The scope of the Commerce Commission's (the Commission) powers, and willingness to take decisive action against recalcitrant individuals, has come into focus recently with the lapse of name suppression for two former employees of the New Zealand branch of LG Electronics Australia Pty Limited (LG).
The case is a timely reminder of the importance of providing thorough and complete responses to questions from the Commission as part of an investigation process.
Relevant offences
Charges were laid against three former employees of LG after they failed to provide information in response to a statutory notice under section 98 of the Commerce Act. The notice was issued as part of an investigation into potential resale price maintenance in the supply of consumer televisions in New Zealand. The notice required LG to provide communications with wholesalers and retailers, and specified that ‘documents’ included electronic instant messages, including Facebook and WhatsApp chats.
The Commission's media release states that the former LG Country Manager instructed the former LG Key Account Manager and a further employee (who has permanent name suppression) to delete any messages that might be considered an “issue”. The Country Manager pleaded guilty to wilfully attempting to obstruct the course of justice under the Crimes Act, and the other staff members pleaded guilty to failing to comply with a statutory notice, in breach of the Commerce Act.
The name suppression and sentencing judgments set out, in some detail, the significant personal impact of the offending and proceedings on not only the defendants, but also their families. Indeed, the Commission initially sought a sentence of imprisonment for the Country Manager, but reconsidered the sentencing starting point in acknowledgement of the significant adverse consequences imprisonment would have on the Country Manager and his family.
Ultimately the three ex-employees were granted discharges without conviction following assessments of their individual circumstances. Even so, the charges and subsequent naming of the two individuals demonstrate the serious consequences businesses and individuals can face for failing to comply – particularly if they go out of their way not to comply – with compulsory requests for information from the Commission.
The Commission has shown a willingness to take a firm approach when dealing with un-cooperative businesses or individuals, in particular those that obstruct or hinder an investigation. For example, in 2005-2006 various convictions and fines were imposed on businesses involved in a cartel that operated in New Zealand's wood preservative chemicals industry:
- Koppers Arch and its former General Manager pleaded guilty to breaching the Commerce Act by failing to provide documents required under statutory notices, and were fined $25,000 and $8,000 respectively. The General Manager had hidden company documents under his house, and then in another secret location, before eventually providing them to the Commission after charges were laid
- Osmose New Zealand failed to produce documents required by the Commission under a section 98 notice and was convicted and fined $13,000
- An executive of Osmose New Zealand was found guilty of lying to the Commission in a voluntary interview, and was convicted and fined $7,000.
The Commission's powers
In addition to the Commission's powers under section 98 to require production of information, it also has the power to search premises to collect evidence if it has reasonable grounds to believe that it is necessary for the purpose of ascertaining whether a person has engaged in conduct that may breach the Commerce Act. To do so, the Commission must hold a valid search warrant pursuant to section 98A of the Commerce Act. The exercise of comparable powers in other jurisdictions is often referred to as a "dawn raid", particularly in the US and Europe.
The penalties for failing to comply with a statutory notice and resisting, obstructing, or delaying any person executing a search warrant are significant – the maximum fine for individuals is $100,000 and $300,000 for bodies corporate. The Commission has also made it clear that it will consider charges under the Crimes Act for attempts to obstruct the course of justice (an offence punishable by a prison term of up to seven years), particularly in serious cases of wilful non-compliance with a statutory notice.
Takeaways
A basic understanding of New Zealand competition law is essential for every business. Training can head off inadvertent Commerce Act breaches, and ensure that employees feel confident in keeping accurate records that do not, if later called upon to be produced, make them worry about communications looking like "an issue".
Failing that, it is important that businesses know what to do in the event of a Commission search and when responding to questions from the Commission, and have processes and procedures in place to ensure they, and their employees, do not fall foul of the law. As illustrated by the LG employees' case, and the wood preservative cases before that, there is no justification for destroying or hiding information.
The Commission's Competition and Consumer Investigations Guidelines are also a useful reference point. Now is a good time to check you have sufficient procedures and protections in place to support compliance with a Commission investigation/dawn raid. Contact our competition and consumer team if you need support or assistance.
This article was co-authored by Susie Kilty (partner), Anna Parker (special counsel), Georgia Callaghan (solicitor) and Stephen Jannink (law clerk).
