Commerce Commission v Foodstuffs North Island Limited

[2024] NZHC 2222

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2024-485-365

[2024] NZHC 2222

BETWEEN

COMMERCE COMMISSION

Plaintiff

AND

FOODSTUFFS NORTH ISLAND LIMITED

Defendant

Hearing:	8 August 2024
Counsel:	F J Cuncannon and J P W Leslie for Plaintiff I J Thain for Defendant
Judgment:	8 August 2024

ORAL JUDGMENT OF RADICH J

(Result)

This oral decision, giving a result in the proceeding with brief reasons, was delivered at the conclusion of the hearing today. A fully reasoned decision will follow.

[1]                 Foodstuffs North Island admits contravening s 28 of the Commerce Act 1986 by registering restrictive land covenants in breach of s 28 of the Act. In the reasoned decision that will follow, declarations will be made to that effect.

[2]                 Section 28(1) of the Act provides that no person, either on his own or on behalf of an associated person, shall require the giving of a covenant, or give a covenant, that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market. The focus on this case is not on effect but is on purpose, for reasons that I will expand upon briefly in a moment.

COMMERCE COMMISSION v FOODSTUFFS NORTH ISLAND LTD [2024] NZHC 2222 [8 August 2024]

[3]                 The restrictive land covenants to which this proceeding relates were used in three locations – Newtown in Wellington, Petone in Lower Hutt and Tamatea in South Napier.

[4]                 The question for the Court today is whether to approve a penalty for those contraventions that is agreed by the parties. The Court makes an assessment of whether the jointly recommended penalty is within the appropriate range. It must be satisfied that it is. In order to be satisfied, it undertakes its own analysis of the facts and circumstances, the relevant statutory provisions, the objectives of the Act, the principles that emerge from the provisions, and previous decisions of the Court imposing penalties under the same or similar provisions in the Act.

[5]                 The restrictive land covenants in question here are documents that are registered on land titles and which restrict the use of that land in some way or another. Documents of that sort were registered over properties near to supermarkets of Foodstuffs North Island’s competitors to limit their expansion, or properties near to Foodstuffs North Island supermarkets to restrict competition nearby.

[6]                 Relevant considerations for me, in looking at the facts and circumstances of the case are these:

(a)The conduct is serious. It gives rise to significant competition issues.

(b)It was intended, when the covenants were put in place, that they would bind the owners and subsequent purchasers of the land in question for periods of up to 99 years.

(c)However, the conduct was historic, it occurred only between June 2014 and February 2015, when one looks at the periods of time in which the most relevant aspects of the conduct occurred.

(d)The covenants reflected a deliberate effort to hinder competitors at that time. However, it is accepted that Foodstuffs North Island never

intended to breach the Act. It understood at the time that it was complying with the Act.

(e)While there was the potential for significant commercial gains to be made and for significant harm to be caused, the amount of any commercial gain here is not readily ascertainable. There is no allegation here that any of the covenants had the actual effect of substantially lessening competition in any market nor that any of them were even likely to have had such an effect.

(f)Foodstuffs North Island never sought to enforce any of the covenants. It began the process of voluntarily discharging all of the covenants in June 2021. It has provided public updates on that process on its website and, in so doing, has provided an important educative role in the market place.

(g)The relevant covenants were on land only in the three specific locations

– Newtown, Petone and South Napier. Operations in those locations only generate a small fraction of Foodstuffs North Island’s overall income.

(h)Foodstuffs North Island has not previously been found to have contravened the Act. It has not been given a warning under the Act.

(i)It cooperated with the Commission in its investigation. Moreover, it cooperated during the Commission’s market study which was the genesis for the investigation which, in turn, led to these charges.

(j)The significant efforts that I have mentioned to remove the covenants were undertaken in such a way as to provide public education on the point, and that is important here.

(k)Foodstuffs North Island acknowledged that it had contravened the Act at the earliest possible stage in the proceeding and agreed to settle it on terms that were acceptable to the Commission.

(l)The contraventions here are, I am satisfied, to be viewed most appropriately as a single course of related conduct.

[7]                 When I apply considerations that include these to the relevant statutory provisions and to the principles that underpin those provisions, and when I take into account also the previous decisions of the Courts in cases that are comparable – and which I will discuss in the fully reasoned decision that will follow – I find that a starting point in the region of $4.5 million to $5.5 million is appropriate. From there, a 30 per cent discount is in my view warranted, to reflect Foodstuffs North Island’s good record, its cooperation with the Commission and the significant efforts that it has made to discharge all of the restrictive covenants that are in issue.

[8]                 Accordingly, I am satisfied that a penalty of $3.25 million, as approved by both parties, is within the appropriate range under the Act. So, under s 80(1) of the Act, I impose a penalty in that sum for all of the contraventions that are in issue.

[9]Costs are not sought and lie where they fall.

Radich J

Solicitors:

Cuncannon, Wellington for Plaintiff DLA Piper, Auckland for Defendant