Yesterday, the Federal Court convicted giant Japanese shipping company, Nippon Yusen Kabushiki Kaisha (NYK), for criminal behaviour described as “deliberate” and “systematic”. The landmark decision resulted in a massive $25 million fine, which is the second-highest imposed in ACCC history. In fact, this is the first time the ACCC used its criminal cartel powers that were granted to it in 2009.
Background
After investigations into the criminal cartel by the competition watchdog, it was discovered the world’s oldest and largest shipping company struck a “covert” and “deliberate” deal with other carriers.
Between 2009 and 2012, NYK colluded with other shipping lines for contracts to import 10 major vehicle manufactuers’ cars into Australia, such as Nissan, Suzuki, Honda, Toyota and Mazda. It was alleged NYK employees communicated with four carriers, Mitsui OSK Lines Ltd, Toyofuji Shipping Co, Nissan Motor Car Carrier Co and Wallenius Wilhelmsen Logistics AS, via phone or face-to-face in hallways, lift lobbies or in a small glass room called the “phone booth”.
According to Justice Michael Wigney, the conversations were “rarely documented”. However, there were instances where NYK employees “did make notes of their discussions…but did so in a way that concealed or disguised the true nature of their discussions.” Apparently, the global shipping line entered a deal with four carriers that prohibited them from altering its market shares or attempting to win existing business from each other. Basically, the cartel provisions related to the:
- Fixing of freight rates in respect of shipping routes to Australia;
- Rigging of bids in response to requests for bids by motor vehicle manufacturers; and
- The allocation of the customers between the five members of the cartel.
It is estimated NYK shipped nearly 70,000 vehicles to Australia on contracts with cartel provisions in 2010, 2011 and 2012. ACCC Chairman Rod Sims said the competition watchdog is concerned about the transportation of those vehicles. Mr Sims said the sentence imposed onto NYK should send a “strong warning to the industry” and business community lawbreakers can face criminal prosecution for cartel conduct. A similar instance occurred back in 2016 with fellow Japanese carrier Kawasaki Kisen Kaisha (“K” Line) who was also charged with cartel behaviour by the ACCC. Further, the competition watchdog expressed it will continue to probe other alleged cartel participants.
Outcome
In a media release, the ACCC incorporated parts of Justice Wigney’s judgment about how NYK’s fine was calculated. Since NYK entered an early plea of guilty to a single charge under the Competition and Consumer Act 2010 (Cth). Because the company pleaded guilty, and assisted and cooperated in the past, a global discount of 50% was applied. If there was no discount, NYK would be forced to pay a penalty of $50 million. But in actual fact $50 million should have not been the final amount. NYK’s conduct should have attracted a maximum penalty of $100 million. The maximum penalty was calculated on the basis of 10 per cent of NYK’s turnover in Australia.
Criticisms
ACCC Chairman Rod Sims
Mr Sims said the sentence imposed onto NYK by the Federal Court sends a strong warning to the industry and the business community at large. He reminds the Commonwealth Director of Public Prosecutions and ACCC can and will criminally prosecute cartel conduct. But if parties engage early and cooperate with the authorities, they may be shown leniency.
Justice Michael Wigney
The Federal Court found NYK’s conduct was “detrimental to Australian businesses and consumers.” In His Honour’s judgment, Justice Wigney said “cartel conduct of the sort engaged in by NYK warrants denunciation and condign punishment” because “it is ultimately detrimental to, or at least likely to be detrimental to, Australian businesses and consumers.” The penalty imposed on NYK is a powerful message to multinational corporations that conduct business in Australia that “anti-competitive conduct will not be tolerated and will be dealt with harshly.”
Final Thoughts
The judgment is the first successful prosecution under the criminal cartel provisions of the Competition and Consumer Act 2010 (Cth). NYK Australia’s general manager Jason Glynn said the penalty decision is currently being reviewed by management at the company’s Tokyo headquarters.
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