Cease and Desist Guidelines

These guidelines set out the approach the Commerce Commission proposes to follow in relation to the application of the cease and desist order provisions contained in ss 74A to 74D of the Commerce Act.

Introduction
Behaviour Potentially Subject to the Cease and Desist Order Regime
Outline of the Regime
Key Interpretations
Summary

Introduction

Sections 74A to 74D provide specific powers for the Commission to obtain orders against anti-competitive behaviour. Cease and Desist Commissioners are able to make orders to restrain anti-competitive conduct or to require a person to do something to restore competition or the potential for competition in a market.

A cease and desist order may be made where a Cease and Desist Commissioner is satisfied that:

  • at first sight, on the face of the evidence, there is anti-competitive conduct that contravenes the Commerce Act; and
  • it is necessary to act urgently:
    a.    to prevent a particular person or consumers suffering serious loss or damage; and
    b.    in the interests of the public.

Back to top

Behaviour Potentially Subject to the Cease and Desist Order Regime

The Commission believes that the cease and desist order provisions have the potential to apply to a wide range of anti-competitive behaviour including:

  • s 27 - contracts, arrangements or understandings that are likely to substantially lessen competition;
  • s 36 - taking advantage of a substantial degree of market power for the purpose of restricting, preventing, deterring or eliminating competition;
  • s 47 - mergers or acquisitions that are likely to substantially lessen competition; and
  • the specific examples set out below.

Further information is available in the Commission's publications, Guide to Restrictive Trade Practices and Merger and Acquisition Guidelines, or from the Commission's website, www.comcom.govt.nz

Orders can be made to stop cartels. Cartels include deals between competitors to set the price of goods they compete in, market rigging, or joint action by a group of businesses to block competitors coming into the market. Orders can be made to stop arrangements between businesses that have the effect of lessening competition such as discounting arrangements. Orders can also be made to stop exclusive dealing in certain circumstances by parties with market power.

The type of case that might be dealt with by cease and desist orders is where a business with substantial market power refuses to deal with an existing or prospective customer (ie a retailer) because that customer is also dealing with a competitor of the business with market power, or because that prospective customer will not agree not to deal with competitors of the firm with market power.

Other instances could include parties requiring purchasers to buy goods or services from the vendor or another party as a condition of doing business. Orders could also be made to stop below-cost pricing that is aimed at eliminating competitors and where recoupment is likely.

Cease and desist orders may also be used in relation to mergers and acquisitions where parties intend to carry out their transaction without seeking clearance from the Commission and it considers the transaction is likely to substantially lessen competition. The Commission could also seek orders where a transaction has occurred but needs to be undone in order to ensure competition is not lessened.

The use of the cease and desist order provisions in these circumstances will serve to promote competition. Cease and desist orders are forward-looking in this sense. Where the conduct in question may have involved an existing breach of the Commerce Act, the Commission may, in addition to seeking cease and desist orders to govern future conduct, also apply to the courts for other relief, such as penalties, for the past contravention of the legislation.

Consistent with the Commission's general approach, the Commission will assess each case against its enforcement criteria to determine the appropriate course of action.

Back to top

Outline of the Regime

There are three main steps that apply in the application of the cease and desist order provisions.

Step 1 - Commission staff assessment

The Commission commences an investigation.

If, following investigation, the Commission reaches the view that there has been no apparent breach of the Commerce Act, it will discontinue the investigation.

If the Commission reaches the view that there has been a contravention of the Commerce Act, staff will prepare a report to the members of the Commission (other than the Cease and Desist Commissioners). This report will include a recommendation whether or not to seek a cease and desist order.

If the report includes a recommendation that a cease and desist order be sought, then the report will address the grounds for the making of cease and desist orders as set out in s 74A, namely:

  • has a prima facie case been made out that there has been conduct in breach of the Commerce Act? and
  • is it necessary to act urgently:      -  to prevent a particular person or consumers from suffering serious loss or damage; and
         -  in the interests of the public?

Step 2 - Commissioner assessment of the report

Upon receipt of the report, the members of the Commission will determine whether they agree with the recommendation to seek a cease and desist order, in accordance with s 74B(b).

If the Commissioners agree with the staff recommendation to seek a cease and desist order, then the Commission will:

  • direct an officer of the Commission to make an application to a Cease and Desist Commissioner for a cease and desist order. The application will include particulars of:
    -    the nature of the alleged contravention, including an assessment of the alleged prima facie breach of the Commerce Act;
    -    the terms of the proposed order; and
    -    the reasons for the order, including the need to act urgently (as set out in s 74A); and
  • serve notice on the person against whom the order is sought. This notice will likely contain a copy of the application to the Cease and Desist Commissioner.

The person against whom an order is sought has the opportunity to access all relevant information held by the Commission, in accordance with s 74B(d).   The Commission will furnish all relevant information with particular safeguards for confidential information.

The person against whom an order is sought also has the opportunity to make a written submission to the Cease and Desist Commissioner, to consent to the terms of the proposed order, or to have the matter determined by a Cease and Desist Commissioner following a hearing.

Step 3 - Cease and desist orders

Where the person against whom the order is sought consents to the terms of the proposed order, a Cease and Desist Commissioner will consider the Commission's application pursuant to s 74A. There will be no hearing; the Cease and Desist Commissioner will determine the matter on the basis of the record before the Commissioner.

Where the Commission's application is determined by a Cease and Desist Commissioner following a hearing, then the procedures set out below will be followed.

Back to top

Key Interpretations

Section 74A contains a number of terms which require definition.   While the meaning of those terms in the context of the cease and desist jurisdiction will become clearer over time, the Commission's present interpretation of those terms is as follows:

A prima facie case

The Commission is required to have conducted an investigation to be able to demonstrate to the required standard that a contravention has occurred.   The Cease and Desist Commissioner will need to be satisfied that, at first sight, on the face of the evidence, the person against whom the order is sought has engaged in conduct that contravenes the Commerce Act.

It is necessary to act urgently

The necessity to act urgently has to be considered in light of the requirement for the Commission to complete its investigation and the time taken to prosecute such matters before the courts. Investigation and litigation of Commerce Act cases take a number of years, commonly anything between five and ten years.

There will be cases where the effects of the anti-competitive conduct are such that they must be addressed more quickly than litigation before the courts will allow, especially where there is a need to restore competition, or the potential for competition, in the affected market.

Serious loss or damage

The Commission will need to establish that the likely loss or damage is not slight nor negligible.   This is a useful threshold that will likely exclude those cases where the loss or damage is minimal or insignificant.

Interests of the public

It is the interests of the general public which are relevant here, rather than the interests of a private individual or individuals. However, a substantial number of individuals may constitute 'the public' for the purposes of the term.

On occasion, the Commission may consider it more appropriate to apply to the court for interim relief than to a Commissioner for a cease and desist order. (For example, the Commission's investigation may not be complete and it may be necessary to act very quickly and on occasion without notice to the other party.)

Cease and Desist Hearings

Guidance for the procedure to be adopted at a cease and desist hearing is set out in s 74C.   There are some preliminary points to note:

  • While the section provides that there must be as little formality and technicality as the requirements of the Commerce Act and a proper consideration of the matter permit, in reality there will need to be reasonable formality and technicality given the nature of the order being sought and the consequences for any party against whom an order is made.
  • Cease and desist orders are not able to be made on an ex parte basis; that is, without the Commission giving notice to the other party.   The Commissioner is to permit the Commission and the person against whom an order is sought to appear and give evidence.   The way in which evidence is to be given is not specified and will be for the Cease and Desist Commissioner to determine.   The Commissioner will decide whether evidence-in-chief is to be given by affidavit or brief of evidence or orally.   Witnesses may be cross-examined.
  • The person against whom an order is sought may be represented by counsel. Questions may arise from time to time where a company seeks to be represented by its managing director or another officer of the company.   Such representation will be determined by the Cease and Desist Commissioner on a case by case basis.
  • The Commissioner has all necessary powers in relation to the hearing of evidence, including the powers set out in ss 99 and 100 of the Commerce Act which deal with admissibility of evidence and the ability to take evidence on oath.

Back to top

Summary

Steps to be taken by the Cease and Desist Commissioner when an application is made for a cease and desist order

  1. Application is made to the Commissioner by the Commission accompanied by a certificate from the Commission that:
    a.  an investigation has been conducted into the alleged contravention and a report has been submitted to the Commission recommending that a cease and desist order be sought; and
    b.    the Commission agrees with the recommendation in the report and directs an officer of the Commission to make an application for a cease and desist order.
  2. The Commission serves copies of the application and the certificate on the person against whom the cease and desist order is sought and files an affidavit of service with the Commissioner.
  3. The Commission serves the person against whom the cease and desist order is sought with notice in writing of:
    a.    the nature of the alleged contravention;
    b.    the terms of the proposed order; and
    c.    the reasons for the order;

    and files an affidavit of service with the Commissioner.
  4. While the Commission is attending to service in terms of paragraphs 2 and 3, the Commissioner should consider the following matters to be able to discuss them with the parties at the preliminary conference:
    a.    what does the person against whom the cease and desist order is sought want to do in respect of:
    i.  access to the relevant information held by the Commission;
    ii.  making a written submission;
    iii.  consenting to the terms of the proposed order or having the matter determined by a Commissioner following a hearing?
    b.  are directions necessary for the completion of all steps before the hearing of the application?
    c.    what is the time within which each step should be completed?
    d.    what steps are to be taken if any party fails to comply with any directions as to the steps to be taken or the time within which such steps are to be taken?
  5. A preliminary conference (normally by telephone) should be convened by the Commissioner as soon as possible. The particular matters to be addressed will include:
    a.  the matters in paragraph 4;
    b.  whether the Commission and the person against whom the cease and desist order is sought are to be represented by counsel;
    c.  when the hearing is likely to take place; how long the hearing is likely to take; and where the hearing will be held;
    d.  what way the evidence is to be given at the hearing; directions will need to be given that the evidence, or the evidence of any particular witness or witnesses, shall be given orally or by affidavit or by pre-recorded statement or report duly sworn or affirmed by the witness before or at the hearing;
    e.  whether experts will be giving evidence at the hearing; if so, whether the Code of Conduct for experts in the High Court Rules apply;
    f.  within what time the evidence should be tendered if the evidence is to be in written form and whether the exchange of evidence be contemporaneous or sequential; and
    g.  any other matters which the Commissioner or the parties think fit and, in particular, any matters which will assist in achieving as little formality and technicality as the requirements of the Commerce Act and a proper consideration of the matter permit.

Steps to be taken at the hearing of the application

  • Are there any preliminary issues which require consideration and rulings? For example, should the hearing be open or closed to the public? Are there any confidentiality or other concerns about any aspects of the evidence to be given at the hearing?
  • The Commission should open its case and call its witnesses.
  • An opportunity must be given to the party against whom the order is sought to cross-examine any Commission witnesses.
  • An opportunity must be given to the Commission to re-examine the witnesses.
  • The Commissioner presiding may ask questions at any time.
  • It will be necessary for a transcript of the evidence to be taken. There are various transcription services available. The costs of such transcription should be borne by the Commission in the first instance.
  • After the Commission has presented its case, the question may arise as to whether the party against whom the order is sought may wish to make a submission that there is no case to answer.
  • The party against whom the order is sought should then be given the opportunity to open its case and to give and call evidence.
  • An opportunity must be given to the Commission to cross-examine the party against whom the order is sought (if the party gives evidence) and the witnesses called by that party to give evidence on its behalf.
  • An opportunity must be given to the party against whom the order is sought to re-examine the witnesses.
  • An opportunity should then be given to the person against whom the order is sought.

Back to top

Related pages