In New Zealand, parties to mergers or contracts that are likely to lessen competition have the option to go to the New Zealand Commerce Commission (Commission) to get "authorisation" of the deal, if the benefits to the public are likely to outweigh the detriments arising from it. This is different from the Commission's standard "clearance" regime where the Commission, on application by the parties, provides formal confirmation that no competition issues arise from a merger.
Pivotal to the parties' assessment of whether to seek authorisation are the questions surrounding what benefits and detriments count and how the Commission process will play out. Yesterday the Commission released updated draft authorisation guidelines (Draft Guidelines)1 outlining significant changes to its approach to those issues from its previous authorisation guidelines (Existing Guidelines). The Draft Guidelines have been published for consultation, with comments due by 6 September 2019.
The key updates in the Draft Guidelines are to reflect changes in how the test for authorisation should be interpreted, developed in recent years by both the Commission and the Courts. One of the most significant changes is to the previously long-standing approach that:
- "in assessing detriments [the Commission will] only consider anti-competitive detriments that arise in the market(s) where we find a lessening of competition" (in the Existing Guidelines).2 This meant that the detriments considered were typically standard economic detriments arising from loss of competition, such as increased prices or decreased quality; and
- the Commission should quantify the benefits and detriments to the greatest extent possible, effectively requiring an economically-based mathematical assessment of an authorisation application.
However, more recently the Commission and Courts have changed this approach. The Court has:
- permitted the Commission to take into account other non-economic, and even out-of-market, factors in assessing detriments – specifically, "anything important to the community" (in that case, effects on media plurality or democracy); and
- de-emphasised the need for quantification by the Commission of any benefits or detriments, saying that the evaluation can balance qualitative and quantitative factors.
The impetus for the new approach was that in publishing its draft determination in the course of considering the merger authorisation application from media publishers NZME and Fairfax, the Commission decided it wanted to depart from the Existing Guidelines to take into account a wider range of detriments. In that process, the Commission declined to authorise the merger on media plurality grounds, by taking into account non-economic and out-of-market detriments. Although NZME and Fairfax raised this point on appeal, the Courts held that the Commission was not bound by its Existing Guidelines in the context of any particular authorisation decision.
The Draft Guidelines therefore, update the Existing Guidelines to catch up with the new approach adopted by the Commission in that process.
With the Commission and Court decisions in NZME reflected in the Draft Guidelines now promulgated, New Zealand's previously held international reputation for a "dry" economic approach to authorisations, with high levels of quantitative rigour based on a strict economic total welfare approach, has passed.
Naturally, allowing the Commission to take into account all manner of factors important to the community in any market and evaluate them in its own judgement will remove a considerable amount of the economics-based approach that used to underpin the authorisation process. The Commission will have much more discretion, which will make it more difficult to assess in advance the likelihood of the Commission agreeing with the applicant's view that public benefits will outweigh the detriments. As the Court of Appeal noted in the NZME/Fairfax appeal: "We accept that non-economic detriments may complicate merger analysis and introduce an additional element of unpredictability, which is undesirable" but that "some measure of uncertainty is inherent in the legislative decision to permit authorisation on widely defined public benefit grounds."3
The consultation process for the Authorisation Guidelines is open now and closes on 6 September 2019 at 5pm. If you have any questions on how the Authorisation Guidelines may affect your business, or would like advice on making a submission, please contact Troy Pilkington.
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