'Gardening Club' Air Freight Forwarding Cartel Finally Buried by High Court

NEW ZEALAND – The High Court in Auckland has wrapped up its case into what it describes as ‘hard core cartel behaviour’ in the air cargo market by penalising Swiss headquartered freight forwarding company Kuehne + Nagel a sum of NZ$3.1 million plus costs, for breaches of the Commerce Act as part of the infamous ‘Gardening Club’. This latest and final fine brings the total penalties ordered in this long standing case to NZ$11.95 million with the company paying the biggest fine of the lawsuit.

Kuehne + Nagel is the last defendant in a long-standing case brought by the New Zealand Commerce Commission against six international freight forwarding companies for a range of hard core cartel behaviour. The other five defendants admitted their role in the cartel and paid penalties in 2010 and 2011. Kuehne + Nagel challenged the Commission’s jurisdiction but were unsuccessful in both the High Court and Court of Appeal.

Kuehne + Nagel admitted to being part of a secret cartel that called itself the ‘Gardening Club’. The Gardening Club agreed to charge surcharges on air freight forwarding services from the UK to countries including New Zealand, ostensibly to cover the costs of increased security measures imposed in the UK. The cartel participants agreed that they would each pass on certain costs to customers, rather than compete in the usual way and determine their own pricing structures and price levels. Commission Chairman Dr Mark Berry said:

“The ‘Gardening Club’ was a classic hard-core cartel. Members attended covert, off-site meetings outside of business hours and used code words to describe the agreed surcharges. Our investigation uncovered emails in which ‘Gardening Club’ members referred to the agreed surcharges as ‘the new price for asparagus for the forthcoming season’ and ‘the price of marrows’.

“When members lacked confidence that cartel members were performing the illegal agreement, they emailed in terms like, ‘I hear… concerns about the price of produce from the garden of Velcro, which appears to be operating as a charitable cooperative for the benevolence of vegetable eaters rather than grower’.

“This case involves deliberate and secretive conduct by the freight forwarding companies, but it’s important for businesses to recognise that cartels can also take on a less obvious form, like a conversation about pricing at a trade association meeting or a nod and a wink agreement between competitors not to discount a certain product. Businesses should always ensure that they make any pricing decisions independently, and bring any concerning activities to the Commission’s attention.

"We are extremely pleased to have closed the book on this long-running case involving anti-competitive conduct in a key New Zealand industry. The Commission took this case in 2007 and we have seen it through to its conclusion. Businesses that act anti-competitively can expect the same determination from us.”

In 2007, the Commission began investigating alleged collusion by a number of multi-national companies involved in the supply of international freight forwarding services to the New Zealand market. This followed a confidential application for leniency by one of the companies involved in the conduct. In 2010, the Commission filed proceedings against six companies: Deutsche Bahn, Bax Global, Kuehne + Nagel, Panalpina, EGL, and Geologistics, for the alleged collusion on surcharges imposed to cover the costs of complying with security measures required by airlines and national authorities

Prior to filing proceedings, the Commission was approached by a number of the companies under investigation who wished to engage in settlement negotiations. As a result, the Commission reached agreements to resolve the proceedings in respect of two companies, EGL and Geologistics International (Bermuda). In both instances the local New Zealand subsidiaries (Eagle Global Logistics (New Zealand) Limited and Agility Logistics Limited) were not implicated.

In December 2010, EGL settled with the Commission and was ordered to pay a penalty of NZ$1.15 million. In the same month, Geologistics also settled and was ordered to pay a penalty of NZ$2.5 million. In June 2011, BAX Global, Schenker and Panalpina reached settlements with the Commission, which were accepted by the High Court. They were ordered to pay NZ$1.4 million, NZ$1.1 million and NZ$2.7 million respectively.

In June 2012, the Court of Appeal confirmed the New Zealand High Court's jurisdiction in the Commission's ongoing freight forwarding cartel case against Kuehne+Nagel. In the penalty judgment, Justice Venning recognised the importance of deterring international cartels from extending their operations into New Zealand. Venning added:

“It follows that the penalty must therefore be set at a level to achieve that deterrent objective bearing in mind the significant size of the companies involved.”