Commerce Commission v Objective Corporation Ltd
| Jurisdiction | New Zealand |
| Judge | Palmer J |
| Judgment Date | 29 July 2022 |
| Neutral Citation | [2022] NZHC 1864 |
| Docket Number | CIV-2022-485-29 |
| Court | High Court |
UNDER the Commerce Act 1986
[2022] NZHC 1864
Palmer J
CIV-2022-485-29
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-A-TARA ROHE
Commercial — penalty decision for breaching the Commerce Act 1986 — the defendant purchased competing companies offering specialised software for building projects — substantially lessening competition in a market — approach to agreed penalty hearings
J S Cooper QC, F J Cuncannon and P I C Comrie-Thomson for the Plaintiff
J H Stevens and G M Shewan for the Defendant
Objective Corporation Ltd (Objective) is a multinational software company, listed in Australia. In April 2019, Objective acquired 100 per cent of the shares of Omega Group Holdings Ltd and Alpha 88 Ltd, which offers a specialised building consent cloud-based software product called AlphaOne (now rebranded as Objective Alpha). In October 2019, Objective entered an agreement to purchase all the shares of Master Business Systems Ltd (MBS), which offers a specialised building consent software product called GoGet and had a 50 per cent interest in a joint venture that supplied a related cloud-based website portal, the Simpli Portal. These companies were each other's closest competitors in New Zealand for the supply of software for building consent authorities to assist in, and digitise, the building consent process.
Objective accepts that, given its first acquisition, its second acquisition contravened s 47 of the Commerce Act 1986 (the Act). Section 47 prohibits acquisition of assets of, or shares in, a business if “the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market”. The market is the New Zealand market for the supply to building consent authorities of software for the digitisation of building consent processes. The Commerce Commission and Objective have settled these proceedings regarding the breach of s 47. They have agreed to recommend to the Court that it impose a final penalty of $1.54 million on Objective.
I have not referred to commercially confidential information provided to the Court in this judgment. At the request of the parties, I order that the Court file is not to be searched or accessed without leave of the Court, after considering the views of the parties.
Agreed penalty proceedings are in the interests of the parties and the Court, in enabling early disposal of the proceedings and avoiding costly litigation. As the High Court has noted previously in Commerce Commission v New Zealand Milk Corporation Ltd, there is no objection to parties tendering a joint view on the appropriate penalty. 1 The agreed penalty approach in Australian proceedings was confirmed by the High Court of Australia in Commonwealth of Australia v Director, Fair Work Buildings Industry Inspectorate, on the basis the Court must satisfy itself that the submitted penalty is appropriate. 2
While the parties agree on a proposed penalty, the decision remains with the Court. The Court must be satisfied with the final figure proposed, within the appropriate range, having regard to the objectives of the Act and the circumstances of the case. 3 It is the final figure which matters, not each step of the proposed methodology used by the parties to reach it.
Section 83(2) of the Act requires the Court to determine an appropriate penalty for breach of s 47 by having regard to all relevant matters, which is specified to include:
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(a) the nature and extent of the act or omission:
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(b) the nature and extent of any loss or damage suffered by any person as a result of the act or omission:
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(c) the circumstances in which the act or omission took place:
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(d) whether or not the person has previously been found by the court in proceedings under this Part to have engaged in any similar conduct.
In Commerce Commission v First Gas Ltd, Mallon J accepted the approach taken by the parties, which was to determine the maximum penalty for the breaches, set a starting point in light of the object of deterrence, impose any uplifts in light of relevant factors, and then adjust the starting point for any considerations particular to the party concerned. 4 In light of the issues in this case, I suggest additional steps and do not count as a “step” determining the maximum penalty, which is set out in the statute:
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(a) Step 1: Establish whether divestment or a pecuniary penalty alone is the appropriate penalty.
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(b) Step 2: In relation to a pecuniary penalty, establish an appropriate starting point for the offending which achieves the objective of general and specific deterrence, in light of the relevant factors.
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(c) Step 3: Adjust the starting point to discount or increase the penalty on the basis of considerations specific to the defendant, including to account for additional breaches.
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(d) Step 4: Review the totality of the penalty to check it is proportionate to the offending.
I apply those steps to the unlawful acquisition here. At the time of the offending, the maximum penalty that could be imposed on Objective was $5 million. From 5 May 2022, s 38 of the Commerce Amendment Act 2022 increased that penalty. Because Objective's conduct occurred prior to that date, the previous maximum remains applicable. 5
A key issue in this case lies in this first step of deciding whether full or partial divestment is a viable alternative to relying on a pecuniary penalty alone. The Commission has examined whether divestment is viable, making specific information requests, undertaking interviews, and testing the information and issues arising with the assistance of independent software experts.
The Commission decided not to pursue divestment because it considers it is unclear that divestment is practicable and, even if it was, the risk of an unsuccessful divestment was too high. It also considered there was a risk that an unsuccessful divestment might interrupt the supply of support and maintenance services to building
consent authorities. Because of the reliance on key staff to operate and support each product, and the nature of the bespoke integration of GoGet and AlphaOne, the Commission considers it is unlikely a willing buyer could be found which could operate either one of the products successfullyOn the basis of the information before me, I accept that the ongoing separate viability of divested firms is dubious given their dependence on key personnel who are retiring. The point of the acquisition was to use industry knowledge in development of the next product and that has occurred. And, while these products were each other's closest competitors, there are other competing products in the market. Thirty-five per cent of building consent authorities do not use the products at issue here. There is a limit to how much the Court can direct. I accept that divestment would not necessarily restore or maintain competition in the market and would pose risks for the maintenance of services to building consent authorities. I do not consider divestment is practically feasible and, therefore, it is not an appropriate penalty.
I accept that the penalty must be meaningful enough not to be a “licence fee” and to render the anti-competitive behaviour profit-less. 6 The key objective in imposing a penalty is general and specific deterrence. 7 Where divestment is not available or appropriate, the pecuniary penalty, alone, must serve as a sufficient general and specific deterrent.
Miller J set the starting point in Commerce Commission v New Zealand Bus Ltd only by reference to deterrence, although he referred to other relevant factors. 8 The Court of Appeal did not disturb, but did not explicitly endorse, this approach. 9 In First Gas, Mallon J took into account a wider range of factors, as has the Court in cases under s 80 of the Act, with regard to restrictive trade practices. 10
I accept the estimated size of the unlawful gains that could be derived from the acquisition is an important relevant element to setting the starting point, where it can be reliably estimated. If a penalty is to be an effective deterrent, it should be higher than the estimated gains from the unlawful conduct. But those gains can be difficult to estimate. The mandatory relevant considerations in s 83(2) are also obviously relevant. And I agree with Mallon J that the further wider range of factors may...
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