The High Court has imposed penalties totalling over $9.7m on two international freight forwarding companies, Mondiale Freight Services Limited (Mondiale) and Oceanbridge Shipping Limited (Oceanbridge), and on four individuals associated with the companies, for engaging in longstanding cartel agreements with their competitors.
The Commerce Commission filed proceedings against the defendants alleging that they each breached the Commerce Act by agreeing with other freight forwarders not to compete for customers. Mondiale and Oceanbridge were in separate cartels and did not enter into cartel agreements with each other.
The separate cartel agreements were reached prior to the COVID-19 pandemic.
The Commission agreed settlements to resolve the separate proceedings with each of the defendants. The High Court imposed penalties of $4.9m on Mondiale and $4.6m on Oceanbridge. The four individuals associated with the companies received penalties ranging from $65,000 to $100,000.
Commission Chair Anna Rawlings says cartel conduct harms consumers by preventing businesses from competing to provide better quality services at better prices, and it harms businesses that are trying to compete fairly.
“These cartel arrangements had the effect of removing competition, making it possible that customers were charged more by counterparties for retail freight forwarding services than they would have been if Oceanbridge and Mondiale had actively competed for those customers,” says Ms Rawlings.
The High Court acknowledged that the cartel conduct arose from practical concerns held by Mondiale and Oceanbridge regarding providing wholesale freight forwarding services to other freight forwarders while also being their competitors. However, the Court found that the cartel conduct was a serious breach of the Act, engaged in and endorsed by persons at the highest levels of both companies, and occurred over a number of years.
“The liability attaching to these cartel arrangements demonstrates the risks that can arise when businesses who supply their competitors aren’t careful to manage those relationships in a lawful way,” says Ms Rawlings.
“In addition to financial penalties, individuals involved in cartel conduct, after 8 April 2021, can now be liable for a term of imprisonment of up to seven years in appropriate cases. It is more important than ever that businesses, their directors and employees make sure they understand how to stay on the right side of the law.”
Businesses or individuals wishing to report cartel conduct should contact the Commission, and those who consider they may be party to cartel conduct should do so as soon as possible. The Commission can grant leniency to the first member of a cartel who approaches it, provided they meet the requirements for leniency. Immunity against criminal sanctions is also available in appropriate cases.
Businesses and individuals can also use the Commission’s anonymous whistleblower tool.
Background
International Freight Forwarding
International freight forwarding refers to all aspects of the logistical arrangements for the movement of cargo in and out of the country, by air or sea. Generally, international freight forwarders do not physically carry the cargo between countries, but arrange for it to be moved by a third party, such as an airline or shipping line, as well as offering a range of other related services (such as customs clearance).
Cartel conduct
A cartel is where two or more businesses agree not to compete with each other including by price fixing, allocating markets or customers, rigging bids, or restricting the output or acquisition of goods and services. Cartel conduct, after 8 April 2021, could be punishable with a term of imprisonment of up to 7 years in appropriate cases, underlying just how serious and harmful offending of this nature can be. You can find more details about cartel conduct on the Commission’s website.
Potential Harm
The Court accepted that while the potential harm of the agreements could not be ascertained, the unlawful conduct created the potential for harm to customers because it removed competition. It was possible that customers had been charged more than they would have been than with active competition.
Both Mondiale and Oceanbridge, on a small number of occasions, submitted quotes to customers that were not competitive (“cover pricing”). The Court said cover pricing is inherently deceptive, because customers are likely to believe that they are being offered a competitive price.
