In New Zealand’s first-ever criminal prosecution for cartel conduct, the New Zealand Commerce Commission (NZCC) has filed criminal charges against two construction companies and two directors for alleged bid rigging of publicly funded construction contracts. Andy Matthews comments:
The first New Zealand criminal cartel prosecution is a big deal. These proceedings will help clarify the role of criminal jurisdiction in the Commerce Act and are a timely reminder for people that any competitor interaction carries civil and criminal legal risk.
A “cartel” can exist where two or more businesses agree not to compete by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services. These prohibitions are very broadly defined in the Commerce Act so are not always intuitive. Equally the “exceptions” may be too narrow, meaning potentially greater exposure than might be expected.
Cartel conduct is prohibited under the Commerce Act and intentional cartel conduct is a criminal offence punishable with a term of imprisonment of up to 7 years.
Key reminders:
- It is a criminal offence under the Commerce Act to enter into or give effect to a cartel provision while intending to engage in “price fixing”, “restricting output” or “market allocating” (noting the expansive definitions of these terms).
- Stakes are high because, if convicted, individuals can be jailed up to 7 years and fined up to NZ$500K. Non-individuals can be fined up to the greater of NZ$10M, 3x the value of any commercial gain resulting from the contravention, and, if commercial gain cannot be readily ascertained, 10% of the turnover of all interconnected bodies corporate. (For civil liability the maximum pecuniary penalties are the same.)
- Parties who think they may / could be part of a cartel may be able to seek civil leniency / criminal immunity. Only the first party to qualify for leniency / immunity is eligible. There is often a race to be first-in as there is no second place when obtaining immunity / leniency (although there can be benefits in cooperating).
- Expert competition law advice is essential to effectively navigating the NZCC’s leniency and immunity process and deciding whether or not, or how to apply. “This prosecution is a reminder for people in business and their advisers to undertake regular internal due diligence and to check their agreements and communication with competitors given the race to be the first to approach the Commission”, notes Andy.
- Experience and expert legal counsel is vital. Any application of immunity or leniency entails a range of considerations regarding the scope and content of the application and the strategy that applies to it. We strongly advise parties to seek advice from experienced and specialised competition lawyers to ensure that they are fully aware of all considerations before applying.
Criminal cartel investigations and prosecutions are one of the highest stakes environments imaginable in competition law regulatory actions. Recently in Australia, criminal cartel charges were laid against Citigroup, Deutsche Bank, and ANZ and several senior executives after an Australian Competition and Consumer Commission investigation. Eventually charges were withdrawn.
The evidential standard for establishing cartel conduct is high and we expect that the NZCC has carefully worked through its case.
Businesses or directors with concerns about potential cartel conduct (including competitor communications and agreements which may inadvertently fall within the prohibitions) are advised to act quickly. There could be a race with your competitors and / or collaborators to seek immunity or leniency for being the first to approach the NZCC. Even if you are not the first to approach the NZCC there may still be benefits in cooperating with the NZCC or defending your position.
Additionally, for industry associations, there are both practical and legal risks (for example, deemed agreements). Internationally, the best practice has to have antitrust / competition law counsel present however if this is unrealistic due to budgetary constraints then preparing a plan (preferably with legal input or oversight where possible).
While a different context, the fact that Anytime Fitness was declined NZCC clearance for more-aligned pricing highlights the challenges in this area. The NZCC concluded there would be no competition concerns but declined clearance as it was not satisfied that the proposal fell within the collaborative activities exception.
See our one-page summary of the cartel prohibition & exceptions.
Refer also to these useful resources:
- Navigating a brave new world with the new prohibition on cartel provisions – a Legalwise seminar presented by Andy Matthews prior to implementation of criminal liability.
- The Crown Law Office’s “Guidelines on Immunity From Prosecution for Cartel Offences”
- The NZCC’s Cartel Leniency and Immunity Policy Guidelines
- NZCC’s FAQ webpage
Contact us at Matthews Law (andrew.matthews@matthewslaw.co.nz) should you require advice or further information regarding competition law or enforcement.