2019 Litigation Forecast - Competition and consumer regulator shows no signs of slowing

A criticism of failing to take cases to court that was directed at certain Australian regulators, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority in particular, is not one that has been or is likely to be directed at the New Zealand Commerce Commission (NZCC) any time soon. The NZCC continues to oversee a pipeline of competition and consumer law investigations, and a healthy portfolio of active litigation. Vigorous enforcement was our prediction for 2018, and that looks set to continue into 2019.

Legislative enhancements

2018 saw a “bedding in” of the changes to the Commerce Act that were enacted in late 2017, modifying the “cartel provisions” of the Act and introducing new collaborative activities, vertical supply contracts and joint buying exceptions. This was bolstered by new Competitor Collaboration Guidelines issued by the NZCC in early 2018 outlining the NZCC’s interpretation of the new regime.The coalition Government has, true to its word, prioritised a further amendment Act to introduce (among other changes) a market studies power (or “competition studies” as it is referred to in the Act). Criminalisation of cartels is also back on the legislative agenda, with Labour introducing a further amendment Bill seeking criminal sanctions for intentional price fixing, market allocation or restrictions on output.

A regulator “making good” on its enforcement priorities

The NZCC has certainly been “making good” on its enforcement priorities. Retail telecommunications, an enforcement priority for the 2017/18 year, was carried over into the 2018/19 priorities. This year has seen Fair Trading Act cases brought against Vodafone over billing issues and its “FibreX” advertising, and a broadband speed and performance study initiated.“Non-notified mergers” (i.e. mergers or acquisitions that close without a clearance being sought from the NZCC) is another of the announced priorities for 2018/19. This has been backed up by several investigations under the merger provision (whether the acquisition of the assets of a business or shares substantially lessens competition in a market). Although seeking merger clearance is not compulsory, the NZCC has sent a clear message that it will expect a clearance application unless there are clearly no competition issues.

The NZCC has certainly been “making good” on its enforcement priorities. Retail telecommunications, an enforcement priority for the 2017/18 year, was carried over into the 2018/19 priorities. This year has seen Fair Trading Act cases brought against Vodafone over billing issues and its “FibreX” advertising, and a broadband speed and performance study initiated.“Non-notified mergers” (i.e. mergers or acquisitions that close without a clearance being sought from the NZCC) is another of the announced priorities for 2018/19. This has been backed up by several investigations under the merger provision (whether the acquisition of the assets of a business or shares substantially lessens competition in a market). Although seeking merger clearance is not compulsory, the NZCC has sent a clear message that it will expect a clearance application unless there are clearly no competition issues.

In other areas of the NZCC’s work, guidance or key compliance messages from the NZCC (eg “Made in NZ” claims, substantiation of representations, and around extended warranties and consumer guarantees) are being followed up with investigation and case work. The first case asserting unfair contract terms has begun, and we expect to see more in the year ahead. Responsible lending, online retail and motor vehicle sales are other priority areas for 2019, and can expect attention.

“Although seeking merger clearance is not compulsory, the NZCC has sent a clear message that it will expect a clearance application unless there are clearly no competition issues.”

Fair trading and consumer credit work continues apace

The NZCC continues to seek higher fines and penalties from the Courts, recently obtaining a record Fair Trading Act fine of $1.88 million against Steel & Tube Holdings for misleading representations about steel mesh (the fine is currently under appeal). The NZCC contended for an end fine range of approximately $2.7 million to $3.3 million, three times the highest fine ever imposed under the Fair Trading Act.

Retail telecommunications is a top focus area for the NZCC across both its consumer and regulation work. In 2018, the NZCC laid charges against Vodafone and Spark. Billing issues, particularly billing beyond termination are central to both prosecutions.The NZCC is also paying particular attention to consumer issues associated with online shopping. It opened four investigations into online retail in 2018, involving alleged issues such as inaccurate product representations, counterfeit goods, and editing of product reviews. The NZCC also filed civil proceedings in August 2018 against Switzerland based ticket resale website Viagogo. The NZCC is seeking declarations; an injunction restraining Viagogo from further breaches; and corrective advertising orders.

As predicted for 2018, the NZCC has brought the first test case for unfair contract terms following its industry reviews into energy retail, telco retail, and gym contracts. The case involves terms relating to a “voucher entitlement scheme” that form part of mobile trader Home Direct Limited’s standard consumer contracts. We have seen further test cases for unsubstantiated representations following Fujitsu, the first case in this area, at the end of 2017. In October 2018, HRV Clean Water was fined after pleading guilty to making unsubstantiated claims about the benefits of its water filter ionisers. The NZCC said that HRV did not have reasonable grounds for claims the filter could soften water through its magnetic process, relying too heavily on information provided by HRV’s supplier without getting this verified by an expert.

New “market studies” power already put to use

A new power to conduct market studies (or “competition studies”), was conferred on the NZCC with the Commerce Amendment Act passed in October 2018. The NZCC is able to conduct detailed reviews into the competitive conditions of markets, either of its own initiative or at the request of the Minister of Commerce & Consumer Affairs. It will be funded to the tune of NZ$1.5m per year to conduct these studies, which is thought thought to be sufficient to conduct around one study annually.Retail fuel has for some time been telegraphed as the likely first industry recipient of a market study, and the NZCC has announced it will review this industry in 2019. Supermarkets and the construction industry have been mentioned in the Hansard debate as possible contenders for future market studies. The NZCC is likely to have views as well, possibly directed at the online world, where a variety of regulators internationally have been looking at competition issues in digital markets.

Vigorous enforcement approach to continue

With a market studies power adding to an already active investigations and litigation portfolio, and potential criminalisation of cartel conduct, we predict the continuation of the NZCC’s vigorous enforcement approach.

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