MinterEllisonRuddWatts
  April 12, 2011 - New Zealand

"Commission Free to Gag"
  by Andy Matthews Anna Rawlings Aaron Lloyd Stacey Shortall Nicko Waymouth Oliver Meech

Last week the Court of Appeal confirmed the extensive nature of the Commerce Commission’s (Commission) gagging powers. The scope of such powers may come as a surprise to many. On 10 March the Court of Appeal allowed the Commission’s appeal and rejected Air New Zealand’s (Air NZ) cross appeal in the “gagging orders” case.  Air NZ had challenged the Commission’s suppression orders following interviews of Air NZ employees during its investigation into alleged price fixing in the air cargo industry. The Court of Appeal’s decision confirms that such gagging powers can not only prohibit interviewees from disclosing to any person (including their employers) their answers during Commission interviews but also the questions posed by the Commission. Such restrictions undoubtedly limit the way in which companies are able to respond to allegations and proceedings initiated by the Commission.


Background


During the Commission’s investigation into alleged price fixing in the air cargo industry, 16 Air NZ staff were interviewed in 2007/2008. At the conclusion of 13 of those interviews the Commission made orders under section 100 of the Commerce Act (which allows confidentially orders to be imposed) prohibiting the employees and their lawyers from disclosing to any person, including Air NZ, what was said during the interviews.


However, the Commission explained to the interviewees that the orders did not prohibit them from discussing the underlying facts and documents that were within the interviewees’ knowledge prior to their interviews.


Air NZ attempted, unsuccessfully, to negotiate with the Commission to discharge the section 100 orders.  Once the Commission had initiated proceedings in December 2008, Air NZ applied to the High Court to judicially review the Commission’s decision to make the orders.  Air NZ had been concerned that the orders prevented the disclosure of information during the investigation phase.  However, once proceedings were commenced, it also considered that its defence was impeded by the constraints on information sharing within its organisation.


High Court


Air NZ appealed to the High Court on the basis that section 100 was intended to protect confidential information provided to the Commission (eg commercially sensitive information) rather than allowing the Commission to make “blanket gagging orders” that prohibited an interviewee from disclosing what it, and the Commission said, or otherwise disclosed during the interview.


The High Court concluded that section 100 was broader than that submitted by Air NZ, and included any information or evidence given to the Commission in an interview.  However, it did not extend to prohibiting the disclosure of questions and other materials put to the interviewee by the Commission.


The High Court also concluded that at the time the Commission filed proceedings its investigation had concluded and as such any section 100 orders ceased to have effect.  This ruling was based on a limitation in section 100 that states “...no such order shall have effect, -…after the conclusion of that investigation or inquiry”.


While information given to the Commission during the interview was restricted during the course of the investigation, in reliance on the High Court decision, Air NZ ought to have been able to share the previously restricted information after the commencement of proceedings and its defence of those proceedings.


Court of Appeal


However, the Commission has successfully appealed the High Court decision.


It argued that section 100 covered the disclosure of questions and other materials put to the interviewee by the Commission.  It also continued to argue that the commencement of proceedings was not evidence that an investigation had concluded. The Commission noted that the filing of proceedings may be prompted by limitation periods and did not necessarily signify the conclusion of its investigation.


Air NZ cross-appealed on the basis that section 100 was in fact limited to confidential information provided to the Commission and was intended to protect the holders of that information.


The Court of Appeal was therefore required to determine:


·         Whether section 100 only covers confidential information provided to the Commission;


·         If so, whether section 100 orders can include questions posed by the Commission and other materials introduced during the interview; and


·         Whether section 100 orders remain active once proceedings have been filed.


 The Court of Appeal rejected Air NZ’s view that section 100 only covered confidential information provided to the Commission.  It went beyond the High Court to find that the entire content of an interview can be covered by a section 100 order.  In doing so the Court of Appeal noted that section 100 “...is couched in broad terms” and “allows orders prohibiting publication or communication of any information…obtained by the Commission in the course of its operations”.


While the Court of Appeal accepted that section 100 does not explicitly address information provided by the Commission it commented that:


“…s 100 orders can be made to suppress evidence given to the Commission” and “[q]uestions posed become part of the evidence given if accepted or adopted by the interviewee…[w]e thus consider that the term evidence, as used in s 100, includes both questions and answers”.


In addition, the Court of Appeal overturned the High Court decision related to the duration of section 100 orders, finding “…that an investigation may be continuing once proceedings are issued” and “[w]hether an investigation is continuing is a question of fact”.  Accordingly, there is nothing in section 100 indicating that an order is only to apply to part of an investigation that preceded the filing of proceedings and it may continue to apply even after proceedings are commenced. Nevertheless, the Court of Appeal cautioned that the initiation of proceedings should be cause for the Commission to reconsider whether section 100 orders remain active.   (We note that the Commission had no intention of reimposing the relevant orders.)


Conclusion


The decision endorses the Commission’s broad view on, and approach to, section 100 orders. Their use is intended to prevent any further “collusion” between interviewees after the commencement of an investigation by limiting the extent to which interviewees may discuss their interviews after they are completed.  Information already in the possession of any interviewee will not be subject to confidentiality restrictions.  However, the extended application of section 100 orders has significant consequences for the conduct of an investigation by a company, and for the subsequent conduct of its defence if proceedings are commenced.  Careful review of the proper application of the orders by the Commission will be essential to ensure that any defendant, individual or corporate, is able to properly respond to allegations made against it.


We invite you to contact one of our experts if you have any queries on these issues or any other competition, consumer protection or regulatory matters.




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