News
More investigative powers proposed for the Commerce Commission
First published in Competition Matters, NZLawyer, 17 October 2008.
At a time when many firms in New Zealand are feeling the pressure and cost associated with responding to increasing numbers of information requests from the Commerce Commission, Parliament has introduced a Bill with the potential to up the ante even further.
The primary objective of the Commerce Commission (International Co-operation, and Fees) Bill introduced on 9 September 2008 is to facilitate co-operation between the Commission and its overseas counterparts, most notably the Australian Competition and Consumer Commission (ACCC). Both the Commission and the ACCC have advised "that the constraints on co-operation are impeding trans-Tasman investigations".
The Bill proposes improving co-operation by enabling the Commission to:
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exercise its statutory information gathering powers to assist an overseas competition authority; and
- provide any information acquired under its powers to an overseas competition authority.
International cartel investigations immediately spring to mind as an area where these powers may have real application but the scope is wider than just cartel investigations. The new powers will be included in each of the Commerce, Fair Trading and Credit Contracts & Consumer Finance Acts.
Reciprocity
The main justification for the Bill is that any assistance provided by the Commission to an overseas regulator should be reciprocated. This is achieved by requiring formal co-operation arrangements to be in place before the Commission can offer any investigative assistance or information. Every such agreement must provide for the Commission and the overseas regulator to provide information and assistance to each other.
The concept of reciprocity between regulators is important. It should go without saying that the Commission should not dedicate its time and limited resources to assisting an overseas regulator unless there is something to be gained by it and New Zealand consumers. The Commission's core function is to promote competition in markets for the benefit of New Zealanders. Without reciprocity, it is hard to see how assisting an overseas regulator carry out its functions promotes competition in New Zealand markets.
Safeguards
New Zealand firms already comment on the length of time it takes the Commission to reach decisions (for mergers and in other investigations). For them, a diversion of the Commission's limited resources away from its core function would be unwelcome. The Bill provides some safeguards.
Co-operation arrangements including these powers must be entered into by the Minster of Commerce, who must consider the potential consequences for New Zealand consumers and businesses of providing compulsorily acquired information or investigative assistance to the overseas regulator. The Minister must also have regard to the legal framework around the use of the information in the foreign jurisdiction. This should alleviate concerns that information obtained in New Zealand may be used in another jurisdiction in a manner inconsistent with New Zealand's legal principles.
When an overseas regulator makes a request for assistance, the Commission must consider whether it would substantially affect its ability to perform its other legislative functions before agreeing to assist.
The Bill also provides for the Commission to seek payment from an overseas regulator of any costs it incurs in assisting. If the Commission does this, it may help allay concerns about it diverting scarce resources. It may also go some way to addressing a concern that reciprocity may have a disproportionate effect on the Commission, as a smaller agency with fewer resources than overseas competition authorities such as the ACCC.
Proposed powers
While it is hard to argue with a Bill that seeks to better equip regulators both here and overseas to detect and deter anti-competitive behaviour, the proposed powers do represent a significant in-road into international law concepts about the extra-territorial reach of domestic legislation and the powers of domestic regulators. For example, there is a real legal issue as to whether a person required to respond to a section 98 notice must provide documents that are only located outside New Zealand. This Bill is presumably partly intended to overcome these difficulties by providing an alternative - and some may say "backdoor" - route for obtaining such documents.
Where information is to be provided to an overseas regulator, the Commission must advise any person to whom it relates about that, unless disclosure compromises the overseas regulator's or the Commission's investigation. In practice, it is likely that the Commission could, if it so wished, often argue disclosure would prejudice an investigation. For example, it may "tip off" a company that an overseas regulator is investigating a particular industry, or – if the information has been received pursuant to a leniency application – it could reveal the identity or existence of the "whistleblower".
The Bill also contains provisions to expressly protect privileged documents the Commission receives from overseas regulators and vice versa.
Existing agreements
The Commission already has four existing co-operation agreements in place – with Australia, Canada, the United Kingdom and Taiwan. These provide for co-operation on certain matters including co-ordinating enforcement activities and exchanging non-compulsorily acquired information or with the consent of the providing party. The Bill is an acknowledgment, however, that without compulsorily acquired information able to be shared, mutual co-operation is somewhat limited. These existing agreements will likely be amended to incorporate the new proposed powers.
Timing for change
The Bill has had a long gestation. Bell Gully made submissions on a discussion paper on the issues four years ago. The Australian legislation has already been amended to enhance the ACCC's ability to provide information to overseas regulators, including the Commission.
However, with Parliament having risen for the election, the Bill is now in limbo until the new Parliament decides whether it should be progressed.
An update: Supreme Court declines leave to appeal NZ Bus decision
The Supreme Court has declined the Commerce Commission's application for leave to appeal the decision of the Court of Appeal in the NZ Bus proceedings. The proceedings related to NZ Bus' acquisition of its competitor, Mana Coach Services, which was held to have breached s 47 of the Commerce Act. The Commission sought leave to appeal from the finding that Infratil, the parent company of NZ Bus, was not liable as an accessory to the breach. The Court of Appeal's decision (discussed Competition Matters, 27 June 2008) was unanimous in finding that neither Infratil nor the vendors were liable, but Justice Hammond and Justice Arnold adopted different tests for accessory liability, with the former proposing a test of "dishonest participation" and Justice Arnold preferring a traditional criminal law-based approach. In view of these differing approaches, a decision by the Supreme Court could have provided much needed clarity on the correct test for accessory liability under the Act. However, both courts below held that, as a matter of fact, Infratil did not have enough knowledge of the market to be able to appreciate that there would be a substantial lessening of competition. The Supreme Court therefore found that the Court of Appeal's comments on the appropriate test were obiter and that "the appellant's submissions do not demonstrate an arguable basis that might lead to this Court imposing accessory liability on the appeal". The consequence of this is that the law on accessory liability is still unclear. It remains essential for all parties to business acquisitions that raise Commerce Act concerns to exercise caution and to obtain independent legal advice before proceeding.
