The High Court in Commerce Commission v Specialised Container Services (Christchurch) Ltd recently imposed pecuniary penalties under the Commerce Act 1986 (the Act) for an attempt to enter into a price-fixing agreement with a competitor in the form of a single phone call. The decision highlights the risks of holding discussions with competitors and illustrates that a single conversation may result in a contravention of the Act.
A copy of the judgment can be accessed here.
The first defendant, Specialised Container Services (Christchurch) Limited (SCS Christchurch) is a shipping container depot operator in Christchurch and is part of a group of companies involved in operating container depots around New Zealand. The second defendant, Grant Tregurtha (Mr Tregurtha) is a director and shareholder of SCS Christchurch.
In late 2017 to early 2018, SCS Christchurch’s biggest competitor, Lyttelton Port Company (LPC) (with a 70 per cent market share) announced that it would be introducing a Vehicle Booking System (VBS) whereby customers could book time slots to drop off or collect their containers at the depot for a booking fee of $5.50. Soon after, SCS Christchurch also announced that it would be introducing a similar VBS for a booking fee of $6.50.
On 9 January 2018, Mr Tregurtha made a phone call to the General Manager of LPC and asked whether LPC would be willing to charge the same or similar VBS booking fee of $6.50 (stating that $6.50 was the “going rate” for VBS booking fees for Auckland and Tauranga). LPC responded that it would not be discussing price with SCS Christchurch as both were competitors. As of 31 March 2020, SCS Christchurch had become insolvent and no longer operates its container depot.
Both Mr Tregurtha and SCS Christchurch admitted that the phone call contravened s 30 of the Act by being an attempt to enter into a price-fixing arrangement with a competitor (being a contract, arrangement, or understanding to charge the same or similar VBS booking fee), and that both were liable to pay a penalty. The issue for the Court was the amount of pecuniary penalties that should be imposed for this anti-competitive behaviour.
Under s 80(2B)(a) of the Act, the maximum penalty that could be imposed against Mr Tregurtha as a director is $500,000. For SCS Christchurch, under s 80(2B)(b) the maximum penalty is the greater of $10 million, or three times the commercial gain obtained from the breach (if readily ascertainable), or 10 per cent of the company turnover from trading in New Zealand. The Court accepted that a range of $400,000 to $520,000 was appropriate for SCS Christchurch and $25,000 to $30,000 for Mr Tregurtha as a starting point.
In assessing the appropriate penalty under the Act, the Court held that the following factors should be considered (alongside deterrence):
- Impact on the market;
- Nature, duration, and seriousness of the contravening conduct;
- Whether the conduct was deliberate;
- Any benefit, loss, or damage which results from the contravening conduct;
- Seniority of the employees or officers involved in the contravention;
- Market share and/or degree of market power held by the defendant;
- Role of the defendant; and
- Size and resources of the defendant.
The Court found that although the contravening conduct was a mere attempt to price fix in the form of a single phone call, and had no real impact on the market, the likely impact would have been substantial due to the importance that New Zealand places on its imports and exports. The defendants would therefore derive a significant commercial benefit from the contravening conduct.
As SCS Christchurch had become insolvent (and that it would not be in the interests of justice to impose an amount which could not be met), the Court imposed penalties of $62,500 on SCS Christchurch and $24,000 on Mr Tregurtha as the director and individual involved with the conduct. SCS Christchurch was also required to pay costs to the Commerce Commission in the sum of $12,500.
The decision highlights the risks of holding discussions with competitors and illustrates how to respond if you are approached by a competitor to discuss pricing (or other commercially sensitive matters). It also reminds directors and businesses of their obligations and appropriate behaviour to ensure the conduct does not breach the Act.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.