A commercial cleaning company, Canterbury Industrial Scrubbing Limited (CI Scrubbing), has been fined $51,000 at the Christchurch High Court for engaging in long standing cartel conduct with a competitor, Canterbury Industrial Sweeping Limited (CI Sweeping), following an investigation by the New Zealand Commerce Commission (NZCC).

What is a cartel?

A cartel is where two or more competing businesses agree not to compete with one another by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services.

Section 30 of the Commerce Act 1986 (the Act) prohibits cartel conduct. The criminalisation of cartel conduct came into effect on 8 April 2021, making it a criminal offence for a person to enter into a contract, arrangement or understanding that contains a “cartel provision”. Cartel conduct is now punishable by a term of imprisonment of up to seven years.

Commerce Commission v Canterbury Industrial Scrubbing Limited

An investigation by the NZCC found that, for nearly two decades, CI Scrubbing and CI Sweeping agreed to not compete with each other in providing commercial cleaning services - while CI Scrubbing would only offer industrial scrubbing services, CI Sweeping would only offer industrial sweeping services. 

When CI Sweeping tried to exit the scheme, CI Scrubbing’s director (Mr Jamieson) threatened to target its customer base in an attempt to induce it to continue. 

After the cartel broke down, some customers of industrial scrubbing and sweeping services noticed an immediate change in prices, with prices dropping up to 30% in some cases. 

On 30 June 2023, the NZCC filed proceedings against CI Scrubbing and Mr Jamieson, alleging that they engaged in cartel conduct in relation to industrial cleaning services in contravention of the Act. The parties reached a settlement prior to the proceedings, with the defendants admitting that they contravened the relevant provisions of the Act between July 2013 and January 2020. 

Justice Dunningham records in her judgment that the significant duration of the conduct was “a clear aggravating factor” and the commercial threat made to CI Sweeping by Mr Jamieson “was a serious breach of the Act”.[1]

Her Honour accepted that, were it not for the current financial circumstances of the defendants, and cooperation with the Commission’s investigation, a penalty of between $750,000 and $1.25 million would have been appropriate for CI Scrubbing’s conduct, and $50,000 to $70,000 for Mr Jamieson. Taking these factors into account, however, Her Honour imposed a final penalty of $51,000 on CI Scrubbing and made declarations with respect to Mr Jamieson.

In response to the High Court’s judgment, Commissioner Dr Derek Johnston said that targeting cartel conduct remains a priority for NZCC, due to its secretive nature and the harm that it can cause consumers.

Dr Johnston also said that “[t]his case, and the recent charges laid in the country’s first-ever criminal prosecution for cartel conduct, should serve as a strong reminder to businesses and their directors to operate on the right side of the Commerce Act.”[2]

In our view, a penalty of only $51,000 on CI Scrubbing for such long-running cartel conduct seems extremely light based on past penalty cases for cartel conduct. This means that the current financial circumstances of CI Scrubbing must have been poor and its co-operation with the Commission significant, in order to offset the much higher penalty that would otherwise have been awarded. Equally, the relevant conduct took place before the recent criminal sanctions for cartel conduct were introduced, or else the director here would have faced potential jail time. Either way, CI Scrubbing and its director are fortunate not to have been penalised more harshly. 

Recent enforcement of cartel prohibitions by the NZCC

Following the penalties against CI Scrubbing and Mr Jamieson, the NZCC has no open cartel investigations on its public case register. 

However, as alluded to by Dr Johnston, the NZCC filed criminal proceedings in December 2023, against two unnamed construction companies and two of their directors, in relation to alleged bid rigging of publicly funded construction contracts put out to tender by the NZ Transport Agency Waka Kotahi, HEB Construction and Fulton Hogan in Auckland (noting that these latter three would be the victims of the cartel). 

The NZCC describes bid rigging, or “collusive tendering”, as an agreement between competitors as to which will win a bid, eliminating competition among the colluding bidders. Agreements to rig bids will typically have the effect of price fixing and/or market allocation.

One of the individual defendants has pleaded not guilty to the charges against them. The identity of the defendants remains subject to name suppression at this stage, and we will update you with any public announcements in due course.

Please get in touch with one of our experts to discuss any aspect of this article and its potential implication for your business.

Special thanks to Achi Simhony and Henry King for their assistance in preparing this article.

1]       Commerce Commission v Canterbury Industrial Scrubbing Ltd [2024] NZHC 1596 at [37] - [39].



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