'Gardening Club' hid hardcore air freight cartel

Swiss freight company Kuehne + Nagel has admitted being part of a price fixing cartel - and has agreed in the High Court at Auckland that a $3.1m penalty is appropriate.

The Commerce Commission and Swiss air freight company Kuehne + Nagel International have agreed it should be penalised $3.1 million for "hardcore cartel conduct" that was deliberately hidden using gardening codewords and ran for five years, the High Court heard this morning.

The Swiss-based company was one of five freight forwarding companies facing action from the regulator for price-fixing and colluding together to cover costs of air security measures imposed by the British Government in 2002.

All of the other companies involved but Kuehne + Nagel had settled by 2011 and already been penalised a total of $8.85 million.

Now Kuehne + Nagel has admitted the allegations it faced and lawyers for the freight company and the commission appeared in the High Court at Auckland this morning for a penalty hearing.

Commission lawyer Nick Flanagan submitted that a penalty of $3.1 million for Kuehne + Nagel was appropriate, along with a costs order in favour of the regulator of $100,000.

The company also has agreed this penalty appropriate but the final amount will be ultimately decided upon by Justice Geoffrey Venning, who is hearing the case.

The maximum penalty Kuehne + Nagel can face is $10 million, Flanagan said.

The penalty of $3.1 million took into account a discount for the company admitting liability, the regulator's lawyer.

Kuehne + Nagel could get little discount for co-operation, Flanagan said.

Flanagan said the Swiss company and five others met to impose a fee to cover the costs arising from increased security measures.

This price-fixing was deliberately concealed and the companies involved referred to themselves as "The Gardening Club".

They met after hours and used horticultural code-words during communications, the High Court heard today.

These include referring to fees in emails as "asparagus" the parties involved as "fellow gardeners".

The price-fixing arrangement ran for five years and Flanagan described it as "hard-core cartel conduct", which was policed to ensure those involved did not cheat.

"This is conduct which seriously undermines interests of consumers in a market which is important to the NZ economy," Flanagan said.

While the commercial gain to Kuehne + Nagel from the arrangement was difficult to ascertain, Flanagan said it had to be "substantial".

The Swiss company's lawyer, Iain Thain, said while the firm would not contest this point, this was not the same as agreeing to it.

He also pointed out that Kuehne + Nagel's New Zealand subsidiary was at all times unaware of the arrangement at issue in this case.

The company had not previously breached the Commerce Act, Thain said.

The judge reserved his decision.