Competition

Welcome to Bell Gully's Competition Update, a review of current legal issues in the New Zealand competition sector.

In this July 2006 issue, we summarise recent developments in the competition and regulatory world likely to impact your business, including:

Vendor alert - High Court finds a vendor liable as a party to a breach of the Commerce Act
The High Court (Commerce Commission v New Zealand Bus Limited & Others) has found a vendor liable as a party to a breach of the Commerce Act. This judgment has materially increased the risks for a vendor in adopting an "it's the buyer's problem, not mine" approach to the competition law aspects of merger and acquisitions. Vendors (and their legal advisers) now need to think carefully about their level of involvement in any competition issues the buyer may have.

Are the High Court and the Commerce Commission in the business of picking winners?
The High Court's decision in NZ Bus also highlights an apparent and growing trend in merger and acquisitions analysis, which was first adopted by the Commission in its 2005 Fletcher Building/Stevensons decision. The High Court found that if the target company or asset would be otherwise sold to a new entrant who would use that acquisition as a springboard to increase competitive intensity in the market (or even a related market), then a sale to an existing competitor might well be found to substantially lessen competition.

Judicial comment on the "association" test
The High Court has also provided guidance on the impact of cross shareholdings in merger analysis. The result of the court's analysis is that an acquirer cannot simply rely on a finding that it is associated with the target prior to an acquisition to avoid analysis under section 47. An increase in the degree of association can still result in a substantial lessening of competition.

"Take advantage of" does mean "use" - but still very difficult for the Commerce Commission to prove a misuse of market power
In May, the Commission issued a warning to Baycorp that its behaviour in imposing a $5 default loading fee on independent debt collectors (but not its own) risked breaching section 36 of the Commerce Act, which prohibits a person from taking advantage of market power. Amendments to section 36 in 2001 lowered the threshold for the application of section 36 from firms with dominance to firms with substantial market power and changed the causal requirement from use to taking advantage . The Commission's approach in the Baycorp case treating use as synonymous with taking advantage means that it will remain difficult to establish that a firm is actually in breach of section 36.

Government's decision to unbundle the local loop now before Parliament
The Government has introduced the Telecommunications Amendment Bill to Parliament, which implements its decision to unbundle Telecom's local loop. The Bill also amends the Telecommunications Act in other important ways consequent on the Ministry of Economic Development's implementation review of the Telecommunications Act. We outline some of the key changes.

Ministry of Economic Development to review Parts IV and V of the Commerce Act
In May this year the Minister of Commerce announced a review of certain parts of the Commerce Act including the provisions dealing with clearances and authorisations. The Minister posed the question: do New Zealand companies have the scale and scope to compete globally? In this article we outline options for amending the clearance and authorisation provisions of the Commerce Act that might be considered as part of the review.

Other developments

• Australian Competition and Consumer Commission and the Commerce Commission reach in principle agreement on a trans-Tasman mergers protocol
  
  
• Telecommunications Commissioner not seeking reappointment
  
  
• Commission will examine reasons for the lack of new entry into the mobile telephone market
  
  
• Commission will examine reasons for the lack of new entry into the mobile telephone market
  
  
• Commission discussion paper on the form of gas control
  
  
• Commission revokes Pohokura joint selling authorisation given a change in circumstances
  
  
• Authorisation for NZRU's players' salary cap

Read more about Bell Gully's expertise in competition online, or contact any of the team members listed for further advice and information.

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