Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha
[2017] FCA 876
•3 August 2017
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 the Competition 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 years from 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 courts generally 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
FEDERAL COURT OF AUSTRALIA
Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876
File number: NSD 1143 of 2016 Judge: WIGNEY J Date of judgment: 3 August 2017 Catchwords: CRIMINAL LAW – sentencing – cartel conduct – giving effect to a cartel provision – where offender is a corporation – where offender pleaded guilty – rolled up offence – appropriate pecuniary penalty – where offender provided bulk shipping services of “roll on, roll off” cargo to Australia Legislation: Competition and Consumer Act 2010 (Cth) ss 4F, 5, 76, 44ZZRB, 44ZZRD, 44ZZRG, 44ZZRK, Part X (ss 10.17, 10.17A)
Crimes Act 1914 (Cth) ss 16A, 16AC
Criminal Code Act 1995 (Cth) s 5.6
Evidence Act 1995 (Cth) s 191
Federal Court of Australia Act 1976 (Cth) s 23AB(1)(b)
Cases cited: Application by the Attorney-General under s 37 of the Crimes (Sentencing Procedure) Act (2004) 61 NSWLR 305
Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169
Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2016] FCA 1516
Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5) [1998] FCA 310
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Australian Competition and Consumer Commission v Visa Inc (2015) 339 ALR 413
Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673
Barbaro v The Queen (2014) 253 CLR 58
Bui v Director of Public Prosecutions (Cth) (2012) 244 CLR 638
Cameron v The Queen (2002) 209 CLR 339
CMB v Attorney General for New South Wales (2015) 256 CLR 346
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476
Direction of Public Prosecutions (Cth) v El Karhani (1990) 21 NSWLR 370 a
Director of Public Prosecutions (Cth) v Thomas [2016] VSCA 237
Elias v The Queen (2013) 248 CLR 483
Environment Protection Authority v Truegrain Pty Ltd (2013) 85 NSWLR 125
Hartman v R [2011] NSWCCA 261
Hili v The Queen (2010) 242 CLR 520
J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532
Lin v R; Ng v R [2016] NSWCCA 200
Ma v R [2010] NSWCCA 320
Markarian v The Queen (2005) 228 CLR 357
Matthews v The Queen (2014) 44 VR 280;
McMahon v The Queen [2011] NSWCCA 147
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
R v Adler [2005] NSWSC 274
R v Barrientos [1999] NSWCCA 1
R v Cartwright (1989) 17 NSWLR 243
R v Curtis (No 3) [2016] NSWSC 866
R v De Leeuw [2015] NSWCCA 183
R v Donald [2013] NSWCCA 238
R v El Hani [2004] NSWCCA 162
R v Ellis (1986) 6 NSWLR 603
R v Gallagher (1991) 23 NSWLR 220
R v Gay [2002] NSWCCA 6
R v Geddes (1936) 36 SR (NSW) 554
R v Glynatsis [2013] NSWCCA 131
R v Hannes [2000] NSWCCA 503
R v Hannigan [2009] QCA 40
R v Knight [2004] NSWCCA 145
R v M [2005] NSWCCA 224
R v Pang [1999] NSWCCA 4
R v Pham (2015) 256 CLR 550
R v Pogson (2012) 82 NSWLR 60
R v Richard [2011] NSWSC 866
R v Rivkin [2004] NSWCCA 7
R v Ronen [2006] NSWCCA 123
R v Stanbouli [2003] NSWCCA 355
R v Sukkar [2006] NSWCCA 92
R v Thomson (2000) 49 NSWLR 383
R v Whitnall (1993) 42 FCR 512
R v Williams [2005] NSWSC 315
R v Williscroft [1975] VR 292
Ryan v The Queen (2001) 206 CLR 267
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249
SZ v R [2007] NSWCCA 19
Trade Practices Commission v CSR Ltd [1990] FCA 521
Tyler v R [2007] NSWCCA 247
Wang v R [2010] NSWCCA 319
Wong v The Queen (2001) 207 CLR 584
Wong v The Queen (2001) 207 CLR 584
Zhang v R [2011] NSWCCA 233
Date of hearing: 11 April 2017 Registry: New South Wales Division: General Division National Practice Area: Federal Crime and Related Proceedings Category: Catchwords Number of paragraphs: 301 Counsel for the Prosecutor: Ms S McNaughton SC with Dr RCA Higgins and Mr T Anderson Solicitor for the Prosecutor: Commonwealth Director of Public Prosecutions Counsel for the Accused: Mr T Game SC with Mr J Lockhart SC and Mr S Buchen Solicitor for the Accused: HWL Ebsworth Lawyers ORDERS
NSD 1143 of 2016 BETWEEN: COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS
Prosecutor
AND: NIPPON YUSEN KABUSHIKI KAISHA
Accused
JUDGE:
WIGNEY J
DATE OF ORDER:
3 AUGUST 2017
THE COURT ORDERS THAT:
1.Nippon Yusen Kabushiki Kaisha is convicted of intentionally giving effect to cartel provisions between about 24 July 2009 and about 6 September 2012, in Japan and elsewhere, in connection with the transport of vehicles to Australia, in an arrangement or understanding with others in relation to the supply of ocean shipping services, knowing or believing that the arrangement or understanding contained cartel provisions contrary to s 44ZZRG(1) of the Competition and Consumer Act 2010 (Cth).
2.Nippon Yusen Kabushiki Kaisha is fined the sum of $25,000,000.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WIGNEY J:
In July 2009, the Trade Practices Act 1974 (Cth), now the Competition and Consumer Act 2010 (Cth) (C&C Act), was amended to provide criminal sanctions for cartel conduct. Jurisdiction was conferred on this Court in respect of prosecutions on indictment for cartel offences. Prior to that, unlike the position in Australia’s major trading partners and most other developed nations, cartel conduct in Australia could only attract pecuniary penalties and other civil relief. In his Second Reading Speech concerning the Bill that was to introduce these changes, the then Minister for Competition Policy and Consumer Affairs explained the rationale for criminalising cartel conduct:
Competition is the primary means of ensuring that consumers get the best product or service for the lowest price possible. Competition enhances Australia’s welfare generally, because the efficiencies it creates lead to improved productivity and ultimately increased standards of living.
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 by increasing prices, reducing choice and distorting innovation processes.
This is the first criminal prosecution for cartel conduct under this new regime. 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 the cartel arrangements in respect of shipping routes to Australia.
Nippon Yusen Kabushiki Kaisha (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 the C&C Act. The indictment, which was filed ex officio by the Commonwealth Director of Public Prosecutions pursuant to s 23AB(1)(b) of the Federal Court of Australia Act 1976 (Cth), was in the following terms:
Between about 24 July 2009 and about 6 September 2012, in Japan and elsewhere, in connection with the transport of vehicles to Australia, Nippon Yusen Kabushiki Kaisha intentionally gave effect to cartel provisions in an arrangement or understanding with others in relation to the supply of ocean shipping services, knowing or believing that the arrangement or understanding contained cartel provisions contrary to s 44ZZRG(1) Competition and Consumer Act 2010 (Cth).
In broad terms, 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: Mitsui OSK Lines Ltd, Kawasaki Kisen Kaisha Ltd (K-Line), Toyofuji Shipping Co, Nissan Motor Car Carrier Co (Nissan MCC) and Wallenius Wilhelmsen Logistics AS. The cartel provisions related to the fixing of freight rates, bid rigging and customer allocation in respect 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.
NYK’s offending conduct over the three year period covered by the charge 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 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 and that, one way or another, those higher freight rates were 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. The central question, then, is what size fine, up to that maximum, is the appropriate penalty for this serious offence.
SUMMARY OF THE FACTS RELEVANT TO THE OFFENCE
The facts upon which NYK is to be sentenced were not in dispute. The Director tendered a Statement of Agreed Facts which was made for the purposes of s 191 of the Evidence Act 1995 (Cth). The Statement of Agreed Facts is a lengthy, detailed and comprehensive document. It is unnecessary to rehearse the facts in their entirety in these reasons. Following is a relatively brief summary. Unless otherwise noted, the facts relate to the period covered by the indictment.
Needless to say, consideration has been given to all of the facts contained in the Statement of Agreed Facts. If a particular fact is not included in the following summary, it does not follow that it has been ignored. There were some relatively minor differences between the parties in relation to some inferences that might or might not be drawn from the facts in the Statement of Agreed Facts. Inferences drawn from the facts in the Statement of Agreed Facts will be noted where relevant.
The Services and the relevant market
The cartel provisions the subject of the charge concerned the provision of ocean transport services for “roll-on, roll-off” cargo, including motor vehicles, trucks, buses, commercial vehicles, agricultural equipment and construction equipment, on international routes including to and from Australia, using specialised vessels known as “Pure Car Carriers” (PCCs) and “Pure Car and Truck Carriers” (PCTCs). Those services will generally be referred to in these reasons as the Services.
At the relevant time, approximately 80% of new passenger vehicles, 50% of large trucks and 100% of medium and light trucks sold in Australia were manufactured overseas. Self-evidently, all of those vehicles had to be shipped to Australia.
NYK was one of eight carriers who supplied the Services on routes to and from Australia. The other carriers were: Mitsui, K-Line, Nissan MCC (which was majority owned by Mitsui and had Nissan as a minority shareholder), Wallenius Wilhelmsen, Eukor Car Carriers Inc (a subsidiary of Wallenius Wilhelmsen), Toyofuji (which was majority owned and controlled by Toyota) and Hoegh Autolines Holdings AS. These carriers will be collectively referred to as the Carriers. NYK, Mitsui and K-Line were commonly referred to in the industry as “the Three J’s”, no doubt a reference to the fact that they were the three largest Japanese carriers.
Each of the Carriers was a large global shipping company. That was perhaps to be expected given the nature of the market in which they operated. The business of operating PCCs and PCTCs was characterised by high capital costs and long investment lead times. Capacity could not generally be smoothly adjusted in response to demand. PCCs and PCTCs were generally not available for short term lease or charter, though space on PCCs and PCTCs was sometimes made available pursuant to space chartering arrangements.
During the relevant period NYK’s global share of capacity for the Services, based on the number of PCCs and PCTCs, was between 15.5% and 17.5%. Mitsui and K-Line had a share of capacity of between 11.2% and 14.1% and between 11.6% and 12.6% respectively. Together, the Three J’s therefore accounted for between 38.3% and 44.2% of the global capacity for the Services. By comparison, Willenius Wilhelmsen’s capacity was between 8.2% and 10.5%; Eukor’s capacity was between 10.9% and 13.8%; Hoegh’s capacity was between 6.3% and 8.8%; and Toyofuji’s capacity was between 0.9% and 1.3%.
The customers who entered into contracts with the carriers in relation to the Services were generally large motor vehicle manufacturers. Relevantly, they included Maruti, Asian Honda, Nissan, Suzuki, Mazda, Hino, Toyota, UD Trucks, Isuzu and Fiat. As large global companies themselves, each of the motor vehicle manufacturers was able to exercise a degree of bargaining power in relation to the terms of the contracts for the Services. In addition, as already noted, Toyota and Nissan each had shareholdings in carriers. The majority of the Carriers’ contracts with the Japanese vehicle manufacturers were renewed annually in March or April each year, in line with the Japanese financial year.
The vehicle manufacturers required reliable, high-frequency PCC and PCTC services. In selecting carriers, the manufacturers, particularly the Japanese manufacturers, focused on the quality of services and damage rate, the consistency and frequency of the sailing schedule and the space allocations, and the freight rates charged by the respective carriers.
The Japanese vehicle manufacturers traditionally built close and deeply integrated relationships with their carriers. NYK, for example, formed joint working committees with Japanese vehicle manufacturers and worked closely with them to develop systems and processes.
Services on routes to Australia
Each of the Three J’s supplied the Services on routes to Australia from Japan, Thailand, India Indonesia and Europe. Mitsui also supplied Services to Australia from North America. Wallenius Wilhelmsen and Hoegh both supplied Services to Australia from Europe. Wallenius Wilhelmsen also provided Services to Australia from North America. Toyofuji only supplied Services to Australia from Japan.
The Three J’s accounted for approximately 85% of PCC and PCTC capacity operating direct routes from Japan to Australia, and 100% of PCC and PCTC capacity on direct routes from Thailand to Australia. The dominance of the Three J’s in the Japanese market was in large part due to the traditionally close and integrated relationships forged between the Japanese car manufacturers and the Japanese carriers.
There was some degree of cooperation and coordination between the Three J’s in relation to scheduling and operational matters in respect of the various shipping routes to Australia. That cooperation and coordination was reflected in a number of agreements: the Japan-East Australia Agreement; the Japan-West Australia Agreement; and the Thailand-Australia Agreement.
Each of the Three J’s was a party to the Japan-East Australia Agreement. It related to the supply of the Services in respect of the Japan and south and east Australia route. Pursuant to that agreement, the Three J’s coordinated their sailing schedule, met to discuss operational issues, customer preferences and upcoming capacity requirements, and sold capacity to each other pursuant to space chartering arrangements. Four sailings were provided each fortnight. NYK contributed approximately one third of the operating capacity on this route; K-Line contributed slightly more than one third and Mitsui contributed slightly less than one third. Toyofuji had space charter arrangements with each of the Three J’s that allowed it to acquire capacity on the PCC and PCTCs operated by the Three J’s on this route.
The Three J’s were also parties to the Japan-West Australia Agreement, which related to the Japan and north and west Australian routes. Under that agreement, the Three J’s coordinated their sailings to offer a regular combined schedule and met to discuss operational issues and customer preferences and requirements. In each five month period, K-Line operated three services on this route and each of NYK and Mitsui operated one service.
NYK and K-Line also operated their services from Thailand to Australia pursuant to the Thailand-Australia Agreement. Under that agreement, NYK and K-Line coordinated their sailings to offer a weekly combined schedule to which they contributed equally, met to discuss operational issues, customer preferences and requirements and upcoming capacity requirements, and sold capacity to each other pursuant to space charter arrangements.
In addition to those three agreements, the Three J’s entered into space chartering agreements with each other and other Carriers in relation to the routes in question. NYK and K-Line both space chartered on Mitsui’s sailings between Thailand and Australia; Mitsui chartered with both NYK and K-Line on their sailings between Thailand and Australia; Toyofuji had space charter arrangements with each of the Three J’s that enabled it to acquire capacity on those carriers’ sailings from Japan and Thailand to Australia; and Nissan MCC had space charter arrangements with each of the Three J’s that enabled it to acquire capacity on those carriers’ services from Japan, Thailand or Indonesia to Australia.
These various agreements also affected Services on routes from Europe, India and Indonesia to Australia insofar as cargo on those routes was shipped to Australia via Japan or Thailand. That procedure, known as transhipping, involved transporting the cargo to one port, where it was then transferred to a second PCC or PCTC, sometimes operated by a different carrier, bound for Australia.
Approximately 20% to 30% of vehicles carried by the Three J’s on routes from Japan to south and east Australia, from Thailand to Australia and on routes from Europe, India and Indonesia that were relevantly transhipped, were effected pursuant to the Japan-East Australia Agreement, the Thailand-Australia Agreement, or the space charter arrangements with Mitsui on the Thailand Australia route.
It should be noted that, because these particular agreements only concerned scheduling and operational matters, it is not suggested that any of them were unlawful in any relevant sense.
The Three J’s were also parties to a “conference agreement” which was registered under Part X of the C&C Act. The operation of Part X of the C&C Act will be briefly addressed later in the context of the relevant statutory scheme. Suffice it to say at this stage that, when applicable, Part X provides certain exemptions from the cartel provisions in the C&C Act.
The conference agreement to which the Three J’s were party was called the Australian and New Zealand/Eastern Shipping Conference, or ANZESC. The other parties to ANZESC were ANL Shipping Line Pty Limited, ANL Singapore Pte Ltd and Orient Overseas Container Line, though those other companies did not provide the Services. Nissan MCC, Wallenius Wilhelmsen, Hoegh, Eukor and Toyofuji were not parties to ANZESC.
Relevantly, the parties to ANZESC were able to agree on freight rates, referred to as tariffs, for the supply of shipping services on routes from Japan, Korea, China, Taiwan, Hong Kong, Borneo and the Philippines to Australia. The parties were required to levy those tariffs and not offer any others unless the parties agreed.
The Three J’s calculated some of the freight rates that they charged for the Services on the routes from Japan to Australia by reference to the tariff under ANZESC.
Importantly, however, none of the instances of conduct that are detailed later, and are the subject of the charge against NYK, fell within the exemptions in Part X of the C&C Act.
NYK
At the relevant time, NYK was a Japanese company, headquartered in Tokyo, which provided global shipping services, including the Services. It had over 1500 employees. It had a controlling interest in a global group of companies, with offices throughout the world, which employed over 33,000 people. The NYK group had three distinct business divisions: global logistics, bulk shipping, and other businesses. NYK’s Car Carrier Group was part of its bulk shipping division. The Car Carrier Group was responsible for providing the Services.
The Car Carrier Group was organised into six sales teams; four geographic teams, plus a global marketing team and a team dedicated to high and heavy cargo such as construction equipment. Each team was also the ‘sales window’ for key customers, operating as the primary contact for requests for information and quotes, contract renewals and responses to global tenders. The sales window would forward each relevant request or communication to the relevant geographic sales team, which would calculate the freight on the routes for which they had responsibility. The sales window would collate the information and provide a response to the customer. The Asia-Oceania Team was the geographic team responsible for trade routes from Japan, Thailand, India and Indonesia to Australia.
In terms of reporting structure, the General Manager of the Car Carrier Group had overall responsibility for the group, and reported to NYK’s executive officers. Two Deputy General Managers each had responsibility for several sales teams and reported to the General Manager. Each sales team itself had a Manager, who was responsible for sales and contracts in relation to the sales team’s routes, as well as a small number of Deputy Managers who reported to the Manager.
NYK’s operations in relation to Australia
NYK was and is a foreign corporation which carried on business in Australia within the meaning of s 5 of the C&C Act.
As already indicated, NYK supplied Services on routes to and from Australia. It negotiated and entered into contracts in relation to those Services with the head offices of the motor vehicle manufacturers. Those negotiations invariably took place outside Australia. Likewise, the relevant contracts were invariably entered into overseas. Pursuant to those contracts, NYK charged the manufacturers a freight rate to ship their vehicles to Australia. With some small exceptions, the cost of freight was prepaid by the manufacturers. Costs and fees related to entry into a destination port, including in Australia, were factored into the freight rate that NYK charged its customers. Once the vehicles arrived in Australia, they were collected by the consignees, usually the Australian subsidiaries of the international manufacturers. The consignees then distributed the vehicles to dealerships and commercial buyers in Australia.
NYK had an Australian subsidiary, NYK (Australia) Pty Ltd (NYK Australia). NYK Australia acted as NYK’s local agent, arranging ancillary services such as berthing, stevedoring and other port and landside services for NYK vessels in Australia. NYK Australia also liaised with local consignees. NYK Australia carried out that work on instructions from NYK’s head office in Tokyo.
As has also already been noted, NYK operated direct routes to Australia from Japan and Thailand. It also operated indirect routes from India, Indonesia, Europe and North America to Australia by transhipping through major ports in Japan or Singapore. Its operations in relation to Australia were facilitated by the various agreements and space charter arrangements with the Three J’s referred to in detail earlier.
Throughout the relevant period, NYK was or was likely to be, or but for the impugned cartel conduct which is about to be described, was or was likely to be, in competition with some or all of Mitsui, K-Line, Nissan MCC, Wallenius Wilhelmson, Hoegh and Toyofuji in relation to the supply of the Services on some or all of the routes to Australia from Japan, Thailand, India, Indonesia, North America and Europe.
In 2009, NYK shipped 138,857 vehicles to Australia, representing 18.26% of the vehicles imported into Australia that year. It is estimated that it earned revenue of $124,618,025 in relation to those shipments.
In 2010, NYK shipped 180,416 vehicles to Australia, representing 17.75% of the vehicles imported into Australia that year. It is estimated that it earned revenue of $150,336,127 in relation to those shipments.
In 2011, NYK shipped 156,456 vehicles to Australia, representing 17.36% of the vehicles imported into Australia that year. It is estimated that it earned revenue of $128,775,743 in relation to those shipments.
In 2012, NYK shipped 218,697 vehicles to Australia, representing 20.26% of the vehicles imported into Australia that year. It is estimated that it earned revenue of $183,116,521 in relation to those shipments.
The “Respect Agreement”
From at least February 1997, NYK and a number of other shipping companies, including the Carriers, had arrived at an arrangement or reached an understanding to the effect that, as a general proposition, they would not seek to alter their existing market shares or otherwise win existing business from each other. That overarching arrangement or understanding was generally referred to as “maintaining the status quo” or giving and receiving “respect”. It may conveniently be called the “Respect Agreement”.
The Respect Agreement relevantly applied to the Carriers’ supply of the Services on various international shipping routes, including to and from Australia. There could be no doubt that the parties to the Respect Agreement, including NYK, competed with each other in respect of the supply of the Services, or at the very least would have competed with each other but for the operation of the Respect Agreement.
The Respect Agreement relevantly contained three provisions: the “Freight Rate Provision”, the “Bid Rigging Provision” and the “Customer Allocation Provision”.
The Freight Rate Provision
The Freight Rate Provision was to the effect that, from time to time, some or all of the Carriers would agree to do some or all of the following four things: first, share information with one another about freight rates or proposed changes to freight rates charged or proposed to be charged to customers or potential customers for the supply of Services on the routes; second, reach agreement about the freight rates, approximate rates, proposed changes or approximate changes to freight rates to be bid or otherwise communicated to customers and potential customers for the supply of Services on the routes; third, submit bids, or decline to submit bids, on the basis of the agreement reached; and fourth, enter into contracts with customers for the supply of Services on the routes reflecting the bids submitted to those customers in accordance with the agreement.
In the particular circumstances elaborated on later, the purpose, effect or likely effect of the Freight Rate Provision was to directly or indirectly fix, control or maintain the price for Services supplied by the parties to the Respect Agreement.
The Bid Rigging Provision
The Bid Rigging Provision was to the effect that, from time to time, in the event of requests for bids being made by customers or potential customers for the supply of Services, some or all of the Carriers would do one or more of the following four things: first share information with one another about the requests for bids and freight rates or proposed changes to freight rates; second, reach agreement about how they would respond to requests for bids (which sometimes included an agreement not to bid); third, submit bids, or decline to submit bids, on the basis of the agreement reached; and fourth, enter into contracts with customers for the supply of Services on the routes reflecting the bids submitted to those customers.
In the particular circumstances referred to later, a purpose of the Bid Rigging Provision was to ensure that, in the event of a request for bids in relation to the supply of Services in respect of which two or more of the parties were or were likely to be in competition with each other, one of three things would occur: one or more of the Carriers would bid but one or more of the other Carriers would not; or two or more of the Carriers would bid but at least two of them would do so on the basis that one of those bids was more likely to be successful than the others; or two or more of the Carriers would bid, but a material component of at least one of those bids would be worked out in accordance with the Respect Agreement.
The Customer Allocation Provision
The Customer Allocation Provision was to the effect that, from time to time, some or all of the Carriers would agree to allocate customers or potential customers who acquired, or were likely to acquire, Services from any or all of the Carriers on a particular route or routes. In the particular circumstances considered later, a purpose of the Customer Allocation Provision was to directly or indirectly allocate between the Carriers the customers who would acquire, or were likely to acquire, Services from those Carriers on a particular route or routes. But for this provision of the Respect Agreement, the parties would have competed for the allocation of the customers.
Giving effect to the provisions of the Respect Agreement
In order to give effect to the provisions of the Respect Agreement, NYK from time-to-time did the following things.
First, it made arrangements or arrived at understandings with other Carriers in relation to some or all of the following things: first, the freight rates to be bid or otherwise communicated to customers or potential customers for the supply of Services; second, the responses to requests for bids from customers or potential customers for the supply of Services; and third, the allocation of customers or potential customers who had acquired, or were likely to acquire, Services from the Carriers.
Second, it submitted bids, or declined to submit bids, to customers or potential customers on the basis of the arrangements made or understandings arrived at.
Third, it entered into contracts with customers for the supply of Services on the Routes reflecting the bids submitted to those customers.
Senior executives or senior employees of NYK engaged in discussions, either at meetings or over the telephone, with their counterparts at the other Carriers concerning the matters the subject of the Freight Rate Provision, the Bid Rigging Provision and the Customer Allocation Provision. That was a longstanding practice within NYK’s Car Carrier Group.
Customer sales and contracts were the responsibility of managers in the Car Carrier Group, though some of that responsibility could also be delegated to the deputy managers. It was a common practice for employees in the Car Carrier Group to have discussions with employees of other Carriers about freight rates and responses to requests for tender.
Employees in NYK’s Car Carrier Group also came to learn or understand, from their observations of the conduct of their colleagues, that communications with their counterparts at other Carriers were a common practice within the group. Some of those employees were directly instructed to have those discussions by senior management (including at times at the executive officer level) of NYK’s Car Carrier Group. Employees in NYK’s Car Carrier Group were also expected to, and routinely did, report those discussions up to senior management. Some, but not all, of the NYK employees who engaged in communications with their counterparts at other Carriers were aware that such communications breached, or were likely to breach, anti-trust laws.
Where NYK did not carry a customer’s cargo on a particular route, but NYK had received a request for a bid from that customer, NYK employees would, from time to time, discuss that request with their counterparts from the other Carriers who carried the customer’s cargo on that route. Those discussions on occasion included a discussion about how NYK intended to respond. In some cases, the NYK employee would agree with their counterpart that NYK would not offer a freight rate. In other cases, at the request of NYK’s competitor, the NYK employee would reach an agreement with their counterpart about the approximate or minimum freight rate that NYK would offer, which was higher than the freight rate the other Carrier intended to offer, with the intention that NYK would not win the business.
Similar discussions would often occur in circumstances where NYK did carry cargo for a particular customer on a particular route, and considered it likely that another Carrier which did not carry such cargo had also received a request for tender from the customer. In those cases, the NYK employees would endeavour to extract from their counterpart an agreement that the other Carrier would offer a rate higher than the rate that NYK intended to offer so NYK would retain or win the business.
Employees in NYK’s Car Carrier Group would also sometimes have conversations with their counterparts in circumstances where NYK and other Carriers each carried a share of cargo for a particular customer on a particular route. In such a case, the freight rates or approximate freight rates that each Carrier would offer would be agreed, or it would be agreed to leave freight rates for particular routes, or for particular customers, generally unchanged, or to increase or decrease the freight rate by an amount or an approximate amount.
Specific instances where NYK gave effect to the Respect Agreement
Following is a summary of some specific instances of executives and employees of NYK giving effect to the provisions of the Respect Agreement in respect of the supply of the Services to NYK’s major customers on routes to Australia in the contract years 2010, 2011 and 2012.
The employees or executives who occupied the positions of Manager or Deputy Manager of the Asia-Oceania Team within the Car Carrier Group of NYK were the persons who were primarily involved in the conduct that involved giving effect to the Respect Agreement. On some occasions, more senior executives in the Car Carrier Group were involved. The Agreed Statement of Facts does not name any of the relevant employees or executives. For the sake of brevity and simplicity, the relevant officer who occupied one of those managerial or executive positions will simply be referred to as the relevant NYK Manager. The relevant NYK Manager’s counterpart at one of the other Carriers will likewise simply be referred to as the Manager, for example, the Mitsui Manager or the K-Line Manager.
Maruti Suzuki – India to Australia 2010, 2011 and 2012
Maruti Suzuki was a company based in India. It relevantly began exporting Suzuki vehicles to Australia in 2009. The Three J’s provided Services to Maruti Suzuki on the route from India to Australia.
In late 2008, Maruti Suzuki requested bids for the provision of Services for its cargo on the route from India to Australia commencing on 1 April 2009 and expiring on 30 April 2010. The Three J’s submitted bids in response to that request.
In about early February 2009, Maruti Suzuki informed each of the Three J’s that they had been awarded the cargo on the route from India to Australia on an exclusive basis. It then sought to obtain lower freight rates from each of the Three J’s. In particular, it requested NYK to lower its bid. NYK agreed to do that.
The NYK Manager subsequently discussed Maruti Suzuki’s request for bids with his counterparts at Mitsui and K-Line. Through these discussions, each of the Three J’s became aware that Maruti Suzuki had informed each of the Three J’s that they had been awarded 100% of the cargo, and that NYK had already signed a contract with Maruti Suzuki at a particular freight rate. On that basis, Mitsui decided that it would also agree to Maruti Suzuki's request to reduce its freight rate.
On or around 30 March 2009, the NYK Manager met with his counterpart at Mitsui. At that meeting, NYK and Mistui agreed, through their respective managers, that the business should be shared by the Three J’s and that NYK should seek K-Line's agreement to this.
In late 2009, Maruti Suzuki issued a request for bids for the provision of Services for the period 1 May 2010 to 30 April 2011. It then engaged in negotiations with each of the Three J’s in relation to that request. In that context, the relevant managers at each of the Three J’s had discussions about the freight rates to be offered to Maruti Suzuki and agreed to leave freight rates unchanged. NYK submitted a bid and entered into a contract with Maruti Suzuki for the provision of Services at a freight rate that was consistent with the agreement reached between the Three J’s.
NYK carried 1,262 Maruti Suzuki vehicles on the route from India to Australia for the 2010 contract period. Its estimated revenue and profit from that commerce was disclosed to the Court but is confidential. Suffice it to say that its revenue and profit was not insubstantial.
Similar conduct occurred in relation to the 2011 contract year. In late 2010, Maruti Suzuki issued a request for bids for the provision of Services for the period 1 May 2011 to 30 April 2012. Following that request, the Three J’s agreed to each seek a freight rate increase from Maruti Suzuki. Both Mitsui and NYK submitted bids in accordance with that agreement. Maruti Suzuki, however, rejected those offers and indicated that it would accept a specific nominated rate. That prompted further discussions between the relevant managers at Mitsui and NYK, during which the Mitsui Manager disclosed that Mitsui had offered a rate consistent with Maruti’s indication and the NYK Manager disclosed that NYK’s offer was about the same as Mitsui’s offer.
As it turned out, NYK ultimately offered the same rate as Mitsui and entered into a contract with Maruti Suzuki for the provision of Services at that rate, which represented a small percentage freight rate increase. NYK carried 1,346 Maruti Suzuki vehicles on the route from India to Australia pursuant to that contract in the period from 1 May 2011 to 30 April 2012. Its estimated revenue and profit from that commerce was not insubstantial.
The Three J’s once again engaged in similar conduct when, in late 2011, Maruti Suzuki issued a request for bids in respect of the provision of Services in respect of the 2012 contract year. In response, the relevant managers at each of the Three J’s engaged in discussions and reached agreement that they should seek a freight rate increase sufficient to compensate for the amount by which fuel prices had increased since the rate review. Consistent with the agreement, both Mitsui and NYK subsequently sought freight rate increases from Maruti Suzuki, though NYK’s increase was less than Mitsui’s.
Maruti Suzuki subsequently indicated to each of the Three J’s that it would accept a freight rate increase of US$15 per unit. In its negotiations with Mitsui, Maruti Suzuki informed Mitsui that NYK and K-Line were willing to accept Maruti Suzuki's offer of an increase of US$15 per unit. A manager at Mitsui then had discussions with his counterparts at NYK and K-Line. During that conversation, the NYK Manager confirmed that it was going to accept Maruti Suzuki’s offer, which it in due course did.
NYK carried 1,743 Maruti Suzuki vehicles on the route from India to Australia pursuant to the contract entered into after these discussions. Its estimated revenue and profit from that commerce was not insubstantial.
Asian Honda – Thailand to Australia 2010 and 2011
Asian Honda was based in Thailand. For shipments on the route from Thailand to Australia, NYK’s and K-Line’s vessels travelled in a clockwise direction around Australia and Mitsui’s vessels travelled in an anti-clockwise direction. Relevantly, Asian Honda entered into annual contract negotiations with each of the Three J’s in respect of the 2010 and 2011 contract years.
In February 2010 Asian Honda issued a request for bids in relation to the provision of Services for Asian Honda cargo on the route from Thailand to Australia for the period 1 April 2010 to 31 March 2011. Shortly thereafter, the NYK Manager had discussions with his counterparts at Mitsui and K-Line. During those discussions, information about the current levels of freight rates charged for the provision of Services to Asian Honda on the route from Thailand to Australia was exchanged. It was then agreed that each of the Three J’s would submit a specified freight rate to Asian Honda in the first round of negotiations, and another rate in the second round of negotiations. The objective was to maintain existing market shares. NYK submitted a bid in accordance with that agreement and subsequently entered into a contract with Asian Honda.
NYK carried 10,102 Asian Honda vehicles on the route from Thailand to Australia pursuant to its contract with Asian Honda in the period from 1 April 2010 to 31 March 2011. While its revenue from that commerce was substantial, it nevertheless made an overall loss from the carriage of those vehicles.
In February 2011, Asian Honda issued a request for bids for the provision of Services in the period from 1 April 2011 to 31 March 2012. Shortly after the issue of that request, the NYK Manager had discussions with his counterpart at Mitsui about Asian Honda’s request for bids. During those discussions, the Mitsui Manager requested that NYK submit a particular freight rate to Asian Honda in order to maintain market shares and rates. NYK agreed to do so. Mitsui did not disclose the price which it intended to bid. The NYK Manager told his Mitsui counterpart that he had had similar discussions with their counterpart at K-Line.
NYK submitted a bid that was consistent with its agreement with Mitsui and K-Line. That bid was accepted and NYK entered into a contract with Asian Honda for the 2011 contract period. NYK carried 2,433 Asian Honda vehicles on the route from Thailand to Australia pursuant to that contract in the period from 1 April 2011 to 31 March 2012. While its revenue from that commerce was substantial, it nevertheless made an overall loss from the carriage of those vehicles.
It should be noted, however, that K-Line offered a lower freight rate to Asian Honda than it had agreed to do in its discussions with NYK. When the business was awarded, K-Line’s share of the business increased and NYK’s share decreased.
Nissan – Japan and Thailand to Australia 2010; Indonesia to Australia 2011
Nissan acquired Services on the routes from Japan, Thailand, Indonesia and India to Australia.
Sometime before 8 February 2010, Nissan issued a request for bids for the provision of Services for Nissan cargo on the routes from Japan to Australia for the period 1 April 2010 to 31 March 2011. It requested a freight rate reduction from the Carriers in respect of the route from Japan to north and west Australia.
Following Nissan’s request, the NYK Manager had a discussion with his counterpart at Mitsui. During that discussion, the Mitsui Manager told the NYK Manager that Mitsui was intending to accept a decrease in the freight rate. He requested that NYK not offer a larger discount so the respective market shares of Mitsui and NYK would be maintained. The NYK Manager agreed.
NYK submitted a bid and entered into a contract with Nissan for the provision of Services for Nissan cargo on the route from Japan to north and west Australia for the 2010 contract period at a discounted freight rate which was consistent with the agreement it had reached with Mitsui. NYK carried 489 Nissan vehicles on the route from Japan to Australia pursuant to that contract in the period from 1 June 2010 to 31 March 2011. NYK’s revenue and profit from that commerce was not insubstantial.
Similar conduct occurred in relation to the Thailand route for the 2010 contract period. At that time, Nissan MCC had been awarded 100% of the Nissan cargo on the route from Thailand to Australia. Nissan MCC did not, however, operate its own PCC or PCTC vessels on that route. It entered into space chartering arrangements with the Three J’s.
On 26 February 2010, Nissan issued a request to the Three J’s and Hoegh for bids for the provision of Services for Nissan cargo on the route from Thailand to Australia for the period 1 April 2010 to 31 March 2011. Nissan requested that NYK and Mitsui reduce their freight rates.
Sometime later, the NYK Manager had discussions with his counterparts at Mitsui and K-Line about the freight rates each of the Three J’s would submit to Nissan. It was agreed that none of the Three J’s would offer Nissan any reduction in freight rates. The Three J’s would thereby maintain their existing space charter allocations.
NYK submitted a freight rate to Nissan which was consistent with the agreement reached with Mitsui and K-Line. Mitsui, however, did cut its rates. There is no indication that it disclosed its intentions in that regard to NYK.
Nissan maintained that the price offered by NYK was too high. It agreed to contract at the rate submitted by NYK for a period of two months while negotiations for the balance of the year continued. NYK subsequently agreed to offer a reduced freight rate and agreed to pay Nissan MCC a rebate.
NYK carried 507 Nissan vehicles on the route from Thailand to Australia in the period from 1 April 2010 to 31 May 2010. While its revenue from that commerce was not insubstantial, it nevertheless made an overall loss from the carriage of those vehicles.
In relation to the route from Indonesia to Australia, in late 2010 Nissan proposed to move the production of one of its models from Thailand to Indonesia. Towards the end of December 2010, Nissan issued a request for bids from the Three J’s, Wallenius Wilhelmsen, Hoegh and Nissan MCC for the provision of Services on the route from Indonesia to Australia for the period from October 2011 to March 2012. Following that request, a manager at Nissan MCC contacted the NYK Manager and asserted that, as the current carrier of Nissan vehicles from Thailand to Australia, Nissan MCC should be entitled to ship those vehicles from Indonesia to Australia. NYK was asked to respect those rights. As noted earlier, Nissan MCC entered into space chartering arrangements with the Three J’s in relation to the Thailand to Australia route. It was suggested that as part of the agreement, Nissan MCC would effectively subcontract with the Three J’s on the Indonesia to Australia route in the same shares as it did on the route from Thailand to Australia.
NYK agreed to accept Nissan MCC’s proposal. It agreed on the freight rates that it would offer to Nissan.
In early July 2011, NYK submitted a freight rate to Nissan that was consistent with the rate agreed with Nissan MCC. As events transpired, Nissan MCC was awarded the contract for carriage of all Nissan cargo on the route from Indonesia to Australia for the period from 1 October 2011 to 31 March 2012 to Nissan MCC. Nissan MCC then effectively subcontracted with the Three J’s in respect of the carriage of vehicles on that route as it had agreed to do.
NYK carried 85 Nissan vehicles on the route from Indonesia to Brisbane and Townsville in the period from 1 October 2011 to 31 March 2012. It derived only a fairly modest revenue and profit from that commerce.
Suzuki – Japan to Australia 2011; Thailand to Australia 2013
In early 2011, Suzuki issued a request for bids from the Three J’s for the provision of Services for Suzuki cargo on the routes from Japan to Australia for the period 1 April 2011 to 31 March 2012. Shortly after Suzuki issued that request, a manager at Mitsui communicated with managers at each of NYK and K-Line in relation to Suzuki’s request. As a result of those communications, NYK agreed with Mitsui that the freight rates to be submitted to Suzuki by each Carrier would be the same as each Carrier’s existing freight rates. The purpose of that agreement was so as to maintain the existing market shares for that business.
In accordance with the agreement reached with Mitsui and K-Line, on 22 March 2011 NYK submitted a freight rate quotation to Suzuki at effectively its existing rate, which involved a percentage discount off the relevant conference rate. Suzuki subsequently approached NYK and offered to allocate it a higher share of its business on the route from Japan to south and east Australia if it agreed to offer Suzuki a higher discount. Suzuki stated that this discount was not the cheapest of the three carriers, but would nevertheless be acceptable to Suzuki because Suzuki wanted to decrease the share of its business that was allocated to K-Line. NYK did not disclose those further negotiations with Suzuki to the other Carriers.
NYK subsequently offered Suzuki a further discount. When the allocations were awarded by Suzuki, NYK's share of Suzuki business on the route from Japan to south and east Australia increased.
NYK carried 9,100 Suzuki vehicles on the route from Japan to Australia for the 2011 contract period. NYK derived significant revenue and profits from that commerce.
In 2012, Suzuki decided to shift production of its “Swift” model from Japan to Thailand. Sometime before August 2012, Suzuki issued a request for bids for the provision of Services in relation to the Swift model on the route from Thailand to Australia. This was a new route for Suzuki.
On 28 August 2012, the NYK Manager had a telephone conversation with his counterpart at K-Line about Suzuki’s quotation request. During that conversation, the NYK and K-Line Managers agreed that, in order to maintain the existing market shares held by the Three J’s for Suzuki cargo on the Japan to Australia route, NYK and K-Line would each offer a freight rate within a specified range in response to Suzuki’s request for quotation.
Following that conversation, the NYK Manager telephoned his counterpart at Mitsui. During the ensuing telephone conversation, the NYK Manager sought Mitsui’s agreement to what had previously been agreed with K-Line. Mitsui, however, refused to agree.
Nevertheless, on 31 August 2012, NYK submitted freight rates in accordance with the agreement it had reached with K-Line. It did so in the expectation that, based on past experience, Suzuki would not accept the first rate offered to it, but would instead contact each of the Carriers to further negotiate the rates offered by each Carrier. That is what occurred. During the further negotiations with Suzuki, NYK agreed to offer freight rates that were slightly lower than those previously offered, but were still within the range it had agreed with K-Line. NYK did not discuss these further negotiations, or this further offer, with the other two carriers.
In September 2012, Suzuki announced that NYK and K-Line were both successful in obtaining business on the route from Thailand to south and east Australia.
NYK carried 2,927 Suzuki vehicles on the route from Thailand to Australia pursuant to this contract in the period from 1 January 2013 to 31 December 2013. NYK derived substantial revenue, and not insubstantial profits, from that commerce.
Mazda – Japan to Australia 2010
From at least 1 January 2009 to at least mid-2011, the Three J’s each had annual contracts with Mazda on the route from Japan to south and east Australia. The contract periods that K-Line and Mitsui had with Mazda, however, were not aligned with the contract period that NYK had with Mazda. This meant that there was limited scope for NYK to coordinate its submissions to Mazda with the other Carriers. The Three J’s nevertheless exchanged freight rate information during the periods when negotiations with Mazda took place.
In early 2010, Mazda requested freight rates from NYK for the provision of Services for Mazda cargo on the routes from Japan to Australia for the period 1 April 2010 to 31 March 2011. In early March 2010, the NYK Manager and his counterpart at Mitsui had a discussion about negotiations between NYK and Mazda. The NYK Manager and his counterpart discussed the Three J’s current freight rates for Mazda on the route from Japan to south and east Australia. The NYK and Mitsui Managers agreed that NYK would not submit a freight rate below a certain specified rate.
NYK subsequently submitted a bid and entered into a contract with Mazda which was consistent with the agreement that it had reached with Mitsui. NYK carried 18,676 Mazda vehicles on the route from Japan to south and east Australia pursuant to this contract in the period from 1 April 2010 to 31 March 2011. The revenue and profits derived by NYK from that commerce were substantial.
Hino – Japan to Australia 2010 and 2011
Hino manufactured trucks and buses, and acquired Services on the routes from Japan to Australia and Thailand to Australia pursuant to annual contracts. Hino manufactured three sizes of trucks – small, mid-sized and large. Historically, on the route from Japan to south and east Australia, large and mid-sized Hino trucks had been carried by NYK, and small trucks had been carried by Mitsui. Each year, Hino requested freight rate estimates from the Three J’s, and on some occasions, Toyofuji, in respect of each of the categories of trucks.
In early 2010, Toyota, on behalf of Hino, issued a request for bids from the Three J’s for the provision of Services in relation to small trucks on the route from Japan to south and east Australia for the period 1 April 2010 to 31 March 2011. Hino also issued a request for the same period in respect of the provision of Services in relation to mid-sized and large trucks on the routes from Japan to south and east Australia and Japan to north and west Australia. Following those requests, the NYK Manager had a discussion or discussions with his counterpart at Mitsui.
In relation to the request relating to small trucks, the NYK Manager agreed with his counterpart at Mitsui that NYK would submit a freight rate at around or above a specified level. The stated objective of the agreement was to maintain Mitsui’s status as the sole carrier of Hino small trucks on that route. NYK subsequently submitted a bid to Hino in accordance with its agreement with Mitsui and, after contracts were awarded, Mitsui retained its status as sole carrier.
In relation to the provision of Services for mid-sized and large trucks on the route from Japan to south and east Australia, the NYK Manager and his counterpart at Mitsui agreed that Mitsui would submit the same freight rate it had submitted in the previous year. The objective was to maintain NYK’s status as sole carrier of mid-size and large trucks on that route. After those discussions between NYK and Mitsui, NYK and Hino engaged in some further negotiations concerning this route. NYK did not disclose those further negotiations to Mitsui or K-Line. In any event, after NYK and Mitsui submitted their bids to Hino, and Hino awarded its contracts, NYK retained its status as sole carrier.
NYK carried 1,882 Hino vehicles on the route from Japan to south and east Australia in the period from 1 April 2010 to 31 March 2011 pursuant to its contract with Hino. NYK derived substantial revenue and not insubstantial profits from that commerce.
In early 2011, Toyota, on behalf of Hino, issued a request for bids from the Three J’s and Toyofuji for the provision of Services for Hino truck cargo consisting of small trucks on the route from Japan to south and east Australia for the period 1 April 2011 to 31 March 2012. Hino also issued a request for bids from the Three J’s for the provision of Services for mid-sized and large trucks on the same route and for the same period.
After Hino and Toyota issued those requests, and before Mitsui or NYK submitted their bids, the NYK Manager had a discussion with his counterpart at Mitsui. During that discussion, the respective managers agreed that Mitsui would propose an increase in its freight rate for small trucks and that NYK would submit freight rates at an agreed level. NYK would propose a similar level of increase for its freight rate for mid-sized and large trucks and Mitsui would submit freight rates at an agreed level. The stated objective of the arrangements was to maintain Mitsui’s status as sole carrier for Hino’s small trucks, and NYK’s status as sole carrier of Hino’s mid-sized and large trucks.
As events transpired, however, NYK did not propose increased freight rates in respect of mid-sized and large trucks. It did, however, submit freight rates in respect of small trucks that were consistent with its agreement with Mitsui.
The outcome of the tenders was that Mitsui retained its status as the sole carrier of Hino small trucks and NYK retained its status as the sole carrier of Hino mid-sized and large trucks.
NYK carried 1,840 Hino vehicles on the route from Japan to south and east Australia for the 2011 contract period. The revenue and profits derived by NYK from this commerce were substantial.
Toyota – Japan to Australia 2010; United States to Australia 2012
Toyota acquired Services on the routes from Japan to Australia and from Thailand to Australia. Toyota Logistics Services (Toyota LS) was a subsidiary of Toyota based in North America.
Each March and September, Toyota released its expected volumes for the next half-year. Carriers would then be provided with a requested reduction in freight rates by Toyota. The stated objective of that request was to reduce Toyota’s overall global expenditure on ocean freight. This process was known as the “price challenge”. NYK invariably complied with Toyota’s requests for rate reductions, but commonly did so by co-ordinating its response with the other relevant Carriers to ensure that the Carriers were able to maintain existing market shares.
In September 2010, Toyota issued a request for bids for global routes for the period October 2010 to March 2011. As part of that request, Toyota requested a particular percentage reduction on freight rates globally. Toyota did not dictate the routes on which the reduction was to be achieved.
After receiving Toyota’s request, and prior to responding to it, the NYK Manager and his counterpart at K-Line had a number of conversations in which they discussed proposed adjustments to freight rates on the routes from Japan to Australia. The NYK Manager and his counterpart agreed on the level of reduction that each would offer to Toyota in order to maintain existing market shares. NYK submitted freight rates to Toyota in accordance with the levels of reductions that had been agreed between the NYK Manager and his counterpart at K-Line.
The outcome of this “price challenge” process was that NYK delivered to Toyota its requested total freight decrease and NYK’s share of Toyota cargo on routes from Japan to Australia did not change.
NYK carried 14,977 Toyota vehicles on the route from Japan to Australia between October 2010 and March 2011. NYK derived very substantial revenue and profits from that commerce.
In February 2012, Toyota LS issued a feasibility study request seeking pricing proposals for, relevantly, the provision of Services for a specific vehicle (known in United States as the Highlander, but in Australia as the Kluger) on the route from the United States to Australia. At that time, NYK did not have a direct service from the United States to Australia, though Wallenius Wilhelmsen did.
NYK considered proposing a freight rate to Toyota LS based on NYK transhipping the cargo through Japan. The freight rate which NYK considered proposing was based on an aggregation of the freight rate for the provision of Services on the route from the US to Japan, the freight rate for the provision of Services on the route from Japan to south and east Australia, and a small transhipment cost.
On about 29 February 2012, the NYK Manager received a phone call from his counterpart at Wallenius Wilhelmsen. In the ensuing conversation, the NYK Manager was informed that Wallenius Wilhelmsen was intending to submit a bid for the Highlander cargo, but that it did not want to interfere with NYK in respect of that cargo. The NYK Manager informed his counterpart of NYK’s proposed freight rate, the response to which was that NYK’s proposed rate was significantly higher than the freight rate that Wallenius Wilhelmsen charged for its direct service on the route from the US to Australia. The NYK Manager then requested that Wallenius Wilhelmsen bid “a three digit figure” in order to ensure that Wallenius Wilhelmsen would not win the Toyota Highlander business. Ultimately it was agreed that Wallenius Wilhelmsen would submit a specific bid which was considered to be sufficiently high to ensure that Wallenius Wilhelmsen would not win the Toyota Highlander business.
At about the same time, the NYK Manager had a telephone conversation with the Mitsui Manager during which the Mitsui Manager confirmed that Mitsui did not want to take the Toyota business on the route US to Australia route away from NYK. The NYK Manager and the Mitsui Manager agreed that Mitsui would offer a specified freight rate that was sufficiently high to ensure that Mitsui did not win the Toyota Highlander business.
In March 2012, NYK responded to Toyota LS’s feasibility study offering a freight rate which was below that which Wallenius Wilhelmsen and Mitsui had agreed to submit.
As events transpired, however, NYK’s conduct was to no avail.
After the submission of bids in response to the feasibility study, Toyota LS issued a formal tender in relation to the provision of Services for the Toyota Highlander on the route from the United States to Australia. Following the issue of the tender, senior managers of NYK engaged in a number of discussions with their counterparts at Wallenius Wilhelmsen. It is unnecessary to detail the content of those discussions. Suffice it to say that they included discussions about the freight rates that Wallenius Wilhelmsen proposed to submit in response to the tender. Those rates were lower than the rates that it had offered in response to the feasibility study. Ultimately Wallenius Wilhelmsen was the successful party in the tender and was awarded 100% of the business.
UD Trucks – 2010, 2011 and 2012
UD Trucks was a subsidiary of Volvo. UD Trucks acquired Services on the routes from Japan to Australia. Tenders for UD Trucks’ business were conducted by Volvo Logistics each year in around September or October.
On 28 June 2010, Volvo Logistics issued a request for bids for the provision of Services for UD Trucks’ cargo on the routes from Japan to Australia for the contract period October 2010 to September 2011. This tender included the route from Japan to north and west Australia, which was a new route for the carriage of UD Trucks’ cargo, in addition to the route from Japan to south and east Australia. At that time, NYK was the sole carrier of UD Trucks' cargo on the route from Japan to south and east Australia.
Following the issue of this request, managers from Mitsui and K-Line separately contacted the NYK Manager and enquired as to what freight rates they should submit for the provision of Services to UD Trucks on the route from Japan to north and west Australia. As a result of those discussions, the Three J’s ultimately agreed, in relation to the route to south and east Australia, that Mitsui and K-Line would each structure their bids within a certain range requested by NYK so that NYK would win the business and maintain its status as sole carrier for that route. In relation to the route to north and west Australia, it was agreed that they would each effectively bid the same rates.
The outcome of this tender process was that NYK remained as the sole carrier of UD Trucks on the route from Japan to south and east Australia and the Three J’s were each awarded a contract to supply Services on the route from Japan to north and west Australia.
Ultimately NYK did not transport any of UD Trucks’ cargo on the route to north and west Australia. It carried 425 UD Trucks on the route from Japan to south and east Australia for the contract period October 2010 to September 2011. Its revenue and profits from that commerce were not insubstantial.
Similar conduct occurred in relation to the 2011 contract period. Sometime before 7 July 2011, Volvo Logistics issued a request for bids for the provision of Services in relation to UD Trucks’ cargo on the route from Japan to south and east Australia for the contract period October 2011 to September 2012. NYK was still the sole carrier of UD Trucks’ cargo on that route.
The NYK Manager subsequently discussed the tender individually with his counterparts at both Mitsui and K-Line. As a result of those discussions, the Three J’s agreed that they would structure their bids so as to ensure that NYK would continue as the sole carrier of UD Trucks’ cargo on that route. The Three J’s submitted bids in accordance with that agreement. The outcome of the tender was that NYK remained as the sole carrier of UD Trucks on the route from Japan to south and east Australia.
NYK carried 854 UD Trucks on the route from Japan to south and east Australia for the contract period October 2011 to September 2012. NYK derived revenue and profits from that commerce that were substantial.
In relation to the 2012 contract year, Volvo Logistics issued a request for bids for the provision of Services on the routes to Australia in about July 2012. As had been done in previous years, the NYK Manager subsequently had a telephone conversation with his counterpart at Mitsui, during which it was indicated that Mitsui had no intention to make any major changes in relation to the market shares in respect of UD Trucks’ business on the relevant route. In a subsequent discussion, the NYK Manager and his Mitsui counterpart agreed that market conditions were such that it was unlikely that freight rates on the route from Japan to south and east Australia could be increased. The NYK Manager reported that conversation to the General Manager of NYK’s Car Carrier Group and the Corporate Officer of NYK.
A significant factor in determining the extent of any discount is whether the plea was entered at the first reasonable opportunity: Cameron at [22]. Here, there is no question that NYK entered its plea at the earliest opportunity. The strength of the Crown case may be taken into account in assessing whether the plea was motivated by a willingness to facilitate the course of justice, or was simply the “recognition of the inevitable”: Tyler at [114]. Here, while the Crown case may well have been strong, there is no question that NYK was nevertheless motivated by a willingness to facilitate the course of justice.
Degree of cooperation with law enforcement agencies in the investigation of the offence and other offences; future cooperation: s 16A(2)(h) and s 16AC Crimes Act
Section 16A(2)(h) is expressed in the past tense and may be taken to refer to co-operation with law enforcement agencies up to the point in time that the offender is sentenced. That interpretation is reinforced by the terms of s 16AC which, because it refers to undertakings by the offender to cooperate with law enforcement agencies in proceedings, and makes provision for the Director to appeal if the offender does not cooperate in accordance with the undertaking, must relate to cooperation that is to occur after the sentence is imposed.
Past cooperation
Dealing first with past cooperation, matters which may be relevant to an assessment of the degree to which an offender has provided cooperation to law enforcement agencies include: the effectiveness of the cooperation and its practical value to law enforcement agencies (Ma v R [2010] NSWCCA 320 at [28]; Zhang v R [2011] NSWCCA 233 at [33]; R v Sukkar [2006] NSWCCA 92; 172 A Crim R 151 at [53]; R v El Hani [2004] NSWCCA 162 at [73]; R v Barrientos [1999] NSWCCA 1 at [47]; R v Gallagher (1991) 23 NSWLR 220 at 232-233); the extent to which the offender has disclosed everything of relevance and not tailored the disclosure to material already known (Wang v R [2010] NSWCCA 319 at [36]; R v Cartwright (1989) 17 NSWLR 243 at 252-255); the extent to which the cooperation relates to offences which are otherwise difficult to detect and investigate (Hartman v R [2011] NSWCCA 261 at [96]); the extent to which the cooperation disclosed the offender’s guilt in respect of other offences (R v Ellis (1986) 6 NSWLR 603 at 604; Ryan v The Queen (2001) 206 CLR 267 at [15]); and whether the offender’s cooperation caused others to cooperate (Lin v R; Ng v R [2016] NSWCCA 200 at [10]). Cooperation which is ineffective or provides little practical value must still be considered (R v Stanbouli [2003] NSWCCA 355 at [52]) because it might provide some evidence of contrition (Sukkar at [53]; Wang at [36]), might be of some intelligence value (Barrientos at [48]); and should in any event otherwise be encouraged in the public interest (Wang at [36]; Cartright at 252-255).
The authorities concerning cooperation in the sentencing context routinely refer to a “discount” for cooperation. There is, however, no obligation for the sentencing court to separately quantify a discount for cooperation: indeed, it may be impossible or inappropriate to specify a separate discount where cooperation forms part of a complex of interrelated considerations relating to the plea of guilty, contrition and rehabilitation: Gallagher at 227-228; El-Hani at [68]. There is certainly no fixed tariff or range for a discount for cooperation: R v Pang [1999] NSWCCA 4; 105 A Crim R 474 at [13]. That said, the authorities are replete with statements about the usual or “customary” range, which is typically said to be between 20% and 50%: see for example R v M [2005] NSWCCA 224 at [21]-[22]; Sukkar at [3], [5], [50], [54], [56]; Pang at [13]. It has been said that a discount exceeding 50% should be reserved for an exceptional case: SZ v R [2007] NSWCCA 19; 168 A Crim R 249 at [3], [53].
NYK’s cooperation with both the ACCC and the Director is a highly significant consideration and deserving of considerable weight. As discussed earlier, the evidence demonstrates that NYK has provided timely, full, frank, truthful and, in most instances, expeditious cooperation throughout the ACCC’s investigation. 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 the provision of information concerning the conduct of NYK and other persons and entities that otherwise may not have been discovered by the ACCC. The cooperation was provided despite the fact that NYK knew that immunity under the ACCC’s Immunity Policy for Cartel Conduct was unavailable because another member of the cartel had already obtained a “marker” under that policy. NYK has also provided information and assistance to the ACCC in another respect, though the detail of that cooperation is the subject of a confidentiality order.
NYK also cooperated in relation to the prosecution. It pleaded guilty in circumstances where no full brief of evidence had been compiled or served by the ACCC. Rather, NYK pleaded guilty on the basis of the Statement of Agreed Facts, which was the settled and agreed following extensive negotiations with the ACCC and the Director. Agreeing to plead guilty on that basis saved the ACCC considerable time and resources.
The circumstances of this case are such that it is appropriate to specify or quantify a single discount in respect of NYK’s past cooperation, assistance, early plea of guilty and the contrition and remorse that is reflected in the cooperation and early plea. There is a manifest public interest in encouraging corporations who have engaged in cartel conduct to come forward and cooperate with the ACCC and, where applicable, the Director, at the earliest opportunity. That is because cartel conduct often involves secrecy and collusion and is notoriously difficult to detect, investigate and prosecute. While a mathematical approach to sentencing is generally eschewed, remarks or reasons for imposing a sentence which, in an appropriate case, clearly and transparently articulate the extent to which the cooperation and early plea have resulted in a lower sentence are likely to encourage such cooperation in other cases.
In all the circumstances of this case, an appropriate discount for NYK’s past cooperation, assistance, plea of guilty and the contrition and remorse reflected in the cooperation and plea is 40%.
Future cooperation
NYK has given an undertaking to provide cooperation in future proceedings. The detail of that future cooperation was included in confidential exhibits and cannot be reproduced in these reasons. Suffice it to say that the cooperation is, or is likely to be, significant and valuable.
Unlike the position with past cooperation, s 16AC specifically provides that, where a court imposing a sentence or making an order for a federal offence reduces the severity of the sentence or order, the court must state that the sentence or order is being reduced for that reason and specify the sentence that would have been imposed, or the order that would have been made, but for the reduction.
In this matter, the circumstances are such that NYK is entitled to a discount of 10% in respect of future cooperation. The sentence that would have been imposed but for that discount is specified later in these reasons.
Deterrence: s 16A(2)(j) and (ja) Crimes Act
There could be little doubt that general deterrence is a significant consideration in sentencing for cartel related offences. That is the case for a number of reasons.
First, as has already been noted, 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. It is generally accepted that general deterrence is a weighty consideration in sentencing for offences which are difficult to detect and investigate: see for example R v Curtis (No 3) [2016] NSWSC 866 at [51]-[53]; R v Hannes [2000] NSWCCA 503; 158 FLR 359 at [394]; R v Rivkin [2004] NSWCCA 7; 184 FLR 365 at [423]. The importance of general deterrence has also been accepted in imposing penalties for anti-competitive conduct in the civil penalty context: ABB Transmission at [16]; Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5) [1998] FCA 310; J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365; 172 ALR 532 at [157].
Second, cartel conduct is an essentially economic or commercial crime that generally involves the 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 weighing exercise will come to appreciate that the risks are likely to outweigh the benefits: that the likely penalty will be such that it could not be regarded as an acceptable cost of doing business. This consideration has also been accepted in the civil penalty context: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249 at [62]-[63]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [65]-[66]; Australian Competition and Consumer Commission v Visa Inc [2015] FCA 1020; 339 ALR 413 at [114].
It is essentially common ground that specific deterrence is not a significant consideration in the particular facts and circumstances of this matter. That is because the evidence clearly shows that NYK has already taken extensive steps to not only change its corporate culture, but also establish structures, systems and processes to ensure that there is minimal risk of a similar cartel offence being committed in the future.
Need for adequate punishment: s 16A(2)(k) Crimes Act
The need to impose an adequate punishment in all the circumstances is largely self-evident and requires little elaboration. One issue that requires consideration in that context, however, is the relevance or weight that is to be attached to the fact that NYK has been penalised in other jurisdictions in respect of conduct relating to or arising from the cartel the subject of this matter. NYK submitted that the penalties imposed overseas constituted a significant punishment in their own right, went some considerable way towards satisfying the requirements of deterrence in respect of the charged conduct, and were therefore a material consideration in determining an appropriate sentence. The Director submitted that the overseas penalties were only relevant in a “general way” and should not substantially reduce an otherwise appropriate sentence.
The issue between the Director and NYK concerning the overseas penalties really came down to a dispute concerning the weight that should be given to the overseas penalties. It may be accepted that the fact that an offender has already been the subject of extra-curial punishment – loss or damage suffered by the offender as a result of having committed the offence, outside or in addition to the court-imposed sanction – may in some circumstances be a relevant consideration in sentencing the offender: Application by the Attorney-General under s 37 of the Crimes (Sentencing Procedure) Act (2004) 61 NSWLR 305 at [114]. Administrative penalties imposed upon an offender may be considered to be a form of extra-curial punishment: R v Whitnall (1993) 42 FCR 512 at 517-518; R v Gay [2002] NSWCCA 6 at [23]-[24]; R v Ronen [2006] NSWCCA 123; 161 A Crim R 300 at [50]-[52]; R v Hannigan [2009] QCA 40; 193 A Crim R 399 at [25].
The weight to be given to any extra-curial punishment depends on the particular facts and circumstances of each case. Relevant considerations include the nature and size of the administrative or other extra-curial punishment, the extent to which the penalty relates to the conduct the subject of the offence, the capacity of the offender to pay, the effect that the administrative penalty had in real terms on the offender and other questions of hardship. Each case must be considered on its own merits.
It is clear that some weight must be given to the overseas penalties. They are undoubtedly very large penalties which were imposed as a result of NYK’s involvement in the global cartel pursuant to which the offending conduct the subject of the charge relates. Those penalties would undoubtedly themselves go some way towards deterring NYK from re-offending. There are, however, a number of reasons why the overseas penalties should not be given significant weight.
The first and most important reason is that, with the possible exception of the “Surcharge Payment Order” imposed by the Japan Fair Trade Commission, the overseas penalties were not imposed in respect of the conduct the subject of the charge in this matter. While the agreed facts in relation to the overseas penalties are fairly sparse, it would appear, or at least can be inferred, that they were imposed in respect of NYK’s collusion or anti-competitive conduct in relation to freight rates on routes other than routes to Australia. In short, the overseas jurisdictions imposed sanctions or penalties in respect of conduct that occurred in, or in relation to, or otherwise affected, those jurisdictions.
As indicated, the Japanese order is somewhat different. That is because approximately AU$20 million of the overall order related to the Oceania route, 87% of which related to the carriage of vehicles on the route from Japan to south and east Australia. It follows that there is some overlap between the conduct that led to the imposition of that part of the Japanese order, and the conduct the subject of the charge in this matter. That is a relevant consideration, because the Court should strive to avoid any element of double punishment. That said, it may be inferred that the administrative penalty imposed by the Japanese regulator was imposed having regard to Japan’s laws and public policy considerations. The Japanese regulator’s primary concerns were unlikely to relate to the impact that the conduct had on Australian related commerce or Australian consumers.
The second and related reason is that the sentence imposed on NYK must be sufficient to operate as a deterrence, both specific and general, in relation to cartel conduct that relates to Australia and Australia’s laws. Large multinational corporations who engage in global cartels or other anti-competitive conduct must be sent a clear and strong message that they will be punished in Australia in respect of Australian-related conduct irrespective of what penalties may have been imposed in other jurisdictions. Whatever decisions may be made globally, Australia will not tolerate anti-competitive conduct in respect of the supply of goods and services to, or relating to, Australia or Australian consumers: cf. Visa at [114].
The third reason is that, insofar as extra-curial punishment is relevant to specific deterrence, that is not a significant consideration in this matter for the reasons already given. NYK has already demonstrated that it has been deterred and has rehabilitated.
The fourth and related reason is that, while the overseas penalties are very large, so too is NYK. There is no suggestion, let alone evidence, that NYK does not have the capacity to pay the fine imposed in relation to this matter in addition to the overseas administrative penalties. There is no evidence of any particular hardship arising from the overseas penalties.
The character and antecedents of the offender: s 16A(2)(m) Crimes Act
NYK does not have a prior record of corporate criminal misconduct in Australia or elsewhere. That is no doubt an important consideration. It does not necessarily follow that NYK should be sentenced on the basis that it was of good character – that it was a good corporate citizen – at the time of the conduct the subject of the charge: cf. R v Adler [2005] NSWSC 274; 53 ACSR 471 at [51]. The fact that it had been a party to the Respect Agreement since at least 1997 rather suggests otherwise. NYK had not been a good corporate citizen prior to the commission of this offence: it just had not been caught. Prior good character is also not generally given significant weight in sentencing for offences where general deterrence is a significant consideration: R v Williams [2005] NSWSC 315; 152 A Crim R 548 at [60]; McMahon v The Queen [2011] NSWCCA 147 at [76]; ABB Transmission at [28].
The prospect of rehabilitation: s 16A(2)(n) Crimes Act
Rehabilitation is undoubtedly an important purpose of criminal sentencing. The fact that an offender has good prospects of rehabilitation, or has already demonstrated rehabilitation at the time of sentence and is unlikely to reoffend, is an important mitigating consideration.
It may be accepted that NYK 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: cf. R v Pogson (2012) 82 NSWLR 60 at [122]-[123].
Comparable cases
Both the Director and NYK referred in their submissions to pecuniary penalties that have been imposed in a number of “comparison” civil cartel cases. Those cases, however, provide little, if any assistance, in relation to the imposition of an adequate sentence in this matter.
The consideration of sentences imposed in other comparable cases may be useful, but must be approached with some caution. Comparable cases may be useful in two ways: first, if it is possible to discern from them any unifying sentencing principles that should be applied; and second, if an analysis of the cases discloses discernible sentencing patterns or a range of sentences. However, the cases may not establish a relevant range, or the range may not necessarily be the correct range or otherwise determinative of the upper and lower limits of sentencing discretion: Hili v The Queen (2010) 242 CLR 520 at [53]-[55] (per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); Wong v The Queen (2001) 207 CLR 584 at [59] (per Gaudron, Gummow and Hayne JJ); R v Pham (2015) 256 CLR 550 at [26]-[27] (per French CJ, Keane and Nettle JJ). Much will depend on the number of cases referred to and whether they are truly comparable.
There are a number of difficulties in placing any reliance on the penalties imposed in the civil penalty cases. First, it appears to have been accepted that the purpose of imposing a civil penalty is different to the purpose of imposing a criminal penalty. Whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty is said to be primarily, if not wholly, protective in promoting the public interest in compliance: Trade Practices Commission v CSR Ltd [1990] FCA 521; (1991) ATPR 41-076 at 52,152; Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 326 ALR 476 (Commonwealth v Director, FWBII) at [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ). Indeed, it has been suggested that punishment is not a purpose of imposing a civil penalty: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, Burchett and Kiefel JJ said (at 296-7); cf. ACCC v ANZ at [80]. Given the differences between criminal proceedings and civil penalty proceedings that were identified in Commonwealth v Director, FWBII, some caution must be exercised in applying to criminal sentencing the principles that have been developed in the civil penalty context.
Second, many of the penalties that have been imposed in the civil penalty cases were agreed penalties. While those agreed penalties were approved by the Court, it may nevertheless be inferred that the penalties involved some element of compromise and may not reflect the penalty that would have been imposed by the Court had there been no agreement: see Commonwealth v Director, FWBII at [109] (per Keane J).
Third, the civil cartel cases referred to by the parties are in any event not truly comparable. The facts and circumstances of each of the cases referred to by both NYK and the Director were different in important respects from this case.
Fourth, and perhaps most significantly, the civil penalty cases do not disclose any discernible pattern or range of penalties that could be transposed to the criminal sentencing context. Nor is it possible to discern from them any unifying principles that should be applied in the criminal sentencing context, other than perhaps the importance of general deterrence, as discussed earlier.
Submissions
Had the ACCC (no doubt after consultation with the Director) elected to proceed against NYK by way of a civil penalty proceeding, rather than a criminal prosecution, the ACCC and NYK could have proposed an agreed penalty to the Court. Even if they did not agree on the penalty, both the ACCC and NYK could have submitted that a specific penalty, or penalty range, was the appropriate penalty or penalty range in the circumstances.
Because this is a criminal prosecution, however, the Director cannot, but NYK can, advance submissions concerning the appropriate penalty range: Barbaro v The Queen (2014) 253 CLR 58; Matthews v The Queen [2014] VSCA 291; 44 VR 280; CMB v Attorney General for New South Wales (2015) 256 CLR 346 at [38] (per French CJ and Gageler J) and [64] (per Kiefel, Bell and Keane JJ). The Director can and should respond to any range proposed by NYK by indicating whether in the Director’s submission it would be open to impose a sentence within that range, or whether imposing a sentence within that range might lead to appellable error: Matthews at [25]. It is neither necessary nor meaningful to say anything further on this issue, save as to say that this was the course adopted by NYK and the Director in this matter.
NYK submitted that, having regard to the maximum penalty, the purposes of sentencing, the objective features of the offence, NYK’s compelling subjective circumstances and the fines already paid by NYK, the appropriate penalty range (after the application of a discount for plea and cooperation) would be a fine in the order of $20 million to $25 million.
The Director’s response was that “no submission is made that the court would fall into appellable error in relation to the range of penalty suggested by NYK …”.
The appropriate sentence in this case
In Markarian, McHugh J said (at [66]) that the reality of the sentencing process is that the judge must weigh all the circumstances and make a judgment as to what is the appropriate sentence. Since the decision of the Full Court of the Supreme Court of Victoria in R v Williscroft [1975] VR 292, this value judgment has frequently been described as an “instinctive synthesis of all the various aspects involved in the punitive process” (at 300). As was pointed out in the joint judgment in Markarian, the expression “instinctive synthesis” may need further explanation lest it be “understood to suggest an arcane process into the mysteries of which only judges can be initiated” (at [39]). It is difficult to improve on the explanation given by McHugh J in Markarian, where his Honour described it as “the method of sentencing by which the judge identifies all the factors that are relevant to the sentence, discusses their significance and then makes a value judgment as to what is the appropriate sentence given all the factors of the case” (at [51]). Or, as the plurality put it in Wong (at [75]) “the sentencer is called on to reach a single sentence which … balances many different and conflicting features.”
The relevant factors or features in this matter have been discussed at length throughout these reasons. Findings or observations have been made concerning the significance and weight that should be given to those factors in the particular circumstances of this case. The factors which tend to weigh in favour of a more severe punishment include: the maximum penalty (fine of $100 million); the very serious nature of the offence (involving as it did deliberate, systematic and covert conduct by relatively senior management over a lengthy period involving a large number of shipments); the damage, or potential damage, to the integrity of Australia’s markets and economic system caused by the conduct; and the need for general deterrence, particularly in respect of offences of this kind. The mitigating factors include NYK’s genuine contrition and rehabilitation, including the extensive steps taken by it to present any reoffending; NYK’s early plea of guilty; NYK’s significant and valuable cooperation and assistance to the ACCC and the Director in relation to the investigation of this offence and possible offences by others; NYK’s undertaking to provide assistance in relation to proceedings in the future; the extra-curial punishment, in the form of penalties imposed by courts and tribunals in other jurisdictions, already imposed on NYK in respect of conduct related to the relevant cartel; and the fact that NYK has not previously been convicted of any offence in Australia or overseas.
Having regard to all of the relevant features and factors, and giving them appropriate weight, the appropriate sentence 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 the early plea and cooperation: meaning that but for the early plea and past and future cooperation, the fine would have been $50 million. Of that 50% discount, 10% relates 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. 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 penalty would have been substantially higher. That should serve as a clear and present warning to others who may have, or may be considering or planning to, engage in similar conduct.
CONCLUSION AND DISPOSITION
NYK has been convicted of an offence of giving effect to a cartel provision contrary to s 44ZZRG(1( of the C&C Act. The sentence imposed in respect of that conviction is a fine of $25 million.
I certify that the preceding three hundred and one (301) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney. Associate:
Dated: 3 August 2017
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