Biggest fine ever for breach of competition law – a sign of things to come

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:

• The annual turnover of a business is one of the limbs the court must consider in determining the maximum fine that can be ordered against the business for a breach of competition laws;
• Where 10% of annual turnover of the business is greater than $10 million or three times the gain derived from the contravening conduct, that amount will be the starting point in determining the appropriate penalty;
• The decision provides a new interpretation of the annual turnover of a business that includes the turnover of relevant related bodies of the business (and not just the individual contravening company).

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.

Determining penalties for breaches of competition law

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:

• $10 million;
• three times the value of the benefit the company received from the breach; or
• 10% of annual turnover of the business in the preceding 12 months if the benefit cannot be determined.

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:

• The nature, context and extent of the conduct;
• The deliberateness of the conduct;
• The loss or damage caused by the conduct;
• The profit obtained from the conduct;
• The size of the company engaging in the conduct;
• The involvement of senior management;
• Whether the company had a corporate culture of compliance with the Act; and
• The level of contrition and cooperation.

First instance

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.

Appeal – annual turnover of subsidiaries as well

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:

• Yazaki was a large multinational supplier with considerable market share globally, in particular in Australia;
• Yazaki’s conduct was “deliberate, sophisticated and devious” which included manipulation of the pricing components so as to avoid arousing suspicion;
• Yazaki’s conduct was considered to be more “serious” or “hard-core” than “mid-range” in circumstances of a longstanding cartel agreement;
• There was no evidence of co-operation from Yazaki before the proceedings were commenced by the ACCC;
• The contravening conduct involved members of Yazaki’s senior management; and
• Yazaki did not have a compliance program or any competition law training at the time of the conduct

Penalties for breaches of Australian Consumer Law to become just as severe

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.

What you should do now

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.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).