House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen Mp

Chapter 3 - Civil prohibitions

Outline of chapter

3.1 To ensure consistency with international best practice, the definition of a cartel provision, applicable to both the criminal and civil regimes, will reflect the OECD's definition of hard core cartel conduct (referred to in this explanatory memorandum as serious cartel conduct). This creates parallel civil and criminal sanctions. This chapter outlines the parallel civil prohibitions that apply to serious cartel conduct.

Context of amendments

3.2 Providing parallel civil penalties that specifically target serious cartel conduct will widen the range of regulatory responses available to deal with such conduct, enabling enforcement agencies to undertake a targeted regulatory response. This, in turn, should assist to deter individuals and corporations from engaging in serious cartel conduct.

3.3 Various arrangements supplement the criminal and parallel civil prohibitions in relation to cartel conduct contained in this Bill, including:

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leniency arrangements in respect of serious cartel conduct, to be available for criminal cartel offences (from the Commonwealth Director of Public Prosecutions ('the CDPP')) and the parallel civil prohibitions (from the Australian Competition and Consumer Commission ('the ACCC')); and

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that the CDPP and the ACCC will enter into a formal, publicly available Memorandum of Understanding ('the MOU'), which will establish procedures for the investigation of the cartel offences and the circumstances in which the ACCC will refer a case to the CDPP for prosecution.

Summary of new law

3.4 The current prohibitions in Part IV of the TP Act rely principally on the corporations power in subsection 51(xx) of the Constitution for their Constitutional validity. Consequently, the current Part IV prohibitions apply to a 'corporation', presently defined in subsection 4(1) of the TP Act to mean (a) a foreign corporation, (b) a trading corporation formed within the limits of the Commonwealth, (c) a corporation formed in a territory, or (d) a holding company for the three preceding types of corporations listed.

3.5 Two new parallel civil penalties in Division 1 of Part IV will prohibit a corporation from making, or giving effect to, a provision of a contract, arrangement or understanding with a competitor that fixes prices, restricts outputs, allocates markets between competitors, or rigs a bidding process. The principles of clarity and simplicity of drafting that are applied to the criminal offences are also applied to the parallel civil penalty prohibitions on serious cartel conduct.

3.6 Consistent with the 1995 Conduct Code Agreement, the Bill makes provision for the civil prohibitions to apply to corporations, bodies corporate (that do not fall within the definition of a corporation in the TP Act) and individuals. This occurs in the following ways:

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First, corporations can be found to have breached a civil penalty provision in Division 1 of Part IV, as the provisions specifically apply to corporations.

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Second, individuals can be an accessory to the commission of a Part IV civil penalty provision under the accessorial liability framework in section 76 of the TP Act.

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Third, individuals and bodies corporate can be held liable for breaching a civil penalty in the Schedule of the TP Act. These provisions 'mirror' the civil penalties in Division 1 of Part IV with the exception that they apply to a 'person'. The mirror civil penalties form part of the Competition Code and are applied by the CPR Act of each State or Territory as a law of each of those jurisdictions.

3.7 The maximum pecuniary penalty for an individual found to have breached a civil penalty prohibition under the second and third dot points above is the same - that is, $500,000.

3.8 The maximum pecuniary penalty for a corporation (under the first dot point above) is consistent with the maximum fine that may be applied to a corporation found to have breached a cartel criminal offence.

3.9 For a body corporate that does not meet the definition of a corporation for the purposes of the TP Act, the maximum penalty applicable for a breach of the Schedule version civil penalty is the same as the maximum penalty that applies to a corporation.

3.10 As the introduction of parallel criminal and civil prohibitions addressing similar conduct could give rise to concerns regarding double jeopardy, statutory bars to proceedings are applied.

Comparison of key features of new law and current law

Detailed explanation of new law

Application of civil penalties to corporations and individuals

3.11 The framework for implementing consistent and complementary competition laws and policies that would apply to all businesses in Australia regardless of ownership is discussed in Chapter 1.

3.12 As the corporations power in subsection 51(xx) of the Constitution provides the principal source of power for the prohibitions in Part IV of the TP Act, the parallel civil prohibitions in Part IV of the TP Act apply to a corporation. 'Corporation' is presently defined in subsection 4(1) of the TP Act to mean (a) a foreign corporation, (b) a trading corporation formed within the limits of the Commonwealth, (c) a corporation formed in a territory, or (d) a holding company for the three preceding types of corporations listed.

3.13 However, the TP Act enables corporations, bodies corporate that do not qualify as a corporation for the purposes of the TP Act, and individuals to be found to have breached a civil penalty prohibition. The application of the civil penalties to individuals occurs in two ways.

3.14 First, individuals can be an accessory to the commission of the Part IV civil penalty provision by a corporation under the accessorial liability framework in section 76 of the TP Act. [Schedule 1, item 22, subparagraph 76(1)(a)(i)] .

3.15 Second, individuals can be held directly liable for committing a mirror version of the Part IV civil penalties, which are contained in the Schedule of the TP Act. While the Schedule version civil penalties 'mirror' the civil penalties in Division 1 of Part IV, they apply to persons generally, because the Schedule version is not reliant upon a Commonwealth head of power for its validity. Instead, the mirror civil penalties form part of the Competition Code and are applied by the CPR Act of each State or Territory as a law of each of those jurisdictions. [Schedule 1, item 126, sections 44ZZRJ and 44ZZRK]

Details of civil penalty provisions

Making a contract etc . containing a cartel provision

3.16 A corporation breaches a civil penalty provision if the corporation makes a contract or arrangement, or arrives at an understanding, and the contract, arrangement or understanding contains a cartel provision. [Schedule 1, item 19, section 44ZZRJ]

3.17 Cartel provision is discussed in Chapter 1 above, but is a provision that effectively fixes prices, restricts outputs in the production or supply chain, allocates customers, suppliers or territories between competitors, or rigs a bidding or tendering process.

3.18 The phrase 'contract, arrangement or understanding' is used in current section 45 of the TP Act. 'Contract' means a common law contract. An 'arrangement or understanding' is a form of either verbal or written agreement that falls short of a common law contract. However, the courts have found that for an 'arrangement or understanding' to come within section 45 of the TP Act, it must involve a 'meeting of the minds' of the parties to it, and there must be a consensus as to what is to be done as a result of the arrangement or understanding, rather than a mere hope that something will be done. Parallel conduct may provide circumstantial evidence supporting the existence of an arrangement or understanding, but is not, in itself, sufficient to amount to an arrangement or understanding for the purposes of the TP Act.

Giving effect to a cartel provision

3.19 A corporation also breaches a civil penalty provision if a contract, arrangement or understanding contains a cartel provision, and the corporation gives effect to the cartel provision. [Schedule 1, item 19, section 44ZZRK]

3.20 Cartel provision is discussed in Chapter 1 above, and is a provision that effectively fixes prices, restricts outputs in the production or supply chain, allocates customers, suppliers or territories between competitors, or rigs a bidding or tendering process.

3.21 The term 'gives effect to' is defined in current subsections 4(1) and (2) of the TP Act. In relation to a provision of a contract, arrangement or understanding, the phrase 'includes do an act or thing in pursuance of or in accordance with or enforce or purport to enforce'.

3.22 As noted above, the phrase 'contract, arrangement or understanding' is used in current section 45 of the TP Act. An 'arrangement or understanding' has been interpreted as requiring a 'meeting of the minds' of the parties to it, and there must be a consensus as to what is to be done as a result of the arrangement or understanding, rather than a mere hope that something will be done.

Maximum civil penalties

Individuals

3.23 The maximum penalty for individuals found to have breached a civil penalty in the Schedule version of Part IV [Schedule 1, item 126, subsections 44ZZRJ and 44ZZRK)] or under civil ancillary liability arrangements for a breach of a Part IV prohibition [Schedule 1, item 33, subparagraph 76(1)(a)(i)] is determined by the penalty arrangements in current section 76. The maximum pecuniary penalty payable by a person other than a body corporate in relation to those civil penalty provisions is $500,000 [Schedule 1, item 22, subparagraph 76(1)(a)(i)] . This is higher than the $220,000 maximum criminal fine for individuals. The rationale for this is discussed in Chapter 2.

Corporations

3.24 Current section 76 sets out arrangements for determining the maximum pecuniary penalty for a body corporate found to have breached certain provisions of the TP Act. That is:

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paragraph 76(1A)(a) sets a maximum penalty for a breach of the secondary boycott provisions;

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paragraph 76(1A)(b) provides a formula for a breach of the remaining provisions of Part IV; and

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paragraphs 76(1A)(c) and (d) set out maximum penalties for a breach by a corporation of section 95AZN and 'each other act or omission to which this section applies', respectively.

3.25 Section 76 is amended to set out a formula for the breach by a body corporate of the civil cartel prohibitions. This formula is similar to, although not identical to, the formula in paragraph 76(1A)(b) for a breach of the remaining provisions of Part IV. [Schedule 1, item 23, paragraph 76(1A)(aa)]

Setting penalties

3.26 Although proceedings may be instituted against a person for breaches of more than one provision of Part IV, a court cannot impose more than one penalty in respect of the same conduct. This principle (the 'totality principle') is embodied in current subsection 76(3). Amendments clarify that the totality principle applies in respect of the provisions of Part IV, with the exception of the criminal offences. [Schedule 1, item 24, subsection 76(3)]

Jurisdiction

3.27 Federal indictable jurisdiction is discussed in Chapter 2.

3.28 The power of a judge overseeing a criminal trial to make related civil orders is also discussed in Chapter 2.

Parallel criminal and civil prohibitions

3.29 Section 4C of the Crimes Act 1914 provides some protection against double jeopardy where an act or omission constitutes an offence under two or more laws of the Commonwealth or under both a law of the Commonwealth and at common law. However, this protection does not extend to liability for civil penalties. To address concerns regarding parallel criminal and civil schemes, most federal legislation containing such schemes provides for statutory bars to proceedings. As a scheme of statutory bars is already present in section 76B (but only applicable to sections 75AYA or 95AZN), the protection in section 76B is extended to address concerns arising from parallel criminal and civil cartel prohibitions. [Schedule 1, items 26 to 28, section 76B]

3.30 Current section 76B of the TP Act provides that where substantially the same conduct is a civil contravention and an offence, the Court will be prevented from making a pecuniary penalty if the person has already been convicted of an offence. This is extended to apply in relation to the criminal and civil cartel prohibitions, including the criminal cartel offences in Part IV and the mirror versions of those offences in the Schedule. [Schedule 1, items 26 and 27, subsections 76B(1) and (2)]

3.31 Further, proceedings for a pecuniary penalty order against a person for a Part IV contravention are stayed if criminal proceedings are started or have already been started for an offence, and the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention. The pecuniary penalty proceedings will be able to be resumed if the person is not convicted of the offence. [Schedule 1, item 27, subsection 76B(3)]

3.32 Criminal proceedings may be started against a person for conduct that is substantially the same as a Part IV contravention regardless of whether a pecuniary penalty order has been made against the person in respect of the contravention. [Schedule 1, item 27, subsection 76B(4)]

3.33 Evidence of information given or of documents produced will not be admissible in criminal proceedings against the individual if the individual gave the evidence or produced the documents in proceedings for a pecuniary penalty order against the individual for a contravention of Part IV and the conduct constituting the criminal and Part IV pecuniary penalty contravention is substantially the same. This does not apply to a criminal proceeding in respect of the falsity of the evidence given by the individual in the proceedings for the pecuniary penalty order. [Schedule 1, item 27, subsection 76B(5)]

3.34 Permitting criminal proceedings to be undertaken after civil proceedings ensures that civil remedies do not preclude later criminal penalties from being imposed, and it is usual to stay the civil proceedings until the criminal proceedings are completed after which time, if the defendant is convicted of the criminal offence, the civil proceedings are terminated. This is the status under the Corporations Act 2001 .

3.35 The fact that civil proceedings have commenced and run is one matter that the CDPP will consider under its Prosecution Policy in deciding whether it would be appropriate to commence criminal proceedings for the same conduct. Further, the ACCC is unlikely to make a referral to the CDPP for criminal prosecution if it has already decided to commence a civil case, including for the reasons outlined above.

3.36 Section 76B was inserted into the TP Act in 2000 to introduce safeguards against potential parallel civil and criminal prosecutions for a misrepresentation of the effect of the GST changes on the introduction of A New Tax System. While criminal or civil proceedings in relation to a misrepresentation of the effect of the GST changes was likely only to occur within Australia, a civil or criminal prosecution in relation to substantially the same cartel conduct may take place in Australia and overseas. Section 76B currently contains no nexus to Australia, opening the possibility for defence counsel to use overseas criminal proceedings or convictions in relation to substantially the same conduct to prevent the Federal Court from making an order for the payment of a pecuniary penalty, and/or obtain a stay of civil proceedings if the ACCC is seeking a pecuniary penalty in those proceedings. In contrast, section 9 of the Corporations Act (which contains a substantially similar regime to section 76B) defines an 'offence' to mean an offence against a law of the Commonwealth, a State or a Territory. Including a similar definition of offence in section 76B will remove the possibility of this occurring. [Schedule 1, item 28, subsection 76B(6)]

Consequential amendments

3.37 As price fixing is addressed by definition of a cartel provision (in section 44ZZRD) and the criminal and civil prohibitions, current section 45A of the TP Act (and the related defence in section 76D) will be repealed. [Schedule 1, items 20, 21 and 29, subsection 45(3), sections 45A and 76D, items 127 and 128, subsections 45(3) and 45A of the Schedule]