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ACCC v Yazaki Corporation (No 2)

[2018] ACCC v v Yazaki Corporation [2018] FCAFC 73
[2017] FCA 465 (Penalties)
[2015] FCA 1304 (Federal Court of Australia, South Australian Registry)

Note: On 30 May 2017 the ACCC appealed against the $9.5 million penalty imposed by Justice Besanko

Note: On 16 May 2018 the Full Federal Court allowed the ACCC's appeal and imposed a penalty of $46m - the highest ever imposed for cartel conduct in Australia.

Note: Special leave has been sought. The Special Leave application will be heard on 18 October 2018.

 

Summary

Stack of coinsThe ACCC alleged Yazaki and Australian Arrow Pty Ltd (a wholly owned subsidiary of Yazaki Corporation) engaged in cartel conduct, market sharing and price fixing in relation to the supply of wire harnesses to Toyota and related entities in Australia.

The conduct was alleged to have occurred between 2003-2009. In relation to pre-2009 conduct it was alleged the parties had contravened s 45 (then capturing price fixing, exclusionary provisions and other anti-competitive agreements) and from 24 July 2009, s 44ZZRK (part of the new cartel regime, now renumbered s 45AK, prohibiting giving effect to a cartel provision). The ACCC sought penalties of between $42-$55m.

Justice Besanko held that Yazaki had engaged in collusive conduct in contravention of s 45 (exclusionary provisions), but not in contravention of the price fixing provisions because his Honour held that the relevant conduct by Yazaki did not occur in a market in Australia (then required by the Act). Australian Arrow was found to have engaged in some of the market sharing and price fixing conduct alleged by the ACCC. Justice Besanko ordered penalties of $9.5m against Yazaki.

The ACCC successfully appealed against this penalty, with the full Federal Court increasing it to $46 million, representing the highest ever penalty imposed for cartel conduct in Australia.

ACCC claims

Cartel conduct, market sharing and price fixing

'The ACCC alleges that Yazaki and Australian Arrow engaged in cartel conduct, market sharing and price fixing, in relation to the supply of wire harnesses to Toyota Motor Corporation and its related entities in Australia. Wire harnesses are electrical systems that facilitate the distribution of power and the sending of electrical signals to various components of a motor vehicle.' (ACCC press release)

'The ACCC alleges that between 2003 and at least late 2009, Yazaki and Australian Arrow made and gave effect to cartel arrangements with a competitor involving coordination of their responses to requests for quotations issued by Toyota Motor Corporation for the supply of wire harnesses to be used in the manufacture of the Toyota Camry.

In particular, the ACCC alleges that there was an overarching cartel arrangement between Yazaki and a competitor which remained operative until at least late 2009 to meet in relation to requests for quotations received from automotive manufacturers, to agree on the allocation of wire harnesses to be supplied by each of them (or their subsidiaries) to the manufacturer, and to exchange and agree on the prices they would submit to the manufacturer.

It is also alleged that Australian Arrow and Yazaki made and gave effect to agreements of this type in relation to the supply of wire harnesses for use in the manufacture of the 2006 and 2011 models of the Toyota Camry, and that Australian Arrow engaged in cartel conduct in relation to harnesses to be used in manufacturing the 2002 model Camry.

The ACCC alleges that this conduct by Yazaki and Australian Arrow contravened sections 45 and 44ZZRK (in relation to conduct from 24 July 2009) of the Competition and Consumer Act 2010.' (ACCC press release)

'The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.' (ACCC press release)

Other agencies

'The ACCC’s action follows similar enforcement action against Yazaki and other cartel participants by competition regulators in the US and Japan which involved the supply of wire harnesses and other automotive components to a number of automobile manufacturers.' (ACCC press release)

 

Federal Court

The Federal Court found that Yazaki Corporation engaged in collusive conduct with its competitor when supplying wire harnesses to Toyota in Australia. The conduct took place in 2003 and 2008 and breached the exclusionary conduct provisions of the CCA and the Competition Code of Victoria.

Justice Besanko imposed penalties of $9.5m against Yazaki

Details to follow

 

Full Federal Court

In May 2017 the ACCC appealed against the penalty awarded by Justice Besanko.

On 16 May 2018 the Full Federal Court unanimously upheld the ACCC's appeal (in part) and increased the penalty against Yazaki to a total of $46 million ($10 million higher than the previous highest cartel penalty awarded against Visy).

Part of the explanation for the increased penalty was that the Full Court found that the maximum penalty for each contravention was $18m, not $10m, based on 'the proper construction of s 76(5)' of the Act (defining annual turnover for purposes of the calculation of penalty) and because the Full Court held that the penalties should not be limited to two 'courses of conduct' but instead should be imposed on five separate contraventions.

Full details to follow

Summary of judgment

The full judgment of the Full Federal Court was accompanied by a useful case summary, reproduced below:

In accordance with the practice of the Court in cases that are of interest to the public, the Court has prepared a summary of the judgment. However, the only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment. This summary has no legal status as part of, or in explanation of, the reasons for judgment themselves.

This case was an appeal and cross-appeal (also involving an application by the respondents to rely upon a notice of contention) against declarations and orders, including civil penalties totalling $9.5 million, made by a judge of the Court in relation to a cartel concerning the supply of wire harnesses for motor vehicles between two Japanese corporations (Yazaki Corporation and Sumitomo Electric Industries Ltd) and their wholly owned Australian subsidiaries.

The Full Court of the Federal Court of Australia has allowed the appeal in part, dismissed the cross-appeal and notice of contention, and re-fixed the penalties imposed on Yazaki to a total of $46 million.

This case was first brought in 2012 by the ACCC against Yazaki Corporation. Sumitomo Electric Industries Ltd had cooperated with the ACCC and much of the evidence was provided by Sumitomo employees or officers.

Wire harnesses are electrical systems that distribute power and electrical signals to components in motor vehicles. Yazaki and Sumitomo are two of the five main manufacturers of wire harnesses globally.

From the mid-1990s, Yazaki and Sumitomo entered an overarching cartel agreement which involved an agreed mutual response to requests for quotation from vehicle manufacturers around the world for wire harnesses. The agreed response was to respect each other’s incumbency in the market and agree on prices that would, as far as possible, see the incumbent retain their particular geographic markets around the world.

Yazaki and Sumitomo and their subsidiaries put this overarching cartel agreement into effect in Australia by agreeing prices in response to requests for tender from Toyota for the manufacture of Toyota Camry vehicles in Australia. In 2003, the two companies engaged in this conduct in respect of the tender for the 2006 Toyota Camry. In 2008, they made a similar arrangement in respect of the tender for the 2011 Toyota Camry.

In 2003, the two Australian subsidiaries of Yazaki and Sumitomo engaged in their own cartel conduct, agreeing and submitting prices to Toyota’s Australian subsidiary in respect of a minor model change to the 2002 Toyota Camry.

The primary judge found that each of the above agreements, arrangements or understandings had occurred, and made declarations accordingly. These declarations were not the subject of appeal.

The primary judge fixed penalties of $7 million and $2.5 million for what he concluded were two courses of conduct in 2008, in light of what he found to be a maximum penalty of $10 million for each course of conduct. These penalties were only imposed on Yazaki in respect of the 2008 conduct by Yazaki and Sumitomo as the relevant statute of limitations precluded the imposition of penalties by reason of any of the earlier conduct.

The Full Court has allowed the appeal by the ACCC in part, finding: that the maximum penalty for each contravention was over $18 million, not $10 million, because of the proper construction of s 76(5) of the Competition and Consumer Act 2010 (Cth) (the Act); that the penalties should not be limited to two courses of conduct, but should be imposed on five contraventions (including some broadly overlapping conduct); that there does not need to be a relevant market in Australia for there to be an exclusionary provision and contravention of ss 45(2)(a)(i) and (b)(i) of the Act, and in any case, by finding that at the relevant time there was a market in Australia for the supply of wire harnesses for Toyota Camry vehicles; and that Yazaki’s subsidiary gave effect to the contravening conduct notwithstanding the finding that it lacked knowledge of the cartel in which its parent was involved.

The Full Court has imposed five penalties:

(1) for the making of the cartel in April 2008 in response to the Toyota request for tender concerning the supply of wire harnesses for the 2011 Toyota Camry, $14 million;

(2) for the giving effect to this cartel by discussing and agreeing with Sumitomo in May 2008 the prices that they would submit to Toyota for the request for tender, $12 million;

(3) for the giving effect to this cartel by submitting these agreed prices to Toyota in Japan in May 2008, $12 million; and

(4) and (5) for the giving effect to this cartel by both directing and causing its subsidiary to submit the agreed prices to Toyota’s Australian subsidiary in May to June 2008, $8 million, represented by two penalties of $4 million each.

...

 

Case links

 

Media and commentary

ACCC media releases

ACCC, 'Record $46 million in penalties for Yazaki cartel' (ACCC press release, 16 May 2018)

ACCC appeals Yazaki Corporation penalty decision (ACCC press release, 30 May 2017)

Penalties ordered against Yazaki for collusive conduct (ACCC press release, 9 May 2017)

Federal court finds Yazaki corporation engaged in collusive conduct (ACCC press release, 26 November 2015).

Japanese cable supplier to pay $1.35 million penalty for cartel conduct (ACCC press release, 5 April 2013)

Related commentary

Caron Beaton-Wells, 'Cartels caught ripping off Australian consumers should be hit with bigger fines' (The Conversation, 2 June 2017) (addresses original penalty decision)

Law firm commentary

Clayton Utz (Mihkel Wilding, Bruce Lloyd, Michael Corrigan), 'Higher fines for competition law breaches, and more unlawful behaviour captured by Australia's cartel laws' (29 May 2018)

Clifford Chance, New Record Cartel Penalties in Australia (17 May 2018)

PWC, Murray Deakin & David Fleming, 'Record $46 million for Yazaki cartel signals trend towards higher penalties' (LegalTalk - Insights, 17 May 2018)

Media

Samantha Bailey, 'ACCC’s Rod Sims welcomes record penalty for Yazaki cartel activity' (The Australian, 17 May 2018)

Misa Han, 'Japanese car parts supplier Yazaki gets record fine for cartel' (AFR, 16 May 2018)

Stephen Letts, 'Japanese manufacturer fined a record $46 million for car parts cartel' (ABC, 16 May 2018)

Simon Thomsen, 'A Toyota supplier from Japan was just given the biggest fine in Australian history for cartel behavior' (Business Insider Australia, 16 May 2018)

Nick Toscano, ''Huge step': Australian companies on notice after massive fine' (SMH, 16 May 2018)

Eleanor Tyler, 'Yazaki Gets Record $46M Cartel Fine in Australian Court' (Bloomberg, 16 May 2018)