In late 2024, we saw the first criminal prosecution for a cartel following the 2021 shift from civil liability to criminal liability for this conduct. By Brendan Cash (Partner), Kate Rouch (Senior Associate) and Caitlin Hogan (Solicitor) in Dentons’ Major Projects and Construction team.
What is a cartel? In simple terms, a cartel is an association of similar businesses that work together in order to prevent competition and control prices in their market.
The case, R v Kumar [2024] NZHC 3955 involved Munesh Kumar, the director of MaxBuild Ltd, a specialist bridge maintenance and concrete repair contractor. It provided an example of how the courts will handle cartel conduct under the new regime and underscored the risks of anti-competitive behaviour in the construction sector.
Given the construction industry’s relatively small, relationship-based market and the use of joint ventures (JVs), the risk of anti-competitive behaviour (whether intentional or not) is one to be aware of, particularly in competitive tender processes.
The Commerce Commission actively monitors the industry, and this case demonstrates that enforcement action can and will be taken. Contractors must take proactive steps to ensure compliance and avoid significant legal and financial consequences.
Bid-rigging schemes uncovered
In this case, MaxBuild engaged in ‘cover pricing’ with a competitor company – a practice where companies collaborate to submit fraudulent bids for a job.
Mr Kumar entered into two unlawful agreements with a competitor company on two separate construction tenders. In both instances, Mr Kumar and the competitor company’s director met and agreed that the competing company would bid higher than MaxBuild on the tenders.
The first agreement occurred during the Northern Corridor Project. MaxBuild was one of three companies invited by a JV to tender for concrete remediation work. Following a meeting between Mr Kumar and the competitor’s director, the competitor submitted a bid five percent higher than MaxBuild’s.
Shortly after, the JV contracted MaxBuild for urgent remediation work, from which the company made approximately $160,000 in profit. Once completed, this work was removed from the remaining project scope.
Subsequent bids were then invited for the remaining work. This time, the competitor’s bid was, on average, eight percent higher than MaxBuild’s. However, during resubmission, the competitor inadvertently attached a copy of MaxBuild’s pricing and failed to retrieve the email – accidentally exposing the collusion. The JV reported the matter to the Commerce Commission.
However, still encouraged by the success of the scheme, Mr Kumar and the competitor met again and agreed to continue the arrangement in response to a RFQ from Auckland Transport seeking tenders for the replacement of parts of the Middlemore Bridge.
Before a deal could go through, the Commerce Commission launched an investigation into MaxBuild and Mr Kumar.
Sentencing for cartel conduct
Both agreements entered into by MaxBuild involved cartel conduct as they had the purpose, effect, or likely effect of fixing, controlling, or maintaining prices for both companies. Given that they operated in a highly specialised field, the agreements, and the conduct surrounding them, were deliberate and serious.
The Court considered the factors of the offending. Significant factors included that two contracts were involved, the action was not an isolated event, and it appears the conduct only stopped because it was discovered. The impact on public investment projects further compounded the severity of the offence.
As a result, Mr Kumar was sentenced to six months of community detention and 200 hours of community work. MaxBuild was fined $500,000, a penalty set high enough to reflect the severity of the conduct but not so severe as to put the company out of business, as the court deemed the conduct serious but not egregious enough to warrant such a measure.
The competitor involved, whose identity remains suppressed, has also been charged with cartel conduct. Both the competitor company and its director have pleaded not guilty and are awaiting trial.
This case is a significant development in New Zealand competition law enforcement. Previously, cartel conduct was addressed through civil penalties, but the 2021 law introduced the possibility of criminal charges, including imprisonment. Under the current framework, individuals convicted of cartel conduct face up to seven years in prison and companies can be fined up to $10 million.
Key takeaways for contractors
To avoid the pitfalls of MaxBuild, contractors must ensure they are fully aware of their obligations under competition law.
The following steps can help mitigate the risk of breaches and ensure compliance.
1. Strengthen Compliance Programmes
• Implement clear policies on competition law compliance.
• Provide regular training to staff to ensure they understand what constitutes cartel conduct or anti-competitive behaviour.
• Establish internal reporting mechanisms for employees to raise concerns.
2. Be Cautious with Information Sharing
• Avoid discussions with competitors that involve pricing, tendering, or market allocation.
• If engaging in joint ventures, ensure that appropriate safeguards are in place to prevent the improper exchange of competitive information.
3. Watch for Red Flags in Bidding
• Be mindful of bids that are unexpectedly similar or follow a pattern that suggests coordination.
• Look out for discussions that imply an understanding between competitors regarding pricing or market share.
4. Seek legal advice early
• Seeking legal advice immediately can help businesses navigate the process and mitigate risks.
• If a company becomes aware of potential cartel conduct, early engagement with the Commerce Commission, through legal counsel, may potentially help to reduce penalties.
Lessons from MaxBuild
With increased regulatory scrutiny and the potential for criminal prosecution, contractors cannot afford to overlook competition law compliance. This case serves as a clear warning for contractors that breaches of competition law, whether intentional or inadvertent, can result in significant consequences.
It is also important to note that ignorance of the law is not a defence. While Mr Kumar stated he was unaware that bid-rigging was a criminal offence, the court made it clear that compliance is the responsibility of all business owners and industry participants.
As a result, contractors must know the law and ensure they operate within it – not just to avoid penalties, but to uphold fair competition and maintain trust in the industry.
• This publication is not designed to provide legal or other advice and you should not take, or refrain
from taking, action based on its content. Dentons does not accept any liability other than to its clients, and then only in relation to specific requests for advice.
For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons on (09) 379 4196.
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