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DOING BUSINESS IN NZ: Regulations affecting business

01 June 2015

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The following is intended to give you a general flavour of New Zealand’s business regulation.  It is not an exhaustive list and does not cover industry-specific legislation.  You should seek specific advice about whether and how the legal framework will affect your plans.  Chapman Tripp will happily assist.

Competition law

The Commerce Act 1986:

  • regulates business acquisitions
  • prohibits restrictive trade practices, and
  • allows price controls to be imposed in certain industries.

Business acquisitions

Part 3 of the Commerce Act prohibits the purchase of shares in or assets of a business where the acquisition would have (or would be likely to have) the effect of substantially lessening competition in a market.
The Commerce Commission is charged with administering the Commerce Act.  Parties to an acquisition which may substantially raise competition concerns may seek pre-transaction clearance from the Commission.  Clearance, if granted, immunises the deal from scrutiny by the Commission or third parties.  The clearance regime is voluntary and it is common for mergers to proceed on a non-notified basis.   
In assessing whether a merger is likely to substantially lessen competition, the Commission will analyse the merged firms’ ability to raise prices and/or reduce product quality or service, relative to what would have occurred without the acquisition.  Relevant to this enquiry are the market share of the merged entity, the market shares of other participants, the likelihood of new entry, the merged entity’s relationship with suppliers and purchasers, and whether there are features of the market which are suggestive of the potential for collusion and discipline.
The Commerce Commission has issued two informal “concentration indicators” (previously known as “safe harbours”) for assessing whether horizontal aggregation in a market may substantially lessen competition.  The Commission’s guidance is that a merger or acquisition is unlikely to raise Commerce Act concerns if, after the acquisition:
  • the three largest firms in the market have a combined market share of less than 70% and the merged entity has a market share of less than 40%,3  or
  • the three largest firms in the market have a combined market share of more than 70% and the merged entity has a market share of less than 20%.

Those taking comfort from these “indicators” should seek specific advice and carefully consider the relevant market definitions and dynamics.  It is also worth noting that they are only a starting point for the analysis and that falling outside them will not necessarily mean that an acquisition will be judged to lessen competition.  For example, market shares may be high but there may be few barriers to entry or expansion. 

Maximum penalties for an acquisition in breach of the Commerce Act are:

  • NZ$500,000 for individuals
  • NZ$5 million for companies, and/or
  • an order requiring divestment of specified assets or shares (which can potentially include unwinding of the merger).

Restrictive trade practices

Part 2 of the Commerce Act regulates restrictive trade practices, unless explicitly authorised by the Commerce Commission on public benefit grounds.  Such practices include:

  • any contracts, arrangements or understandings which have the purpose, effect, or likely effect of substantially lessening competition in a market
  • price-fixing and market-sharing arrangements between competitors
  • collective boycotts between competitors which prevent or restrict trade, resulting in a substantial lessening of competition
  • resale price maintenance arrangements by which suppliers of goods set and enforce sale prices to be charged by re-sellers, and
  • taking advantage of a substantial degree of market power in a market (which can include trans-Tasman markets) for the purpose of restricting entry into a market, deterring competitive conduct, or eliminating a competitor from a market.

Engaging in a prohibited practice may result in a penalty of:

  • up to NZ$500,000 for individuals, and
  • for a body corporate, the greater of NZ$10 million or either three times the value of any commercial gain resulting from the contravention (if it can be easily ascertained) or 10% of the turnover of the body corporate and all its related bodies corporate.

Part 2 of the Commerce Act is being reformed.  Changes are likely to be implemented by the end of 2015.  The Commerce (Cartels and Other Matters) Amendment Bill is presently before Parliament and will criminalise price fixing behaviour and certain other types of cartel conduct. 

Price controls

Part 4 of the Commerce Act contains a mechanism to impose price controls on particular goods and services.  There are no restrictions on the industries to which Part IV may apply.

Industries currently subject to specific market regulation include:

  • telecommunications (under the Telecommunications Act 2001)
  • dairy (under the Dairy Industry Restructuring Act 2001)
  • electricity lines services and the gas industry (under the Commerce Act 1986).

Consumer protection

Provision of goods and services to consumers

The Fair Trading Act 1986 and the Consumer Guarantees Act 1993 are New Zealand’s principal consumer protection laws.

The Fair Trading Act

The Fair Trading Act applies to anyone “in trade”.  It prohibits, whether the activity is intentional or not:

  • engaging in conduct that is likely to mislead or deceive
  • engaging in conduct that is liable to mislead as to the nature, manufacturing process, characteristics, suitability for purpose, or quantity of goods
  • engaging in conduct that is liable to mislead as to the nature, characteristics, suitability for purpose, or quantity of services
  • engaging in misleading conduct in relation to employment that is or may be offered to a person
  • making false, misleading or unsubstantiated representations in respect of goods or services, and
  • including or enforcing any terms in a standard form consumer contract that have been declared unfair by a court, in accordance with the Fair Trading Act.

The Fair Trading Act sets information and safety standards for some types of products, including children’s nightwear, baby walkers and bicycles. 

The Fair Trading Act also deals with miscellaneous consumer protection matters such as layby sales, direct (door-to-door) sales, extended warranty agreements, auctions, and product recalls.  It prohibits various types of unethical commercial behaviour including falsely applying trade marks, falsely offering prizes, bait advertising, and pyramid selling.

The Fair Trading Act is enforced by the Commerce Commission and gives consumers direct rights of action.  Suppliers of goods and services to consumers cannot contract out of the Fair Trading Act and business to business contracts can only exclude the Fair Trading Act in specific circumstances. 

Breaching the Fair Trading Act can attract both civil and criminal penalties.  Penalties include:

  • fines of up to $200,000 per offence for an individual and $600,000 per offence for a company
  • orders for payment of the equivalent revenue or commercial gain earned from certain offending
  • corrective advertising orders
  • contract rectification, and
  • compensation payments to affected parties.

The Consumer Guarantees Act

The Consumer Guarantees Act:

  • provides consumers with certain minimum guarantees in relation to the quality, suitability and other aspects of goods and services, and a basic guarantee as to title to goods, and
  • gives consumers remedies against suppliers and manufacturers where goods or services fail to comply with one or more of those guarantees.

The Consumer Guarantees Act does not apply to dealings with business customers and commercial contracts.  It defines a consumer as a person who acquires goods or services of a kind ordinarily acquired for personal, domestic or household use and who does not hold him or herself out as acquiring, the goods or service for the purpose of resupplying them in trade, using them in a manufacturing process or repairing the goods in trade.

Remedies include damages, including for consequential losses sustained as a result of the breach of guarantee, and the right to cancel a contract and be refunded any amounts paid.

Generally, New Zealand’s consumer protection regime is similar to that of many comparable jurisdictions.

Consumer credit

Providing credit at the consumer level through credit contracts and hire purchase agreements is regulated by the Credit Contracts and Consumer Finance Act 2003.  The Act sets out disclosure requirements for contracts, allows debtors to have the terms of a contract changed for reasons of hardship and allows the courts to re-open and vary “oppressive” contracts.  The Act requires repossession agents to be licensed and prohibits lenders taking security over certain “essential” goods or particular types of documents.

Lender responsibility principles apply to all lenders’ dealings with consumer borrowers.  These principles require the lender to exercise the care, diligence and skill of a responsible lender in dealing with consumers and to comply with certain specific lender responsibilities.  The responsible lending code provides guidance on how lenders can comply with these principles. 

Retail regulation

Many other laws and regulations affect the operation of retail businesses, including:

  • smoke free legislation
  • restrictions on the sale of liquor
  • restrictions on shop trading days (but only three and a half days of the year have restrictions)
  • weights and measures standards, and
  • food safety and labelling legislation.

Contract law

New Zealand contract law is light handed, and allows contracting parties significant freedom in concluding their bargain.
Most contracts can be concluded orally.  The exceptions are contracts involving land, mortgages, extended consumer warranties, credit contract disclosures or employment agreements, all of which must be written.  Certain contracts may be supplemented by terms implied by various statutes.  The Sale of Goods Act 1908, for example, sets out various terms that are read into contracts for the sale of commercial goods unless the parties clearly intended otherwise.
Other context-specific pieces of legislation which apply to all contracts:
  • the Minors’ Contracts Act 1969, which protects minors (persons under the age of 18) from commercial exploitation.  A contract with a minor cannot be enforced against the minor, subject to certain specific exceptions and the court’s discretion
  • the Contractual Remedies Act 1979, which allows a party to cancel a contract for a misrepresentation (if prescribed criteria are satisfied), and recover damages.  The courts also have the power to grant other types of relief under the Act, and
  • the Illegal Contracts Act 1970, which confirms the common law position that contracts which are illegal at law or equity will be of no effect and grants the courts the power to make a variety of orders including amending the contract.  Consistent with other similar jurisdictions, unreasonable restraints of trade are one example of an illegal contract.

Several common law rights of recourse also exist for misleading conduct and/or statements.

Public protection

New Zealand has legislated, like many other countries, to protect various rights of the public at large.

Information privacy

The Privacy Act 1993 aims to protect the confidentiality of personal information by limiting the purposes for which it can be used and disseminated and by giving individuals a right of access to personal information held about them.

Human rights

The Human Rights Act 1993 generally accords with United Nations covenants and conventions on human rights.  The Act:

  • makes it unlawful to discriminate in relation to employment or the provision of goods or services on the grounds of sex, marital status, religious or ethical belief, colour, race, ethnic or national origins, disability, age, political opinion, employment status, family status or sexual orientation
  • prohibits sexual and racial harassment and the incitement of racial disharmony, and
  • prohibits publishing or displaying any advertisement or notice which indicates an intention to commit a breach of any of the provisions of the Act. 

Gambling

The Gambling Act 2003 prohibits gambling unless it is authorised under the Act. 

“Gambling” involves (broadly) staking money (or money’s worth) directly or indirectly on an outcome that depends at least partly on chance, where a prize is involved.  You should seek specialist advice if you plan on setting up a gambling business (whether as a primary or ancillary part of your proposed business) or where you offer prizes in exchange for the purchase of goods or services.

Creditor protection

The Personal Property Securities Act 1999 allows creditors to give notice of a security interest they hold over property held by debtors by registering a “financing statement” on a public (online) register.  A range of security interests are registered, including in relation to fixed and floating charges, chattel mortgages, hire purchase agreements, finance leases and retention of title arrangements.  Registration is vital in determining the validity and priority of a creditor’s interest. 

3    For the purposes of the section 47 analysis, a company and ‘interconnected’ or ‘associated persons’ will be treated as ‘one head’ in the market.

We make every effort to ensure the accuracy of the information provided but it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change.