Investigations and enforcement action by the Commerce Commission under the Commerce Act 1986 is usually associated with the behaviour of large business operators however a recent Commerce Commission investigation into a Trade Me seller is a reminder to all business people (large and small) to remember the restrictions of the Commerce Act 1986.

 

The express purpose of the Act is to promote competition in markets for the long-term benefit of consumers. The Act is designed to protect that competition by prohibiting three types of anti-competitive conduct: (a) the creation and implementation of business arrangements which are anti-competitive; (b) the use of market power to reduce or eliminate competition; and (c) mergers and acquisitions of businesses which would reduce competition.

 

Section 27 of the Act contains the prohibition that a person may not enter into a contract or arrangement, or arrive at an understanding, if it contains a provision which has the purpose, effect, or likely effect of substantially lessening competition in a market.

 

One of the main concerns of the Act is to eliminate collusion between competitors, especially practices such as price fixing and market sharing. Section 30 of the Act states that contracts, arrangements and understandings between parties in competition with each other, which have the purpose, effect or likely effect of fixing, controlling or maintaining the price of goods or services are deemed to breach the main section 27 prohibition. Price-fixing is regarded as being anti-competitive because it means that consumers are generally likely to pay more for the relevant goods or services – whereas in a competitive market consumers are likely to pay less as there is more independent choice.

 

In the case of the Trade Me seller the Commission received a complaint that the seller had e-mailed a competitor suggesting that they both agree to sell LED bicycle lights at a set price. The alleged e-mail suggested that, instead of discounting the lights, both sellers agree to one price and that “…I am sure we will both get a share of the market if we are both consistent on the price.” The other seller did not respond to the e-mail however the Commission investigated the matter on the basis that it could amount to attempted price-fixing.

 

In the end the Commission issued a formal warning to the seller and did not seek any further enforcement action. The Commission has however highlighted that the Act allows a Court to order payment of a penalty even where there has only been an attempt to breach the restrictive trade provisions of the Act – such as in the case of the Trade Me seller where the price-fixing agreement was not actually concluded.

 

The maximum penalty under the Act for an individual is $500,000 and for a body corporate it is generally $10,000,000. All sellers of goods and services (whether on-line or otherwise) should therefore be mindful of the Commerce Act restrictions and penalties as the Commission has stated that any attempt to lessen competition will be viewed seriously, no matter what the forum.

 

 

David Smillie is a partner in the law firm Gallaway Cook Allan.