Commonwealth Director of Public Prosecutions v Kawasaki Kisen Kaisha Ltd
[2019] FCA 1170
JUDGMENT 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 second criminal prosecution for a cartel related offence arising out of a global cartel which was on-foot for some considerable time in a market which was 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, Kawasaki Kisen Kaisha Ltd (who, for the sake of brevity, will be referred to as K-Line) 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, K-Line and a number of the other shipping companies had arrangements or understandings which had the effect of limiting or distorting that competition.
K-Line pleaded guilty to a single charge of giving effect to a cartel provision, contrary to s 44ZZRG(1) of the Competition and Consumer Act 2010 (Cth). The charge was that between about 24 July 2009 and 6 September 2012, in Japan and elsewhere, K-Line 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 Nippon Yusen Kabushiki Kaisha (NYK), Mitsui OSK Lines Ltd, Toyofuji Shipping Co, Nissan Motor Car Carrier Co and Wallenius Wilhelmsen Logistics AS. The previous prosecution arising from this cartel was against NYK.
The cartel provisions to which K-Line was a party related to the supply of shipping services to eleven major vehicle manufacturers: Maruti Suzuki India Limited, Asian Honda Motor Co Ltd, Honda Motor Company Limited, Nissan Motor Co Ltd, Suzuki Motor Corporation, Mazda Motor Corporation, Hino Motors, Toyota Motor Corporation, UD Trucks, Isuzu Linex Co Limited and Fiat Chrysler. Five shipping routes for vehicles to Australia were covered by the cartel provisions, being routes from India, Thailand, Japan, Indonesia and South Korea. The cartel provisions covered the contract years 2010, 2011 and 2012.
In broad terms, the cartel provisions relevant to K-Line’s offending conduct related to the fixing of freight rates in respect of shipping routes to Australia. The shipping contracts that were affected by K-Line’s offending conduct over the three years from 2010 to 2012 involved the shipping of 106,247 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, K-Line derived revenue of AU$97.4 million from the supply of shipping services affected by the cartel conduct.
On just about any view, this was an extremely serious offence against Australia’s laws prohibiting cartel conduct. It is likely that the anti-competitive effect of the offending conduct would ultimately have had some impact on Australian consumers of imported vehicles.
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 K-Line’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) of the Crimes Act 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) of the Competition Act 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 K-Line’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 K-Line 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 K-Line was a very serious offence in all the circumstances. 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.
K-Line’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. K-Line alone shipped more than 100,000 vehicles to Australia pursuant to contracts affected by the conduct the subject of the charge.
Third, as is often the case with cartel conduct, K-Line’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 K-Line. 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 K-Line, or other persons, from the offending conduct, there could be little doubt that K-Line would have profited and obtained 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, while K-Line initially contested the charges that had been laid against it in committal proceedings in the Local Court, it ultimately pleaded guilty when indicted in this Court.
Second, K-Line cooperated to an extent with the Australian Competition and Consumer Commission during its investigation of K-Line’s actions.
Third, K-line demonstrated that it was contrite and remorseful. That was shown by its cooperation and plea of guilty. A senior officer of K-Line also gave evidence concerning K-Line’s contrition.
Fourth, K-Line has demonstrated that it has rehabilitated itself, or has at the very least demonstrated good prospects of rehabilitation. In the years since the detection of its offending behaviour, K-Line has taken steps to change 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.
Fifth, K-Line does not have a prior record of corporate criminal conduct in Australia.
Sixth, competition regulators, and in some instances courts, in some foreign jurisdictions have already imposed administrative or other penalties on K-Line 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 courts for the most part related to K-Line’s conduct insofar as it impacted on those foreign jurisdictions, not Australia.
In sentencing K-Line, consideration also has to be given to the principle of parity. That principle requires that like offenders should be treated in a like manner, though allows for different sentences to be imposed upon like offenders to reflect different degrees of culpability and different circumstances. As has already been noted, another member of the relevant cartel, NYK, has already been sentenced for giving effect to cartel provisions. The sentence imposed on NYK was a fine of $25 million. That fine incorporated 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 the early plea and cooperation. But for the early plea and past and future assistance and cooperation, the fine would have been $50 million. Of the 50% discount, 10% related to future cooperation. But for the discount for future assistance, NYK’s fine would have been $30 million.
There were some relatively minor differences between the conduct of K-Line and the conduct of NYK in giving effect to the relevant cartel provision. The objective seriousness of the offences committed by K-Line and NYK was, however, essentially the same. There was also a minor difference between the subjective circumstances of K-Line and NYK. That difference is that K-Line is now a smaller corporation than NYK. The size of the offending corporation is generally considered to be a relevant consideration in the fixing of penalties for cartel conduct.
The most significant difference in the subjective circumstances of K-Line and NYK, however, concerned the nature and extent of the respective cooperation and assistance they gave to the Australian Competition and Consumer Commission and the timing of their respective pleas of guilty. NYK pleaded guilty at the earliest possible opportunity, whereas K-Line pleaded guilty after a lengthy committal process in the Local Court. More significantly, the cooperation provided by K-Line was not as fulsome, timely or effective as that provided by NYK. K-Line also did not provide any undertaking in relation to future assistance.
Having regard to all of the relevant features and factors, and giving them appropriate weight, the appropriate sentence to impose on K-Line in all the circumstances is a fine of $34.5 million. That fine incorporates a global discount of just over 28% for K-Line’s early plea of guilty and assistance and cooperation, together with the contrition inherent in or demonstrated by K-Line’s early plea and cooperation. That means that, but for K-Line’s early plea and cooperation, the fine would have been $48 million. The slightly lower starting point, as compared to the starting point for the sentence imposed on NYK, primarily reflects the slightly different objective seriousness of the offending conduct and the slightly different subjective circumstances of K-Line, in particular the fact that it is now a smaller company than NYK was at the time it was sentenced.
Cartel conduct of the sort engaged in by K-Line 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 K-Line 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. The penalty imposed on K-Line should serve as a clear warning to others who may be engaging in or planning to engage in similar conduct. If they continue to do so, they will be harshly punished when they come before this Court.
JUSTICE MICHAEL WIGNEY
2 August 2019
