Determination of penalty – Commerce Commission – – deterrence of anti-competitive behaviour – Commerce Act 1986 – covenants substantially lessening competition prohibited, s 28 – pecuniary penalties relating to restrictive trade practices, s 80
Commerce Commission v NGB Properties Limited  NZHC 2005 per Cooke J.
In a recent case involving a company associated with Mitre 10, the High Court imposed a $500,000 penalty, serving as a warning to those who place restrictive covenants on land, even where no anti-competitive effect arises from them.
Cooke J’s ruling is the first time a penalty has been imposed for breaching s 28 of the Commerce Act 1986. Section 28 bans the giving, enforcement or requiring of land covenants that have the intention, effect, or likely effect of substantially lessening competition.
Property holding entity NGB Properties has the same shareholders and directors as Juted Holdings, the operating company behind a Mitre 10 MEGA store at a Tauranga shopping centre. A problem arose when Mitre 10’s closest competitor, Bunnings, acquired a nearby property.
Juted, nominating NGB as the purchaser, bought an adjacent site after it realised Bunnings was also attempting to acquire the land. This effectively thwarted Bunnings’ ability to compete with Mitre 10 MEGA.
After buying the property, NGB considered various options such as selling or land-banking all or part of the site, or developing it for Mitre 10 MEGA’s use. NGB decided to place a restrictive covenant on the land, preventing its use for a competitive hardware business by future owners.
The commission received a complaint about NGB’s acquisition and the covenant. NGB admitted the covenant breached s 28, removed the covenant, and sold the site to Kainga Ora.
The central issue for the court was determining the appropriate penalty under s 80. The commission pushed for a starting point of $500,000.
The court’s reasoning was guided by an assessment of the maximum penalty under s 80(2B)(b). In this instance, since there was no commercial gain, the maximum penalty was determined to be $10 million.
The commission said a starting-point range of $680,000 to $750,000 was appropriate, reduced to $500,000 for mitigating personal circumstances. Cooke J did not assess what the starting point should be but considered whether the proposed penalty was within the appropriate range.
The judge deemed the conduct to be “moderately” serious. While no anti-competitive effect had transpired, he said it was essential to convey the gravity of these actions to the market. A striking feature of the case was that NGB did not realise its conduct was unlawful.
Cooke J also highlighted the pivotal role of land covenants in a competitive market, particularly in the hardware and home-improvement retail sectors. Imposing one was a deliberate strategy to hinder competition, creating barriers for potential competitors to enter the market and expand. While acknowledging the encumbrance could be removed under certain conditions, Cooke J noted the complexity and potential anti-competitive outcomes of such processes.
Applicable principles: statutory interpretation – deterrence of anti-competitive behaviour – barriers to entry – penalty calculations – general competition law principles.
Held: NGB ordered to pay a pecuniary penalty of $500,000.
Cooke J said the aim of such penalties was the general and specific deterrence of anti-competitive behaviour and to communicate unequivocally to market participants that anti-competitive activities would yield no financial benefits.
Vivian Mitchell is an LLB/BA graduate.