Commerce Commission v British American Tobacco Holdings (New Zealand) Ltd HC Auckland CL7/01
[2001] NZHC 1319
•21 December 2001
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CL7/01
COMMERCIAL LIST
NOTE: Publication restrictions apply to parts of the Master Copy
of this judgment and copies publicly available
UNDER the Commerce Act 1986
BETWEEN: THE COMMERCE COMMISSION
Plaintiff
AND: BRITISH AMERICAN TOBACCO
HOLDINGS (NEW ZEALAND) LTD
a duly incorporated company having its
registered office at Auckland
First Defendant
AND W D & H O WILLS (NEW ZEALAND) LTD
a duly incorporated company having its
registered office at Auckland
Second Defendant
AND BRITISH AMERICAN TOBACCO
(NEW ZEALAND) LTD
a duly incorporated company having its
registered office at Auckland
Third Defendant
Hearing: 30 October 2001
Counsel: Alan Galbraith QC and Miriam Dean for plaintiff, in opposition
James Farmer QC and Bruce Gray and Helen Winkelmann for defendants in support
Judgment: 21 December 2001
RESERVED JUDGMENT OF WILLIAMS J
EDITED COPY AVAILABLE FOR THE MEDIA AND FOR THE PUBLIC
This judgment has been edited in relation to the confidentiality issues and in accordance with counsel’s consent memorandum.
The deletions from the judgment delivered on 21 December 2001 are to be found in the following paragraphs of the original judgment:
Paras [1] [12] [12] [15] [22]
Solicitors:
Bell Gully, P O Box 4199 Auckland, for defendants (Brett Tantrum)
Commerce Commission, P O Box 2351 Wellington, for plaintiffs (P R Taylor/B J Horsley)
Introduction and Issues
[1] For a number of years up to the beginning of 1999 the New Zealand markets for tobacco products and pre-rolled cigarettes were supplied by Rothmans of Pall Mall New Zealand Ltd as to [ . . .%] and [. . .%] respectively, W D & H O Wills (NZ) Ltd (“Wills NZ”) as to [ . . .%] and [. . .%] respectively, and Philip Morris (NZ) Ltd as to [. . .%] and [. . .%] respectively.
[2] On 11 January 1999 an agreement was announced which resulted in the global merger of British American Tobacco plc and Rothmans International BV and their subsidiaries. In New Zealand and Australia, the global merger brought about the changes described later in this judgment in corporate structures and, in New Zealand, in the supply of tobacco products and pre-rolled cigarettes.
[3] The Commerce Commission, the plaintiff, took the view that the changes in New Zealand breached the Commerce Act 1986 s 47 (all references to sections in this judgment are to the Commerce Act 1986 unless specified otherwise) in that they created or strengthened the dominant position in the market occupied by Rothmans of Pall Mall and Wills NZ and commenced these proceedings seeking declarations to that effect and orders under s 85 for divestment of shares in Wills NZ or such other shares or cigarette brands as the Court thinks fit plus pecuniary penalties under s 83.
[4] The defendants applied to strike out the whole of the proceedings against them. In essence, they asserted that the Commission sued the wrong corporate entities and in relation to the wrong transactions and accordingly the claims against them were untenable. This judgment deals with that application.
[5] Because the names of some of the companies involved in the two principal multi-national groups and the name changes which occurred in 1999 are confusingly similar, it is helpful to begin by attaching as Schedules 1 and 2 respectively corporate diagrams setting out the British American Tobacco and Rothmans structures as at 7 June 1999 - the relevance of which date will appear - and to note that on the Rothmans diagram:
[a] Rothmans International BV was owned by Rothmans International Holdings SA a Luxembourg company and that, in its turn, was owned by Compagnie Financiere Richemont AG, a Swiss company and Rembrandt Group Ltd based in South Africa.
[b] Rothmans Holdings (New Zealand) Ltd changed its name on 6 September 1999 to British American Tobacco Holdings (New Zealand) Ltd, the first defendant (hereafter “Rothmans Holdings NZ/BAT Holdings NZ”).
[c] Rothmans of Pall Mall (New Zealand) Ltd changed its name on 6 September 1999 to British American Tobacco (New Zealand) Ltd, the third defendant (hereafter “Rothmans PM NZ/BAT NZ”).
[6] On the British American Tobacco chart all the companies above New Zealand Holdings Ltd were domiciled in the United Kingdom. British American Tobacco plc was a company listed on the United Kingdom Stock Exchange. Wills NZ, the second defendant, was registered in this country. On the Rothmans chart all the companies down to and including Rothmans Holding BV were registered on the Continent. Rothmans Holdings Ltd was an Australian-registered company listed on the Stock Exchange and owned, as the chart indicates, 50% by each of Rothmans Holdings BV and the public. During most of 1999 of the 1658 shareholders in Rothmans Holdings Ltd apart from Rothmans Holdings BV, about 20 investment institutions, nominee companies or private individuals owned about 40% of the shares and the remaining 1638 shareholders held varying parcels of a maximum of about 12%. The two companies below Rothmans Holdings Ltd were both registered in New Zealand.
Facts : 11 January 1999 - 3 September 1999
[7] Prior to 11 January 1999 British American Tobacco plc and Rothmans International BV were two of the largest multi-national tobacco companies. On that date they agreed to merge pursuant to a Transaction Agreement. It is unnecessary for the purposes of this judgment to detail the provisions of the Transaction Agreement save to note that it was subject to satisfaction of a number of conditions including regulatory approval in Britain, the European Community, the United States and South Africa, and approval from respective shareholders. It did not mention the Australasian subsidiaries. All conditions were satisfied and on the date of completion, 7 June 1999, British American Tobacco plc became the owner of all the voting capital in Rothmans International SA by the issue to it of something over 604m ordinary and 241m convertible redeemable shares in British American Tobacco plc.
[8] Up to that point, British American Tobacco plc had traded in New Zealand through Wills NZ and Rothmans International BV had traded in this country through Rothmans PM NZ/BAT NZ. As earlier noted, Rothmans also traded in Australia through the listed company, Rothmans Holdings Ltd. The Australasian companies recognised that the global merger of the two multi-nationals may have implications for their countries by reason of the provisions of the Trade Practices Act 1974 (Aus.) and the Commerce Act 1986. They accordingly set about discussing the regulatory requirements with the Commission and its Australian counterpart, the Australian Competition and Consumer Commission (“ACCC”).
[9] In New Zealand the solicitors for British American Tobacco plc and Wills NZ suggested to the Commission that the “very high market share” which would result from the implementation of the merger in New Zealand would not result in the merged business being dominant in any New Zealand market because of Government-imposed prohibitions on tobacco advertising and promotion. By letter dated 30 April 1999, however, the Commission tentatively took the opposite view and suggested the companies “consider a substantial modification to the proposal” including brand divestment or seeking clearance under s 66. It also suggested amendments to a draft Deed covering implementation of the international merger which had been submitted.
[10] On 3 May 1999 the defendants’ solicitors accepted that a “modified proposal” including divestment might be required and suggested that, until the international conditions had been satisfied, a “’standstill’ arrangement based on suitable undertakings might be an appropriate mechanism to resolve concerns in the interim”, the undertakings being not to intermingle assets or businesses. Assurances were sought - and given on 5 May 1999 - that the Commission would take no action “in respect of the international components of this merger on receipt of satisfactory undertakings not to merge the New Zealand business and/or assets”.
[11] Emphasising that the divestment proposal being put to the ACCC was an Australasian proposal, the solicitors, on 14 May, suggested divestment of a number of brands and the sale of a New Zealand factory to Imperial Tobacco Group plc, another multi-national tobacco company. That proposal was confirmed by a Deed signed on 31 May 1999 by British American Tobacco plc, Rothmans International BV and Wills NZ. The recitals in the Deed referred to the Transaction Agreement and the Commission’s s 47 views and the operative clauses required Wills NZ to “continue to operate as a distinct legal and commercial entity from Rothmans NZ” and to do nothing which could result in co-operation between itself and Rothmans NZ “so as to impact on competition in a market in New Zealand”. It was also debarred from intermingling its assets with Rothmans. British American Tobacco plc undertook not to use its control of Wills NZ to take any action to impact on such competition or to intermingle assets. Rothmans International BV gave similar undertakings in relation to the voting powers arising from its 50% shareholding in Rothmans Holdings Ltd in Australia. The Deed was to remain in force until divestment or an authoritative decision that the international merger did not breach s 47.
[12] On 9 June 1999 the solicitors sent the Commission a detailed submission as to the proposed divestment to Imperial of a number of tobacco brands amounting to about [. . .%] of market share and British American Tobacco plc’s factory in Petone in Hutt City. It suggested that greater divestment was unnecessary as it would not create greater competitive impact in the market given Imperial’s considerable experience in the industry and its ability to create business for itself. The proposed sale to Imperial included [. . .]. That business was in turn to be combined with the Australian business of the merged company to form an enlarged company listed on the Australian Stock Exchange, to be renamed British American Tobacco (Australasia) Ltd, majority owned by British American Tobacco plc. The submission argued that the market forces which would constrain the merged company included competition from Philip Morris and a number of other multi-national tobacco companies not currently in New Zealand plus purchasers’ power to switch. It suggested that the proposed divestment should lead to a conclusion that the merged business in New Zealand did not breach s 47. Since it would immediately reduce the market share of the merged business by “approximately [. . .%] to approximately [. . .%] of the total tobacco products markets” it was contended that the merged business would not have a high degree of market control. It was suggested no other divestment would be commercially appropriate and noted the ACCC’s approval of a similar divestment in Australia.
[13] On 7 June 1999 the Transaction Agreement settled.
[14] On or about 20 July 1999 New Zealand Holdings Ltd, Rothmans Holdings NZ/BAT Holdings NZ and Wills NZ entered into a deed providing for sale of the shares in Wills NZ to Rothmans Holdings NZ/BAT Holdings NZ for $A187,800,000 conditional on the merger being implemented in Australia. That Deed was not disclosed to the Commission until this application was filed.
[15] Despite the optimism in the submission, the Commission, on 21 July 1999, said the divestment of approximately [. . .%] of the tobacco products market to Imperial was insufficient to avoid the operation of s 47 and suggested further divestment to reduce market share. That view was reached notwithstanding a further submission from the solicitors noting that the Imperial divestment was the whole of the Wills NZ business other than “certain brands which are core to the international group’s global portfolio” and suggesting the public shareholding of Rothmans Holdings Ltd in Australia complicated possible divestment of the Rothmans brands.
[16] After further submissions, on 6 August 1999 the Commission received a further Deed signed by Rothmans Holdings NZ/BAT Holdings NZ, Wills NZ, Rothmans PM NZ/BAT NZ, Rothmans Holdings Ltd and British American Tobacco plc. The Deed put in evidence bears the date of 26 August 1999 although it may well have been executed on 6 August. The date of execution is immaterial for present purposes.
[17] The recitals recorded the parties’ agreement to revoke the 31 May 1999 Deed and:
“As part of a restructuring of the Australian and New Zealand businesses and in order to facilitate divestments to Imperial Tobacco, RHL, through RHL NZ, now wishes to acquire all the shares of BAT NZ (“the Second Transaction”). Following the Second Transaction some of the assets of BAT NZ and RPM NZ will be sold to Imperial New Zealand Limited (INZ) in respect of the New Zealand market including the assets previously advised to the Commission in writing, in particular in the document attached as Schedule 1 being a confidential submission to the Commerce Commission (“the Imperial Sale”).”
Rothmans Holdings Ltd’s undertakings required it to retain Wills NZ’s trademark rights (called the “Retained Wills Brands”) other than the trademarks and rights to be sold to Imperial, and to use its best endeavours to preserve their market share. Wills NZ covenanted to hold the Retained Wills Brands and preserve their market position so as to maintain the Commission’s right to obtain a divestment order. Rothmans Holdings Ltd and British American Tobacco plc covenanted not to use their voting powers to disturb the undertakings. The Deed was to commence on the making of an order by the Supreme Court of New South Wales approving a Scheme of Arrangement involving W D & H O Wills Holdings Ltd an Australian company. The operative provisions of the Deed were to remain in force for the earlier of two years from settlement of the Transaction Agreement or an authoritative ruling from the Commission or this Court that the Transaction Agreement did not breach s 47 or Rothmans Holdings Ltd divesting to an unrelated party sufficient of its assets to “remove any acquisition or strengthening of a dominant position which might have arisen from the Transaction”.
[18] On 6 August 1999 the Commission advised that it had no objection to the divestment and the second Deed was thought adequate to protect the Commission’s permission to seek divestment. Accordingly:
“. . . the Commerce Commission confirms that it will not intervene to prevent completion of the sale of the shares in W D & H O Wills (New Zealand) Limited to Rothmans Holdings (New Zealand) Limited under the Commerce Act 1986 or otherwise.”
[19] On 3 September 1999 settlement occurred of the sale by New Zealand Holdings Ltd of all the shares in Wills NZ to Rothmans Holdings NZ/BAT Holdings NZ. Settlement of that transaction, in the Commission’s view, resulted in the defendants becoming dominant in the New Zealand market for tobacco products and led to the commencement of this proceeding on 23 April 2001. The Commission took the view that no company was dominant in the New Zealand market for tobacco products prior to the settlement on 3 September 1999.
[20] The Australian position can be dealt with briefly. A Memorandum of Understanding concerning the merger of the British American Tobacco and Rothmans plc Australian interests was executed on 19 May 1999 and an Implementation Agreement for that merger was signed on 15 July. The merger was to occur partly by acquisition and partly by the Scheme of Arrangement for W D & H O Wills Holdings Ltd. The Equity Division of the Supreme Court of New South Wales approved the Scheme on 23 August 1999 after the required shareholders’ meetings for Rothmans Holdings Ltd and W D & H O Wills Holdings Ltd were held on 18 August and approved it. The making of the order satisfied the final conditions of the Australian merger and Implementation Agreement and settlement occurred on 2 and 3 September 1999. The settlement followed the giving of undertakings to the ACCC by British American Tobacco plc, British American Tobacco Australia Pty Ltd and Rothmans Holdings on 2 June under the Trade Practices Act 1974 requiring all parties to co-operate in the disposing to Imperial of the cigarette brands and tobacco products listed in the Schedule to the agreement and the transferring of the Petone factory. Since that time, Rothmans Holdings (Australia) BV has acquired the 50% of the shares in Rothmans Holdings Ltd previously owned by the public.
Pleadings
[21] It is apparent from the contents of this judgment to this point that the precise allegations in the amended statement of claim filed on 5 July 2001 may be of critical importance in the determination of this application.
[22] After outlining the identity of the parties and the market shares of the three participants at the beginning of 1999 and the history of the matter earlier recounted, the claim asserts that as a result of the acquisition by Rothmans Holdings NZ/BAT Holdings NZ of all the shares in Wills NZ and its retaining ownership of Rothmans PM NZ/BAT NZ, Wills NZ became an interconnected body corporate with Rothmans NZ/BAT Holdings NZ and Rothmans PM NZ/ BAT NZ and Wills NZ were also interconnected bodies corporate all pursuant to s 2 (7). It is next asserted that the defendants, together, after 3 September 1999 supplied approximately [. . .%] of tobacco products and pre-rolled cigarettes in the New Zealand market and, following divestment, continued to supply [ . . .%] and [. . .%] of tobacco products and pre-rolled cigarettes in the first nine months of 2000 with Imperial supplying [ . . .%] and [. . .%] respectively and Philip Morris the balance of [. . .%] and [. . .%] respectively. A result of the acquisition, it is pleaded, is that the defendants as interconnected bodies corporate have been and are in a dominant position in the New Zealand tobacco products markets or are likely so to have been having regard to their market share (s 3 (9)(a)), and the barriers to entry and expansion in the markets including Government regulations and the static market share of Philip Morris over the past decade and therefore the unlikelihood of it or Imperial constraining the defendants. The last, it is claimed, arises in part because of its being dependent on demand from the defendants for production from Petone, the provisions of other agreements, and the common control of two major pre-rolled cigarette brands.
[23] Though no defence has been filed, Mr Farmer QC, senior counsel for the defendants, said they accept the pleading of interconnection and indeed rely upon it. But he submitted that the current claim, being principally focused on the sale of the Wills NZ shares to Rothmans Holdings NZ/BAT Holdings NZ was erroneous and that any action by the Commission under s 47 should have been focused on the Transaction Agreement and the parties to it.
Statutory provisions
[24] The statutory provisions relevant to this matter are:
“s.2 (7) For the purposes of this Act, any 2 bodies corporate are to be treated as interconnected if -
(a) One of them is a body corporate of which the other is a subsidiary (within the meaning of . . . sections 5 and 6 of the Companies Act 1993, . . .; or
(b) both of them are subsidiaries (within the meaning of those sections) of the same body corporate; or . . .
(c) Both of them are interconnected with bodies corporate that, in accordance with paragraph (a) or paragraph (b) of this subsection, are interconnected -
and “interconnected bodies corporate” has a corresponding meaning.
. . .
s.3 (9) For the purposes of sections 47 and 48 of this Act, a person has, or 2 or more persons that are interconnected or associated together have, as the case may be, a dominant position in a market if that person as a supplier or an acquirer, or those persons as suppliers or acquirers, of goods or services, is or are in a position to exercise a dominant influence over the production, acquisition, supply, or price of goods or services in that market and for the purposes of determining whether a person is, or 2 or more persons that are interconnected or associated, are, in a position to exercise a dominant influence over the production, acquisition, supply, or price of goods or services in a market regard shall be had to -
(a) The share of the market, the technical knowledge, the access to materials or capital of that person or those persons:
(b) The extent to which that person is, or those persons are, constrained by the conduct of competitors or potential competitors in that market:
(c) The extent to which that person is, or those persons are, constrained by the conduct of suppliers or acquirers of goods or services in that market.
. . .
s.4 Application of Act to conduct outside New Zealand
(1) This Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct affects a market in New Zealand . . .
. . .
(3) Without limiting subsection (1) of this section, section 47 of this Act extends to the acquisition outside New Zealand by a person (whether or not the person is resident or carries on business in New Zealand), of the assets of a business or shares to the extent that the acquisition affects a market in New Zealand.
s.47 (In the form in which it was prior to re-enactment on 26/5/01)
Certain acquisitions prohibited
(1) No person shall acquire assets of a business or shares if, as a result of the acquisition,-
(a) That person or another person would be, or would be likely to be, in a dominant position in a market; or
“(b) That person’s or another person’s dominant position in a market would be, or would be likely to be, strengthened.
(2) For the purposes of this section and section 48 of this Act, where 2 or more persons are interconnected or associated and together are in a dominant position in a market, each of them is deemed to be in a dominant position in that market.
(3) For the purposes of this section and section 48 of this Act, a person is associated with another person if that person is able, whether directly or indirectly, to exert a substantial degree of influence over the activities of the other.
(4) A person is not able to exert a substantial degree of influence over the activities of another person for the purposes of subsection (3) of this section, by reason only of the fact that-
(a) Those persons are in competition in the same market; or
“(b) One of them supplies goods or services to the other.
s.48 (in the form in which it was prior to repeal on 26/5/01)
Bare transfer of market dominance excluded
Nothing in section 47 of this Act applies to the acquisition of assets of a business or shares if-
(a) Before the acquisition either-
(i) The person acquiring the assets or shares; or
(ii) The business the assets of which are acquired or the body corporate in which the shares are acquired, as the case may be,-
already had a dominant position in a market; and
(b) The acquisition has not resulted or will not result in the strengthening of that dominant position.
Submissions
[25] Referring to the chronology, Mr Farmer made the point that there was no express recognition in the Transaction Agreement of the Australian merger, still less of what took place in New Zealand. But he pointed to the fact that the Australian Memorandum of Understanding of 19 May 1999 spoke of the arrangement as being consistent “with the intention of the global merger” and to the fact that both New Zealand Deeds recited the Transaction Agreement. It was, he submitted, as a result of the 7 June settlement that the defendants became interconnected or associated under s 2 (7). Section 47 may have applied on and after 7 June 1999 and the Commission should have considered the applicability of the section as a result of the corporate links created that day. He submitted that although the possibility of dominance in the New Zealand market appeared from the terms of the Deeds of 31 May and 26 August 1999, it was only British American Tobacco plc’s acquisition of all the shares in Rothmans International BV on 7 June 1999 which aggregated the market power of the companies trading in New Zealand though, since those companies were not parties and acquired nothing as a result of the Transaction Agreement, they could not have been in breach of s 47. Only British American Tobacco plc (and, though somewhat less likely, Rothmans International BV) could be the party in breach of s 47 and that company, he submitted, could not be impleaded in New Zealand proceedings as s 4 did not apply. As a result, Mr Farmer submitted that the 3 September 1999 transaction could not contravene s 47. It effected no more than a reconstruction of companies already under the common control of British American Tobacco plc arising out of the global merger and settled on completion of the Transaction Agreement on 7 June.
[26] The 3 September 1999 settlement, Mr Farmer submitted, was no more than a bare transfer of market dominance which did not offend the Act because of s 48. He submitted the Companies Act 1993 ss 5 and 7 were relevant not just for the purposes of interconnection under s 2 (7) but for assessing the ability to exert a substantial degree of influence over another under s 47(3). Section 5 provides that a company is a subsidiary of another if it “controls the composition of the board”, is able to exercise more than half the votes which can be exercised at a company meeting, holds more than half the shares, is entitled to receive more than half the dividends or is the subsidiary of a company that is the other company’s subsidiary while s 7 relevantly provides:
“7. “Control” defined - For the purposes of section 5 of this Act, without limiting the circumstances in which the composition of a company’s board is to be taken to be controlled by another company, the composition of the board is to be taken to be so controlled if the other company, by exercising a power exercisable . . . by it, can appoint or remove all the directors of the company, or such number of directors as together hold a majority of the voting rights at meetings of the board of the company . . .”
[27] Having regard to those provisions, Mr Farmer submitted that it was the settlement of the Transaction Agreement of 7 June 1999 which created the corporate link between Wills NZ and Rothmans PM NZ/BAT NZ. Section 47 (2) then required their market power to be aggregated to decide whether settlement of the Transaction Agreement created dominance in either or both. He submitted that the position was not affected by the Commission’s reliance on the 31 May 1999 Deed preserving the separate operation of Wills NZ and Rothmans PM NZ/BAT NZ because s 47(2) required their market power to be aggregated for the purposes of s 47 as a whole. Similarly, Mr Farmer argued, the Commission was misguided in relying on the 3 September 1999 settlement effecting the New Zealand phase of the global merger because Wills NZ and Rothmans PM NZ/BAT NZ had already been interconnected for nearly three months by that date not because the global merger was conditional on the later transaction in this country but because the global settlement itself left both New Zealand trading companies under the control of British American Tobacco plc.
[28] He submitted that, far from supporting the Commission’s claim, the Deeds were correct in focusing on the Transaction Agreement, relying on the following provisions in the Deed of 31 May 1999 and similar recitals in the 26 August 1999 document:
“C. Under an international agreement BAT will acquire, offshore, all of the shares of Rothmans International (“the Transaction”).
D. The New Zealand Commerce Commission (“Commission”) has advised that its preliminary investigation of the New Zealand aspects of the Transaction in terms of section 47 of the Commerce Act 1986 gives it concerns in respect of a dominant position in the relevant New Zealand market and has sought certain undertakings from the parties to the Transaction.”
[29] From a policy viewpoint, Mr Farmer submitted that s 4 makes it clear that actions overseas can only offend s 47 to the extent they affect markets in this country. Thus, he submitted, British American Tobacco plc might be argued to have contravened s 47 by completion of the Transaction Agreement on 7 June 1999 but the problem for the Commission, as with similar overseas bodies, is that its ability to enforce any judgment it might obtain in this country against British American Tobacco plc is dubious to put it at its highest. He directed attention to the Trade Practices Act 1974 s 50A (Aus) which gives the ACCC power to make a declaration requiring Australian corporations to cease business if an overseas acquisition of the Australian company affects competition in Australian markets. No comparable provision exists in this country.
[30] For the Commission, Mr Galbraith QC, its senior counsel, began by submitting that the case was of importance in that, were the defendants held to be correct, enforcement or penal proceedings by the Commission “to promote competition” (in terms of the Long Title) would be nugatory or unenforceable if the acquisition in question was one by an overseas company preceding any acquisition in this country and if dominance in the New Zealand market had been earlier created by an international merger and the only action which occurred in New Zealand was protected by s 48. He urged a purposive approach on the Court to avoid creation of “no go” areas of unenforceability whatever the competitive or market effect of the overseas acquisition or merger might be. He submitted dominance could occur through more than one cause, including the 3 September 1999 settlement as the means by which the international merger was effected here. He submitted that s 48 was inapplicable because it relied on actual rather than deemed dominance - not synonymous - and submitted there were a number of factual issues which made striking-out inappropriate.
[31] Mr Galbraith submitted that there were no changes in the New Zealand tobacco products market prior to 3 September 1999 and it was as a result of the acquisition of the Wills NZ shares by Rothmans Holding NZ/BAT Holdings NZ on that date that Wills NZ and Rothmans PM NZ/BAT NZ each and together came to occupy a dominant position in the relevant New Zealand market.
[32] Mr Galbraith agreed with Mr Farmer that the terms of ss 4(1) (3) have yet to be authoritatively considered and submitted that there were many situations where interconnected or associated companies were not dominant in the market once the facts were considered because of their competition with each other. That position, he submitted, applied here because of the terms of the New Zealand Deeds.
[33] Mr Galbraith submitted that Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) ATPR 51,023, 51,036-037 followed in Commerce Commission v Fletcher Challenge Ltd (1999) 6 NZBLC 102,752, 102,758 shows that
“The acquisition must be either a sufficient cause of the existence or likely existence of the state of dominance or substantial strengthening of the power of dominance in the relevant market or one of a number of causes which together lead to or would be likely to lead to that state.”
with the sufficiency of the causal nexus for s 47 purposes being construed in a “liberal pragmatic empirical and commonsense” way (Fletcher Challenge at 102,760).
[34] Mr Galbraith also relied on the 26 August 1999 deed requiring the preservation of the Retained Wills Brands as retaining Wills NZ as a separate entity.
He submitted that it was well-accepted that in striking-out applications the allegations are approached on the basis that they will be admitted or are provable and he said that factual dominance and whether it resulted from the Transaction Agreement or the 3 September settlement or both was a factual issue for trial not one to be determined on the corporate relationships at various times.
[35] The Commission’s response to the submission that Wills NZ and Rothmans PM NZ/BAT NZ became interconnected on settlement of the Transaction Agreement was that the interconnection or association on that date was defeated by the public holding in Rothmans Holdings Ltd in Australia. The existence of that holding until after 3 September 1999 meant, it was submitted, that there was no common control of the companies trading in New Zealand as the result of settlement of the Transaction Agreement or alternatively that was a factual matter for trial.
[36] Similarly, a “substantial degree of influence” under s 47(3) was an issue of fact requiring consideration of a wide range of elements.
[37] In addition, Mr Galbraith submitted that it was arguable that s 48 does not apply in the case of transfers of business or shares between interconnected bodies corporate but only applies where either the acquirer, Rothmans Holdings NZ/BAT Holdings NZ, or the business or body corporate being acquired, Wills NZ, already had a dominant position in the relevant market and the acquisition did not or will not alter that position. He submitted that both companies were deemed to be dominant pursuant to s 47 (2) and therefore s 48 could not apply. Acquisition requires change in control (Berry & Riley: Beware the New Business Acquisitions Provisions in the Commerce Amendment Act 1990 (1991) 21 VUWLR 91,101-102). The position may be arguable although, at first sight, the terms of s 48 would seem to apply to acquisitions of business assets or shares where the acquirer had a dominant position which was not affected by the acquisition or the business or body corporate being acquired had such a position which remained unaltered. And if, by virtue of s 47 (2), both parties were deemed to have a dominant position, s 48 may apply twice rather than its operation being excluded. The learned authors of Gault (op cit para CA 48.04 p 3-224) do not suggest the question has ever been authoritatively determined. However, in view of the Court’s views on other issues, that matter can remain for further consideration.
[38] Finally, factually, Mr Galbraith submitted that it was not a foregone conclusion that dominance was acquired or strengthened as a result of settlement of the Transaction Agreement. On the facts, the Australian and New Zealand reorganisations were substantial transactions with the former conditional on the latter and on Court and ACCC approval including the New Zealand divestment and with different parties involved. Thus they were each separate transactions which might have led to dominance in their respective markets irrespective of settlement of the Transaction Agreement. The divestment also required consideration in any assessment of dominance, as did the factual effect of the 31 May and 26 August Deeds. Mr Galbraith particularly pointed to the “standstill” arrangements in the former and its revocation by the latter following which the 3 September settlement could occur and dominance be acquired.
Striking-Out Principles
[39] The approach to the jurisdiction to striking out a pleading under R 186(a) or a proceeding under R 477(a) is well-settled. All allegations in the statement of claim are assumed to be admitted or be capable of proof. The pleading is then considered against the test of deciding whether it has been shown to the required standard that, on the material which can be properly considered, it is so clearly untenable in fact and law as to be incapable of success. That test has been set by the Courts as being deliberately difficult to attain. The jurisdiction is to be exercised sparingly and in clear cases only. Pleadings or proceedings may be struck out even though such applications raise difficult questions of law requiring extensive argument provided the Court can be persuaded that the pleading is unsound, cannot be amended satisfactorily and such an order will obviate the necessity for trial (Peerless Bakery Ltd v Watts [1955] NZLR 339; McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717; R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978] 2 NZLR 289; Takaro Properties Ltd v Rowling [1978] 2 NZLR 314; Gartside & Sheffield Young & Ellis [1983] NZLR 37; South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd [1992] 2 NZLR 282). Courts should be more than usually cautious in striking out claims under the Commerce Act 1986 (Clear Communications Ltd v Telecom Corp of NZ Ltd CL54/96 4 April 1997 Smellie J pp 11-12) because of the elusive nature of some of the concepts involved and the multitude of transactions against which they are often to be measured.
Discussion
[40] Applying those principles to the factual matters in issue in this case and beginning by standing back and considering what has occurred from a policy viewpoint, the Court’s view is that there is weight in Mr Galbraith’s submissions that when Parliament has passed a statute designed to enhance competition and prohibit anti-competitive behaviour, it would be unfortunate if actions arguably achieving prohibited results were held to fall, for technical semantic practical or other reasons, outside the statutory provisions and accordingly to be immune from regulatory scrutiny. A purposive and practical approach to the sparing exercise of the striking-out jurisdiction is accordingly called for in considering whether the amended claim is untenable. But, of course, if, in the end, the Court’s conclusion is that no tenable case has been pleaded against the defendants, the claim must fail.
[41] The principal operative provision of s 47 is subs (1). It prohibits acquisitions of business assets or shares if a result of the acquisition, judged in a practical way, is, or is likely to be, dominance or strengthened dominance in a relevant market. All other subsections of s 47 and the whole of s 48 increase or diminish the reach of the prohibition in s 47(1). In this case, therefore, it is first necessary to consider whether the claim arguably and sustainably pleads a cause of action against the defendants of breach by them of s 47(1). If it does, the second stage is to consider whether the remaining subsections of s 47 and s 48 affect that conclusion.
[42] In the circumstances of this matter, the definitions of “acquire” and “person” in s 2 do not assist (though the definitions of “person” in the Acts Interpretation Act 1924 s 4 and the Interpretation Act 1999 s 29 ensure companies come with the section’s scope). The learned authors of Gault et al Gault on Commercial Law (para CA47.05 p 3-216-217) and counsel did not refer to any decisions on the meaning of “acquire” under s 47(1). The ordinary definition of the word should therefore be adopted. The Oxford English Dictionary (2nd ed Vol I p 115) defines “acquire” as meaning “to gain, obtain or get as one’s own, to gain the ownership of, to receive, to come into possession of”.
[43] Section 47 (1) does not state a principle such as that the acquisition of business assets or shares resulting in the creation or strengthening of a dominant position or the likelihood of such in the relevant market is prohibited, leaving the penalty for breach of that principle by any person to another statutory provision: in its terms s 47(1) focuses on actions by persons having a proscribed effect.
[44] For this case, it follows that the Commission must plead a person’s acquisition of business assets or shares as having a result, viewed practically, of creating or strengthening dominance in a market by that or any other person or of that being likely Because s 47 speaks of “a” result of the acquisition being the prohibited result, it follows that, first, there may be other results of the acquisition, secondly, there may be other causes of the prohibited dominance as long as the acquisition is one, as Australian Iron & Steel shows and, thirdly, that s 47 (1) does not require the acquisition of the business or shares to be immediate or direct. As long as at least one result of the acquisition is the creation or strengthening of dominance in the relevant market in the acquirer or any other person, the remoteness of the acquirer is irrelevant. Section 47 (1) operates irrespective of the degree or height of vertical subsidiarity between the acquirer and the business whose assets or shares are being acquired.
[45] But that does not necessarily lead to the conclusion that the acquisition prohibited by s 47 (1) must be by a single person or by a single transaction or document. Words in the singular include the plural (Acts Interpretation Act 1924 s 4, Interpretation Act 1999 s 33). It is commonplace in major transactions for there to be a number of parties, for the acquisition to be evidenced in a number of documents and to be effected by and result in a number of transactions. Section 47 (1) must have been intended to apply to all acquisitions, all gaining ownership or coming into possession, having the proscribed result whether effected in simple or complex ways. That the focus of s 47(1) is on the effect of the acquisition not the identity of the acquirer or acquirers is confirmed by the heading.
[46] Seen in that light and focussing at this point solely on s 47 (1), the settlement of the Transaction Agreement on 7 June by the transfer to British American Tobacco plc of the relevant Rothmans shares and the issue to Rothmans International Holdings of the British American Tobacco plc shares must be seen as adding to the control which British American Tobacco plc already had of all the companies in Schedule 1 by conferring capacity for legal control of all the companies in Schedule 2 on British American Tobacco plc even though, so far as Rothmans PM NZ/BAT NZ and Wills NZ were concerned they were required, pursuant to the 31 May 1999 “standstill” agreement, to retain separate operations. On that date British American Tobacco plc must be regarded as having acquired, for the purposes of s 47, the Rothmans PM NZ/BAT NZ businesses or other Rothmans businesses in New Zealand and elsewhere not formerly controlled by it. That must be the position notwithstanding that none of the Australasian subsidiaries are mentioned in the Transaction Agreement and they do not feature in the conditions.
[47] Given the market shares held by Rothmans PM NZ/BAT NZ and Wills NZ respectively immediately prior to 7 June 1999, once British American Tobacco plc, at whatever distance, had acquired them in the sense of having the legal capacity to control their activities, it must be regarded as arguable that those companies either became dominant in the New Zealand tobacco products markets or occupied a dominant position which was strengthened by settlement of the Transaction Agreement. It is not to the point that settlement of the Transaction Agreement had no direct or immediate effect on Rothmans PM NZ/BAT NZ or Wills NZ and did not alter their business or shareholdings since, as noted, s 47 focuses on persons’ actions having prohibited effect.
[48] Several matters flow from that.
[49] The first is that on and prior to 7 June 1999 British American Tobacco plc had the legal ability to influence Wills NZ. Further, British American Tobacco plc gained the ability by settlement of the Transaction Agreement to affect the business of Rothmans PM NZ/BAT NZ. However, it is important to note that it had and acquired those abilities subject to those companies’ responsibilities, including those under the 31 May 1999 “standstill” agreement to which it and Rothmans International BV were parties. Their undertakings and that of Wills NZ ensured that Rothmans PM NZ/BAT NZ and Wills NZ would continue to operate as distinct entities and would take no action to the contrary. However, because both s 47 (1) (a) and (b) are expressed disjunctively, the 31 May 1999 “standstill” agreement precluded the operation of s 47 (1) even if a result of the acquisition was that “that person” - British American Tobacco plc and its subsidiaries including Wills NZ - and “another person” - Rothmans International BV and its subsidiaries including Rothmans PM NZ/BAT NZ - achieved dominance or strengthened their dominance in the New Zealand tobacco products market or were likely so to do. The use of the disjunctive “or” in s 47 (1) precluded aggregation of their market positions.
[50] Therefore, to this point and considering s 47 (1) alone, the Court’s view is that it could not be said that settlement of the Transaction Agreement was the sole cause of Wills NZ and Rothmans PM NZ/BAT NZ acquiring or strengthening their dominant position in the New Zealand tobacco products market or that such a position was likely, given the 31 May 1999 “standstill” Deed.
[51] There was then the 20 July 1999 agreement for sale and purchase, a substantial transaction in its own right, pursuant to which the Wills NZ shares were to be sold to Rothmans Holdings NZ/BAT Holdings NZ. The parties to that agreement all being by then under common control, it is arguable that the acquirer under that agreement might also have infringed s 47 were it not for the 31 May 1999 “standstill” Deed.
[52] However, as noted, the “standstill” Deed was revoked by the Deed of 26 August - to which British American Tobacco plc was again a party - on the terms set out.
[53] What effect did that Deed have in terms of s 47(1)? Effectively it enabled the merging of the businesses of Wills NZ and Rothmans PM NZ/BAT NZ on 3 September 1999 but subject to divestment of some of the assets to Imperial. Whether that divestment was sufficient to ensure that the two New Zealand companies and their residual businesses remained dominant in the New Zealand tobacco products markets, or were likely so to be, is, of course, at the heart of this claim. But for the purposes of a striking-out application, the contrary pleading must be assumed to be provable.
[54] In the light of all of that the Court’s conclusion to this stage, and subject to the matters later mentioned, is therefore that it is arguable that the 3 September 1999 settlement was the final and effectual step in the process by which dominance in the New Zealand tobacco products markets of Wills NZ and Rothmans PM NZ/BAT NZ was created or strengthened, or was likely to be but was not the only means by which such dominance was created or strengthened nor was it the mere mechanical implementation in New Zealand of the Transaction Agreement. Although substantial sums were involved in the 3 September settlement (and in the Australian settlement the previous day) the share sale was not on an “arm’s length” basis but one which the parties were only enabled to undertake because such was a necessary part of effecting the global merger.
[55] Before passing on to consider the other issues raised and in particular the applicability of the remaining subsections of s 47 and s 48, it should be noted that, contrary to the Commission’s stance, the Court takes the view that the Australian public holding in Rothmans Holdings Ltd has no impact on the views just expressed as to the legal ability of British American Tobacco plc to affect the dominance of Wills NZ and Rothmans PM NZ/BAT NZ for the reason that for the public shareholders to have taken effective action against the wishes of Rothmans Holdings BV would have required every single one of the nearly 1700 shareholders both to vote and to be unanimous in their views in opposition. And even then all they would have produced was an impasse. That possibility must be regarded as wholly unrealistic. As the Court of Appeal said in Hetherington Ltd v Carpenter [1997] 1 NZLR 699, 707
“The fact of control of a company cannot, however, be measured merely by counting the votes available to shareholders. The directors are in control until removed. In a listed public company with over 500 shareholders less than 50 per cent of votes will suffice to give de facto control. Many shareholders will be inactive. Directors may be in a position to influence or control other votes held by other persons.”
It follows that Rothmans Holdings BV and, after 7 June 1999, British American Tobacco plc had effective legal control of Rothmans Holdings Ltd in Australia even before the public shareholding was purchased and that all the companies in Schedule 2 were interconnected throughout this matter notwithstanding that public shareholding.
[56] Turning to s 47 (2), before dominance can be deemed under that subsection, it must be established that two or more companies are interconnected or associated and, secondly, that together they are dominant in the relevant market. If those two requirements are satisfied then each is deemed dominant in that market.
[57] In the Court’s view, the aim of s 47(2) is to ensure that the prohibition on aggregated dominance in a market by two or more interconnected or associated companies is not to be defeated by an assertion that, individually, no one or more of them is separately dominant in that market. If, taken together, either or all are dominant in that market, each is deemed individually to be dominant as well. What s 47(2) is designed to avoid is interconnected or associated companies which together have dominance in the market endeavouring to disassociate or disconnect themselves sufficiently to avoid a finding of either separate or aggregated dominance. Not only is s 47 (2) designed to avoid that result by depriving companies which are dominant in the aggregate of a defence in proceedings brought under s 47 that they are severally not dominant, but it is also designed to ensure that all such companies remain within range of the statutory penalties provided for actions prohibited by s 47.
[58] The question as to whether the defendants are “interconnected” for the purposes of ss 2 (7) and 47 requires only brief consideration given the defendants’ acceptance and reliance upon the fact of their interconnection or association. It is noteworthy that s 2 (7) is both mandatory in form - the bodies corporate in question “are to be treated as if interconnected” - and whilst defining interconnectedness in terms of subsidiarity does not limit the immediacy of the subsidiarity required.
[59] Seen in that light, Rothmans PM NZ/BAT NZ was a subsidiary of Rothmans Holdings NZ/BAT Holdings NZ both before and after 7 June. Both must accordingly be regarded as interconnected at all relevant times, as must Rothmans Holdings in Australia. Because, for the reasons earlier discussed, Rothmans International BV effectively controlled the composition of the board of Rothmans Holdings Ltd in Australia, that company and therefore the Rothmans companies above it on Schedule 2 must also be regarded as interconnected for the purposes of s 47(2) (assuming that control of the composition of the board of Rothmans Holdings Ltd in Australia arises because the relevant statutory provisions in that country are effectively identical to the Companies Act 1993 ss 5 and 7).
[60] The same position applied after 7 June, once British American Tobacco plc had purchased the Rothmans International BV shares.
[61] The position with Wills NZ is straightforward. Both before and after 7 June it was a subsidiary of all the companies shown above it on Schedule 1. All of them must therefore be regarded as being “interconnected” at all relevant times for the purposes of s 47 (2).
[62] The Court’s conclusion is accordingly that Wills NZ was “interconnected” with British American Tobacco plc at all times before and after 7 June and in particular after 3 September when its shares were transferred to Rothmans Holdings NZ/BAT Holdings NZ, and that on and after 7 June 1999 Rothmans PM NZ/BAT NZ and Rothmans Holdings NZ/BAT Holdings NZ were “interconnected” with Rothmans Holdings Ltd and that they were also “interconnected” with British American Tobacco plc after 7 June. All the defendants must therefore be treated as interconnected on and after 7 June pursuant to s 2 (7). That conforms with the statement of claim and with the defendants’ admission through counsel.
[63] The question as to whether any of the defendants were “associated” for the purposes of s 47 (2) depends on s 47 (3) and (4).
[64] In Schedules 1 and 2 each of the companies listed was arguably able, directly or indirectly, to exert a substantial degree of influence over the activities of all companies below it. The fact that they - particularly Wills NZ and Rothmans PM NZ/BAT NZ - were in competition with each other prior to 7 June is irrelevant under s 47 (4) as is the fact that some of the companies supplied others. In terms of s 47 (4) it is also irrelevant that Wills NZ and Rothmans PM NZ/BAT NZ continued to compete with each other in terms of the “standstill” Deed of 31 May, at least until it was revoked by the 26 August Deed.
[65] The fact that s 47 (3) is phrased in terms of “influence” rather than “control” means that the doubts expressed concerning the effect of the public holding in Rothmans Holdings Ltd in Australia do not apply here. Undoubtedly Rothmans Holdings BV and the companies above it on Schedule 2 were in a position to exert a substantial degree of influence over Rothmans Holdings Ltd and, through it, Rothmans Holdings NZ/BAT Holdings NZ and Rothmans PM NZ/BAT NZ.
[66] Interconnection, not association, is the only aspect of s 47 (2) pleaded but, even so, the conclusion must be that each of the companies above the bottom level on Schedules 1 and 2 were “associated” with the companies below them having regard to the provisions of s 47 (3) and (4).
[67] It follows that, in terms of s 3 (9) and the amended claim, the defendants must be regarded as arguably having a dominant position in the tobacco products markets if they are or were in a position to exercise a dominant influence over those markets in terms of the subsection, but whether they are or were in that position requires regard to be had to s 3 (9) (a) (b) (c) amongst other factors. The matters to which a Court is required to have regard in determining whether the defendants were in a position to exercise that dominant influence is an intensely practical one. If they are in that position as a matter of fact the conclusion is open that they were dominant in the tobacco products markets as a matter of law for s 47 purposes having regard to the operation of s 3 (9). That section is pleaded by the Commission and the allegation must be regarded as provable.
[68] So, to summarise for present purposes:
[a] Wills NZ is to be regarded as “interconnected” with British American Tobacco plc both before and after 7 June 1999 and with Rothmans Holdings NZ/BAT Holdings NZ probably after 7 June and certainly after 3 September 1999
[b] Rothmans PM NZ/BAT NZ and Rothmans Holdings NZ/BAT Holdings NZ are to be regarded as “interconnected” at all relevant times and to be interconnected with Rothmans Holdings Ltd and with the other Rothmans companies higher up Schedule 2 prior to 7 June 1999 and with those companies and British American Tobacco plc after that date.
[c] Because pleaded, for present purposes all the companies on Schedules 1 and 2 are to be regarded as “interconnected” on and after 7 June 1999.
[d] Rothmans Holdings NZ/BAT Holdings NZ is to be regarded as “associated” with Rothmans PM NZ/BAT NZ at all times relevant to this proceeding and each company above another in Schedule 2 is also to be regarded as “associated” for those purposes.
[e] New Zealand Holdings was “associated” with Wills NZ prior to 3 September 1999 and each of the companies above New Zealand Holdings in Schedule 1 was associated with the ones below it at all relevant times. Following the transfer of the Wills NZ shares to Rothmans Holdings NZ/BAT Holding NZ on 3 September 1999 the latter became “associated” with Wills NZ after that date.
[69] The overall conclusion on s 47 (2) is accordingly that the defendants are “interconnected” or “associated” as defined earlier and must be regarded as each arguably being separately dominant in the tobacco products markets because such is pleaded. Whether or not that is in fact the case depends on assessment of all relevant factors including those in s 3 (9) (a) (b) (c). That, in its turn, reflects back on the Court’s views on s 47 (1). If all the companies in Schedules 1 and 2 are interconnected or associated and if Wills NZ and Rothmans PM NZ/BAT NZ are or were together dominant in the New Zealand tobacco products markets after 7 June and in particular after 3 September, then each of those two companies is deemed to have been dominant in those markets. In that sense, the deemed separate dominance arising from the operation of s 47 (2) overcomes the disjunctive phrasing of s 47 (1) (a) (b) and overcomes the effect earlier discussed as to the effect of the 31 May 1999 “standstill” Deed at least until the 26 August Deed. It also means that the course of the various transactions, not just settlement of the Transaction Agreement and not just the 3 September 1999 settlement arguably had as one of its results the actual or likely creation or strengthening of dominance in the New Zealand tobacco products markets arising through the acquisitions of the business assets or shares of Wills NZ, Rothmans PM NZ/BAT NZ. That result did not arise through any one transaction or document alone.
[70] The next question is whether s 48 disturbs the views so far expressed. Mr Farmer argued that settlement of the Transaction Agreement on 7 September and, more particularly, the sale of the Wills NZ shares to Rothmans Holdings NZ/BAT Holdings NZ on 3 September was no more than a bare transfer of market dominance and accordingly s 47 was inapplicable as neither transaction resulted or could result in the strengthening of the dominant position which, for striking-out purposes, the New Zealand companies must be assumed to have occupied.
[71] Were those transactions no more than a transfer of shares, either immediately or further up the corporate ladders in Schedules 1 and 2 without any effect on the dominance in the tobacco products markets which Wills NZ and Rothmans PM NZ/BAT NZ are deemed to have occupied, there may have been force in that submission. Were that the only effect of the Transaction Agreement, the 31 May “standstill” agreement, the 20 July agreement and the 26 August Deed, in the tobacco products markets nothing would have changed. Prior to divestment, retailers and consumers would have noticed nothing different. The focus of s 48 is the lack of any effect on existing market dominance. The heading to s 48 - “Bare transfer of market dominance excluded” - correctly encapsulates the section’s intention.
[72] But, arguably at least, the 31 May, 20 July and 26 August Deeds did more than merely alter shareholdings leaving the tobacco products markets unaffected. The 31 May Deed was designed to ensure that the Rothmans and British American Tobacco plc New Zealand interests remained separate and did not co-operate with each other. The 20 July Deed resulted in the sale of the Wills NZ shares. The 26 August Deed resulted in, first, the divestment of a substantial proportion of Rothmans PM NZ/BAT NZ’s business to Imperial and, secondly, ensured the retention of the Retained Wills Brands in Rothmans PM NZ/BAT NZ ownership. For the purposes of striking-out, the effect at the end of those transactions arguably lessened the dominant position otherwise to be regarded as occupied by Wills NZ and Rothmans PM NZ/BAT NZ by selling off some of the assets and brands by which that dominant position had been created and maintained and ensuring that some brands were retained to preserve the Commission’s power, if thought appropriate in due course, to require further divestment. Section 48 makes s 47 inapplicable if the sale of business or shares in a company or companies has no strengthening effect in the dominant position already occupied by that company or those companies in the relevant market. It is inapplicable to dominance retention or reduction. In this case, the 26 August 1999 Deed arguably diminished the existing dominance of Wills NZ and Rothmans PM NZ/BAT NZ. It certainly altered it. Whether the remaining dominance is sufficient to breach s 47 remains for determination in the substantive hearing. But for present purposes it could not be said that s 48 necessarily applies to settlement of the Transaction Agreement and the 31 May, 20 July and 26 August Deeds so as to entitle the defendants to strike out the proceeding.
[73] The final matter is to consider what effect s 4 has on the transactions under review. Section 4 (1) (3) extends the operation of s 47 to the foreign acquisition of shares or assets in New Zealand businesses to the extent the acquisition affects New Zealand markets. Any affecting suffices. That plainly catches the Transaction Agreement and the 31 May, 20 July and 26 August Deeds to the extent that they affected the New Zealand tobacco products markets as, it is clear, they did. The Commerce Act 1986 therefore extends to those transactions although whether, in default of any New Zealand equivalent of the Australian s 50A, the Commission can do anything effective about it remains a matter for doubt.
[74] Since the current claim wholly alleges dominance arising as a result of the 3 September 1999 settlement, it follows, in this Court’s view, that the claim is incomplete or at least is unlikely to be able to succeed in its present form. The Commission, with the additional information it now has and as a result of this judgment, may wish to reconsider the form of its claim. For example, British American Tobacco plc is not currently a party to this proceeding, despite its being party to the 31 May and 26 August Deeds. The Commission may wish to consider possible joinder of British American Tobacco plc or other parties whose rights may be affected by the outcome (Pegang Mining Co Ltd v Choong San (1969) 2 MLJ 52, McGechan on Procedure para HR97.14(b) p 3-194(a)-3-195). Since that matter may arise for further determination, it would not be right for the Court to comment. If the claim is amended and a further party or parties joined, there may still be the difficulties for the Commission suggested by counsel over such matters as enforceability, limitation and relief, but those are matters that can be dealt with if and when they arise. For the present, it has long been the case that plaintiffs should be given the opportunity to amend their pleadings rather than have them struck out if there is a possibility of amendment curing the defect of which complaint is made. In the Court’s view the Commission should be given that opportunity in this case. In terms of Tipping J’s graphic metaphor in Marshall Futures Ltd v Marshall [1992] 1 NZLR 316, 324, while the pleading is not in good condition in its present form, amendment may mean that it can be panelbeaten into acceptable shape and is not a complete write-off.
[75] In the result, for the reasons set out, this Court is of the view that the defendants have not shown that the causes of action pleaded against them in the plaintiff’s amended statement of claim of 5 July 2001 are so clearly untenable as to be incapable of success, even though the form of the claim requires amendment. Although the amendments required may be major, having regard to the extent of the arguments mounted in relation to this application, the possibility of new defences and a further application to strike-out following amendment, it would appear preferable to adjourn this application part-heard to the Commercial List on 12 April 2002.
[76] If costs are to be pursued at this stage and counsel are unable to agree, memoranda are to be filed certifying, if counsel consider it appropriate, that those questions can be dealt with by the Court whether on a 2B or other basis without further hearing. In that event, memoranda on costs are to be filed by counsel for the plaintiff within 28 days of the date of delivery of this judgment and counsel for the defendants within 35 days.
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