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Wallenius Wilhelmsen convicted of cartel conduct and fined AU$24 million

19 April 2021

#Transport, Shipping & Logistics

Published by:

Charlie Coleman

Wallenius Wilhelmsen convicted of cartel conduct and fined AU$24 million

On 4 February 2021, Justice Wigney of the Federal Court of Australia handed down judgment in Commonwealth Director of Public Prosecutions v Wallenius Wilhelmsen Ocean AS [2021] FCA 52, imposing a penalty of AU$24 million on the defendant, Wallenius Wilhelmsen, for intentionally giving effect to cartel provisions in an arrangement with its competitors in the ocean shipping services business.

It is the third conviction of major shipping companies, in addition to Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha (2017) 254 FCR 235 and Commonwealth Director of Public Prosecutions v Kawasaki Kisen Kaisha Ltd [2019] FCA 1170; 137 ACSR 575, in relation to cartel provision offences under the Competition and Consumer Act 2010 (Cth) from which around AU$83.5 million in penalties have been handed out by the Court so far.

Wallenius Wilhelmsen (WWO) was held to be a party to what was termed by the Court to be the “Respect Arrangement” in which it, along with at least three other major shipping companies, Nippon Yusen Kabushiki Kaisha (NYK), Kawasaki Kisen Kaisha (K-Line) and Mitsui OSK Lines Ltd (MOL), would seek to allocate certain customers between themselves on certain international shipping routes and would not attempt to take business from each other.

What happened?

WWO is a large Norwegian shipping company based in Lysaker, Norway, with 9,400 employees stationed in 29 countries worldwide. It has a global presence with offices and agents in Europe, Africa, North East Asia, South East Asia, Japan, North America, Central and South America, India, the Middle East and Australia. In Australia, it operates out of each major port including Brisbane, Sydney, Melbourne, Newcastle, Port Kembla and Fremantle.

As part of its operations, WWO conducts, and is one of the market leaders of, “roll-on, roll-off” or RoRo shipping. For those unfamiliar with the term, RoRo shipping is the carriage and consignment of wheeled vehicles.

WWO ships motor vehicles, trucks, buses and commercial vehicles including agricultural, mining and construction equipment. It supplies these shipping services, in competition with other similar providers, to a variety of customers, including manufacturers, along a number of shipping routes.

However, from around July 2009, WWO, NYK, K-Line and MOL entered into the Respect Arrangement and did not compete for business from certain customers or attempt to win contracts of tender once they were due for renewal. In doing so, they ensured that their existing shares of the RoRo shipping market were undisturbed.

Terms of the Respect Arrangement

WWO and the other companies that were part of the arrangement, including NYK, K-Line and MOL, would engage in three general types of conduct to ensure the efficacy of the Respect Arrangement:

  1. they would share information between themselves about the freight rates for the supply of services to customers on particular routes to and from Australia, including information about rates charged on previous shipments, future shipments, or anticipated or proposed changes to rates in the future
  2. they would agree on the freight rates, approximate freight rates or changes to freight rates for the supply of services on particular routes to and from Australia. On occasion, the agreement would include that one or more of the parties would not bid or submit for the relevant business
  3. they would submit, or not submit, depending on the customer, bids or quotes to customers or potential customers of freight rates, or approximate freight rates or changes to freight rates, in line with the agreed rates and partition of the market.

Plea of guilty

WWO was charged with, and pleaded guilty to, six offences, and further admitted to two additional offences concerning conduct from 2009 to 2012. The offending conduct involved:

  • WWO’s successful submission in response to a tender issued for the supply of shipping services from the United States to Australia by Renault Nissan Purchasing Organisation (RNPO) in around October 2011 which generated US$6,305,005 in revenue – however, this resulted in an operating loss for WWO in the amount of US$1,233,446.
  • WWO’s deliberate submission of higher rates in response to a tender issued by RNPO for the provision of shipping services from Europe to Australia and Turkey to Australia for the period 2012-2013, after conferring with NYK regarding their proposed rates
  • WWO’s quotation of a freight rate to Fiat that NYK had requested that it make in around August 2011 pertaining to the shipping of cars from Europe to Australia. The result of WWO’s quotation of the rate nominated by NYK was that NYK entered into an agreement with Fiat Chrysler for the shipping of cars from Europe to Australia
  • WWO and NYK’s agreement that NYK submit a quote to Fiat above a particular freight rate in relation to the shipment of Iveco trucks in around August 2011
  • WWO’s withdrawal of any further attempts to winning further business from NYK in relation to Fiat’s shipment of passenger vehicles from May 2012 to July 2012 on the false basis of space constraints
  • after consultation with NYK, WWO’s submission of freight rates in response to a tender issued by Toyota from around February 2012 to May 2012 in relation to the shipment of Toyota Kluger models from the United States to Australia
  • the consultation and ultimate submission of respective quotes by NYK and WWO in around November 2009 to Toyota in relation to the supply of shipping services to Toyota for the shipment of Kluger models from the United States to Australia
  • WWO and NYK’s agreement to provide similar rates if a request was made by Mitsubishi in around November 2009 in relation to freight rates on shipping routes from Europe and Turkey to Australia.

The offences to which WWO admitted guilt were, however, not the only offences that were committed by the company over the near three-year period during which the Respect Arrangement was in force. WWO has been ordered to pay over US$300 million in penalties in foreign jurisdictions in relation to cartel provisions offences which includes the United States, Europe, Japan, China, South Africa, Mexico, Brazil and South Korea.

Submissions as to penalty

Although WWO pleaded guilty and accepted wrongdoing, it did make submissions to the Court as to what should constitute the Court’s appropriate sentence. WWO made submissions that:

  • it did not adhere to the Respect Arrangement in varying degrees and not in every case
  • that it would be incorrect to characterise its offending as systematic, but that it was “ad hoc” or “opportunistic”
  • that there was no senior management that directly or regularly communicates with the carriers and that the majority of the offenders were working below senior management at WWO Japan
  • that it received no tangible or intangible benefit from the Respect Arrangement
  • that it was deserving of an appropriately discounted sentence based on the principle of parity. WWO said that it deserved a lesser sentence than K-Line and NYK on the basis that its offending was not as objectively serious.

His Honour Justice Wigney did not accept the majority of WWO’s submissions. He found that:

  • if WWO did not adhere to the Respect Arrangement, then it did so in an extremely minor and inconsequential respect
  • non-adherence to cartel arrangements is not a mitigating factor in sentencing. A cheating cartelist is simply seeking to take further advantage of an already distorted or compromised competitive environment
  • that the conduct was not “ad hoc” or “opportunistic” but rather that the very essence of the Respect Arrangement was the systematic sharing of information about freight rates and bidding in a way that showed respect to other companies
  • that senior officers of WWO directly engaged in the Respect Arrangement
  • that WWO’s market share remaining relatively stable was itself a benefit conferred on WWO as a party to the Respect Arrangement
  • the fact that it was not possible to quantify precisely the profit or financial benefit derived by WWO is not a mitigating factor in determining what is the appropriate sentence.

However, the Court did find that WWO’s conduct was less serious than that of K-Line and NYK. His Honour said:

“[310] The objective seriousness of WWO’s offending was undoubtedly less than the objective seriousness of offending by NYK and K-Line…
[311] The offending conduct of both NYK and K-Line involved 20 incidents of them giving effect to cartel provisions in the Respect Arrangement over a period of more than three years. In NYK’s case, the cartel provisions included not only the market allocation provision, but also provisions involving price fixing and bid rigging. In K-Line’s case, the cartel provision involved price fixing. WWO’s offending, in contrast, involved six incidents of it giving effect to one cartel provision, the market allocation provision, over a one year period…”

Final sentence and key takeaways

In this case, the maximum penalty that could have been imposed by the Court was, based on WWO’s relevant annual turnover in the 12 months preceding the offence, a fine of AU$48,532,493.  

Despite the seriousness of the offences, his Honour took into account the following several mitigating factors which reduced its penalty to AU$24 million:

  • WWO’s reasonable prospects of rehabilitation, particularly given the steps already taken by it to establish systems and practices that should prevent any re-offending
  • the early indication of a plea of guilty, including both the significant utilitarian value of that early plea and the contrition reflected by it
  • the fact that WWO has not previously been convicted of any offence, or otherwise transgressed Australia’s competition laws
  • the fact that WWO has already suffered at least some relevant extra-curial punishment arising from its participation in the relevant international cartel, being punishment in the form of penalties imposed by courts, tribunals and competition authorities in overseas jurisdictions
  • WWO’s early plea of guilty, which resulted in the Court applying a 20 per cent discount on WWO’s penalty.

While the fine imposed on WWO was lower than the fines imposed on both NYK and K-Line, at AU$24 million, it was nevertheless significant. In handing down such a substantial punishment, the Court has maintained its tough stance on anti-competitive conduct from multinational corporations which is destructive to the competition that underpins Australia’s free market economy. 

It did not matter that WWO did not extensively profit from its participation in the Respect Arrangement. The Court held that WWO clearly benefited from the arrangement, otherwise it would not have participated in it over three years.

With this decision, the Court and Justice Wigney made it “clear to multinational corporations that they will be dealt with harshly if they give effect to cartel arrangements in a way which transgresses Australia’s competition laws”.  

Authors: Nathan Cecil & Charlie Coleman

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Charlie Coleman

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