First Criminal Prosecution for Cartel Related Offence: CDPP v Nippon Yusen Kabushiki Kaisha

Monday 7 August 2017 @ 10.48 a.m. | Corporate & Regulatory | Crime | Trade & Commerce

On 3 August 2017, his Honour Justice M A Wigney of the Federal Court of Australia released a summary intended to ". . . assist in understanding the reasons for imposing the sentence" in the matter of, Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876. The reasons for deviating from the traditional practice of delivering reasons or remarks on sentence in a criminal matters orally were described as being twofold by his Honour: firstly, the length and complexity of the case; and secondly, the fact that:

"This is the first criminal prosecution for a cartel related offence since cartel conduct was criminalised by amendment to the then Trade Practices Act 1974 (Cth) in July 2009."

The case involved the Japanese based shipping company, Nippon Yusen Kabushiki Kaisha Ltd (NYK), who was convicted of cartel conduct and as a result, fined $25 million by the Federal Court. The cartel involved collusion in fixing the freight rates and market shares for the international shipping of motor vehicles to Australia.

Background to the Case

Part of a global logistics and bulk shipping group based in Japan having over 33,000 employees, NYK had  "Car Carrier Group" within it’s bulk shipping division providing ocean transport services supplying new passenger cars, trucks, buses and commercial vehicles from overseas manufacturers into Australia.

Dating back as far at February 1997, NYK had established an arrangement with other global vehicle shipping companies, having the effect that they would not seek to alter their existing market shares of cargo from manufacturers or otherwise try to win existing business from each other (the arrangement was a cartel referred to as the "Respect Agreement"). In the period from 24 July 2009, the point at which legislation criminalising cartel conduct commenced in Australia was introduced, and 6 September 2012, the time when Japanese and United States authorities raided the premises of NYK and a various other shipping companies - NYK gave effect to the cartel arrangement with  other global shipping companies and their subsidiaries.

In that period, three separate cartel provisions relating to fixing freight rates, bid rigging and customer allocation were undertaken, involving six different shipping routes for vehicles to Australia, from India; Thailand; Japan; Indonesia; North America, and Europe; and shipping services supplied to 10 vehicle manufacturers. Offences occurred over a three year period during which time 69,348 new vehicles were imported into Australia through contracts entered into as a result of bids affected by NYK's conduct.

In the ensuing proceedings, NYK co-operated with the Australian authorities and pleaded guilty to one "rolled-up" count of giving effect to cartel provisions, contrary to section 44ZZRG(1) of the Competition and Consumer Act 2010 (Cth) - an offence for which the maximum penalty is $100 million.

Nature of the Sentence

In arriving at an appropriate sentence his Honour said that: 

"On just about any view, this was an extremely serious offence against Australia’s laws prohibiting cartel conduct."

Looking at sentencing in particular, his Honour was of the view that, it was the court's task to impose a sentence appropriate in all the circumstances of the offence and that since the offender was a corporation, not a natural person, that sentence must comprise a fine, and that the fine must not exceed the statutory limit of $100 million. Further, in considering the appropriate sentence in any criminal case, the Court is required to assess and have regard to a broad range of relevant factors and considerations. Of this his Honour says:

"The Court is required to give appropriate weight to and balance many different and sometimes conflicting features and arrive at a value judgment as to what is the appropriate sentence. For a federal offence, like this offence, the offender is to be sentenced in accordance with Part IB of the Crimes Act 1914 (Cth). The overarching principle is that any sentence imposed by the Court must be of a “severity appropriate in all the circumstances of the offence”: section 16A(1) of the Crimes Act. Section 16A(2) provides a “checklist” of matters that must be taken into account so far as they are relevant and known to the Court."

About the cartel conduct his Honour stated:

"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."

In his sentencing statement, his Honour also noted that but for its early guilty plea and co-operation, the fine for NYK would have been $50 million.

Reaction and Comment on the Decision

The Deputy Director the CDPP Shane Kirne is quoted on the agencies website as, describing the case as 

" . . . a milestone in the prosecution of cartels in Australia . . . This was the first prosecution of a cartel since legislation criminalising such conduct commenced in 2009. The case demonstrates that no company, big or small, is above the law. The conviction and penalty imposed on NYK will act as a significant deterrent for others contemplating illegal conduct".

Speaking at a Law Council of Australia Competition and Consumer Committee Workshop in Melbourne at the weekend (5 August 2017), ACCC Chairman Rod Sims said that the verdict ". . . vindicates the increased dedicated resources the ACCC has allocated over the past three years to cartel investigations" saying also that:

"For the first time in over 100 years in Australia, a cartelist was convicted, sentenced and fined for a breach of the criminal law yesterday. Despite NYK pleading guilty and cooperating with the prosecution, the $25 million fine is the second largest ever imposed under the Competition and Consumer Act (2010)."

Mr Sims indicated that the NYK case was one of several referred to CDPP by the ACCC and that once those were assessed, further prosecutions might be expected. Mr Sims also pointed out that the ACCC had built up its expertise in investigating such matters and would be devoting even more resources to the issue of cartel investigations.

While the NYK decision is to be applauded, there is the view that possibly the punishment for cartel offences in Australia is perhaps not as severe as it should/could be. In an interesting article on the topic, The Conversation points out that, the highest penalty ever awarded for cartel like conduct was in the Visy case in 2007 resulting in a $36 million fine, whereas, in Europe for example fines in the order of €896 have been imposed. The Conversation states

"Overseas comparisons are stark. At the time of the Visy decision, the highest cartel fine in the EU stood at €896 million in relation to a car glass cartel. Today, the highest is more than €1 billion, imposed on Daimler for a trucking cartel. Had the method used in the EU and US for calculating these fines been used in the Visy case, the starting point for the fine imposed on the packaging giant would have been in the order of A$212 million."

This matter however, is in the sights of the current Federal Government, who it is reported, have in the recent Federal Budget committed to bringing maximum fines for breaches of the consumer protection laws into alignment with those applicable to competition law breaches.

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