Recent Developments in Competition Law: Cartel Cases

Speech given on 9 June 2022 at the book launch of Michael Gvozdenovic and Stephen Puttick (eds.), ‘Current Issues in Competition Law’ (The Federation Press, 2021).

I acknowledge the Gadigal people of the Eora nation and pay my respects to their elders past, present and emerging.

I should begin by acknowledging and congratulating all those responsible for the publication of the excellent books we are somewhat belatedly launching this evening. That obviously includes the editors, Michael Gvozdenovic and Stephen Puttick. I am sure that you will agree that they have done a fabulous job in compiling and editing these excellent works.

Michael and Stephen have also asked me to acknowledge and convey their thanks to the following organisations and people.

First, Sydney Law School and, specifically, the Ross Parsons Centre of Commercial, Corporate and Taxation Law, which provided funds to support the final editing of the manuscripts.

Second, the contributors to the books. Of course, any edited collection is no more than the sum of the contributions. I think you would all agree that the contributors comprise some of the leading jurists, scholars and practitioners in competition law in Australia at the present time. The remarkable depth and breadth of the collection is of course largely thanks to them.

Third, the team at The Federation Press. Stephen and Michael particularly wish to thank Jason Monaghan, who guided them through the publication process, and Susan Engel, who was responsible for editing the final manuscripts.

Fourth, the Honourable James Allsop AO and the Honourable Nye Perram who wrote the forewords to volumes 1 and 2 respectively. Michael and Stephen convey their particular gratitude to the Chief Justice for his support of their project, including hosting this launch.

And finally, Allens Linklaters and 7 Wentworth Selbourne Chambers, who have graciously sponsored tonight’s launch, including the drinks and canapés that will follow.

I should, while we are in this acknowledging phase, say something briefly about Michael, who, as many of you would be aware, was my associate during 2020.

One of the very great pleasures and privileges of my job is that every year I get a chance to work with a new associate. They are invariably brilliant, having excelled at their studies, worked or volunteered at worthy organisations, both in Australia and overseas, and have otherwise amassed a wealth of extra-curricular achievements. Michael, of course, was no exception.

It was during Michael’s time as my associate that this collection was largely conceived. I vaguely recall Michael running the concept of the books by me. I thought that it sounded like a very worthy project – but I have to say I thought that the prospect of him being able to actually bring it to fruition in all the circumstances was fairly remote.

Well, I was certainly wrong about that. Remarkably, during that most difficult of COVID-ravaged years, Michael somehow managed to successfully pitch the project to the Sydney Law School and The Federation Press, persuade the impressive array of contributors to agree to write essays for the books, and begin the editing process – all while organising my unruly docket of cases, learning how to conduct virtual court hearings during the various COVID-19 lockdowns, toning down the more intemperate or irreverent parts of my draft judgments, and otherwise excelling in his role as my associate. I simply do not know how he did it. 

I am sure that Justice Ward is equally amazed at how Stephen managed to do the same while he was her Honour’s associate during the same year.

Michael and Stephen asked that I say a few words about recent developments in competition law. I hope that they, and you, will forgive me for focussing my talk on the relatively narrow area of competition law that preoccupied me in the latter part of last year and what I thought would be keeping me preoccupied throughout this year. That area is cartel conduct – specifically, the criminalisation of cartel conduct and the Federal Court’s relatively new jurisdiction in that area. I say “relatively new” because, as I am sure most of you are aware, the jurisdiction was conferred some years ago, but it is only in recent years that the Court has actually been called upon to exercise that jurisdiction.

What I wanted to do in the brief time available to me is to touch on three issues that have arisen in that area in recent times, at least in my zone of thinking.

First, I want to say something about penalties for contraventions of the cartel provisions, particularly in light of the recent High Court decision in relation to civil penalties, Australian Building and Construction Commissioner v Pattinson [2022] HCA 13. Pattinson, of course, was a case about civil or pecuniary penalties and did not involve cartel conduct. It may, however, give rise to some interesting issues about the imposition of penalties in cartel cases and the decision to pursue a criminal prosecution rather than civil penalty proceedings.

Second, at risk of sounding like a broken record, I will say something briefly about the complexity of the cartel offence provisions, particularly in light of the acquittals in the Country Care Case and the discontinuance of the prosecution in the Citigroup bank cartel case.

Third, and again at risk of sounding like a broken record, I will say something about the appropriateness and utility of committal proceedings in cartel prosecutions that are to be tried in the Federal Court. I will again explore this issue in the context of the withdrawal of the charges in the Citigroup bank cartel case. 

Before I say anything about any of those matters, can I just make clear that the views that I express are my personal views and are certainly not the institutional views of the Federal Court. Nor do they necessarily reflect the views of any of the other judges on the Court.

Penalties

As most of you are no doubt aware, the first three cartel offence cases that came before the Court all arose from an international cartel that had been in existence for some time in the market for ‘roll-on roll-off” shipping services. That cartel was initially exposed and investigated by the competition regulator in Japan and was subsequently the subject of criminal prosecutions and civil and administrative proceedings around the world.

The Australian Competition and Consumer Commission investigated, and the Commonwealth Director of Public Prosecutions prosecuted, three accused in Australia. Each of the accused was a large multinational shipping company. No individuals were charged in Australia.

Each of the accused ultimately entered pleas of guilty. Two of the accused advised the prosecutor of their likely pleas of guilty at early stages, with the result that the prosecutor filed indictments directly in the Court and there were no committal proceedings. One of the accused went through a committal hearing and was committed for trial in the Federal Court, but entered a plea of guilty at a relatively early stage of the proceeding.

The indictments that were filed against each of the accused contained one charge of giving effect to a cartel provision (s 44ZZRG, which is now reflected in s 45AG of the Competition and Consumer Act 2010 (Cth)). The single charge was what is generally called a “rolled-up” charge because it encompassed a number of instances of giving effect to the cartel provision over a period of time. The rolled-up charges were no doubt the product of “charge bargaining” between the accused and the prosecutor.

Separate sentence proceedings were conducted in respect of each of the accused.

Obviously, because the accused were corporations, the only available penalty was monetary in nature – a fine. As many of you no doubt know, the penalty is specified in s 44ZRG(3) (now s 45AG(3) of the Competition and Consumer Act 2010 (Cth)). That section sets out a number of different potential scenarios and means by which the maximum penalty is calculated.

The maximum penalty in two of the three cases was $100 million and just under $50 million for the third case. The penalties that were ultimately imposed on the three accused ranged between $24 million and $34 million. You can, if sufficiently interested, read the sentence judgments in each case to see how those different penalties were worked out. It suffices to say, from my perspective, that the imposition of these fines was a pretty straightforward exercise in criminal sentencing. Needless to say, there were no agreed penalties, which, of course, are very much a no-no in criminal proceedings.

I mention these three cases even though the issue I want to raise with you this evening is not about sentencing in criminal cartel cases. Rather, it is about the imposition of penalties for contraventions of civil penalty provisions, including those in the Competition and Consumer Act. In particular, the recent High Court decision in Pattinson, which I will say more about in a moment, got me thinking about what pecuniary penalties might have been imposed on these three corporations if they had been pursued civilly rather than criminally.

As I am sure many of you are aware, there are civil penalty provisions in the Competition and Consumer Act that essentially mirror the cartel offence provisions (s 45AJ and s 45AK). The only differences between the elements of the cartel civil penalty provisions and the elements of the cartel offences come about because the Criminal Code 1995 (Cth) applies to the offence provisions, with the result that there are some additional fault or mental elements.

Now, I have a view about the wisdom of having these mirror civil penalty and offence provisions. One issue with this sort of parallel system is that it essentially leaves it up to the regulator to determine whether a case is pursued civilly or criminally having regard to quite subjective considerations, such as whether the particular contravention is serious or “hardcore”.

Another issue with having these parallel civil penalty and criminal offence provisions is that it generally results in ill-thought-out, overly complex offence provisions. No real thought seems to be given to the fact that the offence provisions have to be explained to, and be capable of being understood by, a jury of laypersons. I will say a little more about that later. 

Putting those issues to one side and coming back to the issue relating to penalties, strange as it may seem, the maximum monetary penalty for a contravention by a corporation of the civil penalty provision is exactly the same as the maximum penalty for a cartel offence. So a corporation that is convicted of an offence of contravening a cartel offence provision is subject to exactly the same maximum monetary penalty that it would have been subject to if it was pursued civilly and found to have contravened the civil penalty provision. The only real difference is that the monetary penalty for an offence is called a “fine” and the penalty for a contravention of the civil penalty provisions is called a “pecuniary penalty”.

That, in a way, raises the following question. Assume a corporation engages in conduct amounting to both a contravention of the civil cartel provision and a cartel offence. If the corporation was pursued civilly, would the civil penalty imposed be roughly the same as the fine that would be imposed if the contravention were pursued criminally? And, if all the relevant facts and circumstances that fed into either the penalty imposition or sentencing exercise were the same, what would be the principled justification for the different penalty?

From my reading of the recent decision in Pattinson, it appears to me that the result would in many cases be different if the matter was pursued civilly rather than criminally, even if the facts were otherwise exactly the same.

As I have already noted, Pattinson was not a cartel case. It was a case about imposing civil penalties for contraventions of civil penalty provisions in the Fair Work Act 2009 (Cth). The reasoning of the majority, however, plainly has implications for the imposition of civil penalties generally, including for cartel contraventions and other civil penalty provisions in the Competition and Consumer Act.

I obviously don’t have time to address the reasoning in Pattinson at great length. I also have views about the decision which I will perhaps politely keep to myself. The short point that emerges from Pattinson is this.

The principles that apply in sentencing a criminal offender are, it would seem, fundamentally different to those that apply in fixing an appropriate civil penalty. That apparently stems from the fact that the only real purpose of fixing a civil penalty is said to be deterrence – that is, to deter both the contravener in question (specific deterrence) and others who might otherwise contravene in the future (general deterrence). Unlike in criminal sentencing, fixing a civil penalty does not involve or include the purposes of retribution (i.e. the imposition of punishment to fit the crime), denunciation or rehabilitation. Criminal sentencing principles that stem from those purposes – including proportionality – have no role to play in fixing a civil penalty.

And the fixing of the maximum penalty is not restricted to the most serious contravention. Rather, there just has to be a “reasonable relationship” between the “theoretical maximum” and the penalty imposed.

In Pattinson, that meant that it was found to be appropriate to fix the maximum civil penalty on the CFMMEU because it was a recalcitrant repeat offender and the maximum penalty was necessary for the purposes of deterrence. The maximum penalty was considered appropriate even though the particular contravention in question was not itself particularly serious, in the scheme of things, and even though the maximum penalty that was imposed could not really be said to be proportional to the nature and circumstances of the contravention. The position was perhaps even starker in the case of the penalty imposed on the CFMMEU official. 

Imposing the maximum penalty on a recalcitrant is one thing. But as Edelman J, who dissented in Pattinson, pointed out, if deterrence trumps everything, the result may also be that nominal penalties may be appropriate in the case of very serious contraventions.

For example, assume a corporation committed a most serious cartel contravention which was deliberate, concealed and resulted in significant economic loss or damage. Also assume, however, that, since the contravention, the corporation had sacked its management and changed its systems, with the result that any repeat contravention was highly unlikely. The need for specific deterrence would, therefore, be very low. Assume also that other like corporations had similarly changed their systems in response to the offending corporation being caught out, such that the need for general deterrence was also low.

Given those circumstances, if the corporation was pursued civilly, the appropriate civil penalty may well be very low despite the seriousness of the contravention, given that there was no real need for either general or specific deterrence.

That might not necessarily be the case if the corporation was prosecuted, even though it has long been accepted that deterrence is an important consideration when imposing a sentence for commercial or economic crimes. A significant penalty might be imposed on the corporation, even though there was no real need for specific or general deterrence, because criminal sanctions are also intended to penalise and denounce misbehaviour. A significant penalty might be warranted in the circumstances because it is necessary to impose a punishment that “fits the crime”, or necessary to give the corporation its “just deserts”. 

What all that means is that if the three corporations involved in the shipping cartel cases had been pursued via the civil penalty route, it could by no means be said that the civil penalties would have been anything like the criminal sanctions – the fines – that were ultimately imposed. That is because, like the hypothetical example just given, it was generally accepted that the corporations had taken significant steps to rehabilitate, and the risk of reoffending – and therefore the need for specific deterrence – was quite low.

What it also means is that the decision of the regulator to proceed civilly rather than criminally is likely to have significant ramifications.

Exactly how the decision in Pattinson plays out in future civil penalty cases – including for contraventions of the civil cartel provisions – remains to be seen.

The complexity of the cartel offence provisions

Can I then turn to say something briefly about the complexity of the cartel offence provisions and the challenges that the drafting of those provisions present.

I had cause to reflect on this issue both in the context of the Country Care cartel case, where I sat as a member of the Full Court that considered the interlocutory appeal in that case. Needless to say, it was also an issue that arose in the Citigroup bank cartel case.

Late last year, the Chief Justice delivered the Australian Academy of Law’s Tenth Annual Patron’s Address. The address was entitled “Thinking About Law: The importance of how we attend and of context”. I would do the Chief Justice an immense injustice if I tried to summarise the subject matter of the address, so let me just say it concerned how the brain processes information and how that is reflected in the law and legal thinking. In that context, the Chief Justice said the following:

Let me also say something of statutes which criminalise conduct in an economic or commercial context. The evil the subject of such provisions is generally identifiable. Take insider trading and cartel behaviour for instance. At their foundation, they have recognisably dishonest or sharp practice, by reference to human experience. In one case, insider trading, there is the taking of advantage of special knowledge gained through some position of confidence or some particular function which allows profit to be made secretly at the expense of others before the knowledge becomes widely known. In the other, cartel behaviour, there is rigging or fixing of a market or a transaction to extract a benefit. The sense of what is wrong is a human one based on experience, perception and intuitive response. One can see the wrong if the activity is described; but to define the behaviour by reference to abstractions, in particular exhaustively, has its challenges. If one goes about defining the conduct by exhaustive expression of abstractions two things may follow: first, a lack of clarity through complexity; secondly, and more importantly, the draining of the sense of the human wrong involved. A crime that is confusingly expressed, and in language that makes appreciation of the moral wrong involved difficult, brings challenges to the administration of justice.

If I may say so, with respect, that brief but eloquent observation about the cartel offence provisions encapsulates exactly what I see to be the central issue with those provisions. In short, by the time you work your way through the labyrinth of physical and fault elements and intricately defined terms, you tend to forget what it actually is that is said to be morally wrong with the impugned conduct.

In my experience, juries are fantastic at working out whether conduct is dishonest or fraudulent, no matter how complex the underlying factual matrix said to amount to fraud or dishonesty may be. In pointing that out in this context, I am not for a moment suggesting that fraud or dishonesty should be an element of cartel offences. The point I am making is this: what sense of moral wrong is a jury likely to get from the complex and arcane elements of the cartel offences in s 45AF and s 45AG?

The issue of complexity first arose in the Country Cartel case because the accused applied to the trial judge to sever the charges in the indictment and to stay three of the charges in the indictment. The basis for that application was that those charges were too complex – or, more particularly, that the trial judge’s directions to the jury would be too complex for the jury to comprehend.

To be fair, the three charges in question were charges in which it was alleged that the accused attempted to induce other persons to enter into an arrangement or understanding containing a cartel provision. This meant that the charges had the additional complication of involving the elements of both attempt and inducement. The arguments about complexity also hinged to a certain extent on the particular way the prosecutor had particularised the charges.

In any event, the trial judge dismissed the application and the Full Court subsequently upheld that decision.

Nevertheless, the mere fact that an indictment could give rise to an argument – which was not entirely unmeritorious – to the effect that the charges were too complex for a jury to understand says much about the offence provisions in question.

And, as we now know, the case went to trial and the accused were acquitted on all charges.

Of course, nobody but the jury knows exactly why they were ultimately not satisfied beyond reasonable doubt in relation to the charges, and I doubt that it could just be put down to the complexity of the charges.

But what perhaps can be said is this: the underlying factual allegations in the case were not overly complex or difficult.

And yet, when I recently had cause to read the trial judge’s meticulous and articulate directions of law in relation to the elements of the offences, the complexity of the legal case that confronted the jury was plain to see. The written directions concerning the elements of the offences which the trial judge provided to the jury, and which his Honour no doubt explained and developed orally in the course of his summing up, were exceptionally long and complex. The written directions concerning the elements of the first charge alone extended to seven pages!

One wonders whether, to adapt the Chief Justice’s words, the jury had difficulty appreciating the moral wrong that was allegedly involved in the charges once they were required to wade through the complex directions of law. And if a jury doesn’t appreciate the moral wrong, it is hard to see them convicting.

I should stress again that I am merely speculating here. I have no idea – and no particular insight into – why the jury ultimately acquitted. I am certainly not seeking to question or undermine in any way any aspect of the trial or the jury’s verdict.

I also had cause to consider the complexity of the offence provisions at the interlocutory stages of the Citigroup bank cartel case. The issue arose in that case because the accused applied to strike out the charges in the indictment on the basis that they had not been properly particularised. They argued that the charges essentially just repeated the words of the offence provisions in question. I upheld that argument but permitted the filing of a replacement indictment. The replacement indictment prompted a further strike out application, which I also upheld. It was only after that second decision that the prosecutor filed a compliant indictment – or at least an indictment that was not the subject of a further strike out application. Needless to say, the indictment turned out to be very long and complex. Indeed, it was probably the most complex indictment I have ever seen.

The point that I would make is this.

The underlying factual allegations in the bank cartel case were, again, not particularly complex. Yet the prosecutor nonetheless had considerable difficulty drafting the charges in a way that clearly and concisely articulated the essential legal and factual allegations. And that, in my assessment, was in no small part due to the complexity of the offence provisions themselves.

And, as most of you no doubt know, the prosecutor subsequently discontinued the prosecution. That occurred on the morning of the hearing of an application in the nature of a demurrer. That is not to say that the discontinuance necessarily had anything to do with the issues with the form of the indictment, or indeed the interesting issues that were to be addressed in the context of the demurrer. The precise reasons for the prosecutor’s change of position are unclear.

Committal proceedings

That then provides a convenient segue to the next issue which I will briefly address, which is the appropriateness and utility of committal proceedings in State or Territory magistrates’ courts in cases like the Citigroup bank cartel case.

Given the limited time available to me, let me just say this.

Delay in criminal cases is corrosive. It is fundamentally important that serious criminal charges be brought to trial as soon as possible.

In my assessment and experience, committal proceedings in complex cases involving commercial or economic crime often achieve very little, but almost inevitably add to the delays in bringing the case to trial. Nothing that could be achieved in a committal proceeding could not equally be achieved in the course of the case management of a criminal case in this Court.

In the Citigroup bank cartel case, the committal proceedings took over three years. However, when the accused were eventually committed for trial and the matter found its way to the Federal Court, the indictment still had not been settled and the accused were complaining – as it turned out, properly so – about the manner in which the charges had been particularised. One might reasonably think that after a three-year committal proceeding, there would be some degree of certainty about the nature of the charges. Moreover, a number of the issues that had supposedly been addressed at the committal stage had to be re-agitated and re-determined in the Court. Other issues that plainly could or should have been addressed at the committal stage had not been addressed. There were, for example, outstanding issues in relation to disclosure and privilege and the pre-trial examination of prosecution witnesses.

In a paper I presented to Chris Hodgekiss’ Competition Law conference last year (subsequently published in the Australian Journal of Competition and Consumer Law), I traced the historical origins of committal hearings, as well as the reasons why Commonwealth offences are still generally subject to State-based committal proceedings. You can, if sufficiently interested, read what I said there. I would simply make the following three points in summary.

First, the historical rationale for committal proceedings no longer applies to the type of cases we are talking about here: complex cases involving commercial or economic crimes that are investigated by an experienced regulator and prosecuted by an independent prosecuting body.

Second, different committal procedures apply in the States and Territories. In my view, persons charged with federal offences, such as cartel offences in the Competition and Consumer Act, should be dealt with in the same way no matter what State or Territory they happen to be in when they are charged, at least if they are to be committed for trial in the Federal Court.

Third, and perhaps most importantly, modern case management procedures in the Federal Court mean that anything and everything that could possibly be addressed or achieved in a committal proceeding can be dealt with more efficiently, economically and effectively in the course of case management by the docket judge in the Federal Court. There is, therefore, simply no need to have a committal proceeding in a State or Territory magistrates’ court.