Antitrust Policy In New Zealand: The Beginning of a New Era by Rex J. Ahdart The Commerce Act of 1986 marked the beginning of a new era in New Zealand antitrustpolicy. Earlier in the twentieth century, the legislature had attempted to solve the problems of monopoly with piecemeal legislationL The election of the Labour Party Government and the signing of the Closer Eco- nomic Relations Treaty with Australia in the early 1980s provided the impetus for the adoption of the Commerce Act of 1986. The Act represents New Zea- land's most comprehensive antitrust regime yet. The author first provides a brief history of New Zealand antitrust law before 1986. He discusses the policy debates behind the enactment of the Com- merce Act of 1986 and its reform in the Commerce Amendment Act of 1990. The author then outlines the scope of the Act and discusses its principalprohibi- tions. The author analyzes the New Zealandcourts' construction of the Act in light of the policy issues that prompted its enactment and reform, and discusses the resulting implicationsfor the future of antitrustin New Zealand. Finally, the authorprovides in depth illustrationsof the New Zealand courts' reasoning in two cases in which the courts construed major provisions of the Act. I. INTRODUCTION ............................................ 330 A. The Early Years ....................................... 331 B. "The Dark Ages" ...................................... 333 II. THE MODERN ERA: THE COMMERCE ACT OF 1986 .......... 335 A. R ationale .............................................. 335 B. R eform ............................................... 336 C Enforcement ........................................... 338 1. Public Enforcement: The Commerce Commission ..... 338 2. Private Enforcement ................................ 340 D. The Significance of Competition Law Today .............. 341 III. THE POLICY DEBATE ...................................... 342 A. The Rationalefor Antitrust Policy ....................... 342 B. The Traditionalistversus Chicago School Debate "Down- Under" . .............................................. 344 t Senior Lecturer, University of Otago School of Law, Dunedin, New Zealand; Fulbright Senior Scholar, Boalt Hall School of Law, University of California at Berkeley, 1991; LL.M. 1985, LL.B. 1982 School of Law, University of Canterbury, New Zealand. 330 INTERNATIONAL TAX & BUSINESS LAWYER [Vol. 9:329 IV. THE AMBIT OF THE ACT ................................... 346 A. Jurisdiction- Who is Caught? ........................... 346 1. The Crown and Crown Corporations.................. 347 2. Agents and Employees .............................. 347 3. Professions ......................................... 348 4. Non-Profit Organizations ............................ 348 5. Extraterritoriality................................... 349 B. Exemptions--Who is Immune? .......................... 350 1. Restraint of Trade .................................. 350 2. IntellectualProperty ................................ 351 3. Statutory Exemptions ............................... 351 4. Other Exemptions-The "Intra-EnterpriseConspiracy". 355 V. THE PRINCIPAL CONTRAVENTIONS ......................... 356 A. Introduction ........................................... 356 B. Horizontal Restraints ................................... 356 1. Anticompetitive'Arrangements........................ 356 2. Price Fixing ........................................ .359 3. Group Boycotts ..................................... 361 C Vertical Restraints ..................................... 361 1. Resale Price Maintenance (RPM) .................... 361 2. Non-Price Restraints: Exclusive Dealing, Tying ....... 362 D. Misuse of a Dominant Position .......................... 363 E. Mergers and Takeovers ................................. 365 F. Price Control .............. ........................... 369 G. Authorization and Clearances ........................... 370 VI. Two ILLUSTRATIVE CASES ................................. 373 A. Misuse of a Dominant Position: The Magic Millions Case. 373 B. Exclusive Dealing: The Fisher & Paykel Saga ............ 377 VII. CONCLUSION .............................................. 380 I. INTRODUCTION Competition law and policy conjure up very little in the minds of most New Zealand lawyers. Some, over the years, have heard of the U.S. antitrust laws. Yet these seemed a peculiarly American institution, tailor-made for that great bastion of free enterprise but not readily transportable elsewhere. New Zealand, by contrast, was the archetypal welfare state: a small, heavily- regulated economy in the South Pacific. Much has changed of late, however. The fourth Labour Government's systematic program of economic liberalization was the catalyst for wide- spread changes in virtually every area of life in New Zealand. Law, and in particular competition law, was no exception. 1992] ANTITRUST POLICY IN NEW ZEALAND Although New Zealand has had competition laws for almost as long as the United States, the prevailing economic and social climate during the greater part of this century caused the New Zealand laws to languish. How- ever, a virtual revolution in economic thinking in the 1980s, inspired by the Labour administration of 1984, has resurrected New Zealand competition law from its dormant, if not moribund, state. New Zealand now has a mod- em, robust, antitrust regime-the Commerce Act of 1986.1 The late 1980s can be characterized as the renaissance in New Zealand competition law. Every renaissance follows a period of decline. A brief digression into New Zealand's checkered antitrust history helps us to appreciate better the new era ushered in by the Commerce Act of 1986. A. The Early Years2 Legislation specifically addressing monopolies first appeared in New Zealand at the turn of this century, with the Monopoly Prevention Act of 1908.3 Despite its title, this Act was not a comprehensive antitrust statute. It simply envisaged various trade remedies, such as the removal of customs du- ties, in areas where customers were concerned about the dumping of foreign agricultural implements or high prices for staple foodstuffs. The Monopoly Prevention Act suffered from its narrow product range and was rapidly sub- merged in the successive direct controls which followed.4 The first antitrust statute worthy of the name was the Commercial Trusts Act of 1910.' Resembling the American Sherman Act of 1890,6 this legislation had as its purpose "the repression of monopolies in trade and com- merce.",7 The parliamentary debates concerning the Commercial Trusts Bill are replete with warnings of the "trust" problem in America and the dangers of such replication in New Zealand. Distrust of foreign monopolies, espe- cially overseas oil companies, was a primary concern.8 The Commercial Trusts Act imposed criminal sanctions ior a wide range of offenses such as exclusive dealing, boycotts, and participation in a conspir- acy to fix prices contrary to the public interest. Early litigation under the Act boded well for a vigorous antitrust policy. Heavy fines were imposed in the first major case, Merchants Ass'n of New Zealand, Inc. v. The King,9 where 1. Commerce Act, 1986, N.Z. Stat. 5. 2. See generally CORWIN D. EDWARDS, TRADE REGULATIONS OVERSEAS 587-646 (1966); J. L. ROBSON, NEW ZEALAND: THE DEVELOPMENT OF ITS LAWS AND CONSTITUTION 250-79 (2d ed. 1967); Hunter M. Donaldson, The Development of New Zealand Competition Law, in COMPETITION LAW AND POLICY IN NEW ZEALAND 11-23 (Rex J. Ahdar ed., 1991). 3. Monopoly Prevention Act, 1908, N.Z. Stat. 122. 4. See Donaldson, supra note 2, at 12. 5. Commercial Trusts Act, 1910, N.Z. Stat. 32. 6. Sherman Anti-Trust Act, 15 U.S.C. § 1 (1988). 7. The material within the quotation marks is the long title of the Commercial Trusts Act. 8. See, e.g., Sir Joseph Ward, Prime Minister, Speech on the Introduction of the Commer- cial Trust Bill, in N.Z. PARL. DEB. 641 (Oct. 20, 1910). 9. [1913] 32 N.Z.L.R. 1233 (C.A.). 332 INTERNATIONAL TAX & BUSINESS LAWYER [Vol. 9:329 the Colonial Sugar Company, the sole New Zealand manufacturer of refined sugar, and a merchants association conspired to maintain the price of sugar. The price maintenance had the effect of preventing merchants that did not belong to the association from entering the New Zealand sugar market. The Court of Appeal unanimously held this to be in breach of the Act, because the conspiracy to monopolize or control the demand or supply of sugar was "'of such a nature as to be contrary to the public interest."' 1 The court did not find in this case any of the possible justifications for a monopoly arrangement, such as a need to secure "efficient and economical distribution" or the desire to prevent the "destruction ...of an important local industry," that might have constituted a defense." A decade later, however, antitrust was dealt a death blow by a decision that went all the way to the Privy Council (New Zealand's highest tribunal). In Crown Milling Co. v. The King, 2 the defendants, Crown Milling of Dune- din and three other flour millers, formed a distribution company to act as the sole sales agent for flour. Mill owners entered into agreements with the com- pany not to sell directly to the public. The company undertook to sell each month a proportionate quantity of each mill owner's output, the quantity calculated in accordance with a fixed scheme. The agreement contained pro- visions for determining the current price at which flour was to be sold through the sole agent. 13 The defendants