Paying The Price: Australia’s Low Competition Law Penalties

By Jack Newton, Lawyer, Benjamin Caddaye, Law Clerk and Alicia Hill, Principal, MST Lawyers.

In March 2018, the Organisation for Economic Co-operation and Development (OECD) released a report which found that Australia’s penalties for contraventions of competition law are substantially lower compared with the financial penalties regime for breaches of competition laws in several other major OECD jurisdictions.

The report, Pecuniary Penalties for Competition Law Infringements in Australia 2018, was released in late March 2018 and was the product of several months of consultation with various Australian and international stakeholders.

Australia’s System and Comparable OECD States

Australian Courts have a wide power to order different remedies for a breach of the Competition and Consumer Act 2010 (Cth), with one of the most powerful being the pecuniary penalty order.

Despite what appears above to be a broad discretionary power to impose a pecuniary penalty upon a party for a breach of competition law, the OECD report found that all jurisdictions in the comparison used a structural approach to penalties rather than a discretionary assessment by the Court.

The Report identified the maximum penalties imposed on competition law contraveners as follows (all converted to US dollars for comparison):

• Australia: $26.5 million;
• European Union: $2.6 billion;
• Germany $272 million;
• Korea: $873 million;
• Japan: $111 million
• United Kingdom: $104 million; and
• United States: $925 million.

While the Report noted that the difference in both size and GDP of each of these jurisdictions would naturally affect the size of the pecuniary penalties, the Report noted that the difference in methodologies between the jurisdictions was the most likely cause of the significant differences in penalty size.

Methodology

The methodology used by courts to determine the value of the penalty for a breach of the Act is the primary difference between Australia and other OECD jurisdictions. Notably, many other jurisdictions commence with an analysis of a “baseline” penalty. For example, other jurisdictions commence the analysis of penalty by reference to a yardstick such as turnover, which is then used as the starting point for the assessment of the specific pecuniary penalty after taking account of aggravating and mitigating factors.

In Australia, it has become more common for the Australian Competition and Consumer Commission (ACCC) to agree to either or both of facts and/or the quantum of the penalty. The parties then ordinarily make submissions to the Court to persuade it that the agreed sum is appropriate.

Conversely, in other jurisdictions using a structural approach to determine the value of the penalty, the calculation of a base amount by reference to the volume of sales to generate a penalty sum is required. The calculation is then adjusted in accordance with publically available guidelines depending on whether there are any mitigating or aggravating circumstances.

The critique of the Australian system revolves around this discretionary method of assessment which, according to the Report, leads to less predictable and ultimately lower penalties than in other OECD States.  The report indicates that the average pecuniary penalty to be $25.4 million, whereas the comparable average penalty in an OECD State with a structural method of assessment was $320.4 million.

The Report goes further and analyses several notable Australian cases as against the methodologies adopted by the six other jurisdictions. The result of that analysis is that the recent ACCC pecuniary penalty ordered against Visy, which was $36 million would instead, if determined in another jurisdiction with a structural approach, result in penalties anywhere between $318 million and $1.272 billion.

The ACCC’s Response to the OECD Report

The ACCC’s response came from its Chairman, Rod Simms, who gave a speech highlighting the regulator’s view on the findings of the report.

Mr Sims noted that for many years the Courts had expressed disapproval regarding the submissions made by parties when it came to calculating a penalty, with the overwhelming view that the Court would impose higher penalties if there had been no agreed submissions (whether as to facts or as to quantum) put by the parties.

Mr Sims further noted the two key recommendations made by the OECD Report. These recommendations are that Australia adopts a baseline penalty structure calculated by reference to the revenue of the party in breach. Secondly, that there be better public guidance as to the calculation of penalties to promote deterrence and increase predictability.

Mr Sims stated that the ACCC was actively considering these proposed changes to the penalty regime under the Competition and Consumer Act, however, the first of those recommendations would require legislative amendment.

The potential future of pecuniary penalties

The ACCC intends to reflect on the contents of the report before announcing what steps it intends to take in response. Given the comments by Mr Sims, we expect it is likely we will see concerted efforts on the part of the regulator to bring Australian competition law in line with the OECD approach. This is in keeping with statements made by the ACCC pertaining to higher penalties for contraventions of Australia’s competition and consumer laws.

We will keep you informed of any further developments in this area. If you are under investigation or are facing action by a regulator, please do not hesitate to contact Jack Newton, Benjamin Caddaye or Alicia Hill on (03) 8540 0200 or email us at litigation@mst.com.au.