Commerce (Grocery Sector Covenants) Amendment Bill

Members, the House is in committee on the Commerce (Grocery Sector Covenants) Amendment Bill. Members, we now come to Part 1. This is the debate on clause 4—“Amendment to Part 2 of the Act, (which relates to restrictive trade practices)”. The question is that Part 1 stand part.

Mr Chair, we meet again! I’m very pleased to open proceedings on the Commerce (Grocery Sector Covenants) Amendment Bill. It’s an important portfolio commitment for me and for the Government.

This bill responds to the Government’s commitment to address the increasing costs of living facing New Zealanders. Groceries are an essential purchase and a major expense for most New Zealand households. Competition is a key driver of the price, quality, and range of food and groceries offered in New Zealand. The Commerce Commission found that both Foodstuffs and Woolworths New Zealand were using restrictive covenants on land and exclusivity covenants on leases to impede access to sites by other grocery retail stores. The covenants reduce competition by restricting the scope of activities that can take place on a plot of land or within a mall or shopping centre. The bill amends the Commerce Act 1986 to directly prohibit such covenants and make existing covenants unenforceable.

I’d like to thank the EDSI committee—the Economic Development, Science and Innovation Committee—for considering the bill, and I’d also like to thank everyone who made submissions on the bill. I did specifically mention in my second reading speech Jamie Strange as the chair, and Andrew Bayly as the Opposition lead, for the constructive way they and everybody on that committee worked together to progress this bill.

The bill directly prohibits covenants that the Commerce Commission’s market study identified as limiting the availability of land or sites for grocery store development, and it does this by deeming such covenants to contravene existing provisions in sections 27 and 28 of the Commerce Act. The effect of this is to make such covenants or provisions unlawful and unenforceable. This improves on the general prohibition in section 28 of the Act by avoiding the need for complex analysis of the covenant’s impact on competition in the relevant market. The covenants described by the bill would instead be presumed to be anti-competitive.

The restrictive covenants and exclusivity provisions which the bill applies are set out in the new section 28A, inserted by clause 4. There are, effectively, two requirements: (1) that the covenant or other provision is one in which a designated grocery retailer has an interest as defined by section 28A(5); (2) that the covenant or other provision has the purpose, effect, or likely effect of impeding use of the land or site as a retail store by an existing or new competitor.

Initially, the bill will apply to Foodstuffs North Island Ltd, Foodstuffs South Island Ltd, and Woolworths New Zealand Ltd. The bill does this by defining these companies as “designated grocery retailers”. It also includes a provision for other grocery retailers to be designated in the future by Order in Council.

The committee recommended that the bill be passed with amendments. These amendments are consistent with the original policy of the bill but respond to concerns raised in submissions as well as addressing technical issues. The committee recommended several changes to the scope of the covenants that the bill would prohibit, including amending the definition of an “exclusivity covenant” to explicitly include rights of first refusals that a landlord might give a supermarket. This might include a first option to lease or purchase a new site when it becomes vacant. These provisions can have an exclusionary effect.

The committee recommended extending section 28A to include other provisions in a lease or agreements outside the lease or land covenant that may contribute to a purpose or effect of impeding the use of a site by other retailers. It also recommended broadening the scope of retailers that might be affected by the covenants the bill prohibits to include non-grocery retail stores, which may compete with a designated grocery retailer.

The committee also recommended creating a more streamlined process for designated grocery retailers to voluntarily remove or modify restrictive covenants affected by the bill from a title of land. I endorse all of the committee’s recommended changes and note again for the record that the committee has added value to the bill as it stands.

I want to speak just to the Supplementary Order Paper (SOP) that’s come forward, to speak a little about that. The committee recommended a change, but were restricted in scope. But, instead, a Government SOP has been brought forward that gives effect to the intention of the committee. So the committee recommended creating a new power for the Commerce Commission to proactively require designated grocery retailers to supply information on demand about covenants or other contractual arrangements relating to this bill. The recommendation was unanimously agreed by the committee, but was not included in the bill, because, in the time available, it was not possible to scope the provision. I’ve tabled a Supplementary Order Paper under Standing Order 315 to give effect to the recommendation of the committee.

The SOP will enable the commission to obtain any contracts, arrangements, or understandings to which new section 28A might apply, including information relating to the renegotiation of those arrangements. The section provides that this information may be used to assess compliance with specified provisions in both the Commerce Act and Fair Trading Act relating to anti-competitive conduct and unfair conduct. These amendments replace the new monitoring function that currently appears as new section 28A(3A) in clause 4. It will enable the commission to proactively monitor the major grocery retailers’ activities in relation to covenants and assess their back compliance.

And finally, the committee also raised concerns that a designated grocery retailer may be able to make unreasonable claims for compensation or damages from their landlord because of the bill making exclusivity covenants in their lease unenforceable. Section 89 of the Commerce Act has the potential to facilitate a process of renegotiating the lease, if this is appropriate, to reflect actual losses incurred by the supermarket from a greater exposure to competition in the area. The committee’s concern, as I understand it, was about landlords having little protection against the potential for supermarkets to abuse this process. There are general provisions in contract law, the Commerce Act, and the Fair Trading Act, which prohibit the kinds of behaviours the committee was concerned about—for example, undue influence, coercion, or unconscionable conduct. I consider that these provisions should provide protection to mall and shopping centre owners. I also consider that the Government SOP will help mitigate some of the concerns by giving the commission the ability to actively monitor—which was a point that I had conversations with both Jamie Strange and Andrew Bayly on—these arrangements to assist compliance with both Acts. And with those introductory comments, I turn it over to the committee for wider discussion.

Thank you, Madam Chair. It’s a pleasure to be talking in the committee of the whole House stage of this bill. I thank the Minister for giving a fulsome introduction, which is very useful. I just want to reiterate that we find ourselves in the situation where New Zealanders are facing a huge cost of living crisis, and this is a way of trying to deal with this issue—certainly with the cost of buying groceries. That’s why National is supporting this bill.

But I just want to labour, before I get into the actual details of the bill, that this is but one of many aspects that need to be put in place if the Government is serious about making sure that the price of groceries, and living costs in general, are reduced over time, because without effective monitoring, without a proper regulator, and without wholesale access being opened up—all those other aspects that the Commerce Commission talked about—then this one small portion, which deals with what grocery retailers have been doing in respect of their land rights, is a small and significant, but certainly by no means comprehensive, solution in terms of reducing grocery prices over time.

So with that sort of caveat, I just do want to turn to Supplementary Order Paper 174 that the Minister has tabled. I’m grateful that he acknowledged that it was in response to the Economic Development, Science and Innovation Committee’s views of the issue of making sure that what is meant to happen actually happens. Of course, the issue we’ve got is that we don’t quite know what the future regulatory body that’s going to oversee the grocery trade is. The Government is talking about establishing a grocery regulator and it says it’s moving at pace. We don’t—and certainly didn’t at the select committee stage when we were deliberating on this bill before it came back into the House—have access or know anything about the proposed grocery regulator, if that’s indeed going to be the option that the Government puts forward in due course. But we did want to make sure that there was a mechanism for active and proactive monitoring of the changes proposed, particularly around new section 28A, inserted by clause 4.

So the first thing I just want to ask around the rules here is that we had a couple of concerns at the select committee stage. The first one is that some complaint could be laid at the door of the Commerce Commission for actually allowing many of these lease arrangements being put in place. So we’re now trying to deal with something that has happened in the past, and so it gives rise to whether, in fact, the Commerce Commission is capable of actually adequately enforcing this. So I’m so glad that the Supplementary Order Paper gives the Commerce Commission the right to seek information—and as the Minister said—relating to any contract, arrangement, understanding, or covenant, including the process relating to the negotiation or renegotiation of the contract, arrangement, understanding, or covenant.

So my first question is—I just want the Minister to be absolutely clear with the House that this is going to be a proactive operation of the Commerce Commission, because, traditionally, the Commerce Commissions acts in a reactive way—i.e., if someone makes a complaint, then they respond. What the select committee was very clear about, and wants to make sure that the Minister shares this understanding and makes sure that we’re clear in the House what the intent of this is, is that the Commerce Commission will be proactive in monitoring this.

Secondly, the other issue that we talked about was the issue of resourcing of the Commerce Commission. Has and will the Government provide sufficient funding or ensure that the Commerce Commission has sufficient resourcing to actually proactively monitor this? One is intent and the second one deals with capability. We want to make sure, and I’d be very keen for the Minister to be absolutely clear with the House, if he can tonight, in the time we’ve got left, as to whether, in fact, that is right on both counts.

Members, the time has come for me to report progress.

Progress to be reported.

House resumed.

Mr Speaker, the committee has considered the Commerce (Grocery Sector Covenants) Amendment Bill and reports progress. I move, That the report be adopted.

Motion agreed to.

Report adopted.

This bill is set down for further consideration in committee next sitting day. Members, the House stands adjourned until 2 p.m. tomorrow.

The House adjourned at 9.57 p.m.