The Ministry of Economic Development (MED) has released a consultation draft of the Commerce (Cartels and Other Matters) Amendment Bill (draft Bill). The draft Bill proposes a number of reforms to the Commerce Act 1986 (Commerce Act), including criminalisation of cartel conduct. Recognising concerns expressed during earlier consultation about the possible chilling effect of criminalisation on pro-competitive activity, a stated purpose of the draft Bill is to test whether it is possible to define with sufficient clarity the "hard-core" cartel conduct that is subject to criminal sanctions.

Key features of the draft Bill

  1. New cartel prohibition

The current price fixing prohibition (section 30) deems a provision that has the purpose, effect or likely effect of fixing prices to substantially lessen competition under section 27. The draft Bill expands this prohibition to specifically include provisions with the purpose of price fixing, restricting output, market allocating or bid rigging. This new cartel provision focuses only on the requisite purpose – the effect or likely effect of the conduct in question is no longer relevant. The MED considers that this form-based approach gives greater certainty as to the type of conduct that is prohibited, but it also places greater reliance on exemptions (and places the onus on defendants to prove that the exemptions apply).

  1. New criminal offences

The draft Bill makes it a criminal offence to enter into or give effect to a cartel provision with the knowledge that it is a cartel provision. The maximum penalties are imprisonment for up to 7 years for an individual and, for a body corporate, a fine of up to the greater of $10 million, 3 times the commercial gain from the conduct (where "readily ascertainable"), or 10% of the turnover of the body corporate.

  1. New "collaborative activities" exemption

The draft Bill replaces the current joint venture exception under section 31 with a new, broad exemption for "collaborative activities" carried on in cooperation by two or more persons and not carried on for the dominant purpose of lessening competition.

  1. Clearances for "collaborative activities"

The draft Bill also provides a new regime under which the Commission is able to grant clearance for collaborative activities containing cartel provisions where the cartel provision is reasonably necessary for the purpose of a collaborative activity and the activity will not have, or would not be likely to have, the effect of substantially lessening competition in a market.

  1. Penalties for non-compliance with Commerce Commission notices

The current penalties for non-compliance with notices issued by the Commission under section 98 of the Commerce Act are maximum fines of $10,000 in the case of an individual and $30,000 in the case of a body corporate per breach. The draft Bill increases these significantly to 18 months imprisonment for an individual or $1 million for a company.

  1. Declaration relating to acquisitions by overseas persons

The Commerce Act currently applies to overseas acquisitions to the extent that the acquisition affects a market in New Zealand (section 4(3)). The draft Bill introduces a new, more limited regime for overseas mergers. Under this regime the Commission may obtain a declaration that the acquisition by an overseas person of a controlling interest in a New Zealand company has, or will have, or is likely to have, the effect of substantially lessening competition in a market in New Zealand, and that company must then cease carrying on business in New Zealand.. A "New Zealand company" is a company – whether registered in New Zealand or overseas – that does business in New Zealand.

  1. Removal of exemption for trade associations

The draft Bill repeals the existing exemption for price recommendations made by trade associations with 50 or more members. The exemption was designed to afford relief from Section 2(8) of the Act which deems any recommendation issued by an association or body of persons to its members to be an arrangement between those members, and between the association and those members, However, the exemption only applies to recommendations, any attempt to enforce the recommendation would not be protected by the exemption. The OECD considers there is little economic justification for this exemption and has specifically recommended it be repealed.

Submissions

The MED invites submissions on the draft Bill. Submissions are due by 22 July 2011.