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 high on the World Bank’s Global Indicators of Regulatory Governance, scoring 4.25 out of a possible 5, but is marked down in part for a lack of transparency in departments’ individual forward regulatory plans, and the development of the government’s annual legislative program (for primary laws), for which the Ministers responsible do not make public.
While regulations are not in a centralized location in a form similar to the United States Federal Register, the New Zealand government requires the major regulatory departments to publish an annual regulatory stewardship strategy.
Draft bills and regulations including those relating to FTAs and investment law, are generally made available for public comment, through a public consultation process. In a few instances there has been criticism of New Zealand governments choosing: following a “truncated” or shortened public consultation process or adding a substantive legislative change after public consultation through the process of adding a Supplementary Order Paper to the Bill.
The Regulatory Quality Team within the New Zealand Treasury is responsible for the strategic coordination of the Government’s regulatory management system. 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 government and Parliamentary systems and processes. These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor. New Zealand’s seven major regulatory departments are the Department of Internal Affairs, IRD, MBIE, Ministry for the Environment, Ministry of Justice, the Ministry for Primary Industries, and the Ministry of Transport.
In recent years there has been a revision to the Regulatory Impact Assessment (RIA) requirements in order to help New Zealand’s regulatory framework keep up with global standards. To improve transparency in the regulatory process, RIAs are published on the Treasury’s website at the time the relevant bill is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release. A RIA 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.
MBIE is responsible for the stewardship of 16 regulatory systems covering about 140 statutes. In 2018 the government introduced three omnibus bills that contain amendments to legislation administered by MBIE, including economic development, employment relations, and housing: https://www.mbie.govt.nz/cross-government-functions/regulatory-stewardship/regulatory-systems-amendment-bills/. The government’s objective with this package of Regulatory Systems Amendment Bills is to ensure that they are effective, efficient, and accord with best regulatory practice by providing a process for making continuous improvements to regulatory systems that do not warrant standalone bills.
The vast majority of standards are developed through Standards New Zealand, which is a business unit within MBIE, operating on a cost-recovery basis rather than a membership subscription service as previously. The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. The majority of standards in New Zealand are set in coordination with Australia.
The Resource Management Act 1991 (RMA) has drawn criticism from both foreign and domestic investors as a barrier to investment in New Zealand. The RMA 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. In some cases companies have been found to exploit the RMA’s objections submission process to stifle competition. Investors have raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. The Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed to help address these concerns.
The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA. It contains almost 40 amendments and makes significant changes to five different Acts including the RMA, the Conservation Act 1986, Reserves Act 1977, Public Works Act 1981, and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2013. Broadly, the RLAA attempts to balance environmental management with the need to increase capacity for housing development. It also aims to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation.
The Public Works Act (PWA) 1981 enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation. New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and enable infrastructure development. Compulsory acquisition is exercised only after an acquiring authority has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement. The land owner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the compensation, land acquisition, and Environment Court objection provisions.
The Land Transfer Act came into force in November 2018. It aims to simplify and modernize the law to make it more accessible and to improve certainty of property rights. It empowers courts with limited discretion to restore a landowner’s registered title in cases of manifest injustice.
New Zealand enhanced its accountability and transparency by joining the Open Government Partnership in 2014. Some of the 12 areas of commitment outlined in New Zealand’s third National Action Plan 2018-2020 include: make New Zealand’s secondary legislation readily accessible, public participation in policy development, and increase the visibility of government’s data stewardship: http://ogp.org.nz/new-zealands-plan/third-national-action-plan-2018-2020/. In March 2018, New Zealand signed the Open Data Charter, which has been adopted by 69 governments. Statistics New Zealand is responsible for the management of the Government’s Open Government Information and Data Program: https://www.data.govt.nz/open-data/open-government-data-programme/open-data-nz/.
The Official Information Act 1982 (OIA) enables people to request official information held by Ministers and specified government agencies. It contains rules on how such requests be handled and provides a right to complain to the Ombudsman in certain situations. The Office of the Ombudsman, the Ministry of Justice and, more recently, the State Services Commission provide guidance to help improve agencies’ performance on OIA practice and reporting on their compliance with the OIA.
The government is determining whether a full review of the OIA is needed by conducting a targeted engagement facilitated by the Ministry of Justice. A public consultation process is open for a six week period in early 2019. This is in response to criticism of the government’s failure to be fully transparent on the performance of departments responding to OIA requests within the 20-working day deadline, with requests to the NZ Police (who receive about one-third of all OIA requests) being excluded from statistics reported by the State Services Commission (SSC). In the last six months of 2018, NZ Police and the Earthquake Commission were responsible for more than half of all late OIA responses. The SSC also removes NZ Defense Force requests from the reporting statistics. In addition to timeliness, quality was found to be an issue in a media investigation that found of the 723 complaints to the Ombudsman during the same six months, only one fifth related to delays, more than half (51 per cent) of complaints related to requests being partially or fully refused: https://www.stuff.co.nz/national/111181806/redacted–our-official-information-problems-and-how-to-fix-them.
The Government of New Zealand is generally transparent about its public finances and debt obligations. The annual budget for the government and its departments publish assumptions, and implications of explicit and contingent liabilities on estimated government revenue and spending.
International Regulatory Considerations
In recent years the Government of New Zealand 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 took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, food safety, 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.
New Zealand Medicines and Medical Devices Safety Authority (Medsafe), a business unit within the Ministry of Health, rules on applications for consent to distribute new and changed medicines and therapeutic products in New Zealand. In their guidelines, Medsafe advises applicants that the technical data requirements applying in New Zealand are closely aligned with those currently applying in the European Union: https://medsafe.govt.nz/regulatory/current-guidelines.asp. Medsafe also recognizes the technical guidelines published by the United States Food and Drug Administration (FDA). When guidelines issued by the International Conference on Harmonization, or the Committee for Proprietary Medicinal Products, or the FDA are formally adopted and come into force in the EU or the United States, then they are recognized by Medsafe. While there is substantial harmonization between New Zealand and Australia for requirements showing evidence of the quality, safety and efficacy of medicines, there are Australian-specific requirements for some aspects of the quality control and stability data that are not relevant to New Zealand.
The Privacy Bill – if enacted – aims to bring New Zealand privacy law into line with international best practice, including the 2013 OECD Privacy Guidelines and the European General Data Protection Regulation (GDPR).
In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas Generally Accepted Accounting Principles (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.
In 2019, the government introduced the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill to Parliament to better align New Zealand’s financial markets law with new international regulations, to help strengthen the resilience of global financial markets. If enacted, the bill will help financial institutions maintain access to offshore funding markets and help ensure institutions – that rely on derivatives to hedge against currency and other risks – can invest and raise funds efficiently.
New Zealand is a Party to 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 administered 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 operates as a service for producers and exporters to search for proposed TBT Notifications and associated documents such as draft or actual regulations or standards. They also provide contact details for the Trade Negotiations Division of MFAT to respond to businesses concerned about proposed measures. https://www.standards.govt.nz/international-engagement/technical-barriers-to-trade/
In 2017 the government established a website to provide a centralized point of contact for businesses to access information and support on non-tariff trade barriers (NTB). The online portal allows exporters to report issues, seek government advice and assistance with NTBs and other export issues. Exporters can confidentially register a trade barrier, and the website serves to track and trace the assignment and resolution across agencies on their behalf. It also provides the government with an accurate and timely report of NTBs and other trade issues encountered by exporters, and involves the participation of Customs, MFAT, MPI, MBIE, and NZTE. https://tradebarriers.govt.nz/
New Zealand ratified the WTO Trade Facilitation Agreement (TFA) in September 2015 and entered into force in February 2017. New Zealand was already largely in compliance with the TFA which is expected to benefit New Zealand agricultural exporters and importers of perishable items to enhanced procedures for border clearances.
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 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 and is governed by the Arbitration Act of 1996, Arbitration (Foreign Agreements and Awards) Act of 1982, and the Arbitration (International Investment Disputes) Act 1979.
In 2016, the omnibus Judicature Modernization Bill was passed to improve and consolidate older pieces of legislation governing the New Zealand court system. The legislation enables the sharing of court information, the establishment of a new judicial panel to hear certain commercial cases, increases the monetary limit of the District Court’s civil jurisdiction, and improves accessibility to final written judgments by publishing them online.
In 2018, the government continued efforts to modernize and improve the efficiency of the courts and tribunals system, by passing the Court Matters Bill and the Tribunal Powers and Procedures Legislation Bill. Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect on September 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 acts that date between 1908 and 2002. The Private International Law (Choice of Law in Tort) Act, passed in December 2017, clarifies which jurisdiction’s law is applicable in actions of tort and abolishes certain common law rules, and establishes the general rule that the applicable law will be the law of the country in which the events constituting the tort in question occur.
Laws and Regulations on Foreign Direct Investment
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 Land Information New Zealand (LINZ), administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and whether the investment will benefit New Zealand. Ministerial Directive Letters are issued by the Government to instruct the OIO on their general policy approach, their functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the Act.
The government ministers for finance, land information, and primary industries (where applicable) are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications. Ministers’ decisions 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.
The OIO Act allows for instances when Ministers may confer a discretionary exemption from the requirement to seek OIO consent. Section 61D is sufficiently broad to enable Ministers to exercise their exemption power for unexpected or unusual circumstances that may not otherwise be provided for: http://legislation.govt.nz/act/public/2005/0082/latest/LMS112019.html . Overseas persons seeking an exemption must contact the OIO before submitting their application.
The LINZ website reports on enforcement actions they have taken against foreign investors, including the number of compliance letters issued, the number of warnings and their circumstances, referrals to professional conduct body in relation to an OIO breach, and disposal of investments: https://www.linz.govt.nz/overseas-investment/enforcement/enforcement-action-taken .
The government has made several changes to regulations and legislation governing foreign investment over the past year, and has signaled further changes by issuing a discussion document for public consultation.
In December 2017, the government introduced regulatory changes that place greater emphasis on the assessment of significant economic benefits to New Zealand. For forestry investments, the OIO is required to place importance on investments that result in increased domestic processing of wood and advance government strategies. For rural land, importance is placed on the generation of economic benefits which were previously seldom applied for lifestyle rural property purchases that previously relied on non-economic benefits to gain OIO approval.
In addition to placing emphasis on economic benefits, the government issued new rules that reduced the area threshold for foreign purchases of rural land so that approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size,” which was about 7,146 hectares for sheep and beef farms, and 1,987 hectares for dairy farms. Foreign investors can still purchase rural land less than five hectares but the government said it intends to introduce other measures to discourage “land bankers,” or investors holding onto land for speculative purposes. In its final report the Tax Working Group recommended a land tax to be levied by councils as a local tax. A feasibility report is expected in November 2019.
In the same Directive Letter from December 2017, the government issued new rules that overseas investors intending to reside in New Zealand, move within 12 months and become ordinarily resident within 24 months.
[OIO: Residential Property Land:]
As part of the government’s policy to improve housing affordability and reduce speculative behavior in the housing market, the Overseas Investment Amendment Act passed in August 2018 to bring residential land within the category of “sensitive land.” Residential land is defined as land that has a category of residential or lifestyle within the relevant district valuation roll; and includes a residential flat (apartment) in a building owned by a flat-owning company which could be on residential or non-residential land.
From October 2018 the Overseas Investment Act generally requires persons who are not ordinarily resident in New Zealand to get OIO consent to purchase residential homes on residential land. Australian and Singaporean citizens are exempt due to existing bilateral trade agreements. To avoid breaching the Act, contracts to purchase residential land must be conditional on getting consent under the Act – entering into an unconditional contract will breach the Act. All purchasers of residential land (including New Zealanders) will need to complete a statement confirming whether the Act applies, and solicitors/conveyancers cannot lodge land transfer documents without that statement. The government introduced a standing consent for qualifying overseas purchasers who may be granted pre-approval in advance of finding a specific property to buy. A standing consent cannot be used for land that is sensitive for another reason such as land that adjoins a reserve.
Overseas persons wishing to purchase one home on residential land will need to fulfil a “commitment to reside test.” Applicants must hold the appropriate non-temporary visa (those on student visas, work visas, or visitor visas cannot apply), have lived in New Zealand for the immediate preceding 12 months and intend to reside in the property being purchased. If the applicant stops living in New Zealand they will have to sell the property: https://www.linz.govt.nz/overseas-investment/information-for-buying-or-building-one-home-live .
OIO applicants not intending to reside will generally need to show: (1) they will convert the land to another use such as a business and are able to demonstrate this would have wider benefits to New Zealand; or (2) they will be developing the land and adding to New Zealand’s housing supply. Applicants seeking approval under the latter – the “increased housing test” – must intend to increase the number of dwellings on the property by one or more, and they cannot live in the dwelling/s once built (the “non-occupation condition”). If approved, applicants must also on-sell the dwelling/s, unless they are building 20 or more new residential dwellings and they intend to provide a shared equity, rent-to-buy, or rental arrangement (the “on-sale condition”).
The amended Act also imposes restrictions on overseas persons buying into new residential property developments. Where pre-sales of the new residential dwellings are an essential aspect of the development funding, overseas purchasers may be able to rely on the “increased housing” test, although they will be subject to the on-sale and non-occupation conditions. Otherwise, individual purchasers must apply for OIO consent and meet the “commitment to reside test,” or make their purchase conditional on receiving an “exemption certificate” held by an apartment developer.
According to the OIO Regulations, developers can apply for an exemption certificate allowing them to sell 60 percent of the apartments “off the plan” to overseas buyers without those buyers requiring OIO consent: http://legislation.govt.nz/regulation/public/2005/0220/latest/LMS109607.html . The overseas buyer would not have to fulfil the on-sale condition but will have to meet the non-occupation condition. A purchaser wishing to buy an apartment to which the exemption certificate does not apply, must apply for consent and if approved comply with the on-sale and non-occupation conditions according to Schedule 3 Section 4 (5) under the OIO Act: http://legislation.govt.nz/act/public/2005/0082/latest/LMS111210.html .
Ministers may exercise discretion to waive the on-sale condition if an overseas person is applying for consent to acquire an ownership interest in an entity that holds residential land in New Zealand, if the overseas person is acquiring less than a 50 percent ownership interest or if they are acquiring an indirect ownership interest (i.e. through another entity). Exemptions can also apply for long-term accommodation facilities, hotel lease-back arrangements, retirement village developments, and for network utility companies needing to acquire residential land to provide essential services.
The elected government in 2017 indicated that forestry would be a priority in boosting regional development, and introduced it as its own portfolio: https://www.beehive.govt.nz/portfolio/labour-led-government-2017-2020/forestry . The government also included the Forest Land directive as mentioned in the previous page.
In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the screening of investments that exists for leasehold and freehold forestry land. In the OIO Amendment Act passed in August 2018, forestry rights and residential land, were brought in under the asset class of sensitive land: http://legislation.govt.nz/act/public/2018/0025/latest/DLM7512906.html . Overseas investors wanting to purchase up to 1,000 hectares of forestry rights per year or any forestry right of less than three years duration, do not generally require OIO approval.
Overseas investors can apply for consent to buy or lease land that is in forestry, or land to be used for forestry, or to buy forestry rights. In addition to meeting the “benefit to New Zealand test”, applicants have two other options if they wish to buy or lease land for forestry purposes (including converting farmland to forestry) or purchase forestry rights, the Special Forestry Test, and the Modified benefits test.
The Special Forestry Test is the most streamlined test, and is used to buy forestry land and continue to operate it with existing arrangements remaining in place, such as public access, protection of habitat for indigenous plants and animals, and historic places, as well as log supply arrangements. The investor would be required to replant after harvest, unless exempted, and use the land exclusively or nearly exclusively for forestry activities. The land can be used for accommodation only to support forestry activities.
The modified benefits test is suitable for investors who will use the land only for forestry activities, but cannot maintain existing arrangements relating to the land, such as public access. The investor would need to pass the “benefit to New Zealand” test, replant after harvest, and use the land exclusively or nearly exclusively for forestry activities.
[OIO Phase 2: Monopolies]
In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation: https://treasury.govt.nz/publications/consultation/glance-overseas-investment-new-zealand . The rules would increase ministers’ ability to decline applications from foreign investors wanting to buy New Zealand assets, on the grounds of national security. The government said they were mainly focusing the level of discretion on blocking the sale of large pieces of infrastructure that had “monopoly characteristics” and that were important to the functioning of the wider economy, on “national interest” grounds. Public consultations will take place in 2019 and the government plans to pass any changes to the law it decides on in 2020.
[OIO Phase 2: Water Bottling]
After campaigning in the general election on introducing a “water tax,” the government announced in April 2019 as part of its second phase of the overseas investment review whether more consideration be given to the regulations around planned water extraction or bottling on environmental, economic, and cultural wellbeing. There has been concern about the extraction of water, particularly for water bottling for export, and the profit that overseas companies gain from a high-value resource without paying a charge. Water bottling is a small industry in New Zealand, accounting for less than 0.02 percent of total New Zealand water use in 2016. Currently, only a small proportion of water bottled is for export purposes, with the majority of consumption occurring within New Zealand. The consultation document outlines two options to regulate water bottling for export.
[Non-OIO: Bright Line Test for Residential Investment:]
Outside of the OIO framework, the previous government passed the Taxation (Bright-line Test for Residential Land) Bill. Under this Act, properties bought after October 1, 2015 will accrue tax on any gain earned if the house is bought and sold within two years, unless it is the owner’s main home. The bill requires foreign purchasers to have both a New Zealand bank account and an IRD tax number, and will not be entitled to the “main home” exception. The purchaser will also need to submit other taxpayer identification number held in countries where they pay tax on income. To assist the IRD in ensuring investors meet their tax obligations, legislation was passed in 2016 that empowered LINZ to collect additional information when residential property is bought and sold, and to pass this information to the IRD.
In March 2018, the new government passed legislation to extend the “bright-line test” from two to five years as a measure to further deter property speculation in the New Zealand housing market.
[Non-OIO: Oil and Gas Ban:]
In the Energy and Mining sector the government passed the Crown Minerals (Petroleum) Amendment Act in November 2018, to restrict the acreage available for new oil and gas exploration permits to the onshore Taranaki region only. The policy is part of the government’s efforts to transition away from fossil fuels, and achieve their goal to have net zero emissions by 2050. The annual Oil and Gas Block Offers program has been operational since 2012 as a means to raise New Zealand’s profile among international investors in the allocation of petroleum exploration permits.
There are currently about 20 offshore permits covering 38,000 square miles that will have the same rights and privileges as before the law came into force, and will continue operation until 2030. If those permit holders are successful in their exploration, the companies could extract oil and gas from the areas beyond 2030. The ban does not cover the Taranaki area onland, where exploration licenses will still be available for the next three years.
The government estimates there is ten years’ worth of gas to be explored or mined under consented reserves, and also additional supplies from gas discovered in existing permits. Analysis on the impact to the New Zealand economy has been primarily limited to the fiscal impact to the Government through taxes and royalties which is contained in the Regulatory Impact Statement (RIS) prepared in support of the law. The RIS was conducted after the policy had already been announced in April 2018.
Competition and Anti-Trust Laws
The Commerce Act of 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission, an independent Crown entity. Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to deny an application for a merger or takeover if it would result in the new company gaining a dominant position in the New Zealand market. In addition, the Commerce Commission 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. In order to monitor the changing competitive landscapes in these industries, the Commerce Commission conducts independent studies, currently including fiber networks (https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/fibre-services-study ), mobile phones (https://comcom.govt.nz/regulated-industries/telecommunications/projects/mobile-market-study ), and retail petrol (https://comcom.govt.nz/about-us/our-role/competition-studies/market-study-into-retail-fuel ).
In 2018 the government passed the Commerce Amendment Act to empower the Commerce Commission to undertake market (“competition”) studies where this is in the public interest in order to improve the agency’s enforcement actions without having to go to court. The Government introduced a market studies power to align the Commerce Commission with competition authorities in similar jurisdictions.
Market studies may be initiated by the Minister of Commerce and Consumer Affairs, or by the Commerce Commission on its own initiative. The Act allows settlements to be registered as enforceable undertakings so breaches can be quickly penalized by the courts, and saves the Commission from the expense and uncertainty of litigation. The amendment also repeals the cease-and-desist regime in the 1986 Commerce Act, and strengthens the information disclosure regulations for airports.
In November 2018, Parliament amended the Telecommunications Act to regulate the new fiber networks being rolled out for the national ultrafast broadband initiative: https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/implementation-of-the-new-regulatory-framework-for-telecommunications . The Act introduced a utility-style regulatory regime, similar to what exists for energy networks and airports, and has set the Commerce Commission the task of also regulating fiber networks, which they will implement a framework for over the next three years.
The Dairy Industry Restructuring Act of 2001 (DIR) 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 manage Fonterra’s dominant position in the dairy market, until sufficient competition has emerged. A review by the Commerce Commission in 2016 found competition was not yet sufficient to warrant the removal of the DIR provisions, but it made recommendations to create a pathway to deregulation. One of the most contentious issues in the Act was the issue of open entry, which requires Fonterra to accept all milk from new suppliers. The co-operative claims this part of the legislation is no longer needed because the dairy industry had become highly competitive in recent years. The government is continuing its review of the DIR it embarked on in 2017 to determine if the Act still meets its objectives, if it has created unintended consequences, and if it is still needed in its current form: https://www.mpi.govt.nz/law-and-policy/legal-overviews/primary-production/dairy-industry-restructuring-act/dairy-industry-restructuring-act-2001-review/ .
The Commerce Commission is also charged with monitoring competition in 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.
Following a four-year government review of the Telecommunications Act of 2001, the Telecommunications (New Regulatory Framework) Amendment Bill passed in November 2018. It establishes a regulatory framework for fiber fixed line access services; removes unnecessary copper fixed line access service regulation in areas where fiber is available; streamline regulatory processes; and provides more regulatory oversight of retail service quality. The amendment requires the Commerce Commission to implement the new regulatory regime by January 2022.
Chorus won government contracts to build 70 percent of New Zealand’s new ultra-fast broadband fiber-optic cable network and has received subsidies. Chorus is listed on the NZX stock exchange and the Australian Stock Exchange. From 2020, Chorus and the local fiber companies are required under their open access deeds to offer an unbundled mass-market fiber service on commercial terms.
The telecommunications service obligations (TSO) regulatory framework established under the Telecommunications Act of 2001 enables certain telecommunications services to be available and affordable. A TSO is established through an agreement under the Telecommunications Act between the Crown and a TSO provider. Currently there are two TSOs. Spark (supported by Chorus) is the TSO Provider for the local residential telephone service, which includes charge-free local calling. Sprint International is the TSO Provider for the New Zealand relay service for deaf, hearing impaired and speech impaired people. Under the Telecommunications (New Regulatory Framework) Amendment Bill, the TSOs which apply to Chorus and Spark will cease to apply in areas which have fiber. Consumers in these areas will have access to affordable fiber-based landline and broadband services.
Radio Spectrum Management (RSM) is a business unit within MBIE that is responsible for providing advice to the government on the allocation of radio frequencies to meet the demands of emerging technologies and services. Spectrum is allocated in a manner that ensures radio spectrum provides the greatest economic and social benefit to New Zealand society. The allocation of spectrum is a core regulatory issue for the deployment of 5G in New Zealand. The Commerce Commission is conducting a study during 2019 of the mobile network operators, and in part will look into whether the process for 5G spectrum allocation will impact the ability of new mobile network operators to enter the market.
In March 2019, the government announced it freed up space on the spectrum in order for a fourth mobile network operator to compete with the three existing ones. In order to do so, the three existing operators lost parts of their spectrum, for which sources criticized the government, claiming they supported competition in principle but questioned the ability of the New Zealand market to cope with another operator: https://www.stuff.co.nz/business/111304958/government-clears-path-for-new-entrant-to-take-on-spark-vodafone-and-2degrees . The Government claims it needs to keep some of that spectrum in reserve to retain flexibility and it might be used for new technologies or by the emergency services network. The Government announced the first auction of 5G spectrum will be in early 2020, and ready for use by November 2022. The Government is also considering a cap on the amount of 5G spectrum given to a single operator to prevent monopolistic behavior, but also to set aside spectrum to deal with potential Treaty of Waitangi issues.
The Commerce Commission 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. The Commerce Commission is in the process of setting the default price-quality path that will apply to electricity distributors from 2020 to 2025. In its five-yearly review of the New Zealand energy market, the International Energy Agency made recommendations in 2017 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. The New Zealand government has commissioned an independent Expert Advisory Panel to lead a review into electricity prices to investigate whether the electricity market is delivering a fair and equitable price to end-consumers. The review will also consider possible improvements to ensure the market and its governance structure will be appropriate in a changing technological environment.
The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron sold its retail brands Caltex and Challenge to New Zealand fuel distributor Z-Energy in 2016. The Commerce Commission approved Z-Energy’s application to acquire 100 percent of the shares in Chevron New Zealand on the condition it divest 19 of its retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger. Z-Energy holds almost half of the market share for fuel distribution in New Zealand. In December 2018 the Commerce Commission commenced a market study looking into the factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand. The purpose of the study is to consider and evaluate whether competition in the retail fuel market is promoting outcomes that benefit New Zealand consumers over the long-term. A final report is due December 2019.
In August 2017 the Commerce (Cartels and Other Matters) Amendment Act was passed to enable easier enforcement action against international cartels. It created a new clearance regime allowing firms to test their proposed collaboration with the Commerce Commission and get greater legal certainty before they enter into the arrangements. It expanded prohibited conduct to include price fixing, restricting output, and allocating markets, and expands competition oversight to the international liner shipping industry. It empowers the Commerce Commission 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.
In April 2019, the government passed the Commerce (Criminalization of Cartels) Amendment Bill to criminalize cartel behavior – a provision was removed from the 2017 amendment part-way through its passage through the Parliament. The amendment means that individuals convicted of engaging in cartel conduct – price fixing, restricting output, or allocating markets – will face fines of up to NZD 500,000 (USD 340,000) and/or up to seven years imprisonment. Business have been given two years to ensure compliance before the criminal sanctions enter into force. While not a significant issue in New Zealand, the government believes criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete, and aligns New Zealand with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.
In January 2019, the Government announced proposed amendments to section 36 of the Commerce Act, which relates to the misuse of market power. The government is seeking consultation on repealing sections of the Commerce Act that shield some intellectual property arrangements from competition law, in order to prevent dominant firms misusing market power by enforcing their patent rights in a way they would not do if it was in a more competitive market. It also seeks to strengthen laws and enforcement powers against the misuse of market power by aligning it with Australia and other developed economies, particularly because New Zealand competition law currently does not prohibit dominant firms from engaging in conduct with an anti-competitive effect. Section 36 of the Act only prohibits conduct with certain anti-competitive purposes.
The Commerce Commission has international cooperation arrangements with Australia since 2013 and Canada since 2016, to allow the sharing of compulsorily acquired information, and provide investigative assistance. The arrangements help effective enforcement of both competition and consumer law.
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 government’s KiwiBuild program aims to build 100,000 affordable homes over ten years, with half being in Auckland. The government has indicated it will use compulsory acquisition under the PWA if necessary, to achieve planned government housing development.
The lack of precedent for due process in the treatment of residents affected by liquefaction of residential land caused by the Canterbury earthquake in 2011 resulted in drawn out court cases against the Government based largely on the compensation offered. Several large areas of residential land in Christchurch were deemed “red zones,” meaning there had to be significant and extensive area wide land damage, the extent of the damage required an area-wide solution, engineering solutions would be uncertain, disruptive, not timely, and not cost-effective, and the health and well being of residents was at risk from remaining in the area for prolonged periods.
In August 2015 the Government offered the 2007 value of all land and of insured homes, but did not offer to pay for uninsured homes, affecting about 100 homeowners. More than 7,000 people accepted red-zone buy-out offers, about 135 did not, with some wanting to stay on in their homes. The Christchurch City council is legally required to provide services to the red zone, such as collecting sewage which it did initially did. A group of 16 red-zone residents who had sold their uninsured properties ultimately won a case in 2017, when a Court of Appeal judgment ruled the Government made an “unlawful” decision to discriminate against uninsured homeowners. A previous offer made in 2012, for 50 per cent of the rateable value to owners of uninsured Christchurch red zone land was deemed unlawful in the Court of Appeal in 2013. The government has demolished about 7,000 homes in the flat land red zone, or about 99 per cent of Crown owned properties: https://www.linz.govt.nz/crown-property/types-crown-property/christchurch-residential-red-zone.
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.
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.
Investment disputes brought against other foreigners by the New Zealand government have been largely due to non-compliance of the investors’ obligations under the OIO Act or their failure to gain OIO approval before making their investment.
Most of New Zealand’s recently enacted FTAs contain Investor-State Dispute Settlement (ISDS) provisions, and to date no claims have been filed against New Zealand. The current Government has signaled it will seek to remove ISDS from future FTAs, having secured exemptions with several CPTPP signatories in the form of side letters. ISDS claims challenging New Zealand’s tobacco control measures – under the Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act 2016 – cannot be made against New Zealand under CPTPP.
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 the United Nations Commission on International Trade Law (UNCITRAL) and its 2006 amendments. 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.
The New Zealand Dispute Resolution Centre (NZDRC) is the leading independent, nationwide provider of private commercial, family and relationship dispute resolution services in New Zealand. It also provides international dispute resolution services through its related entity, the New Zealand International Arbitration Centre (NZIAC). The NZDRC is willing to act as an appointing authority, as is the Arbitrators’ and Mediators’ Association of New Zealand (AMINZ).
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).
An amendment to the Arbitration Act 1996 in March 2017 provided 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. Since then the Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court. In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.
In May 2019 the Arbitration Amendment Bill was passed to bring New Zealand’s policy of preserving the confidentiality of trust deed clauses in line with foreign arbitration legislation and case law. The amendment means arbitration clauses in trust deeds are given effect to extend the presumption of confidentiality in arbitration to the presumption of confidentiality in related court proceedings under the Act because often such cases arise from sensitive family disputes.
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.
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 of 1993. See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand
The Insolvency and Trustee Service (the Official Assignee’s Office) is a business unit of MBIE. The Official Assignee is appointed under the State Sector Act of 1988 to administer the Insolvency Act of 2006, the insolvency provisions of the Companies Act of1993 and the Criminal Proceeds (Recovery) Act of 2009. The Official Assignee administers all bankruptcies, No Asset Procedures, Summary Installment Orders, and some liquidations. The Official Assignee administers bankruptcies and liquidations by collecting and selling assets to repay creditors. It will ask the bankrupt or company directors for information to help them identify and deal with the assets. The money recovered is paid to creditors who have made a claim, and the order in which payments are made is set out in the relevant Acts. Creditors can log in to the Insolvency and Trustee Service website to track the progress of the administration and how long it is likely to take. The time will depend on several things such as the type and number of assets the debtor has.
In the World Bank’s Doing Business 2019 Report New Zealand is ranked 31st in “resolving insolvency”. Despite a high recovery rate (84.1 cents per dollar compared with 70.5 cents for the average across high-income OECD countries), New Zealand scores lower on the strength of its insolvency framework. Specific weaknesses identified in the survey include the management of debtors’ assets, the reorganization proceedings, and particularly on the participation of creditors. The survey notes New Zealand’s insolvency framework does not require approval by the creditors for sale of substantial assets, nor does it provide creditors the right to request information from the insolvency representative.
In August 2018, the government revived the Insolvency Practitioners Bill by reopening public consultation and Select Committee review, after the bill stalled in 2013. The government has made significant changes to the bill, aiming to introduce a coregulatory licensing framework, rather than a “negative licensing system” that would have empowered the Registrar of Companies to ban people from acting as a liquidator or receiver. As the revised bill currently stands, insolvency practitioners would be required to be licensed by an accredited body under a new stand-alone Act. In addition, the bill requires that insolvency practitioners would have to provide information and assistance to an insolvency practitioner that replaces them; imposes obligations on insolvency practitioners to provide detailed reports on insolvency engagements; and empowers courts to compensate people suffering as a result of an insolvency practitioner’s failure to comply with any relevant laws and sanction insolvency practitioners who fail to comply with any relevant laws.