Inbox: Tough cartel penalties ahead

Businesses would be well advised to review their arrangements with third parties in the same industry following the recent introduction of new legislation criminalising price fixing between competitors.
The Commerce (Cartels and Other Matters) Amendment Bill recently passed its first reading and will go before the Commerce Select Committee later this year for consideration.
The Bill replaces the current ‘price fixing’ provisions in the Commerce Act with new sections that deal expressly with cartels. While the term is often used to indicate serious illegal conduct, such as drugs or arms dealing, the Bill’s definition of “cartel” is wide-reaching and will capture collusive conduct across any industry.
Under the legislation, it will be an offence to enter into contract, arrangement or understanding that may lead to price fixing, restricting the supply output, geographic market allocation between competitors or bid rigging during tendering process.
Fines will continue to be one of the penalties for breaching trade practice provisions, which could also attract up to seven years in jail – significant deterrent.
The effect of the changes will be significant. This is the largest amendment to the Commerce Act since its introduction in 1986. The debate continues as to whether there is actually an issue with organised cartels in New Zealand that needs addressing through law reform, as very little cartel activity is detected by the Commerce Commission. This either means cartels are not widespread in New Zealand or current detection methods are not working effectively.
The Bill attempts to harmonise the competition regime between New Zealand and some of our other major trading partners. Australia, the US, Europe, and Canada all have legislation which criminalises cartel conduct. For overseas-based companies participating in New Zealand markets, the Bill will provide more reassurance that New Zealand is taking this issue seriously.
The Bill also introduces some exemptions into which ‘cartel’ conduct may fall:
• Collaborative activities (extending the current joint venture exception) – This includes joint ventures or other activities undertaken by businesses collectively. However, the cartel provision must be ‘reasonably necessary’ for the purpose of the activity.
• Vertical supply agreements – Supply by vertically integrated company to person who is competitor at another level of the supply chain is commonplace in New Zealand: for example, agreements between wholesalers and retailers for the supply and re-sale of goods. Therefore, contracts between suppliers and their customers are exempt.
• Joint buying and promotion – There is specific list of exempted activities which recognises the efficiencies gained in collective purchasing and negotiations. M

Source: Hayden Wilson, Kensington Swan partner specialising in commercial, competition and public law.

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