Introduction
Background
1. The Commerce Act 1986 is a modern competition law that is an integral part of the business law framework in New Zealand. The scheme of the Act is as follows:
- Part 1 constitutes the Commerce Commission as an independent crown entity;
- Part 2 prohibits anticompetitive behaviour;
- Part 3 prohibits anticompetitive mergers;
- Part 4 describes the process for imposing regulatory control on monopolies;
- Part 4A is a regulatory system for electricity lines businesses;
- Part 5 relates to the Commission's quasi-judicial functions. It empowers the Commission to immunise from legal challenge trade practices and mergers that are or might be illegal under Parts 2 or 3 (See Appendix A for diagrammatic representations of those processes). Part 5 also empowers the Commission to set prices, revenues and quality standards for firms or sectors that the Responsible Minister has decided to regulate under Part 4;
- Part 6 relates to enforcement, remedies and appeals. It empowers the Commission and, in some cases, private parties to seek corrective, punitive, compensatory and other types of orders from the District Court and High Court. It states who has the right to appeal against quasi-judicial decisions made by the Commission under Part 5. It also provides some rights of appeal to the Court of Appeal and the Supreme Court; and
- Part 7 covers a range of other matters including the Commission's information gathering and search powers.
2. Various reviews have taken place over the years, with most of the resulting changes being aimed at gradual improvement. Arguably, the most significant changes have been as follows:
- In 1990 the mandatory pre-merger notification system was replaced with a voluntary system; and
- In 2001 the competition tests for mergers (section 47) and single firm conduct (section 36) were changed, a reverse burden of proof was introduced into the prohibition against exclusionary conduct and the penalties and remedies provisions were strenthened.
3. This latest review is in two parts. We have already released a discussion document on Parts 4, 4A and sections 70-74.4 That part of the review has the potential to lead to some significant changes to the way that the regulatory control provisions work. This next discussion document relating to Part 5 (other than sections 70-74) is aimed at examining the efficiency and effectiveness of the clearance and authorisation provisions. Those provisions allow for:
- A proposed merger or acquisition to be cleared if the Commission considers that it will not or will not be likely to substantially lessen competition;5
- A proposed merger or acquisition to be authorised if the Commission considers that it will or will be likely to result in a benefit to the public that it should be permitted;6 and
- A restrictive trade practice to be authorised if the Commission considers that the conduct is likely to result in a benefit to the public either such that it should be permitted or would outweigh the lessening of competition.7
4. The effect of a clearance or authorisation is to immunise the merger or conduct from court proceedings. These processes contribute to economic growth by providing firms with the confidence they need to consummate a merger or engage in conduct that is good for New Zealand society. However, the clearance and authorisation provisions do this in slightly different ways. The clearance provisions are largely aimed at firms that are unsure whether a merger proposal is anticompetitive. Thus, the applicant is asking the Commission to allow the merger to be consummated without risk of legal challenge. The authorisation provisions are more aimed at firms that think that the merger or the conduct is probably anticompetitive but is, nevertheless, good for the economy.8 Thus, although it is never explicitly stated in these terms, the applicant is usually asking the Commission to allow the conduct or merger to proceed even though it may well contravene Part 2 or 3 of the Act.
5. The concept of authorisation of mergers is particularly important in small economies like New Zealand because scale issues are more likely to be significant. However, scale can also have the opposite effect. In large economies, the anticompetitive effects of a merger may be eroded over time through market entry. In a small economy there is a greater risk that a merger will entrench monopolistic elements into a market. The authorisation process reflects this situation because it allows the competing arguments to be assessed case-by-case.
6. Most of the ideas for change in this document have come from people who have first hand experience of the clearance and authorisation processes or from the Commission. We set up a focus group to discuss the possible issues with some stakeholders who have each had several years experience of the Act. We are now broadening the debate by releasing this discussion document.
A description of the clearance and authorisation processes
7. The applicant is required to formally submit an application for a clearance or authorisation in accordance with the Commission's forms. The Commission has a practice of issuing a draft determination in relation to authorisation proceedings. Conferences can be called. Appeal rights are provided for applicants and those that participate in a conference.9 In addition, the vendor of the assets or the shares has the right to appeal in the case of merger clearance and authorisation applications.
8. During adjudicative proceedings, the Commission limits access to Commissioners, with the exception of formal conferences. However, Commission staff actively engage with the applicant and other interested parties to obtain and test information. The Commission releases media statements advising of any adjudicative proceeding and the procedural steps to facilitate participation by interested parties.
9. Outside of formal adjudicative proceedings, the Commission generally operates an open door policy and welcomes inquiries by parties to proposed acquisitions or arrangements. However, the Commission is unwilling to provide informal or confidential guidance or letters of comfort on the likely success of an application or whether it complies with the Act.
10. The Commission has 10 working days or such longer time as is agreed by the Commission and the applicant to grant or decline a clearance, though extensions are sought as a matter of course. For merger authorisations the Commission has 60 working days or such longer time that is agreed with the applicant. The Act does not provide timeframes for consideration of applications for restrictive trade practice authorisations although the Commission and the Responsible Minister agree time performance measures in their annual Output Agreement.10 If a determination has not been made within the statutory timeframe (or the agreed extended timeframe) the clearance or authorisation application is deemed to have been declined.
The Issues
11. The following issues are addressed in this discussion document
Merger issues
A. The statutory timeframe for merger clearances
B. The publication of written clearance decisions
C. Undertakings to divest shares or assets
D. Behavioural undertakings
E. Informal pre-merger notifications
Restrictive trade practices issues
F. A possible clearance process for trade practices
G. A possible simple collective bargaining arrangement notification process
H. The "lessening competition" jurisdiction test
I. The Commission's power to revoke, amend or replace authorisations
J. Halting the conduct while the Commission is considering an authorisation application
K. Conference proceedings
Joint legal process issues
L. The right to appeal Commission decisions
M. A possible specialist tribunal
N. Wider use of lay members
The statutory framework for assessing costs and benefits
O. Clarity and specificity in how the costs and benefits are assessed by the Commission
P. The treatment of international competitiveness claims
Q. The balance between quantified and intangible benefits and detriments
R. The timeframes over which costs and benefits are assessed
S. Market definition issues
Criteria for assessing the issues
12. The following criteria are used to assess the issues:
- The quality of outcomes
- Cost effectiveness
- Timeliness
- Clear and consistent legislation
- Transparency and predictability
- Opportunity for effective participation by interested parties
- Appropriate level of accountability
- Minimising the opportunity to game the legal system
New Zealand-Australia Business Law Coordination
13. As stated at the beginning of the full list of questions earlier in this discussion document, we have asked for any comments on the implications for Australia-New Zealand business law coordination. A framework for considering those issues is the Memorandum of Understanding between the Government of New Zealand and the Government of Australia on the Coordination of Business Law.11 Paragraphs 4 and 5 state the following:
4. Both Governments are aware that some existing laws and regulatory practices relating to business within each economy may impede the development of trans-Tasman business activity. Through the development of increased coordination and dialogue, both Governments will endeavour to minimise such impediments.
5. An array of approaches exists to achieve the goal of increased coordination in business law. Both Governments recognize that one single approach would not be suitable for every area, that coordination is multi-faceted and does not necessarily mean the adoption of identical laws, but rather finding a way to deal with differences so they do not create barriers to trade and investment. In working towards greater coordination, the efforts of both Governments will focus on reducing compliance costs and uncertainty, and increasing competition.
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