Summary

The Supreme Court has recently clarified the circumstances in which New Zealand's competition regulator, the Commerce Commission, can exercise its information-gathering powers.(1) It held that the commission's power to issue information-gathering notices is limited to situations in which, at the time that the notice is issued, the matter being investigated is capable of amounting to a contravention of the Commerce Act 1986. The commission cannot later justify the issuance of the notice based on information obtained pursuant thereto that may relate to some other contravention of the act. This may seem like common sense, but given the commission's frequent reliance on such notices, the decision by New Zealand's highest court is a useful confirmation of the common-sense view. 

Facts

AstraZeneca Ltd held a contract with the state's drug-funding agency, Pharmaceutical Management Agency (known as Pharmac) to supply two products, Betaloc CR and Betaloc IV. AstraZeneca's patent protection on Betaloc CR was about to expire. It sought to negotiate a new long-term agreement with Pharmac for the continued supply of Betaloc CR. During the negotiations, AstraZeneca indicated to Pharmac that losing the supply of Betaloc CR would endanger the commercial viability of Betaloc IV, which was a low-volume item with marginal profitability. 

The commission was concerned that AstraZeneca might be trying to tie the availability of the specialized Betaloc IV (for which there was no ready substitute) to the supply of the more generic Betaloc CR. It began an investigation into whether this tying or bundling conduct breached Section 36 of the act, which prohibits persons with substantial market power from taking advantage of that power for specified anti-competitive purposes in the market in question or another market. 

The commission issued a notice under Section 98 of the act whereby it compelled AstraZeneca to provide it with all documents and information relating to the possible tie between Betaloc CR and Betaloc IV. Section 98 empowers the commission to compel a person, by notice or in writing, to furnish information, produce documents or give evidence which it considers necessary or desirable for the purpose of carrying out its functions or exercising its powers under the act.

AstraZeneca sought a judicial review of the commission's decision to issue the Section 98 notice. It contended that an exemption relating to Pharmac in Section 53 of the New Zealand Public Health and Disability Act 2000 meant that the commission had exceeded its powers, rendering the notice invalid and of no effect. Section 53 provides that the restrictive trade practices sections of the Commerce Act do not apply to (i) agreements entered into with Pharmac that relate to pharmaceuticals paid for by the state, or (ii) anything done for the purposes of entering into, or giving effect to, such agreements. Consequently, AstraZeneca contended that its actions could not constitute a breach of the Commerce Act and the commission did not have sufficient grounds to issue the Section 98 notice.

The High Court and the majority of the Court of Appeal rejected AstraZeneca's argument and held that the notice was valid. 

Decision

The Supreme Court overturned the decisions of the lower courts and held that the Section 98 notice was ultra vires and invalid. 

The court held that the commission's power to issue a Section 98 notice is limited to the investigation of an activity which is capable of being found to be unlawful under the Commerce Act. An activity that is plainly not unlawful (eg, by reason of the Section 53 exemption) cannot be investigated or be the subject of a Section 98 notice. Furthermore, the court commented that the commission cannot issue a Section 98 notice merely in the hope that the response may reveal some unsuspected anti-competitive conduct that is outside the scope of the investigation to which the notice relates. Rather, the commission must have a reasonable basis - when issuing the notice - to believe that the matter identified in the notice is capable of amounting to a contravention of the act. The commission cannot issue a Section 98 notice and have its power to do so judged retrospectively by reference to what it may discover from a 'fishing expedition' under that notice. 

Turning to the facts of the case, the court found that although AstraZeneca appeared to be seeking to tie the availability of Betaloc IV to the supply of Betaloc CR, its purpose in taking this position must have been to obtain an agreement with Pharmac for the continued supply of Betaloc CR. Since AstraZeneca's objective was to reach agreement with Pharmac, the Section 53 exemption applied. When the commission issued its notice, it should have appreciated that AstraZeneca's actions fell within the exemption and could not amount to a breach. For these reasons, the Supreme Court held that the commission had had no proper basis for issuing the notice. 

Comment

This is the first Supreme Court decision on the lawful exercise of the commission's information-gathering powers. Although the decision turns largely on the interpretation of the exemption in the New Zealand Public Health and Disability Act, it clarifies the circumstances in which the commission can exercise its power to issue an information-gathering notice. It definitively clarifies that the subject matter of the commission's investigation must be capable of amounting to a contravention of the Commerce Act before the commission can issue a Section 98 notice. This interpretation of Section 98 confirms that New Zealand's approach is consistent with that of Australia in this area.

Endnotes

(1) AstraZeneca Limited v Commerce Commission [2009] NZSC 92.