Yesterday, the High Court imposed its first criminal sentence for cartel conduct under section 30 of the Commerce Act 1986 (Commerce Act). Munesh Kumar and his company, MaxBuild Limited (MaxBuild) were both convicted of cartel conduct, having pleaded guilty to agreeing with a competitor to rig their bids on two publicly funded construction projects.
The cartel prohibition
The Commerce Act was amended in 2021 to criminalise cartel conduct, which had previously attracted only civil liability. Individuals who intentionally engage in cartel conduct can now be subject, on conviction, to a maximum penalty of seven years' imprisonment and a fine of up to $500,000, while bodies corporate can be subject to a fine of up to the greater of $10 million, three times the value of the commercial gain resulting from the contravention, or 10% of turnover in each accounting period in which a contravention occurred.
Although the Commerce Commission (Commission) has taken many cartel cases under the civil regime before, this case is the first time that the Commission has referred a cartel matter to the Solicitor-General for criminal prosecution.
What happened?
In response to financial pressure as a result of the Covid-19 pandemic, Mr Kumar agreed with a MaxBuild competitor that the competitor would increase their tender price for the Northern Corridor Improvement project and the Middlemore Railway Bridge repair project, to improve MaxBuild's chances of securing the contract. This form of cartel conduct is known as "cover pricing".
The Commission became aware of the cartel after MaxBuild's competitor accidentally submitted a spreadsheet containing details of the cover price calculations as part of its tender bid.
Wilkinson-Smith J accepted that there were a number of mitigating factors at play in determining the appropriate sentence. These included:
- a genuine offer and desire to pay reparations;
- the absence of any prior convictions;
- no requirement for further deterrence for Mr Kumar or MaxBuild, given that Mr Kumar was previously not well acquainted with the Commerce Act, but through the investigation and prosecution had become very familiar with the cartel prohibition;
- Mr Kumar having fully co-operated with the Commission and materially assisted the Commission's investigation by volunteering information; and
- Mr Kumar having provided a statement which Wilkinson-Smith J described as one of the most positive expressions of remorse she had seen.
Given the presence of substantial mitigating factors, Mr Kumar was sentenced to six months community detention and 200 hours of community work, and MaxBuild was separately convicted and fined $500,000.
A second company and its director pleaded not guilty in relation to the same cartel conduct and are due to face trial in October 2025.
Key takeaways
- The Court considers the criminalisation of cartel conduct to be a clear signal from Parliament that cartels should be taken very seriously. This is reflected in the substantial penalties imposed, despite the presence of many mitigating factors and very few aggravating ones. The $500,000 fine payable by MaxBuild is around 10% of its annual revenue at the time of the offending, and MaxBuild has subsequently lost work from several key clients. Wilkinson-Smith J also noted that the sentence in this case would need to be low enough to allow room for more serious offending to be given more serious penalties.
- While Mr Kumar, like many businesspeople, was unfamiliar with the Commerce Act at the time of the offending, the court did not place substantial weight on this factor. It is possible to receive a serious sentence for cartel conduct even if the offender did not know that the conduct was illegal. It is therefore essential to ensure that you and your team understand your obligations under the Commerce Act.
- Cartel participants can apply to the Commission for leniency (from civil proceedings, which can be granted by the Commission) and/or immunity (from criminal proceedings, which is granted by the Solicitor-General on the recommendation of the Commission). Leniency and immunity are only available to the first eligible cartel participant that notifies the Commission of cartel conduct which the Commission is either (a) not aware of, or (b) is aware of but does not yet have sufficient evidence to issue proceedings and the applicant can provide valuable evidence that could not be reasonably obtained elsewhere. For more on the Commission's Cartel Leniency and Immunity Policy, see here.
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