April 2014... The recent action by the Commerce Commission against Carter Holt Harvey is a useful reminder for all businesses (and also managers in those businesses) of the consequences of engaging in “price-fixing”.
Section 30 of the Commerce Act provides that any provision of a contract, arrangement, or understanding between parties who are in competition with each other which has the effect of fixing, controlling, or maintaining the price for goods or services is deemed to be anti-competitive and in breach of the Act. That is the provision of the Act that makes “price-fixing” unlawful – the reason being that it reduces competition in the relevant market for the goods or services with the consequence that consumers are denied access to those goods or services at normal competitive prices. The penalties for breaching the restrictive trade practice provisions of the Act (which include price-fixing) can be severe with the maximum penalty being $10,000,000 for a company and $500,000 for an individual.
The Commerce Commission’s action against Carter Holt Harvey (CHH) was the result of CHH entering into an understanding with Fletcher Distribution to fix prices for the supply of structural timber to commercial customers in Auckland. CHH and Fletcher Distribution had an understanding that they would both price MSG8 timber at cost plus an 8% margin – which clearly amounted to “price-fixing” in breach of section 30 of the Commerce Act. According to the Commission the price-fixing arrangement ran for a period of 6 months and during that time it was applied in about 10% of the jobs priced by CHH via its building supply merchant Carters.
When Fletcher Distribution (through an audit) discovered its involvement in the price-fixing arrangement it reported that to the Commerce Commission and took advantage of the Commission’s “cartel leniency programme”. That programme allows a party to obtain immunity from prosecution if it is the first to report cartel conduct to the Commission and they provide assistance throughout an investigation and any enforcement action.
CHH and its manager also co-operated with the Commission once an investigation was launched and they both agreed to settlements with the Commission where they admitted their liability. Last month the High Court imposed fines of $1.85 million on CHH and $5,000 on the manager for their part in the price-fixing arrangement, with both CHH and the manager receiving credit for their co-operation and early admissions of liability.
In this case the price-fixing did not run for a particularly long period and according to the Commission the commercial gains were “relatively modest” however the fine imposed on CHH was still substantial. That is consistent with the Commission’s intention that the heavy fines available to a Court to impose for breaching the Act are intended to be both a penalty on those parties involved in the unlawful conduct itself and also a deterrent to others from engaging in similar conduct.
If you discover that your business may be involved in some form of price-fixing then it is also useful to remember the Commission’s “cartel leniency programme” that Fletcher Distribution took advantage of in this case. Of course, the best option is to ensure that any such anti-competitive conduct is avoided altogether.
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