Upholding Fair Competition: First Prosecution of Criminal Cartel Conduct in New Zealand
Introduction:
In a groundbreaking move, the Commerce Commission has filed charges against two construction companies and their directors (none of which have yet been named) for allegedly engaging in criminal cartel conduct. The charges are historic, in that this is New Zealand’s first ever criminal prosecution of such conduct. The charges, filed in the Auckland District Court, send a clear message that the Commission is committed to ensuring fair competition and will not tolerate anti-competitive practices that harm consumers and the wider economy.
Understanding Cartel Conduct:
Cartel conduct involves collusion between two or more businesses with the aim of stifling competition. This collusion may take various forms, including price fixing, market or customer allocation, and the restriction of output or acquisition of goods and services. These practices are detrimental to both consumers and businesses, leading to higher prices, reduced quality, and an unfair competitive landscape.
Bid Rigging in the Construction Industry:
The specific charges in this case concern ‘bid rigging’, which is a form of price fixing that is particularly harmful when it occurs in publicly funded construction projects (as alleged here). Bid rigging occurs when companies conspire to manipulate the bidding process for contracts. This may involve agreeing on prices, allocating markets or customers, or engaging in other tactics that undermine fair competition. The effects of bid rigging extend beyond the immediate parties involved, as it loads extra costs onto taxpayers and hampers the overall health of the economy. The issue is particularly concerning in the construction industry, which is already plagued by cost fluctuations, delays and labour shortages.
Legal Ramifications:
The move to criminalise cartel conduct in 2021 underscores the gravity of the two construction companies’ alleged offending. The Commerce Commission's chair, John Small, has emphasised the significance of the proceedings, noting that cartel conduct not only harms consumers through higher prices or reduced quality but also undermines fair competition among businesses. By taking legal action, the Commission aims to deter others from engaging in similar practices and safeguard the principles of fair competition in the market.
Cartel Laws in New Zealand:
Cartel law in New Zealand is designed to protect the interests of consumers and foster fair competition. The Commerce Act 1986 is the primary legislation governing competition law. Under this Act, cartel conduct is explicitly prohibited, and individuals found guilty of such offending can face severe penalties, including imprisonment and significant fines (up to $500,000), whilst companies may be liable to pay fines of up to $10 million. These penalties send a powerful deterrent to those considering engaging in such conduct.
The Commerce Commission's Role:
As New Zealand's competition regulator, the Commerce Commission plays a crucial role in investigating and prosecuting anti-competitive conduct. The charges laid against the two construction companies and their directors highlight the Commission's commitment to actively enforcing cartel laws. In doing so, the Commission aims to protect the integrity of the market, ensure fair competition, and ultimately benefit consumers and businesses alike.
Conclusion:
In filing these charges, the Commerce Commission has sent a clear message that fair competition is non-negotiable. If you have any questions about your business’ compliance with the Commerce Act, please feel free to contact Jaesen Sumner or Jordan Todd.
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