On 2 August 2019, Kawasaki Kisen Kaisha Ltd ("K-Line") was ordered by the Federal Court of Australia to pay a $34.5 million fine for criminal cartel conduct occurring between July 2009 and September 2012. K-Line's fine is the largest ever criminal penalty to be handed down for contraventions of the Australian Competition and Consumer Act 2010 (Cth).
| what you need to know - key takeaways |
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- Companies should ensure that they do not enter agreements that may have an effect in distorting or limiting competition in the relevant market. Internal whistle-blower arrangements are likely to mitigate this risk.
- The ACCC has extensive powers to investigate possible cartel conduct and can and will refer serious cases to the CDPP to consider criminal prosecution.
- Courts view cartel conduct as requiring firm condemnation and condign punishment. They will impose harsh penalties on companies found guilty of cartel conduct, regardless of the relevant conduct occurring overseas or part of a global cartel where prosecution may have already occurred in other jurisdictions.
- Companies that have been involved in potentially suspicious activities should seek advice immediately, because cartel immunity is only available to the first party to report the conduct/arrangement to the Australian Competition and Consumer Commission ("ACCC").
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K-Line is a global Japanese transportation company that, relevantly, supplies shipping services for the transportation to Australia of cargo such as motor vehicles, buses, trucks and other "roll-on, roll-off" commercial vehicles.
In February 1997, K-Line entered a "Respect Agreement" with a number of other global shipping companies which established an understanding that the parties would not attempt to take current business from one another or seek to alter their market shares. The cartel provisions of particular interest involved fixing freight rates for vehicle transport services to ports in Australia supplied to eleven key motor vehicle manufacturers including Honda Motor Company Ltd, Nissan Motor Co Ltd, Suzuki Motor Corporation and Toyota Motor Corporation.
The ACCC commenced investigations into the matter in 2012 after action was taken by the Japan Fair Trade Commission and the United States Department of Justice in overseas jurisdictions. Shortly after, K-Line sought immunity from the ACCC but this was not available as K-Line was not the first shipping company to approach the ACCC doing so.
In August 2017, Nippon Yusen Kabushiki Kaisha, another party to the arrangement, was convicted of knowingly giving effect to cartel provisions in breach of the Competition and Consumer Act and was fined $25 million.
Criminal charges for cartel conduct were laid by the Commonwealth Director of Public Prosecutions against K-Line in November 2016. In April 2018, K-Line pleaded guilty to a charge of intentionally giving effect to cartel provisions.
In his sentencing, Justice Wigney found the factors which weighed towards a more severe punishment included:
- the maximum penalty in respect of the offence by K-Line being $100 million;
- the systematic, deliberate and covert nature of the conduct over a long period of time and by members in senior management;
- the potential damage to the Australian market's integrity from such conduct; and
- the need for general and specific deterrence.
Mitigating factors included:
- the contrition and rehabilitation demonstrated by K-Line, including changes made to the corporate structure to prevent recidivism;
- the plea of guilty and co-operation provided to the ACCC during investigations;
- the penalties imposed by courts and authorities in other jurisdictions; and
- K-Line's otherwise clear history from conviction of offences worldwide.
Justice Wigney concluded that, in all the circumstances, a $34.5 million fine was appropriate. He incorporated a 28% discount, noting that but for the guilty plea and corporation and contrition displayed throughout, K-Line's fine would have been $48 million.
ACCC Chair Rod Sims said "This decision is a serious warning to businesses and will deter others seeking to join or start a cartel. Businesses should know that engaging in cartel conduct will result in ACCC scrutiny and result in potentially very serious consequences."
With thanks to Sarah Drummond of Ashurst for her contribution.
