New Zealand: Regulations affecting business

Doing Business in NZ
Last Updated: 3 August 2011
Article by Pip England and Mark Reese

"Haere mai" is Māori for welcome and New Zealand is one of the most open economies in the world. But there are rules and regulations that will apply, and we are familiar with them.

This "Doing Business in NZ" publication is designed to provide the prospective investor with an introductory guide to the New Zealand legal framework as it applies to business. The information provided was accurate at the time of publication, and will be updated regularly. 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.

We recommend that you seek advice specific to your needs before making any decisions and will be happy to assist.

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.

The cornerstone tests for prohibited business acquisitions and restrictive trade practices are broadly aligned with Australia's under the Australian Trade Practices Act 1974.

Business acquisitions

Part III 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 threshold is triggered by an increase in the scope for the exercise of unilateral or coordinated market power, evidenced by a change in market circumstances that renders coordination between remaining firms more likely.

Specifically, the Commerce Commission – the watchdog which administers the Commerce Act – looks for increases in the scope to raise price and/or reduce product quality or service, relative to what would have occurred in the absence of the acquisition. Relevant to this 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 "safe harbours" for assessing horizontal aggregation. An 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%1, 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%.

The safe harbours are only a starting point for the analysis. Falling outside the safe harbours does not mean an acquisition necessarily lessens competition. For example, market shares may be high but there may be few barriers to entry or expansion. Those taking comfort from the safe-harbours should only do so by adopting the market definitions likely to be adopted by the Commerce Commission.

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

  • NZ$500,000 for individuals, and
  • NZ$5 million for companies, as well as an order requiring divestment of specified assets or shares.

Restrictive trade practices

Part II of the Commerce Act is designed to regulate restrictive trade practices arising either collusively (between two or more parties) or unilaterally on the part of a firm which holds a substantial degree of market power.

The following practices are prohibited (unless explicitly authorised by the Commerce Commission on public benefit grounds):

  • 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
  • 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
  • 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.

Price controls

Part IV 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.

Part IVA requires the Commerce Commission to establish performance thresholds for electricity line businesses and gives the Commission the ability to impose price controls on businesses which breach those thresholds.

Other industries subject to specific market regulation include:

  • telecommunications (under the Telecommunications Act 2001)
  • dairy (under the Dairy Industry Restructuring Act 2001)
  • gas (under the Gas Act 1992), and
  • financial services (under the Financial Advisers Act 2008 and Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Consumer protection

Provision of goods and services to consumers

The principal pieces of consumer protection legislation are the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.

The Fair Trading Act

The Fair Trading Act applies to anyone involved "in trade". It prohibits (generally whether the activity is intentional or not):

  • engaging in conduct which 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, and
  • making false or misleading representations in respect of goods or services.

The Fair Trading Act also deals with consumer information, falsely applying trade marks, using coercion in connection with supply, offering prizes without providing them as offered, bait advertising, pyramid selling schemes, consumer information standards, product and service safety standards, product recall and the sale of unsafe goods. The Act is enforced by the Commerce Commission and gives consumers direct rights of action. Anyone providing goods or services needs to be aware of the Act.

The Consumer Guarantees Act

The Consumer Guarantees Act:

  • provides consumers with certain basic warranties in relation to goods and services
  • sets out certain guarantees that relate to the quality, suitability and other aspects of goods and services, and
  • gives consumers remedies against suppliers where goods or services fail to comply with one or more of those guarantees.

The Act does not apply to dealings with business customers and commercial contracts usually contain a specific acknowledgment of this effect. It applies only to persons buying goods or services for the purposes of household or domestic use.

Remedies include damages and the right to cancel a contract.

Generally, New Zealand's consumer protection regime is similar to that of many comparable jurisdictions, but there are some points of difference:

  • there are no cease and desist provisions to stop a trader engaging in potentially harmful conduct, and
  • there is no power to stop recidivist offenders from trading.

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 and allows debtors to have the terms of a contract changed for reasons of hardship. It also allows the courts to re-open and vary "oppressive" contracts.

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 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.

In terms of form, all contracts can be concluded orally, other than those involving land, mortgages, consumer guarantees or employment agreements, which must be written. Equally, there is substantial freedom in terms of content. That said, 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:

  • the Minors' Contracts Act 1969, which protects minors (unmarried persons under the age of 18) from commercial exploitation. A contract with a minor cannot be enforced unless it is fair and reasonable, and
  • 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.

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).

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.

Footnotes

1. 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.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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Authors
Pip England
 
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