WORLD TRADE
ORGANIZATIONWT/WGTCP/W/198
26 July 2002
(02-4154)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM AUSTRALIA
The following is the final text of a paper received from the Permanent Mission of Australia
which was circulated as an advance copy for the Working Group's meeting of 1-2 July 2002.
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Hard-Core Cartels
This paper describes the main features of Australia's regulatory framework for dealing with
hard-core cartels (HCCs), and discusses a case study drawn from Australian experience on the
application of the relevant provisions.  It also highlights work that the OECD has undertaken on hard-
core cartels.
A. PROHIBITION OF HCC' S IN AUSTRALIA
1. Australia's competition law
1. Section 45 of Australia's competition law, the Trade Practices Act 1974 (TPA) prohibits hard-
core cartels.  Price-fixing, market sharing or restriction of supply agreements, exclusionary
agreements and secondary boycotts all fall within this section.  Price-fixing agreements are per se
prohibited, whereas agreements to restrict dealings (eg, agreements to limit output or production) are
assessed against a 'substantial lessening of competition' test.
2. The prohibition on price fixing (section 45A) operates where a provision of a contract,
arrangement or understanding has the purpose or effect of "fixing, controlling or maintaining the pricefor, or a discount, allowance, rebate or credit in relation to, goods or services".  The agreement must
relate to the supply or acquisition of goods or services by parties who are in competition with each
other.
3. Secondary boycotts occur when two parties act in  concert to prevent or hinder a third party
from supplying or acquiring goods or services from a fourth party.  Section 45D deals with secondary
boycotts for the purpose of causing substantial loss or damage to the business of the person unable to
supply or be supplied goods or services.  Section 45DA prohibits secondary boycott activity for the
purpose of causing substantial lessening of competit ion in any market in which the person unable to
supply or be supplied with goods carries on business.  Lastly, section 45DB deals with boycotts with
the purpose and effect of preventing or substantially hindering trade between Australia and overseastrading partners.
2. Sanctions against HCCs
4. Australia's Constitution requires that judicial power must only be exercised by the courts.
Accordingly, section 77 of the TPA allows the AC CC to institute proceedings to recover penalties,
subject to a statute of limitation period of six years, and section 76 empowers the Court to imposeWT/WGTCP/W/198
Page 2
them.  The factors the Courts refer to in determ ining the level of pecuniary penalty include the
deliberateness of the conduct, the period over which it extended and the amount of loss or damage
caused.  However, like any litigant, the ACCC can make submissions to the Court as to what it
considers an appropriate penalty (maximum penalties are summarised below).
5. Actions under section 77 are civil proceedings and therefore attract the civil standard of proof.
The ACCC is therefore required to establish the facts of the contravention on the balance of
probabilities.
6. Pecuniary penalties available for hard-core cartels are summarised below.
• Corporations that contravene sections 45A and 45DA may incur penalties of up to
AUD $10 million pe r offence;
• Individuals that contravene sections 45A and 45DD may incur penalties of up to
AUD $500 000 per offence.
• Corporations that contravene sections 45D and 45DB may incur penalties of up to
AUD $750 000 per offence;
• Individuals that contravene sections 45DA and 45DB are not subject to monetary
penalties.
7. In addition, the ACCC may seek interlocutory or final injunctions under section 80 of the
TPA.  Injunctions can be mandatory (requiring certain future conduct) or prohibitory (requiring the
cessation of certain conduct).  In order to obtain the award of an injunction, the ACCC must show that
there is a serious question to be tried and that the balance of convenience favours the granting of the
injunction.
8. The ACCC can also seek award of damages pursuant to section 82 of the TPA. Such actions
are subject to a three-year limitation period. It should be noted that section 82 damages are designed
not to punish, but to compensate for actual loss suffered.
3. Administrative Action
9. Apart from the judicial remedies outlined above, the ACCC may also accept court-
enforceable undertakings under section 87B of the TPA, rather than pursue litigation. This approachmay result in quicker and less costly resolution of the matter while still attaining the ACCC's
enforcement objectives.
B. C
ASE STUDY – FIRE PROTECTION INDUSTRY
10. The following three related cases involved illegal activity in the fire protection industry in the
State of Queensland, Australia.
11. The ACCC's investigations commenced after a 'whistle-blower' provided information in
relation to cartel activity in the installation of fire sprinklers and alarm systems.  During the ensuing
investigation, evidence surfaced about misleading and deceptive conduct in the maintenance of fire
protection systems, and then about secondary boycott activity by an industry-related union.
12. The seriousness of the misconduct uncovered was exacerbated by the fact that many of the
buildings affected were public facilities: schools, hospitals, retirement homes, cinemas and shopping
centres.WT/WGTCP/W/198
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4. The Cartel
13. In February 2001, after four years of investigation and an eighteen-month trial, the ACCC
secured an award of A$15 million in penalties and costs.  The case involved 38 individuals and more
than 20 companies, ranging from large multinati onal corporations to small local operators.  This
constituted almost all Brisbane-based companies operating in the fire alarm and sprinkler installationservice industry at that time.
14. The level of penalty reflects a number of factor s, including the size of the companies, the
level of management involved, and the nature and seriousness of the unlawful conduct.  In his
judgment, Justice Drummond noted that it could readily be accepted that substantial loss had resulted
to consumers affected.
15. The ACCC alleged that anti-competitive arrangements were made at regular meetings over
many years, beginning in the mid-1980s. At these meetings, the companies agreed which tenders eachwould win by agreeing on prices to be tendered. They also agreed they would not discount their
tender prices beyond a certain range.
16. The ACCC also alleged that the parties agreed that all alarm projects would be tendered at a
labour rate of A$40 per hour with a margin on labour and materials of 40%. This was known as "the
40/40 agreement".
5. Maintenance of Fire Protection Systems
17. As a result of the above investigation, the ACCC discovered sufficient evidence to allege that
numerous fire protection companies had committed various other contraventions of the TPA.  The
evidence suggested they failed to meet Australi an Standards in routine inspection, testing and
maintenance of fire protection systems for approximately 11 years, and had inadequate systems toverify whether checks had been performed.  (Australian Standards must be met in order to ensure the
reliability and performance of these systems.)
18. The Court ordered injunctions, refunds, issuance of public notices, institution of compliance
programs and undertakings to maintain management control programmes after finding the companies
had engaged in misleading and/or deceptive conduct, had made false representations regarding thestandard or quality of services provided, and had accepted payment without intending or being able to
supply goods or services.
19. The fact that the anti-competitive conduct in this case had the potential to put human lives at
risk highlights the importance of a strong and effective competition regime that prevents hard-core
cartel activity.
6. Secondary Boycott
20. A second 'spin-off' from the cartel investig ation was the discovery of secondary boycott
activity by the Communications, Electrical, Electr onic, Energy, Information, Postal, Plumbing and
Allied Services Union (CEPU).
21. The ACCC alleged that a number of contraventions  of the secondary boycott provisions of the
TPA had occurred between November 1997 and early February 1998.
22. The matter was settled between the ACCC and th e CEPU by way of consent orders in the
Federal Court which included:
- an injunction;WT/WGTCP/W/198
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- implementation by the CEPU of a trade practices compliance programme;
- the CEPU notifying sprinkler fitter members, fire protection contractors and
builders that the conduct had ceased;
- agreement by the CEPU to reinstate members who were suspended for
involvement in subcontracting; and
- an agreed contribution by the CEPU to the costs of the ACCC's proceedings.
C. INTERNATIONAL PERSPECTIVES ON HCC C ONCEPTS AND PRINCIPLES
23. Research and analysis on the nature and impact of hard-core cartels, and the need for effective
sanctions against them, are embodied in the OE CD's 1998 Recommendation on HCCs, and in the
United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of
Restrictive Business Practices.
7. OECD Council Recommendation on HCCs
24. The OECD's work programme on hard-core cartels has been underway for a number of years.
The OECD Council Recommendati on on HCCs was issued in 1998.  The Recommendation and a
subsequent progress report by the Competition Committee noted that HCCs impose significant harm
upon consumers worldwide and called for enhanced sanctions against cartel participants to deter such
conduct.
25. More specifically, the 1998 Recommendation concluded that "hard-core cartels are the most
egregious violations of competition law, and ... they injure consumers in many countries by raisingprices and restricting supply, thus making goods and services completely unavailable to some
purchasers and unnecessarily expensive for others".
26. The Recommendation further stated that "effective action against hard-core cartels is
particularly important from an international perspective – because their distortion of world trade
creates market power, waste, and inefficiency ...".
27. Most recently, the OECD this year issued a report on the Nature and Impact of Hard-Core
Cartels and Sanctions against Cartels under National Competition Laws.
28. Australia supports the OECD's work on hard-core cartels and considers it appropriate and
highly useful to use these achievements as a star ting point for discussions within the WTO context.
D. C
ONCLUSION
29. Hard-core cartels are the most insidious form of anti-competitive conduct and must be
stopped.  They work to the detriment of customers and suppliers, act as barriers to the entry of new
players, and undermine the benefits of trade liberalisation.  The prevalence of cartels at the domestic
and international level underpin the importance of having a comprehensive and effective domestic
competition regime, the implementation of which can only be assisted through greater enforcementcooperation among competition agencies around the world.
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