Proceedings against Foodstuffs North Island indicates Commerce Commission’s commitment to pursue anti-competitive land covenants

20 June 2024

The Commerce Commission has filed proceedings against Foodstuffs North Island in the Wellington High Court for allegedly lodging anti-competitive land covenants. Commission Chair, Dr John Small, said the proceedings demonstrate that the Commission will pursue companies in any industry who use land covenants to stop rivals entering local markets.

The Commission alleges that Foodstuffs North Island’s land covenants had the anti-competitive purpose of preventing or restricting the entry or development of other supermarket retailers. Dr Small said the historical breaches were serious enough to warrant proceedings, despite Foodstuffs North Island’s commitment in June 2021 to identify and remove any such clauses in their existing tenancy contracts. 

The proceedings are a direct result of the Commission’s investigation into the conduct of grocery retailers during its market study into the retail grocery sector, which concluded in March 2022.1 

Land covenants that lessen competition

A restrictive covenant is attached to or runs with the land, binding any third parties who subsequently acquire (or lease) that land. An exclusive covenant is contained in lease agreements between retailers and landlords, and is not binding on subsequent tenants. 

Whether such covenants have the effect of substantially lessening competition in a particular case is highly fact dependent.

The Commission had already signalled its intention to pursue anti-competitive land agreements (see Bell Gully’s publication in August 2023, here, for more detail).

Recent changes to the Commerce Act

Following the Commission’s market study into the retail grocery sector, new section 28A was incorporated into the Commerce Act via the Commerce (Grocery Sector Covenants) Amendment Act 2022, upon recommendation by the Commission.

Section 28 of the Commerce Act already applied to prohibit a person giving a covenant, or requiring the giving of a covenant, that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market. Section 28A takes this a step further and imposes particular rules on certain grocery-related covenants.

Where the Commission brings proceedings, penalties for breaching the Commerce Act include fines of up to NZ$10 million, or three times the commercial gain derived from the breach, or if the gain can’t be ascertained, 10% of annual New Zealand turnover, whichever is greater. 

In 2023, a sister company of Juted Holdings Limited (which operates Mitre 10 MEGA in Tauranga) was penalised NZ$500,000 after the Commission took action over a covenant placed on a site close to Mitre 10, which the Commission said had the purpose of preventing competitor Bunnings from opening a retail store.

Dr Small reiterated that the current proceedings against Foodstuffs North Island serve as another warning sign for “all companies who have previously lodged land covenants that restrict the use of sites by their competitors to consider whether they comply with the Commerce Act.”

If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

[1] Commerce Commission retail grocery sector market study (2022)

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.