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The new cartel regime, including criminal penalties, is
now a step closer.
The Commerce (Cartels and Other Matters) Amendment Bill
went through its first reading last week and has been referred to
the Commerce Committee with submissions due by 6 September
2012.
But the proposed changes have already been widely
consulted on so we think it is unlikely that the Bill will be much
changed as a result of the select committee process. This Brief
Counsel is designed to provide you with a user's guide or
safety manual for the legislation.
What is being criminalised?
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).
Output restrictions: competitors agreeing to
prevent, restrict or limit their production of goods or services or
their output capacity.
Market allocation: competitors allocating
customers, suppliers, or geographic areas.
Bid rigging: exactly what it says (rigging
bids), including agreements not to bid or specifying bid terms -
but only if the essential features of the co-ordination are not
disclosed to the person running the bid before the bid is
lodged.
What will be allowed?
Fortunately the policy makers were aware of the potential for
legitimate pro-competitive cooperation to be inadvertently caught
and have proposed a series of specific exemptions for:
vertical supply arrangements
joint buying and promotion, and
collaborative activity.
The "collaborative activity" exception is a new
concept. Essentially it applies where the cartel provision (price
fixing, output restriction, market allocation or bid rigging):
forms part of a business arrangement that does not have the
dominant purpose of lessening competition, and
is "reasonably necessary" for the purpose of that
arrangement.
There is an element of judgement here – so to address
any uncertainty about whether the exception will apply, the Bill
offers a safety net in the form of an optional pre-clearance
mechanism. This will be similar to the mergers and acquisitions
clearance process.
Penalties regime
For criminal sanctions to apply, the breach must be deliberate.
It is a defence if the person honestly believes that the cartel
conduct is excepted by the Bill.
Further, the Government has signalled that the Commerce
Commission should "only prosecute cases of serious
offending" and has deferred the introduction of criminal
penalties until two years after the Bill comes into effect to give
the market time to get used to the new rules.
The consequences for non-compliance are severe. Individuals can
face up to seven years' imprisonment. For companies, the
penalties are:
fines of up to $10 million, or
three times the value of any commercial gain resulting from the
contravention, or
10% of turnover of the body corporate and any interconnected
companies during the accounting period over which the offending
occurred.
In addition to which there are the costs of:
litigation, as the company cannot indemnify or insure its
directors or employees against cartel offending
the time and distraction of having valuable people tied up in
assisting the Commerce Commission with its inquiries or lawyers
with the defence, and
the damage to reputation.
So what can I do?
This is a good opportunity to audit your business and ensure
that you will not be caught by the new criminalisation regime. We
list below some of the steps you might consider.
Identify all relationships with competitors throughout the
company or group.
Assess those relationships for "cartel risks"
(seeking professional advice if there is any doubt).
Review the company's policies around interactions with
competitors.
Check that the company's representatives on any trade
associations (by their nature, usually made up of competitors)
understand that the cartel prohibitions apply to the association
and its members.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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