Commerce Commission v PGG Wrightson Limited
[2017] NZHC 2584
•24 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-001750 [2017] NZHC 2584
UNDER Section 27, 30 and 80 of the Commerce
Act 1986
BETWEEN
COMMERCE COMMISSION Plaintiff
AND
PGG WRIGHTSON LIMITED First Defendant (discontinued)
ELDERS RURAL HOLDINGS LIMITED Second Defendant
Hearing: 13 October 2017 Appearances:
L Farmer and J Carlyon for Plaintiff
M Anderson for Second DefendantJudgment:
24 October 2017
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 24 October 2017 at 11.00 am
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………….
COMMERCE COMMISSION v PGG WRIGHTSON LTD & OR [2017] NZHC 2584 [24 October 2017]
Introduction
[1] Elders Rural Holdings Ltd (Elders) admits breaches of s 27, via s 30, of the Commerce Act 1986 in relation to anti-competitive agreements between competing stock and station agents and saleyard owners. The other defendants in the proceeding (including Stuart Chapman, the Managing Director of Elders) also admitted breaches. They have had pecuniary penalties imposed on them.1 However, the Commerce Commission seeks only a declaration as to Elders’ contravening conduct. This is because Elders has been sold to Australian interests, is heavily indebted with no significant assets and is no longer trading in New Zealand.
[2] The matter comes before the Court on an agreed basis, with Elders supporting the making of the declaration sought. Whilst it is for the Court, ultimately, to determine what orders are appropriate, the Court recognises and accepts the assistance provided by agreed facts and legal submissions that support the relief sought.2
[3] The contravening conduct occurred in the context of the passage of National
Animal Identification Tracing Act 2012 (NAIT Act) through Parliament in the period
2010 – 2012. The purpose of the NAIT Act was to establish a scheme to track the movements of stock throughout New Zealand. It imposed new obligations on saleyard owners and stock and station agents. These obligations would come at a cost and it was three agreements regarding those costs that are the subject of this proceeding:
(a) The tagging fee agreement, under which owners and those with an interest in saleyards agreed to charge farmers a minimum fee of $25 for cattle and $10 for calves presented to any saleyard without the tag
required by the NAIT Act;
1 Commerce Commission v PGG Wrightson Ltd [2015] NZHC 3360; Commerce Commission v PGG Wrightson Ltd [2016] NZHC 2921; Commerce Commission v Rural Livestock Ltd [2015] NZHC 3361.
2 Commerce Commission v New Zealand Milk Corp Ltd [1994] 2 NZLR 730 (HC) at 733 and
Commerce Commission v Alstom Holdings SA HCAuckland, CIV-2007-404-2165, 22 December
2008, [2009] NZCCLR 22 (HC) at [18].
(b)The RFID3 fee agreement, under which stock and station agents agreed to charge farmers an administration fee of $1.50 per head of cattle split equally between vendor and purchaser to register saleyard- based cattle movements and, ostensibly, to defray the costs of the RFIDs required by the NAIT Act;
(c) The yard fee agreement, under which the saleyards would increase existing yard fees by $1.50 per head of cattle, split equally between the vendor and purchaser, ostensibly to defray the costs of the saleyard complying with the NAIT Act.
The anti-competitive conduct
The NAIT Act
[4] The specific statutory purposes of the animal identification and tracing system established by the NAIT Act are to:4
(a) provide for the rapid and accurate tracing of individual, or groups of, NAIT animals from birth to death or live export;
(b)provide information on the current location and movement history of individual or groups of NAIT animals;
(c) improve bio-security management;
(d)manage risks to human health arising from residues in food, food- borne diseases and diseases transmissible between animals and humans; and
(e) support improved animal productivity, market assurances and trading requirements.
[5] The NAIT Act requires a person in the day-to-day charge of an animal subject to the Act (PICA) to register the animal’s location with NAIT Ltd, tag each
animal with a radio frequency identification device (RFID tag) and report each
3 Radio frequency identification devices.
4 National Animal Identification and Tracing Act 2012, s 3.
animal’s movements between NAIT locations. Saleyards are required to register in order to facilitate the recording of this information. The movement of untagged animals is an offence punishable by fines and infringement fees.
[6] The NAIT Act is administered by National Animal Identification and Tracing Ltd (NAIT Ltd) which is a subsidiary of the industry-owned company OSPRI New Zealand Ltd. Prior to the enactment of the NAIT Act, NAIT Ltd sought the assistance of industry representatives to assist with the transition to the new regime. A stakeholder reference group was convened by the New Zealand Stock and Station Agents Association (NZSSAA) of which Elders was a member. NAIT Ltd held meetings with livestock companies, including Elders and the first defendant in this proceeding, PGG Wrightson Ltd (PGW). It encouraged the livestock companies to work collaboratively to address what would be required in the implementation of the new scheme.
Tagging fee agreement
[7] There was particular concern over the obligation on saleyard owners not to permit untagged animals to move from the saleyard. The NAIT regulations imposed a fixed fee of $13 for sending untagged cattle to a meat processor but no fee was set for untagged cattle consigned to a saleyard. The idea of a tagging fee was discussed at meetings from late 2010. It was proposed that a $20 plus GST tagging fee be imposed across the board to enable saleyards to recover the cost of replacement tags and to discourage farmers from sending untagged cattle to saleyards.
[8] At a meeting of stock and station agents convened by the NZSSAA on
5 April 2011 there was general agreement that saleyard facilities nationally would charge the selling company $20 plus GST for every NAIT tag applied to an animal. There were ongoing discussions among the livestock companies and saleyard owners regarding the tagging fee, including a tagging fee at the higher level of $25.
[9] An email from a PGW representative circulated in September 2011, including to Elders, stated that the “selling companies have agreed that there will be a minimum charge of $25 for the supply of a tag and [the] tagging of an animal at the saleyard, charged by the saleyard to the selling company. Finally, at a NAIT livestock company seminar on 13 December 2011 attendees, including Elders,
agreed that saleyards would charge a minimum $25 tagging fee for cattle and $10 for calves presented to a saleyard without a tag as required by the Act and that agents would pass that fee on to farmers. Subsequent correspondence among the parties to the tagging fee agreement confirmed the minimum $25 tagging fee.
[10] The parties to the agreement, including Elders, implemented the agreed tagging fee of $25 per cattle and $10 per calf. Elders’ internal communications reminded accounts staff to charge the tagging fee and livestock agents to pass on the tagging fee to the vendor.
The RFID fee agreement
[11] An administration fee of $1.50 per head of cattle to cover the cost of radio frequency identification devices was discussed at the NAIT seminar. At a subsequent meeting in April 2012 Elders and other NZSSAA members reached an understanding that agents would charge farmers $1.50 per head of cattle to register saleyard-based cattle movements. This was to be split equally between the vendor and purchaser of the cattle and was ostensibly to cover administration costs.
[12] PGW prepared a draft letter to be sent by the NZSSAA advising members of the recommended RFID fee to be charged and Elders’ North Island livestock manager confirmed the accuracy of the letter as a reflection of the discussions that had occurred between the parties. Elders subsequently implemented the agreement by charging 75 cents per head of cattle to each of the vendor and purchaser as an RFID fee.
Yard fee agreement
[13] Saleyards typically charge for the use of a saleyard through a yard fee charged to both the vendor and purchaser of cattle sold through the saleyard. At the NAIT seminar PGW disclosed that it intended to increase yard fees by $1.50 i.e. 75 cents each to vendor and purchaser. At the April meeting members of the NZSSAA, including Elders, agreed to impose or procure the imposition of yard fees at any saleyards in which they had an interest or degree of control by $1.50, charged at 75 cents to each of the vendor and purchaser. The details of the yard fee agreement was
included in the draft NZSSAA letter subsequently circulated to members, including
Elders.
[14] From 1 July 2012 Elders implemented the yard fee agreement by imposing the agreed fee increase.
Harm
[15] These three agreements have the purpose, effect or likely effect of substantially lessening competition in the relevant market of stock and station agent services, in breach of s 27 of the Commerce Act.
[16] It is agreed that the agreements were entered into for commercial gain. In their absence, Elders and the other parties to the agreements would have had to consider the issue of competition in the market place which may have led to lower fees being charged by some. However, the parties do not consider it possible to quantify the amount of any actual commercial gain. Nor does it appear that, overall, there was significant harm sustained by customers.
Declaratory relief sought
[17] Because Elders has no significant assets and is no longer trading the
Commission seeks only a declaration in the following terms:
That between April 2011 and July 2014, Elders Rural Holdings Ltd entered into and gave effect to three anti-competitive agreements and, by that conduct, breached s 27, via s 30, of the Commerce Act 1986.
[18] Although not specifically provided for in the Commerce Act the Court may exercise its inherent jurisdiction and the jurisdiction conferred by the Declaratory Judgments Act 1908 to make a declaration as to a breach of the Act.5 Declaratory
relief involves the exercise of broad, though not unfettered, discretion.6 In relation
to the exercise of this discretion Hammond J observed in Kung v Country Section NZ Indian Association Inc:7
5 Commerce Commission v Fletcher Challenge Ltd [1989] 2 NZLR 554 (HC); Telecom Corp of
New Zealand Ltd v Commerce Commission [2012] NZCA 278.
6 Telecom Corp of New Zealand Ltd v Commerce Commission [2012] NZCA 278.
7 Kung v Country Section NZ Indian Association Inc [1996] 1 NZLR 663 (HC) at 665.
As to the exercise of that discretion, I doubt if there has been a more concise and (with respect) insightful statement than that of Viscount Radcliffe in Ibeneweka v Egbuna.8
[The] two primary considerations [are] that the power to make declarations is conferred, surely not by accident, in wide and general terms, and that what is conferred is the discretion to be exercised according to the facts of each individual case.
…
[I]t it doubtful if there is more of principle involved than the undoubted truth that the power to grant a declaration should be exercised with the proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making.
This kind of approach is very like the approach of a Court to equitable remedies, the broad question being whether justice requires a declaration. A wide range of factors will then be relevant: whether a plaintiff has a sufficient interest in the proceedings; whether an issue is now moot; and the practical utility of issuing a declaration.
[19] The Commission and Elders both say that a declaration in the current circumstances will have utility in the present case. The fact that no penalty is sought merely reflects the reality of Elders’ current financial position. However, the Commission submits that a declaration that Elders’ conduct was unlawful would be in the wider public interest. First, it would support the Commission’s role in educating the public generally and the commercial sector in particular about the forms of conduct likely to breach the Act. Secondly, it would have a deterrent effect, particularly for other commercial entities contemplating agreement with competitors on a joint course of conduct. Thirdly, there is an issue as to parity in this case; the other parties have publicly acknowledged their respective roles in the conduct and been the subject of judgments recording those breaches and imposing pecuniary penalties. A declaration as to Elders’ conduct goes some way to providing consistency and parity as between the defendants.
[20] I accept that a declaration as to contravening conduct can be in the public interest and that this is such a case.9 As Asher J observed in Commerce Commission v PGG Wrightson Ltd, the circumstances of the offending by the defendants in this
proceeding were unusual because it occurred openly, in the context of an industry
8 Ibeneweka v Egbuna [1964] 1 WLR 219 (PC) at 224–225.
9 See, for example, Commerce Commission v ANZ Bank New Zealand Limited [2015] NZHC
1168.
body working towards implementation of a new regulatory regime. Remarkably, none of the individuals involved, even those occupying senior management positions, seemed to realise the potential implications of their conduct. Clearly, as Asher J also accepted, despite the element of deliberateness in the agreements, there was no intention to contravene the Act and no secrecy about the agreements reached. If the senior members of the industry could fall into this error then it must be a risk for other members of the industry and other industry bodies.
[21] In these circumstances a declaration that such conduct contravenes the Act would serve the purposes of deterrence and assisting the Commission in its ongoing educative function.
Result
[22] I make a declaration in the following terms, that between April 2011 and July
2014, Elders Rural Holdings Ltd entered into and gave effect to three anti- competitive agreements and, by that conduct, breached s 27, via s 30, of the Commerce Act 1986.
[23] The parties have agreed that the costs of the proceedings should lie where they fall and I am therefore not required to make any order as to costs. I do, however, record that Elders’ parent company has made a payment of $200,000
towards the Commission’s costs to date.
P Courtney J
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