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One short phone call ends in penalties for cartel conduct

Home Insights One short phone call ends in penalties for cartel conduct

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Contributed by: Troy Pilkington, Bradley Aburn and Lina Kim

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Published on: September 10, 2021

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The High Court has imposed penalties on Specialised Container Services Christchurch Limited (SCS), and its director for attempting to fix prices with a competitor. The Commerce Act 1986 prohibits entering into, or giving effect to, any contract, arrangement or understanding (agreement) that contains a ‘cartel provision’. A ‘cartel provision’ is any provision in an agreement between competitors that has the purpose, effect or likely effect of price fixing, restricting output and/or market allocation.
 
This case is a timely reminder that businesses and individuals need to be extremely vigilant when it comes to having conversations with competitors (especially on highly competitively sensitive topics such as pricing, volumes, target customers/markets) – as even one short phone call could result in substantial penalties and, since April this year, the potential for criminal sanctions (including imprisonment).

What happened?

According to the decision, in late 2017, two Christchurch container depot competitors, SCS and Lyttelton Port Company (LPC) were independently planning to introduce a vehicle booking system (VBS) at their respective container depots. VBS is a system used to facilitate time bookings for delivery and collection of containers at depots. A fee may be charged for bookings using the VBS (VBS Fee).
 
In October 2017, LPC announced to its customers that it intended to introduce a VBS. In November 2017, SCS decided it too would implement a VBS. The decisions to implement the VBS were taken independently by both competitors, which is not problematic under the Commerce Act.

The Phone Call

However, the Court found that issues began when SCS's Director phoned LPC's General Manager on 9 January 2018 (the Phone Call). On the call, according to the decision, the SCS Director:

  • Enquired about LPC's plans for a VBS in Christchurch;

  • Informed his counterpart about SCS's plans to introduce a VBS and SCS's intention to charge a VBS Fee of $6.50, which was consistent with the "going rate" for VBS Fees in other parts of the country; and

  • Considered that it would be desirable for all container depot operators in Christchurch to charge the same or similar VBS Fee.

In response, LPC's General Manager responded that they would not be entering into discussions regarding the VBS Fee because SCS and LPC were competitors. On that basis, nothing further was discussed; and no arrangement or understanding was reached with respect to the VBS Fee.
 
Following the Phone Call, on 12 January 2018, LPC announced that it would charge a $5.50 VBS Fee and on 24 January 2018, SCS announced it would charge a $6.50 VBS Fee.

No harm, no foul?

Although no arrangement or understanding was reached between the parties, the conduct of SCS's Director nonetheless was found to amount to an attempt to enter into an illegal price fixing agreement with a competitor.
 
In addition to prohibiting engaging in cartel conduct, the Commerce Act also prohibits:

  • attempting to do so;

  • aiding or abetting others to do so;

  • inducing or attempting to induce others to do so;

  • conspiring with another person to do so; and

  • having been in any way, directly or indirectly, knowing concerned in a contravention by another person.

A very expensive phone call

The Commerce Commission commenced civil proceedings against both SCS and SCS's Director in relation to the attempted price fix. This was only the second time in the last 20 years that the Commission has prosecuted attempted cartel conduct.
 
The High Court imposed penalties of $62,500 and $24,000 respectively on SCS and its Director. If it were not for the fact that SCS no longer operated its Container Depot, was not making any income, and that the value of its realised assets was greatly exceeded by its liabilities, SCS would have been looking at a significantly larger penalty in the range of $400,000 and $520,000.
 
The High Court also acknowledged the integrity of LPC, whose actions ensured that a price fixing agreement did not eventuate.

Key takeaway

This case highlights the importance of ensuring that your business has a culture of compliance when it comes to competition law. If your teams do not know that it is high risk to discuss competitively sensitive matters such as pricing, volumes, target customers and target territories with a competitor, then that exposes not only them, but also your organisation to significant penalties - and since 8 April 2021, the potential for criminal sanctions (including imprisonment).
 
If you need assistance in training your team on competition law and developing a culture of compliance, please get in touch with one of our competition law experts below who can give you the tools to keep your teams safe.
 
 

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