Cartel Law and Collusion

Cartel law in New Zealand

This page has a general summary of the legal rules and restrictions in New Zealand competition law, by which the Commerce Commission (“CC”) investigates and prosecutes cartels – ie. anti-competitive agreements involving:

  • price fixing
  • market allocation
  • output restriction, or
  • bid rigging.

Gary is a leading NZ competition lawyer, having involvement in many of the CC’s major cartel investigations over the past 15+ years. See here for his competition & consumer law experience.

cartel law change - now criminal in NZ
Where do cartels sit in context of all things the CC regulates?

The CC has a complicated jurisdiction that has grown incrementally over time as the NZ Parliament has handed it more regulatory responsibilities. Boiled down, there are basically 3 key pillars of pure competition law control, in the Commerce Act 1986:

  1. preventing anticompetitive agreements between more than one party (especially cartels between competitors, the subject of these FAQs);
  2. prohibiting a single large firm from abusing its substantial market power (dominance or monopoly concerns); and
  3. preventing anti-competitive mergers/acquisitions (a merger clearance regime).

Additionally, the NZCC has other important related fields of jurisdiction:

  • consumer law protections against fair trading, unfair contract terms and (from August 2022) unconscionable conduct – these are laws of general application to business (as well as specific consumer protections for credit contracts);
  • laws applying to specific sectors for price/quality control regulation, e.g. electricity, gas, telecommunications, airports and milk supply – where the market has natural monopolistic tendency (see #2 above) requiring intervention by direct regulated systems.
What are cartels (see #1 above) or other closely related anti-competitive arrangements between rivals?

Law changes in 2017 significantly redefined and broadened the scope of what is deemed cartel conduct (in s 30A of the Commerce Act). That expressly added to traditional notions of price fixing other collusive arrangements that affect supply or acquisition of goods or services by mechanisms that allocate or share markets, restrict output (buying or supplying activities) and include, one way or another, forms of bid rigging.

To some people, price fixing has an old-fashioned image of covert deals done in smoky rooms to deliberately stitch up pricing to customers. Fairly blatant, even if secretive and hard to detect.  Even some lawyers think it so obvious they will “know it when we see it”.

The trouble is that beyond those hard-core, blatant agreements (which do still occur) the law actually extends a long way into provisions that impact pricing in more subtle ways. This can mean unexpected or merely ancillary contractual restraints, well short of covert cartels, or clauses designed to prevent JV partners undermining each other, can still affect pricing or output in one of the forbidden ways. That leaves risk they might end up treated as cartel conduct (unless one of the available exemptions apply) – so careful consideration with a legal expert is needed.

But what if a ‘so-called’ cartel doesn’t affect market competition?

Cartel law focuses on any provision in an agreement, or part of an understanding, that amounts to price fixing, output restriction or market allocation (each with their own definitions).   If there is such a clause or provision in your business arrangements it is deemed automatically illegal, regardless of whether the rest of the contract is just fine, may not harm competitors, or even has pro-competitive features.

Lawyers talk of this as a “per se” illegal concept.

But there are some exemptions, and ways to apply to the regulator for special treatment – which recognises the risk that the cartel definitions in law might over-reach into some business activities that are perfectly normal.  For instance, joint ventures or commercial distribution and reseller contracts often have ancillary clauses relating to price, even if that is not the core part of the agreement.

Characterisation of something as a “cartel provision” can be avoided if an exemption clearly applies, such as that for reasonably necessary collaborative conduct (see below for more detail). If exempt, it will not be treated as not cartel conduct.

Alternatively, the parties can go to the Commerce Commission in advance seeking either a Clearance or Authorisation for that provision to be permitted.

 What if we discussed a deal, but it wasn’t written down and never went ahead?

The law is intended to catch verbal cartels as much as written ones.  A recurring phrases in the Commerce Act is “contracts, arrangements, or understandings”, which is language designed to cover not only formal binding deals or written contracts, but oral or informal understandings between competitors (i.e. a “nod and a wink”).

Email evidence is a frequent source of material to infer there has been an understanding reached.

Entering into an agreement or reaching an understanding can be a breach itself.  A second breach can be then engaging in one of the types of cartel conduct, i.e. giving effect to it.  Both of those steps are directly prohibited, regardless of whether they actually led to any harm to competition. Additionally, even attempts to form a cartel (which may fail) can be indirectly prohibited too.

Price Fixing means:

Any provision with a purpose, effect, or likely effect between parties who are “in competition with each other” (or would be, if not for the cartel provision) of:

  • “fixing, controlling, or maintaining, or providing for” the fixing, controlling, or maintaining of the price for goods or services that may be supplied/acquired by the parties; or
  • any discount, allowance, rebate, or credit in relation to goods or services.

There some subtle but serious ways in which the concept of price fixing is widened by the statutory language used, beyond what ordinary people might assume.

First, it is not just setting actual prices, but other things that “provide for” such setting. Pricing formulas, times and ways of implementing pricing, process for intended price rises, algorithms, price matching clauses, even key input price components in contracts may tend to maintain/stabilise a general level of pricing. Second, the notion of ‘price’ is broader than headline price. It includes any discount, allowance, rebate, or credit – essentially, any key aspect that will influence customers’ pricing decision-making.