Nufarm's prosecution brings fines in NZ's biggest cartel case over $7.5m
12 February 2008
New Zealand's largest cartel case to date has resulted in further heavy penalties for companies and individuals involved in the cartel in the timber preservatives industry.
Three Nufarm companies, which operated the Fernz Timber Protection brand, have been fined a total of $1.9 million for price-fixing and market sharing with competitor Koppers Arch. Terrence Mullen, formerly the Managing Director of Koppers Arch Investments Pty Limited was also fined $35,000 after admitting his personal involvement in the cartel.
The cartel, which involved seven companies, operated from 1998 to 2002.
A senior executive of the Nufarm companies (Mark Greenacre) was responsible for a number of breaches of the Commerce Act from mid 1998 to January 2001. The most serious of these was fixing market-wide price rises in 1998 and 2000 with Koppers Arch executives for CCA, a timber preservative product. As a result, farmers paid higher prices for fenceposts and homeowners paid more for their house framing and decking timber.
Mullen, who was based in Australia, encouraged the conduct through his interactions with the other cartel participants and by directing agents in New Zealand.
It is the Commerce Commission's largest cartel prosecution to date. The fines bring the total penalties handed down so far in both civil and criminal actions, to more than $7.5 million. Those fines are against the seven companies as well as four individuals. Proceedings are continuing against three overseas resident individuals, who had unsuccessfully challenged the jurisdiction of the High Court and who are appealing the High Court decision. Two of these defendants are former Nufarm executives.
Commerce Commission Chair, Paula Rebstock says the Commission will continue to strongly pursue cartels including senior executives and companies based overseas involved in price-fixing and other cartel conduct in New Zealand. It will also pursue companies that have exited the market.
"Cartels unfortunately do operate in New Zealand. They are insidious and cause extensive damage to the New Zealand economy. They are difficult to detect and extremely difficult to investigate because of their secretive nature. Businesses in New Zealand and overseas should be under no illusion, the Commerce Commission will enforce the Commerce Act to the full extent to ensure companies and executives that collude in cartels are brought to justice and competitive markets are restored," says Ms Rebstock.
Last year, in the same proceedings, two Koppers Arch companies were convicted and fined $3.6m for their involvement in the cartel from 1998 until mid 2002. Two Osmose companies were also convicted and fined $1.8m for their role in the cartel from 1 February 2001 to mid 2002. All parties who have proceeded to in-court settlements to date have co-operated with the Commission.
Ms Rebstock noted that the penalties imposed by Justice Williams in the Auckland High Court would have been considerably higher if Nufarm and Mullen had not co-operated with the Commission.
The Commerce Commission has a leniency policy whereby the first company or individual who alerts the Commission to a cartel gains immunity from prosecution by the Commerce Commission. It also has a co-operation policy where the Commission will consider lowering the enforcement action taken and the penalties sought if parties co-operate fully by admitting to their conduct and by providing direct evidence and information.
A copy of the judgment is available.
Wood preservative market
Wood preservation of softwoods is a significant domestic and export industry. A range of products, from poles and fence posts to house framing and decking timber, are produced using treated softwoods.
The chemicals involved in this case are Chrome Copper Arsenate (CCA) and Light Organic Solvent Preservative (LOSP). The market for these two chemicals is estimated to have reached around $35 million per annum in 2002 (CCA $25 million). There are significant downstream export markets of NZ grown and treated timber to Australia and the USA, in particular.
The Nufarm companies admitted breaching the Commerce Act by reaching agreements and putting them into effect. The Nufarm companies admitted agreeing with their competitor, Koppers Arch, to:
- share pricing information;
- simultaneously raise CCA prices market wide on two occasions;
- not compete on price;
- not compete for each other's customers and maintain market share;
Nufarm was fined $1.9m plus costs of $75,000, this fine represented a substantial discount for cooperating with the Commission and making early admissions. The Nufarm companies concerned are Nufarm Ltd (formerly Fernz Corporation Ltd), TPL Ltd (formerly Fernz Timber Protection Ltd) and FChem (Aust) Ltd (formerly Fernz Australia Ltd). The Nufarm companies were carrying out timber preservation chemicals business under the brand name of Fernz Timber Protection across Australasia.
Nufarm sold its timber preservation assets and business to Osmose on 1 February 2001 and exited the timber preservation business.
Mullen was the Koppers Arch Investments Managing Director from 1989 to March 1999. He was fined $35,000 plus costs after he admitted his personal involvement in the cartel.
Mullen was, and still is, an Australian resident. His conduct occurred 9 years ago, and took place over 1998 - 1999. Notwithstanding those factors, the Court held that this was a serious matter as Mullen acquiesced in and encouraged the cartel through his interactions with Koppers Arch and Fernz executives. Mullen was also in a position to terminate the understandings but did not do so.
Like the other defendants including Mark Greenacre, and Colin Newell (his Koppers Arch successor) who have settled the proceedings before him, Mullen received a substantial discount for his early admission and co-operation with the Commission.
Greenacre, based in Sydney, had operational responsibilities for the New Zealand businesses of Nufarm's Fernz Timber Protection brand and Osmose. From his office in Australia he committed numerous breaches of the Commerce Act that were enforceable in New Zealand.
In October 2006 Greenacre was fined $100,000 plus costs for his extensive participation in the cartel; this was the highest ever fine imposed on an individual for breaching the Commerce Act. He was also convicted of an offence under s103 of the Commerce Act for lying to and misleading investigators in the course of the Commission's investigation.
Newell was Managing Director of Koppers Arch Investments Pty Ltd from April 1999 to August 2000. In October 2006 he was fined $20,000 plus costs for his involvement in the cartel which amounted to "turning a blind eye" when he could have stopped the collusion.
In June 2005 Koppers Arch and its former General Manager Roy Parish pleaded guilty to breaching the Commerce Act by failing to provide documents required under statutory notices. Koppers Arch was fined $25,000 and Roy Parish was fined $8,000.
In April 2006 the High Court imposed record penalties on Koppers Arch Wood Protection (NZ) Ltd and its Australian parent company, Koppers Arch Investments Pty Limited, after the companies admitted participating in the cartel between 1998 and 2002. The $3.6 million fine comprised $2.85 million for price-fixing and $750,000 for attempts to exclude a new entrant competitor from the market. Costs of $100,000 were also awarded against Koppers Arch.
In August 2006 Osmose New Zealand pleaded guilty to a charge of failing to comply with section 98 notices requiring the provision of documents to the Commission, and was fined $13,000.
In October 2006 Osmose New Zealand and Australian company Osmose Australia were fined a total of $1.8 million for their participation in the cartel. Costs of $100,000 were also awarded against Osmose.
The cartel proceedings continue against three overseas resident individual defendants who are currently appealing a decision by the New Zealand High Court that New Zealand courts have jurisdiction to hear the case against them. An appeal hearing is to take place in July 2008.