High Court hands out $3million penalty in refrigerator compressor industry cartel case

The High Court at Auckland has imposed a penalty of $3million against a major manufacturer of refrigerator compressors following a cartel investigation under the Commerce Act.

The penalty was jointly recommended to the Court by the Commerce Commission and refrigerator compressor manufacturer Empresa Brasileira de Compressores S.A (Embraco), following a settlement announced in October when the Commission filed proceedings against Embraco. The $3million penalty has now been imposed on Embraco, and it was also ordered to pay the Commission $50,000 in costs.

The case involved Embraco and a competitor exchanging information between January 2005 and November 2006. The exchanges related to prices, production capacities and other market intelligence concerning the supply in New Zealand of certain refrigerator compressors. A refrigerator compressor is the key device in a fridge that produces the cooling effect.

As a result of the information exchanges, Embraco and its competitor came to an understanding and expectation that each company would seek to increase prices for some compressor units supplied into New Zealand.

The Commission was tipped off to the cartel in 2009 following an application for immunity under the Commission’s cartel leniency policy.

In his decision imposing the penalty, Justice Allan noted that the purpose of the cartel was to pass on significantly increasing input costs without the risk of losing sales to competitors. According to Justice Allan, “this type of conduct is serious and warrants substantial penalties under the Act, in order to deter both the defendant and others minded to act in like fashion”.

“This is the latest in a growing body of cartel cases in which significant penalties are being imposed by the courts against companies that engage in cartel conduct directed at New Zealand markets and consumers,” said Kate Morrison, the Commission’s General Manager of Competition. “While the Judge found that Embraco cannot be assumed to have profited from the conduct, the amount of the penalty sends a signal about the Court’s low tolerance for this kind of illegal conduct.”

The judgment is available on the Commission’s website at http://www.comcom.govt.nz/competition-enforcement-outcomes/