1/10/2021·6 mins to read
Competition and Consumer Law Update
There has been lots happening recently in the competition and consumer law space that may affect your business.
A recent decision by the High Court has provided further guidance on how it assesses the seriousness of cartel conduct, and the Commerce Commission (Commission) has received a clearance application for a “collaborative activity” - the first of its kind. In the consumer space, a long-running case against Bunnings has been dismissed by the Court, and recent changes to the Fair Trading Act 1986 (FTA) could have implications for your B2B contracts.
We have briefly summarised each of these developments below.
Following the criminalisation of cartel conduct on 8 April 2021, the Commission has received its first ever clearance application for a “collaborative activity.” This will provide vital guidance to NZ businesses about how the Commission will assess these types of applications.
The District Court’s dismissal of the Commission’s long standing case against Bunnings has provided some useful guidance on assessing misleading and deceptive conduct in advertising.
- Recent changes to the FTA mean that New Zealand businesses should be proactively assessing whether their B2B contracts may contain “unfair contract terms.” Other changes include a new prohibition on unconscionable conduct and restrictions on uninvited direct sales.
Recent Commerce Act developments
The criminalisation of cartel conduct came into effect on 8 April 2021, making it a criminal offence for a person to enter into a contract, arrangement or understanding that contains a “cartel provision”. We published an earlier article on these changes, which can be read here.
A recent cartel penalty decision and the first ever clearance application for a “collaborative activity” both have implications for businesses wondering how cartel criminalisation may affect them in the future.
When the cartel conduct prohibitions in the Commerce Act 1986 (CA) were overhauled in 2017, three new “exceptions” to cartel conduct were also introduced - including an exception for “collaborative activities.” Importantly, a regime by which businesses could apply for clearance to engage in “collaborative activities” containing cartel provisions was also introduced.
The Commission has received its first ever clearance application under this new regime. The Commission must give clearance if it is satisfied that:
the relevant parties are involved in a “collaborative activity”; and
any cartel provisions in the relevant agreement are reasonably necessary for the collaborative activity; and
- the conduct will not have the (likely) effect of substantially lessening competition in the market.
A “collaborative activity” is an enterprise, venture or activity that is carried on by two or more parties in co-operation and is not carried on for the dominant purpose of lessening competition between the parties. This definition is deliberately wide - and should cover most joint venture or franchise arrangements between businesses, provided that there is a clear commercial rationale for the arrangement.
The application has been made by the New Zealand master franchisee for the gym franchise Anytime Fitness. It is proposing to enter into arrangements with franchisees that contain standardised pricing provisions under which the franchisor will set lower and upper limits on membership pricing. This potentially constitutes “price fixing” which is prohibited under the CA. Anytime Fitness has applied for clearance to enter this arrangement on the basis that the franchise network is a “collaborative activity.” The Commission’s decision is currently due on 3 November 2021 - but this may be extended.
This is an interesting development as it raises the issue of how the new cartel provisions affect franchise arrangements. It is something that businesses will want to be thinking about when drafting franchising agreements, as it highlights that agreeing prices within a franchise may constitute cartel conduct.
Taxi cartel conduct
On 28 September 2021, the High Court ordered Hutt & City Taxis Ltd (Hutt & City) to pay a penalty of $150,000 for engaging in price fixing.
Hutt & City is one of multiple taxi companies that offers trips from Wellington Airport. In September 2020, it entered into an agreement with two other taxi companies to charge a minimum fare of $25.00 for taxi trips from the airport.
The High Court considered that this was a “clear example” of price fixing and imposed a penalty of $150,000. The seriousness was enhanced by the fact that Hutt & City directors (all except one) had approved the conduct. However, the Court noted that while Hutt & City “should have been aware,” it did not know that its behaviour was illegal. The fact that the agreement was only operative for 8 days was also a mitigating factor.
Taking these factors into consideration, the starting point for the penalty was $500,000 to $600,000. This was reduced due to the fact that Hutt & City had not previously breached the Act, and that it was fully co-operative in the Commission’s investigation and immediately ceased the conduct following the Commission’s enquiries. The penalty was further reduced due to the financial means of Hutt & City, with the Court noting that the conduct was not “so egregious as to justify a response that would put it out of business.”
This type of conduct is now a criminal offence and, if it had occurred after 8 April 2021, individuals such as company directors or employees may have faced imprisonment of up to seven years in addition to a large penalty. Businesses should carefully consider any agreements they enter into about price to ensure that they do not constitute cartel conduct. The Commission also offers leniency and/or immunity (including against criminal sanctions) to the first participant in a cartel that notifies the Commission of such conduct.
Provisional Authorisation - Covid-19
The Commission has also received its first application for provisional authorisation under the temporary Covid-19 provisions of the CA.
On 30 September 2021, New Zealand Tegel Growers Association Incorporated applied for provisional authorisation on behalf of 75 growers to collectively negotiate the terms and conditions of its members’ supply of chicken growing services to Tegel Foods Limited.
The temporary Covid-19 provisions allow the Commission to grant a provisional authorisation, which enables the proposed conduct to proceed while the Commission considers and consults on the application. The Commission will aim to determine urgent applications as soon as possible, and non-urgent applications within 20 working days. The normal statutory timeframe for authorisations is a minimum of 120 working days. The Commission has provided guidelines for how and when it will grant a provisional authorisation, which can be read here.
This is a very interesting decision to watch as it will illustrate the Commission’s approach to the Covid-19 provisional authorisation regime. Businesses seeking authorisation from the Commission may want to consider whether a provisional authorisation is suitable for them.
Recent FTA developments
In the consumer space, a long-running case against Bunnings has been dismissed, and recent changes to the FTA could have implications for your B2B contracts.
Commission’s case against Bunnings dismissed
The District Court has recently dismissed the Commission’s long standing case against Bunnings alleging that its representations regarding lowest prices were misleading.
The alleged misleading statements included statements such as “lowest prices are just the beginning”, “lowest prices everyday” and “nobody beats our prices”. These statements were accompanied by Bunnings’ “lowest price guarantee” that it would beat any lower price by 15%. The Commission claimed that various representations Bunnings had made misled the public into thinking it had the lowest prices in the market, which the Commission considered was not true.
However, Judge Gibson found that the Commission failed to establish that Bunnings’ advertising was false, misleading or deceptive, and dismissed all charges.
The “lowest price guarantee” was considered to be a “clear signal to consumers that not every product in Bunnings’ stores would be the lowest price.” The Judge considered it would be acceptable if Bunnings’ prices were higher in approximately 15% of cases, provided that the “lowest price guarantee” was available as a remedy in such cases.
In addition, the Judge was not willing to find that the four price comparison surveys the Commission relied on were “sufficiently robust and statistically reliable” enough to conclude that Bunnings’ prices were not the lowest.
This case confirms that advertisements are not necessarily to be read on their literal meaning. The Judge considered that consumers would take into account the nature of the industry, the size of the stores, and the “impossibility” of ensuring that each day every product in Bunnings had the lowest price.
In acknowledging the outcome of this case, the Commission has noted that it provides “important clarification of the law relating to the use of broad marketing statements that include concepts such as ‘lowest’ prices” and “reinforces the importance of having good systems in place to support any comparative price representations”.
Recent changes to the FTA
As foreshadowed in our June publication, the Fair Trading Amendment Act 2021 (Amendment Act) recently came into force, introducing changes to the FTA aimed at preventing ‘unfair commercial practices.’
The Amendment Act introduces the following key changes:
A new prohibition on businesses engaging in “unconscionable conduct”. This term is not expressly defined, but the Court can have regard to various factors such as the bargaining power of the parties, whether the parties acted in good faith and whether any party was subject to unfair pressure or tactics.
An extension of the unfair contract terms regime to standard form “small trade” business-to-business contracts (previously this regime only applied to standard form consumer contracts). A “small trade” contract is a contract that forms part of a wider trading relationship that did not have an annual value of more than $250,000 when it first arose. If the Courts declare a term in a qualifying B2B contract is an “unfair contract term”, it is a breach of FTA to include that term in other contracts or otherwise seek to rely on it.
- New restrictions on uninvited direct sales, which strengthen a consumer’s ability to prevent sellers from accessing their homes.
These changes are effective from 16 August 2022 and they will have an impact on how some businesses currently operate.
In the meantime, businesses should self-assess whether they are party to any contracts that may be qualifying “small trade” contracts and, if so, audit those agreements for terms that are potentially “unfair contract terms.” More broadly, businesses should consider how they engage with other businesses and customers (particularly where there is an imbalance in bargaining power) to ensure compliance with these new provisions.
We will follow up with a more detailed guidance on the key aspects of the unfair contract terms regime, as they now apply to small trade contracts, shortly.