High Court issues penalties for New Zealand's first criminal cartel case

Cover pricing conduct reduced competition and undermined the integrity of the tendering process

High Court issues penalties for New Zealand's first criminal cartel case

The High Court has sentenced a company and its director for engaging in cartel conduct under the Commerce Act 1986, marking the first criminal prosecution of its kind in New Zealand since cartel behaviour was criminalised in 2021.

The director and the company, specialising in bridge jointing services, pleaded guilty to charges of entering and giving effect to cartel agreements to fix prices for two construction projects. These agreements involved collusion with a competitor to manipulate bids for publicly funded infrastructure projects, including the Northern Corridor Improvement Project (NCI Project) and the Middlemore Railway Bridge Project.

The High Court found that the director had deliberately arranged for the competitor to submit inflated bids, ensuring his company’s lower bids would secure the contracts. This conduct, known as "cover pricing," artificially reduced competition and undermined the integrity of the tendering process.

The collusion allowed the company to win contracts worth over $433,000 for the NCI Project, generating profits of approximately $160,000. The scheme was discovered when the competitor inadvertently emailed a spreadsheet revealing the collusion to project managers, who reported it to the Commerce Commission.

In sentencing, the court emphasised the serious nature of the offending, noting that it involved public funds and eroded confidence in competitive bidding processes. The director was described as the primary instigator of the agreements and was held accountable for his deliberate and calculated actions.

The director received a sentence of six months of community detention and 200 hours of community work. The judge acknowledged his remorse, cooperation with authorities, and significant personal circumstances, including his desire to protect his employees’ jobs during the financial hardship caused by the COVID-19 pandemic. These factors influenced the decision to impose a non-custodial sentence.

The company was fined $500,000. The court rejected a request for conviction and discharge, stating that financial penalties were necessary to deter similar conduct and reflect the gravity of the offence. While the court recognised the company’s small size and limited resources, it noted that the penalty was needed to ensure accountability and maintain public confidence in fair competition.