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October 20, 2017

Nippon Yusen Kabushiki Kaisha case

FEDERAL COURT OF AUSTRALIA

 

       Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876

 

SUMMARY

 

Reasons or remarks on sentence in criminal matters are traditionally delivered orally.  Given the length of the reasons in this matter, that course is not desirable.  Nor is it strictly necessary given that the offender is a corporation.  In those circumstances, the appropriate course is to provide and deliver a summary of the reasons for imposing the sentence that is to be imposed on the offender today.  The summary is intended to assist in understanding the reasons for imposing the sentence.  It is not a complete statement of the findings and conclusions reached by the Court.  The only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment which will be available on the internet at the Court’s website.  This summary is also available there.

This is the first criminal prosecution for a cartel related offence since cartel conduct was criminalised by amendment to the then Trade Practices Act 1974 (Cth) in July 2009.  It arises out of a longstanding global cartel in a market of considerable importance to Australia: the market for the supply of ocean shipping services for “roll-on, roll-off” cargo, mainly cars and trucks.  The particular cartel conduct the subject of the prosecution involved giving effect to certain provisions of the cartel arrangements insofar as they applied or related to shipping routes to Australia.

The offender, Nippon Yusen Kabushiki Kaisha (who, for the sake of brevity, will be referred to as NYK) is a large Japanese company which has for many years shipped motor vehicles to Australia from various countries where the vehicles were manufactured.  A number of other large foreign corporations also supplied ocean shipping services in respect of motor vehicles on routes to Australia.  Those companies ostensibly competed with each other in relation to the supply of those services.  From as early as February 1997, however, NYK and a number of the other shipping companies had arrangements or understandings which had the effect of limiting or distorting that competition.

NYK pleaded guilty to a single charge of giving effect to a cartel provision, contrary to s 44ZZRG(1) of theCompetition and Consumer Act 2010 (Cth).  The charge was that between about 24 July 2009 and 6 September 2012, in Japan and elsewhere, NYK intentionally gave effect to cartel provisions in an arrangement or understanding with others in relation to the supply of ocean shipping services.

The agreed or uncontested facts were that there were five other parties to the cartel provisions the subject of the indictment, each of them major shipping lines that also shipped motor vehicles to Australia.  Those other shipping companies were Mitsui OSK Lines Ltd, Kawasaki Kisen Kaisha Ltd, Toyofuji Shipping Co, Nissan Motor Car Carrier Co and Wallenius Wilhelmsen Logistics AS.  It should be emphasised that these other shipping companies are not parties to this proceeding.  The Court is obliged in this proceeding to act on the facts as agreed between the prosecutor and NYK.  It may be that some of the other shipping companies may dispute their involvement in the cartel.

The cartel provisions to which NYK was a party related to the supply of shipping services supplied to ten major vehicle manufacturers: Maruti Suzuki India Limited, Asian Honda Motor Co Ltd, Nissan Motor Co Ltd, Suzuki Motor Corporation, Mazda Motor Corporation, Hino Motors, Toyota Motor Corporation, UD Trucks, Isuzu Linex Co Limited and Fiat Chrysler.  Six shipping routes for vehicles to Australia were covered by the cartel provisions, being routes from India, Thailand, Japan, Indonesia, North America and Europe.  The cartel provisions covered the contract years 2010, 2011 and 2012.

In broad terms, the cartel provisions related to the fixing of freight rates in respect of the shipping routes to Australia, the rigging of bids in response to requests for bids by the motor vehicle manufacturers, and the allocation of the customers, the motor vehicle manufacturers, between the members of the cartel.

The shipping contracts that were affected by NYK’s offending conduct over the three yearsfrom 2010 to 2012 involved the shipping of 69,348 new vehicles to Australia.  While it is not possible to determine the total value of the benefits obtained that are reasonably attributable to the offending conduct, NYK derived revenue of AU$54.9 million and profit of AU$15.4 million from the commerce affected by the conduct.  Perhaps more significantly, it is likely that the anti-competitive effect of the offending conduct resulted in higher freight rates on the subject shipping routes to Australia.  One way or another, those higher freight rates were most likely passed through to Australian consumers in the form of higher prices for the imported cars and trucks.

On just about any view, this was an extremely serious offence against Australia’s laws prohibiting cartel conduct.

The task for the Court is to impose a sentence that is of a severity appropriate in all the circumstances of the offence.  Since the offender is a corporation, not a natural person, that sentence must comprise a fine.  In NYK’s case, given the terms of the relevant legislation, the fine must not exceed $100 million.

In considering the appropriate sentence in any criminal case, the Court is required to assess and have regard to a broad range of relevant factors and considerations.  The Court is required to give appropriate weight to and balance many different and sometimes conflicting features and arrive at a value judgment as to what is the appropriate sentence.  For a federal offence, like this offence, the offender is to be sentenced in accordance with Part IB of the Crimes Act 1914 (Cth).  The overarching principle is that any sentence imposed by the Court must be of a “severity appropriate in all the circumstances of the offence”: s 16A(1) of the Crimes Act.  Section 16A(2) provides a “checklist” of matters that must be taken into account so far as they are relevant and known to the Court.

In this matter, the factors or matters that tend to weigh in favour of a significant or substantial penalty include the following.

First, the maximum penalty for an offence against s 44ZZRG(1) is the greater of $10 million, three times the benefits attributable to the commission of the offence or, if the benefits cannot be determined, 10% of the corporation’s annual turnover in respect of supplies connected with Australia in the 12 months preceding the offence.  In NYK’s case, the benefits cannot be determined and it was agreed that its annual turnover from supplies connected with Australia in the relevant 12 month period was $1 billion. The maximum penalty for NYK was accordingly $100 million.

The maximum penalty for an offence generally provides a “guidepost” or “yardstick” that bears on the ultimate discretionary determination of the sentence for the offence.  That is because it represents the legislature’s assessment of the seriousness of the offence.

Second, as has already been indicated, the offence committed by NYK was a very serious offence in all the circumstances.  As the then Minister for Competition Policy and Consumer Affairs explained when the legislation that criminalised cartel behaviour was introduced, cartels are widely condemned as the most egregious forms of anticompetitive behaviour.  At its heart, a cartel is an agreement between competitors not to compete.  Cartel conduct harms consumers, businesses and the economy and is likely to increase prices, reduce choice and distort innovation processes.

NYK’s cartel conduct was no exception.  It took place over a very lengthy period of time – more than three years.  The scope of the conduct was substantial and extensive.  It occurred in a market for services that were and are of considerable economic importance to Australia: the supply of ocean transport services for “roll-on, roll-off” cargo, mainly motor vehicles and trucks, on international routes including to and from Australia.  The cartel conduct involved many of the major global suppliers of those services. There could be little doubt that the anti-competitive conduct the subject of the charge had the capacity to substantially limit or distort the competitive setting of freight rates on the relevant routes to Australia, the likely result being that the rates were higher than they would have been in a competitive market.  NYK alone shipped almost 70,000 vehicles to Australia pursuant to contracts affected by the conduct the subject of the charge.

Third, as is often the case with cartel conduct, NYK’s conduct was covert, deliberate, systematic and involved planning and deliberation.  It involved an anti-competitive course of conduct that spanned a three year period.

Fourth, the offending conduct was engaged in by senior managers and sanctioned by some senior executives at NYK.  Those senior officers knew that the conduct was anti-competitive and breached anti-trust or competition laws.  If they did not specifically know that it breached Australia’s competition laws, they should have.  In any event, they must have known that there was a real risk that it did.

Fifth, while it is not possible to determine the benefits derived by NYK, or other persons, from the offending conduct, there could be little doubt that NYK did profit and obtain other benefits from its cartel conduct.  That is no doubt why it engaged in the conduct for such a lengthy period of time.

Sixth, cartel conduct is notoriously difficult to detect, investigate and prosecute.  It often involves large and sophisticated corporate offenders who can deploy their considerable resources and position to minimise the risk of detection.  General deterrence is a weighty consideration in sentencing for offences which are difficult to detect and investigate.  Cartel conduct is also an essentially economic or commercial crime that generally involves an offender weighing up whether the benefit or profit from the conduct is likely to outweigh the risks of detection and penalisation.  Sentences imposed for such offences should be set so that others who may engage in such a balancing exercise will come to appreciate that the risks are likely to outweigh the benefits.  The likely penalty must be sufficiently high such that it could not be regarded as an acceptable cost of doing business.

The factors that mitigate or otherwise tend to suggest that a lesser penalty should be imposed include the following.

First, and perhaps most importantly, NYK pleaded guilty to this offence at a very early stage.  It also provided timely, full, frank and, in most instances, expeditious cooperation throughout the investigation by the Australian Competition and Consumer Commission.  That cooperation concerned both its own offending and the offending of others in respect of offences that are notoriously difficult to detect and investigate.  It included an undertaking to provide cooperation in future proceedings against others.  There could be no doubt that NYK is contrite and remorseful.

Second, NYK has demonstrated that it has rehabilitated itself, or has at the very least demonstrated excellent prospects of rehabilitation.  In the five years since its offending behaviour was detected, NYK has demonstrated a change in its corporate culture of compliance, renounced its wrongdoing and established structures, systems and programs to prevent any reoffending.  It has remodelled its corporate thinking and behaviour so that it may re-establish itself as a good corporate citizen.

Third, NYK does not have a prior record of corporate criminal conduct in Australia or elsewhere.

Fourth, competition regulators, and in some instances courts, in some foreign jurisdictions have already imposed administrative or other penalties on NYK in respect of its cartel conduct.  It should be emphasised, however, that the penalties that have been imposed by most of the foreign regulators or courtsgenerally related to NYK’s conduct insofar as it impacted on those foreign jurisdictions, not Australia.

Having regard to all of the relevant features and factors, and giving them appropriate weight, the appropriate sentence to impose on NYK in all the circumstances is a fine of $25 million.  That fine incorporates a global discount of 50% for NYK’s early plea of guilty and past and future assistance and cooperation, together with the contrition inherent in or demonstrated by NYK’s early plea and cooperation. That means that, but for NYK’s early plea and past and future cooperation, the fine would have been $50 million.  Of that 50% discount, 10% relates specifically to future cooperation.  For the purposes of s 16AC of the Crimes Act, it is stated that the severity of the sentence imposed on NYK has been reduced because NYK has undertaken to cooperate with law enforcement agencies in proceedings relating to alleged offences committed by others, and that the sentence that would have been imposed but for that reduction was $30 million.

Cartel conduct of the sort engaged in by NYK warrants denunciation and condign punishment.  It is inimical to and destructive of the competition that underpins Australia’s free market economy.  It is ultimately detrimental to, or at least likely to be detrimental to, Australian businesses and consumers.  The penalty imposed on NYK should send 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 when it comes before this Court.  That is so even where, as here, the decisions and conduct are engaged in overseas and as part of a global cartel.  As has already been explained, but for NYK’s cooperation and willingness to facilitate the administration of justice, the fine that would have been imposed on NYK would have been substantially higher: as high as $50 million.  That should serve as a clear and present warning to others who may have engaged in, or who may be planning to engage in, similar conduct in the future.

JUSTICE M A WIGNEY

3 August 2017

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