Release of the OECD’s Pecuniary Penalties for Competition Law Infringements in Australia report

Speakers: 
Mr Rod Sims, Chair
Conference: 
Workshop on Australian Pecuniary Penalties for Competition Law Infringements
26 March 2018

ACCC Chairman Rod Sims' speech on the release of the OECD’s Pecuniary Penalties for Competition Law Infringements in Australia report.

Transcript: 

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I am delighted to be here today for the release of the OECD’s Report, Pecuniary Penalties for Competition Law Infringements in Australia.

As we have heard earlier today, the headline finding of the OECD is that maximum and average pecuniary penalties imposed for competition law infringements in Australia are significantly lower than the penalties imposed in the other OECD jurisdictions considered in the report.

This is particularly so in relation to large companies or conduct that lasted for a long period of time.

As the Australian competition regulator, this is very concerning.

Today I will provide the ACCC’s perspective on three issues that are central to the OECD report and the future of Australia’s penalties regime:

  1. The role of penalties in competition law.
  2. The ACCC’s previous and current approach to penalties.
  3. The next steps the ACCC will be taking in relation to penalties.

1. The role of penalties in competition law

It is well accepted that the primary objective of civil penalties is deterrence.

The ACCC has been concerned that penalties imposed in both competition and consumer cases historically have not been sufficiently high to deter contraventions, particularly in cases involving large businesses. This concern has been reinforced by some recent comments from the Court in relation to the appropriate level of penalties in cases involving large businesses.

The OECD’s report reinforces this concern in respect of the penalties imposed in competition matters in Australia.

As the international comparison in the OECD’s report shows, penalties imposed in Australia for breaches of competition laws are significantly lower than comparator jurisdictions.

It is important to try to explain why this is so. As the report notes:

… the current amount of pecuniary penalties [may be] a consequence of initial decisions based on the statutory regime in place before 2007, which set a maximum penalty amount that did not take into account the size of the infringing companies’ conduct – and which adopted relatively low pecuniary penalties by international standards.

Subsequent judgments, even those that were adopted after the law was reformed to allow for larger penalties to be imposed, merely followed precedent when imposing pecuniary penalties which were low by international standards, in accordance with the principle that similar conduct should be treated similarly.

This dynamic was then reinforced by the regulator’s propensity to settle on penalty, agreeing on the quantum of penalty with the infringing company based on existing precedent, and making those submissions to the court for a final determination.1

It could well be that after the crucial 2007 law change, which introduced the possibility of penalties of 10 per cent of turnover, that we did not adequately reflect Parliament’s clear intent in some of our penalty submissions.

One of the examples of disparity between penalties imposed in Australia and other OECD jurisdictions considered by the OECD relates to cartel cases. The report notes that in a sample of major Australian cartel cases up to November 2017, the average pecuniary penalty in Australia was $25.4 million2, while the average base penalty in the comparator jurisdictions for this conduct would have been $320.4 million.

Because it is based on a sample of cases, this average Australian penalty is likely to overstate the average pecuniary penalty imposed in cartel cases. But on its face, this figure means that the average Australian penalty would have to increase 12.6 times to reach the level of the average penalty that would have applied in the comparator jurisdictions.

This disparity in pecuniary penalties is extremely concerning, as it must limit the effective deterrence of sanctions for competition law contraventions in Australia3.

We do not want the penalties for breaches of our competition laws to be seen as an acceptable cost of doing business in Australia.

Alternatively put, to achieve effective deterrence we need penalties that are large enough to be noticed by senior management and company boards, and also shareholders. This is certainly not the case now.

While the focus of the OECD report is on penalties in competition law cases, the ACCC is also concerned to ensure that penalties in relation to breaches of the Australian Consumer Law are sufficiently significant to achieve both specific and general deterrence.

You are likely aware that legislation currently before the Federal Parliament would see maximum penalties for a breach of the Australian Consumer Law increased to align with the maximum penalty provisions for competition law breaches.

We see this proposed legislative amendment as being vital to ensure that the Courts have the ability to impose penalties in both consumer protection and competition law cases which are at an appropriate level to achieve deterrence, particularly for large businesses with substantial revenues.

2. The ACCC’s previous and current approach to penalties

The OECD’s report provides an excellent opportunity for reflection. It gives us cause to rethink our approach to the assessment of appropriate pecuniary penalty where large businesses are concerned.

It is important context to recognise that unlike the OECD jurisdictions considered in the report, in Australia penalties for competition law breaches are imposed by Courts, not the ACCC, although the ACCC has a role in making submissions to the Court as to the appropriate penalty.

In a number of cases, the ACCC has been able to reach agreement with the corporation involved, and so joint submissions on penalty are made. The amount of “agreed” penalties is, of course, the outcome of negotiations between the parties and may reflect a range of considerations on the part of the ACCC, including that, taking into account the time, risk and cost of litigation, settlement of the proceedings for the agreed penalty advances the public interest in the enforcement of the regulatory regime more effectively and efficiently than the continued prosecution of the claim.

In determining the appropriate penalty to be imposed on a company which has breached the Australian competition law, the Courts are required by legislation to have regard to certain matters, and this list is expanded by what we all know as the “French Factors”.

As long ago as 1990, in TPC v CSR Ltd, Justice French (as he then was) identified the size of the contravening company, amongst other things, as being a relevant factor when assessing penalty. The OECD’s report indicates that we may not have given sufficient weight to this factor in our submissions on penalty to the Court, or that where we have done so, we have not persuaded the Court.

Clearly, and this is fundamental, to send a message of deterrence the penalty imposed on a larger business should be proportionately larger than a penalty imposed on small or medium-sized businesses for the same or similar conduct.

There is support for this view in the observations made by Justice Wigney in his penalty judgment in the ACCC’s case against ANZ and Macquarie. In that case, Justice Wigney imposed penalties of:

  • $9 million against ANZ in respect of 10 attempted contraventions of the cartel provisions, and
  • $6 million against Macquarie in respect of 8 attempted contraventions of the cartel provisions.

Both of these penalties had been agreed with the ACCC, and were the subject of joint submissions to the Court by the parties.

In his judgment, Justice Wigney said that the agreed penalties were “at the very bottom of the range of agreed penalties” and that he would have ordered a much higher penalty had there been no agreed penalty. He also observed:

A very sizeable penalty is plainly required to deter a financial institution of the size of ANZ from engaging in such conduct again. Equally, a very sizeable penalty is required to deter other large financial institutions in positions similar to ANZ who might be tempted to engage in similar contravening conduct.4

Similar observations were made by the Full Federal Court in the ACCC’s case against Reckitt Benckiser, another large corporation, for breaches of the Australian Consumer Law involving false or misleading representations about certain Nurofen products. The Court held that the penalty of $1.75 million imposed by the trial judge was “manifestly inadequate”, and that a penalty at that level “would reinforce a view that the price to be paid for the contraventions were an acceptable business strategy, and was no more than a cost of doing business”. The Full Court also noted that the figure of $6 million put by the ACCC was at the bottom of the appropriate range of penalty.

This was also forcefully articulated by Justice Gordon, then of the Federal Court, in her judgment imposing a $10 million penalty on Coles Supermarkets for engaging in unconscionable conduct, when she said:

It is a matter for Parliament to review whether the maximum available penalty of $1.1 million for each contravention [of the ACL] by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguable inadequate for a corporation the size of Coles.

3. The approach the ACCC will pursue

Reflecting on these and other similar comments from judges in penalty decisions, as well as the results of the OECD’s comparative work, we need to, and will, re-think our approach to assessing penalties that we put to the Court. In particular, the ACCC will reconsider how to take into account the size and revenue of the contravening firm, both in determining the penalty amount we consider is appropriate in the circumstances, and in our submissions to the Court.

The OECD provides two important recommendations.

First, the OECD report highlights an important difference between our approach and that of the other jurisdictions considered in that we do not start an assessment of penalty by reference to some measure of turnover or value of commerce affected.

If this base line approach was applied in Australia, firms with smaller turnover would likely end up with similar penalties compared to those currently imposed, but firms with larger turnover would generally end up with much higher penalties.

The base fine focusses on the turnover of a firm in order to more accurately determine a sanction that is most likely to achieve effective specific deterrence for that firm. This avoids the imposition of low fines or penalties that do not achieve appropriate deterrence; or, as I have said earlier, and to put it another way, do not sufficiently grab the attention of boards, senior management and shareholders.

The insight offered by the OECD report in relation to this issue is valuable and provides a vital point for debate and discussion about the future of penalties in Australia.

Second, the other major difference between Australia and the other OECD jurisdictions considered in the OECD report relates to the absence of public guidance on how pecuniary penalty amounts are arrived at.

The OECD explains that public guidance is deemed desirable for a number of reasons, including not only good enforcement practice and openness of information, but also factors such as the relationship between the predictability of sanctions and deterrence.

The OECD has suggested that Australian bodies responsible for bringing infringement proceedings before the Courts, such as the ACCC, “adopt internal rules or guidelines, based on similar principles, regarding the penalties they will submit before the courts”5 .

The ACCC accepts there is merit in both these OECD recommendations and is giving active consideration to them, while noting that part of that process will be to consider the relevance or influence, if any, of an ACCC baseline approach and published penalty guidance to the Court’s exercise of its discretion to impose penalties of appropriate deterrent value.

In particular, the ACCC sees that the guidelines may be of most value in influencing our approach to investigations and then to determining what penalty we will submit to the Court should be imposed. If implemented, they would provide transparency to parties, and we expect that a structured approach such as that proposed by the OECD is likely to be welcomed by legal advisors to parties being investigated.

Concluding comments

To achieve deterrence, Australia needs higher penalties for breaches of the competition laws by larger companies. To achieve this, the ACCC needs to rethink its approach.

What is different today is that as we engage further in that debate, we now have an independent assessment by the OECD of the strengths and weaknesses of the current competition law penalty regime in Australia. We can all now use this report as a key reference point for further evidence-based consideration and discussion.

From today, this discussion is underway.

I would like to close by thanking Pedro Caro de Sousa, Sean Ennis and Semin Park from the OECD Competition Division for their exemplary work in preparing this report.

I would also like to thank Fred Jenny, Chairman of the OECD Competition Committee, for your leadership of this project.

The ACCC undertakes many studies and inquiries each year. It is a feature that they are the start of a process rather than the end. It makes no sense to write a report to have it gather dust in a drawer; I can assure you, Fred, you haven’t heard the last of this report.

I believe it will be a turning point for Australian competition law enforcement.

Thank you.

[1] OECD, Pecuniary Penalties for Competition Law Infringements in Australia, 2018 page 72.

[2] This includes ACCC v NYK, in which the undiscounted figure of $50 million is taken into account. The fine imposed by the Federal Court after taking into account NYK’s cooperation and guilty plea was $25 million.

[3] OECD, page 8.

[4] Federal Court imposes multi-million dollar penalties on ANZ and Macquarie Bank for attempted cartel conduct

[5] OECD, page 74.