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Gus Stewart
Matthews Law, Auckland
gus.stewart@matthewslaw.co.nz

Elsie Stone
Matthews Law, Auckland
elsie.stone@matthewslaw.co.nz

 

At the end of 2019, the New Zealand Commerce Commission (‘Commission’) released two documents which provide interesting insights into its activities and the state of competition in New Zealand: a Complaints Snapshot and its Annual Review. The Commission also recently concluded its first market study, the results of which reflect the Commission’s ongoing focus on vertical competition issues.

Commission insights: Complaints Snapshot and Annual Report

The Commission’s recent Complaints Snapshot^[1] revealed that it received 20 per cent more complaints in financial year 2018/19 than in financial year 2017/18: there was an increase of 7,452 to 8,964 complaints relating to the Fair Trading Act (FTA), Commerce Act (CA) and the Credit Contracts and Consumer Finance Act (CCCFA).

The greatest proportion of complaints (by far) related to the FTA (New Zealand’s consumer protection law), with 8,302 complaints received in total. Of these, the majority related to the telecommunications industry. Other industries frequently complained about included: online ticket resale; domestic appliance retailers; motor vehicle retail; and construction. The Complaints Snapshot noted that a ‘high level of publicity about an industry could result in more complaints.’ This may be the case for at least two of the industries noted above, ticket resale and telecommunications, which have been the focus of publicity over the past year:

• in late 2018, the Commission announced it was filing High Court civil proceedings against Switzerland-based online ticket reseller Viagogo under the FTA and court proceedings (including a successful injunction appeal) have continued in 2019; and

• in early 2019, the Commission announced retail telecommunications provider Spark had been fined NZ$675,000 in the District Court for making false or misleading representations in its customer invoicing and when making a NZ$100 credit offer to new customers. Later, in mid-2019, the Commission announced retail telecommunications provider Vodafone had been fined NZ$350,000 for making false representations in invoices it sent to customers.

There were also 348 complaints made under the CA (New Zealand’s antitrust law), of which 114 were related to market power, 109 to restrictive contracts, 13 to price fixing and nine to resale price maintenance.

These figures are reflected in the Commission’s expenditure for the last year, as set out in its financial year 2018/19 Annual Report^[2] which shows that of the NZ$48.4m in funding it received, the Commission spent NZ$11.8m in the consumer space and only NZ$8.1m in the competition space, with an additional NZ$1.4m on the Commission’s first ever market study.

Market study into retail fuel

On 5 December 2019 the Commission published its final report into the retail fuel market in New Zealand, thus concluding a year long market study into the factors that may affect competition in the industry.^[3] This is the first market study the Commission has completed since it was given the power to conduct such studies following amendments to the CA in October 2018.

In its final report, the Commission observed that ‘fuel companies have been making persistently higher profits over the past decade than we would expect in a competitive market’, with the core problem being that an active wholesale market for fuel ‘does not exist’ in New Zealand. The Commission considers the main reasons for this to be two-fold: the joint infrastructure network shared by Z Energy, BP and Mobil gives them an advantage over fuel importers; and wholesale supply relationships (including restrictive contract terms) between majors and fuel re-sellers limit re-sellers’ ability to switch suppliers.

To stimulate competition at a wholesale level, the Commission made two key recommendations (among others). The first of these is to introduce a Terminal Gate Pricing Regime (based on the Australian equivalent), which the Commission considers will lower barriers of entry/expansion for fuel importers, provide greater pricing transparency for wholesale customers and provide competitive benchmark information to the industry and government. Secondly, the Commission recommended that wholesale supply contracts are regulated, for example by requiring clear and concise language and limiting the use of long terms and exclusivity, to allow re-sellers to more easily compare offers and switch wholesale suppliers. The Commission believes an enforceable industry Code of Conduct would be an effective way of giving effect to these two recommendations.

The results of this market study clearly reflect the Commission’s focus on upstream factors within a supply chain that may affect competition downstream and ultimately result in higher prices for consumers. This interest in vertical issues is also increasingly reflected in the Commission’s decision-making in the merger space. It is also worth noting that some of the issues identified by the Commission should arguably be captured by a functional prohibition on misuse of market power. Unfortunately, New Zealand’s misuse of market power is widely considered to be unfit for purpose (although amendments to remedy this are currently being considered).

In terms of which industry may be subject to a market study next, the Commission has been silent, but Prime Minister Jacinda Arden has stated that she would ‘not be surprised’ if New Zealand’s supermarket sector (which is characterised by a duopoly) was the focus of a market study at some point.^[4]