The New Zealand Commerce Act prohibits a range of anti-competitive conduct. However the Commerce Act, as it currently stands, contains a specific exemption which applies to international shipping. A new Bill, widely referred to as the Cartel Bill, is now before Parliament and will remove this exemption and require shipping lines to comply with the Commerce Act.
Shipping lines will have a two-year transition period to find out if their existing arrangements do conform to the new Act. If they don’t, there will be significant consequences, including prison sentences, or a $10 million fine. It is therefore important to review your current arrangements, particularly those with competitors or potential competitors, and assess whether they contain anything that could be considered anti-competitive.
What is the current position?
Currently there is an exemption under the Commerce Act for contracts, arrangements or understandings which contain provisions that exclusively relate to the carriage of goods by sea either to or from New Zealand. The Shipping Act creates limited regulation in that it gives the Minister of Transport the power to investigate unfair practices and issue directions in relation to outward (but not inward) shipping.
What is proposed under the Cartel Bill?
Despite submissions to the contrary, including from the International Container Lines Committee, policy makers have decided to remove the exemption from the Commerce Act and repeal the Shipping Act. The Commerce Committee said in its report that it believes there is no longer any good reason to exempt international shipping from general competition laws.
What conduct will be illegal under the Cartel Bill?
The Cartel Bill will prohibit arrangements that contain "cartel provisions". These are provisions with the purpose, effect or likely effect of price fixing, restricting output or market allocation.
This is in addition to the current prohibitions in the Commerce Act for arrangements that substantially lessen competition, and companies taking advantage of market power.
What are the penalties?
The Cartel Bill introduces new penalties under which individuals could face up to seven years in prison. Companies could face criminal fines equivalent to the current penalties provided for in the Commerce Act. These include a maximum fine the greater of $10 million, three times the commercial gain, or 10% of turnover.
What are the exemptions?
The Bill contains an exemption from the cartel prohibition for "collaborative activities", which replaces the existing joint venture exemption. This exemption will apply where the parties to the arrangement are acting in co-operation and the cartel provision is reasonably necessary to achieve that co-operation. However, the dominant purpose of the arrangement cannot be to lessen competition.
Whether something will amount to a collaborative activity will need to be assessed on a case-by-case basis, and we suggest that legal advice should be sought before relying on this exception.
What is a clearance?
It will be possible to achieve some certainty for new arrangements by applying to the Commerce Commission for a clearance, where the collaborative activities exception may apply. However, this is only available for new arrangements, and cannot be applied for in relation to arrangements already in force.
The Commission will grant a clearance if it is satisfied that the collaborative activities exception applies and the arrangement will not substantially lessen competition.
If a clearance is granted, then no action can be taken for breach of the Commerce Act in respect of the arrangement for which the clearance was granted.
What is the timing of the Bill?
Best estimates at the moment are that the Bill is likely to be passed by Parliament in late 2013 or early 2014. This means that the repeal of the Shipping Act and shipping exemption will take effect in late 2015 or early 2016.
What are the practical implications for shipping lines?
While it will be two years before the new provisions come into force, we expect that it will take some time to work through any changes that are required in order to become compliant with the Commerce Act. Therefore, it is prudent for shipping lines to begin a review of their current arrangements.
We recommend that shipping lines:
- review their arrangements with other shipping lines to assess whether any of those arrangements may contain a cartel provision; and
- if the arrangements contain a cartel provision, take advice on whether or not the arrangement would be a "collaborative activity"; and
- whether or not the company could apply for a clearance.
Examples of the types of arrangements that may raise issues and should be carefully considered are:
- arrangements with other shipping lines setting rates for the carriage of cargo;
- arrangements for sharing space on vessels;
- arrangements with other shipping lines for the sharing of trade lanes;
- global tenders, or collaboration on global tenders, that may impact on trade to or from New Zealand;
- agreements with other shipping lines about surcharges; and
- joint agreements with other shipping lines and suppliers, eg Port Companies.