Government looks to crack down on misuse of market power – sweeping changes proposed to section 36 of the Commerce Act

Last month, MBIE released a Discussion Paper proposing significant changes to the wording of section 36 of the Commerce Act 1986, which regulates misuse of market power.

Currently, section 36 of the Act prohibits businesses with a substantial degree of market power from taking advantage of that power for an anticompetitive purpose (such as driving an existing competitor out of a market, or preventing a new entrant from entering a market).

Since at least 2014, organisations such as the Productivity Commission and MBIE have been questioning whether section 36 sufficiently safeguards the New Zealand economy from abuses of market power by individual firms.   The Commerce Commission and the Australian Competition and Consumer Commission have both been critical of section 36’s preoccupation with the purpose of a business’s actions, and also with the complexity of the legal test for determining whether a business has “taken advantage” of its market power.

A public consultation on the adequacy of section 36, run by MBIE in late 2015 – mid-2016,  concluded that further work should be carried out on:

• The costs and benefits of adopting alternative wording to section 36; and
• The extent of actual harm resulting from section 36 as currently drafted.

In view of MBIE’s recommendations, Cabinet invited the Minister of Commerce and Consumer Affairs to report back to the Government in 2018 on whether it would be appropriate to produce an
“options paper” on section 36.

In parallel with New Zealand’s investigations into the efficacy of section 36, Australia also conducted a thorough review of its own misuse of market power provision (section 46 of the Competition and Consumer Protection Act), upon which the New Zealand’s own section 36 is based.  The Australian review concluded that the Australian economy would be better served by a ‘misuse of market power’ provision that focused on whether an organisation’s conduct had an anticompetitive effect, rather than on whether the organisation’s purpose was anticompetitive.   The Australian Government announced in March 2016 that it would be implementing this law change, and in August 2017, section 46 of the Competition and Consumer Act was amended accordingly.

The recent amendments to the Australian law are now profoundly shaping the section 36 debate in New Zealand, with MBIE recommending in the current Discussion Paper that New Zealand adopt and adapt the new Australian legislation as follows:

“A person [which, for the avoidance of doubt, includes a company or other entity] that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market”.

MBIE considers that moving to an “effects test” would fit more  closely with the scheme of the Act which is based on Australian legislation, and ultimately better protect competition in the New Zealand market.

Have your say!

MBIE is currently seeking submissions on the proposed amendments to section 36 of the Act.

A copy of the Discussion Paper can be found by clicking the button below.

Review of section 36 of the Commerce Act and other matters

Submissions on the Discussion Paper close on 1 April 2019.  If you would like assistance in making a submission, please do not hesitate to contact Anna Ryan on anna.ryan@laneneave.co.nz.

Business Law team

If you need any assistance do not hesitate to get in touch with the Business Law team at Lane Neave.

Gerard Dale, Claire Evans, Graeme Crombie, Evelyn Jones, Anna Ryan, Joelle Grace,  Peter Orpin, Ellen Sewell, Matt Tolan, Carlo Wan, Kristina Sutherland, Jacob Nutt, Whitney Moore, Alex Stone, Ben Cooper, Lisa Catto