This alert looks back at some of the interesting developments in New Zealand competition law in 2012.
Major changes to the Commerce Act imminent
The Commerce (Cartels and Other Matters) Amendment Bill (the "Bill") proposes reforms that would fundamentally alter the scope and enforcement of New Zealand competition law, including:
- expansion of the existing price fixing prohibition to include all four OECD categories of cartel conduct, namely price fixing, market allocation, bid rigging and output restriction arrangements between competitors;
- seven year jail sentences for individuals found to have intentionally engaged in cartel conduct; and
- the introduction of a new "collaborative activities" exemption that is intended to exempt "pro-competitive collaboration and innovation"1 between competitors from the cartel prohibition.
The Commerce Committee has been requested to consider whether international shipping lines and international air carriers should be subject to the Commerce Act in the same way as other industries, by repealing both the exemption for international shipping from the restrictive trade practices prohibitions, and Part 9 of the Civil Aviation Act 1990, which sets out an alternate regime for regulating competition in international air carriage.
The NZCC has made a limited number of submissions to the Commerce Committee on how it considers the Bill would likely operate in practice. In addition, Dr Mark Berry, Chair of the NZCC, submitted that the Bill should include reforms to the s 36 prohibition on firms taking advantage of market power, to bring it in line with the Australian provision.2 This would be a substantive addition to the Bill given how advanced it is, but we do not rule out change to s 36 featuring on MBIE's agenda in 2013.
The Commerce Committee is due to report on the Bill on 11 March 2013.
2012 saw the first merger declined in four years. The NZCC declined epay New Zealand Ltd’s application to acquire Ezi-Pay Ltd, on the basis that it was not convinced that the merged entity would face sufficient competitive constraints in the market for the distribution and in-store payment processing of prepaid mobile phone top-ups.3 This was a rare split decision, where two of the Commissioners voted in favour of blocking the merger, while the third Commissioner opposed the prohibition.
Other notable decisions during 2012 include:
Vodafone, New Zealand's largest mobile network operator, cleared to acquire TelstraClear, New Zealand's second largest fixed network operator.4 The NZCC considered that:
- the merged entity would continue to face competition from Telecom, Orcon, Slingshot and other smaller operators in providing fixed line services to residential and small business customers; and
- there was no significant overlap between the parties in the provision of mobile services or fixed line services for large business customers.
- Fonterra cleared to acquire the dairy processing assets of New Zealand Dairies Ltd ("NZDL"), a South Island dairy processor that had been placed in receivership in May 2012.5 The NZCC rejected the failing firm analysis, as there were other credible bids. The NZCC felt that the acquisition would not increase Fonterra's market power for the acquisition of raw milk, as Fonterra's co-operative structure removed the incentive and ability to cut prices.
- The quickest clearance, 15 working days, when Southern Community Laboratories was cleared to acquire the Medlab South pathology business from Sonic Healthcare.6 The application followed the destruction of Medlab South’s Christchurch laboratory as a result of the Christchurch earthquake in February 2011.
- The longest clearance, 137 working days, when Pact Group was cleared to acquire the plastic pails business of Viscount Plastics.7 This was also the first New Zealand merger clearance application that involved the formal cross-appointment of commissioners between the NZCC and the Australian Competition and Consumer Commission, which saw Dr Mark Berry sitting as a Commissioner on the ACCC and Dr Jill Walker sitting as a Commissioner on the NZCC in considering the transaction.
$21 million in airline penalties
Further NZCC settlements were reached with airlines alleged to have been involved in the international air cargo cartel. The High Court endorsed the following penalties:
- NZ$2.275 million against Japan Airlines Co;
- NZ$3.5 million against Korean Air Lines Co; and
- NZ$1.5 million against Emirates.
To date the NZCC has settled with six airlines, and has been awarded total penalties in excess of $21 million. Air New Zealand is scheduled to go to trial in 2014.
Access to court documents
Third party access to information obtained by antitrust regulators under their leniency policies has been a hot topic around the globe in 2012.
In New Zealand, Schenker, a freight forwarding business, applied to the New Zealand High Court requesting access to certain court documents relating to the NZCC's air cargo cartel proceedings, so that it could investigate whether it may have suffered loss as a result of the alleged conduct.8
The High Court rejected Schenker's request for access, taking a line that best protects the NZCC's leniency policy, although this is unlikely to be the final word on this issue. While in New Zealand the pendulum has swung towards withholding disclosure of court documents that contain information or admissions from parties cooperating with the NZCC, third parties have incrementally been given access to equivalent information by the courts in the UK and EU.
Record market power fine upheld
The Court of Appeal dismissed Telecom's appeal against the High Court decision that found that Telecom had taken advantage of its market power, through the prices it charged its competitors for access to its data transmission network in 2001 to 2004, to deter competition in high-speed data transmission markets.9
The $12 million penalty imposed by the High Court, the highest ever for a breach of the Commerce Act, was also upheld.
The Court of Appeal's decision provides welcome recognition of the inherent difficulty in applying the pricing methodologies that had previously been recommended by the Courts for vertically integrated suppliers with market power (known as the "Efficient Component Pricing Rule" or "ECPR"), with the Court indicating that it will be reluctant to second guess a genuine attempt by an access provider to apply ECPR prices.
However, the Court of Appeal's departure from the longstanding position that ECPR is a safe harbour creates considerable uncertainty for companies with high market shares that supply to downstream rivals - a common situation in New Zealand's highly concentrated markets.
Increased search powers for the NZCC
Comprehensive reform to the search and surveillance powers of New Zealand's Police and enforcement officers, in the form of the Search and Surveillance Act ("Search and Surveillance Act"), came into force in October 2012.10 The NZCC has been granted several new powers in performing search warrants, such as the power to access data remotely in the "clouds" and the power to require passwords to be handed over. The duties of officers when executing a search warrant have also been set out.
If criminal sanctions of up to seven years' imprisonment for cartel conduct are introduced next year (as currently expected), the NZCC's powers will be significantly expanded to include intrusive surveillance, interception and tracking device powers that are currently largely reserved to the Police for the investigation of serious crimes.
International Cooperation Act passed
October saw further reform on the competition law front, with the enactment of the Commerce (International Cooperation, and Fees) Act 2012 (the "Cooperation Act"). This provides a specific legislative framework for the sharing of information between overseas regulators and the NZCC, including allowing the NZCC to share compulsorily acquired information and to perform searches for the purposes of assisting an overseas regulator. Information acquired before October 2012 is also captured under the new regime.
This reform is expected to increase the degree of cooperation between the NZCC and international regulators. It will be difficult for the NZCC to seek (or provide) absolute assurances regarding confidentiality and the appropriate use of the information once it is out of its possession and control, even though the regime has some built in safeguards. Internationally, regulators face increased pressure to disclose information to assist with third party damages claims, so it seems there is no guarantee that confidential information provided compulsorily to the NZCC will remain confidential.
Enforcement Response Guidelines
The Enforcement Response Guidelines ("Guidelines") were published by the NZCC in November 2012,11 setting out its approach to enforcing New Zealand's fair trading, competition, and credit contract laws. These are designed to sit alongside the NZCC's "Enforcement Criteria" and "Model Litigant Policy" publications.
The NZCC states that it prefers to encourage compliance with the law through the use of non-enforcement options (such as education, engagement, outreach and advocacy), but "high-level enforcement" options, such as civil or criminal proceedings, will be warranted in some circumstances.
The Guidelines, provided they are applied consistently by the NZCC, are a useful publication, providing welcome clarity for businesses and consumers on how the NZCC responds to complaints, as well as helpful direction for structuring complaints, and guidance on negotiating settlement for non-compliance.
New Zealand's superior courts grapple with the extraterritoriality of the Commerce Act
The extent to which the Commerce Act captures conduct that occurs overseas came before the Court of Appeal on two occasions in 2012:
- An overseas Swiss holding company in the freight forwarding industry was found to have acted through its New Zealand subsidiary in implementing New Zealand agreements through the inter-company deeming provisions in the Commerce Act that effectively extend common law agency.12 The Court of Appeal confirmed that there was a good arguable case that the New Zealand subsidiary had conducted the appellant’s business in this country at the direction of the appellant and for its benefit, so that the implementation of the alleged agreements in New Zealand may be attributed to the appellant.
- The NZCC successfully appealed a High Court decision that had struck out most of its causes of action against Australian based Visy Board.13 In applying the second limb of the jurisdiction test, which asks whether the overseas conduct "affected a market in New Zealand", the Court of Appeal found that the NZCC is not required to show anything actually occurred in New Zealand, but only that the overseas conduct "related" to New Zealand, in that it was conduct "directed towards" a market in this country.
We expect 2013 to be another dynamic year for competition law in New Zealand, with significant changes to the Commerce Act likely to be enacted. We look forward to keeping you informed.