This is the first NZLS update on the Commerce Act 1986 (“the Commerce Act”) since a Competition Law update provided by NZLS in August 2001 (Miriam Dean and Tom Weston QC, presenters). That seminar followed extensive amendments to the Act which have now bedded in over the ensuing decade. This paper is an opportunity to review those developments including important decisions such as the Warehouse decision,[1] the Telecom 0867 decision,[2] the Air New Zealand Ltd v Commerce Commission (No 6)[3] (Air New Zealand/Qantas) decision and the analysis of markets undertaken by the High Court in the Air Cargo Cartel litigation Commerce Commission v Air New Zealand Ltd[4] (Air cargo). Further, the Commerce (Cartels and Other Matters) Amendment Bill 2011 (“Cartel Criminalisation Bill” or “Bill”) is likely to be passed this year, and will for the first time introduce criminal liability and potential jail terms for certain forms of anticompetitive conduct.

The Commerce Act is now mature legislation.  It has been law for the last 26 years. There is a considerable body of case law, a well-established loose-leaf text Gault on Commercial Law[5] and a more recent text book New Zealand Competition Law and Policy.[6] Moreover, a close eye needs to be kept on the corresponding Australian legislation which was, up until recently, the Trade Practices Act 1974 (“the TPA”). That legislation has now been superseded by the Competition and Consumer Act 2010 (“the CCA”). Nevertheless, the body of case law under the TPA continues to be deeply relevant to the New Zealand law. 

As was the case back in 2001, we are not especially concerned with the regulatory aspects of the Commerce Act. These are now a highly specialised area of the law beyond the scope of this paper.  Nevertheless, it is important to bear in mind that the purpose of regulation is to mimic competitive markets through focused intervention in non-competitive markets. That is, the architecture of a regulatory regime should aim to mimic competitive outcomes. Consequently, there is much to be learned from studying regulation just as regulators learn from studying competition. 

As the long title to the Commerce Act makes clear, it is an Act to promote competition. But competition is not an end in itself. As was made clear in the Parliamentary speeches when the Commerce Act was debated, the purpose of the Act is to grow the economy for the benefit of all New Zealanders. While it is not without some controversy, it seems to be generally accepted that efficiency is the mechanism that leads to such an outcome. That is, competition enhances efficiency which leads to an improvement in the economy. 

Although the Commerce Act is about promoting competition, it recognises there will be cases where the benefits of a particular acquisition or other conduct may exceed the competition detriments. In such a case, the Commission may grant authorisations. In a recent decision of the High Court, it was put in these terms: 

Because competition is not an end in itself, the Commerce Act recognises that efficiency in the use of resources for the long-term benefit of New Zealand consumers may be achieved in other ways.  The Commerce Act therefore permits exceptions to the premise on which it is based, in the form of authorisations granted by the Commission.[7]

Competition occurs in a market. These related concepts of competition and markets lie at the heart of the Commerce Act. It is impossible to understand the Commerce Act without understanding these related concepts. Both involve an understanding of economics. While markets are to be determined as a matter of fact and commercial commonsense, they are also to be determined by reference to substitutability, an economic concept. Lawyers who use the Commerce Act need to understand this economic foundation. 

Lawyers, too, need to understand that the Commerce Act involves a way of thinking which is not necessarily common to other areas of the law. Many of the assessments to be undertaken under the Commerce Act (particularly counterfactual analysis) require hypothetical constructs to be developed. These will, of course, be based in existing fact, but they also depend, in many cases, upon the evidence of expert economists. 

These dimensions, though, make the Commerce Act daunting for the novice. It is not easy to approach in small steps because an overall appreciation of the Act’s architecture is necessary to understand its component parts. In the following paper we endeavour to set out our understanding of that architecture.

The structure of the paper is as follows:

• A discussion of market definition, which is an important first step in analysis of competition law issues (section 2).

• An overview of the restrictive trade practices sections of the Commerce Act, being ss 27 and 30 of the Act (and the proposed new reforms affecting cartel conduct under s 30), s 36 (dealing with misuse of market power), and ss 37-40 (dealing with resale price maintenance) (sections 3–7).

• A discussion of the common areas of business activity affected by the restrictive trade practices sections of the Commerce Act namely, information exchange by competitors, franchises, joint ventures, trade associations, refusals to supply/deal, tying arrangements and bundling, exclusive dealing, below cost pricing and the interface with intellectual property (sections 8­–16).

• A discussion of investigations and enforcement of the Commerce Act including Commerce Commission (“Commission”) investigations, leniency applications to the Commission, and the Commission’s enforcement criteria (sections 17–19).

• A discussion of remedies under the Commerce Act, particularly damages and penalties (sections 20–21).

• A discussion of the provisions in the Commerce Act dealing with mergers and business acquisitions (section 22).

• A discussion of the provisions in the Commerce Act dealing with the authorisation by the Commission of restrictive trade practices and mergers (section 23).