A now-defunct Auckland construction business swept up in the nation’s first-ever criminal prosecution for cartel conduct has been ordered to pay a $30,000 fine.
Justice Sally Fitzgerald told the company’s lawyers and former director that she would have imposed a much greater fine of $595,000 had there been any realistic prospect of it being paid.
“It knew what it was doing was wrong,” she said during today’s sentencing hearing in the High Court at Auckland, adding that she hopes the fine she would have otherwise imposed serves as a deterrent to others.
“It is clear [the company] did not agree to engage in this conduct simply out of the goodness of its heart.”
The company, its director, a related business entity and an employee alleged to have aided the deception all cannot currently be named due to a pending application for permanent name suppression.
Justice Fitzgerald also heard arguments today for the suppression bids but reserved her decision.
Today’s sentencing came 10 months after co-defendant MaxBuild Limited was ordered to pay a $500,000 fine and its director, Munesh “Max” Kumar, was sentenced to community detention.
There’s a long history of bid-rigging in New Zealand, but a recent law change now makes it a criminal matter rather than civil. It now carries a potential sentence of up to seven years’ imprisonment and a fine of up to $500,000 for human defendants. Companies can be liable for fines of up to $10 million.
According to court documents, Kumar colluded with the other business to tailor their supposedly competitive bids on two projects in early 2022: NZ Transport Agency Waka Kotahi‘s Northern Corridor Improvement project and Auckland Transport’s Middlemore Railway Bridge repair project.
Kumar’s company, which employed 29 and had annual revenue of $5.1m at the time of the offending, had built a strong reputation over the years in the narrow niche of bridge maintenance and concrete repairs.
Kumar met with the director of the other company and asked him to bid 5-10% higher on the Northern Corridor project so that MaxBuild would get the contract, court documents state. To do so, he gave the other company MaxBuild documents showing what they intended to bid.
After two bridge projects were awarded to MaxBuild – resulting in a profit of $161,775 – the two met again and agreed to continue the scheme, Kumar admitted.
It all unravelled, however, after an employee for the suppressed company accidentally attached a document outlining the illegal scheme in an email to the group in charge of selecting bids. The employee - one of the people now seeking suppression - was never charged.
Kumar later said he acted out of desperation caused by the 2020 and 2021 Covid-19 lockdowns that temporarily crippled the construction industry.
“I am the one that instigated this, not [the other company director],” he insisted in an interview with the Commerce Commission, which prosecuted the case.
“I asked him for a favour, right, and he legitimately tried to help me … There’s no kickbacks, there’s no favours. There’s none of it.”
The Commerce Commission initially charged the director of the other company as well but those charges were dropped in exchange for the guilty pleas last month on behalf of his company.
Defence lawyer Sam Lowery argued today that there was a wide chasm between the conduct of MaxBuild and the company he represents. It’s a very unusual case, he said, because there were was no immediate financial benefit for his client.
Lowery said his client went along with the scheme, in part, due to a sense of futility.
“The conversations with Mr Kumar seemed to make it clear Mr Kumar had the inside track,” the lawyer said, explaining that it seemed to his client that MaxBuild was going to win the bid regardless.
“Mr Kumar’s proposal allowed [the other company] a face-saving way out of these tenders,” he added, explaining that the company felt that outright refusing to put in a bid – even if they didn’t want to win it – might blacklist them from future projects.
“There was no kickback,” Lowery insisted. “There was no quid-pro-quo.”
Lawyer John Dixon KC, representing the Commerce Commission, acknowledged that MaxBuild and Kumar were the most culpable.
“But it takes two to tango,” he said. “It could not have occurred without [the suppressed company]. It’s not a bit play – it’s just a lesser player.”
Dixon noted that there had been plenty of ignored opportunities for both companies to stop offending. At one point, he said, representatives for the company sentenced today went on an all-day site meeting to discuss the project that was being bid on.
“That was a ruse,” he said, adding of the overall conduct: “It’s intentional. It’s covert. It’s serious. It’s deliberate and dishonest. It occurred at the most senior levels of the companies involved.”
Justice Fitzgerald said a key purpose of the sentencing was to deter other companies from similar conduct. Such behaviour, she said, can raise prices, lower competition and reduce faith in publicly funded projects.
But she also acknowledged that the company had been in a “financially precarious” position in recent years. Both sides agreed the end fine of $30,000 was appropriate, and she ultimately concurred.
The company is being kept afloat only for the purpose of paying the fine so that his clients can do the right thing, Lowery told the court. As of this morning, its bank account had a negative balance of $20,000, he explained.
The investigation into the companies began in May 2022 when Commerce Commission staff and police executed six early morning search warrants following the discovery of the errant email.
In a statement to the media today, Commerce Commission chairman John Small said the organisation’s cartels team is dedicated to educating procurers about the crime.
It’s an issue the commission is seeing more and more of, and one that it is committed to stamping out, he said.
Craig Kapitan is an Auckland-based journalist covering courts and justice. He joined the Herald in 2021 and has reported on courts since 2002 in three newsrooms in the US and New Zealand.
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