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Commerce Act 1986

Restrictive trade practices - Contracts, arrangements, understandings, or covenants substantially lessening competition

28: Covenants substantially lessening competition prohibited

You could also call this:

"It's against the law to make someone promise to do something that reduces competition in a market."

Illustration for Commerce Act 1986

You cannot make someone promise to do something that reduces competition in a market. If you try to make someone do this, it is against the law. You also cannot enforce a promise that reduces competition in a market.

You are not allowed to threaten someone or take action against them if they do not comply with a promise that reduces competition. This applies to promises made before or after the Commerce Act 1986 started. If someone invites you to enter into a contract that includes a promise to reduce competition, they are considered to be requiring you to make that promise.

Two people are considered associated with each other if one person has to follow the other person's directions, or if they are connected companies. The Commerce Act 1986 has more information about this, and you can find the latest version of the Act on the New Zealand legislation website. Some parts of the Act, like section 11 of the Commerce Amendment Act 2022, have been updated to clarify these rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM88264.

Topics:
Business > Fair tradingMoney and consumer rights > Consumer protection
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27: Contracts, arrangements, or understandings substantially lessening competition prohibited, or

"No deals that stop others competing with you are allowed."

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Part 2Restrictive trade practices
Contracts, arrangements, understandings, or covenants substantially lessening competition

28Covenants substantially lessening competition prohibited

  1. No person, either on his own or on behalf of an associated person, shall—

  2. require the giving of a covenant; or
    1. give a covenant—
        1. that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

      1. No person, either on his own or on behalf of an associated person, shall carry out or enforce the terms of a covenant that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

      2. Subsection (2) applies to a covenant whether given before or after the commencement of this Act.

      3. No covenant, whether given before or after the commencement of this Act, that has the purpose, or has or is likely to have the effect of substantially lessening competition in a market is enforceable.

      4. No person shall—

      5. threaten to engage in particular conduct if a person who, but for subsection (4), would be bound by a covenant, does not comply with the terms of the covenant; or
        1. engage in particular conduct because a person who, but for subsection (4), would be bound by a covenant, has failed to comply, or proposes or threatens to fail to comply, with the terms of the covenant.

          1. For the purposes of this section, where a person—

          2. issues an invitation to another person to enter into a contract containing a covenant; or
            1. makes an offer to another person to enter into a contract containing a covenant; or
              1. makes it known that the person will not enter into a contract of a particular kind unless the contract contains a covenant of a particular kind or in particular terms,—
                  1. that person shall, by issuing that invitation, making that offer, or making that fact known, be deemed to require the giving of the covenant.

                1. For the purposes of this section, 2 persons shall be taken to be associated with each other in relation to a covenant or proposed covenant if, but only if,—

                2. one person is under an obligation (otherwise than in pursuance of the covenant or proposed covenant), whether formal or informal, to act in accordance with the directions, instructions, or wishes of the other person in relation to the covenant or proposed covenant; or
                  1. the persons are interconnected bodies corporate.

                    Notes
                    • Section 28(6): amended, on , by section 11 of the Commerce Amendment Act 2022 (2022 No 11).