Wood products group Carter Holt Harvey has today been slammed by the High Court with a $1.85 million fine for price fixing.
Carter Holt Harvey earlier admitted its part in anti-competitive activity in which three big Auckland suppliers - Carters, PlaceMakers Cook St and PlaceMakers Mt Wellington - agreed to sell structural timber at a set price between September 2012 and March last year.
The High Court's decision today to fine Carter Holt $1.85 million for price fixing in the Auckland commercial timber market highlighted the potential impact of price fixing on consumers, said Commerce Commission General Manager Competition, Kate Morrison said
A former manager of the company, Dean Dodds, has also been fined $5,000 for his involvement.
While the price-fixing sparked a Commerce Commission investigation and court action against CHH, PlaceMakers' owner - Fletcher Distribution - was granted immunity after it alerted the regulator to the anti-competitive conduct.
"This case reinforces that price fixing can attract high penalties even where the commercial gains are relatively modest and the conduct continues for a relatively short period. Cartels have the potential to cause real harm to consumers by increasing prices and creating fewer choices. We are pleased that Carter Holt and Mr Dodds accepted their role in the conduct early," said Morrison.
Carter Holt Harvey's price-fixing in the Auckland timber market was worth less than $1,000 to the company.
CHH co-operated with this investigation and when the commission filed proceedings against the company and one of its sales managers, Dean Dodds, for the price-fixing, both of the defendants admitted the offences.
A penalty hearing for this case took place last week in the High Court at Auckland, where Commerce Commission counsel John Dixon said the regulator and CHH had agreed the firm's penalty should be $1.85 million.
Carters issued 33 quotes under the terms of the price-fixing "understanding" but completed actual sales in only five of them, Dixon said.
Dixon said the direct commercial gain from these five jobs was less than $1000, although he also contended CHH would have benefited from rebates it didn't have to pay PlaceMakers Cook St.
"Of course had it continued for longer there was a likelihood there would have been a greater advantage," Dixon told Justice Geoffrey Venning during the penalty hearing.
Dixon said the price-fixing "understanding" had the purpose, effect, or likely effect of "controlling or maintaining prices ... for commercial construction jobs in the Auckland market during the relevant period".
He described the price-fixing as "sustained conduct" and said these types of arrangements have the effect of "softening" competition overall.
The maximum penalty CHH could face is $10 million and the $1.85 million agreed upon by the commission and the company took into account its co-operation and admission.
While agreed by the parties, the penalty is ultimately decided by the judge, who released his decision today and set the $1.85 million penalty.
Justice Venning described this as a "classic case of price fixing," but recognises this was not the most serious price fixing conduct, the commission said in a statement this afternoon.
For Dodds, Dixon last week said the man did not deliberately set out to breach the Commerce Act and that this wasn't a case of meetings in a smoke-filled room or on a golf course to arrange a cartel.
But at some point Dodds must have known or ought to have known what he was doing was wrong, Dixon said, and submitted that sales manager personally should be penalised $5,000.
This took into account his early admission of liability and co-operation with the commission, the regulator's lawyer said.
CHH lawyer Simon Ladd said this wasn't a case of a "hardcore cartel" and that it ran for a shorter time than other cartels discussed in court by Dixon.
Dodds' lawyer, Allison Ferguson, said her client did not intend to break the law and had shown genuine remorse.
"This breach comes down to a mistake on his part and it's had serious consequences for him," Ferguson said.
Justice Venning expressed sympathy for the situation Dodds was in before reserving his decision last week.
How it worked
The type of timber in this case was supplied to Carters and the two PlaceMakers stores from another Carter Holt Harvey division called Woodproducts.
This is where the problem began, Commerce Commission lawyer John Dixon told the High Court, as the two PlaceMakers stores believed Woodproducts was giving Carters the "inside running on pricing" while Carters perceived Woodproducts was giving the two other stores a better price because of their size. CHH employees took part in discussions to see if they could work out a recommended retail price for the timber to sort out these tensions.
This couldn't happen, Dixon said, and talks took place about setting a minimum resale price at the three stores for the timber of cost plus 8 per cent.
It was agreed this price would apply only when the three stores were competing for a job, Dixon said.