2015 saw long awaited developments, and surprises, in New Zealand competition law.
Review of market power regime
A review of New Zealand’s misuse of market power provision, and a recommendation that the NZCC have new powers to conduct market inquiries at will, was recommended by the Productivity Commission back in May 2014 in its final report on boosting productivity in the services sector.1 The Government was waiting for the Australian Government’s response to the Harper Review of competition laws2 (including changes to Australia’s misuse of market power prohibition). But delays across the Tasman saw Hon Paul Goldsmith push on ahead of conclusions being reached in Australia, leaving Australia to play catch up and follow with the announcement of a similar review of its market power prohibition.
Potential reform options include removing the current casual link of the “taking advantage requirement” from the prohibition or moving to an “effects or purpose based” test, broadly aligned with the Harper Review. Many will be hoping that the New Year brings with it a critical assessment by the Government of whether the current prohibition is really in need of reform.
MBIE will no doubt also be receiving submissions in the New Year that emphasise the need to fully justify and weigh the benefits of a market studies regime against the costs that it would inevitably impose on businesses.
Criminalisation – now you see it now you don’t
The surprise announcement of the year was Minister Goldsmith’s announcement that the criminal sanctions for cartel conduct will be dropped from the Commerce (Cartels and Other Matters) Amendment Bill (the “Cartels Bill”). The Cartels Bill has been before Parliament for the past four years, and has been awaiting its final reading since the end of 2014.
2015 was a relatively subdued year for the NZCC in terms of competition enforcement, with a late rush of activity towards the end of the year.
In August and November the NZCC filed court proceedings against Rural Livestock, PGG Wrightson, Elders New Zealand and five individuals, alleging price fixing in the livestock sector in relation to the introduction of the National Animal Identification Tracing Act 2012 (NAIT).
The NZCC alleges that the livestock companies established three pricing agreements prior to the NAIT coming into force in 2012. The agreements are alleged to have fixed the price of tagging cattle at sale yards; increased yard fees; and increased stock and station agent charges by introducing a fee for NAIT-related costs. The NZCC and Rural Livestock have agreed on a settlement. The NZCC’s other proceedings remain ongoing.
In October the NZCC issued a formal warning against Consolidated Alloys for an anti-competitive roofing products agreement. The agreement came about as a means to resolve a patent dispute with one of Consolidated Alloy’s competitors. The settlement agreement included provisions for the payment of royalties to Consolidated Alloys by the competitor (on sales of the competitor’s product) and a requirement for the competitor to only sell that product through until 2023, although Consolidated Alloy’s patent expired well before 2023. The NZCC’s view was that the exclusive sale provision extended beyond patent protection into anticompetitive conduct. Given the frequency with which IP rights feature in litigation settlements, this is plainly an area to watch.
In December proceedings brought by the NZCC against Enviro Waste Services and one of its employees, alleging attempted anti-competitive conduct by a branch manager in relation to the collection of waste oil, were settled. Enviro Waste Services settled and was fined $425,000 and the branch manager was fined $5,000.
December also saw the NZCC issue court proceedings against 13 real estate agencies and three individuals, alleging they had reached an agreement to pass on Trade Me property listing fees to home vendors, in breach of the Commerce Act. The NZCC has reportedly reached in principle settlements, involving the payment of a penalty, with two of the defendants. As part of its investigation warnings were also issued by the NZCC to eight further agencies.
Reshuffling the NZCC
2015 has seen three new appointments to the NZCC, two Australians and a Kiwi accountant:
Graeme Cowan is an accountant and experienced director and advisor and appears to have been brought in for his commercial, as well as number crunching, expertise – both highly relevant to regulatory processes in particular.
Dr Jill Walker is a former ACCC mergers Commissioner and experienced economist. Dr Walker was the cross-appointed ACCC Commissioner on the NZCC for some years, so is familiar with New Zealand market dynamics and will add considerable economic insight to the NZCC’s merger and enforcement activities in particular.
Commissioner Sarah Court has replaced Dr Walker as the cross-appointed ACCC Commissioner. Sarah Court is a prosecutor by training and one of the ACCC’s top competition and consumer law enforcement Commissioners, having led numerous cartel and consumer prosecutions, most recently against Coles for unconscionable conduct. Expect Sarah Court to provide new enforcement capability which may be employed in 2016 both in the consumer law area and when the NZCC’s cartel framework is finally settled – after a hiatus of 3-5 years while the Cartels Bill has languished in Parliament.
Continuing the 2014 trend, merger control has been busy again in 2015. The NZCC has cleared 8 applications, declined one and authorised one. Three clearance applications remain pending.
Several complex and high profile merger clearance applications were considered by the NZCC in 2015:
The NZCC granted clearance in respect of three high profile global mergers in 2015. In June, Staples gained clearance from the NZCC for its acquisition of Office Depot, which trades in New Zealand as OfficeMax. The NZCC also cleared Pfizer’s acquisition of Hospira in July, one of the larger transactions in a global wave of activity occurring in the pharmaceutical industry. And in October the NZCC cleared FedEx’s acquisition of TNT – both key global operators active in the provision of express international delivery services.
In April the NZCC declined Reckitt Benckiser’s, owners of Durex, application to purchase Johnson & Johnson’s K-Y brand and product assets. This was the NZCC’s only declined clearance in 2015. Although this merger has been approved in other countries, albeit often with remedies (as was the case in the United Kingdom), the NZCC declined to grant clearance on account of New Zealand having a limited number of personal lubricant suppliers with Durex and K-Y being the two leading brands.
In July Z Energy applied to acquire Chevron New Zealand, the owner of the Caltex Brand in New Zealand. The NZCC’s investigation spans many aspects of the fuel supply chain, ranging from fuel storage to the retail supply of diesel and petrol. The process is proving to be lengthy, with the NZCC having just extended its deadline for a decision through until the end of next April.
The only 2015 authorisation was a repeat of a 2011 authorisation of Cavalier Wool Holdings’ bid to acquire New Zealand Wool Services International’s wool scouring business (the previous authorisation expired prior to the transaction being effected).
While Cavalier’s acquisition would result in a monopoly of supply for wool scouring services in New Zealand, the NZCC recently authorised the acquisition on the basis that there were public benefits to New Zealand from the acquisition, including lower administration and production costs, the freeing up of industrial sites, and lower ongoing capital expenditure. There will be more to come on this, as the decision is being appealed.
On the enforcement front, in March the NZCC finally concluded its lengthy investigation into Wilson Parking’s completed and un-notified acquisition of Tournament Parking. The NZCC’s investigation revealed that the acquisition did not substantially lessen competition in Auckland due to constraints from public transport. Similarly, investigation into other city centres (eg Hamilton, Wellington and Christchurch) revealed that other parking operators would provide sufficient competitive constraint on the merged entity.
Looking ahead to 2015
In 2016, Minister Goldsmith will look to swiftly progress the targeted review of the Commerce Act. The next step in the process is the production of an options paper in light of submissions received on November’s Issues Paper. That may well see legislative reform proposals on the table, which will no doubt be of interest to practitioners and business alike. The Minister has shown himself capable of striking the correct political balance to achieve better outcomes, so expect those reforms to move more quickly than the Cartels Bill (not that this sets a high bar!).
The NZCC also has a number of ongoing enforcement investigations running into 2016. It will be interesting to see whether the potential changes to competition law have any bearing on the NZCC’s appetite to pursue enforcement action through to proceedings in the coming year.
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