26 March 2018

Australian Competition Law Penalties

Today's OECD report on Pecuniary Penalties for Competition Law Infringements in Australia compares
the pecuniary sanctions regime for competition law infringements in Australia to that of a number of other major OECD jurisdictions. It has been prepared based on an analysis of Australia’s pecuniary sanctions regime and its comparison with pecuniary sanctions regimes in the European Union, Germany, Japan, Korea, the United Kingdom and the United States. It builds on previous work on ‘Sanctions in Antitrust Cases’ pursued in the context of the 2016 OECD Global Forum on Competition. 
The authors comment
Despite Australia’s competition law system being in line with international practice, it has characteristics that differentiate it from other regimes. Notable among such differences is the method for applying sanctions. While in most regimes pecuniary penalties are set by reference to a detailed and publically available methodology that focuses largely on the size of the infringing company, in Australia the amount of pecuniary penalties is determined by the Federal Courts following an ‘instinctive synthesis’ of various factors. These differences do not prevent Australia from imposing substantial and deterrent sanctions for breaches of competition law. However, and as described in this Report, the maximum penalties that are imposed in Australia for competition law infringements are lower than in comparable jurisdictions.
In recent years, important cases have been increasingly brought before the Australian courts for decisions about sanctions for competition law infringements. This accumulated experience provides an opportunity for retrospective and comparative review, which is the objective of this report that compares Australia’s framework and experience with competition law sanctions to the frameworks and experiences of other jurisdictions. The OECD jurisdictions selected for comparison are the European Union, Germany, Japan, Korea, the United Kingdom and the United States. These jurisdictions include leading large jurisdictions, such as the European Union and the United States, as well as smaller jurisdictions with advanced competition law regimes, such as Germany, Japan, Korea and the United Kingdom. Together, they provide a good sample of established competition jurisdictions, while also providing a valuable mix of characteristics that reflect the variety of competition law regimes across the world and illustrate the breadth of approaches in different legal systems.
Australia belongs to the set of jurisdictions where the competition authority brings cases for enforcement action before a court, which acts as a decision-maker with respect to the alleged breach of competition law and the applicable penalties. It has a bifurcated system where the adjudicative role in competition law matters is divided between the Australian Competition Tribunal and the Federal Courts. The latter have jurisdictions regarding enforcement proceedings undertaken by the Australian Competition and Consumer Commission (ACCC) for breaches of the competition provisions of the Competition and Consumer Act.
Civil penalties for competition law infringements in Australia have as their primary objective deterrence, both general and specific. Pecuniary penalties are one of a number of civil and criminal sanctions that Australian courts can impose for such infringements. When determining the amount of a pecuniary penalty, Australian courts take into account a number of different criteria and principles – including the course of conduct principle (where appropriate), the totality principle and the parity principle. The judicial assessment of the appropriate penalty is a discretionary judgement synthesising all factors and principles relevant to a particular case in a process of ‘instinctive synthesis’. While the determination of the type and amount of penalties imposed on contraveners for infringements of competition laws is an exclusive prerogative of the courts, the ACCC and respondents may make joint submissions to the court in which they propose an agreed civil penalty (and other relief) for the courts’ consideration. If the court is persuaded that the agreed penalty is an appropriate penalty, it is consistent with principle, and highly desirable in practice, for the court to accept the parties’ proposal and impose the agreed penalty
All the comparator jurisdictions share with Australia the goal of ensuring deterrence of competition law violations through pecuniary penalties. Unlike Australia, however, all comparator jurisdictions deploy structured methods for determining the level of pecuniary sanctions. These methods require the calculation of a base fine, generally based on some measure of the volume of affected sales in the country in question over the time period of the legal violation. This base fine can then be modified to take account of mitigating and aggravating circumstances and, in many jurisdictions, also to reflect other factors deemed of importance. Such methods are reflected in publically available guidelines. The existence of structured methods reflected in public guidelines ensures predictability, the uniform treatment of companies for comparable violations, and that fines reach levels that can enhance deterrence.
This report compares the level of actual fines in Australian competition law sanction cases to the level that would apply in the comparator jurisdictions. The result of this comparison is that the amount of pecuniary penalties imposed for competition law infringements in Australia is significantly lower, in both absolute and relative terms, than the amounts imposed in other OECD jurisdictions, particularly as regards large companies or conduct that lasted for a long period of time. This is despite pecuniary penalties in Australia and all reviewed jurisdictions: (i) ostensibly pursuing the same objective, deterrence; (ii) being set by reference to similar criteria – i.e. the corporation’s turnover or the illicit commercial gains obtained through the anticompetitive conduct; and (iii) relying on a broadly similar list of mitigating and aggravating factors when determining the final amount of a pecuniary penalty. Looking at the amounts of penalties imposed in Australia in a number of cartel cases up to November 2017 – which exclude more recent cases that are still under appeal – and the base fine that would have been applied in the comparator jurisdictions, the average pecuniary penalty in Australia was AUD 25.4 million (Australian dollars), while the average base penalty in the comparator jurisdictions would have been AUD320.4 million. Even considering that these calculations are rough estimates that do not take into account aggravating or mitigating circumstances, this means that the average Australian penalty would have to be increased 12.6 times to reach the level of the average penalty in the comparator jurisdictions. This is despite the fact that Australia’s legal regime seems to allow for the imposition of pecuniary penalties at the same level or even higher than in the comparator jurisdictions. This disparity in the amount of pecuniary penalties imposed in Australia and elsewhere has the potential to limit the effective deterrence of sanctions against competition law infringements in Australia.
Ultimately, the two main differences that this Report finds between Australia and the comparator jurisdictions are that: (i) fines in Australia seem to be lower, at least at the higher end of imposed penalties; (ii) Australia does not follow a structured methodology for the determination of pecuniary penalties. While the Report is unable to conclude that there is a causal relationship between these two phenomena, it is plausible that they are related.
The Report ultimately recommends that Australian authorities consider actions to ensure that pecuniary penalties better deter anticompetitive conduct. Such recommendations include, among others, increasing awareness of and taking into account international practices in the determination of pecuniary penalties; linking the amount of the penalty to the economic impact of the sanctioned company’s conduct and the seriousness and duration of the infringement, and decoupling it from the sanction amounts imposed for similar anticompetitive conduct in the past; and studying whether to develop and adopt a structured method for the calculation of the amount of pecuniary penalties – including, potentially, the identification of a base pecuniary penalty. Public guidance could create a more transparent and predictable penalty framework, which, in turn, could be useful for companies and decision makers, ultimately promoting deterrence.