$1 million penalty for cartel conduct

As the guardian of fair business practice, the Austrailan Competition and Consumer Commission (ACCC) has the role of advocating for the paying customer, but all its duties it must build, maintain, and police a liquid marketplace for competitive participants by applying the Competition and Consumer Act 2010 (Cth).

In this case the ACCC were in the mode of observing and applying Competition Enforcement. In August 2016, NQCranes entered into a written distributorship agreement with a competitor operating in the same industry. NQCranes Pty Ltd operates in the installation, maintenance and servicing of overhead crane systems.

The agreement contained a clause under which each party agreed not to pursue or service the other’s customers within specified territories, including Brisbane and Newcastle.

The effect of the clause was to prevent competition between the parties in markets where they supplied materially substitutable services.

Background

In August 2016, The Australian Competition and Consumer Commission commenced an investigation after receiving information about the existence of the agreement and, following compulsory information gathering, formed the view that the clause constituted a cartel provision.

Proceedings were commenced by the ACCC in 2020 seeking declarations, pecuniary penalties and ancillary orders.

legal considerations

The central issues before the Court were:

1. Whether the clause in the distributorship agreement constituted a “cartel provision” under the Competition and Consumer Act 2010 (Cth).

2. Whether the conduct, having been admitted, warranted the pecuniary penalty jointly submitted by the parties.

3. Whether additional orders, including a court-ordered compliance program, were required to ensure future adherence to competition law obligations.

   
   

The Court was not required to determine questions of liability, as the contravention was admitted.

The task before the Court was to assess the nature, duration and seriousness of the conduct and evaluate the appropriateness of the proposed penalty under established principles governing joint submissions in civil penalty proceedings.

Procedural History

The proceeding was filed in the Federal Court in 2020. Following exchanges between the parties, NQCranes admitted the contravention. The matter then proceeded on the basis of an agreed statement of facts and a joint submission regarding penalty.

The Court was asked to determine whether the agreed penalty was appropriate and whether additional orders, including compliance program requirements, should be made. Justice Abraham presided over the matter and delivered judgment in November 2022.

what the court held

Justice Abraham held that the agreement contained an express customer-allocation restriction preventing each party from supplying customers of the other in designated territories. This restriction constituted a market-sharing provision within the meaning of the Act. As NQCranes admitted the contravention, the Court accepted the conduct fell within the cartel prohibitions.

Her Honour accepted the parties’ joint submission proposing a pecuniary penalty of $1 million. Orders were made accordingly, along with a requirement for NQCranes to implement a compliance and training program and pay a portion of the ACCC’s costs.

Key Findings

Cartel Provision

The Court identified that the clause in the distributorship agreement prohibited each business from targeting the other’s customers. The effect of the clause was to divide the market for the repair, maintenance and installation of overhead crane systems in the relevant territories.

Her Honour found the conduct squarely aligned with conduct targeted by the cartel provisions of the Act, as it removed competition between two firms that would otherwise be expected to compete for the same work.

Nature and Extent of the Conduct

While the conduct constituted a serious form of competition-law contravention, the Court noted several factors relevant to penalty assessment:

• The conduct was limited in both geographic scope and duration.

• There was no evidence of broader systemic cartel behaviour beyond the contractual provision.

• Senior management understood the practical commercial effect of the clause but did not appreciate its legal implications.

• NQCranes had no prior contraventions of the Act.

• The company cooperated with the ACCC’s investigation and the proceeding progressed efficiently as a result of the admissions made.

Penalty Assessment

Justice Abraham applied the principles applicable to joint penalty submissions, including that the Court will accept such submissions if the proposed penalty:

• Falls within a permissible range;

• Reflects the objective seriousness of the conduct;

• Meets the purposes of specific and general deterrence.

Her Honour determined that the agreed penalty met these requirements. The penalty was held to be substantial enough to emphasise the seriousness of cartel conduct while appropriately reflecting the scale and duration of the admitted behaviour.

NQCranes was ordered to:

• Pay a civil penalty of $1 million;

• Implement a competition-law compliance program for a specified period;

• Pay a contribution toward the ACCC’s costs.

The matter concluded with no further contested issues.

Compliance Program

The Court also ordered the establishment of a competition-law compliance program. The order required NQCranes to implement structured training for employees and management and to adopt measures ensuring future contracts do not contain provisions that risk breaching competition laws. The order was made to reduce the likelihood of future contraventions.

wider commentary

ACCC Commissioner Liza Carver said, “This explicit written agreement to share the market was clearly anti-competitive and had the potential to limit the service options available to the many businesses that use overhead cranes.”

“Businesses are reminded that the ACCC will investigate and take appropriate enforcement action not just against large corporates or multi-nationals. We will carefully examine any allegation of attempts to interfere with free competition by engaging in cartel conduct, and we encourage businesses which have concerns about activities in their markets to contact us confidentially.”

ACCC Chair Rod Sims said, “It is illegal for any corporation to make cartel agreements with its competitors, whether they are well known multinationals, or small businesses operating in regional areas. Enforcing cartel laws is an important enduring priority for the ACCC, no matter what type of business is involved."

Professional Significance

This decision demonstrates the Court’s approach to contractual provisions between competitors that divide customers or territories. It reinforces that even relatively contained conduct, limited to a single clause in a commercial agreement, may constitute market-sharing conduct under the Act.

The judgment underscores the need for organisations to review distributorship, supply and cooperation agreements for anti-competitive features.

The case also highlights the Court’s willingness to impose substantial penalties even where the conduct is isolated and admitted, and shows the role of compliance programs as an important remedial measure.

For businesses operating in technical or industrial markets, the decision illustrates that cartel laws apply irrespective of market size, industry profile or customer sophistication.