Australia will soon join the US, the UK and a number of other countries in criminalising cartel behaviour. The criminalisation of cartels is desirable. The economic damage they cause is well documented and civil penalties, no matter the size, have failed to provide adequate deterrence. But the consequences of criminalisation are serious and it is important to ‘get it right’. While it took many years for Australia to introduce criminal cartel legislation, its passage through Parliament has been rushed with the consequence that the bill that has now passed is seriously flawed and likely to lead to considerable uncertainty. The sudden urgency (grounded more in politics than good policy) was highlighted by Senator Coonan's acknowledgement that, despite the potential for the bill to generate uncertainty (describing aspects of the bill as 'somewhat woolly’), we ‘would not want to see this legislation delayed’.
The decision to rush through the legislation without ironing out the flaws is a bad one. The legislation is long (running to 90 pages) and complex and, regardless of the desirability for criminal penalties, it would be wise to wait a bit longer and permit a full and transparent public consultation and review process before passing such far-reaching – and, in its current state, deficient - legislation. Unfortunately the government has neglected this option. Genuine concerns have been ignored, or dismissed, without adequate explanation. The consequence is that the new law - with criminal consequences - will give rise to uncertainty for some time.
The Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (which received assent on 26 June and will enter force on 24 July 2009) creates a new ‘cartel offence’ for which it provides criminal penalties of up to 10 years’ imprisonment and fines of up to $220,000. A cartel offence occurs whenever a party makes or gives effect to a contract, arrangement or understanding containing a cartel provision, provided they intended to enter into that contract, arrangement or understanding and had knowledge or belief that it contained a cartel provision (the criminal ‘fault’ element). In addition to introducing criminal penalties for cartel conduct the bill also introduces a civil prohibition, which mirrors the criminal cartel prohibition, save that it omits the criminal ‘fault’ element. The penalty for contravening the civil prohibition is the same as the existing civil penalties.
The bill defines a cartel provision (in s 44ZZRD!) as a provision in a contract, arrangement or understanding between competitors relating to
The existing price-fixing prohibition, contained in the more user-friendly s 45A, will be repealed. The Act leaves in place existing exclusionary conduct provisions but does provide some anti-overlap provisions for resale price maintenance, exclusive dealing, dual listed company arrangements and mergers (these are a welcome addition to October 2008 exposure draft).
The new offence also contains a limited exception for joint ventures. This exception has been the subject of considerable debate, centred on the fact that the exception is narrower (in some respects) than the current civil joint venture exception. In particular, it is limited to contractual joint ventures (no adequate explanation has been provided for this restriction). In other respects the exception is wider, giving rise to criticism that may capture too much conduct. Amendments to the Act, passed by the House on 16 June, extend the exception to joint ventures in which the parties intended to enter into a contract and ‘reasonably believed’ they had entered into a contract. However, it does not extend the exception to arrangements or understandings and the supplementary Explanatory Memorandum, designed to explain this amendment, is unhelpful and, potentially, misleading in its explanation of the scope of this amendment.
The law will come into operation on 24 July 2009 (28 days after receiving Royal Assent) - business would be wise to exert extra-caution when dealing with competitors.
This legislation has its origins in recommendations by the Dawson Review into Competition Law which reported in 2003. This led to the establishment of a criminal penalties working party which reported to the Government in 2004; this report was never released publicly and a recent attempt to obtain it through a FOI claim was unsuccessful. Following this report the Howard Government announced, in February 2005, that it planned to introduce criminal penalties for serious cartel conduct as recommended by the Dawson Committee later that year. A federal election interfered with those plans and no bill was introduced.
Following the election of the Rudd Government, an Exposure Draft Bill for implementing criminal penalties was released in early 2008 along with a Discussion Paper on Criminal Penalties for Serious Cartel Conduct. The bill was heavily criticised, but no detailed response to the submissions on the Discussion Paper was ever released. An amended Exposure Draft Bill was released on 17 October 2008 containing some important changes, including removal of the ‘dishonesty’ element, designed to distinguish serious from ‘non-serious’ cartel conduct, and (somewhat inexplicably) increasing the criminal penalty from 5 years imprisonment to 10 years. A further amended version was introduced into Parliament on 3 December 2008.
The bill was sent to the Senate Economics Committee on 4 December and, in the meantime, was passed by the House on 11 February and introduced into the Senate the next Day. The Senate Economics Committee’s report was released on 26 February and must go down as one of the worst (if not the worst) reports ever produced by that Committee – it was littered with errors and did not attempt to address issues of key concern. The report, despite recognising certain deficiencies with the bill, recommended that it be passed in current form. Continuing criticism over the limitations on the new joint venture exemptions (inexplicably narrower than existing exemptions form the civil prohibitions) did, however, result in a relatively minor joint venture amendment in the Senate (as noted above) and the bill, with these amendments, was passed by the Senate on 15 June. In passing the bill the Senate engaged in no substantive debate; instead the Hansard is littered predominantly with self-congratulatory remarks over the introduction of criminal penalties. Those amendments were agreed to by the House on 16 June. The bill now awaits Royal Assent.