Steel yourselves: record penalties ordered against BlueScope for attempted cartel conduct

BlueScope Steel (BlueScope) has been recently fined with a record-breaking $57.5 million and its former general manager with $575,000 for attempted cartel conduct to induce other suppliers to manipulate the price of steel products in Australia. The amount imposed on BlueScope and Mr Ellis is a fraction of what the contraveners may anticipate under the new penalty framework.

Facts of the case         

Following the global financial crisis, demand for steel declined globally and resulted in an over-supply of steel and distribution capacity. The ACCC alleged that, in response to this, Mr Ellis attempted to induce other suppliers to set their prices for flat steel products at or above BlueScope’s recommended resale price thereby increasing the value of flat steel products to BlueScope and those suppliers. The court found for the ACCC.

The ACCC sought a penalty in the range of $83-120 million. BlueScope submitted that a penalty in the range of $30-40 million was appropriate.

The approach to determining penalties for BlueScope

To determine the appropriate penalty the Court applied the following 3-step process:

1. Determine the maximum penalty;
2. Consider the relevant factors;
3. Weigh all relevant factors and determine the penalty.

Maximum penalty

The maximum penalty that the Court could impose on BlueScope was governed by the former penalty regime that was in force before the higher maximum fines and civil monetary penalties came into effect in 2022.

The former maximum civil monetary penalty for a body corporate was:

• $10 million;
• three times the value of the ‘reasonably attributable’ benefit obtained from the conduct, if the court can determine it; or
• if the court cannot determine it, 10% of the annual turnover of the company during the period of 12 months ending when the conduct occurred.

While the ACCC submitted that BlueScope had obtained a benefit from the conduct such that the maximum penalty should be $400m, the Court found that BlueScope had not increased its profits as a result of the attempts to induce cartel conduct or obtained any other benefit. 

The Court, therefore, found that the maximum penalty that could be imposed on BlueScope was $90 million (being, $10 million for each of the attempts to induce the nine suppliers of flat steel product into the cartel conduct).

Relevant factors

The Court considered the following factors:

• Nature and extent of the offending conduct. The Court found that the strategies adopted by BlueScope to induce other suppliers into the cartel conduct, the significant level of BlueScope’s managerial investment in those strategies and Mr Ellis’s attempts to hide information about the meetings with other suppliers, all point to the conduct being systematic, deliberate and covert.

• The circumstances in which the offending conduct took place. The Court found that the aim of the strategies was to bring about an increase in prices for the supply of flat steel products and that senior managers of BlueScope were “not sufficiently attentive to the requirements of the Act”. 
• Any loss or damage suffered as a result of the offending conduct. The Court found that had the attempt to induce cartel conduct been successful, very substantial cost increases could have been faced by acquirers of flat steel product.
• BlueScope’s size and financial position. The Court characterised BlueScope as “a very large, profitable and well-resourced company” which meant a larger penalty is required to ensure deterrence.
• Corporate culture conducive to compliance with the Act. The Court found that during the offending conduct, BlueScope had appropriate training and directives with respect to competition laws. Since it became aware of the conduct, BlueScope made various measures and enhancements to its competition law compliance framework to prevent the recurrence of the offending conduct or similar conduct.
• Cooperation with the ACCC. Cooperation with the ACCC in the course of an investigation will not carry significant weight where the allegations have been fully contested at trial. The Court did not order any material discount to the penalties issued to BlueScope of the basis of its cooperation with the ACCC during the ACCC investigation and further found that some aspects of the defence lacked substance.
• Sincere contrition. The Court recognised that BlueScope expressed regret and apologised for the conduct. It also took steps to strengthen its compliance processes to avoid any repetition of the offending conduct.
• Prior contraventions. BlueScope has not previously been the subject of any proceedings or found liable for the cartel conduct.

Weighting the relevant factors

The Court only assessed two factors as favourable to BlueScope (lack of prior contraventions and substantial efforts by BlueScope to strengthen its compliance processes). The rest of the factors were assessed as either negative or neutral. On the balance, the Court found that the conduct required a substantial penalty and awarded an aggregate penalty of $57.5 million.

Penalties against former BlueScope GM

In calculating the penalty of $575,000 against Mr Ellis, the Court had regard to Mr Ellis’:

• central role in the offending conduct, including developing the strategy for benchmarking prices;
• lack of cooperation and contrition. This included his efforts to urge two of his former employees to provide the ACCC with information that Mr Ellis knew to be false or misleading; and
• financial position and limited capacity to pay any penalty ordered.

The Court also made the non-indemnification order sought by the ACCC, noting that allowing Mr Ellis to rely on insurance coverage would result in the penalty lacking a deterrent effect and would be ‘entirely devoid of string or burden.’

The Court did not impose a disqualification order on Mr Ellis because it held that it did not have the power to make such an order.

New guidelines on ACCC approach to penalties

Shortly after the Court's decision imposing penalties on BlueScope and Mr Ellis, the ACCC published its guideline on the ACCC's approach to seeking penalties in competition and consumer law matters (Penalty Guide).

The Penalty Guide provides that:

• the penalty sought by the ACCC is expected to exceed the financial gains and benefits obtained by the contravener;
• all benefits and potential advantages will be considered, encompassing profits, resource or revenue growth, business expansion, and cost savings;
• the evaluation will encompass potential loss or damage, as well as the extent of the risk associated with such loss or damage, in addition to actual losses or damages incurred;
• the penalties sought by the ACCC may, in some cases, lead to the contravener facing insolvency;
• if the contravener is of substantial size and resources, the penalties may be determined based on the contravener's position and resources rather than solely on benefits or losses resulting from the conduct;
• there is no automatic entitlement to a cooperation discount. However, the ACCC may contemplate offering a discount of 30% to 50% of the total penalty in cases where there is full and meaningful cooperation, which includes admissions of liability.

Penalties under the new regime will be considerably larger

The record-breaking $57.5 million amount imposed on BlueScope is a fraction of what the contraveners may anticipate under the new penalty framework. From 10 November 2022, the new maximum fines and civil monetary penalties for a body corporate are the greater of:

• $50 million;
• three times the value of the ‘reasonably attributable’ benefit derived from the breach, if the court can determine this; or
• if the court cannot determine the benefit – 30% of the turnover during the breach period.

This means that under the new penalty regime BlueScope could have incurred penalties 5 times higher (i.e. $287.5 million) than those imposed by the Court.

The maximum penalty for an individual for a single civil cartel contravention has increased from $500,000 to $2.5 million.

What should you do now?

The BlueScope case and the new penalty regime demonstrate that it is critically important to ensure your company has appropriate and regular competition and consumer law training for all staff including key management personnel.

The costs of effective compliance will be negligible compared to the costs of an ACCC investigation, prosecution or penalty order and will act to prevent these outcomes from occurring.

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).