Get done for engaging in a cartel in Australia now and you could finish up behind bars. Next year, our politicians will be debating whether we should introduce a similar regime here. Already we have serious penalties under the Commerce Act and a Commerce Commission with an itchy trigger finger.
Cartels are in the regulatory gun – but do businesses truly know what sorts of behaviours could expose them to risk?
What’s a cartel?
Curiously, given how frequently the Commerce Commission’s ‘cartel busting’ activities are talked about, the word ‘cartel’ doesn’t appear anywhere in the Commerce Act.
The word conjures up the image of the secret deal hatched in a smoke-filled room. But the smoke filled room is not a necessary backdrop. At its simplest, the cartel is a plain price fix. And there are more flavours of price fixing than plain vanilla.
Amongst the activities the Commission has alleged to be price-fixing, are:
agreeing a component of price – for example, in the airlines case, the fuel surcharge component of air cargo charges
agreeing not to bid for an asset – for example, the Commission has warned two companies about inappropriate references along the lines that they would not bid against each other for the purchase of a generation station
rigging bids – for example, in the gas insulated switch case, parties sharing out contracts
agreeing not to compete for clients – for example, in the Waikato pathologists case, companies contemplating a merger (which never proceeded) agreeing not to compete to acquire clients from each other
agreeing to share markets – for example, in the elevator installation case, parties sharing out contracts and submitting ‘cover bids’, and
joint bids for contracts – for example, two pathology firms jointly bidding for a contract (at the invitation of the customer).
While the Commission has supplied its own definition, describing cartels as “business conspiracies that cause considerable economic harm”, not everyone has the same view of economic harm.
Who is my competitor?
Keep in mind that the sanction on cartel behaviour catches not only arrangements between existing competitors but also those who are potentially competitors - but agree not to compete.
Businesses should, therefore, think carefully before deciding to ‘joint venture’ rather than compete. The joint venture exception in the Commerce Act may not be the parachute many people seem to think it is. It is narrow and untested - and the Commission has taken a very restrictive interpretation of it.
The Commission’s leniency policies provide immunity for the first member of a cartel to provide the Commission with evidence of the cartel. The new ‘marker’ system means that a company can effectively reserve the valuable first-comer spot while it compiles the information required to determine whether there is in fact a problem.
It appears that many of the current cartel investigations or prosecutions have resulted from parties applying for leniency. According to one source, the Commission had 16 cartel cases on the go in August. Half of these were in the investigation phase, the other half were being litigated.
Is this really a big problem?
Yes, it really is. The Commission’s interest in this issue is not a flash in the pan. It has acknowledged that the recession has allowed it to shift resources from vetting mergers to investigating cartels. Unless the economy recovers remarkably fast, the only green shoots the Commission will be generating will be in the cartels arena.
What’s my personal exposure?
For individuals found to have engaged in price fixing the stakes are very high. They face a maximum penalty of $500,000 per offence, and the Court must impose a penalty unless there is good reason not to; the company cannot indemnify them for these penalties or the legal costs of defending the prosecution; and they may be precluded from management roles or directorships for up to five years.