Commerce Act up for review

Tuesday 17 November 2015

Authors: Torrin Crowther, Glenn Shewan and Andy Glenie

​​​The Ministry of Business, Innovation an​d Employment (MBIE) has today released an issues paper entitled “Targeted Review of the Commerce Act 1986” seeking feedback by 9 February 2016 on a potential competition law reform (the Issues Paper).

Specifically, MBIE is seeking targeted feedback on:

  • the misuse of market power provisions (section 36 of the Commerce Act),

  • alternative enforcement mechanisms, including the cease and desist regime, and

  • the possible introduction of a new ‘market studies’ function.

The Issues Paper follows a report released in May 2014 by the Productivity Commission on Boosting Productivity in the Services Sector. This report set out a number of recommendations in relation to New Zealand’s competition law (Bell Gully’s submission in relation to this report is available here), and the Harper Review in Australia, which concluded in March 2015, and made 56 recommendations for reform of competition policy in Australia, including in relation to some of the matters in the Issues Paper (see Bell Gully’s publication in relation to the Harper Review here).

Misuse of market power

The misuse of market power provision has been criticised as not being fit for purpose. The Issues Paper sets out the preliminary view that the operation of the misuse of market power provision is not satisfactory and in MBIE’s view the provision appears:

  • to be failing to maximise the long-term benefit to consumers by failing to punish anti-competitive conduct of powerful firms,

  • to be too complex to allow for cost-effective and timely application, and

  • to be misaligned with the other prohibitions in the Commerce Act (i.e. the prohibitions on anti-competitive arrangements and mergers apply an ‘effects test’ while the misuse of market power provision relies on a ‘purpose test’).

The potential options identified to address these issues are still at a preliminary stage. However, propositions in the Issues Paper include maintaining the status quo, removing the current ‘taking advantage’ requirement or replacing the current ‘purpose test’ with an ‘effects test’ or an ‘effect or purpose test’ (an ‘effect or purpose test’ would be consistent with recommendations in the Harper Review).

Any changes could have a significant effect on firms which have market power and, as a result, their competitors. The issues are likely to be especially acute for firms on which downstream competitors rely for access to an essential facility. The ‘access price’, which the current law permits those competitors to be charged, is seen by many as being out of step with the position elsewhere.

Alternative enforcement mechanisms

MBIE has also raised the question whether the current mechanisms for enforcing the Act are adequate. Its focus is not on the ability of the Commerce Commission (the Commission) or private litigants to apply to the High Court for injunctions or damages. Rather, the question is whether the various alternatives to court proceedings are appropriate. Currently, those alternatives include the Commission seeking a ‘cease and desist’ order to prevent a breach, or negotiating an out-of-court settlement.

MBIE is concerned that the ‘cease and desist’ regime has been used very rarely, is unduly complex and so likely to lead to unnecessary cost and delay, and is inconsistent with mechanisms set out in analogous legislation. Several options have been put forward for discussion, including modifying the regime to more closely resemble ad hoc adjudicative procedures favoured in the US, and simply repealing the regime altogether.

There is also a perception that the contractual nature of settlements means that they are not fully enforceable, and that they too are out of step with other legislation (such as the Fair Trading Act 1986). It has been suggested that the Act be amended to introduce court-enforceable undertakings similar to those used in Australia and recently introduced here under the Fair Trading Act 1986. Such enforceable undertakings would give the Commission greater powers to compel a settling party to comply with the terms of any settlement.

Market studies

While there is no specific market studies regime in New Zealand currently, the Issues Paper identifies that a number of different public bodies (e.g. the Commission, Electricity Authority and Productivity Commission) have varying powers to conduct research that might be described as market studies. Accordingly, the Issues Paper canvasses market studies powers that exist in different jurisdictions and ultimately asks whether there is a definable gap in New Zealand’s competition framework that would warrant the introduction of a formal market studies power.

Market studies raise a range of issues, not least of which is what powers the regulator is granted to address any competition failures it identifies. In the UK for example, the regulator can force firms to divest assets to address perceived competition concerns identified in market studies – a power that could have a significant impact on an affected business.

Submissions on the Issues Paper are open

The Issues Paper is available here.

The cut-off date for submissions on the Issues Paper is 9 February 2016 and Bell Gully intends to make a submission. If you would like further information, or to provide your views on any aspects of the Issues Paper, please contact your usual Bell Gully adviser.


Disclaimer

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.

For more information
  • Torrin Crowther

    Partner Auckland
  • Jenny Stevens

    Partner Wellington
  • Glenn Shewan

    Senior Associate Auckland
Related areas of expertise
  • Corporate governance and advisory
  • Competition