In our last competition and market regulation update we noted that the Government had failed to progress the Commerce (Cartels and Other Matters) Amendment Bill, which was introduced to the house in 2011. The Bill has finally received its third reading and has, or will shortly, receive royal assent. This update highlights five key things you need to know about the Bill.
No criminal sanctions
The Bill broadens the definition of cartel conduct to include restricting output and market allocation (as opposed to just price fixing as is presently the case). This aligns New Zealand with Australia and other jurisdictions. Cartel conduct is unlawful irrespective of its actual effect on competition. Breach can give rise to civil penalties but there are no criminal sanctions for the so called 'hard-core' cartels (these were removed from the original bill by the Government). Is the debate over criminalising 'hard-core' cartel conduct over? Only time will tell. While competition law is rarely a hot political topic in New Zealand (unlike Australia), the make-up of Parliament following this year's election could have an impact in the future. New Zealand remains out of step with our key trading partners in this area.
Update your compliance training and materials
This is a great opportunity to refresh your trade practices compliance training and materials. Any discussions with competitors around price, output or customer allocation without good reason should have always been a big no-no. However, you should check to make sure your training and materials are not just focussed on price discussions and use the broader concept of cartel conduct.
Check your commercial arrangements with competitors
In today's commercial world most companies have a myriad of relationships and interactions at many different levels of markets. Your supplier/distributor may also be your competitor. The broad definition of cartel conduct captures a number of legitimate arrangements and restrictions. However, the good news is that the Bill contains two important exceptions to the general definition. The first relates to arrangements within vertical supply contracts (i.e. contracts between supplier and a customer). The second relates to arrangements within so called 'collaborative activities' generally known as joint ventures. Some care still will be needed to ensure compliance and these exceptions will not save any arrangement that is simply a front for cartel conduct or that actually has the effect or likely effect of substantially reducing competition in any market.
If there is uncertainty regarding a proposed collaborative activity, the Bill allows a party to seek a clearance from the Commerce Commission. We welcome this development although we expect it will be used relatively rarely for larger, more complex joint venture arrangements.
Watch out for global transactions
The Bill makes it easier for the Commission to take steps where a global transaction results in a change of control of a company carrying on business in New Zealand. Where the requisite anti-competitive effect has been established, the Commission can obtain orders that impact on the New Zealand business, including causing the business to cease operating in New Zealand or divest assets or shares. This should provide a strong incentive for overseas players to ensure they have considered New Zealand competition issues.
The Bill covers some other things and generally commences immediately
As well as the above, the Bill does a range of other things such as attempt to clarify when a principal will be liable for the acts of agents and also the vexed question as to when anti-competitive conduct is carried on 'in New Zealand'. International shipping arrangements are also addressed, as the exemption relating to international shipping has been narrowed to apply only in more proscribed circumstances.
Finally, it is important to note that the generally applicable parts of the Bill apply from the date of royal assent (although there is a nine month window where no enforcement action can occur). Entering into new contracts containing cartel provisions will breach the Act as will giving effect to existing cartel provisions.