Watt’s the Risk? Compliance advice for electrical industry body

The New Zealand Trade Group (NZTG) has been issued with compliance advice by the New Zealand Commerce Commission (the Commission), following an investigation into allegations of cartel conduct potentially in breach of the Commerce Act 1986 (the Commerce Act).

Cartel conduct – a refresher

Cartel conduct is where two or more competing businesses agree not to compete with one another by price fixing, allocating markets or customers, or restricting the output or acquisition of goods and services, and is prohibited under section 30 of the Commerce Act. In addition to potential fines, individuals who have engaged in cartel conduct can also be found criminally liable, with prison sentences of up to seven years on the table.  

The NZTG

Established in 2006, NZTG is a network of over 350 electrical trade businesses, aiming to foster growth and community in the industry. It operates a private Facebook group for business owners and senior staff to exchange views on the market. The group is administered and moderated by NZTG itself.

In response to the Commission’s concerns, NZTG has undertaken to remove the non-solicitation clause from its terms, and placed a permanent notice in the banner at the top of the Facebook group, warning members against anti-competitive discussions and conduct. The Commission acknowledged NZTG’s cooperative stance and remedial steps as influencing its decision on the appropriate level of enforcement action, but warned that cooperation does not excuse breaches of competition law. The compliance advice letter serves as a notice of concerns regarding potential breaches of section 30.

In our view NZTG, and its members posting on the private Facebook page regarding pricing, were fortunate to escape with only a compliance advice letter in this case. Given the serious nature of the conduct engaged in by competing companies, at least a formal warning letter would seem to have been warranted if the Commission decided that enforcement proceedings were not necessary.

What does this mean for your business?

This case serves as a timely reminder of the competition law considerations that industry bodies, trade associations, and franchisors should be aware of – collaborative frameworks that include pricing guidance or non-compete rules between members can easily cross the line into unlawful cartel conduct. Conduct to avoid includes:

• Recommending members act in a certain way, particularly where the resulting conduct might have the effect of preventing certain competitors or prospective new entrants from competing with the industry body’s members; and
• Agreements between members of an industry body with regard to common pricing, levels of output and/or market allocation (including whether or not to participate in bidding processes). Further, industry bodies have to be careful that they do not operate as a conduit for the sharing of competitively sensitive information between members.

Misleading, deceptive, and unconscionable conduct in the spotlight 

Discount labels at Australian chemists: a good deal?

A recent investigation by Australian consumer advocacy group Choice has exposed misleading pricing practices by major pharmacy chains, where “discount” stickers and labels were often used on products that had not actually been discounted or were discounted at lower levels than advertised. Choice also found that some pharmacies were using bold, eye-catching promotional tags to attract shoppers to products that were often not priced any differently than their original price. Around one third of the 1,000 customers participating in Choice’s survey were found to have been confused or misled by the bright promotional tags.

While this investigation took place in Australia, New Zealand’s law around misleading sales practices (covered in the Fair Trading Act 1986) is broadly consistent with Australia’s – with both prohibiting misleading and deceptive conduct in trade generally, as well as specifically prohibiting false or misleading representations regarding the price of goods or services (amongst others).

This type of conduct is a clear target for both the Commission and its Australian equivalent, the Australian Competition and Consumer Commission (ACCC) – evidenced by charges filed in both countries against the large grocery retailers for alleged misleading pricing and inaccurate promotional claims. Since we last reported on the Commission’s crackdown on the supermarkets (you can read our most recent article here), the Commission has now also filed criminal charges against Woolworths New Zealand, in addition to the two North Island Pak’nSave stores it charged in March this year.

While no charges have been filed against the major pharmacy chains yet, we expect the ACCC will be closely scrutinising Choice’s findings. With some crossover of market participants in the retail pharmacy space in Australia and New Zealand, it will be interesting to see whether any action is taken here.

Unconscionable conduct: the dangers of cold calls

In other news across the ditch, the ACCC has been granted leave to commence proceedings against Beacon Products Pty Ltd (Beacon), Zandox Group Pty Ltd (Zandox), and Beacon’s director Mr Warren Skry, for alleged unconscionable conduct and misleading or deceptive conduct.

The ACCC alleges that Beacon and Zandox, with Mr Skry’s knowledge, used high-pressure telemarketing tactics to mislead customers. According to the ACCC, the two companies induced customers into accepting orders of products that were never placed in the first place and made false claims that initial orders constituted agreements for ongoing supply. Further, the companies also allegedly misled customers about their ability to return, and receive refunds for, unwanted goods.

If found liable, the companies could face penalties of the greater of AU$50 million, three times the value of the benefit derived from the conduct, or 30% of their adjusted turnover during the contravening period. For Mr Skry, he may be liable for a penalty of AU$2.5 million if he is deemed to have been knowingly concerned with the alleged unconscionable conduct.

As with the pharmacy example above, New Zealand has an equivalent unconscionable conduct prohibition to Australia that is yet to be tested by the courts. This case will therefore serve as a useful guide to both the courts and the Commission for how to enforce the prohibition in New Zealand.

Please get in touch with one of our experts to discuss any aspects of this article and its potential implications for your business.

Special thanks to Henry King, Holly Soar, and Cody Malaki for their assistance in preparing this article.