MinterEllisonRuddWatts Partner Dr Ross Patterson, Partner Oliver Meech, Special Counsel Melanie Tollemache and Senior Associate Kristel McMeekin discuss the new crime of cartel conduct, which raises the stakes with the prospect of jail time.
Jail time is set to become a real prospect for cartel participants with the passage of the Commerce (Criminalisation of Cartels) Amendment Bill (the Bill) last month. The Bill amends the Commerce Act 1986 by introducing a new criminal offence for cartel conduct. The criminal regime will run in parallel with the current civil regime, with Crown Law to provide criminal prosecution guidelines.
On passage of the Bill Minister Kris Faafoi said, “[b]y criminalising cartels, we are sending a clear signal that if you’re part of a cartel, you risk jail time”.
The new criminal offence targets intentional conduct
Following a two-year transition period, from 4 April 2021, an individual convicted for intentionally engaging in cartel conduct in breach of section 30 of the Commerce Act will face a penalty of:
- imprisonment for up to 7 years; and/or
- a criminal fine of up to $500,000 (the same as the current maximum civil pecuniary penalty for an individual under the civil enforcement regime).
Cartel conduct is entering into a contract or arrangement, or arriving at an understanding, with a competitor that has the purpose, effect or likely effect of:
- price fixing;
- restricting output; and/or
- market allocating.
The new criminal offence requires that the individual intended to engage in cartel conduct. It will not suffice that their conduct had that effect or likely had that effect. Inadvertent behaviour will not give rise to criminal liability, but may still fall foul of the civil prohibitions.
Strengthening New Zealand’s competition law
During the third reading of the Bill, Minister of Justice Andrew Little, described the Bill as “an important element to the Government’s reform programme to strengthen New Zealand’s competition law, in line with some of our major trading partners”, and said it will “enhance the effectiveness of New Zealand’s competition law and will ensure that cartel conduct that is intentional and harms competition is subject to criminal sanctions”.
Criminalisation of cartel conduct has been debated in New Zealand for some years. It was originally included among other Commerce Act amendments proposed in 2011, before being dropped from the draft legislation in 2015 due to concerns about the potential chilling effect on pro-competitive behaviour.
Following a change of government in late 2017, criminalisation was put back on the agenda and the Bill was introduced into Parliament in February last year.
The Bill brings New Zealand into line with our major overseas counterparts, including Australia, which already have criminal penalties for cartel conduct.
Key aspects of the Bill
Key aspects of this Bill are:
- The proposed introduction of a new criminal offence for cartel conduct, where a person (a business or an individual) intentionally engages in price fixing, restricting output or allocating markets.
- A proposed new defence to the criminal offence, where the person believed that a cartel provision was “reasonably necessary” for the purposes of a collaborative activity. Collaborative activities, including joint ventures, are one of the exceptions to the cartel prohibitions.
- The criminal offence will sit alongside the current civil prohibitions and enforcement regime. The maximum fines will be the same as the civil penalties, but the criminal offence must be proven to the higher criminal standard of proof (beyond reasonable doubt) and will require proof of intent.
- The offence targets the individuals who are involved in the decision-making to fix prices etc., and will carry a penalty of up to 7 years’ imprisonment or a fine not exceeding NZ$500,000.
- The policy objectives are to promote the detection and deterrence of cartel activity, including through encouraging self-reporting under the Commerce Commission’s cartel leniency regime. It will also enhance cartel enforcement by the Commission, as a number of additional enforcement tools become available with criminalisation. Those tools include possible extradition, covert surveillance and improved co-operation with international competition law enforcement agencies.
- A two-year transitional period is proposed before the criminal offence would come into force, to allow time for businesses to understand the application of the recently (2017) amended civil prohibitions and for the Commission to undertake some educational activities (while also building its capability to undertake criminal investigations).
Dr Ross Patterson heads the firm’s competition and economic regulation practice. He has more than twenty-five years of specialist experience, as a lawyer and regulator, and is recognised by Chambers as a Senior Statesman in both Competition and Telecommunications. He was a partner at Rudd Watts and Stone (now MinterEllisonRuddWatts) between 1989 and 1998, and in MinterEllison (Sydney) from 1998 to 2007, where he headed MinterEllison’s Competition & Regulation practice. Between 2007 and 2012 he was New Zealand’s Telecommunications Commissioner, and a member of the Commerce Commission. Ross returned to the firm in 2013. Since his return to the firm, Ross has represented clients in relation to merger clearances, authorisations and Commerce Commission investigations, and advised on the Commerce Act aspects of commercial arrangements and behaviour. In telecommunications he has advised a wide range of telecommunications companies in relation to Telecommunications Act issues, and advised on the ongoing telecommunications sector reform processes. Ross was the founder of MinterEllison’s online compliance training system, SAFETRAC, and leads the development of Safetrac in New Zealand www.safetrac.co.nz Ross has a PhD in competition law. He has published many articles on competition and telecommunications issues, and is a regular speaker at conferences. Contact Ross at email@example.com or connect via LinkedIn .
Oliver Meech is an experienced general litigator and specializes in handling complex commercial litigation, and competition, regulatory and consumer law matters. Oliver advises on contentious and non-contentious aspects of competition, regulatory and consumer law. He advises on mergers and acquisitions, restrictive trade practices, unilateral conduct and regulation. He advises clients in Commerce and Fair Trading Act investigations and with their interactions with the commercial regulators. He advises on front-end compliance and, in the consumer law area, has represented clients before the courts and before the Advertising Standards Complaints Board. Chambers Asia-Pacific 2018 describes Oliver as “a well-reputed competition and consumer law specialist, with one client praising his ‘expert strategic advice on engagement with competition and consumer regulators.’” He is also a published contributor to publications such as “The Private Competition Enforcement Review“. Contact Oliver at firstname.lastname@example.org or connect via LinkedIn .
Melanie Tollemache is a member of the firm’s competition and economic regulation practice. She has twenty-five years of experience, specialising for most of that time in competition law and regulatory matters. Melanie worked at Rudd Watts and Stone (now Minter Ellison Rudd Watts) between 1987 and 2007, and at Chapman Tripp from 2007 to 2009. In 2014 Melanie returned to the firm. She has represented clients in relation to merger clearances and authorisations and advised on the Commerce Act aspects of commercial arrangements and behaviour. Her experience includes involvement in significant litigation of Commerce Act issues. Melanie has also advised a number of telecommunications companies in relation to Telecommunications Act issues, including the ongoing telecommunications sector reform processes. Melanie has an LLB and a BCom majoring in economics. She has published articles on a range of competition issues. Contact Melanie at email@example.com or connect via LinkedIn .
Kristel McMeekin is a competition and regulatory specialist, with extensive experience in both New Zealand and Australia advising large corporations and regulated network businesses on complex competition and regulatory issues, and is ranked as an Associate to Watch in Competition Law by Chambers Asia Pacific 2017. Clients describe her as “a bright associate with excellent expertise from her time in Australia”; “a pleasure to work with, always leaving us with a feeling of confidence that work output would be excellent and on time”; “an absolute pleasure to deal with, she has a great handle on the issues”. Kristel advises on the full suite of competition related matters: Clearances and authorisations of mergers and acquisitions, Cartels, Commerce Commission investigations, Commerce Act implications of commercial arrangements and behaviour, Consumer protection. Kristel returned to New Zealand in 2014 after five years in Australia where she was a Senior Associate in Minter Ellison’s competition and regulatory team. Contact Kristel at firstname.lastname@example.org or connect via LinkedIn .