New criminal offence for cartel conduct

The contentious issue of legislating to criminalise cartel conduct has been around for many years in New Zealand. This week, the Commerce (Criminalisation of Cartels) Amendment Bill received Royal assent introducing a criminal offence for people engaged in cartel conduct. This offence is in addition to the existing civil prohibition on cartels and it will form part of the Commerce Act 1986.

In a media statement on the Bill, Minister of Commerce and Consumer Affairs, Kris Faafoi stated: “Cartels allow firms to raise their prices above the competitive level by producing less and charging more. This increases the profits of the cartels at other people’s expense – consumers miss out on a fair deal and other businesses are not able to compete”. For more on cartels, see the Commerce Commission’s Competitor Collaboration Guidelines (January 2018).

Existing cartel prohibition

Under the Commerce Act, entering into or giving effect to an agreement containing a cartel provision is unlawful (unless an exception applies). A cartel provision is essentially any provision in an agreement between competitors that has the purpose, effect, or likely effect of at least one of the following in relation to the supply or acquisition of goods or services in New Zealand:

• price fixing
• restricting output
• market allocating.

These terms are further defined and there are exceptions in the Act to the prohibition of cartel provisions (eg for vertical supply contracts, joint buying and promotion agreements, and collaborative activities).

New criminal offence and defence

The new criminal offence for cartel conduct is largely the same as the existing civil prohibition, except that the criminal offence requires an intention to engage in cartel conduct (ie deliberate wrongdoing). The onus of proof will be on the prosecution to prove this beyond reasonable doubt (compared with the balance of probabilities, which is a lower standard of proof for the existing civil prohibition).

There is a defence to the new criminal offence when a person believes on reasonable grounds that one or more of the exceptions to the prohibitions on cartel provisions applied in relation to the conduct. However, the defence does not apply if the person’s belief is based on ignorance, or mistake, of any matter of law.

Penalties and transitional period

Individuals convicted of the new offence will be liable to up to 7 years imprisonment and/or a fine not exceeding $500,000 (the financial penalty is the same as the existing civil penalty).

There’s a two-year transitional period before criminalisation comes into effect (ie in April 2021). Directors and organisations should familiarise themselves with the changes and the Commerce Commission is expected to publish guidance. The IoD will keep directors informed of any other developments.

IoD comment

The IoD advocated against the criminalisation of cartels because we considered that the current civil regime prohibiting cartels (reformed in 2017) is a sufficient deterrent and introducing a criminal offence may be detrimental to business and New Zealand as a whole (eg by having a detrimental effect on pro-competitive activities, and increased compliance costs).