Commerce Commission taking useful steps under present chairman, writes Grant David
Mark Berry has been reappointed as chairman of the Commerce Commission so it is fair to ask how the commission is faring under his leadership.
Berry's appointment, and those of the two new commission members, Sue Begg and Pat Duignan, augured well as all three are well-qualified for their roles, both in their formal academic qualifications and in their practical experience.
So did the commission's performance last year match its promise? Yes and no.
First, the good. The new Part 4 of the Commerce Act provides the commission with customised mechanisms to fine- tune the pricing behaviour of regulated firms, rather than applying the bludgeon of price control.
The commission's consuming task last year was to calibrate its new instruments with the assistance of those firms to which they will be applied from the end of this year.
The commission's approach to the consultation and its willingness to retreat from earlier doctrinal positions have been favourably received.
Berry also deserves credit for not adding his voice to the clamour elsewhere to criminalise cartel behaviour.
The commission has assigned a high priority to anti-cartel activity and has a number of cases on its books, the highest profile of which is for alleged price-fixing in the air cargo market.
Instead of pushing for cartel conduct to be criminalised, the commission has sought to give its Leniency Policy, introduced in November 2004, more teeth by incorporating new features from other jurisdictions - reduced penalties for dobbing in other cartels and a marker system to ensure that the first person who decides to approach the commission obtains the benefits of that initiation.
The other change to the Leniency Policy is a new section which helpfully sets out the existing penalty regime, including the possibility of a penalty based on the commercial gain resulting from the contravention.
But, although this has been in force since 2001, we still don't know how it will be used in practice because the commission has yet to conclude a price-fixing case to which the commercial gain penalty fully applies.
That nine-year wait for judicial guidance is far too long. The commission's enforcement priority must be to get some meaningful price-fixing cases resolved as swiftly as possible.
Other bad news includes the commission's failure to restrain its own conduct. The commission has extraordinary powers.
It can require any person to supply information or documents to it, or to appear before it to give evidence (section 98) and it may prohibit the disclosure to any other party of any material or any evidence it has obtained in the course of carrying out an investigation (section 100).
The commission may only use these powers for specified purposes but has been found in two recent cases to have overreached itself - and seriously.
To operate as an effective deterrent, the law must be seen to be used and be seen to be used fairly.
In AstraZeneca, the Supreme Court declared that a section 98 notice given in October 2007 was ultra vires and invalid.
There, the commission had issued the notice in respect of conduct which the Supreme Court said "can be seen to be plainly not unlawful" in the hope that the compelled response "may reveal some unsuspected anti-competitive conduct outside of the scope of the investigation to which the notice relates".
Then, in a recently released decision, the High Court quashed an attempt by the commission to extend to court proceedings section 100 non-disclosure orders relating to interviews made by the commission of 13 current and former Air New Zealand employees during the course of the commission's air cargo investigation.
The court held that such use of section 100 - effectively as a "gagging order" - was outside its scope and that the purported continuation of the orders once proceedings had been issued was both unreasonable and an abuse of process.
Indeed, the court went so far as to observe that such conduct by the commission is contrary to the important principle of litigation on the basis of equality as between litigants and therefore in breach of the New Zealand Bill of Rights Act.
The good news is that the conduct in both cases occurred before Berry's watch.
But both decisions reveal serious errors on the commission's part with regard to the extent of its coercive powers and his priority must be to ensure that such mistakes are not repeated.
Existing policy settings need closer scrutiny, too.
Commerce Minister Simon Power, in response to earlier criticism of the commission, indicated that he "backed the regulator".
But any agency is only as good as the law it must enforce and some of the commission's current priorities reflect rigidities within its statutory obligations.
Two examples: Fair Trading Act strictures assume less importance when the greater need is to curb private consumption spending, and cartel conduct may be appropriate where it ensures global connectivity.
After all, the more than 99 per cent of freight that is carried to or from New Zealand by ship has long been excluded from Commerce Act protection, so why has the less than 1 per cent which is carried by air warranted so much and so prolonged attention? Do downstream consumers of luxury imports really need more protection than exporters?
Treasury reports that, despite recovery, New Zealand's economy is seriously underperforming. We need to focus on improving the regulatory environment.
Both Parliament and the commission seem to have started well with the new Part 4. Now for the rest of the Commerce Act.
* Grant David is a partner at Chapman Tripp specialising in corporate and competition law. The views expressed here are his own.
