8 March 2021
On 4 February 2021, the Federal Court of Australia ("Court") convicted Norwegian shipping firm Wallenius Wilhelmsen Ocean AS ("WWO") of criminal cartel conduct, and imposed a fine of AUD $24 million. This is only the third sentence for criminal cartel conduct handed down in Australia since criminal sanctions were introduced in 2009.
What you need to know – key takeaways
The seriousness of criminal cartel conduct will not be measured solely by revenue or profit, but by the capacity to limit or distort competition in the relevant market.
The pecuniary penalty or criminal fine imposed by a court for cartel conduct will typically be one that deters the accused from considering anti-competitive conduct as an "acceptable cost of doing business".
An early guilty plea, limited financial gain and efforts to enhance corporate compliance culture, may not weigh as heavily in the court's consideration as cooperation with the regulator.
Background
WWO's conviction for criminal cartel conduct follows its guilty plea, on 18 June 2020, to a single charge of giving effect to cartel provisions. That charge relates to conduct engaged in between about 1 June 2011 and 31 July 2012, in Japan and elsewhere, giving effect to a cartel arrangement between WWO and its competitors, in relation to the supply of roll-on roll-off ocean shipping services.
"Roll-on roll-off" (or "Ro-Ro") refers to the way that cargo is loaded and discharged from a shipping vessel. In this case, cars were rolled on and off WWO's vessels on their own wheels (as opposed to being lifted onboard).
WWO's conduct involved a "rule of respect" or "guiding principle" among certain shipping firms, that they would seek to allocate certain customers between themselves on certain international shipping routes, including to Australia. This involved the sharing of competitively sensitive information regarding freight rates, entering into anti-competitive agreements and the submission (or non-submission) of bids or quotes to customers in what should have been competitive tender processes.
The determination of this proceeding concludes the Australian Competition and Consumer Commission's ("ACCC") long-running investigation and prosecution of an international shipping cartel involving several major shipping firms. In Australia's first and second criminal cartel cases, respectively, the Federal Court fined Japanese shipping firms Nippon Yusen Kabushiki Kaisha ("NYK") AUD $25 million in 2017, and Kawasaki Kisen Kaisha ("K-Line") AUD $34.5 million in 2019, in circumstances where the maximum applicable penalty to each firm was AUD $100 million.
Calculation of the penalty
Having pleaded guilty, the key issue for the Court to determine was the extent of the financial penalty to be imposed on WWO. Under Australian competition law, the maximum financial penalty applicable is whichever is greater of $10 million, three times the gain from the conduct, or (where the gain cannot be ascertained) 10% of the firm's annual turnover connected with Australia. The extent of the penalty imposed also depends on a range of mitigating and aggravating factors which the Court must take into account in exercising its discretion to impose the appropriate penalty in all the circumstances.
In WWO's case, the factors considered by the Court as weighing in favour of a substantial fine included the extreme seriousness of the offence, the deliberate and systematic nature of the conduct, the involvement of senior managers at WWO and the clear benefit that WWO received as a result of the cartel conduct.
On the other hand, factors that weighed in favour of a lesser penalty included WWO's early guilty plea, the steps taken by WWO to rehabilitate itself by changing its corporate culture of compliance, the lack of a prior record of corporate criminal conduct in Australia, and the fact that WWO had already been punished overseas for participation in the cartel which gave rise to the Australian offence.
Having regard to all relevant circumstances, the Court determined the appropriate sentence was a fine of AUD $24 million, incorporating a discount of 20% for the early plea of guilty (in the absence of which, the fine imposed would have been AUD $30 million). The maximum fine that could have been imposed was approximately AUD $48 million (10% of WWO's annual turnover in the 12 month period after the end of the conduct).
The Court also applied the 'parity principle' – that persons involved in the same contravention should receive the same punishment, all other things being equal. The Court observed that WWO's offence was objectively less serious than the offences of the other two shipping firms, NYK and K-Line, prosecuted in Australia, and most likely garnered less financial gain.
The above notwithstanding, WWO received a significantly lower discount on its penalty than had previously been received by NYK and K-Line. The key differentiating factor appears to be that WWO did not cooperate by providing assistance to the ACCC; it pleaded guilty much later in the prosecution process than NYK and K-Line.
Justice Wigney also noted that cartel conduct is an economic crime that is notoriously difficult to detect, investigate and prosecute. Accordingly, any sentence imposed by a court must be sufficiently high so that, after conducting a balancing exercise of weighing the financial benefit against the risk of prosecution, a penalty could not possibly be regarded as an "acceptable cost of doing business".
For further information, please contact:
Ross Zaurrini, Partner, Ashurst
ross.zaurrini@ashurst.com
