The Auckland High Court today sentenced company director Munesh Kumar to community detention and community service, and imposed a $500,000 fine on his construction company, MaxBuild Limited, in the country’s first ever criminal prosecution for cartel conduct following an investigation by the Commerce Commission.
In handing down her judgment today, Justice Michele Wilkinson-Smith described the conduct as “serious and deliberate” and “striking at the heart of business confidence”. Her Honour characterised the offending as a “deliberate and concerted strategy to rig bids for financial gain.”
Her Honour accepted that, were it not for a number of mitigating factors, a sentence of two years in prison would have been appropriate for Mr Kumar, and a penalty of around $1 million would have been appropriate for Maxbuild’s conduct. Her Honour ordered MaxBuild to pay a fine of $500,000. In addition to the fine imposed on his company, Mr Kumar was sentenced to six months community detention and 200 hours of community work.
The proceedings follow a Commerce Commission investigation into the alleged bid rigging of contracts commissioned by the New Zealand Transport Agency for its Northern Corridor Improvement Project, and Auckland Transport for its refurbishment of Middlemore Bridge. Mr Kumar and MaxBuild both pleaded guilty to four charges of price fixing in relation to the two projects. A second company and its director are due to face trial in October 2025 in relation to the same cartel conduct.
Chair John Small says the Commission was pleased to see the defendant acknowledge his offending and plead guilty early in the prosecution.
“The sentencing today sends a strong message to businesses that the Commission will not tolerate cartel conduct, and we are prepared to lay criminal charges to enforce the law.
“Bid rigging of publicly funded contracts loads extra costs onto taxpayers and the New Zealand economy as conduct of this type undermines fair competition. The criminalisation of cartel conduct in 2021 underlines just how serious and harmful this offending is.
“Enforcing cartel laws remains an enduring priority for the Commission. It should be clear to businesses that the Commission will not hesitate to bring criminal proceedings when the law has been breached and New Zealanders are harmed. We will do that to make sure that kiwis reap the benefits of fair prices, quality services and greater choice,” says Dr Small.
Background
Cartel conduct
A cartel is where two or more businesses agree not to compete with each other by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services. Bid rigging is a form of price fixing and can also involve allocating markets or customers.
Bid rigging or collusive tendering is when there is an agreement among some or all of the bidders about who should win a tender or have an unfair advantage in the tender. This may involve potential bidders not bidding for a tender to support the proposed winner or bidders may agree the prices that each party will bid. This often occurs in the form of “cover pricing.”
Cover pricing is where one or more parties submits a tender bid or bids at an inflated price with a view to increasing the prospects that another designated firm wins the tender. Such an agreement prevents open and effective competition and means procurers are unlikely to achieve best value for money for their business, customers, and in some cases, taxpayers.
Cartel conduct is prohibited under section 30 of the Commerce Act. As of 8 April 2021, cartel conduct is punishable with a term of imprisonment of up to 7 years.
Leniency
The Commission can grant leniency to any individual or company engaged in cartel conduct that meets the requirements in the Commission’s Cartel Leniency and Immunity Policy. Leniency means that the Commission agrees not to take civil enforcement action against a company or individuals for their involvement in the cartel conduct. The Commission can also recommend to the Solicitor-General that any individual or company that is granted leniency is also granted immunity from criminal prosecution.
The Cartel Leniency and Immunity Policy is a key tool for the Commission – and for other competition agencies overseas – to detect cartels. 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.
You can find more details about cartel conduct on the Commission’s website.
