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Cartel Criminalisation Bill introduced 

by Andy Matthews Oliver Meech Anna Rawlings Aaron Lloyd Stacey Shortall Andy Glenie

Published: October, 2011

Submission: October, 2011


The outgoing Commerce Minister, Simon Power, yesterday introduced to Parliament the Commerce (Cartels and Other Matters) Amendment Bill. Under the Bill’s proposed amendments to the Commerce Act 1986, so-called ‘hard core’ cartel activity - price fixing, output restrictions, market allocation and bid
rigging - will become criminal offences as well as a civil wrongs punishable by hefty fines.
If passed, the
Bill will introduce the prospect of jail sentences for individuals convicted of a criminal offence, with a statutory maximum penalty of seven years’ imprisonment.

Whilst the prospect of criminal sanctions will grab headlines, the Bill proposes a number of fundamental changes to the current law relating to cartels and anti-competitive agreements, to the exemptions from the sweeping reach of the current per se prohibition in section 30 of the Act, to the Act’s jurisdictional provisions (including over international mergers), to the provisions governing attributing conduct, to the penalties for obstructing Commerce Commission investigations, to filing fees for clearance applications, plus various consequential amendments.

Key features of the Bill include:

·        Parallel civil prohibitions and criminal offences. 

·        Prohibitions that define the form of illegal conduct following the OECD definition of ‘hard core’ cartels – price fixing, output restrictions, market allocating, and bid rigging.

·        Introducing a ‘collaborative activity’ exemption. This is a broad principle-based exemption to replace the current, largely untested, and narrower joint venture exemption.

·        Criminal sanctions for individuals and companies.

·        For individuals, a maximum penalty of a term of imprisonment of seven years.

·        For bodies corporate pecuniary penalties at the same maxima as at present i.e. court-imposed fines set at the greater of $10,000,000 or three times the value of the commercial gain (if it can be ascertained) or, if it cannot, 10% of annual turnover.

·        A mens rea element for the criminal offence of intent. For example, intent to engage in fixing prices, restricting output, allocating markets, or rigging bids.

·        The introduction of a clearance regime, offering parties the ability to seek Commerce Commission clearance for collaborative activities in cases of any doubt over whether the
exemptions apply.

Our Competition Update 20 June 2011: Cartelists one step closer to jail discussed the exposure draft bill. We do not repeat that commentary here. There has, however, been a number of changes, modifications and improvements to the draft legislation following MED’s consultation on the exposure draft bill.

The main changes include:

·        Proposed repeal of section 29 (the current provision of the Commerce Act dealing with exclusionary provisions); s29 would simply become redundant with the new cartel provisions.

·        Introducing an exemption for vertical supply arrangements – arrangements between a vertically integrated company selling to a competitor at another level in the supply chain would be exempt from the per se cartel provisions, but still subject to the competition test in section 27 of the Act (prohibiting contracts, arrangements or understandings having the purpose, effect or likely 
effect of substantially lessening competition in a market). Section 27 would remain unchanged.

·        Proposed repeal of the per se prohibition in relation to covenants – covenants will not be subject to criminal sanctions, although they will remain subject to the competition test in section 28.

·        Clarifying the mens rea (mental element) of the criminal offence – the exposure draft bill proposed distinguishing between the civil and criminal prohibitions with a mens rea element of
knowledge for the criminal offence. A number of submissions commented on this aspect. It has
been changed in the draft Bill to
 intent e.g. intending to engage in price fixing, restricting
output, market allocating or bid rigging.

·        It will be a defence in a criminal prosecution if the defendant honestly believed at the relevant 
time that an exemption applied.

·        However, in civil penalty proceedings, the onus of proof (that would normally be on the plaintiff
or prosecution) is reversed. Defendants will need to prove on the balance of probabilities that an exemption applies, and it would not be sufficient to show an honest belief that one applied at the time.

Amending the jurisdictional rules to align the cartel offence with conspiracy rules under the Crimes Act – where any part of a prohibited act occurs in New Zealand then the whole of that act is deemed to have occurred in New Zealand. Additional changes are also proposed to give enforcement ‘teeth’ to deal with international mergers, where an overseas party acquires a controlling interest in a New Zealand company and the acquisition could substantially lessen competition in New Zealand.

Increasing the penalties for obstruction of a Commerce Commission investigation – for individuals, a maximum fine of $100,000 (cf. $10,000 currently); for bodies corporate, a maximum fine of $300,000 (cf. $30,000 currently).

It is presently proposed to have a staged introduction of the criminal provisions, which would come into force two years after the civil prohibitions and all other provisions receive the Royal assent. The idea is that there would be a two year period for businesses to become familiar with the new civil prohibitions and exemptions, and for the Commerce Commission to develop some practice with enforcement and precedent with clearances before criminal sanctions are introduced.

We invite you to contact one of our experts if you would like more information on the draft








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