Introduction
Background
Process of settlement negotiation
Maximum penalty
Starting point
Adjustments for specific factors
Agreed penalties
The last participant in an international freight forwarders' price-fixing cartel has finally been dealt with by the High Court in a case that confirms New Zealand's approach towards negotiated settlements and agreed penalties in these quasi-criminal prosecutions brought by a regulator.
New Zealand courts remain quite content to endorse this type of 'plea bargaining' approach, despite recent Australian trends questioning it.
On April 8 2014 the High Court ordered Swiss company Kuehne + Nagel International AG to pay a NZ$3.1 million pecuniary penalty, plus costs, for breaches of the Commerce Act affecting New Zealand markets.(1) This latest penalty for the long-running international air freight cartel takes the total penalties across six defendants in New Zealand to almost NZ$12 million.
Kuehne + Nagel was the last defendant in a long-running case brought by the New Zealand Commerce Commission against major international freight forwarding companies in relation to cartel conduct. The cartel agreed to impose surcharges on air freight forwarding services from the United Kingdom to other countries, including New Zealand, which were ostensibly to cover the increased costs of new security measures introduced by the UK government.
In imposing a surcharge as a component of overall price, rather than headline rates, the cartel shared similarities with previous cases against airlines in similar freight markets.
The cartel was known as 'The Gardening Club' as it used code words referring to gardeners, greenhouses and types of vegetable in order to describe the surcharges imposed and agreements reached. The other members of the cartel admitted liability and paid penalties in 2010 and 2011. Kuehne + Nagel tried to challenge the jurisdiction of the New Zealand court, unsuccessfully in the High Court (for further details please see "Offshore parent companies held accountable for competition law breaches"), and its arguments were given short shrift on appeal, before it finally admitted liability.
Process of settlement negotiation
In New Zealand, the Commerce Commission has no power to impose a fine or penalty. However, following a well-established process, the commission and Kuehne + Nagel negotiated and then jointly proposed an agreed penalty to the court. In determining the penalty to be imposed, however, the court has discretion on final approval. The court must be satisfied that the figure suggested is within a range which satisfies the objectives of the Commerce Act (in particular, deterrence of other cartels) and the circumstances of the case before it. This can be challenging, especially where several defendants admit to cartel conduct at different times in the litigation.
The approach adopted by the High Court in setting an appropriate penalty was to:
- determine the maximum penalty;
- establish the appropriate starting point for penalty that would achieve the objective of deterrence in light of the relevant factors applying to the case; and
- adjust the starting point for the defendant's specific factors, whether aggravating or mitigating.
Section 80(2B) of the Commerce Act provides the statutory maximum for each relevant breach of the act to be the greater of:
- NZ$10 million;
- three times the commercial gain resulting from the breach; or
- 10% of the turnover of the company from trading in New Zealand.
The commission originally sued alleging several causes of action (ie, breaches from various aspects of cartel arrangements), but ultimately Kuehne + Nagel admitted two causes of action. Despite the two admitted breaches, Kuehne + Nagel could be liable for only one pecuniary penalty in respect of the same conduct. The court agreed with the parties that the commercial gain was not readily ascertainable and that Kuehne + Nagel's turnover in New Zealand was less than or around NZ$100 million. The applicable maximum was therefore NZ$10 million.
In finding an appropriate starting point, the court noted that the conduct was at the serious end of the scale, covert and concealed and had lasted for five years, and that air freight was an important market which affected the price of many goods and services in New Zealand. Further, Kuehne + Nagel had the largest market share in New Zealand (although its local subsidiary was unaware of the conduct as it had all been engineered from abroad). The court agreed that the parties' proposed starting point of NZ$3.5 to NZ$4 million was within the available range of penalties in such cases.
Adjustments for specific factors
The parties submitted that a 20% discount was appropriate on the basis of several mitigating factors:
- Although Kuehne + Nagel did not cooperate initially, protesting the court's jurisdiction, it did assist in some ways, such as accepting service of documents through local solicitors.
- Kuehne + Nagel acknowledged liability before witnesses were briefed, which avoided substantial litigation costs for the commission.
- It allowed employees to be interviewed and provided voluntary discovery.
- This was its first breach of the Commerce Act and it has introduced a comprehensive global compliance programme.
The court agreed that a 20% discount was available, but that it was as much as could be expected in those circumstances. The 20% discount was accepted, particularly if applied to a starting point at the higher end of the range. Therefore, the court ordered a penalty of NZ$3.2 million (including costs awarded to the commission).
This case, as well as another recent High Court decision in a domestic cartel case,(2) confirms that the New Zealand High Court will not object to a joint view on penalties being presented by the parties, even if that joint view is reached as a result of negotiations (such that it could be described as a 'settlement'). The court is careful not to merely rubber-stamp what is being proposed. The court noted that settlements are in the interests of not only the parties, but also the community and the judicial system, as they enable the early disposal of proceedings. They also encourage both sides to take a reasonable view of culpability and avoid the need for a full contested hearing. However, it is always for the court to approve the final figure and it must be satisfied that the figure proposed is within a suitable range which satisfies the objectives of the act and the particular circumstances of the case.
This contrasts with recent Australian decisions in which courts have held:
- in a civil case, that the idea that the agreed penalty should be endorsed if it is within the permissible range(3) is an improper fetter on the court's discretion; and
- in a criminal case, that the prosecution should not be permitted to make a submission on appropriate sentencing range when it had previously indicated that range to defendants in the process of negotiating plea agreements.(4)
That line of argument may yet have future implications, given that proposals to criminalise cartel conduct remain pending in a bill presently before New Zealand's Parliament.
For further information on this topic please contact Felicity Monteiro or Gary Hughes at Wilson Harle by telephone (+64 9 915 5700), fax (+64 9 915 5701) or email ( [email protected] or [email protected]).The Wilson Harle website can be accessed at www.wilsonharle.com.
Endnotes
(1) Commerce Commission v Kuehne + Nagel International AG [2014] NZHC 7015.
(2) Commerce Commission v Carter Holt Harvey Ltd [2014] NZHC 531.
