Franchise New Zealand | Summer 2026 | Year 34 Issue 04
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Ironically, under-enforcing contractual terms can also increase legal risk.
This is because under the Commerce Act, a key question is whether cartel
provisions are ‘reasonably necessary’ for the effective operation of the
network. If franchisors stop enforcing cartel provisions, this may suggest the
clauses are not ‘reasonably necessary’ (see step 3 below).
What follows
The Harcourts case underscores the need for franchisors to understand the
cartel prohibitions in the Commerce Act and how they apply to franchises.
The remainder of this article provides a summary of some of the most
essential information:
• what New Zealand’s cartel laws prohibit,
• the relevance of the laws in a franchise setting,
• and key compliance risks.
New Zealand’s competition law framework
Competition laws are concerned with ensuring that markets work well for
consumers, by protecting the processes by which businesses compete with
each other.
In New Zealand, competition is regulated under the Commerce Act, which
bans anticompetitive behaviour, including cartel conduct.
Cartel conduct
Cartel conduct involves competitors fixing prices, dividing markets, or
restricting output. These practices are prohibited because they can be very
harmful from an economic perspective, translating into higher prices and
fewer choices for consumers.
What is illegal?
The Commerce Act prohibits agreements between competitors involving:
• Price fixing – agreeing on prices, discounts, or fees.
• Market allocation – agreeing not to compete for certain customers
or areas.
• Output restriction – agreeing to limit supply of goods or services.
Formal and informal agreements
The cartel laws apply to all agreements - written or verbal. It is important
to appreciate that informal arrangements or agreements reached in casual
conversation could breach the law.
The application of cartel laws in a franchise setting
When reviewing franchise operations for compliance with cartel laws, the
following questions and action steps can provide a useful framework:
1. Is there any internal competition within the franchise network? Identify
where franchisees compete with each other or the franchisor.
Proceedings filed in September 2025 by the Commerce Commission against
Harcourts Group and four Christchurch franchisees have focused attention
on how the Commerce Act applies to franchise networks.
The Commerce Commission alleges Harcourts Group and the franchisees
entered into agreements that influenced prices the franchisees charged to
customers, including commission rates.
Because the franchisees competed for customers, these agreements are
alleged to amount to cartel conduct (specifically, price fixing) under the
Commerce Act.
Franchises are not exempt
Commerce Commission Chair Dr John Small has emphasised the
Commission is not seeking to challenge the franchise model, which he
described as “tried and tested” and often beneficial for consumers.
However, Dr Small has made it clear that when franchisees compete with
each other, the Commerce Act’s cartel prohibitions apply just as they do to
any other business.
Commentators have been quick to note that the Harcourts case is a timely
reminder for franchisors to ensure their networks comply with New Zealand’s
cartel laws.
That said, if you are uncertain about exactly how those laws apply in a
franchise setting, you are not alone.
Understanding the relevant provisions of the Commerce Act and the rationale
behind them can be challenging. The rules are complex, with multiple
prohibitions and exceptions.
Recognising internal competition
Even for those familiar with New Zealand’s cartel laws, applying them in a
franchise context is not always straightforward.
Cartel laws prohibit certain agreements between competitors. Yet viewing
franchise relationships through a competitive lens can feel at odds with the
cohesive culture franchisors seek to foster.
Franchise networks also often operate in very competitive markets, where
the key focus is outperforming rival brands and independent businesses
(interbrand competition). In this context, the idea of safeguarding competition
between members of the same franchise network (intraband competition)
can seem counterintuitive.
Operational impacts and legal risks
In the current climate, some franchisors are understandably hesitant to
enforce certain provisions in their franchise agreements, due to uncertainty
around how the Commerce Act applies. However, failing to enforce key
provisions can create significant operational challenges, undermining
network performance and cohesion.
Competition law barrister Anna Ryan
offers practical guidance on applying the
Commerce Act in a franchise setting
Franchise Management
NAVIGATING
COMPETITION LAW
COMPLIANCE
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