New Zealand's Competition Law: Questions and Answers

1. What are the main sources of competition law in New Zealand?

The primary statute in the area of competition law in New Zealand is the Commerce Act 1986. The Dairy Industry Restructuring Act 2001, the Telecommunications Act 2001 and the Electricity Industry Act 2010 are also key pieces of legislation that address competition issues.

2. What is the objective of New Zealand competition law?

The purpose of the Commerce Act is to promote competition in markets for the long-term benefit of consumers in New Zealand. The industry-specific Acts also follow this objective, while recognising the additional complexities and concerns of particular sectors.

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3. What is the nature of New Zealand competition law?

The framework provided by the Commerce Act is a set of generic competition laws that focus on promoting competitive market behaviour and structure. The Act prohibits contracts or arrangements by firms that could lead to a substantial lessening of competition, the use of substantial market power to deter or eliminate competition, and mergers or acquisitions that would substantially lessen competition.

The Commerce Act has the provision for price control if the general competition measures are not effective.

For three industries (dairy, electricity and telecommunications) where there are competition concerns that may not be adequately dealt with by the general provisions of the Commerce Act, the Government has introduced specific regulatory legislation.Standalone legislation exists in relation to the dairy and telecommunication industries.

 

4. What conduct is prohibited?

The Commerce Act prohibits conduct that restricts competition. The types of conduct covered are contained in Parts II and III of the Act.

Part II of the Act prohibits certain restrictive trade practices. The main practices that are prohibited include:

• section 27, which prohibits contracts, arrangements or understandings substantially lessening competition;
• section 29, which prohibits contracts, arrangements or understandings containing exclusionary provisions;
• section 30, which prohibits arrangements that lead to prices being fixed by competitors;
• section 36, which prohibits a person that has a substantial degree of market power in a market from taking advantage of that power for exclusionary purposes; and
• sections 37 and 38, which prohibit suppliers fixing the prices at which goods may be sold by other businesses.

Part III of the Act prohibits business acquisitions that have, or would be likely to have, the effect of substantially lessening competition in a market.

5. What Penalties and Remedies are available under the Commerce Act?

The Commerce Act is enforced by the Commerce Commission. Other parties may also take private litigation. As part of its enforcement approach, the Commission seeks to deter businesses from breaching the Act. The Courts have a number of remedies available to them once a breach of the Act has been proved. The main penalties and remedies available under the Act include:

• awards of damages;
• injunctions (including interim injunctions) restraining businesses and individuals from conduct that may breach the Act;
• ordering a person or company to dispose of specified assets or shares;
• pecuniary penalties of up to $10 million on companies and $500,000 on an individual, where the Commission has brought a case; and
• ordering a variety of other remedies, including varying contracts that breach the Act.

6. What is the application of the Act to conduct occurring outside New Zealand

The Commerce Act applies to any conduct occurring outside New Zealand carried on by a person or business resident in New Zealand to the extent that the conduct affects a market in New Zealand (section 4(1)). A similar provision relates to acquisitions of assets or shares outside the country if it affects a New Zealand market (section 4(3)).

 

7. What are authorisations and clearances?

With respect to merger and acquisition control, the onus is on the acquiring company to comply with the Act. In order to provide certainty to companies whether a proposed merger does comply, the Act provides the ability to apply to the Commerce Commission for a clearance or authorisation.

A clearance is granted if the Commerce Commission assesses that a proposed merger will not lead to substantially lessening competition in a market.

An authorisation is granted if the Commerce Commission assesses that the benefits to the public will outweigh the competitive detriments of the proposed merger.

If granted, a clearance or authorisation protects those acquiring the business from action by the Commission and private individuals.

Authorisations are also granted with respect to restrictive trade practices. Such an authorisation is granted if the Commerce Commission considers that the public benefit from the contract or arrangement will outweigh the detriment from the lessening of competition. Authorisations cannot be granted if the applicant is seeking to take advantage of a position with a substantial degree of power in a market for anti-competitive purposes, or if a restrictive trade practice is already in operation.

If an authorisation is granted, the prohibitions in the Act do not apply to that practice and the applicant is protected from action by the Commission and by private individuals.

 

8. What is the Commission's role?

The Commission is responsible for enforcing the Commerce Act and Fair Trading Acts, as well as a range of regulatory regimes contained within industry specific legislation.

The Commission seeks to encourage all businesses to comply with the Commerce Act, by:

• investigating conduct that may breach the business acquisition and restrictive trade practice provisions of the Act;
• determining whether certain restrictive trade practices should be authorised;
• determining whether applications for the clearance and authorisation of business acquisitions should be granted;
• where necessary, taking court action to pursue breaches of the legislation and defend appeals against its adjudication decisions;
• reporting to the Minister of Commerce where requested on the necessity of price control for particular goods and services;
• providing information and guidance to the business community and other groups on the requirements and effects of the legislation and the Commission's enforcement approaches.

The Fair Trading Act was developed with the Commerce Act to encourage competition and to protect consumers and ethical businesses from misleading and deceptive conduct, unfair trading practices and through businesses meeting standards for product safety and consumer information.

9. What investigative powers does the Commission have?

The Act permits the Commission to require businesses and individuals to provide information and to use search warrants to obtain documents. The Commission can order confidentiality for commercially sensitive information.

 

10. What business acquisitions are prohibited?

The Commerce Act prohibits business acquisitions that would have, or would be likely to have, the effect of substantially lessening competition in a market (section 47). If a firm assesses they are likely to breach this requirement, they can apply to the Commerce Commission for an authorisation (see question 7).