Antitrust Alert: New Zealand Cartel Case Demonstrates the Importance of an Effective Compliance Strategy

Antitrust challenges commenced in the final days of 2013 by the New Zealand Commerce Commission (NZCC) provide a timely reminder to businesses operating in the Asia-Pacific that authorities in that region enforce their antitrust laws with the same vigor as in the United States and Europe. This case, involving alleged pricing fixing of timber products, highlights two issues:

1. The importance of effective compliance measures and proactive audits where necessary, to ensure that, where breaches are discovered, options to minimize consequences to the business are still available, such as immunity applications.
2. The matter is also notable in that this may be one of the last price fixing matters to be taken by the NZCC prior to the criminalization of cartels in the country. It is expected that New Zealand will join many of its peers in the Asia-Pacific and implement criminal sanctions for cartels in the coming months. Other countries in the region with criminal sanctions for cartels include Australia, Indonesia, Malaysia, Thailand, Taiwan, South Korea, and Japan. 

The alleged conduct

The NZCC alleged that Carter Holt Harvey (CHH), a leading supplier of timber products in Australia and New Zealand, and one of its managers entered into an understanding with their main rival, Fletcher Building Limited (Fletcher), one of New Zealand’s largest listed companies with operations throughout Asia, to fix the price of structural timber for commercial customers in Auckland. CHH and the manager have admitted that their conduct breached the Commerce Act 1986 (NZ) and the pending proceedings will determine the penalties.

In New Zealand, corporations found to have participated in a cartel face a maximum penalty equal to the greater of NZ$10 million, 10 percent of annual turnover, or three times the value of the benefit obtained from participation in the cartel. Individuals found to be involved in a cartel can face civil penalties of up to NZ$500,000.

Fletcher discovered the arrangements in a regular internal audit in early 2013 and subsequently sought immunity from the NZCC under its formal Cartel Leniency Policy. The relevant understandings were in place in late 2012 and early 2013 and involved staff at two Fletcher PlaceMakers stores in Auckland. Fletcher determined that it benefited by approximately NZ$100,000 and has promised to compensate affected customers.

Maximizing compliance and minimizing risk

Global businesses face increasing levels of complexity in complying with competition regimes around the world. Within the Asia-Pacific, where the diversity of competition regimes vary as much as the diversity of legal and political systems, this complexity is evident (e.g., special treatment for farmers groups under Malaysian competition law, exemptions for “small scale businesses” in Indonesia, per se prohibitions on agreements that restrain technological developments in Vietnam, and unique strict requirements for joint ventures looking to avoid running afoul of cartel prohibitions in Australia).

In addition, competition authorities in the region are quickly developing the ability to “bite as hard as they bark.” Authorities in China, Singapore, Indonesia, Vietnam, and Malaysia are quickly acquiring the capacity and level of sophistication required to pose similar threats to those breaching the relevant competition prohibitions as their counterparts in more established jurisdictions such as Japan, South Korea, Australia, and New Zealand. Each of these authorities now boast a significant number of examples of successful enforcement activities.

Given this environment, it is particularly important in this region that businesses have in place jurisdiction-specific compliance programs to avoid the risk of running afoul of both the obvious competition prohibitions (e.g., price fixing) and those that are nuanced to the specific countries in which the business operates. Periodic audits, such as that by Fletcher in this matter, should be undertaken both to check the effectiveness of compliance measures and to identify any competition issues that may need to be addressed.

Effective compliance programs that meet local standards (e.g., Compliance Programmes Standard NZS/AS 3806 in Australia and New Zealand) are important in minimizing the risk of a breach of local competition laws and, where a breach occurs, they can provide a useful basis upon which to establish positive interactions with regulators and in some jurisdictions can be taken into account by courts in determining penalties.

The importance of being first (to seek immunity)

Within the Asia-Pacific region, South Korea, Japan, China, Taiwan, Malaysia, Singapore, Australia, and New Zealand all now have some form of cartel immunity program. A number of recent high profile cases demonstrate the threats and opportunities posed by effective immunity programs – a threat to businesses that fail to identify their involvement in cartels before competitors "turn them in" and an opportunity for businesses that quickly identify their exposures and receive immunity before competing applicants reach the relevant regulators.

Implications

While the cartel in the timber products matter was confined to a small area in New Zealand, one of the most complex challenges facing multinational businesses going forward is discovery of a cartel that involves more than one jurisdiction. In such instances decisions must be made about how strategically to coordinate immunity applications in each of the respective jurisdictions, taking into account the individual nuances and application requirements of each immunity program.

Some jurisdictions provide immunity only where they do not otherwise have sufficient evidence to prosecute cartels, some provide leniency discounts on penalties for those parties who admit their involvement or provide evidence at an early stage, and some provide immunity only within individual corporate entities (as opposed to all corporate group members). These factors must be evaluated very quickly to determine the best method of minimizing the consequences of a breach when discovered, and to ensure that a strategy is implemented while immunity is still available in all of the jurisdictions where the company may face exposure.

Lawyer Contacts 

For more information, please contact your principal Jones Day representative or either of the lawyers listed below.

Nicolas J. (Nick) Taylor
Sydney
+61.2.8272.0715
njtaylo@jonesday.com

Jason Beer
Sydney
+61.2.8272.0578
jbeer@jonesday.com

Jones Day prepares summaries of significant antitrust enforcement, litigation, and policy events as a service to clients and interested readers, to provide timely insight on antitrust and competition law developments relevant to business, but not as legal advice on any specific matter.  Please visit our Publication Request form.