In this article, we discuss the highly awaited announcement of sentences given to a director and his company in the first criminal case brought in New Zealand for cartel conduct. We also provide an update on the Commerce Commission’s decision to file proceedings against Woolworths and two PAK’nSAVE supermarkets for alleged breaches of the Fair Trading Act.

Country’s first criminal cartel prosecution

The High Court has just handed down sentences to a director and his company in the Commerce Commission’s (Commission’s) first prosecution of cartel conduct since criminal sanctions were introduced in 2021. 

Munesh Kumar (known as Max) was sentenced to six months’ community detention and 200 hours’ community service, and his company MaxBuild Limited fined $500,000, for engaging in bid rigging for two public construction projects - the Northern Corridor Improvement Project (put out for tender by the New Zealand Transport Agency) and the Middlemore Bridge Refurbishment (put out for tender by Auckland Transport). The other company and its director involved in the cartel arrangement have pleaded not guilty to the charges, and continue to have name suppression. They will stand trial in October 2025.

Bid rigging is a form of cartel conduct where competitors agree to influence the outcome of a tender through collaborative conduct. In this case, the parties engaged in cover pricing - one would submit a bid at an inflated price (which was unlikely to be accepted by the principal) to give the other a better chance of winning the tender. The lack of competitive pricing between the parties allowed the party chosen to win the tender to put in a reduced price for its bid. By agreeing to influence the price at which the tender would be won, and who would be the successful bidder, the parties engaged in both price fixing and market allocation, both of which are considered cartel conduct for the purposes of the Commerce Act.

Prior to April 2021, breaches of the Commerce Act were punishable by fines only. In relation to cartel conduct, individuals could be fined up to $500,000 while companies could be fined up to the greater of $10 million, three times the commercial gain from the breach, or 10% of turnover. In April 2021, a criminal standard was introduced, with individuals now liable to prison sentences of up to seven years. This is the first sentencing for cartel conduct since the new standard was introduced.

While acknowledging that Mr Kumar was the instigator of the cartel arrangement, and the conduct at issue was a “deliberate and concerted strategy to rig bids for financial gain”, the High Court accepted that there were a number of mitigating factors which lessened the resulting sentences. These included the fact that Mr Kumar pleaded guilty to the charges earlier in the year, his business was in financial distress following the Covid-19 lockdowns of 2020 and 2021, and his motivation for the conduct at issue was ensuring the survival of his business. Had it not been for these factors, the Court considered it would have been appropriate to sentence Mr Kumar to two years imprisonment, and fine MaxBuild $1 million. As is usual in these cases, the High Court did not consider Mr Kumar’s lack of knowledge that his conduct breached the Commerce Act to be a mitigating factor.

In light of the potential penalties that could have been imposed, the sentences in this case look to be light, even when accounting for the mitigating factors. Mr Kumar was the instigator of the arrangement, and the conduct was deliberate, knowingly wrong and, following its success in the first tender, repeated. Given this is the first time the Commission has had the chance to test its new criminal enforcement powers, it was no doubt looking for tougher sentences - consistent with this, the sentences the Commission had sought at sentencing were a stricter home detention for Mr Kumar, and a $2 million fine for MaxBuild. 

A useful comparison is the penalties imposed by the Australian competition regulator (the ACCC) under the equivalent criminal standard in Australian competition law. The ACCC has successfully prosecuted parties in four criminal cases for cartel behaviour to date. For the companies involved, fines have ranged from A$1 million to A$30 million. The individuals involved were fined up to A$100,000, and sentenced to imprisonment terms ranging from nine months to two years and eight months. However, these terms were suspended based on orders requiring good behaviour, or served as an intensive corrections order which, in one case, included 400 hours of community service. 

We will be watching with interest when the other company and its director go to trial next October, and will keep you updated on that. 

Supermarkets back in the spotlight

In other news, the Commission has recently filed charges under the Fair Trading Act against Woolworths and two PAK’nSAVE supermarkets (Silverdale and Mill Street in Hamilton). While limited details have been released so far, we understand the charges relate to inaccurate pricing and misleading specials. Commission Deputy Chair Anne Callinan emphasised that this is an issue the supermarkets have been put on notice to improve on, but they have continued to fall short. A link to the Commission’s media release announcing the filing of charges is available here.

Special thanks to Henry King and Cody Dalton for their assistance in preparing this article.