Chapter 4: Code or rule-making powers and other matters

Issue 8: Industry Codes or Rules

Industry codes refer to a set of rules or standards of conduct for an industry, and generally cover the relationship between industry participants or their relationship with customers. The widespread use of the term ‘code’ covers a spectrum from mandatory government regulations to voluntary self-regulatory codes. Within this spectrum are a range of delegated legislative instruments, with varying degrees of government involvement, compliance obligations (eg ‘opt-in’) and public/private enforcement.

Why are we looking at this? 

The 2024 OECD Economic Survey of New Zealand recommended that New Zealand adopt a more flexible and proportionate response to addressing competition concerns. It recommended a gradual escalation of intervention, from reducing barriers to entry to light-handed regulatory approaches. Other jurisdictions are also exploring the use of more flexible and timely tools to address structural competition problems. ^[34] We consider one way to do this could be to amend the Commerce Act to enable the making of industry codes or rules to promote competition.  

We consider there is a gap that could be filled by industry codes or rules to promote competition. For example, industry codes or rules could be a flexible and efficient tool to address barriers to competition or harmful conduct in concentrated sectors where current competition tools are known to be insufficient. For example, an industry code or rule making power could supplement and/or complement the Commission’s market studies by providing a tool:

• To influence/address business conduct or market features that have been identified in a market study as lessening competition rather than needing to address these matters in primary legislation.
• For intervention in sectors that may not justify a full market study.    

Discussion

Industry codes or rules have been used in other jurisdictions and some sector-specific regimes to help improve competition settings by:

• Helping rectify imbalances in bargaining power along the supply chain.
• Facilitating competition in markets.
• Promoting consumer choice and switching.
• Controlling market outcomes.

Industry codes or rules aim to achieve competition settings by:

• Setting terms for access to essential facilities necessary to compete in a particular sector.
• Setting or requiring policies or standards for interconnection or supply. 
• Setting minimum contract terms to support transparent and fair competition, such as limiting exclusivity or comparative pricing provisions unless justified.
• Empowering consumers to exercise informed choice and remove barriers to switching.
• Setting information requirements for disclosure to the public, potential users and/or to support monitoring by the Commission.
• Requiring participation in an alternative dispute resolution mechanism.

For example, a code-making power under the Telecommunications Act 2001 has been used for a variety of purposes, including to set access codes for regulated services, retail service codes, a copper withdrawal code and number portability code. 

In Australia, Part IVB of the CCA allows industry codes to be prescribed consistent with the CCA’s purpose. These regulations must declare a code to be a mandatory or voluntary, and may prescribe pecuniary penalties. The ACCC is responsible for enforcement of these codes, and can seek court orders for statutory damages or (if specified) pecuniary penalties, and issue infringement notices and public warning notices.

Codes have been used in Australia to remedy a range of market failures, including unfair business conduct, access to essential facilities and information asymmetry for consumers and businesses. There are currently nine mandatory codes and one voluntary industry code prescribed under the CCA (with the Food and Grocery Code soon to become mandatory). 

If we were to amend the Act to provide an empowering provision to allow for industry codes or rule-making, we would need to consider the following:

• In each case, whether secondary, rather than primary, legislation is the most appropriate mechanism to use. Matters of significant policy and principle should be included in primary legislation with oversight from Parliament. The Legislation Design and Advisory Committee has set guidelines for when delegated legislation may be appropriate. ^[35] This includes that the subject matter is technically complex, or requires flexibility due to technological change, or requires input from experts (such as a regulator). 
• Any statutory pre-requisites for making or amending codes or rules, such as consultation and thresholds that must be met before the Minister may recommend a code become regulations.
• The extent of involvement of the Commission or other groups in the developing the industry code or rules (eg should a recommendation of the Commission to the Minister be a mandatory requirement). 
• The nature of obligations to comply with the code or rule (eg mandatory, opt-in or operating as a safe harbour).
• Whether mandatory industry codes or rules are consistent with the Government policy on regulation. ^[36]
• The public enforcement and sanctions, and alternative dispute resolution.
• The fiscal impacts on the Crown, such as apportionment of costs for administering and enforcing the code or rules.
• Post-making safeguards, such as disallowance by Parliament, sunset clauses or scheduled reviews.

We are considering the following options, along with any other options submitters suggest:

• Status quo: The Commerce Act currently contains provisions enabling the Commission to protect competition. Market studies provide a means for in-depth studies to inform the case for further intervention in markets where necessary. Part 4 of the Commerce Act provides a process to impose economic regulation to promote outcomes consistent with competitive markets. Further sector-specific regulation to promote competition requires the development of primary legislation.
• Allow for industry codes or rules to be prescribed in the Commerce Act: This could help to fill the gaps in the current competition regulatory system by providing a flexible and agile tool to promote competition. It could help address barriers to competition in concentrated markets in a more timely and resource efficient manner to promote better outcomes for New Zealanders.

Questions for consultation

21 Do you consider that industry codes or rules could either:

a. fill a gap in the competition regulation regime or

b. provide a more efficient and appropriate response to addressing sector-specific competition issues rather than developing primary legislation?

Please provide reasons.

22. If you think that industry codes or rules could fill a gap, what class of matters or rules could be included in an industry code or rules? 

23. If the Commerce Act is amended to provide for the making of industry codes or rules, what matters would be important to consider in the design of the empowering provisions in the Act? 

Issue 9: Modernising court injunction powers

Part 6 of the Commerce Act sets out powers of the court to grant an injunction, on application of the Commission or any other person. The court may grant an injunction in relation to:

• Contraventions of Part 2 of the Act (anti-competitive conduct) (s 81).
• Contraventions of Part 3 of the Act (anti-competitive mergers or contraventions of undertakings) (s 84).
• Contraventions of price-quality paths under Part 4 of the Act (s87C).

Injunctions provide a timely and cost-effective mechanism for the Commission and other persons to address anti-competitive conduct or mergers and obtain remedies. Injunctions may be standalone or in combination with other sanctions, such as pecuniary penalties or damages. 

Why are we looking at this?

The injunction powers in the Commerce Act do not reflect modern practice. For example, injunctions for contravention of Part 2 only allow the court to stop the harmful conduct. Most of the sector-specific regimes that the Commission is responsible for, allow for both restraining and performance injunctions (eg s 48 and s 49 of the Retail Payment System Act 2022).  Updating the court injunction provisions will support the objectives of this review to provide for modern tools to address anticompetitive conduct, and give greater protection for private parties damaged by that conduct.

Discussion

Behavioural undertakings and industry codes or rules are examples of behavioural measures to mitigate or remedy potential competition harms. The inability of the court to order performance injunctions in relation to Part 2 conduct is a gap in the tools to remedy competition harms. Circumstances where performance injunctions could be used include:

• To limit or remedy any harm to competition by a firm with substantial market power.
• To provide the court a means to ensure future compliance.
• In cases where monetary penalties or damages are unlikely to be effective (eg in the case of impecunious defendants). 

Modernising the injunctions provisions would also provide an opportunity to standardise the provisions across the legislation that the Commission is responsible for. Standardised provisions would simplify the Commission’s enforcement activities and promote business compliance. 

We are considering the following options, along with any other options submitters suggest:

• Status quo – Maintain the existing injunction provisions in the Commerce Act.
• Amend the injunction provisions in the Act to reflect modern practice – The injunction provisions could draw on modern provisions in more recent legislation that the Commission is responsible for, including providing for performance injunctions.

Questions for consultation

24. Should the injunctions powers in the Commerce Act be updated to allow the court to set performance requirements? Please provide reasons. 

Issue 10: Protecting confidential information

The Commission often relies upon businesses voluntarily supplying it with information to enable it to perform its functions effectively. Often this information is commercially sensitive. In managing the use of this information, the Commission seeks to balance parties’ rights and expectations as to the confidentiality of information they are supplied against:

• The need to carry out its functions effectively and efficiently, including testing the information provided.
• Its legal obligations under the New Zealand Bill of Rights Act 1990, the Privacy Act 2020 and the Official Information Act 1982 (OIA), including the principle of availability of information (ie information shall be made available unless there is good reason for withholding it (s5 of the OIA)). ^[37]

Why are we looking at this?

We are aware that some businesses are reluctant to voluntarily provide commercially sensitive information to the Commission if it could be released to a competitor or another business with which they have a business relationship. For example, suppliers to the major grocery retailers may be reluctant to provide information about the major grocery retailer that would damage their relationship. We are exploring whether further regulatory change is desirable. Options for non-regulatory change would be at the Commission’s discretion. 

Discussion

Our preliminary view is that the OIA strikes the right balance between protecting confidential information and providing for the public interest in its release. In particular, the OIA recognises that there may be good reason to withhold confidential information, such as if:

• The release would be likely to prejudice the maintenance of the law, including the prevention, investigation, and detection of offences, and the right to a fair trial.
• It is necessary to protect a trade secret.
• Its release would unreasonably prejudice the commercial position of the person to which the information relates.
• It is necessary to protect information subject to an obligation of confidence, and the information’s release would be likely to prejudice the supply of similar information, or information from the same source, and it is in the public interest that such information should continue to be supplied. ^[38]

The first ground is a conclusive reason for withholding information. The other three grounds must be balanced against the public interest in promoting transparency and enabling participation of interested parties in Commission proceedings, and promoting public confidence in the Commission’s work. The Commission must also be able to test the veracity of the information provided to it as part of its proceedings and may use contractual arrangements to impose terms and conditions on the parties to whom the information is shared. If the requestor is the party that is the subject of the Commission’s proceedings, natural justice considerations would also be relevant to the release of the information to that person. 

The Commission also has an anonymous whistleblowing tool to enable people to report cartels without being identified. It recognises there are situations where someone may be reluctant to come forward for fear of negative consequences or reprisals. This tool gives people in these situations a safe and secure way to report the behaviour and engage in communications with us while remaining anonymous. ^[39]

During an investigation, inquiry (including market study) or an assessment of an application for clearance or authorisation, the Commission also may make confidentiality orders under s 100 of the Commerce Act prohibiting the disclosure of specified information given to or obtained by the Commission. These orders have the effect of disapplying the OIA in relation to the specified information during the term of the order (ie they are not indefinite). It is a criminal offence to breach a confidentiality order, punishable by a fine of up to $4,000 for an individual and $12,000 for a body corporate. 

We are considering the following options, along with any other options submitters suggest:

• Status quo: The Commission continues to manage access to commercially sensitive information consistent with its legal obligations and powers. Parties that are dissatisfied with a decision of the Commission with respect to an OIA request have a right of complaint through the Commission’s internal complaints procedure and to the Ombudsman. 
• Strengthen confidentiality orders (s 100): Enhancements may include:
  
  • Explicitly enabling the Commission to use s 100 orders to provide restricted access to information specified in the order subject to terms and conditions. This would strengthen the Commission’s ability to test confidential information on a restricted basis with specified external parties (such as legal or economic experts). 
  • Increasing maximum penalties available for breaches of s 100 orders to a fine not exceeding $100,000 for individuals and $300,000 in other case (to align with penalties in s 103).
  • Providing that a single s 100 order may cover any specified information or one or more classes of information, including all confidential information provided to the Commission for the purposes of the proceeding. This would enable the Commission to issue a single order in relation to, for example, all confidential information that it holds in relation to a clearance or authorisation application.

Questions for consultation

25. Do you consider that the Commission effectively maintains the balance between protecting commercially sensitive information and meeting its legal obligations, including the principle of public availability? Please provide reasons or examples.

26. What additional regulatory changes may be desirable relating to commercially sensitive information? Please provide reasons. 

27. What are your views on strengthening the confidentiality order provisions in s 100 of the Act?   

Issue 11: Minor and technical amendments to Commerce Act

During our regular monitoring of the Commerce Act, we have identified the following minor and technical matters that could be addressed. These are outlined below and we invite comment.

1. Section 65A-D – Addressing shortcomings in the collaborative activity clearance regime

Status quo

The Commerce (Cartels and Other Matters) Amendment Act 2017 reformed the cartels regime in the Commerce Act, including introducing a new collaborative activity clearance in ss 65A-65D. These provisions enable parties to voluntarily apply to the Commission for clearance if they propose to enter a contract, arrangement or understanding that may contain a cartel provision relating to a collaborative activity, and where that provision does not substantially lessen competition.  

Proposed change

Introduce new provisions enabling the Commission to exercise the following powers in relation to collaborative clearance applications, to address existing limitations:

• The ability to specify to whom a collaborative activity clearance applies, including any future parties that might join the agreement.
• The ability to specify a time period for which a collaborative activity clearance applies before a further clearance is required (noting clearances currently apply in perpetuity unless revoked by the Commission under s 65D). 

Reason for change

This proposal is likely to broaden the situations where clearance can be given and have favourable impacts for businesses. The regime's current shortcomings, risk the Commission declining to grant clearance for marginal collaborative activities as it is unable to satisfy itself that the s 65A(2) thresholds are met. This may result in the non-progression of efficiency-enhancing collaborative activities, or collaborative activities without competition detriments. While parties have a right of appeal, the associated time and cost may prove prohibitive for many.

2. Sections 98A(1) and (2) – Modernising search warrant powers

Status quo

The search warrant powers under the Act currently authorise searches of “any place”, rather than the more modern reference to “place, vehicle or thing”, as used in the Search and Surveillance Act 2012. 

Proposed change

Amend the relevant search powers by changing drafting from “any place” to “a place, vehicle or thing”, aligning with other legislative search powers.

Reason for change

This inconsistency between the Commerce Act and the Search and Surveillance Act may be problematic when dealing with searches of things such as vehicles, post boxes, phones and data in online storage environments and may, in some cases, prevent the Commission from obtaining a remote search warrant. This may become more problematic as markets become more digitalised. 

3. Sections 62(6) and 69B – Clarifying conferences can be held online and across multiple dates

Status quo

Sections 62(6) and 69B empower the Commission to hold a conference for authorisations and clearances on a “date, time, and place”. 

Proposed change

Amend ss62(6) and 69B to clarify that conferences can be held online and held across multiple dates.

Reason for change

These provisions do not currently reflect the realities of practice, noting conferences often run online and over many dates.

4. Section 102 - Extending power to serve notices in accordance with Court directions

Status quo

The Act specifies that service of notices must be to the person or by leaving, sending or emailing to their last known residence or business address. It does not empower the Commission to serve notices in other circumstances and in accordance with the directions of a Court.

Proposed change

Amend s 102 to include the power to:

• serve notices in accordance with a Court’s directions; and 
• apply to a Court for such directions.

Reason for change

Other regulatory agencies have the power to serve notices in accordance with directions of a Court. These powers can be used to authorise service on overseas parties, individuals who are avoiding service, or to allow for service via online means (such as social media). This power would be useful if the Commission had to serve a notice urgently, and this will likely become more relevant as industries become more digitalised and businesses move away from working at a single office.

Questions for consultation

28. What are your views on these proposed technical amendments to the Commerce Act?

29. Are there any other minor or technical changes you consider could be made to improve the functioning of New Zealand’s competition law?

30. Are there any other issues that you would like to raise?

Footnotes

[34] Report for the European Commission by Mario Draghi, The Future of European Competitiveness, September 2024, Part B: In-depth analysis and recommendations, pages 303-304 re Introduce a ‘New Competition Tool’ (NCT) in four areas.

EU competitiveness: Looking ahead(external link) — European Commission

[35] Legislation guidelines: 2021 edition(external link) — Legislation Design and Advisory Committee

[36] For example, Government Expectations for Good Regulatory Practice, April 2017.

Government Expectations for Good Regulatory Practice(external link) — The Treasury

[37] Competition and Consumer Investigation Guidelines (2018)(external link) — Commerce Commission

[38] Commercial information: A guide to sections 9(2)(b) and 9(2)(i) of the OIA and sections 7(2)(b) and 7(2)(h) of the LGOIMA(external link) — Ombudsman New Zealand

[39] Reporting cartel conduct(external link) — Commerce Commission

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