Catching Cartels: The Latest Law Changes

What is Cartel Activity?

A cartel activity occurs when businesses agree not to compete against each other.  Examples of cartel activity are:

1. Price Fixing where businesses agree on prices for goods or services to reduce competition with each other.  This includes any part of a price and developing a formula for price setting.  An example of this is Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd[1] where businesses agreeing to share pricing information with each other, simultaneously raise prices, and not compete on prices amounted to price fixing conduct.  Koppers Arch Wood Protection (NZ) Limited was a major supplier of wood preservative chemicals who reached an “overarching understanding” with other suppliers in the industry to price fix.

2. Restricting Output where buyers or sellers agree to prevent, restrict or limit goods and services on the market.  An agreement between salmon farmers to cull a percentage of salmon stocks so that a limited amount was available to consumers amounted to output restriction in the Australian case of ACCC v The Tasmanian Salmonid Growers Association Ltd. [2]

3. Market Allocating where businesses agree to allocate types of customers, goods, services or territory among themselves, so they are not competing for the same customers.  This could be done by proposing that a business must only buy or offer to buy supplies from persons who are not a supplier of a competitor, as seen in ACCC v Simsmetal Ltd. [3] Simsmetal Ltd was one of the largest scrap metal recyclers in the world at the time.

Those who are not a part of the cartel may struggle to develop and successfully maintain their businesses where price fixing, output restriction and market allocation arrangements are allowed.  Cartel activity also has the negative effect of reducing both quality and choice for consumers.

Commerce (Criminalisation of Cartels) Amendment Act 2019

Cartel activity is illegal under the Commerce Act 1986, regardless of whether it has any effect on market competition, as it can drive prices for goods and services higher.

The Commerce (Criminalisation of Cartels) Amendment Act 2019 amended the Commerce Act 1986 by criminalising cartel activity.  Those who engage in cartel activity now run the risk of criminal and civil penalties including imprisonment.  

Penalties

Penalties under the criminal regime include:

For an individual – up to seven years imprisonment and/or a fine of $500,000.

For a company – a fine of up to $10 million, three times the value of any commercial gain resulting from the cartel activity or 10% of the turnover of the company in the accounting period where the cartel activity occurred.

For a director – potential disqualification from acting as a director for up to five years.

The Commerce Commission is responsible for initiating proceedings in relation to cartel activity.  As an extra measure to encourage reporting, in certain circumstances the Commerce Commission may grant immunity to the first member of a cartel to inform and provide them with evidence of cartel activity.

What Does this Mean for your Business?

It is vital for New Zealand businesses to be properly educated on the types of cartel activity, and for business owners and directors to be aware of all business activities.  Policies should also be in place to ensure staff members understand what cartel conduct is and how to identify and prevent it.  Any cartel activity should be reported to the Commerce Commission.

Seeking independent legal advice when you are entering into an agreement will ensure the company and its directors do not inadvertently commit an offence involving cartel activity.

If you have any concerns about your business or any current agreements, please do not hesitate to get in touch with Anna Fox, Nick Strettell or Josh Orton of the Saunders Robinson Brown Commercial Team.

DISCLAIMER

The above information is of a general nature only.  The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.

[1] Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd [2009] NZCCLR 1.

[2] Australian Competition & Consumer Commission v Tasmanian Salmonid Growers Assn Ltd [2003] FCA 788.

[3] Australian Competition & Consumer Commission v Simsmetal Ltd [2000] FCA 818.