Competition law not suspended by COVID-19 emergency

The Commerce Commission (NZCC) announced this week that it had no intention of taking enforcement action against businesses that are cooperating “to ensure New Zealanders continue to be supplied with essential goods and services during this unprecedented time. If you need to work with your competitors to share staff or distribution networks or take other measures to ensure security of supply, you are able to do this.”

It also advised that “New Zealand’s competition laws are sufficiently flexible to accommodate legitimate arrangements or collaborations between competitors in certain circumstances. Certain arrangements may be exempt from the Commerce Act…”

The NZCC stressed however that it would not tolerate COVID-19 being used “as an excuse for non-essential collusion or anti-competitive behaviour. This includes sharing information on pricing or strategy where it isn’t necessary in the current situation”.

The key message for New Zealand businesses

The Commerce Act continues to apply unchanged to arrangements between competitors but does not prohibit legitimate collaboration between competitors to deal with emergencies such as COVID-19.

The key issue for businesses is to distinguish between arrangements with competitors that are legitimate, and those that are prohibited.

The Act provides a broad “collaborative activities” exception to the prohibition of arrangements between competitors to fix prices, reduce output or share markets. This exception applies if:

  • the parties are carrying on an enterprise, venture or other activity in trade;
  • that activity is not carried on for the dominant purpose of lessening competition between them; and
  • the cartel provision/s are reasonably necessary for the purposes of that activity.

The NZCC has indicated that arrangements between competitors to share staff, premises or distribution networks to ensure supply of essential services, or that relate to safety will not breach the cartel prohibition. This is because arrangements of this sort do not have the dominant purpose of lessening competition, and the provisions are reasonably necessary for the purposes of the collaboration – to ensure supply of essential services.

Any other arrangements between competitors in response to the COVID-19 emergency must be able to be justified on the same basis – the collaboration is not for the dominant purpose of lessening competition between the participants, and the proposed arrangements are reasonably necessary. If that test cannot be satisfied, the arrangements are likely to breach the Act.

Independent commercial decisions in response to Government direction will not breach the cartel provision.

Businesses should also bear in mind, in any discussions with competitors, the general prohibition against provisions in a contract, arrangement or understanding that have the purpose, effect or likely effect of substantially lessening competition in a market.  The collaborative activities exception does not apply to this prohibition

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