Commerce Commission v Hutt and City Taxis Ltd
[2021] NZHC 2543
•28 September 2021
NOTE: CONFIDENTIALITY ORDERS APPLY TO THE EVIDENCE FILED, THE FILE IS NOT TO BE SEARCHED WITHOUT LEAVE OF A HIGH COURT JUDGE. IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-198
[2021] NZHC 2543
UNDER The Commerce Act 1986 BETWEEN
COMMERCE COMMISSION
a body corporate established under section 8 of the Commerce Act 1986 having its offices at 44 The Terrace, Wellington
Plaintiff
AND
HUTT and CITY TAXIS LIMITED
a culy incorporated company having its registered office at 20 Victoria Street, Alicetown, Lower Hutt, 5010 Defendant
Hearing: 8 September 2021 Appearances:
F J Cuncannon and P I C Comrie-Thomson for Plaintiff E M S Cox for Defendant
Judgment:
28 September 2021
JUDGMENT OF CULL J
[1] This is a judgment imposing an agreed penalty under s 80 of the Commerce Act 1986 in a proceeding brought by the Commerce Commission against the defendant for a breach of the Act.
[2] Hutt and City Taxis Ltd (Hutt and City Taxis) is one of four taxi companies that leases “on-demand taxi rank” spaces at Wellington International Airport. These
COMMERCE COMMISSION v HUTT and CITY TAXIS LIMITED [2021] NZHC 2543 [28 September 2021]
spaces allow taxi companies to offer pick-up taxi trips from Wellington Airport to customers without a prior booking. The three other relevant taxi companies leasing taxi rank spaces are Kiwi Cabs Ltd (Kiwi Cabs), Eko Switch EV Solutions Ltd (EkoCabs) and Wellington Combined Taxis Ltd (Wellington Combined).
[3] Frustrations arose among the taxi companies owing to the limited spaces in the on-demand taxi ranks. There are only eight on-demand taxi rank spaces. Each taxi company is limited to using only the number of spaces which it has leased. All other taxis must wait in a holding pen for spaces to become available. Pursuant to the Land Transport Rules, drivers on the rank must accept the first hire offered to them, unless a lawful reason exists as not to.1 A tension then arises where a customer requires a short trip only, with drivers considering they are not adequately compensated for the long waiting period required in the holding pen before and after this trip.
[4] Between 24 and 25 September 2020, Hutt and City Taxis entered into an agreement with Kiwi Cabs and EkoCabs to charge a $25.00 minimum fare for pick- up taxi trips from Wellington Airport (the Minimum Fare Agreement). Hutt and City Taxis gave effect to the Minimum Fare Agreement between 5 and 29 October 2020 by:
(a)Corresponding with EkoCabs and Kiwi Cabs regarding the design, printing and distribution of stickers advertising the minimum fare, and the date for implementation of the minimum fair; and
(b)Distributing the stickers to Hutt and City Taxis drivers and communicating to them that the minimum fare would apply to trips from the on-demand taxi rank from 26 October 2020; and
(c)Implementing the minimum fare as soon as drivers began receiving the minimum fare stickers from 21 October 2020.
1 Land Transport Rule: Operator Licensing 2017, s 3.6(2)(a).
[5] The fare was applied for eight days until 29 October 2020, until, following inquiries from the Commission, Hutt and City Taxis instructed its drivers to cease implementing the Minimum Fare Agreement.
[6] It is accepted that the Minimum Fare Agreement was a cartel provision, being an arrangement or understanding with the purpose, effect or likely effect of fixing or controlling the price for pick-up taxi trips from Wellington Airport.2
[7] Between 28 September and 5 October 2020, Hutt and City Taxis also attempted to enter into the same Minimum Fare Agreement with Wellington Combined.
[8] On 23 April 2021 the Commission commenced proceedings against Hutt and City Taxis, alleging Hutt and City Taxis:
(a)had contravened s 30(a) of the Act by entering into the Minimum Fare Agreement;
(b)had contravened s 30(b) of the Act by giving effect to the Minimum Fare Agreement; and
(c)had attempted to contravene s 30(a) by attempting to enter into a Minimum Fare Agreement with Wellington Combined.
[9]Declarations of these contraventions and pecuniary penalties were sought.
[10] On 1 June 2021, Hutt and City Taxis filed a notice of admission, admitting all three causes of actions. The Court is to determine the appropriate pecuniary penalty Hutt and City Taxis must face.
[11] Each party has filed submissions on the appropriate penalty for the offending. Both parties agree that the appropriate penalty for the contraventions is $150,000, to be paid in three yearly instalments on the basis that the financial constraints placed on Hutt and City Taxis due to the current community outbreak of COVID-19 and
2 Commerce Act 1986, s 30A
associated travel restrictions prevent the company from paying the penalty in full. An order is sought that no interest be payable on the pecuniary penalty, if the instalment order is made.
Legal Principles
[12] The agreed penalty procedure is of benefit to both involved parties and the public, ensuring the efficient disposal of potentially complex and lengthy proceedings, and encouraging a realistic view of culpability and penalty.3 The Court is required to consider whether the proposed penalty is in the appropriate range, rather than conduct its own independent enquiry.4 The Court must be satisfied that the final figure proposed satisfies the objectives of the Act and the particular circumstances of the case before it.5 The Court should approach the prospect of declining its approval cautiously.6
[13] The appropriate penalty is to be determined, subject to the statutory maximum, by having regard to all relevant matters and particular regard to the nature and extent of any commercial gain.7 The Courts have consistently held that the paramount objective of any penalty imposed is general and specific deterrence of anti-competitive behaviour. The deterrence objective will only be served if “anti-competitive behaviour is profitless.”8
[14] In summary, the authorities have determined that the appropriate methodology for setting a penalty under s 80 is to:9
(a)Determine the maximum penalty;
3 See Commerce Commission v New Zealand Milk Corp Ltd [1994] NZLR 730 (HC) at 733; Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [18]; and Commerce Commission v GEA Milfos International Ltd [2019] NZHC 1425 at [11].
4 Alstom Holdings, above n 3, at [18].
5 Commerce Commission v Air New Zealand Ltd [2013] NZHC 1414, (2013) 13 TCLR 618 at [27]; and Commerce Commission v Ronovation Ltd [2019] NZHC 2303 at [26].
6 Commerce Commission v Prices Pharmacy 2011 Ltd [2020] NZHC 1176 at [4].
7 Commerce Act 1986, s 80(2A).
8 Telecom Corp of New Zealand Ltd v Commerce Commission [2012] NZCA 344 [Data Tails] at [53], citing Commerce Amendment Bill 2001 (296-2) (Select Committee report) at 23.
9 Commerce Commission v Visy Board (NZ) Ltd [2013] NZHC 2097, (2013) 13 TCLR 628 at [35]; Commerce Commission v PGG Wrightson Ltd[2015] NZHC 3360 at [34]; and Commerce Commission v Geologistics International (Bermuda) Ltd HC Auckland CIV-2010-404-5490, 22 December 2010 at [18]--[19].
(b)Establish an appropriate starting point range for the offending that will achieve the objective of deterrence, in light of the relevant factors; and
(c)Adjust the starting point to discount or increase the penalty on the basis of any considerations specific to the defendant.
[15] Hutt and City Taxis have admitted to three breaches of the Act. The Commission submits, with reliance on Commerce Commission v Korean Air Lines Ltd that the appropriate approach in this case is to view the contravening behaviour as a single related course of conduct and to determine a single penalty that reflects the overall culpability of the defendant.10 Such an approach is deemed to aid the Court in determining a penalty consistent with like cases that properly reflects the totality of the conduct.
[16] Pursuant to s 80 of the Act, the maximum penalty that can be imposed on Hutt and City Taxis per breach is $10 million.11 I now turn to the starting point.
The starting point
[17] In addition to the need to ensure deterrence of such conduct, the Court must have regard to “all relevant matters” including:12
(a)The importance and type of market;
(b)The nature and seriousness of the contravening conduct;
(c)Whether the conduct was deliberate or not;
(d)The role of the defendant in the impugned conduct;
(e)The seniority of the employees or officers involved in the contravention;
10 Commerce Commission v Korean Air Lines Ltd [2012] NZHC 1851 at [42].
11 Commerce Act 1986, s 80(2B)(b)(i).
12 These factors have been expounded by the Court on many occasions: see, for example, Alstom Holdings, above n 3, at [20]; Commerce Commission v Ophthalmological Society of New Zealand Inc [2004] 3 NZLR 689 (HC) at [17]; Visy Board, above n 9, at [40]–[52]; Geologistics International, above n 9; and Data Tails, above n 8, at [13].
(f)The duration of the contravening conduct;
(g)The extent of any benefit derived from the contravening conduct;
(h)The extent of any loss or damage suffered by any person as a result of the contravening conduct;
(i)The market share/degree of market power held by the defendant; and
(j)The size and resources of the defendant.
[18] The cartel provision of the Minimum Fare Agreement was a clear example of price-fixing. The Court has acknowledged that s 30 breaches are of the most serious type of conduct prohibited by the Act.13 That the anti-competitive conduct was instigated by Hutt and City Taxis and led by two of its directors, with all other directors aware of the Minimum Fare Agreement and approving of its implementation (with the exception of one director) speaks to the seriousness of the conduct. However, the Commission accepts that while Hutt and City Taxis should have been aware, it did not know its behaviour was illegal. Further, the short length of time within which the Agreement was operative (eight days) is a mitigating factor.
[19] The Commission notes that the Wellington taxi market is moderately important, although the taxi industry is not central to the New Zealand economy. While Hutt and City Taxis is a significant provider of taxi services in Wellington, with a fleet of 103 vehicles, the Commission note it is considerably smaller than its next largest competitor, Wellington Combined, which has 500 vehicles in its fleet. The relative size of Kiwi Cabs and EkoCabs in comparison is unclear from the material.
[20] The Commission refers to two cases providing guidance for the present proceeding.
[21] In Commerce Commission v Prices Pharmacy 2011 Ltd, the defendant company entered into an agreement with other pharmacists to institute a new charge for prescription medications, due to concerns of the low profit margins for such medication. This charge was imposed for six weeks. Like the present case, the
13 Commerce Commission v GEA Milfos International Ltd, above n 3, at [19].
conduct was undertaken by the “directing minds” of the company, and there was no knowledge of its illegality. The conduct was considered less serious, with the company’s motive not to extract higher profits, but to pressure the relevant DHB into acknowledging the existing payment arrangements for prescription medications were inadequate to ensure the viability of community pharmacies. It was also noted the charge was voluntary and there was no evidence its imposition dissuaded customers from procuring medicines. However, the vulnerability of potential customers and the company’s “reasonable” portion of the market share were also relevant. Dobson J found a starting point in the range of $400,00 – $480,000 was suitable.14
[22] In Commerce Commission v Ronovation Ltd, the defendant company provided advisory services to clients seeking to invest in residential real estate. It established a Facebook page accessible only to its clients and implemented rules, agreed to by all members, to avoid client competition for properties. The first member to notify the group of their interest in a property was to have priority over other members who were not permitted to negotiate or bid for the property. A starting range of $550,00 to
$650,000 was regarded appropriate.15 The Judge noted that while the type of conduct was moderately serious, the actual harm was low as the number of properties involved
– 471 properties over a seven-year period -- were only a fraction of the overall market. The impact was on a small section of the market and caused harm to individual vendors rather than the market as a whole. The Judge also considered that the conduct did not involve a deliberate flouting of the law as the defendant company was clearly unaware its conduct, although deliberately anticompetitive, was unlawful.
[23] The Commission submits that a starting point between the ranges identified in these two cases is appropriate. The Court of Appeal has warned of the difficulties of drawing comparisons with other penalty cases, as the appropriate penalty in each instance will depend on the circumstances in each particular case. In Data Tails (CA) the Court said:16
Assessments of penalty in analogous cases may provide guidance to the Court to ensure that there is parity of treatment in similar circumstances. However, while pecuniary penalties imposed in one case may provide a guide, that guide
14 Prices Pharmacy, above n 6, at [48].
15 Ronovation Ltd, above n 5, at [63].
16 At [62].
will seldom be able to be used mechanically. Changes in circumstance will affect the appropriate penalty in a case, such as differing circumstances of the conduct, size, market power responsibility for the contraventions. These factors, among others (including mitigating factors), complicate any attempt to compare penalties imposed in one case with those imposed in another.
[24]I bear that caution in mind in my assessment of the cases referred to.
[25] In contrast to Ronovation, the substantial duration of the impugned conduct in Ronovation and the importance of the Auckland residential property market in comparison to the Wellington taxi market warrants a marginally lower starting point than that adopted in that case.
[26] I am not persuaded by the Commerce Commission that the current case is more severe than Prices Pharmacy. Whilst the nature of the agreements in this case differs from those in Prices Pharmacy, the revenue obtained and the harm done in this case occurred over an eight day period only and ceased once the Commission raised its concern.
[27] However, given the guidance of the Court of Appeal regarding the inherent difficulties of comparison in these cases and the paramount objective of deterring price fixing and cartel arrangements through pecuniary penalty proceedings, I consider a global starting point of $500,00 to $600,000 is appropriate.
Mitigating factors
[28] Two specific factors are advanced as relevant mitigating features for the defendant in the present case:
(a)Hutt and City Taxis has not previously been found to have contravened the Act, or warned about potentially contravening behaviour; and
(b)Hutt and City Taxis ceased implementation of the Minimum Fare Agreement following inquiries from the Commission and co-operated with the Commission throughout its investigation. It acknowledged and accepted it had contravened the Act at the earliest possible stage in
this proceeding and has agreed to settle the proceedings on terms acceptable to the Commission.
[29] With reference to the relevant authorities,17 a 30 per cent discount for these mitigating factors is advanced, which, if applied to the midpoint of the starting range identified, would result in a final penalty of $385,000.
[30] However, the financial means of the defendant company is also relevant. As noted in Commerce Commission v Telecom, for a penalty to satisfy the objective of specific deterrence, the size and resources of the contravening company must be taken into account.18 There is a tension between applying a level of penalty that promotes deterrence and the need to ensure the result of the penalty does not inhibit the ongoing commercial viability of the defendant.19 Confidential information before the Court indicates the maximum sustainable penalty that Hutt and City Taxis is able to pay is
$150,000. This is accepted by the Commission and is consistent with the Court’s observation in Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd:20
…the financial circumstances of a defendant engaging in anti-competitive behaviour, including their resources, are a factor to be taken into account in setting penalty levels. Despite that, it is noteworthy that there is authority for the proposition that the quantum of penalties imposed for anti-competitive behaviour may, in egregious circumstances, be such that payment may put that defendant out of business (ACCC v Leahy Petroleum (No 3) (2005) ATPR 42,642, 42, 653 para 66).
[31] The Commission accepts that this is not a case where the conduct of Hutt and City Taxi is so egregious as to justify a response that would put it out of business, which is clearly what a penalty of $385,000 would do.
17 Price Pharmacy, above n 6 (20 per cent discount, admission not at earliest possible stage and limited co-operation with the Commission); Ronovation Ltd, above n 5 (35 per cent discount for co-operation, willingness to settle at earliest possible stage, no previous contraventions); Commerce Commission v Property Brokers Ltd [2016] NZHC 2851; and Commerce Commission v Bayley Corp Ltd [2016] NZHC 1493 (25—30 per cent range deemed appropriate for co- operation with investigations, admission at earliest stage, and no history of contravention); and Commerce Commission v Whirlpool HC Auckland CIV-2011-404-6362, 19 December 2011 (33 per cent discount for an early offer to settler, submission to the jurisdiction of the New Zealand courts, and introduction of a compliance programme).
18 Commerce Commission v Telecom Corp of New Zealand Ltd (2011) 13 TCLR 270 at [57].
19 Commerce Commission v Rural Livestock Ltd [2015] NZHC 3361 at [57].
20 Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd [2007] 2 NZLR 805 (HC) at [34].
[32] While this amounts to a reduction in penalty of over 50 per cent of the final penalty, I note that substantial reductions for a defendant’s circumstances have been awarded in the past. In Commerce Commission v Rural Livestock Ltd, a penalty of
$1.2—$1.4 million was reduced to $475,000, having regard to the defendant company’s ability to pay.21
Result
[33] I impose a pecuniary penalty of $150,000 for the offending. I record that by agreement between the Commission and Hutt and City Taxis, Hutt and City Taxis will pay the penalty in the following instalments:
(a)$50,000 to be paid within one year of the date of this judgment.
(b)$50,000 within 12 months of the first payment; and
(c)$50,000 within 24 months of the first payment.
[34]By agreement, there is no interest payable on the instalments.
[35] I make a suppression order that the confidential material disclosed within the documents shall remain confidential and is suppressed from publication.
[36] Under Rule 7 Senior Courts (Access to Court Documents) Rules, the file is not to be searched without leave.
[37]By agreement there is no order as to costs.
Cull J
Solicitors:
Meredith Connell, Wellington, for Plaintiff Gibson Sheat, Wellington, for Defendant
21 Commerce Commission v Rural Livestock Ltd, above n 19.
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