Digest No. 1942
Main Provisions
Jurisdiction to include certain conduct outside New Zealand
Section 4 of the Act provides, generally, that it applies to conduct engaged in outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct affects a market in New Zealand.
The Bill further defines this by providing that:
-
“if an act or omission that forms part of a contravention of [the Commerce Act 1986] occurs in New Zealand, the contravention is deemed to have occurred in New Zealand”; and
-
“if an event that is necessary to the completion of contravention of [the Commerce Act 1986] occurs in New Zealand, the contravention is deemed to have occurred in New Zealand” (Part 1, Clause 5, amending Section 4 of the Act).
Cartels forbidden and cartel provisions unenforceable
The Bill provides that no person, unless exempted in Sections 31, 32 or 33 (see below) may (subject to pecuniary penalties (under Section 80) or criminal penalties (under Section 82B (see below) may:
-
enter into a contract or arrangement, or arrive at an understanding, that contains a cartel provision; or
-
give effect to a cartel provision.
The Bill provides that a provision in a contract is not enforceable if it has the purpose, effect, or likely effect of “price fixing”, “restricting output”, “market allocating”, or “bid rigging” (see discussion of “cartel provision” below) but that this does not affect the enforceability of a cartel provision to which any of New Sections 31, 32 or 33 apply (see below) (Part 1, Clause 7, substituting Section 30 of the Act; (Part 1, Clause 7, inserting New Section 30D into the Act).
What is a “cartel provision”?
The Bill defines a “cartel provision” as “a provision, contained in a contract, arrangement, or understanding, that has the purpose, effect, or likely effect of one or more of the following: “price fixing”; “restricting output”; “market allocating”; or “bid rigging” (Part 1, Clause 7, inserting New Section 30A(1) into the Act, definition of “cartel provision”).
What is “price fixing”?
The Bill defines “price fixing” as between the parties to a contract, arrangement, or understanding, fixing, controlling, or maintaining, or providing for the fixing, controlling, or maintaining of:
-
the price for goods or services that any two or more parties to the contract, arrangement, or understanding supply or acquire in competition with each other; or
-
any discount, allowance, rebate, or credit in relation to goods or services that any two or more parties to the contract, arrangement, or understanding supply or acquire in competition with each other (Part 1, Clause 7, inserting New Section 30A(2) into the Act, definition of “price fixing”).
What is “restricting output”?
The Bill defines “restricting output” as preventing, restricting, or limiting, or providing for the prevention, restriction, or limitation of:
-
the production or likely production by any party to a contract, arrangement, or understanding of goods that any two or more of the parties to the contract, arrangement, or understanding supply or acquire in competition with each other; or
-
the capacity or likely capacity of any party to a contract, arrangement, or understanding to supply services that any two or more parties to the contract, arrangement, or understanding supply or acquire in competition with each other; or
-
the supply or likely supply of goods or services that any two or more parties to a contract, arrangement, or understanding supply in competition with each other; or
-
the acquisition or likely acquisition of goods or services that any two or more parties to a contract, arrangement, or understanding acquire in competition with each other (Part 1, Clause 7, inserting New Section 30A(3) into the Act, definition of “restricting output”).
What is “market allocating”?
The Bill defines “market allocating” as allocating between any two or more parties to a contract, arrangement, or understanding, or providing for such an allocation of, either or both of the following:
-
the persons or classes of persons to or from whom the parties supply or acquire goods or services in competition with each other;
-
the geographic areas in which the parties supply or acquire goods or services in competition with each other(Part 1, Clause 7, inserting New Section 30A(4) into the Act, definition of “market allocating”).
What is “bid rigging”?
The Bill defines “bid rigging” as “restraining one or more parties to a contract, arrangement, or understanding from making a bid, or requiring a bid to be in accordance with a contract, arrangement, or understanding, where:
-
the parties to the contract, arrangement, or understanding are in competition with each other for the supply or acquisition of the goods or services that are the subject of the bid; and
-
the essential features of the contract, arrangement, or understanding are not disclosed to the person running the bid before the bid is lodged (“bid” includes a tender or “any step preliminary to making a bid, such as an expression”) (Part 1, Clause 7, inserting New Section 30A(5) and (6) into the Act, definition of “bid rigging”).
.
Who are parties to a cartel provision?
The Bill contains additional interpretational assistance to determine the parties to a contract, arrangement or understanding containing a cartel provision by providing that if a person is a party to a contract, arrangement, or understanding, each of the person’s interconnected bodies corporate is taken to be a party to the contract, arrangement or understanding (Part 1, Clause 7, inserting New Section 30B(a) into the Act).
Who is in competition?
The Bill also contains additional interpretational assistance to determine which persons are to be treated as being in competition with each other as follows:
-
if a person (person A) or any of person A's interconnected bodies corporate supplies or acquires goods or services in competition with another person (person B) or any of person B's interconnected bodies corporate, person A is taken to supply or acquire those goods or services in competition with person B;
a reference to persons in competition with each other for the supply or acquisition of goods or services includes a reference to: persons who are, or are likely to be, in competition with each other in relation to the supply or acquisition of those goods or services; and persons who, but for a cartel provision relating to those goods or services, would, or would be likely to, be in competition with each other in relation to the supply or acquisition of those goods or services (Part 1, Clause 7, inserting New Section 30B(b) and (c) into the Act).
Exemption for collaborative activity
The Bill provides an exemption for collaborative activities. The term “collaborative activities” is defined as being enterprises, ventures, or other activities, in trade, that are carried on in co-operation by two or more persons, and are not carried on for the dominant purpose of lessening competition between the parties. The cartel prohibition does not apply if a party to the collaborative activity and any other person (not necessarily a party) enter into or gives effect to a contract, arrangement, or understanding that contains a cartel provision, as long as the cartel provision is reasonably necessary for the purpose of the collaborative activity. The purpose may be inferred from the conduct of any “relevant person” or from any other “relevant circumstances” (i.e. intention does not need to be proved) (Part 1, Clause 7, substituting Section 31 of the Act).
Exemption for vertical supply agreements
The Bill provides for an exemption from Section 30 in respect of “vertical supply agreements”. This exemption is for the benefit of a person who enters into a contract that contains a cartel provision, or who gives effect to a cartel provision in a contract, if:
-
the contract is entered into between a supplier or likely supplier of goods and a customer or likely customer of that supplier; and
the cartel provision relates to the supply or likely supply of the goods to the customer or likely customer and does not have the “dominant purpose” of lessening competition between any two or more of the parties to the contract ) (Part 1, Clause 7, substituting Section 32 of the Act).
Exemption for joint buying and promotion agreements
The Bill provides that a provision in a contract, arrangement, or understanding does not have the purpose, effect, or likely effect of “price fixing” (see above) if the provision:
-
relates to the price for goods or services to be collectively acquired, whether directly or indirectly, by the parties to the contract, arrangement, or understanding; or
-
provides for joint advertising of the price for the resupply of goods so collectively acquired; or
-
provides for a collective negotiation of the price for goods or services followed by individual purchasing at the collectively negotiated price; or
-
provides for an intermediary to take title to goods and resell or resupply them to another party to the contract, arrangement, or understanding ) (Part 1, Clause 7, substituting Section 33 of the Act).
Civil pecuniary penalties for cartels
The Bill provides that the civil pecuniary penalties relating to a contravention of Part 2 of the principal Act apply to the cartel prohibition and that in proceedings for a contravention of New Section 30 (see above), a defendant that claims that an exemption in any of New Sections 31, 32 or 33 applies must prove that it does, on the balance of probabilities. The maximum penalty payable by a person that is not an individual is 10% of turnover in each accounting period in which the contravention occurred (Part 1, Clause 14, amending Section 80 of the Act).
Criminal offence contravening the cartel prohibition
The Bill creates the offence of contravening the prohibition of cartels. This offence covers both entering into a contract or agreement, or arriving at an understanding, that contains a cartel provision. The penalties including imprisonment for up to seven years for an individual, and for a corporate a maximum fine of $10,000,000 or up to three times the value of any commercial gain or 10% of the turnover of the person and its interconnected bodies corporate . The offence requires the prosecution to prove that the defendant intended, at the time of the relevant conduct, to engage in price fixing, restricting output, market allocating, or bid rigging. It is a defence if the defendant honestly believed at the relevant time that an exemption in any of New Sections 31 to 33 (discussed above) applied (Part 1, Clause 18, inserting New Section 82B into the Act (coming into force two years after the rest of this Bill (i.e. two years after the date of the Royal assent of the Bill (Clause 2))).
Acquisitions by overseas persons
The Bill provides that the High Court may make a declaration (which may only be applied for by the Commerce Commission), within twelve months of an acquisition or if the Commission has given a clearance or granted an authorisation for the acquisition, that a particular acquisition by an overseas person of a controlling interest in a New Zealand body corporate has, or is likely to have, the effect of substantially lessening competition in a market in New Zealand. If such a declaration is made, the High Court may make an order requiring the New Zealand body corporate to do any of the following:
-
cease carrying on business in New Zealand in the market to which the declaration relates within six months (or a longer period specified by the court);
-
dispose of shares or other assets;
-
take any other action (including disposing of shares or other assets) that the Court considers, in all the circumstances, is consistent with the purpose of the Commerce Act 1986.
Contravention of an order brings into play various references in the Commerce Act 1986 to “contravening” that Act (such as Section 98A (Powers of Search)) will apply (Part 1, Clause 8, inserting New Sections 47A-47D into the Act).
Other amendments
The Bill also makes amendments in relation to:
-
authorisations for restrictive trade practices, by incorporating references to New Sections 30 and 30D (discussed above) and the parties the option to continue or discontinue the conduct in relation to which an authorisation is sought (Part 1, Clauses 9 and 10, amending Sections 58A and 59A of the Act);
-
a new clearance regime for collaborative activities (Part 1, Clause 12, inserting New Sections 65A to 65D into the Act);
-
clearance for business acquisitions by extending the statutory time frame for merger clearances from 10 to 40 days (a clearance is currently deemed to be declined if, within 10 working days after a notice is registered, or such longer period as agreed, the Commission has not responded in writing) (Part 1, Clause 13, amending Section 66(3) of the Act);
-
acquisitions by an overseas person, by extending the pecuniary penalties to cover contraventions of New Section 47B (orders made following a declaration concerning the acquisition by overseas persons of a controlling interest in a New Zealand body corporate) (Part 1, Clause 19, amending Section 83 of the Act);
-
increasing the penalty of the maximum term of imprisonment for failing to co-operate with the Commission in its investigations from six months to three years (Part 1, Clause 22, amending Section 103 of the Act).
