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Court of Appeal confirms NZ Bus breach

Court of Appeal confirms NZ Bus acquisition of Mana Coach shares breached Commerce Act

A judgment released by the Court of Appeal today confirms a High Court ruling that the attempted acquisition of Mana Coach Services by New Zealand Bus Limited (NZBL) was likely to substantially lessen competition in the Wellington regional market for rights to supply subsidised scheduled public and school bus services, in breach of section 47 of the Commerce Act.

According to the court, "If the particular transaction were to go ahead, the practical outcome would be only one very large supplier in the market, with an almost monopolistic market share and few competitive constraints."

The Court of Appeal also upheld the High Court's earlier order that NZBL pay over $1.1 million in penalties and litigation costs. However, on the facts as found in this case, the Court of Appeal decided that NZBL's parent, Infratil Limited, and certain directors of Mana Coach Services were not liable for breaching the Commerce Act as accessories.

The Court of Appeal's decision helpfully confirms some important principles guiding competition analysis in merger cases:
"In a merger or acquisition case factors going to market structure will generally be critical (market structure includes, most importantly, conditions of entry, but also factors such as the degree of market concentration and any long term contractual or other arrangements that restrict the ability of market participants to compete)." -- Mr Justice Arnold

Commerce Commission Chair Paula Rebstock says, "The Commission is pleased that the court recognises in the judgment that market structure is critical to ensuring effective competition, which then enables lower prices and better services to consumers."

While the judgment is being considered, the Commission will be making no further comment on this case.
In June 2006, the Wellington High Court ruled that NZBL's attempted purchase of the 74% of Mana Coach Services that it did not already own, breached section 47 of the Commerce Act. The Court determined that the acquisition was likely to substantially lessen competition in the Wellington regional market for rights to supply subsidised scheduled public and school bus services.

The High Court found that NZBL had breached the Commerce Act when its offer to buy the shares became unconditional. The High Court also found that certain vendors of the Mana shares had breached the Act as accessories to the prohibited acquisition. However, the Court refused to impose liability against NZBL's parent Infratil for its role in the transaction.

The High Court subsequently ordered NZBL to pay $500,000 in penalties and around $600,000 in litigation costs.

NZBL and Infratil appealed the High Court's decisions on liability, penalty and costs. The Commerce Commission cross-appealed the level of penalty ordered against NZBL and the Court's decision not to impose liability on Infratil.

In an interim judgment issued in November 2008 the Court of Appeal dismissed NZBL's appeal from the High Court's finding that NZBL breached section 47.

New Zealand Bus Limited is a wholly owned subsidiary of Infratil Limited. It is the 100% holding company for Wellington City Transport Limited, Cityline (NZ) Limited and Transportation Auckland Corporation Limited, which operate the New Zealand bus businesses known as Stagecoach Wellington, Cityline Hutt Valley and Stagecoach Auckland.

Mana Coach Services was, at the time of the breach, a family owned and managed business that operated Mana Coach Services and Newlands Buses. It is now owned by Bancorp New Zealand Limited, a merchant bank business. Mana Coach Services operates commuter and passenger bus services within north Wellington, Porirua and the Kapiti coast, as well as a service to the Paraparaumu rail line for Wellington city connections, and coach charter business.

Commerce Act. Under section 47 of the Commerce Act, a person must not acquire assets of a business or shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market.


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