As part of a commitment to increase the transparency of its operations, the Commerce Commission ("Commission") has published new guidelines describing how it enforces New Zealand's fair trading, competition, and credit contract laws. Designed to sit alongside the Commission's "Enforcement Criteria" and "Model Litigant Policy" publications, the Enforcement Response Guidelines ("Guidelines") provide welcome clarity for businesses and consumers on the Commission's enforcement powers, as well as helpful direction for structuring complaints, and new guidance on negotiating settlement for non-compliance.
The Commission's Guidelines, published on its website on 23 November 2012,1 are designed to facilitate greater clarity and understanding of the Commission's activities, powers, and functions in relation to its enforcement of breaches of the Commerce Act 1986, the Fair Trading Act 1986 ("FTA"), and the Credit Contracts and Consumer Finance Act 2003 ("CCFA").
The Enforcement Response Model
The Guidelines include the Commission's Enforcement Response Model, which provides useful insight into the Commission's likely enforcement procedures. Key points to note include:
- the appropriate enforcement response is driven by a number of aims, including stopping and deterring unlawful conduct, encouraging education and compliance, punishing wrongdoers, and remedying harm;
- consistent with previous statements by the Commission,2 wherever possible the Commission prefers to encourage compliance with the law through the use of non-enforcement compliance tools such as education, engagement, outreach, and advocacy;
- the criteria reinforces the Commission's policy of low-level enforcement against small businesses, whose conduct is likely to meet the low harm criteria or who are most likely to claim a limited understanding of the relevant law; and
- the broad criteria for high-level and low-level responses in the Guidelines will often conflict. For example, a breach of the law by a large corporation is likely to inflict significant and widespread harm to the public, and enforcement may prompt greater public interest of the offence, both of which the Commission would view as supporting high-level enforcement action. However, such corporations generally have the most comprehensive compliance regimes, meaning breaches are often of a technical nature, supporting a low-level enforcement response.
Arguably, the criteria encourages a 'naivety defence' (maybe a precursor to the "honest belief" defence proposed by criminal liability under the Cartels Bill3), without explicitly rewarding those businesses who have made a real effort to implement an effective compliance programme.
The Commission's artillery
The Commission's recognition that low-level enforcement options, including 'compliance advice' and 'warning letters', may be appropriate where legal action is unlikely to succeed arguably further waters down their effectiveness as a deterrent. Businesses will often simply accept such a letter as a better alternative to more formal enforcement action. The Commission provides that such action will not include any statements that the Commission has made a "finding" of non-compliance, but publicity surrounding any type of enforcement is likely to have a negative effect on the reputation of the business(es) concerned.
High-level enforcement responses include 'out-of-court' settlement, cease and desist orders, and civil or criminal proceedings. The Commission identifies factors it will consider when a choice of civil or summary criminal enforcement (e.g. under the FTA and CCCFA) is available. These provide a useful precursor to the proposed criminalisation of cartel conduct. These factors include:
- the seriousness of the conduct;
- whether the conduct was deliberate;
- whether the law being enforced was long-standing and well understood; and
- the standard of proof required.
Engaging the Commission as an ally
The Commission investigates conduct both on its own initiative and in response to external complaints. The template set out in the Guidelines should be followed by parties wishing to make an informed complaint to the Commission.
In summary, businesses or individuals looking to lay a complaint should ensure:
- the complaint identifies a possible breach of the law and is factually and legally correct;
- the complaint regards a matter within the Commission's jurisdiction, and that any related action is not out of time;
- real harm is identified, and it is in the public interest to pursue the complaint;
- the Commission is the proper agency for dealing with the complaint; and
- the complaint does not involve private parties that are able to resolve their own dispute.
Negotiating a retreat
The Guidelines represent the first time the Commission has published direction on negotiating settlements for non-compliance, a tool that is becoming increasingly common as a means of avoiding protracted litigation.4 Key points include:
- Commission staff are available to assist the defendant and their lawyer to develop a suitable proposal to be submitted for consideration;
- the Commission appears to take a broad and flexible approach to settlement, willing to consider "any proposal that is well developed, principled and realistic",5 at any stage of the proceedings;
- there are many possible settlement terms and outcomes, including agreement to cease conduct and/or admit liability, the imposition of a penalty, a charge of compensation, public-benefit remedies, and immunity/leniency (cartel cases); and
- settlement outcomes are generally not confidential, and the Commission has the right to issue a media release after settlement is reached, unless agreed otherwise.
The Commission is becoming increasingly sophisticated and pragmatic in its enforcement action, including the settlements it will agree to, in common with a number of more mature competition agencies worldwide. The Guidelines generally enhance the Commission's growing reputation in that regard. The test will be the consistency with which the Guidelines are applied in future cases.