The Commerce Commission (NZCC) has filed proceedings in the Wellington High Court against Foodstuffs North Island (Foodstuffs NI), alleging that it lodged restrictive land covenants with the intention of preventing competitors (namely Woolworths New Zealand) from opening new supermarkets and/or expanding existing ones at several locations in the North Island. 

Background 

Restrictive land covenants with the purpose, effect, or likely effect of substantially lessening competition in a market are prohibited by s 28 of the Commerce Act. 

Last year we wrote here about how restrictive land covenants were identified as a key issue by the NZCC in its fuel, grocery and building supply industries market studies. As a response to the grocery market study, the Government passed the Commerce (Grocery Sector Covenants) Amendment Act 2022 which prohibited certain grocery-related land covenants and made them unenforceable. 

In that article, we also discussed the NZCC’s investigations into whether the major grocery retailers’ land and lease covenants have had the purpose, effect or likely effect of substantially lessening competition by impeding competitive entry or expansion into the retail grocery sector. Therefore, these proceedings by the NZCC against Foodstuffs NI come as no surprise.

Commerce Commission v Foodstuffs North Island

In its media release, the NZCC announced that the parties have entered into a settlement to resolve the proceedings. The High Court will determine the final orders to be made in relation to the case.
 
A spokesperson for Foodstuffs NI told the Herald that, in 2021, Foodstuffs started a process to identify and remove any restrictive covenants, and by January 2024, none remained in place against any land it owns. The spokesperson noted that the relevant covenants at issue in these proceedings were put in place before the merger of Foodstuffs Wellington and Foodstuffs Auckland in 2013.

This case follows the proceedings brought by NZCC in 2023 against NGB Properties Limited (which operates a Mitre 10 Mega in Tauranga) for placing an anti-competitive land covenant on a site close to that Mitre 10 Mega in Tauranga for the purpose of preventing competitor Bunnings from opening a Bunnings Warehouse in the area. A penalty of $500,000 was imposed on NGB Properties Limited for the contravention of s 28 of the Commerce Act. 

Conclusion 

This case serves as an important reminder that the NZCC will continue to take legal action against companies which use land covenants to impede entry and/or expansion by competitors. 

While such covenants by the major supermarkets are prohibited in the grocery sector now by specific legislation, companies in other sectors should carefully consider whether to use such covenants in future - including taking advice on whether there could be any substantial lessening of competition in the relevant local market as a result. 

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Special thanks to Achi Simhony and Henry King for their assistance in preparing this article.