In a recent decision of the Wellington High Court, a penalty of $3.25 million was imposed on Foodstuffs North Island for registering restrictive land covenants, which was a breach of s 28 of the Commerce Act 1986 (the Act). A restrictive land covenant is a covenant which has the purpose of substantially lessening competition in a market and is an example of anti-competitive conduct which is prohibited by the Act.
In the Foodstuffs North Island case, the covenants restricted the use of the land and were registered over properties near to existing supermarkets who were Foodstuffs North Island’s competitors. The purpose of the covenants was to limit their expansion. Restrictive covenants were also registered against the titles of strategic properties near to Foodstuffs North Island’s supermarkets to restrict competition nearby.
The purpose of the Act is to promote competition in markets for the long-term benefit of consumers within New Zealand. The Commerce Commission was established by the Act and has several functions that align with this purpose, including investigating anti-competitive conduct. The Commerce Commission has the ability to carry out enforcement action, which can include compliance advice, warning letters, and prosecutions in the High Court, as illustrated in the Foodstuffs North Island case.
Another example of anti-competitive conduct prohibited by the Act is found in section 27 which states that “no person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market”.
An investigation into whether there has been a breach of s 27 of the Act will focus on whether the conduct substantially lessened competition in a market. Factors the Commerce Commission will take into account include the extent of the effect of the conduct on the market, such as the threat to independent initiatives, the ability for new entrants to enter the market, and what alternatives are available. In particular the Commerce Commission will consider whether the dominant person is able to exercise power over their competitors.
An approach taken by the courts when determining whether conduct has the effect of substantially lessening competition in a market is to compare the likely state of the market after the conduct with the likely state of the market in the absence of the conduct.
The use of cartel provisions is also prohibited by the Act. Section 30 of the Act provides that a person may be liable for a pecuniary penalty and criminal liability for entering into a contract or arrangement that contains a cartel provision, giving or requiring a covenant that contains a cartel provision, or giving effect to a cartel provision. A cartel provision is one that has the purpose, effect, or likely effect of price fixing, restricting output, or market allocating in relation to the supply or acquisition of goods or services.
If you think that someone else is carrying anti-competitive conduct, you can report your concern to the Commerce Commission on their website.
The team at Harmans is here to help if you want assistance in understanding your obligations in relation to anti-competitive conduct or if you have any concerns about arrangements you have in place.
