Commerce Commission v Hutt and City Taxis Ltd

• Jurisdiction: New Zealand
• Judge: Cull J
• Judgment Date: 28 September 2021
• Neutral Citation: [2021] NZHC 2543
• Docket Number: CIV-2021-485-198
• Court: High Court

UNDER The Commerce Act 1986

Between

Commerce Commission a body corporate established under section 8 of the Commerce Act 1986 having its offices at 44 The Terrace, Wellington

Plaintiff

and

Hutt and City Taxis Limited a culy incorporated company having its registered office at 20 Victoria Street, Alicetown, Lower Hutt, 5010

Defendant

[2021] NZHC 2543

Cull J

CIV-2021-485-198

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

Commercial — judgment imposing an agreed pecuniary penalty under the Commerce Act 1986 for entering into and giving effect to a cartel provision — the defendant entered into a minimum fare agreement with other taxi companies — appropriate methodology for setting a penalty — financial means

Appearances:

F J Cuncannon and P I C Comrie-Thomson for Plaintiff

E M S Cox for Defendant

JUDGMENT OF Cull J

1 This is a judgment imposing an agreed penalty under s 80 of the Commerce Act 1986 in a proceeding brought by the Commerce Commission against the defendant for a breach of the Act.

2 Hutt and City Taxis Ltd (Hutt and City Taxis) is one of four taxi companies that leases “on-demand taxi rank” spaces at Wellington International Airport. These spaces allow taxi companies to offer pick-up taxi trips from Wellington Airport to customers without a prior booking. The three other relevant taxi companies leasing taxi rank spaces are Kiwi Cabs Ltd (Kiwi Cabs), Eko Switch EV Solutions Ltd (EkoCabs) and Wellington Combined Taxis Ltd (Wellington Combined).

3 Frustrations arose among the taxi companies owing to the limited spaces in the on-demand taxi ranks. There are only eight on-demand taxi rank spaces. Each taxi company is limited to using only the number of spaces which it has leased. All other taxis must wait in a holding pen for spaces to become available. Pursuant to the Land Transport Rules, drivers on the rank must accept the first hire offered to them, unless a lawful reason exists as not to. 1 A tension then arises where a customer requires a short trip only, with drivers considering they are not adequately compensated for the long waiting period required in the holding pen before and after this trip.

4 Between 24 and 25 September 2020, Hutt and City Taxis entered into an agreement with Kiwi Cabs and EkoCabs to charge a $25.00 minimum fare for pick-up taxi trips from Wellington Airport (the Minimum Fare Agreement). Hutt and City Taxis gave effect to the Minimum Fare Agreement between 5 and 29 October 2020 by:

• (a) Corresponding with EkoCabs and Kiwi Cabs regarding the design, printing and distribution of stickers advertising the minimum fare, and the date for implementation of the minimum fair; and

• (b) Distributing the stickers to Hutt and City Taxis drivers and communicating to them that the minimum fare would apply to trips from the on-demand taxi rank from 26 October 2020; and

• (c) Implementing the minimum fare as soon as drivers began receiving the minimum fare stickers from 21 October 2020.

5 The fare was applied for eight days until 29 October 2020, until, following inquiries from the Commission, Hutt and City Taxis instructed its drivers to cease implementing the Minimum Fare Agreement.

6 It is accepted that the Minimum Fare Agreement was a cartel provision, being an arrangement or understanding with the purpose, effect or likely effect of fixing or controlling the price for pick-up taxi trips from Wellington Airport. 2

7 Between 28 September and 5 October 2020, Hutt and City Taxis also attempted to enter into the same Minimum Fare Agreement with Wellington Combined.

8 On 23 April 2021 the Commission commenced proceedings against Hutt and City Taxis, alleging Hutt and City Taxis:

• (a) had contravened s 30(a) of the Act by entering into the Minimum Fare Agreement;

• (b) had contravened s 30(b) of the Act by giving effect to the Minimum Fare Agreement; and

• (c) had attempted to contravene s 30(a) by attempting to enter into a Minimum Fare Agreement with Wellington Combined.

9 Declarations of these contraventions and pecuniary penalties were sought.

10 On 1 June 2021, Hutt and City Taxis filed a notice of admission, admitting all three causes of actions. The Court is to determine the appropriate pecuniary penalty Hutt and City Taxis must face.

11 Each party has filed submissions on the appropriate penalty for the offending. Both parties agree that the appropriate penalty for the contraventions is $150,000, to be paid in three yearly instalments on the basis that the financial constraints placed on Hutt and City Taxis due to the current community outbreak of COVID-19 and

associated travel restrictions prevent the company from paying the penalty in full. An order is sought that no interest be payable on the pecuniary penalty, if the instalment order is made

Legal Principles

12 The agreed penalty procedure is of benefit to both involved parties and the public, ensuring the efficient disposal of potentially complex and lengthy proceedings, and encouraging a realistic view of culpability and penalty. 3 The Court is required to consider whether the proposed penalty is in the appropriate range, rather than conduct its own independent enquiry. 4 The Court must be satisfied that the final figure proposed satisfies the objectives of the Act and the particular circumstances of the case before it. 5 The Court should approach the prospect of declining its approval cautiously. 6

13 The appropriate penalty is to be determined, subject to the statutory maximum, by having regard to all relevant matters and particular regard to the nature and extent of any commercial gain. 7 The Courts have consistently held that the paramount objective of any penalty imposed is general and specific deterrence of anti-competitive behaviour. The deterrence objective will only be served if “anti-competitive behaviour is profitless.” 8

14 In summary, the authorities have determined that the appropriate methodology for setting a penalty under s 80 is to: 9

• (a) Determine the maximum penalty;

• (b) Establish an appropriate starting point range for the offending that will achieve the objective of deterrence, in light of the relevant factors; and

• (c) Adjust the starting point to discount or increase the penalty on the basis of any considerations specific to the defendant.

15 Hutt and City Taxis have admitted to three breaches of the Act. The Commission submits, with reliance on Commerce Commission v Korean Air Lines Ltd that the appropriate approach in this case is to view the contravening behaviour as a single related course of conduct and to determine a single penalty that reflects the overall culpability of the defendant. 10 Such an approach is deemed to aid the Court in determining a penalty consistent with like cases that properly reflects the totality of the conduct.

16 Pursuant to s 80 of the Act, the maximum penalty that can be imposed on Hutt and City Taxis per breach is $10 million. 11 I now turn to the starting point.

The starting point

17 In addition to the need to ensure deterrence of such conduct, the Court must have regard to “all relevant matters” including: 12

• (a) The importance and type of market;

• (b) The nature and seriousness of the contravening conduct;

• (c) Whether the conduct was deliberate or not;

• (d) The role of the defendant in the impugned conduct;

• (e) The seniority of the employees or officers involved in the contravention;

• (f) The duration of the contravening conduct;

• (g) The extent of any benefit derived from the contravening conduct;

• (h) The extent of any loss or damage suffered by any person as a result of the contravening conduct;

• (i) The market share/degree of market power held by the defendant; and

• (j) The size and resources of the defendant.

18 The cartel provision of the Minimum Fare Agreement was a clear example of price-fixing. The Court has acknowledged that s 30 breaches are of the most serious type of conduct prohibited by the Act. 13 That the anti-competitive conduct was instigated by Hutt and City Taxis and led by two of its directors, with all other directors aware of the Minimum Fare Agreement and approving of its implementation (with the exception of one director) speaks to the seriousness of the conduct. However, the Commission accepts that while Hutt and City Taxis should have been aware, it did not know its behaviour was illegal. Further, the short length of time within which the Agreement was operative (eight days) is a mitigating factor.

19 The Commission notes that the Wellington taxi market is moderately important, although the taxi industry is not central to the New Zealand economy. While Hutt and City Taxis is a significant provider of taxi services in Wellington, with a fleet of 103 vehicles, the Commission note it is considerably smaller than its next largest competitor, Wellington Combined, which has 500 vehicles in its fleet. The relative size of Kiwi Cabs and EkoCabs in comparison is unclear from the material.

20 The Commission refers to two cases providing guidance for the present proceeding.

21 In Commerce Commission v Prices Pharmacy 2011 Ltd, the defendant company entered into an agreement with other pharmacists to institute a new charge for prescription medications, due to concerns of the low profit margins for such medication. This charge was imposed for six weeks. Like the present case, the

conduct was undertaken by the “directing minds” of the company, and there was no knowledge of its illegality. The conduct was considered less serious, with the company's motive not to extract higher profits, but to...