'Huge step': Australian companies on notice after massive fine

Australian companies are on notice that penalties for cartel breaches will be significantly higher than in the past, the competition watchdog has warned, in the wake of a landmark $46 million fine against a Japanese car parts giant.

The Full Federal Court on Wednesday dramatically upgraded the fine for Japanese company Yazaki Corporation from $9.5 million to a record $46 million following an appeal from the Australian Competition and Consumer Commission against the initial penalty.

The penalty is the biggest ever under Australian competition and consumer law and came after it was found the company had struck illegal arrangements with a competitor, Sumitomo Electric Industries, to co-ordinate quotes to Toyota for the supply of wire harnesses used in Toyota Camrys.

The illegal conduct affected the price of the wire harnesses in Toyota Camry 2006-11 models.
Photo: Supplied

The ACCC argued Yazaki should have to pay between $42 million and $55 million "to reflect both the size of Yazaki's operations and the very seriousness nature of its collusive conduct".

"We appealed the penalties imposed by the trial judge because we considered that the original penalties of $9.5 million were insufficient to adequately deter Yazaki or other businesses from engaging in cartel conduct in the future," ACCC chairman Rod Sims said.

Mr Sims told Fairfax Media that the judgment was a "game changer" because it held that a company's entire turnover for Australia should be considered when assessing a penalty, not just the revenue of the offending product division.

"It is a huge step towards getting our penalties up," he said. "This, I think, goes a long way to moving our penalties towards those of overseas. When you apply it to the turnover of Australian companies these are very big numbers."

Rod Sims, chairman of the ACCC, said the penalty was the highest ever handed down under Australian competition and consumer law.
Photo: Alex Ellinghausen

The first company to feel the heat of the new approach to penalties could be Ramsay Healthcare, which is the subject of an ACCC case over its conduct in Coffs Harbour.

Yazaki is the world's biggest manufacturer of wire harnesses, the electrical systems that send power and signals to various parts of a vehicle. The company's illegal conduct, outlined in the case, affected the price of the wire harnesses used in the 2006-11 models of Toyota Camrys.

"The conduct was deliberate, sophisticated and devious," Justice Anthony Besanko said in his ruling last year.

While most of the collusive conduct took place in Japan, the ACCC argued that Yazaki was subject to local laws because it was conducting business in Australia. It followed similar enforcement action against Yazaki and other cartel participants by competition regulators in the US, Canada, and Japan.

"This is the most significant fine in Australian trade practices history," said Melbourne University competition law expert Caron Beaton-Wells

"Our previous maximum fine against Visy for its price-fixing with Amcor, for $36 million, in 2011, has been eclipsed by some margin."

Professor Beaton-Wells said Wednesday's fine, although a record, was "still just 50 per cent of what the maximum could have been". She said Australia's corporate fines for anti-competitive conduct have been found to be woefully below international benchmarks, and Australia remained an "outlier".

Patrick Gay, a partner with Herbert Smith Freehills, said the ACCC's appeal action demonstrated that it would be seeking heavier penalties for cartel and anti-competitive conduct in the future.

"It's clearly designed to signal the fact that the ACCC will be seeking larger penalties ... and if they think a penalty is too small they will look to appeal," he said.

"There has been constant refrain around the need to have penalties in Australia closer the statutory maximums, and the ACCC will view this as a success in that longer-term goal."

Authorities in jurisdictions such as the European Union and the United States set a "base rate" - a percentage of the company's offending sales - as the starting point in calculating a penalty, she said. They then multiply that figure by the length of the cartel and take into account aggravating factors, such as the seniority of the management involved.

"As of today, our highest penalty is $46 million, while the highest in the US is $165 million and the EU is $1.5 billion," Professor Beaton-Wells said.

"Australia still needs to look at the way in which we calculate these fines, because if we don't we are still going to stay well below the rest of the world and well below where we have to be to deter these multinationals from anti-competitive conduct here."