Praneeta Mahajan
Hamilton, August 11, 2024
In a landmark decision, the Wellington High Court has handed down a $3.25 million fine to Foodstuffs North Island, citing the company’s use of anti-competitive land covenants as a deliberate attempt to stifle competition in the grocery sector.
“Deliberate and Serious”
Justice David Radich, delivering the judgment, characterised the company’s actions as both “deliberate” and “serious,” pointing to efforts by Foodstuffs North Island to prevent competitors from opening or expanding supermarkets in three key locations: Newtown and Petone in Wellington, and Tamatea in South Napier.
The covenants, some with a duration of up to 99 years, were intended to limit the availability of suitable sites for rival grocery stores, effectively restricting consumer choice and undermining market competition.
The Commerce Commission brought the case against Foodstuffs North Island following a comprehensive market study into the grocery sector in 2022.
The study revealed that using restrictive covenants by major supermarket chains was a significant factor in limiting competition. Although the practice of using such covenants has since been made illegal, the Commission pursued legal action to address the historical conduct and to send a strong message to the business community.
Largest penalty
The ruling marks the largest penalty ever imposed under section 28 of the Commerce Act, underscoring the gravity of the offence.
Commerce Commission Chairman John Small said that the magnitude of the penalty reflects the seriousness of the conduct.
“By blocking competitors, Foodstuffs North Island deprived Kiwi consumers of the benefits that come from a more competitive market, including better prices and more choice,” he said and added that the ruling should serve as a deterrent to other businesses, highlighting the Commission’s ongoing commitment to ensuring fair competition across all sectors.
“This case sends a clear message: anti-competitive conduct, especially when it harms consumers, will not be tolerated,” he said.
In his ruling, Justice Radich said that while Foodstuffs North Island had not intended to break the law and had sought legal advice at the time, the company’s actions were nonetheless in breach of the Commerce Act.
He said that the company had taken steps to rectify the situation, including ceasing the use of restrictive covenants in 2021 and publicly acknowledging the issue.
Crackdown on covenants
The Commerce Commission’s investigation into the use of land covenants has broader implications for New Zealand’s economy. Restrictive covenants have been identified as a barrier to competition in several sectors, including residential building supplies, groceries, and retail fuels. Following the grocery sector study, the Government introduced a law change in April 2023, making certain grocery-related covenants unenforceable.
The ruling against Foodstuffs North Island follows a similar case in 2023, where NGB Properties Limited was fined $500,000 for using a restrictive covenant to prevent Bunnings from opening a warehouse near Mitre 10 MEGA in Tauranga.
These cases highlight the ongoing scrutiny of business practices that hinder competition and the increasing willingness of regulatory bodies to impose significant penalties.
As the Commerce Commission continues to monitor and address anti-competitive practices, businesses across New Zealand are being urged to review their use of land covenants and ensure compliance with the Commerce Act.
“We encourage all companies to carefully consider whether their actions align with the principles of fair competition,” Dr Small said.
The decision marks a positive step in the ongoing effort to promote a more competitive and fair marketplace for New Zealand consumers.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
