Competition and antitrust litigation

2018 Litigation Forecast

Merger and cartel litigation likely to continue

A significant year for competition and antitrust litigation, 2017 saw:

  • Three appeals of unsuccessful merger clearance and authorisation applications filed and a competitor commence a private proceeding to block a merger.  It had been 10 years since an unsuccessful applicant last challenged a merger clearance decision and 2 years since an unsuccessful applicant last challenged a merger authorisation decision.  It was also the first time a competitor had commenced a private proceeding to block a merger in the history of the Commerce Act.
  • The Commerce Commission (NZCC) actively pursue investigations into several concluded deals where clearance was not sought.
  • An increase in effective, and in some instances, highly influential, third party participation in the NZCC’s merger clearance and authorisation processes. We expect this trend to continue into 2018.
  • The High Court dismiss proceedings brought by the NZCC against two real estate companies and two individuals for alleged price fixing in relation to TradeMe listing fees.
  • The NZCC commence High Court proceedings against a herd management and milk testing company for alleged cartel conduct.

It was also a year of legislative changes. The long awaited Cartels Bill came into force in August, replacing the old price fixing prohibition in the Commerce Act with a new prohibition on ‘cartel provisions’ and introducing a raft of new exemptions. The new Government also indicated it intends to introduce new provisions in late-2018 allowing the NZCC to undertake market studies.

2018 will see the NZCC appeal the High Court’s decision in the real estate case to the Court of Appeal and Fairfax and NZME seek leave to appeal the High Court’s decision declining their appeal of the NZCC’s decision to refuse merger clearance.  We will also see the NZCC progress its case against GEA Milfos for cartel conduct and its case against Platinum Equity to prevent its acquisition of OfficeMax New Zealand.

Looking forward, we expect there to be a bedding in period and increased compliance activity as clients and advisers adjust to the new cartel provisions before they ‘go live’ in May 2018. The NZCC has indicated that it will update its guidelines that are affected by the changes and its cartel leniency policy.  We also expect the trend of third party intervention in merger clearance and authorisation processes to continue.

2017 in review

More merger applications declined by the NZCC and appealed to the High Court

In 2017, the NZCC declined more merger applications than it has in previous years. It declined three applications for clearance (Vodafone/Sky, Aon/Fire Protection Inspection Services and Vero/Tower) and one application for authorisation (NZME/Fairfax). In contrast, it declined only one application for clearance in 2016 and accepted all applications in 2015.

Vodafone/Sky, Vero/Tower and NZME/Fairfax appealed the NZCC’s determinations to the High Court.  This is both unusual and significant as appeals of NZCC determinations are rare and infrequent – the most recent two examples being Godfrey Hirst’s unsuccessful appeal of the NZCC’s authorisation for the Cavalier/NZWSI merger in 2015 and Woolworths/Foodstuff’s unsuccessful appeal of the NZCC’s decision to decline clearance for their acquisition of the Warehouse Group in 2007.

Of the three appeals filed, only NZME and Fairfax’s appeal proceeded to hearing. The High Court dismissed that appeal in late December.  Significantly, the Court found that the NZCC was entitled to attribute decisive weight to maintaining media plurality in its decision to knock back the merger.

Increased third party interest in mergers

A trend towards more active participation from third parties in merger applications and investigations emerged in 2017, for example:

  • The Sky/Vodafone application was the NZCC’s most contested clearance process to date, with the NZCC receiving 65 submissions and expert reports. Prior to the NZCC’s decision being released, Spark, 2degrees and InternetNZ sought and obtained urgent interim orders from the High Court to delay the completion of the merger, should clearance be granted.
  • The NZCC received more than 50 submissions on the NZME/Fairfax authorisation application and held a conference of interested parties after releasing its draft determination and before issuing its final determination.

Complete Office Supplies, an office products supplier in Australia, applied for an injunction to prevent Platinum Equity LLC from acquiring OfficeMax’s New Zealand business. This was the first time a competitor had sought an injunction to prevent a merger under the Commerce Act. The NZCC followed suit and also applied for an injunction. The two proceedings have been consolidated and the hearing has been scheduled for June 2018.

NZCC loss in significant price fixing case

The High Court dismissed proceedings brought by the NZCC against Lodge Real Estate Limited, Monarch Real Estate Limited (a franchisee in the Harcourts group) and two individuals for alleged price fixing.

The case is significant because while the NZCC originally filed proceedings against 13 national and regional real estate agencies, only two, Lodge and Monarch, defended the proceedings. The remaining agencies admitted to contravening the Commerce Act, entered into settlement agreements with the NZCC and were subsequently ordered to pay pecuniary penalties totalling more than $18.97 million. The case also raises interesting issues about the meaning of “control” for the purposes of the price fixing prohibition, with the Court finding that an arrangement between agencies not to absorb the cost of TradeMe’s new listing fees did not “control” the price charged to vendors.

Cartels Bill introduces new prohibition

Amendments to the Commerce Act introducing (among other things) a new prohibition on entering into or giving effect to contracts that contain ‘cartel provisions’ (cartels prohibition) came into force in August 2017.

The amended Act applies immediately to all contracts entered into after 15 August 2017.  However, transitional provisions provide for a 9-month grace period during which the NZCC cannot enforce the cartels prohibition on pre-15 August contracts.

The outlook for 2018

Trend of increased third party interest in mergers likely to continue

We expect the trend of third party intervention in merger clearance and authorisation processes to continue.

In its 2017/18 priorities publication, the NZCC said it will improve efficiency and transparency in the merger clearance process in 2018 by:

  • Proactively publishing Letters of Issues and Letters of Unresolved Issues for every clearance application (rather than providing these documents to applicants only); and
  • Publishing a record of section 47 (prohibition on anti-competitive mergers) investigations on its website as they are opened to ensure the public and wider market are aware of potentially anti-competitive transactions that have not been scrutinised through the clearance regime.

These steps will make it easier for market participants and interested parties to consider and make submissions on what the NZCC sees as key competition issues arising from a merger.

Appeal of the Lodge Real Estate and Fairfax/NZME judgments and continued NZCC enforcement activity

The NZCC has announced its intention to appeal the Lodge Real Estate decision.  The appeal, which we expect to be heard in 2018, will likely clarify the meaning of “control” for the purposes of price fixing.  Fairfax and NZME have also announced their intention to seek leave to appeal the High Court’s decision to the Court of Appeal.

The NZCC’s current activity, including its ongoing investigations, injunction proceedings to prevent Platinum Equity LLC from acquiring OfficeMax’s New Zealand business and the proceedings against GEA Milfos for cartel conduct, will also continue in 2018.

Responses to law changes

We expect changes introduced by the Cartels Bill to lead to more compliance activity in the competition law space before the new provisions ‘go live’ in May 2018.

The NZCC has indicated it will update its existing guidance and its cartel leniency policy. We expect the NZCC will also look for opportunities to test the new provisions.

The government has not yet introduced legislation in respect of the proposed new market studies power.  We expect this to occur in early 2018, following the conclusion of the new Government’s 100-day plan.

The outlook for 2018

Trend of increased third party interest in mergers likely to continue

We expect the trend of third party intervention in merger clearance and authorisation processes to continue.

In its 2017/18 priorities publication, the NZCC said it will improve efficiency and transparency in the merger clearance process in 2018 by:

  • Proactively publishing Letters of Issues and Letters of Unresolved Issues for every clearance application (rather than providing these documents to applicants only); and
  • Publishing a record of section 47 (prohibition on anti-competitive mergers) investigations on its website as they are opened to ensure the public and wider market are aware of potentially anti-competitive transactions that have not been scrutinised through the clearance regime.

These steps will make it easier for market participants and interested parties to consider and make submissions on what the Commission sees as key competition issues arising from a merger.

Greater efficiency and transparency expected from the Commerce Commission in 2018.

The NZME/Fairfax decision and potential appeal of the Lodge Real Estate judgment

The High Court’s decision on NZME/Fairfax’s appeal was released in December 2017. The judgment will be interesting, tackling the competitive dynamics and disruption to media markets while addressing the extent to which the NZCC can take into account the non-economic effects of a merger, such as the impact on democracy.

The NZCC may also appeal the Lodge Real Estate decision to clarify the meaning of “control” for the purposes of price fixing.

Responses to law changes

We expect changes introduced by the Cartels Bill to lead to more compliance activity in the competition law space before the new provisions ‘go live’ in May 2018.

The NZCC has indicated it will update its existing guidance and issue new guidance on the exemption for collaborative arrangements. We expect the NZCC will also look for opportunities to test the new provisions.

The NZCC has not indicated which markets might be the first investigated pursuant to the new market studies power. However, there are a number of industries under scrutiny or have been announced as priority areas for the NZCC or the Government.  In particular:

  • retail telecommunications is one of the NZCC’s announced priority focus areas for 2017/2018;
  • MBIE commissioned several external experts to undertake the ultimately inconclusive Fuel Market Financial Performance Study 2017; and
  • as part of Labour’s coalition agreement with New Zealand First, the new Government has announced that there will be an inquiry into retail electricity pricing.

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