Recent changes to the Commerce Act 1986 mean that from 8 April 2021 cartel conduct will be a criminal offence and could be punished with up to 7 years’ imprisonment. This is significant for all businesses operating in New Zealand, particularly as the definition of cartel conduct in the Commerce Act is broad, and could capture a wide range of commercial conduct.

New criminal offence

From 8 April 2021, it will be a criminal offence if a person:

• Enters into a contract, arrangement or understanding that contains a “cartel provision” or otherwise gives effect to a “cartel provision”; and
• Intends, at that time, to engage in “price fixing”, “restricting output” or “market allocating.”

A “cartel provision” is a provision of a contract, arrangement or understanding which has the purpose or (likely) effect of “price fixing”, “restricting output” or “market allocating.” These three terms are defined broadly and could capture a wide range of commercial conduct. For example:

• “Price fixing” will capture any agreements between competitors that fix, control or maintain any element of the price of goods or services (including discounts, rebates, or credit) that the parties supply or acquire in competition with each other. In the past, “price fixing” has captured all manner of conduct including agreements with competitors to remove free gifts/services with purchases, or agreements to pass on certain costs to end customers.
  
  
• “Restricting output” will capture any agreements preventing, limiting or restricting the production, capacity or supply of goods or services which the parties to the agreement compete in relation to. This is a relatively new addition to New Zealand’s competition law regime so there is limited guidance from the Courts. An agreement between competitors to reduce capacity in their factories in order to increase consumer demand would likely constitute “restricting output.”
  
  
• “Market allocating” means allocating customers, classes of customers or specific geographic areas between the parties so that they do not compete with each other for those customers or within the same geographic areas.

There are three “exceptions” to the cartel prohibition for “collaborative activities”, “vertical supply contracts” and “joint buying and promotion.” Whether one or more of these exceptions will apply usually requires careful analysis, preferably at the outset of any proposed conduct.

It is unclear at present how the Courts will interpret the “intent” element of the offence. However, there is a defence to the offence if the individual in question believed on reasonable grounds that one of the exceptions described above applied (although this won’t apply if the person’s belief was based on ignorance, or mistake, of any matter of law).

New penalties

Under the new criminal offence individuals may face up to seven years’ imprisonment and/or a maximum $500,000 fine. Companies may face penalties of up to the greater of a $10 million fine, three times the value of any commercial gain resulting from the breach of the cartel provision, or 10% of the turnover of the company and all its interconnected bodies corporate in each accounting period that the cartel provision operated.

The Commerce Commission has indicated that it will only bring proceedings under the new criminal offence for the more egregious kinds of cartel conduct. Exactly what this means in practice is yet to be tested.

How should businesses be preparing for these changes?

If you are concerned about getting your affairs in order prior to the introduction of the new criminal offence, you should consider the following:

• Now is a good time to do a “health check” of commercial arrangements. Review all joint ventures or other arrangements with actual or potential competitors, and consider seeking advice on whether these could breach the Commerce Act.
  
  
• It would also be wise to implement a compliance regime, including regular training for all staff, if you do not have this in place already.
  
  
• We have prepared some high-level “Do’s and Don’ts” for businesses to mitigate risk of breaching the cartel prohibition, including for discussions with competitors, which may provide some useful guidance - please get in touch if you would like a copy.
  
  
• If you believe that you may have inadvertently engaged in cartel conduct, you should take advice about potentially applying for cartel leniency. The Commerce Commission’s Cartel Leniency Policy and Guidelines can be found here.

Get in touch

Please get in touch with any of our contacts (pictured below) to discuss the new changes and how they will affect your business.