Analysis
Enforceability of undertakings
16. Under section 69A the Commission may accept undertakings to divest shares or assets as a condition for approving a merger. However, it is not an offence to fail to comply with divestment undertakings and there are no direct means for the Commission to enforce them. The Commission can seek an order from the Court under section 85 of the Act to divest the assets or shares. However, in doing so the Commission must prove that the merger substantially lessened competition, which would be both time consuming and expensive.1
17. The inability of the Commission to directly enforce undertakings given under section 69A provides an opportunity for parties to game the legal system as they can consummate a merger that was approved based on an undertaking, and later advise the Commission that they tried to dispose of the relevant shares or assets but were unable to find a buyer that was prepared to pay a reasonable price. This means that a merger would have occurred that the Commission may have otherwise declined if it were not for the undertaking.
18. To address this problem it is proposed that the Commission, upon seeking an order from the High Court to enforce undertakings to divest shares or assets, would only have to demonstrate that the undertaking had not been complied with for a contravention to be found. Third parties will be able to join an action initiated by the Commission.
19. The enforcement role of the Court will be narrow. The Court will not be required to consider whether there has been a contravention of s 47. The Court would be empowered to order those who agreed to the undertaking to comply with the undertaking, pay a pecuniary penalty to the Crown, compensate any other person who has suffered loss, injury or damage as a result of the breach and/or comply with any other condition the Court considered appropriate.2
20. The submissions were largely supportive of making undertakings enforceable. Only one submitter did not support this proposal, stating that the current application of the law whereby a divestment should only be required if it substantially lessens competition, is satisfactory. It is unlikely that the Commission would apply to the Court to enforce an undertaking in cases where non compliance has not led to an adverse effect on competition. The proposal (outlined below) to amend the Act to allow the Commission to approve an amended variation if it were considered that the variation was minor or would not otherwise defeat the competition or public benefit objectives of the Act will also alleviate this risk.
21. Improving the effectiveness of the Act to enforce an undertaking will make it easier for the Commission to accept undertakings. This will improve the efficiency of the application process and may also result in more favourable decisions for applicants.
22. As a general rule, law that includes provisions that cannot be enforced is unsatisfactory and ineffective. 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. It will also result in consistency with other legislation that provides for the separate enforcement of undertakings, for example, the Securities Act 1978.
23. I recommend that the Commerce Act be amended to allow the Commission to apply to the High Court to enforce undertakings given under section 69A to divest shares or assets, if the Commission can show that the parties failed to comply with such an undertaking.
Variation of undertakings
24. The Commission does not have the ability to amend an undertaking once a merger clearance or authorisation decision has been made. This can mean that the acquirer will lose the protection provided by the approval if it does not implement the merger strictly in accordance with the approved undertaking. Thus, immunity from legal challenge by a third party would be lost even if a variation involved only minor changes that had no bearing on competition.
25. Presently, an applicant who decides that compliance with an approved undertaking may be unnecessary or counterproductive has three choices. It could comply with the undertaking in full, although this may result in assets being divested unnecessarily. It could vary the undertaking with the knowledge that the protection of the Commission's approval will not apply. This option does not rate well from a legal certainty standpoint. Lastly, the applicant could re-apply to the Commission for a clearance or authorisation with the proposed revised terms. This option rates poorly in terms of timeliness and cost effectiveness for a firm, and poorly in terms of the efficient use of the Commission's limited resources.
26. Allowing the original applicant to seek a variation to an approved undertaking to divest shares or assets would overcome the above problems. The Commission would be able to approve the variation if it considered that the variation was minor or would not otherwise defeat the competition or public benefit objectives of the Act. Submissions were largely in favour of this proposal.
27. Thus, it is recommended that the Commerce Act be amended to allow the Commission to consider and accept variations to approved undertakings to divest shares or assets in the case of merger clearances or authorisations.
Timeframes for restrictive trade practices authorisations
28. Currently, section 62 of the Act provides time limits within which the Commission would be required to hold a conference following the release of its draft determination for restrictive trade practice authorisation proceedings. After the Commission sends a summary of the reasons to the applicant and various third parties, the recipients are required to notify the Commission within 10 working days of a date fixed by the Commission, if they require a conference to be held. The Commission can also initiate a conference. If a conference is to be held, the Commission must appoint a date for the conference which must be within 20 working days of the expiry of the initial 10 working day period.
29. The issue is whether these timeframes serve any purpose. The process is inconsistent with the timing for merger authorisations, which has an overall timeframe of 60 working days,3 but has no time limits on any components within the merger process. Conversely, there is no overall timeframe for authorisation of restricted trade practices.
30. The 10 day time limit for recipients to notify the Commission is useful because it prevents conferences being requested late in the process which can unnecessarily delay proceedings. The 20 day period for when a conference must be held, in contrast, serves no such purpose.
31. This lack of consistency between the two processes can be problematic when an application has both merger and trade practice implications, as it can be difficult to operate the procedures in parallel. The timeframes thus appear arbitrary, unnecessary and, at times, impractical.
32. The time restrictions on components within the trade practices authorisation process are also inconsistent with the broader philosophy of Part 5 of the Act - to achieve a minimum of prescription of processes. Most submitters either did not express a view, or were generally supportive of the removal of these timeframes.
33. I therefore recommend to remove the requirement to hold a conference within 20 working days of the expiry of the 10 working day notification period.
Widening the use of lay members
34. At present, where there are appeals against determinations of the Commission (for example, in connection with clearances and authorisations under Part 5 of the Act) then at least one lay member must sit with the Judge in terms of s 77(9). The Judge has discretion in certain matters to sit without a lay member under s 77(14). The High Court also has discretion to sit with a lay member in certain other types of cases under s 78 of the Act. These provisions do not provide for the discretion to appoint a lay member for judicial review proceedings.
35. Submitters were asked whether the High Court should have the discretion to appoint lay members beyond the existing powers under s 77 of the Commerce Act, for instance, for judicial review proceedings. The majority of submissions either did not address the issue or were supportive of the proposal, seeing lay members as a useful and helpful resource for the Court.
36. In judicial review proceedings, the Court is concerned with matters of process and legality. It does not enter upon the merits as occurs in appeals. Judges are experienced in dealing with these questions. To permit the Court to be assisted by a lay member outside the context of merits based appeals is likely to encourage parties to invite the Court to enter upon the merits of the case in a way which is inappropriate for judicial review. Therefore, I have decided that the current provisions are suitable and appropriate and no change is required.4
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