First published in NZ Lawyer, 26 August 2011.

In competition law circles, cartel criminalisation has had the limelight this year as the Government continues to ponder the costs and benefits of that particular legislative proposal. All the while, however, Parliament has been progressing other legislation to add to the regulator's competition law armoury. The Court too has been playing its part in continuing to up the ante in competition law enforcement.

Parliament's role – Commission can use its powers to assist overseas regulators

In what has been a long road to implementation, the Commerce Commission (International Co-operation, and Fees) Bill is set to shortly be passed into law. ( As at 18 August, the Bill was set to be passed under urgency but the House is now in recess until 6 September when one can anticipate it will again be on the Order Paper.)

The Bill aims to facilitate increased co-operation between the Commerce Commission and its overseas counterparts, most notably the Australian Competition and Consumer Commission (ACCC). This is to be achieved by enabling the Commission to:

  • exercise its statutory information gathering powers to assist an overseas competition authority; and
  • provide information compulsorily acquired under its statutory powers to an overseas competition authority.

These extended powers for the Commission will be included in each of the Commerce, Fair Trading and Credit Contracts and Consumer Finance Acts. A late Supplementary Order Paper from the Commerce Minister was also to extend the inclusion of the powers into the Telecommunications Act to allow for co-operation with overseas telecommunications regulators.

The policy issues that the Bill seeks to address have been the subject of discussion for some years. They initially flowed from recommendations made by the Productivity Commission in 2004 and work endorsed by the Closer Economic Relations Ministers in 2003 to improve co-operation between the Commerce Commission and the ACCC. Bell Gully made a submission on a discussion paper in 2004. The Bill was first introduced to Parliament in September 2008 but was not referred to Select Committee until November 2010. Australia made its equivalent legislative amendments in 2007 giving the ACCC similar powers.

The Bill enables the Commerce Commission to provide assistance to "recognised overseas regulators". A recognised overseas regulator is one that is the subject of a co-operation arrangement entered into by the Commerce Minister at a government to government level or, with the approval of the Minister, by the Commission itself directly with a relevant overseas regulator. A co-operation arrangement can only be entered into if regard has been had to certain factors including the legal framework relating to the use of such information in the overseas jurisdiction along with consequences for New Zealand consumers and businesses, effects on privacy and consistency with New Zealand's international agreements, conventions and treaties.

Once a co-operation arrangement is in place, before the Commission can provide investigative assistance or compulsorily acquired information to an overseas regulator, the Commission must also be satisfied on a case-by-case basis that certain further conditions are met, including whether such assistance could affect the Commission's ability to perform its other functions.

One of the key tenants of the Bill is the concept of reciprocity with the overseas regulator but the Bill does not expressly provide for this as a pre-requisite for our Commission providing assistance. Theoretically, in some circumstances, the Commission may therefore be providing information to an overseas regulator at the expense of its own time and resources and would not receive any assistance in return. Interestingly, however, the Select Committee determined that no specific amendments were required to address this. While acknowledging the risk, the Committee was of the view that New Zealand would not enter into a co-operation arrangement without reasonable confidence in the other party's commitment to providing information in return.

Other changes to the Bill that were made at Select Committee stage include:

  • The Bill specifically provides for retrospective application so that information already acquired by the Commission when the legislation comes into force can be shared with other regulators.
  • The Bill provides that the Commission must consider any prejudice to New Zealand's international trade interests before it provides assistance to another regulator and can consult the Minister of Trade about this.
  • The Bill maintains safeguards as to the use of compulsorily acquired information by an overseas regulator to whom it is provided. The Commission can impose conditions on provision of such information including as to required storage, use and access. In relation to statements the Commission has obtained in compulsory interviews that might tend to incriminate a person, the Bill expressly provides for the Commission to require written undertakings that an overseas regulator will not use such statements in criminal proceedings or for actions for pecuniary penalties.

Overall, while the Bill contains some safeguards, it creates yet another competition law risk for companies operating both in New Zealand and overseas. Information gathered in either jurisdiction can more readily be exchanged creating a greater prospect of regulatory action in two jurisdictions.

Court's role – upping Commerce Act penalties

The sizeable – $12 million – penalty imposed by the High Court on Telecom in April this year in the "data tails" case (currently subject to appeal) was discussed in our May column. But this has been only one of a number of decisions in 2011 where sizeable penalties have been imposed. In fact, 2011 has never been as lucrative for the Commerce Commission with penalties so far this year adding over $30 million to the Government coffers.

In addition to the Telecom penalty:

  • In April Cargolux International Airlines S.A. was ordered to pay $6 million in penalties and British Airways plc $1.6 million as part of pre-trial settlements in the air cargo cartel case.
  • In May Qantas Airways Ltd was ordered to pay a $6.5 million penalty also as part of the air cargo cartel case.
  • In June three international freight forwarding companies were ordered to pay penalties totalling $5.2 million for breaches of the Commerce Act. BAX Global Inc was ordered to pay $1.4 million, Schenker AG $1.1 million and Panalpina World Transport (Holdings) Ltd $2.7 million.

The size of these penalties is significant. Substantial increases to the statutory maxima for competition law infringements were introduced in May 2001 but it has taken all of the intervening ten years to see a marked change in the level of penalties the Courts have been prepared to impose. Such penalties demonstrate that New Zealand is not a soft touch for cartel activity and that the Court is willing to take a robust and hard line for what it considers to be serious breaches of our competition laws.

With the exception of the Telecom penalty, the remaining penalties were all agreed in that the parties jointly recommended these levels to the Court. In that context, they also generally included substantial discounts (of up to 50%) for early admissions of wrong doing and/or for agreements to co-operate with the Commission in ongoing investigations and proceedings. If such factors had not applied, the penalties in these cases would have been substantially higher.