Collaborative Activities and Cartels

Parliament has introduced the Commerce (Cartels and Other Matters) Amendment Bill ("the Bill") to amend the Commerce Act 1986 ("the Act"). The Bill introduces new cartel clauses and criminal sanctions for cartel behaviour.

Competitively priced goods and services allow businesses to compete effectively in local and international markets. One of the principle objectives of the Bill is to deter hard-core cartel behaviour. It does this by prohibiting a person from entering into a contract or arrangement, or arriving at an understanding that contains a cartel provision or gives effect to a cartel provision.

The Bill defines the term 'cartel provision' as a provision, contained in a contract, arrangement, or understanding, that has the purpose, effect or likely effect of 1 or more of the following in relation to the supply or acquisition of goods or services in New Zealand:

  • Price fixing- fixing, controlling or maintaining the price of goods or services that companies supply or acquire in competition with one another (including discounts, rebates or other elements affecting price);
  • Restricting output- competitors agreeing to prevent, restrict or limit their production of good or services or their output capacity;
  • Market allocating- competitors allocating customers, suppliers, or geographic areas

Currently, the Act provides an exemption for joint buying arrangements from the per se price fixing prohibition in section 30 of the Act where goods or services are collectively acquired, whether, directly or indirectly, by the parties to the arrangement. If the proposed law changes go ahead the joint buying exemption will still apply, but will extend to collective negotiation of price for goods or services followed by individual purchase of those goods or services and also where an agent takes title to goods and resells or resupplies them to another party to the contract, arrangement or understanding.

Further, the Bill introduces a new exemption to legitimise collaborative activities.The new exemption will replace the joint venture exemption and is broader in its application. Effectively, the new exemption means the Act will not penalise those who have legitimate, pro-competitive and efficient arrangements with others.

The term 'collaborative activity' is intended to be wider and clearer than the current joint venture exemption. It will apply to an enterprise, venture, or other activity, in trade, that is carried on in co-operation by 2 or more persons and is not carried on for the dominant purpose of lessening competition between any 2 or more of the parties. For the new exemption to apply the cartel provision must be 'reasonably necessary' for the purpose of the collaborative activity at the time of entering into the contract, arrangement or understanding or giving effect to the cartel provision. Also, the proposed law changes will allow a person to apply to the Commerce Commission for clearance if they are or will be involved in a collaborative activity. Clearance will be granted if every cartel provision is 'reasonably necessary' for the collaborative activity and entering into or giving effect to the contract, or arrangement or arriving at an understanding between the parties would not be likely to have the effect of substantially lessening competition.

While the exemptions are broader in their application, so too are the consequences for failing to comply with the Act. The onus will be for the individual concerned to prove that a relevant exemption applies. Otherwise, under the proposed law changes an individual can face up to 7 years' imprisonment if they did not honestly believe the cartel provision was reasonably necessary for the purpose of the collaborative activity. A business will not be able to indemnify its individuals in respect of costs for defending a cartel proceeding and any penalties imposed from the proceeding.  For businesses, the penalty will be a fine of $10 million or greater for breaching the new cartel clauses. All the criminal sanctions will come into force on the day that is 2 years after the date on which the Bill is enacted.

If the proposed law changes come into force businesses should seriously consider whether any contract, arrangements or understandings are at risk of including a 'cartel provision'.

Having been through the Select Committee, the Bill will now be considered by Parliament when it comes up for its second reading. We will be following developments and will keep you informed as to the Bill's progress.