Vendor alert - High Court finds a vendor liable as a party to a breach of the Commerce Act

When advising on the sale and purchase of a business the past rule of thumb, from a vendor's perspective, has been that any competition law issues arising from the sale are primarily the purchaser's problem.

The reason for this is that if the acquisition infringes section 47 of the Commerce Act which prohibits acquisitions that substantially lessen competition in a market it is generally the purchaser who will have to deal with the consequences. Consequences can include the imposition of a substantial financial penalty and/or a requirement that certain assets be divested.

However, the High Court¹ has now increased the risks for vendors of adopting an "it's not my problem approach" by imposing liability on the vendors of a business for being a party to a breach of the Act.

In NZ Bus, Justice Miller found that the acquisition of Mana Coach Services Ltd (Mana) by NZ Bus would infringe section 47 of the Commerce Act. Further, in a first in competition law in New Zealand, the court also found that the vendors were a party to that breach by aiding and abetting and being knowingly concerned with the contravention of the Act by NZ Bus.

In future, vendors (and their legal advisers) will need to consider much more carefully what the vendor's level of involvement will be in any competition issues the purchaser may have. Traditionally, a willing vendor would have supported a purchaser in obtaining a clearance from the Commerce Commission (and in many cases, the vendor would have taken an active role in the Commission's investigation). In this case, NZ Bus agreed to keep Mana's owners informed of the progress, status and details of the clearance application. But it was the vendor's existing knowledge of the market, its involvement in the clearance process and the information the vendor, therefore, had about the likely competition issues that led the court to conclude that by agreeing to waive the clearance condition Mana had assisted NZ Bus to infringe the Act.

The court did not determine questions of relief and penalty in this decision, that having been left to a future hearing should it be required.

 

¹ Commerce Commission v New Zealand Bus Limited & Others (Unreported, High Court, Wellington, 29 June 2006).

Enquiries and information

For more information on any of the cases, articles and features in Competition Update, please contact one of our team:

Phil Taylor, Partner; Jenny Stevens, Senior Associate; Torrin Crowther, Senior Associate; David Blacktop, Senior Associate