Transparency of the Regulatory System
The New Zealand government policies and laws governing competition are transparent, non-discriminatory, and consistent with international norms. New Zealand ranks highly on the World Bank’s Global Indicators of Regulatory Governance scoring a 5.4 out of a possible 6, but is marked down on indicators measuring public consultation and report availability.
Overseas investors that do not require OIO approval are generally subject to the same laws and regulations as New Zealand-based businesses.
Draft bills and regulations are generally made available for public comment, through a public consultation process, including FTAs, investment laws and regulations.
In 2008 the New Zealand Treasury became responsible for the strategic coordination of the Government’s regulatory management system. The Regulatory Quality Team (RQT) within the Treasury exercises stewardship over the regulatory management system to maintain and enhance the quality of government-initiated regulation. The Treasury’s responsibilities include the oversight of the performance of the regulatory management system as a whole and making recommendations on changes to relevant government and Parliamentary systems and processes. These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor. In its regulatory role the Treasury reports to the Minister for Regulatory Reform.
After the Government commissioned a report by the Productivity Commission into regulatory institutions and practices in 2014, it directed seven major regulatory departments – the Department of Internal Affairs (DIA), IRD, MBIE, Ministry for the Environment, Ministry of Justice, MPI, and the Ministry of Transport – to report back on the performance and condition of their regimes, and their plans for improvement, and to be transparent about how they manage their regulatory regimes.
In July 2015 the Government announced a program to lift regulatory quality and chose to implement most of the 44 recommendations set out in the Productivity Commission’s report which noted that New Zealand’s large stock of regulation was not keeping up with a changing world.
While regulations are not in a centralized location as the Federal Register, the Government now requires the major regulatory departments to publish an annual regulatory stewardship strategy.
The Minister for Regulatory Reform is supported in their role by a Parliamentary Under-Secretary, who helps to identify superfluous and redundant legislation to be repealed; oversees the implementation of the Government response to the Productivity Commission report; and provides advice to the Minister for Regulatory Reform on the capability and performance of regulators, as well as on how to improve the quality of Regulatory Impact Statements.
In 2001 Cabinet agreed that all Regulatory Impact and Business Cost Compliance Statements (RIS/BCCS) must be lodged on the responsible department’s website and that the department’s website link for each RIS/BCCS be published by the Treasury on their dedicated website: http://www.treasury.govt.nz/publications/informationreleases/ris
RIS/BCCS are prepared to support the consideration of regulatory proposals and are published at the time the relevant legislation is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release. A RIS provides a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review.
While some standards are set through legislation or regulation, the vast majority of standards are developed through Standards New Zealand, now a business unit within MBIE. The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. Standards New Zealand operates as it did previously as a Crown entity, but by moving within a government department it no longer offers membership subscription services, and instead operates on a cost-recovery basis only. The majority of standards in New Zealand are set in coordination with Australia.
In September 2016 the Statutes Repeal Bill was introduced into Parliament and aims to remove 124 pieces of legislation, and parts of eight other Acts, and will reduce the number of public Acts by more than 10 per cent. Under consideration for repeal are the Finance Act 1991 and the New Zealand Stock Exchange Restructuring Act 2002.
One law that draws consistent criticism from both foreign and domestic investors as a barrier to investment is the Resource Management Act 1991. The Act regulates access to natural and physical resources such as land and water. Critics contend that the resource management process mandated by the law is unpredictable, protracted and subject to undue influence from competitors and lobby groups. There have been several well publicized cases in which it was alleged that companies have used the objections submission process under the law to stifle competition. Investors have also raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. To address some of these concerns, the Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed. The Resource Legislation Amendment Bill, which includes about 40 individual proposals that would overhaul the 1991 Act, is currently going through the Parliamentary process.
In 2014 New Zealand joined the Open Government Partnership, and the Government published its second National Action Plan in October 2016. Areas of commitment include advancements in access to open data, public engagement, openness with the government budget process, and access to legislation.
In March 2017 management of the Government’s Open Government Information and Data Program (Open Data NZ) was transferred from LINZ to Statistics New Zealand (Stats NZ). Initiatives over the past few years include websites dedicated to helping business (Business Figures; MBIE’s Sectors Dashboard, Tourism Dashboard, and Regional Economic Activity Tools), online access for businesses to Stats NZ surveys, public consultation meetings on how to improve data supply, and the Data Futures Partnership which advocates greater data sharing and use across citizens, consumers, businesses, Māori, non-governmental organizations, and government. In the most recent open Data Barometer Global Report, New Zealand ranked fourth equal.
International Regulatory Considerations
In recent years the New Zealand Government has introduced laws to enhance regulatory coordination with Australia as part of their Single Economic Market agenda agreed to in 2009. In February 2017 the Patents (Trans-Tasman Patent Attorneys and Other Matters) Amendment Act 2016 took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, competition policy, consumer policy and the 2013 Trans-Tasman Court Proceedings and Regulatory Enforcement Treaty, which allows the enforcement of civil judgements between both countries.
In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas GAAP Exemption and the Overseas Registered Banks and Licensed Insurers Exemption Notice, which ease compliance costs on overseas entities by allowing them under certain circumstances to use United States statutory accounting principles (overseas GAAP) rather than New Zealand GAAP, and the opportunity to use an overseas approved auditor rather than require a New Zealand qualified auditor.
New Zealand is a Party to the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Standards New Zealand is responsible for operating the TBT Enquiry Point on behalf of MFAT. From 2016, Standards New Zealand became a business unit within MBIE governed under the Standards and Accreditation Act 2015. Standards New Zealand establishes techniques and processes built from requirements under the Act and from the International Organization for Standardization.
The Standards New Zealand TBT enquiry point service provides a website for producers and exporters for recently proposed TBT Notifications and associated documents such as draft or actual regulations or standards. Documents not online can be requested. They also provide businesses concerned about proposed measures contact details for the Trade Negotiations Division of MFAT.
Legal System and Judicial Independence
New Zealand’s legal system is derived from the English system and comes from a mix of common law and statute law. The judicial system is independent of the executive branch and is generally open, transparent, and effective in enforcing property and contractual rights. The highest appeals court is a domestic Supreme Court, which replaced the Privy Council in London and began hearing cases July 1, 2004. New Zealand courts are independent and impartial, and the decisions of judges are subject only to the law. The courts can recognize and enforce a judgment of a foreign court if the foreign court is considered to have exercised proper jurisdiction over the defendant according to private international law rules. New Zealand has well defined and consistently applied commercial and bankruptcy laws. Arbitration is a widely used dispute resolution mechanism inside New Zealand, and is governed by the Arbitration Act 1996, Arbitration (Foreign Agreements and Awards) Act 1982, and the Arbitration (International Investment Disputes) Act 1979.
In 2016 the omnibus Judicature Modernization Bill was passed and divided into 23 separate pieces of legislation dedicated to improving and modernizing the New Zealand court system, including allowing the use of electronic processes by courts, improving the sharing of court information through information-sharing agreements pursuant to the Privacy Act 1993, the establishment of a new judicial panel to be set up in the High Court to hear particular types of commercial cases, increasing the monetary limit of the District Court’s civil jurisdiction, and improving accessibility by requiring final written judgments to be published online.
Legislation to modernize and consolidate laws underpinning contracts and commercial transactions was enacted on March 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 Acts that date between 1908 and 2002, and will come into force on September 1, 2017.
The Interest on Money Claims Act 2016 provides for the award of interest as compensation for a delay in the payment of debts, damages, and other money claims related to civil proceedings. It introduces a single statutory system for the award of interest, aimed at providing greater certainty for the court award of interest on money claims and promoting clarity, simplicity, consistency, and aiming to deter litigation. It replaces all current legislation for the award by courts and tribunals of interest on money claims, applies to most money claims, and includes the replacement of the use of simple interest with compounding interest.
Laws and Regulations on Foreign Direct Investment
New Zealand’s regulations governing foreign investment are liberal by international standards. Overseas investments in New Zealand assets are screened only if they are defined as sensitive within the Overseas Investment Act 2005, as mentioned in the previous section. The OIO, a dedicated unit located within LINZ, administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications and whether the investment will benefit New Zealand. The government ministers for finance and for land information are responsible for assessing the OIO recommendation and making the ultimate decision. Decisions made by the government ministers on OIO applications can be appealed by the applicant in the New Zealand High Court. For more see: http://www.linz.govt.nz/regulatory/overseas-investment
In situations where New Zealand companies are acquiring capital injections from overseas investors that require OIO approval, they must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993. Failure to do so can affect the overseas company’s application process with the OIO.
Recently New Zealand’s overseas investment regime has been in the spotlight following two high profile cases prompting the Government to undertake a review and make subsequent changes to OIO regulations.
In 2015 an application was denied for China’s Shanghai Pengxin’s NZD 88 million (USD 62 million) purchase of the 13,800 hectare Lochinver farm. The denial received media attention because the OIO had recommended that the sale proceed, but the government ministers responsible for approvals were not satisfied that the purchaser could produce sufficient evidence of the “counterfactual test” referred to in the previous section 2.2. The company sought a judicial review (which was ultimately withdrawn) of the ministers’ decision, claiming the requirement was vague and could damage investor confidence in New Zealand. In response to the concern that was expressed, the New Zealand Government made public assurances that the case did not signal a change in investment policy by New Zealand.
A special interest group lodged multiple complaints over a three-year period with the New Zealand Ombudsman, relating to 108 decisions made by the OIO to withhold information redacted from some of the summaries of its decisions on applications. In 2016 the Ombudsman met with representatives of the OIO and the group, and reported that the meeting led to a review by the OIO of its procedures and a revised decision in respect of information withheld, and accepted that in many cases prices paid by applicants for OIO consent could be released.
In 2016 the Government reviewed and clarified their “good character” requirement after it emerged that farm land approved for purchase in 2013 by the OIO had been bought through a trust set up with the help of “Panama Papers” law firm Mossack Fonseca. The purchasers from Argentina had not disclosed a pollution offence they had been prosecuted (but not convicted) for relating to another of their companies. The OIO could have forced the sale of the farm land had the purchasers been convicted, however their offence had not led to conviction and the OIO instead issued a formal warning.
In addition to clarifying the “counterfactual” and “good character” tests, the Government increased resources for the OIO in response to investors’ concerns that decisions on applications were taking too long, and that the process for existing investors to lodge future applications was unduly onerous. Resources have been increased to the OIO Enforcement Team to ensure their assessment of breaches is prioritized and to determine which penalties should apply. In order to better direct resources for the applications that need more attention, the Government also introduced targeted exemptions for some investors through the Overseas Investment Amendment Regulations (No. 2) 2016 which took effect on February 1, 2017.
Opposition parties have sought to capitalize on controversial OIO cases. During 2016 two opposition political parties lodged complaints regarding two separate OIO cases. One party lodged complaints with the Companies Office and the Financial Markets Authority (subsequently dismissed) regarding alleged misrepresentation by a New Zealand company that was acquiring a capital injection from a Chinese company. The other requested the Auditor-General to investigate the failure of a Malaysian company to deliver on conditions required in their approval for land that was granted in 1996.
Competition and Anti-Trust Laws
The New Zealand Commerce Commission (ComCom) is an independent Crown entity charged with enforcing legislation that promotes competition. The key competition law statute in New Zealand is the Commerce Act 1986, which covers both restrictive trade practices and the competition aspects of merger and acquisition transactions. In addition, the Commerce Commission also enforces a number of pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries.
The Commerce Act 1986 ensures that contracts, arrangements, or understandings that have the purpose or effect of substantially lessening competition in a market are prohibited, unless authorized by the ComCom. Before granting such authorization, the ComCom must be satisfied that the public benefit would outweigh the reduction of competition.
The Act also empowers the ComCom to block a merger or takeover that would result in the new company gaining a dominant position in the market. However, the enforcement of any right under any copyright, patent, protected plant variety, registered design, or trademark does not necessarily constitute abuses of a dominant position.
In 2016 the Government announced a targeted review of the Commerce Act to investigate alternative enforcement mechanisms other than cease-and-desist, and to review Section 36 of the Act on the prohibition on misuse of market power.
In 2016 the Government announced changes to the Dairy Industry Restructuring Act 2001 (DIR) and introduced the Dairy Industry Restructuring Amendment Bill in March 2017. The DIR is the legislation that authorized the amalgamation of New Zealand’s two largest dairy co-operatives to create Fonterra Co-operative Group Limited (Fonterra). The DIR is designed to mitigate the risks associated with the substantial market power held by Fonterra, by allowing for contestability in the New Zealand raw milk market and access to other dairy goods or services supplied by Fonterra to be regulated if necessary. Among other things, the DIR requires that Fonterra must accept all applications from farmers wanting to become supplying shareholders.
In 2012 the DIR was amended to add the requirement that the ComCom review Fonterra’s Milk Price Manual, and to make final reports by December 15 each year. The DIR also empowers the Minister of Primary Industries (MPI) to call for a competition review of the dairy industry, which MPI did on June 2, 2015. The ComCom released its report in March 2016 and made recommendations to create a pathway to deregulation, for the market share thresholds to increase, and for another review to be conducted in five years’ time. The Government requested public submissions on its subsequent proposals to amend the DIR, and announced changes in October 2016. One of these changes is that Fonterra will no longer be required to sell regulated milk to large, export-focused processors from the start of the 2019/20 season.
The ComCom is also charged with monitoring the telecommunications sector. Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand has committed to the maintenance of an open, competitive environment in the telecommunications sector. Key reforms of the sector, through legislation enacted in 2001 and 2006, include the appointment of a commissioner responsible for resolving commercial disputes, the introduction of regulated services, the strengthening of the monitoring and enforcement, and the operational separation of Spark.
In 2016 the Government announced a review of the Telecommunications Act 2001 to provide certainty for the sector after 2020, and to support competition, innovation and investment in the sector. As mentioned in the previous section, Chorus Limited provides New Zealand’s telecommunications infrastructure and demerged from Spark in 2011.
Chorus won contracts from the Government to build 70 percent of New Zealand’s new ultra-fast broadband network and has received subsidies. Chorus is listed on the NZX stock exchange and the Australian Stock Exchange (ASX), and has American Depositary Shares traded on the over the counter market in the U.S. By law Chorus cannot sell directly to consumers and instead provides wholesale services to retailers. As a monopoly, the ComCom regulates Chorus charges based on what it would cost to replace the Chorus copper network, using the most efficient combination of modern technologies.
In 2013 the Government publically challenged the ComCom recommendation to lower copper broadband prices and bowed to public pressure to not override their decision, following Chorus having taken the ComCom to court over the matter. In February 2015 Spark complained the ComCom had set charges too low affecting net profit, and after a review the ComCom announced Chorus would be allowed to charge a higher rate for use of its copper network to retailers.
In February 2017 the Government announced it would take a different approach to the regulation of copper services, and focus the new regulations primarily on New Zealand’s fiber network. It is seeking feedback on proposals to change the Telecommunications Service Obligation (TSO), and in areas where fiber is available, the Government is proposing to deregulate the copper network from 2020 and remove the TSO obligation. In areas, typically rural, where fiber is not available, the TSO obligation will be retained and Chorus will be required to continue supplying copper services at prices capped at 2019 levels. For more see: www.mbie.govt.nz/telcoreview
The ComCom has a regulatory role to promote competition within the electricity industry under the Commerce Act and the Fair Trading Act 1986. As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry. In February 2017 the OECD’s International Energy Agency (IEA) released its five-yearly review of the New Zealand energy market which made recommendations for the structure, governance and regulation of the electricity distribution service sector, and for network regulation and retail market reforms to ensure efficient transmission pricing.
Recently, the motor fuel market has become more concentrated since Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron its retail brands Caltex and Challenge in 2016 to Z-Energy. Z-Energy supplies around 50 percent of the transport fuel market and the ComCom directed Z-Energy to divest 19 retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger.
The Commerce (Cartels and Other Matters) Amendment Bill is currently before Parliament. It amends the Commerce Act 1986 to strengthen civil sanctions for cartel behavior – a draft provision to criminalize cartel behavior was removed – and makes amendments to provisions regarding jurisdiction. The Bill introduces a regime to allow the ComCom to seek remedies against mergers that take place outside New Zealand but which affect competition in a New Zealand market. It allows the ComCom to apply to the New Zealand High Court for a declaration to determine if the acquisition of a controlling interest in a New Zealand company by an overseas person will have an effect of “substantially lessening” competition in a market in New Zealand.
The ComCom has two international cooperation arrangements (signed with Australia in 2013 and Canada in 2016) that allow the sharing of compulsorily acquired information, and provide investigative assistance. The arrangements help effective enforcement of both competition and consumer law. For more information see: www.comcom.govt.nz .
Expropriation and Compensation
Expropriation is generally not an issue in New Zealand, and there are no outstanding cases. New Zealand ranks first in the World Bank’s 2017 Doing Business report for “registering property” and for “protecting minority investors.”
The Public Works Act 1981 provides the Government with the statutory authority to acquire land for a public work. The Government has the power to acquire or take land for a wide variety of purposes and may negotiate for the land in the same way as a private purchaser. While the Government’s powers are wide, it can only acquire land, whether by negotiation or compulsorily, in accordance with the Act. Where voluntary agreement cannot be reached the Act provides for compulsory acquisition by the Crown through the Minister of Lands. This power is exercised only after reasonable endeavors have been made to negotiate in good faith the sale and purchase of the land. The owner has the right to object in the New Zealand Environment Court. However, the right to object relates only to the taking of the land, not to the amount of compensation payable. If the owner disagrees on the amount of compensation offered, they can request the issue of compensation be determined by the Land Valuation Tribunal. For more on landowners rights when the Government seeks to acquire private land see: http://www.linz.govt.nz/crown-property/acquisition-and-disposal-land/land-involved-public-works/landowners-rights-when-crown
In July 2016 the Government announced a USD720 million Housing Infrastructure Fund that included the possibility it was considering the use of the Public Works Act to override private title for housing developments in cities experiencing housing shortages. The Government is also considering the possibility of talking with local councils to charge an extra rate on unimproved land as a disincentive to “land banking.”
ICSID Convention and New York Convention
New Zealand is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), and to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Proceedings taken under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979. Proceedings taken under the New York Convention are now administered under the Arbitration Act 1996 [which repealed the previous relevant legislation, the Arbitration (Foreign Agreements and Awards) Act 1982].
Investor-State Dispute Settlement
Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies. The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights.
International Commercial Arbitration and Foreign Courts
Arbitrations taking place in New Zealand (including international arbitrations) are governed by the Arbitration Act 1996. The Arbitration Act includes rules based on international commercial arbitration (the United Nations Commission on International Trade Law Model). Parties to an international arbitration can opt out of some of the rules, but the Arbitration Act provides the default position.
The Arbitration Act also gives effect to the New Zealand Government’s obligations under the Protocol on Arbitration Clauses (1923), the Convention on the Execution of Foreign Arbitral Awards (1927), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Obligations under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979 as mentioned previously.
Forms of dispute resolution available in New Zealand include formal negotiations, mediation, expert determination, court proceedings, arbitration, or a combination of these methods. Arbitration methods include ‘ad hoc,’ which allows the parties to select their arbitrator and agree to a set of rules, or institutional arbitration, which is run according to procedures set by the institution. Institutions recommended by the New Zealand Government include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).
The Arbitration Amendment Act 2016 passed in October 2016, amends the Arbitration Act 1996 to provide for the appointment of an “appointed body” to exercise powers which were previously powers of the High Court. It also provides for the High Court to exercise the powers in the event that the appointed body does not act, or there is a dispute about the process of the appointed body. These amendments come into force on March 1, 2017. Further, in March 2017 the Arbitration Amendment Bill was introduced Parliament to align the definition of “arbitration agreement” with the foreign approaches to the adoption of the Model Law provisions, and would bring New Zealand law into line with foreign legislation.
Bankruptcy is addressed in the Insolvency Act 2006, the Receiverships Act 1993, and the Companies Act 1993. The Insolvency (Cross-border) Act 2006 implements the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997. It also provides the framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country; or when more than one insolvency administration has commenced in more than one country in relation to a person.
New Zealand bankrupts are subject to conditions on borrowing and international travel, and violations are considered offences and punishable by law.
In the World Bank’s Doing Business 2017 Report New Zealand is ranked 34th in “resolving insolvency”. While the insolvency framework does not require approval by creditors for the sale of substantial assets, nor provide the right to request information from the insolvency representative, the framework requires approval from creditors for the selection of the insolvency representative and gives creditors the right to object to decisions made on creditors’ claims.
The registration system operated by the Companies Office within MBIE, is designed to enable New Zealand creditors to sue an overseas company in New Zealand, rather than forcing them to sue in the country’s home jurisdiction. This avoids attendant costs, delays, possible language problems and uncertainty due to a different legal system. An overseas company’s assets in New Zealand can be liquidated for the benefit of creditors. All registered ‘large’ overseas companies are required to file financial statements under the Companies Act 1993. See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand