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Last month, the Full Federal Court ordered Japanese company Yazaki Corporation (Yazaki) to pay a penalty of $46 million for engaging in cartel conduct in contravention of the Competition and Consumer Act (2010) (Act).
This penalty is the highest penalty ordered for a breach of competition law and demonstrates the ACCC’s willingness to seek significantly higher penalties than has previously been handed down by the courts. In this case, the Full Court’s order of a penalty was five times greater than the trial judge’s orders.
The decision is important because:
This means that for a contravening company with related bodies that are also involved in supplies in Australia and that are connected to an enterprise which the company carries on, the maximum starting point for a fine (and the ultimate fine) are likely to be significantly greater than was previously the case.
The Act provides that the maximum penalty for companies for a breach of competition law is to be calculated by reference to the greater of:
Generally, courts will ascertain (if possible) which of the above limbs provide the highest amount for a maximum fine and then will work backwards from that amount to assess the relevant penalty by consideration of a number of different factors.
Those factors include:
At first instance, Federal Court held that Yazaki had engaged in cartel conduct in contravention of the Act by coordinating quotes for the supply of wire harnesses for Toyota Camrys manufactured in Australia with its competitor, Sumitomo Electric Industries.
In assessing the appropriate penalty and identifying the starting maximum amount for a fine, the Court examined whether 10% of the annual turnover of the business was higher than $10 million. As the Court only considered the turnover of the parent company and not subsidiaries ($65 million, 10% of which was $6.5 million), the starting point for assessing the penalty was the $10 million penalty limb.
In considering the various penalty factors and the number of contraventions, the court ordered a penalty of $9.5 million.
On appeal, the ACCC submitted that in assessing the maximum penalty under the 10% annual turnover limb, the relevant annual turnover ought to take into account the revenue for Yazaki’s Australian subsidiaries and not just the parent company.
The Full Court agreed with the ACCC’s broader interpretation such that the annual turnover of the business was $175 million, 10% of which was $17.5 million. This was the new starting point for the court to assess penalties. The Full Court accordingly increased the penalty on Yazaki to $46 million noting that:
Earlier this year, the Treasury Laws Amendment (2018 Measures No. 3) Bill 2018 was introduced into Parliament.
If passed, the Bill will result in the maximum financial penalties available under the Australian Consumer Law being increased to equal with those available for contraventions of the competition provisions of the Act as outlined above
This would be a significant change to the ramifications for a breach of the Australian Consumer Law. For example, while Reckitt Benckiser, the manufacturers of Nurofen Specific Pain products, were fined $1.7 million at first instance and $6 million on appeal, future penalties may well be into the tens of millions for the same conduct under the new proposals.
Given the new interpretation of annual turnover under the penalty provisions of the Act which significantly increases the starting point for the calculation of fines and thus the penalty amounts themselves (especially for related companies supplying into Australia) and the potential that fines for breaches of Australian Consumer Law will mirror those relating to competition laws, it is imperative that you ensure compliance with these laws is truly effective.
In light of the recent significant changes to competition laws (the effects test, concerted practices and other provisions), it may be an opportune time to update and refresh your compliance program. Doing so will not only minimise the risk of contravention but to the extent that there is a breach, a strong compliance regime will be considered a mitigating factor.
On 26 February 2019, Rod Sims announced the ACCC’s compliance and enforcement policy for 2019. A summary of the key areas of focus are set out below.
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