Welcome to Issue No. 9 of Corporate Reporter, Bell Gully's regular round-up of corporate and general commercial matters, designed to keep you informed on regulatory developments, legislation and cases of interest.


Items in this issue include:



Regulatory developments Top

Copyright (Infringing File Sharing) Amendment Act discussion document

The Ministry of Economic Development has released a discussion document on proposed regulations under the Copyright (Infringing File Sharing) Amendment Act (which comes into force on 1 September this year).

The Act replaces the controversial section 92A of the Copyright Act 1994 with new enforcement measures aimed at deterring illegal file sharing. The new measures include a three tier infringement notice regime to be administered by specified internet service providers (known as IPAPs).

The discussion document seeks input into regulations on the following matters:

  • the requirements for information that copyright owners send to IPAPs under the new notice regime;
  • the form, content, procedures and requirements relating to the infringement notices and challenges to those notices made by internet account holders;
  • the fee that an IPAP may charge the copyright owner for performing its functions under the Act; and
  • prescribing the sum or the method by which the Copyright Tribunal may calculate awards for copyright infringement.

Submissions closed on 27 May 2011.

In the courts Top

Cancelling too soon can have costly consequences

A breakdown in contractual relations can often lead to confusion over cancellation rights. The Supreme Court's decision earlier this month in Ingram v Patcroft Properties Ltd [2011] NZSC 49 highlights the importance of parties understanding their rights and obligations when responding to a breach, particularly in respect of the timing of their response and the requirement to clearly communicate what election they have made to the repudiating party.

The dispute

The case concerned the Central City Backpackers and Embargo Bar in Auckland. Ingram and others (the tenants) leased the premises from Patcroft, but had fallen behind in the rent. Under the lease agreement, Patcroft could re-enter the premises and terminate the lease 14 days after the rent had become due and remained unpaid. Unfortunately, Patcroft miscalculated and re-entered and purported to terminate the lease 13 days after the rent was due. It changed the locks and took possession of the premises.

A year later, Patcroft demanded $1.3 million from the tenants in unpaid rent and other amounts which it said was due for the remainder of the term of the lease. The tenants responded a few days later by filing proceedings seeking damages for the loss of their business caused by Patcroft's wrongful re-entry. Patcroft counterclaimed for rental arrears.

Both the High Court and the Court of Appeal agreed that Patcroft's re-entry was premature and that Patcroft had consequently repudiated the lease on the day of its re-entry. However, the tenants did not immediately accept the breach and give notice of cancellation. As such, the key issue to be determined was whether the tenants had validly cancelled the lease by virtue of their non-payment of rent or bringing of proceedings, or whether it was Patcroft that had cancelled the lease through its continued occupation of the property after the non-payment of rent when the 14 days had expired.

The High Court found in favour of the tenants and awarded them damages for the loss of their business. The Court of Appeal, by majority, reversed that decision.

The Supreme Court's decision

The Supreme Court unanimously allowed the tenants' appeal and restored the decision of the High Court. Delivering the Court's judgment, Justice Blanchard ruled that the on-going repudiation by Patcroft (by re-entering one day early) prevented it from claiming a right to cancel for non-payment of rent – even though the tenants had not cancelled the lease agreement before failing to pay the rent. Justice Blanchard said that because of Patcroft's repudiatory act, the tenants could not operate their business. The non-payment of the rent was justified by Patcroft's unlawful re-entry, because Patcroft "was in effect representing that any such payment would be futile". As a result, Patcroft was precluded from cancelling for non-payment of the rent. The tenants had however validly cancelled the lease by issuing legal proceedings and were entitled to damages consequent on Patcroft's breach of contract.

For further Bell Gully commentary on this case see the article What a difference a day makes by Senior Associate David Friar on our website.



Takeovers Panel Top

Statement of Intent released

The Takeovers Panel has released its Statement of Intent for the period 2011-2014. In it, the Panel notes that it intends to make 20 recommendations to the Minister of Commerce by September 2011 for technical (low policy content) changes to the Takeovers Code.



Regulatory developments Top

Budget 2011

Further clarity over the Government's earlier announcement that it intends extending the "Mixed Ownership Model" for some of its commercial assets to free up Crown capital was provided in the 2011 Budget Statement to Parliament this month.

The Government proposes that if it is successful in the November election, from 2012, a 'Mixed Ownership Model' (most likely through an Initial Public Offering process) will be applied to the four State-owned electricity companies - Mighty River Power, Meridian, Genesis and Solid Energy. It will also reduce its majority shareholding in Air New Zealand.

The expected combined proceeds from offering minority stakes in these five companies are likely to be between $5 billion and $7 billion, which could increase the New Zealand sharemarket's capitalisation by up to 10%.

The Government has set a number of conditions that will need to be met before the Mixed Ownership Model is implemented for these companies:

  • The Government will maintain a majority shareholding stake by owning more than 51% of each company.
  • New Zealand investors are guaranteed a place at the "front of the queue" for shareholdings.
  • The companies involved will provide good opportunities for investors.
  • The capital freed up will be used to fund new public assets (i.e., the plan is a reorganisation of the asset side of the balance sheet to fund "higher priority" areas rather than requiring increased borrowing).
  • The Government is satisfied that industry-specific regulations will adequately protect New Zealand consumers.

For further information on this proposal and other details of Budget 2011 see the CCH New Zealand Budget Report 2011 (prepared by Bell Gully). A copy of Budget 2011 and related documentation are available on the Treasury's Budget 2011 homepage here.

Bill passed to improve auditor regulation

The Auditor Regulation and External Reporting Bill (separated to form the Auditor Regulation Act and the Financial Reporting Amendment Act) was passed earlier this month to strengthen the regulation of practitioners who carry out audits of issuers and to consolidate all accounting, auditing, and financial reporting standards-setting into a reconstituted Accounting Standards Review Board, to be called the External Reporting Board.

Auditor Regulation Act

The Auditor Regulation Act establishes a new licensing and registration regime for auditors and audit firms who carry out issuer audits. Individual auditors who carry out issuer audits must be licensed by the Institute of Chartered Accountants (NZICA), or any other professional body accredited by the Financial Markets Authority (FMA). Audit firms that act in relation to issuer audits must be authorised by the FMA (or other accredited body) and registered by the Registrar of Companies as a registered audit firm. Consequential amendments have been made to the Securities Act and the Companies Act, and other enactments, to reflect these changes (see Schedule 1 of the Act for further details). For example, a "qualified auditor" for the purposes of the Securities Act will now be either a licensed auditor or a registered audit firm.

Under the new co-regulatory regime, the FMA is responsible for:

  • setting the minimum standards for becoming a licensed auditor;
  • carrying out quality reviews of audit firms and licensed auditors; and
  • monitoring and reporting on the adequacy and effectiveness of NZICA's regulatory systems and processes.

The FMA has also taken over responsibility for regulating overseas-qualified auditors from the Registrar of Companies.

Issuer audits have been targeted by the new legislation because this is the class of audits where investors are considered to be most at risk of losing substantial amounts of money in the event of audit failure. They include audits of banks, deposit-taking companies, insurance companies, mutual funds and issuers of debt and equity securities offered to the public (as well as audits carried out under the Securities Act 1978 or securities regulations, such as an audit of financial statements contained or referred to in a prospectus for an offering of securities).

The Act was passed without the inclusion of the controversial clause which would have criminalised an auditor's failure to comply with auditing and assurance standards without reasonable excuse. (For discussion on this aspect of the Auditor Regulation and External Reporting Bill see our earlier article Increased regulatory risk profile for financial markets participants and auditors.)

The new regime will come into force once the NZICA and the FMA have established new regulatory systems, which is expected to be on or before 1 July 2012.

Financial Reporting Amendment Act 2011

The Financial Reporting Amendment Act 2011 consolidates all accounting, auditing, and financial reporting standards-setting into a reconstituted Accounting Standards Review Board, to be called the External Reporting Board (XRB). Until now most standards-setting work has been carried out by NZICA. 

The XRB will be up and running on 1 July 2011.

Government considers taskforce report on New Zealand as a financial services centre

The Government has considered recommendations outlined in a report by the International Funds Services Development Group (IFSDG) on how to enhance New Zealand as an international financial services centre.

The IFSDG (a taskforce established by Cabinet last year) believes that there is a major opportunity for New Zealand as a funds domicile and funds administration centre, where collective investment funds can be incorporated and serviced. Research conducted by financial consultancy firm Oliver Wyman indicates that the full realisation of this domicile opportunity (which would take until between 2020 and 2030) would generate revenue in New Zealand of approximately $0.5 to $1.3 billion per year, tax revenue of between $150 and $360 million per year, and 2,000 to 5,000 high-quality jobs.

If New Zealand is to take advantage of this opportunity, the IFSDG recommends that a two-staged approach would be the most appropriate strategy. This would allow the Government to first establish the tax and regulatory environment necessary for a funds domicile. Then, subject to market conditions, the Government could make a decision about what further additional government support is required to attract fund servicing companies that can perform the domicile functions.

The first stage would consist of:

  • tax policy reform (establishing a zero percent tax rate on foreign-sourced income for non-residents);
  • establishing the regulatory conditions necessary for a funds domicile (which includes ensuring non-resident investor protection replicates or improves upon existing global standards); and
  • government support, specifically:
    • jurisdiction relationship building;
    • developing New Zealand's labour market capability; and
    • obtaining broad support for the funds domicile initiative.

The changes to the tax and regulatory systems would be only a relatively small addition to the Government's existing work programmes. Changes to the PIE tax rules to allow foreign investors to pay a zero percent tax rate on their foreign-sourced PIE income are included in the Taxation (Tax Administration and Remedial Matters) Bill 2010 currently before Parliament, but further tax changes are required to ensure New Zealand is vehicle agnostic.

The current Securities Law reform review also provides an opportunity to make the necessary changes to existing securities law to meet the international regulatory standards required for the domicile opportunity. The IFSDG has indicated that the following changes would need to be included as part of this reform:

  • restrictions on investments, such as the use of derivatives in defined funds;
  • ensuring that the "fit and proper" tests meet the standards set by EU's UCITS regulatory regime;
  • regulating all significant entities and individuals that work in senior positions in the funds industry, including the fund itself, fund managers and service providers;
  • introducing capital adequacy provisions for custodians/depositories;
  • enforcing anti-money laundering and "Know-Your-Customer" rules;
  • amending the Companies Act 1993 to enable company structures to better support open-ended funds;
  • regulating wholesale funds which are indirect recipients of retail funds; and
  • requiring full independence between the manager and the assets where a Depository is appointed as the safe-keeper of the assets and to independently value the fund assets and calculate the unit prices.

The full report Exporting Financial Services can be viewed on the Ministry of Economic Development's website.

Financial Reporting Act (Overseas Issuers) Exemption Amendment Notice

The Republic of Ireland has joined France, Germany, the Netherlands, the United States of America, and the United Kingdom on the list of specified jurisdictions under the Financial Reporting Act (Overseas Issuers) Exemption Notice 2009. The notice allows issuers incorporated in those countries that offer securities under certain Securities Act 1978 exemption notices to provide financial statements that they are required to prepare under the financial reporting requirements of their own respective jurisdictions.

The Financial Reporting Act (Overseas Issuers) Exemption Amendment Notice 2011 came into effect on 22 April 2011.

Financial Markets Authority (FMA) Top

What we can expect from New Zealand's new financial sector 'umbrella regulator'

On 1 May 2011, the FMA took over the functions of the Securities Commission and the Government Actuary (although the Government Actuary is to continue until 20 September 2011 for the limited purpose of performing its existing role in relation to the Government Superannuation Fund), the Commissioner for Financial Advisers, and certain functions of the Ministry of Economic Development and the Registrar of Companies.

The FMA is a new Crown entity created with the main objective of restoring investor confidence and trust in the integrity and operation of New Zealand's capital markets domestically and internationally.

Simon Allen is FMA chair, and Sean Hughes is the chief executive. The eight board members are: Shelley Cave, Colin Giffney, Mary Holm, Murray Jack, James Miller, Justine Smyth, Michael Webb, and Mark Verbiest. In addition, Bruce Sheppard, Rebecca Eele, and Arthur Grimes have been appointed associate members of the board.

Simon Allen has said "FMA's intent is to establish clearer and more consistent rules for market participants, improve market intelligence and surveillance, and be more visible and proactive in regulation and enforcement as well as raise the standards of financial advisers".

Core functions of the FMA

As the new regulator of New Zealand's financial sector, the FMA:

  • oversees compliance with a range of financial markets legislation;
  • has a range of exemption powers under the Securities Act 1978, Securities Markets Act 1988, Financial Reporting Act 1993 and Financial Advisers Act 2008;
  • oversees market infrastructure and securities markets activity, including:
    • the licensing and oversight of exchanges, approving market rules and undertaking an annual review of registered exchanges;
    • overseeing disclosure and practices of companies listed on NZX; and
    • overseeing and enforcing the insider trading, market manipulation and other dealing misconduct provisions of the Securities Markets Act 1988;
  • licenses and supervises Authorised Financial Advisers and Qualifying Financial Entities under the new financial advisers regime and investigates complaints about financial advisers;
  • oversees the registration and administration of KiwiSaver and Superannuation Schemes, and is responsible for maintaining the KiwiSaver schemes register. From October 2011, the FMA will also monitor managers and trustees of KiwiSaver and superannuation schemes, and has powers to ensure they comply with their statutory obligations; and
  • is one of three supervisors that will monitor and enforce compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 Act which is due to come fully into force in 2013.

In addition, from October 2011 the FMA will license and supervise securities trustees and statutory supervisors and, when the Auditor Regulation Act comes into force (which is expected to be by July 2012) will supervise accredited accounting bodies (initially NZ Institute of Chartered Accountants) and the auditing profession.

The FMA has also been charged with educating New Zealanders on investing. This includes ensuring accurate and relevant information is provided to investors and, in the event of breaches by market participants, the FMA will provide public warnings, alerts or guidance for investors.

FMA's enforcement plans

In a recent speech Sean Hughes noted that the FMA board has yet to set the FMA's enforcement strategy, but went on to outline some of the principles the FMA is being guided by in its early days. In particular:

  • The FMA intends to focus its energy not across every act of misbehaviour or insignificant breach but primarily on those areas of misconduct where the failings or beaches are deliberate or reckless and where the perpetrator set out to deliberately mislead or deceive innocent investors or third parties.
  • In respect of the finance company cases and investigations it has inherited from the Securities Commission and the MED, the FMA intends to:
    • pursue the cases already before the courts and, where possible, will add additional resources so as to enhance its prospects of success; and
    • for matters not before the courts but that are under investigation, the FMA intends to undertake a detailed forensic analysis to assess whether those matters meet its new strategic priorities including those in the statutory objective.
  • The FMA aims to have the framework for a market intelligence function in place by mid to late June and have it fully operational by the end of August. Its aim is to bring together a range of different information sources from across the market, and from within the FMA and other government agencies, to start to build a picture of where the most risky behaviours are occurring. It also intends to develop strong information-sharing arrangements with the Serious Fraud Office, the Police, other investigatory bodies and securities regulators overseas, especially ASIC in Australia.

For more information on the FMA, visit the FMA's website at: www.fma.govt.nz/

Cabinet approves funding for FMA

Commerce Minister Simon Power has announced Cabinet approval for the operating budget for the FMA. The budget will be $24 million in 2011/12, increasing to $28 million in 2013/14 to reflect the emphasis on market intelligence, investigation and enforcement, and some additional transition costs. The budget for 2014/15 and beyond will be about $26 million, an increase of around 44 per cent over the $18 million budget for the previous regulators.

Under the Financial Markets Authority Act 2011 the FMA is also to receive third-party funding, where services are provided to specific market participants for their individual or group benefit. Third-party funding will be sourced from fees and levies which are to be prescribed in regulations under the Act. The Government expects to release a discussion document shortly, seeking public comment on the proposed fees and levies.

New prospectus registration and vetting arrangements

On 1 May 2011, a new prospectus registration process for securities offers was introduced by the Securities Amendment Act 2011 to more closely align the process with the approach adopted in Australia. This replaces the current pre-registration vetting process with a post-registration "consideration period", during which the securities can not be issued. (For further details on these changes see Issue No. 8 of Corporate Reporter.)

New Companies Office procedures

Under the new regime, prospectuses must be lodged in their final form with the Registrar of Financial Service Providers (which, for now, is the Registrar of Companies). The Registrar is to ensure that the documentation provided is completed (checking legibility and basic data) before registering the prospectus, but will not consider the content of the documents. The Companies Office has provided details of how to register prospectuses under the new registration regime on its website here.

FMA's pre-registration check

In order to provide for a smooth transition from the old prospectus registration process to the new regime, measures were included in the Act to provide for a temporary period during which the FMA will continue to carry out a pre-registration review process consistent with that previously undertaken by the Companies Office. This is expected to be in place for six months.

For details on the FMA's pre-registration check of prospectuses click here.

FMA shuts down misleading offers by Bernard Whimp and associated entities

The court case

In a recent High Court decision (Financial Markets Authority v Carrington Securities LP) the court confirmed the FMA's view that the "deferred payment" offers made by Bernard Whimp and associated limited partnerships (dated on or around 15 to 18 March 2011) to buy shares in TrustPower Limited, Vector Limited, Guinness Peat Group plc, Contact Energy Limited, DNZ Property Fund Limited and Fletcher Building Limited, breached section 13 of the Securities Markets Act 1988. Section 13 of the Act provides that a person must not engage in conduct, in relation to any dealings in securities, that is misleading or deceptive or likely to mislead or deceive.

Each of the "deferred payment" offers involved what appeared to be very attractive offers to purchase shares for prices in excess of the respective current market share prices. The impression given by the offers was that full payment would be made immediately or promptly and that since the offer was on a "first come, first served" basis shareholders may miss out on a commercial bargain if they did not respond quickly to the offer. However, buried in the fine print payment terms of the offers, payment was to be made in ten annual instalments. Further, no interest was payable on the outstanding instalments and any returns on the shares during the 10 year period would accrue to the relevant limited partnership. This meant that the present value of each offer was significantly below the figure being offered and, in effect, the consideration for the acquisition of the shares was, to the extent of 9/10ths, an unsecured loan to the limited partnerships.

In order for the offers to be in breach of section 13, the court noted that it was not necessary to show actual deception. What was necessary is "there be a likelihood or reasonable possibility that persons to whom the offer is directed will be misled."

The offers were very similar to offers made through an Australian company, National Exchange Pty Limited, which was subject to similar proceedings brought by the Australian Securities and Investments Commission in 2003. In that case, the offers were held to be misleading and deceptive even though they were clearer and less deceptive than the offers made in this case, in so far as they showed more prominently on the front page of the offer the fact that the payments were to be deferred over 15 years. As such, the court drew heavily on the remarks of the court in the Australian case.

The court granted a permanent injunction against Mr Whimp and the limited partnerships from making further offers in the same (or substantially the same) form. In addition, in respect of the "deferred payment" offers already made, the court gave orders (with the exception of a small number):

  • cancelling the contracts;
  • requiring any shares which had already been transferred to be returned to the shareholders; and
  • restraining the registration of any shares acquired by the limited partnerships.

A small number of shareholders were excluded from the orders because they had responded to a communication from Mr Whimp confirming they wished to continue with the sale of their shares despite the court proceedings. With respect to those shareholders, the FMA was given the opportunity to verify the genuineness of their confirmation.

Warning statements required for future offers

In addition to the court proceedings noted above, the FMA has also used its new powers under section 49 of the Financial Markets Authority Act 2011 to order Mr Whimp and associated persons (which includes any limited partnership or company that Mr Whimp may form after the date of the order) to include a warning from FMA at the beginning of any unsolicited offer they may make.

The order can be found at Warning Disclosure Order under Section 49 of the Financial Markets Authority Act 2011. The order requires that:

  • any offer document containing an unsolicited offer by Mr Whimp, a number of limited partnerships associated with Mr Whimp (the Whimp partnerships), or any associated persons, must contain, at the beginning of that offer document, a warning statement in the form attached to the order (warning statement);
  • the warning statement must be printed in a particular font size, colour and layout; and
  • Mr Whimp and the Whimp partnerships must provide a copy of the order to their associated persons.

The warning statement states that the "Offers from Mr Bernard Whimp may not be in your best interests" and cautions investors to check important aspects of the offer such as: how much they will receive per share; when they will get paid; and who is making the offer. It also warns them that, if they accept the offer, they may receive less than if they sold the shares through a sharebroker.

A person who does not comply with an order made by FMA under section 49 of the Financial Markets Authority Act 2011 commits an offence and is liable on summary conviction to a fine of up to $300,000.

Financial adviser regime developments Top

A number of financial advisers may miss 1 July deadline

Financial advisers wishing to offer retail clients personalised financial advice, discretionary investment management services in relation to category 1 products (which include investment products) or provide an investment planning service must be either an Authorised Financial Adviser (AFA) or Qualified Financial Entity adviser from 1 July (unless they are an eligible Canterbury adviser affected by the earthquake, in which case the deadline is 1 October 2011). However, in a recent press release, the FMA estimates that up to 700 advisers may not have completed the qualifications needed to be an AFA by 1 July.

The FMA has issued a warning that it will be checking advisers who applied to be authorised but didn't make the deadline and will take action against any person who holds themselves out as authorised after 1 July, who is not.

For details of all financial service providers compliance requirements see the FMA's website at: www.fma.govt.nz/help-me-comply/financial-advisers/


Revised Guidance Note – Continuous Disclosure

On 3 May, NZX Market Supervision (NZXMS) issued a revised Continuous Disclosure Guidance Note which sets out NZXMS's expectations in relation to compliance with the NZX continuous disclosure listing rules and provides guidance to issuers to assist with decision making about continuous disclosure. The Guidance Note replaces NZX's March 2005 Guidance Note on Continuous Disclosure.

Although the content of the guidance note is substantially the same as the 2005 version, there are a number of additions and modifications of note. These include:

  • New commentary on the differences between disclosure thresholds for NZDX issuers and issuers of equity securities and specific examples of information that may require disclosure by NZDX issuers;
  • Further elaboration on when significant transactions and disposals or acquisitions of assets and securities may constitute "material information" that require disclosure;
  • Adding "failure to comply with covenants in financing arrangements" (including the consequences of non-compliance) as part of the long list of examples of matters that may need to be disclosed;
  • Noting that if an issuer becomes aware of "material information" about a future event (for example, such as knowing that the breach of a financing covenant is inevitable) it must disclose this as soon as it becomes aware of that information, even if that is ahead of the event to which the information relates; and
  • Advising that a trading halt may be necessary to provide the issuer with time to formulate an announcement regarding information concerning the issuer which has originated from a third party.

The revised guidance note also reminds issuers that failure to comply with their continuous disclosure obligations may mean that the issuer will not be able to take advantage of the new simplified prospectus disclosure prospectus regime. Under section 44AE of the Securities Act 1978 the FMA, if it is satisfied that a person who is subject to a disclosure obligation has failed to comply with it anytime in the last 12 months may, if it considers it desirable in the public interest, make an order prohibiting that person from using a simplified disclosure prospectus for a period not exceeding 24 months.

Variation of waivers for NZSX/NZDX Listing Rules 10.4 and 10.5 for registered banks

The waivers granted by NZX Market Supervision to certain registered banks (regulated under the Reserve Bank of New Zealand Act 1989) from Rules 10.4 and 10.5, which require Issuers to provide annual and half-year reports and preliminary announcements to NZX, have been varied to take into the account the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2011.

The variation allows registered banks relying on one of the waivers to print and dispatch to individuals a copy of its disclosure statement required under the Act within two working days of a request being made, as opposed to having it available immediately upon request at any branch of the registered bank.

Click here for further details



Regulatory developments Top

Consumer Law Reform Bill introduced

The Consumer Law Reform Bill was introduced to Parliament earlier this month and is expected to be enacted and implemented by the end of the year. Public submissions on the Bill will be invited during the select committee process, which is likely to be in June.

The Consumer Law Reform Bill is an omnibus Bill that amends the Fair Trading Act 1986 (FTA), the Consumer Guarantees Act 1993 (CGA), the Weights and Measures Act 1987 (WMA), the Carriage of Goods Act 1979, the Sale of Goods Act 1908, and the Secondhand Dealers and Pawnbrokers Act 2004. It also repeals the Door to Door Sales Act 1967, the Layby Sales Act 1971, the Unsolicited Goods and Services Act 1975 and the Auctioneers Act 1928. Matters covered by the Acts being repealed are incorporated into the amended FTA and a new Auctioneers Act.

Some of the key changes introduced under the Bill include:

  • new principles-based purpose clauses for each of the FTA, CGA and the WMA that begin with the following wording:

  • "to contribute to a trading environment in which -
    (a) trading is fair; and
    (b) there is effective competition; and
    (c) consumers and businesses participate confidently."
  • for parties "in trade" (that is, business to business transactions), allowing the parties to contract out of their FTA obligations (subject to satisfying specified requirements, including that it is fair and reasonable for the parties to be bound by such a provision);
  • a new provision to Part 1 of the FTA prohibiting the making of unsubstantiated representations;
  • extending the Disputes Tribunal's jurisdiction to cover any matter related to Parts 1 to 4A of the FTA (including complaints about misleading and deceptive conduct), but not unsubstantiated representations;
  • prohibiting unsubstantiated claims and requiring traders and retailers to ensure their claims are valid;
  • subjecting all new goods sold via auctions, and all goods sold by professional traders through online auction sites, to the acceptable quality provisions of the CGA;
  • new requirements for providing information when offering for sale and selling extended warranties; and
  • amendments to the CGA with respect to its application to the supply of gas and electricity.

The changes to the FTA, where appropriate, also align the FTA with the new Australian Consumer Law (which is included in the Australian Commonwealth's Competition and Consumer Act 2010 that came into effect on 1 January 2011) in accordance with the Government's agenda of a single economic market with Australia.

New price regulation provisions in broadband network legislation

Communications and Information Technology Minister Steven Joyce has announced that the 10-year "regulatory forbearance period" in the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill on wholesale prices for the ultra-fast broadband network will be replaced with contractual mechanisms that would apply if the Commerce Commission regulates prices lower than those contracted.

The Government will also include an "avoidance of doubt" clause in the purpose statement of the Telecommunications Act 2001, and issue a Government Policy Statement, which together will make it more explicit that the Commerce Commission and the Minister must consider investment and innovation in new markets when considering price regulation.

Click here for further details

New Zealand Commerce Commission (NZCC) Top


The NZCC has issued the following speech:

Looking back over the past 25 years in New Zealand Telecommunications, speech to TUANZ Telecommunications Day 2011
On 19 May 2011 Dr Ross Patterson, Telecommunications Commissioner, gave a speech to TUANZ Telecommunications Day 2011 outlining the history of the telecommunications industry in New Zealand and the key lessons learnt from previous regulatory regimes.
Click here for more

Media releases

The NZCC has issued the following media releases:

Mergers and acquisitions

Statement of preliminary issues for New Zealand Comfort Group's clearance application to acquire Dunlop Living
The NZCC has published a statement of preliminary issues relating to an application received from New Zealand Comfort Group Limited seeking clearance to acquire the business assets of Dunlop Living Limited. New Zealand Comfort Group and Dunlop Living both manufacture and supply beds, polyurethane (PU) foam and carpet underlay.
Click here for more

Market behaviour

Commerce Commission narrows focus of alleged air cargo cartel case before trial
The NZCC filed discontinuances against PT Garuda Indonesia and six Air New Zealand executives prior to the first hearing in May.
Click here for more

Airlines' information request case resolved
The NZCC has withdrawn charges against Singapore Airlines Cargo Pte Ltd and Cathay Pacific Airways Ltd for failing to supply information in relation to the NZCC's investigations into air cargo pricing.
Click here for more

Commerce Commission appeals ruling in cardboard cartel case
The NZCC is filing an appeal against a High Court decision last month that limited the NZCC's case in respect of an alleged cartel in the cardboard box industry. The High Court at Auckland decided on 20 April 2011 to reduce the number of claims the NZCC can pursue against the Australian packaging giant Visy Board Pty Ltd and its former general manager Rod Carroll.
Click here for more

Court awards highest penalty to date in price fixing
The High Court has ordered Qantas Airways Ltd to pay a $6.5 million penalty for breaches of the Commerce Act, the highest penalty to date in New Zealand for price fixing. The penalty had been recommended to the Court by both the NZCC and Qantas as part of a pre-trial settlement.
Click here for more


Competition in telecommunications continues to improve but challenges remain says Commerce Commission
The NZCC has released its 2009/10 telecommunications monitoring report analysing the state of New Zealand telecommunications markets.
Click here for more

Commerce Commission concludes Telecom's regulatory financial statements are unreliable
The NZCC has published its summary and analysis of Telecom's regulatory financial statements for the year ending 30 June 2010. As a result of its analysis, the NZCC concludes that the regulatory financial statements are unreliable for regulatory purposes.
Click here for more

Commerce Commission cuts mobile termination rates
The NZCC has released its decision on mobile termination rates – the cost of carrying a text or call on another network. There will be significant reductions in the wholesale termination rates for mobile calls and text messages. As a result of competitive pressure, the NZCC anticipates that these reductions in the wholesale rates will flow through to the prices paid by the 4.7 million mobile subscribers in New Zealand in the coming year.
Click here for more

Commerce Commission releases terms of reference for high speed broadband demand side study
The NZCC has released the final terms of reference for a study into what drives demand for high speed broadband services. The study is intended to identify any factors that may impede the uptake of those services in New Zealand.
Click here for more

Australian Competition and Consumer Commission (ACCC) Top

Selected ACCC media releases

The ACCC has issued the following media releases:

Mergers and acquisitions

ACCC not to oppose Cellarmasters sale
The ACCC has announced that it does not intend to oppose Woolworths Limited's proposed acquisition of The Cellarmasters Group. The ACCC concluded that the proposed acquisition would be unlikely to substantially lessen competition given the presence of several significant competitors in wine retailing, production and associated services.
Click here for more

ACCC calls for comment on Wesfarmers possible acquisition of interests in Burrup
The ACCC has released a Statement of Issues on the possible acquisition by Wesfarmers Ltd of interests in Burrup Holdings Ltd and/or Burrup Fertilisers Pty Ltd.
Click here for more


ACCC proposes five year regulatory pricing period in final access determinations for fixed line services
The ACCC has commenced a public inquiry and issued a discussion paper on the making of final access determinations (FADs) for the six declared fixed line telecommunications services.
Click here for more

Consumer issues

ACCC appeals part of MSY Technology judgment
The ACCC is appealing the Federal Court's decision not to grant declarations which had been sought by the ACCC and consented to by the respondents in the MSY Technology proceedings relating to false or misleading representations regarding the statutory warranty rights of consumers.
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Optus pays for 'max cap' advertising
SingTel Optus Pty Ltd has paid 27 infringement notices totalling A$178,200 issued by the ACCC. The ACCC issued the infringement notices in relation to Optus' advertisements for its "Max Cap" plans. The ACCC had reasonable grounds to believe Optus made false or misleading representations about the price of its services and engaged in conduct that was likely to mislead consumers about the nature and characteristics of its services.
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Regulatory developments Top

New Zealand Petroleum & Minerals

New Zealand Petroleum & Minerals replaced Crown Minerals on 2 May 2011, and is now responsible for managing the petroleum and minerals estate on behalf of the Crown. The change occurred following a review undertaken in 2010 which showed that there was an immediate and ongoing need to increase Crown capability and capacity to meet the government's objective of maximising the returns to New Zealand from the development of oil, gas and mineral resources.

New Zealand Petroleum & Minerals remains within the Ministry of Economic Development and consists of four directorates (petroleum, minerals, geological information and business services) reporting to a new Transition Manager, Robert Pigou. It builds on the strengths of Crown Minerals by bringing a strengthened commercial focus, greater sector and industry leadership responsibilities and enhanced capability in the form of specialist skill sets and greater numbers. Staff numbers are expected to increase from around 40 to around 70.
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Also of note is the increase to New Zealand Petroleum & Minerals funding for the 2011/2012 financial year as set out in the recently released 2011 Budget. New Zealand Petroleum & Minerals will receive an additional $3.239 million in the 2011/2012 financial year ($14.871 million in total) for the management of the Crown's mineral estate. Click here for further information

Electricity Authority Top

More standardisation of distribution arrangements: Proposed draft Code amendments

The Electricity Authority is consulting on a range of initiatives to promote more standardisation of distribution tariff structures and use-of-system agreements to improve retail competition by reducing barriers to entry to the retail market.  Such barriers include those arising from transaction cost inefficiencies or those arising from retailer repricing risk, where distributor tariff structures cannot be directly passed through to consumers. The initiatives include detailed amendments to the rules governing the electricity industry – the Electricity Industry Participation Code 2010, which are the subject of the current consultation.

The Authority has published two papers – More standardisation of distribution arrangements: Proposed amendments to the Code and Summary of more standardisation of distribution arrangements – Explanatory paper.

Submissions close on 22 June 2011.



Further commentary Top

In addition to the Corporate Reporter, Bell Gully also produces one-off client updates on corporate matters of particular significance. During the period covered by this issue of the Corporate Reporter we have published the following client updates:



Contact us Top

For more information on any of the items in the Corporate Reporter, please contact your usual Bell Gully adviser or any member of Bell Gully's Corporate or M&A teams. Alternatively, you can contact the editor Diane Graham by email or call her on 64 9 916 8849.


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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