Commission can pursue overseas residents: High Court

The High Court has ruled that the Commerce Commission can pursue penalty proceedings against three defendants in the wood chemicals cartel case who were living overseas when the cartel was operating.

Elias Akle, Andrew Poynter and Neil Harris had protested the jurisdiction of the Court to hear the Commission's cartel claim against them.

They argued that they lived overseas and did not perform any acts in New Zealand that breached the Commerce Act. The Commission accepted that most of their alleged actions took place outside New Zealand, mainly occurring in Australia, but noted that the cartel affected New Zealand businesses and consumers.

The High Court set aside the protests of all defendants and held that people who allegedly enter into cartel agreements overseas, which are aimed at a New Zealand market, can be pursued in the New Zealand courts.

The decision confirms that the Commerce Act applies not just to companies and individuals in New Zealand, but also to overseas residents who conspire to breach the Act and communicate with people in New Zealand or have people in New Zealand acting on the conspiracy.

Commerce Commission Chair Paula Rebstock welcomed the ruling.

"Many New Zealand businesses are now managed from abroad, or are subsidiaries of overseas companies. This judgment goes a long way towards ensuring that unlawful agreements entered into overseas - but aimed at New Zealand markets - can be the subject of legal action here."

"Residence overseas will not shield people who breach the Commerce Act."

Justice Williams noted that the close economic relationship between New Zealand and Australia made it particularly appropriate that Australian-based defendants should be subject to the jurisdiction of New Zealand courts.

A full hearing will need to be held to determine whether any of the individuals has breached the Act. If the defendants do not appear at Court the Commission can seek judgment in their absence. In the meantime, two defendants have indicated that they will apply to appeal the jurisdiction judgment. Applications for leave to appeal must be filed by Friday 23 March 2007.

Elias Akle and Neil Harris were executives of the Osmose group of companies. Andrew Poynter was an executive with the Fernz Timber Protection Group.

Background

Wood chemicals cartel civil action.

More than $5 million of fines have already been imposed in relation to a cartel that operated in New Zealand's wood preservative chemicals industry from 1998 to 2002. The affected part of the industry was worth an estimated $35 million in 2002, and included the iconic "Tanalised" timber brand.

In April 2006, the High Court imposed $3.6 million in penalties on Koppers Arch Wood Protection (NZ) Limited and its Australian parent company, Koppers Arch Investments Pty Limited. This is more than double the previous highest penalty for cartel behaviour in New Zealand. In October 2006, Osmose New Zealand and Osmose Australia were fined a total of $1.8 million for their participation in the cartel. Two executives have also been fined, in one case $100,000 for participation in the cartel.

Criminal convictions for hindering investigation.

The Commission's investigation was hindered by the defendants at various stages. In June 2005 Koppers Arch NZ and its former General Manager Roy Parish pleaded guilty to breaching the Commerce Act by not producing company documents when required to by the Commission. The company was convicted and fined $25,000 and Roy Parish was convicted and fined $8,000.

In August 2006, Osmose New Zealand pleaded guilty to not providing documents required by the Commission's investigators, and was fined $13,000. Australian-based executive Mark Greenacre admitted he lied to Commission investigators when he denied involvement in the cartel. He was fined $7,000.

Cartels.

Cartels are groups of businesses or individuals who, instead of competing against each other to offer consumers the best deal, secretly agree to work together and keep prices high. Cartels harm competitors by sharing customers with other cartel members, and by squeezing non-cartel members out of the market. Cartels harm the New Zealand economy by making other businesses pay inflated prices for goods, resulting in more expensive end products that can not compete overseas. An OECD survey has confirmed that the parties to cartel agreements usually realise that their conduct was harmful and unlawful, causing them sometimes to go to great lengths to keep their agreement secret.

Previous NZ cartel cases.

The previous highest company penalty for a Commerce Act offence was $1.5 million imposed on three companies who formed a cartel in the meat industry in 1998. For individuals, the highest previous penalty was a $25,000 fine imposed on eye surgeon Dr Rogers for price-fixing.