Section 98 - time to start asking questions?

By Jenny Stevens, Senior Associate | Friday 30 May 2008

First published in Competition Matters, NZLawyer, 30 May 2008.

"We have just been served with a section 98 notice." If this is a sentence you haven't said to your lawyer, or heard from a client, recently then you must be one of the lucky few.

An increasing number of section 98 notices are being issued by the Commerce Commission, creating significant compliance costs. The time may have come to reassess the threshold for issuing these notices and for the Commission to provide some formal guidance on how it expects individuals and companies to comply.

Section 98 of the Commerce Act empowers the Commission to require a person (individual or company) to provide information, produce documents or attend an interview before the Commission where it considers it is "necessary or desirable" to do so. The requests are often extensive and failure to comply without reasonable excuse is a criminal offence.

At a policy level it is right that the Commission should have such a power, but with many businesses spending significant amounts of time and money responding to these notices, it may be time to ask some questions about how the power is being used.

Is the threshold too low?

A common question arising is "on what basis has this notice been issued?"

Often the Commission is seeking information or documents to determine whether, in its view, there has been a breach of the Act such that it should commence proceedings. In these circumstances the necessary or desirable threshold will invariably be reached.

In Telecom v Commerce Commission [1991] NZAR 155, while the High Court accepted the Commission needs to show a degree of relevance when requesting documents, it said that in an investigative situation "onus must be a very easy one to discharge".

But with increasing use, and associated increasing compliance costs for business, is the low threshold of "necessary or desirable" still appropriate?

For those of us predominantly practising in the civil jurisdiction, a section 98 notice can appear similar to pre-commencement discovery. To obtain pre-commencement discovery a person must apply to the court and satisfy the court that (i) the applicant is or may be entitled to claim relief; (ii) it is impossible or impracticable to formulate a claim without the documents sought; and (iii) there are grounds for belief that the documents are in the possession of the person concerned. This imposes a much higher threshold than the section 98 process.

Section 98 can also be contrasted with the Commission's power to search. To obtain a search warrant the Commission must prove that it has reasonable grounds to believe that the warrant is necessary in order to ascertain whether a person has engaged in conduct contravening the Act. In Australia, the equivalent provision of the Australian Trade Practices Act, section 155A, requires the ACCC to first have reason to believe that a person is capable of providing information, documents or evidence that relates to a contravention of the Act. Again, both of these present higher thresholds.

Of course, the exercise of any statutory power is subject to the usual public law principles including that the statutory body behave reasonably. The High Court has recently held that while section 98 "is couched in terms of what the Commission considers is necessary or desirable, that formulation does not render its exercise immune from review." (See AstraZeneca v Commerce Commission, 16 April 2008 (subject to appeal)). So, judicial review is an option but is itself costly, time consuming and onerous.

The time may well have come for the phrase "necessary or desirable" to be re-examined. At the least, perhaps the test should be that the notice be both necessary and desirable? After all, the Commerce Act is not about promoting competition forsaking all else, it is about improving efficiency. Shouldn't the Commission need to be satisfied that the costs of a section 98 notice are worth any potential gains?

Guidance, anyone?

Recipients of section 98 notices are often left wondering how to deal with the practical issues.

• The time is too short to respond, what should I do?

• Some relevant people don't work for us anymore, and we have no idea where their documents might be. Do I have to track those people down?

• The notice requires me as CEO to certify that all documents have been provided – how can I be sure of that all the employees have done this?

• This is going to cost a fortune – is there a limit to the costs I am expected to incur?

• Can I be required to respond to two section 98 notices at the same time? Which should get priority?

• What's the process from here? When will the Commission let me know where all this is headed?

The Commission has provided no formal guidance on these issues. Given the number of section 98 notices being issued, the public interest in cooperation, and the costs involved in complying, industry would benefit from a Commission guideline or practice note setting out its expectations.