Introduction
In August 2017, the ACCC achieved its first successful prosecution under the criminal cartel provisions of the Competition and Consumer Act 2010 (CCA)
against Nippon Yusen Kamushiki Kaisha (NYKK).[1] There is no doubt that this was a ground-breaking
moment for the ACCC given that the criminal cartel provisions were introduced nine
years ago, in 2009. The case is also
notable for the quality and comprehensiveness of the judgment delivered by
Justice Wigney of the Federal Court of Australia. Justice Wigney has a great deal of experience
in relation to criminal matters, which he was able to bring to bear in his
judgment.[2]
ACCC Chairman Rod Sims was also quick to claim that the case
demonstrated that the ACCC’s investment in building
a substantial team of specialist criminal cartel investigators was paying off:
To put all this another way, our criminal cartel machine is
now built, and running at its appropriate capacity. You will now see its
continuing output.[3]
While it is true that the NYKK case was a very
positive outcome for both the ACCC and for criminal cartel jurisprudence in
Australia, its seems decidedly premature to claim that the ACCC’s criminal
cartel machine is now built and running at appropriate capacity. Such a judgment can only be made once the
ACCC has successfully investigated, and the CDPP has successfully litigated, a contested
criminal cartel prosecution.
Background
NYKK’s conduct arose from a longstanding global
cartel in the market for the supply of ocean shipping services for “roll-on,
roll-off” cargo, primarily cars and trucks. The other shipping companies implicated in the
cartel were:
- Mitsui OSK Lines Ltd
- Kawasaki Kisen Kaisha Ltd
- Toyofuji Shipping Co.
- Nissan Motor Car Carrier Co and
- Wallenius Wilhelmsen Logistics AS.
The cartel offence related to:
- the fixing of freight rates on shipping routes to
Australia
- the rigging of bids in response to requests for
bids by the motor vehicle manufacturers, and
- the allocation of customers (ie motor vehicle
manufacturers) between the members of the cartel.
Justice Wigney found that whilst NYKK’s conduct
had occurred over an extensive period of time, the charges only related to the
three-year period from 2010 to 2012. He
also found that NYKK’s illegal conduct had involved 69,348 new vehicles and
that NYKK had derived revenue of AU$54.9 million and profit of AU$15.4 million
from the contracts which were the subject of the illegal conduct [para 6].
Overseas investigations
Justice Wigney also described the cartel
investigations which had been conducted by overseas competition
regulators. He referred to the Japan
Fair Trade Commission (JFTC) and the United States Department of Justice (DOJ) which
had commenced their investigations on 6 September 2012 with dawn raids at a
number of offices of both NYKK and the other shipping companies implicated in
the cartel [para 160].
The ACCC commenced its own investigation at
around the same time, on 10 September 2012.
In stark contrast to the way in which the JFTC and DOJ commenced their
investigations, the ACCC did not conduct a dawn raid but instead decided to send
a fax to NYKK’s Australia office. Somewhat embarrassingly for the ACCC it
appears that their fax was sent to the wrong number. As noted by Justice
Wigney:
It would appear that the ACCC’s fax did not come to the
immediate attention of management of NYK Australia or NYK because it was
received by a fax machine located in the container shipping sales department of
NYK [para 162].
Overseas investigations were subsequently
commenced by the Competition Commission of South Africa, Chile’s Fiscalia
National Economica, and China’s National Development and Reform Commission.
Significant penalties were levied against NYKK in
a number of these jurisdictions:
- United States – US$59.4 million
- Japan - AU$157 million administrative surcharge
- South Africa – AU$10 million
- Chile – US$25 million.
NYKK was not fined in China as it was the
immunity applicant. The other participants in the cartel was fined a total of
US$65 million [para’s 163-170].
Sentence
In approaching the task of determining the appropriate
sentence, Justice Wigney outlined the relevant legislative scheme namely Part
IB of the Crimes Act. The relevant checklist of factors to be taken
into consideration in determining sentence are listed in section 16A(2) of the Crimes Act:
(a) the nature and circumstances of the offence;
(c) if the offence
forms part of a course of conduct consisting of a series of criminal acts of
the same or a similar character--that course of conduct;
(d) the personal
circumstances of any victim of the offence;
(e) any injury, loss
or damage resulting from the offence;
(ea) if an individual who
is a victim of the offence has suffered harm as a result of the offence--any
victim impact statement for the victim;
(f) the degree to which the person has shown
contrition for the offence:
(i) by taking action to make reparation for any injury, loss or
damage resulting from the offence; or
(ii) in any other manner;
(fa) the
extent to which the person has failed to comply with:
(ii)
(ii) any obligation
under a law of the Commonwealth; or
(iii)
(iii) any obligation under a law of the State or Territory
applying under subsection 68(1) of the Judiciary Act 1903;
about
pre-trial disclosure, or ongoing disclosure, in proceedings relating to the
offence;
(g) if the person
has pleaded guilty to the charge in respect of the offence--that fact;
(h) the degree to
which the person has co-operated with law enforcement agencies in the
investigation of the offence or of other offences;
(j) the deterrent
effect that any sentence or order under consideration may have on the person;
(ja) the deterrent
effect that any sentence or order under consideration may have on other
persons;
(k) the need to
ensure that the person is adequately punished for the offence;
(m) the character,
antecedents, age, means and physical or mental condition of the person;
(n) the prospect of
rehabilitation of the person;
(p) the probable effect that any sentence or
order under consideration would have on any of the person's family or
dependants.
As is an apparent, a number of the section 16A(2) factors
relate specifically to individual defendants, as opposed to corporate defendants.
Nature and circumstances of the offence - section 16A(2)(a)
Justice Wigney stated that NYKK had committed a very
serious offence which required condign or appropriate punishment [para 204]. As set out in the agreed facts, NYKK had
given effect to the cartel on at least 20 separate occasions over a three-year
period. Having said that the CDPP
presented an indictment containing a single “rolled up" charge, rather than 20
separate charges [para 206].
Maximum penalty
Based in the “rolled up” charge, the maximum fine for
the offence was $100 million or 10% of NYKK’s annual Australian turnover [para
208]. Despite some attempts by NYKK to argue for a lower maximum penalty (ie
three times the illegal profits made from the cartel or approximately $45
million) these submissions were rejected by the Court [para 212].
Justice Wigney also noted that both the CDPP and NYKK
had “controversially” taken the Court to various civil penalties imposed by the
Court in relation to civil cartels and other anti-competitive conduct. Again,
the Court rejected these submissions as being of little assistance in the
determination of the appropriate sentence for a criminal offence [para 221].
Duration and scale of conduct
The Court found that the conduct the subject of the
charges had continued for three years. However, the Court also noted that the
relevant cartel agreements had been in place for substantially longer than
three years – in fact, one of the relevant agreements had been in place for 15
years, since 1997. Justice Wigney stated
that this earlier conduct was relevant to sentencing as an aggravating factor
[para 224].
The Court also found the scale of the conduct to be
substantial, impacting on a significant and valuable market. Justice Wigney
stated that:
There could be little doubt that anti-competitive
conduct the subject of the charge had the capacity to substantially limit or
distort the competitive setting of freight rates in the relevant routes to
Australia, the likely result being that rates were higher than they would have
been in a competitive market. [para 226].
Deliberate, systematic and covert conduct
Justice Wigney found that NYKK’s conduct was
systematic, well-orchestrated and involved a high-level of planning and
coordination [para 240]. He also found that steps were taken by NYKK managers
to hide their illegal conduct by communicating orally over the telephone and at
face-to-face meetings and either not documenting these communications or
documenting them in such a way as to hide the substance of the communications
[para 241].
Seniority of managers engaged in illegal conduct
There was no dispute that senior NYKK managers were the driving force behind the illegal conduct [para 244].
Profitability of illegal conduct
It was agreed that NYKK generated revenue of $54.9
million and profits of $15.4 million from the contracts the subject of
cartels. However, it was not possible to
calculate the actual revenues and profits directly attributable to the cartel conduct
[para 245].
Impact on victims - section 16A(2)(d)
There did not appear to be a significant amount of
evidence in the case about the actual impact of the illegal cartel agreement on
victims (ie the major new car manufacturers and ultimately Australian consumers). Due to the absence of evidence, Justice
Wigney surmised that there was likely to be significant impact on markets and
the economic system, although the amount could not be quantified [para 252].
Contrition and rehabilitation - sections 16A(2)(f) and (n)
The Court found that NYKK had demonstrated genuine contrition. NYKK had also made significant changes to its
management and compliance structures which indicated that NYKK’s prospects of
rehabilitation were high [para 253].
Plea of guilty - section 16A(2)(g)
The Court found that NYLL had entered a plea of guilty
at the earliest opportunity:
Full recognition should be given to the remorse, acceptance
of responsibility and willingness to facilitate the course of justice
demonstrated by the plea. [para 255]
NYKK Cooperation - sections 16A(2)(h) and 16AC
NYKK agreed to fully cooperate with the ACCC
investigation, including facilitating interviews with NYKK executives who could
not have been compelled by the ACCC to come to Australia to attend interviews
[para 264].
In the relevant Statement of Agreed Facts put before
Justice Wigney, an ACCC officer gave evidence that NYKK had provided “full, frank
and truthful disclosure and cooperated fully and, in most instances,
expeditiously, on a continuing basis throughout the ACCC’s investigation” [para
264].
Furthermore, NYKK agreed to plead guilty to a “rolled
up” charge at a very early stage and signed an undertaking pursuant to section
16AC of the Crimes Act 1914 to
provide future assistance.
Interestingly, Justice Wigney also referred in his reasons to
confidential evidence which had been filed in the case which could not be
referred to with any specificity. He described this confidential evidence as
“potentially significant”. Whilst one can only speculate about this evidence,
it most likely relates to evidence from NYKK of other separate and significant
contraventions of the CCA. For example, the existence of a cartel in a related
market, such as the container shipping market [para 268].
Justice Wigney concluded that in all the circumstances
the appropriate discount for NYKK’s past cooperation, assistance, plea of
guilty, contrition and remorse was 40%, He also allowed a further discount of
10% for NYKK’s future cooperation [para’s 267 and 269].
Deterrence - sections 16A(2)(j) and (ja)
In considering the issue of deterrence the Court is
required to consider both specific and general deterrence. However, in this
case the Court found that specific deterrence was not a significant
consideration as such specific deterrence had already been achieved, as demonstrated
by NYKK’s contrition. Accordingly, the main purpose of the penalty in this case
was general deterrence or to deter other companies which may be weighing up
whether to engage in cartel conduct [para 274].
Adequate punishment - section 16A(2)(k)
The main question in relation to this factor was the
weight which the Court should accord to the penalties paid by NYKK in other
jurisdictions in relation to the cartel conduct. The Court concluded that while some weight
should be given to the overseas penalties, these penalties should not be given
significant weight. This was because these overseas penalties related to
different routes, contracts and customers [para 275ff].
Antecedents - section 16A(2)(m)
A highly relevant factor in mitigation was the fact that
NYKK did not have a prior record of corporate criminal misconduct in Australia
or indeed elsewhere [para 284].
Appropriate Sentence
After weighing up all of the above factors Justice
Wigney determined that the appropriate penalty for NYKK’s conduct was half of
the maximum penalty – ie $50 million. He
then applied a 50% discount to the appropriate penalty to arrive at a total penalty
of $25 million.
It is worthwhile to quote in full Justice Wigney’s comments about
how he arrived at the penalty:
299. Having regard to all of the relevant features and factors, and giving
them appropriate weight, the appropriate sentence in all the circumstances is a
fine of $25 million. That fine incorporates a global discount of 50% for NYK’s
early plea of guilty and past and future assistance and cooperation, together
with the contrition inherent in the early plea and cooperation: meaning that
but for the early plea and past and future cooperation, the fine would have
been $50 million. Of that 50% discount, 10% relates to future cooperation. For
the purposes of s16AC of the Crimes
Act, it is
stated that the severity of the sentence imposed on NYK has been reduced
because NYK has undertaken to cooperate with law enforcement agencies in proceedings
relating to alleged offences committed by others and that the sentence that
would have been imposed but for that reduction was $30 million.
300.
Cartel
conduct of the sort engaged in by NYK warrants denunciation and condign
punishment. It is inimical to and destructive of the competition that underpins
Australia’s free market economy. It is ultimately detrimental to, or at least
likely to be detrimental to, Australian businesses and consumers. The penalty
imposed on NYK should send a powerful message to multinational corporations
that conduct business in Australia that anti-competitive conduct will not be
tolerated and will be dealt with harshly. That is so even where, as here, the
decisions and conduct are engaged in overseas and as part of a global cartel.
As has already been explained, but for NYK’s cooperation and willingness to
facilitate the administration of justice, the penalty would have been
substantially higher. That should serve as a clear and present warning to
others who may have, or may be considering or planning to, engage in similar
conduct.
Jumping the gun
The ACCC should be applauded for its efforts in
investigating the NYKK cartel case. After a clumsy start, the ACCC appears to
have conducted a thorough investigation which lead to the preparation and
presentation of a sound brief of evidence to the CDPP. Unfortunately, Rod Sims’ claims
that the ACCC's “criminal cartel machine is built and running at
appropriate capacity” sounds more like hubris than an accurate assessment of the
challenges facing the ACCC in successfully investigating and prosecuting a contested
criminal cartel case.
Based on my own personal experience of representing
clients in ACCC criminal cartel investigations, it is apparent that the ACCC
has a great deal more fine tuning to do in relation to its criminal cartel
machine. For example, I acted for a client in 2015 who was the subject of a
criminal cartel investigation in which the ACCC had executed a number of search
warrants. It became apparent in the
course of that particular investigation that the ACCC had made at least five
fundamental mistakes in the execution of its search warrants. After these five mistakes were pointed out to
the ACCC, it decided to terminate its investigation of the matter (admittedly
without conceding that it had made any of the alleged mistakes!)
The true proof of the effectiveness of the ACCC
criminal cartel machine will be when it successfully investigates and the CDPP
successfully prosecutes a contested criminal cartel matter. In order to succeed in a contested criminal
cartel case, the ACCC will have to ensure that it:
- properly executes all search warrants and
maintains a proper chain of evidence
- carefully selects appropriate witnesses for
trial and
- genuinely seeks to identify and address all
potential weaknesses in its case prior to submitting a brief of evidence to the
CDPP.
The CDPP will only be able to succeed in a contested
criminal trial if it is able to:
- navigate all of the evidentiary
requirements in terms of proving the physical elements (ie the
act of participating in the cartel or the making and/or giving effect to the
cartel agreement) and the additional fault elements (ie knowledge or belief) of
the cartel offence; and
- address all of the various defences which may be raised by
the defendant/s, including the recently expanded joint venture defence.
Significantly, in order to be successful in the prosecution
the CDPP will also have to prove its case beyond reasonable doubt to the
satisfaction of a jury and achieve a unanimous jury verdict.
While the ACCC and the CDPP have the capacity to successfully
run contested criminal cartel prosecutions, this will only be possible if the
ACCC tones down the hubris and accepts that there is still an enormous amount
of work to do on fine tuning its “criminal cartel machine”. A good starting point would be for the ACCC to
take steps to engage with legal practitioners who have been on the other side
of a criminal cartel investigation in a genuine effort to learn from its
mistakes.
[1] Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876 (3 August 2017) at
https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2017/876.html
[2] As stated in Justice Wigney’s Federal Court biography, prior to his appointment, his Honour practiced as a barrister who specialized in, in complex "white collar" crime and civil penalty contraventions (in particular insider trading and other financial market offences, directors' duties, taxation, fraud and money laundering), competition and consumer law, administrative law, taxation and commissions and inquiries. Justice Wigney had also previously worked as a solicitor at the Commonwealth Director of Public Prosecutions. Interestingly, Justice Wigney also worked on an earlier ACCC - CDPP criminal prosecution of Chubb Australia Pty Ltd in 2004 as junior to Des Fagan SC - Australian Competition and Consumer Commission v Chubb Security Australia Pty Limited [2004] FCA 1750 (30 December 2004) at http://classic.austlii.edu.au/au/cases/cth/FCA/2004/1750.html
[3] Rod Sims, “Criminal cartel investment pays off”, ACCC Media Release, dated 5 August 2016 at
https://www.accc.gov.au/media-release/criminal-cartel-investment-pays-off
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