Grocery Industry Competition Bill

We come now to Part 4, which is the debate on clauses 113 to 159 and Schedule 2, “Enforcement and dispute resolution”. The question is that Part 4 stand part.

Yeah, thank you, Madam Chair. I think there’s sort of two crucial elements in this part, but the one I want to just turn to first—it’s probably of lesser importance, but important to understand—is the issue around maximum penalty, which is referred to in clause 122. There’s obviously different tiered penalties—clauses 123 and then 124 and 125. But I just want to refer to clause 122. The maximum amount of this—and this is subclause (3)—is a pecuniary penalty of $500,000 for a contravention, an attempted contravention, or an involvement in a contravention by an individual. So that makes sense that it relates to an individual, and I know the Economic Development, Science and Innovation Committee was very keen and actually ensured that the level of penalty was similar to other pieces of legislation.

The bit I just want to ask the Minister of Commerce and Consumer Affairs about is “(b) in any other case, the greater of—(i) $10 million; and (ii) either the amount referred to in subsection (4)(a)” and (b). Now, subclause (4)(a) and (b) have two options—and, remember, this is the “greater of”. The first one is under (a): if it can be readily ascertained and if the court is satisfied that contravention has occurred, then three times the value of the commercial gain. So that one, obviously, is a judgment call around what is the level of commercial gain that the grocery retailers achieved, and to put a three times multiple on it. Or (b): greater of 10 percent of the turnover the person that is liable to pay the penalty.

Now, it might be useful just for the Minister to talk about, because if we’re talking about the two existing players, the turnover of those—and he might have those figures to hand, and I’m hoping he does—what would be the turnover of those two companies currently, and what does 10 percent represent? Because if you follow through on the maths, I would imagine that 10 percent is a very large figure, and the way this is drafted means that you end up at the greater figure. And so I’m just really keen to understand what the Minister believes that potentially that greater figure could actually be, based on the current turnover of the two existing—well, will be, shortly—regulated grocery retailers. Hopefully, he’s got an answer.

While the Minister’s thinking of a response to that good question from my colleague Andrew Bayly, I’d like to refer to Subpart 5, which is in regards to dispute resolution provisions within Part 4 of this bill—in particular, clauses 147(1), (2), and (3). Clause 147(3)(a) outlines the scale of disputes that may be referred to the scheme. And it refers to disputes less than $5 million are within scope of this, and then goes on to outline the other considerations.

My question to the Minister is in regards to disputes that exceed $5 million: what is the expectation and the process and mechanism in order to deal with disputes of that scale? I think, when one considers the cost of food and other goods that flow through the grocery industry, the context around $5 million may seem a lot in this House, but the reality is for some of our large suppliers that may only represent a day’s worth of stock, potentially, depending on the scale and volume if you think about some of our large production entities. So how will we deal with entities and disputes in regards to exceeding that amount?

The other aspect is in regards to dispute resolution in terms of how the Minister envisages this process working in terms of getting the parties around the table and whether there has been any consideration in the drafting of this clause in relation to other dispute resolution clauses that lie within other aspects of legislation—obviously outside of the grocery industry but any other industry aspects that have a similar context. So those are the two points in regards to clause 147 that I’d appreciate some context from the Minister.

I’m just pausing because I want to give the Minister an opportunity to respond, and I’m just looking at him. OK, I’ll move on, and my good colleague here Simon Watts has just been referring to clause 147. I just want to refer specifically to clause 149, and this is the referral to a dispute resolution scheme. This was a change that the select committee put in place, which enables the supplier or wholesale customer to refer matters to a dispute tribunal process, provided, as Mr Watts has just said, it does not exceed $5 million.

The first question I’ve got for the Minister is: how do you define the $5 million? If you have a contractual supply—and that might be for a long-term supply over the course of a number of years—would that preclude that arrangement if the total value of that long-term supply was more than $5 million? Or is the dispute figure what triggers the $5 million? And how do you define that? If you’re talking about a particular supply arrangement and there is a dispute around marketing fees, is the cost of the marketing fees the dispute—and therefore that’s what’s captured by the $5 million—or is it, as Mr Watts was trying to indicate, if you are supplying and the total value of the goods that you supplied for that week was less than $5 million, you’re OK? So the first thing: a bit of definition around that.

The second one is about the three elements where the dispute can be referred, and it rises from the performance or non-performance of the grocery supply code. The second element is in relation to the wholesale supply of groceries code, or “falls within … [the] eligible disputes prescribed by regulations”. Now, that always gives MPs who have been in the House for a while the screaming heebie-jeebies, because that means no one in this House knows what the regulations might be, and only the Minister, who’s sitting in the chair, will know what those will be and publish them. Because, of course, regulations don’t need to come back before the House, nor in fact do they have to go back before the select committee. So I think it’s probably important—the second question is: what might the regulation envisage, and what might it preclude?—so we can get some sort of indication from the Minister about how that regulation framework would be drafted.

Thank you, Madam Chair. In respect to Mr Bayly’s original question, I just note that the “3 times the value” or the “10 percent of turnover” in clause 122 are alternatives. So it’s not the higher of those two; the question is, whether we can determine three times the value of the wrong, in which case it’s that—or it’s 10 percent of the turnover.

In respect of the fact that 10 percent of the turnover—or indeed $10 million—is a very large number, it’s really important to recognise firstly that that is the upper limit. So think of the worst possible conduct and the largest financial consequence of that conduct. So this might be a situation where, by deception, one of the players has stripped profits from the New Zealand public to the tune of billions of dollars, right? Then obviously we have to have a significant disincentive, and we know in these areas that if there’s one wrong that’s been detected, there may often be other wrongs undetected, so we need to have a proportionate disincentive. So those are high penalties at the upper limit, but rightly so.

In terms of Mr Watts’ question relating to clause 147, I think he was asking about the $5 million limit and why it’s there. There are, of course, other ways to resolve a dispute—if it falls outside of it, whether that be through an arbitration in a private sense or using the High Court. So this scheme is very much tailored to ensuring a highly efficient and effective dispute resolution scheme that means that there’s not some grinding process where the market power of the main retailers can, in fact, be used to grind down the people who have a dispute. And that $5 million limit was thought to be appropriate there.

In terms of—Mr Bayly again touched on that—the section itself, it is relatively clear. He sort of said, “Is it the amount of goods that’s in question? Or does it include marketing costs?” Well, the question is, how much is in dispute? I think the words are, “What is the claim; the amount of the claim?” So that’s the short answer to that question.

In terms of eligible dispute, obviously, any regulations have to be consistent with the purpose of the Act. They are subject to the scrutiny of the Regulations Review Committee, and rightly so. But in terms of what else might crop up, we’ve talked about things like the use of logistics and supply chain as a lever to get excess profits. It could be anything along those lines. But, again, not for me to speculate what that might be.

Members, before I call on the next member to take a call, I need to correct the result of the vote on the question of the closure on Part 3. The result was announced as Ayes 111 and Noes 10; the correct result is Ayes 109 and Noes 10. The record will be corrected accordingly.

Thank you, Madam Chair. Well, I’m slightly disappointed that the Minister didn’t actually sit down and work out the figures. A quick Google search revealed—while he was talking, because I thought he was going to come up with some numbers, but he didn’t. The revenue, based on what’s in Google, of Foodstuff’s North Island group in a 52-week period—i.e., a year—was $6.7 billion. So I’m sure the Minister is very good—I know he’s an excellent lawyer, but he’s also an excellent mathematician, I’m sure! But 10 percent of 6.7 billion is a big sum. And so does he still think, potentially—true, that was just one example; Countdown and the Woolworths Group New Zealand obviously will have a very large turnover as well. So is 10 percent, in his view, an appropriate figure? Because that is a significant sum that potentially—and I take his point: that’s a maximum cap, but, none the less, the maximum cap dwarfs the $10 million figure. So, again, I’d just like the Minister to just think about the actual numbers and whether that figure is actually appropriate.

The second thing—I’m going to sit down and, hopefully, the Minister is going to take the opportunity to respond to that because I want to ask some further questions. Obviously, he’s not. Hopefully, if you need to calculate, I can give him a calculator if that’s useful. Maybe someone on the Labour Party has got a calculator, because you know, there’s a Budget coming up this week and I know they’re good at spending money, but maybe not calculating them. So moving along, hopefully the Minister’s got his phone on him because he can go 6.7 × 0.1 and he might get an answer.

I want to just turn back to clause 149. The issue here is that the supplier or wholesaler customer may refer certain disputes to a dispute resolution scheme. One of the questions that was considered by the Economic Development, Science and Innovation Committee, and I’m interested to hear what the Minister has to say, is whether in fact the regulated grocery retailers should in fact be able to refer matters of dispute to the arbitration process. And the argument for that, of course, was in the essence of trying to get speedy resolution and therefore dealing with disputes quickly, promptly, and equitably, and using a scheme that was cheap—relatively cheap compared to a court case—why the Government thought it was not appropriate that regulated grocery retailers should be able to refer matters to dispute provided they, for instance, were less than $5 million etc., etc. Why did they think that it was appropriate, and why does the Minister believe it’s appropriate, that the supermarkets shouldn’t be able to refer matters and therefore their only approach was either through negotiation, which would be unlikely to go through some arbitration dispute process, which is not compulsory, or, and more the reality, is to take those matters to court. Why was the differential approach adopted in the bill?

Well, thank you for that, Mr Bayly. In fact, you know, I can do this in my head, OK—which might not be as big as yours, but it’ll do! Look, I wasn’t going to respond on the revenue point, because I think I covered it pretty adequately before. But I’ve been given some information which is, firstly, that it is really important when I said that is the highest level for the most egregious conduct. And, even then, if we go to the 10 percent figure, the court always has discretion in the size of those penalties, and if it was disproportionate, you know, I’m very happy for our skilled judiciary to address that. It is interesting that that is also used in the Commerce Act.

In terms of the $5 million figure and why it’s the threshold, a lot of this, you know, has been drawn from the Australian framework, and that’s a similar threshold over there.

In terms of why can’t retailers access the dispute resolution scheme, to be perfectly honest, I haven’t yet heard them screaming “Bully-boy” because they’re being pushed around by some fruit and vegetable operator demanding more for their lettuces. This is about redressing a power imbalance and making sure that—because the main obligations in the supply code are of course placed on the retailers, on the grocery suppliers, and that’s where the rubber really hits the road. So that’s why it’s needed to redress that imbalance there. It’s simply not needed and they can easily have redress through other dispute resolution channels.

I move, That the question be now put.

The question is that the Minister’s amendments to Part 4 set out on Supplementary Order Paper 353 be agreed to.