition Act (Canada)Competition Bureau (Canada) BureauCompetition Bureau (Canada), Leniency

Program Bulletin, September 2010Canadian Leniency Bulletin

Competition Policy Reform (New South Wales) Act 1995(NSW)

CPR Act

Consumer price index CPICopyright Act 1968 (Cth) Copyright ActCorporate Law and Economic Reform Policy CLERPCorporations Act 2001 (Cth) Corporations ActCorporations and Markets Advisory Committee CAMACCrimes Act 1914 (Cth) Crimes ActCriminal Code Act 1995 (Cth) Criminal CodeCriminal Code RSC 1985 c C-46 Criminal Code (Canada)Defendant DDirector of Public Prosecutions DPPDirector of Public Prosecutions Act 1983 (Cth) DPP ActDivision of the TPA DivEnterprise Act 2002 (UK) c 40 Enterprise ActEuropean Commission ECEuropean Commission, Commission Notice on

Immunity from Fines and Reduction of Fines in CartelCases [2006] OJ C 298/17

Leniency Notice

European Community/European Union EUEuropean Community, Treaty Establishing (1957) EC TreatyEuropean Court of Justice ECJEuropean Economic Area EEAEuropean Union, Treaty on the Functioning of

(2009)EU Treaty

Exclusive rights in relation to an eligible layout EL RightsExposure Draft, Trade Practices Amendment (Cartel

Conduct and Other Measures) Bill 2008 (Cth), 11January 2008

First Exposure DraftCC&OM Bill

Exposure Draft, Trade Practices Amendment (CartelConduct and Other Measures) Bill 2008 (Cth), 27October 2008

Second Exposure DraftCC&OM Bill

Federal Trade Commission FTCFederal Trade Commission Act of 1914, 15 USC

§§41–58 (1914)Federal Trade

Commission ActGoods and Services Tax GSTIncome Tax Assessment Act 1997 (Cth) ITAAInitial public offering IPOIntellectual Property and Competition Review

Committee, 2000Ergas Committee

International Competition Network ICN






ABBREVIATIONS xxxi

Judiciary Act 1903 (Cth) Judiciary ActMemorandum of understanding MOUMemorandum of Understanding between the

Commonwealth Director of Public Prosecutionsand the Australian Competition and ConsumerCommission regarding Serious Cartel Conduct,July 2009

ACCC–CDPP MOU

Memorandum of Understanding between theCommonwealth Director of Public Prosecutions andthe Australian Securities and InvestmentsCommission, 1 March 2006

ASIC–CDPP MOU

National Competition Authority NCANational Competition Council NCCNational Competition Policy Review, 1993 Hilmer ReviewOffice of Fair Trading (UK) OFTOrganisation for Economic Co-operation and

DevelopmentOECD

Parliament of Australia, Senate Standing Committeeon Economics

Senate EconomicsCommittee

Proceeds of Crime Act 2002 (Cth) Proceeds of Crime ActProtected cartel information PCIPublic Prosecution Service (Canada), Federal

Prosecution Service Deskbook, 2000FPS Deskbook

Racketeer Influenced and Corrupt Organizations Act of1970, 18 USC §§ 1961–8 (1970)

RICO

Serious Fraud Office (UK) SFOSherman Act 15 USC §§ 1–7 (1890) Sherman ActSubstantial lessening of competition SLCTrade Practices Act 1974 (Cth) TPATrade Practices Amendment (Cartel Conduct and Other

Measures) Act 2009 (Cth)CC&OM Act

Trade Practices Amendment (Cartel Conduct andOther Measures) Bill 2008 (Cth)

CC&OM Bill

Trade Practices Commission TPCTrade Practices Review Committee, 1976 Swanson CommitteeTrade Practices Review Committee, 2003 Dawson CommitteeTreaty Establishing the European Economic Community,

opened for signature 25 March 1957, 298 UNTS 11(entered into force 1 January 1958), as amended bythe Treaty of Lisbon Establishing the EuropeanCommunity, opened for signature 13 December2007, [2007] OJ C 306/1 (entered into force 1December 2009)

EC Treaty

United Kingdom UKUnited States USUnited States Department of Justice DOJUnited States Sentencing Commission, Federal

Sentencing Guidelines Manual, as amendedSentencing Guidelines




