Issue C1: Enforceability of undertakings
Options
41. An option would be to allow the Commission to apply to the High Court to enforce undertakings to divest shares or assets (examples of the type of provision that might be enacted appear in Appendix B). The Commission would only have to prove that the undertaking had not been complied with for a contravention to be found. The Court would be empowered to order the merged firm to:
- Comply with the undertaking;
- Pay a pecuniary penalty to the Crown;
- Compensate any other person who has suffered loss or damage; and/or
- Comply with any other condition that the Court considered appropriate.16
Analysis
High quality outcomes and gaming the legal system
42. The Commission's inability to enforce undertakings provides an incentive for the parties to consummate the merger and later advise the Commission that it tried to dispose of the relevant shares or assets but was unable to find a buyer that was prepared to pay a reasonable price. However, undertakings are unconditional. The reasonableness of the price, as judged by the seller (or anyone else, including the Commission or the courts) is irrelevant. The failure to divest will mean that the objective of protecting the process of competition will probably not have been achieved.
43. Our view is that the enforcement option outlined above will discourage gaming of this type. The merged firm would lose control of the sale process if it did not sell within the deadline specified by the Commission, with a consequent risk of a "fire sale". In addition, not selling within a deadline set by the Court would be a contempt of court and would, therefore, create an additional incentive to comply.
Clear and consistent legislation, transparency and accountability
44. The option of empowering the Court to impose orders is fully consistent with the scheme of the Act. That option is also consistent with changes proposed by the Ministry of Consumer Affairs to consumer protection legislation.17 A requirement on the Commission to demonstrate to the Court that one or more orders should be made is also sound from a transparency and accountability perspective.
Conclusion
45. As a general rule, law that includes provisions that cannot be enforced is unsatisfactory and not fully effective. Our view at present is that the Commission should be able to seek orders from the High Court.
Questions
Q3. Should the Act provide for the enforcement of undertakings to dispose of assets or shares?
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