After years of gestation, New Zealand law now provides criminal penalties for serious cartel conduct, in a similar form to Australia’s laws that are about to experience their tenth birthday.
Last month, New Zealand passed an amendment to its cartel legislation providing for criminal sanctions for certain serious cartel conduct, which will take effect on 8 April 2021 after a two-year transitional period. The Commerce (Criminalisation of Cartels) Amendment Act 2019 (NZ) amends the Commerce Act 1986 (NZ) to include offences for making or giving effect to a cartel provision while intending to engage in price fixing, restricting output or market allocation.
The maximum fine which can be imposed on a corporation found guilty of cartel conduct is the greater of:
- NZD10 million; or
- either –
- 3 times the commercial gain resulting from the contravention (if that gain can be readily ascertained, and the court is satisfied that the offence occurred in the course of producing a commercial gain); or
- 10% of the turnover of the corporation and any of its interconnected bodies corporate in the accounting period during which the contravention occurred (if the commercial gain cannot be readily ascertained).
The maximum penalty for individuals found guilty of engaging in cartel conduct is 7 years’ imprisonment and/or a NZD500,000 fine.
It is a defence to the criminal cartel provisions if the accused believed (at the time of the alleged contravention) on reasonable grounds that one or more of the available exceptions under the Commerce Act applied to the conduct. The most notable exception is for “collaborative activity” such as a joint venture, which is not carried on for the dominant purpose of lessening competition, and applies where the cartel provision is reasonably necessary for the purpose of the collaborative activity. There are also exceptions for vertical supply contracts and for joint buying and promotion agreements.
However, a defence will not apply if the accused’s belief is based on ignorance or mistake of any matter of law (in other words, it only applies to a mistake of fact).
The amendments also provide for the appointment of a cartel prosecutors panel, to ensure the speedy prosecution of criminal cartel conduct, something the Australian process has been criticised for.
The protracted gestation of the new law
New Zealand’s new cartel legislation had a long and difficult history: indeed, one member of Parliament likened it to a “Homeric epic”.
Interestingly, prior to August 2017, the Commerce Act prohibited price fixing specifically (as well as exclusionary provisions, and the entry into or giving effect to contracts, arrangements or understandings that have the purpose, effect or likely effect of substantially lessening competition), but did not contain a broad cartel prohibition as in Australia’s Competition and Consumer Act 2010 (Cth) (CCA). However, after 6 years before Parliament, an amendment which sought to extend the prohibition on price fixing to broader cartel conduct involving market allocating and restricting output received royal assent in August 2017, though it only took effect in May 2018.
Those 2017 amendments originally also included a proposal to criminalise serious cartel conduct, but it was ultimately dropped. As we have previously reported, that proposal was re-introduced last year in the form of what became the 2019 amendments, after a change in government.
How do New Zealand’s laws compare with Australia’s?
When the 2017 amendments were originally introduced, emphasis was placed on the fact that most of New Zealand’s trading partners – including its biggest one, Australia – had already criminalised serious cartel conduct several years earlier.
While there are broad similarities between New Zealand’s and Australia’s criminal cartel provisions, there are also some important differences.
Definition of a cartel provision
The definition of a cartel provision itself in the Commerce Act is largely similar to that in the CCA. The cartel manifestations of price fixing, restricting output and market allocation are covered in very similar language. Although bid-rigging is not included explicitly as in the CCA, it is considered to be covered; and the competition condition is expressed in comparable, but more economical, language.
The biggest difference is that a cartel provision is caught under the Commerce Act if it has the purpose, effect or likely effect of any of price-fixing, restricting output or market allocation, whereas the CCA only includes an effects test for fixing, controlling or maintaining price.
Maximum penalties for criminal cartel conduct
New Zealand’s maximum penalties are similar to those set out in Australia’s CCA. For corporations, the penalties are virtually identical. For individuals, under the CCA, they can only be charged as accessories to a contravention by a corporation (unlike under the Commerce Act which contemplates primary contraventions by individuals). In terms of maximum penalties, individuals subject to the CCA are liable to imprisonment for up to 10 years (being 3 years longer than the maximum available in New Zealand) and/or a fine of up to AUD420,000 (very similar to New Zealand’s NZD500,000, which equates to about AUD470,000).
Defences to cartel conduct
A notable difference between the Commerce Act and the CCA is in relation to the handling of defences. As stated above, an accused will be exempt from prosecution in New Zealand if they believed on reasonable grounds, as a matter of fact, that one of the exceptions (such as for collaborative activities) applied to the impugned conduct.
In an earlier draft, the amendments to the Commerce Act had provided that an accused could escape conviction if they merely believed that a cartel provision was reasonably necessary for the purposes of a collaborative activity. In a submission to the relevant New Zealand parliamentary committee, the ACCC expressed deep concern that this subjective test may “prevent legitimate prosecutions” and pointed out that the corresponding test in the CCA is objective.
While the amendments to the Commerce Act, as ultimately drafted, considerably water down the previous subjective test, they still include an additional layer of defence that does not exist in the CCA. However, the collaborative activity defence itself is broader than the joint venture defence in the CCA, not least because the concept of a “joint venture” is narrower and because there are more requirements under the CCA that must be satisfied in order to establish the defence (although these matters are yet to be properly tested by the courts).
Another difference relates to the applicable fault element. In New Zealand, the prosecution will need to prove (beyond reasonable doubt) that an alleged cartelist intended, at the time of the alleged cartel conduct, to engage in price fixing, output restriction or market allocation.
In Australia, a more complex set of fault elements exists: the accused must have intended to make or give effect to the contract, arrangement or understanding; and they must have had knowledge or belief that it contained a cartel provision (that is, they must have known or believed that the provision of the contract, arrangement or understanding included the requisite anti-competitive purpose and that two or more parties to the arrangements were in competition).
What does this mean for Australia and the ACCC?
These developments suggest an increasingly more unified approach to the enforcement, and deterrence, of cartel conduct. Indeed, in its submission during the committee phase of the 2019 amendments, the ACCC supported the passage of the legislation for reasons including because it would align New Zealand’s cartel laws more closely with Australia’s equivalent laws.
In particular, the ACCC emphasised that a greater level of trans-Tasman cooperation would be made possible: both the ACCC and its New Zealand equivalent, the New Zealand Commerce Commission (NZCC), would be able to more easily coordinate the use of information gathering tools and investigative strategies.
Further, cartel criminalisation would allow the NZCC to use extradition processes to return alleged cartelists to New Zealand for prosecution, given the foreseeable existence of trans-Tasman cartels.
With the very significant reforms represented by both the 2017 and the 2019 amendments to the Commerce Act, it has perhaps never been a more exciting time to be a New Zealand competition lawyer.
We look forward to closely monitoring the impact of this legislation of our cross-Tasman counterpart.