Commercial cartels

From 8 April 2021, it will now be a criminal offence under section 30 of the Commerce Act 1986 to enter into a contract, arrangement, or understanding that contains a cartel provision, or to give effect to a cartel provision.

Previously, the Commerce Commission could only bring civil proceedings against a person or business who engaged in commercial cartel conduct with the punishment limited to punitive penalties. Now, under section 82B of the Commerce Act 1986, individuals who breach the cartel provisions in the Act could face criminal prosecution and a sentence of up to 7 years imprisonment.

The new law criminalising cartels will not only capture new agreements entered into after 8 April 2021, but will also capture cartel provisions in existing agreements which are given effect to after 8 April 2021.

What is a cartel provision?

A cartel provision is a provision in an agreement or an understanding between two parties that has the aim or effect of ‘price fixing’, ‘restricting output’, or ‘market allocating’ in relation to similar goods or services in New Zealand.

• The term ‘Price Fixing’ refers to an agreement between 2 or more parties, usually in competition with one another, to attempt to control the supply or acquisition price of certain goods and services in New Zealand. It also extends to any discounts, allowances, rebates or credits offered for certain goods or services.
• ‘Restricting Output’ on the other hand, is an arrangement between 2 or more parties which attempts to limit the production, distribution or supply of certain goods or services in the market.
• Finally, ‘Market Allocating’ is an arrangement between 2 or more parties in competition with one another not to carry on trade within a certain geographical area in which the other party operates, or deal with particular persons or classes of persons.

These recent legislative changes are a reminder to review your current contracts to ensure that there are no provisions which could be construed as ‘price fixing’, ‘restricting output, or ‘market allocating’.

While the parties to these types of arrangements are usually in competition with one another, the cartel provisions in the Act may also extend to other collaborative dealings between businesses such as suppliers, franchises, and businesses in partnership or joint venture with one another.

There are steep penalties for breaching the cartel provisions in the Act. Individuals who breach the Act may now face up to 7 years imprisonment or a fine of up to $500,000.00.

Companies who breach the Act may be fined the greater of:

• a fine of up to $10 million;
• 3 x the commercial gain resulting from the breach; or
• 10% of a company’s annual turnover during the accounting period in which any cartel provision was operating.

The intent of the parties and the likely effect of the provision on the market will be relevant in determining the seriousness of the breach. There are of course several exceptions. Under sections 31 – 33 of the Act, if you can establish on reasonable grounds that your arrangement comes within the definition of a ‘collaborative activity’, ‘vertical supply contract’ or ‘joint buying and promotion agreement’, then you may be able to escape liability.

These recent legislative changes are a reminder to review your current contracts to ensure that there are no provisions which could be construed as ‘price fixing’, ‘restricting output, or ‘market allocating’.

If you believe you have breached the Act, you should seek legal advice as you may be eligible to apply to the Commerce Commission for leniency under the Commerce Commission’s Cartel Leniency and Immunity Policy. The policy encourages whistle-blowers by granting leniency to the first members of a cartel to come forward.