Commerce Commission v International Racehorse Transport NZ
| Jurisdiction | New Zealand |
| Judge | Peters J |
| Judgment Date | 16 July 2020 |
| Neutral Citation | [2020] NZHC 1716 |
| Date | 16 July 2020 |
| Docket Number | CIV-2019-404-2118 |
| Year | 2020 |
| Court | High Court |
UNDER the Commerce Act 1986
[2020] NZHC 1716
Peters J
CIV-2019-404-2118
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Commercial — application by both parties for declarations that the defendant acted in breach of the Commerce Act 1986 — arrangements substantially lessening competition — cartel — defendant partnership provided equine airfreight services domestically and internationally
D A Laurenson QC, F J Cuncannon, K R Muirhead and P I C Comrie-Thomson for Plaintiff
J C L Dixon QC, A D Matthews and A M W Stewart for Defendant
This judgment was delivered by Justice Peters on 16 July 2020 at 10.30 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
International Racehorse Transport NZ is a firm trading in partnership (“IRT Partnership”). The Commerce Commission alleges, IRT Partnership admits, and the parties seek declarations to the effect that between 2 October 2009 and 28 October 2018 (“relevant period”) the partnership breached ss 27 and 30 of the Commerce Act 1986 (“Act”).
Section 27 prohibits a person, the definition of which is sufficient to include a partnership, from entering into a contract, arrangement or understanding containing a provision which has the purpose, effect or likely effect of substantially lessening competition in a market. IRT Partnership's breach of s 27 was by virtue of s 30 which, until August 2017, deemed a provision of a contract etc to have the purpose, effect or likely effect of substantially lessening competition if it had, amongst other things, the effect of controlling the price at which parties to the contract etc, otherwise in competition with each other, would supply services (“price fixing”).
In August 2017, and subject to specific transitional provisions, s 30 was amended to prohibit, amongst other things, a party giving effect to a “cartel” provision, such provision being defined to include price fixing. Very broadly, the effect of the amendment was to prohibit price fixing directly, rather than via s 27. Hence IRT Partnership's breach of s 30.
What follows is a summary of the parties' agreed statement of facts. I record the only parties who have participated in compiling the agreed statement are the Commission and the partners of IRT Partnership as of 28 October 2018. Accordingly, other parties said to have been involved have not been heard, and any reference to what they may or may not have done is essentially an allegation, derives solely from the understanding of the Commission and the said partners, and must be read in that light.
In the period with which I am concerned, the partners of IRT Partnership comprised International Racehorse Transport (N.Z.) Ltd as to a two-third share, and Bloodstock 2000 Ltd until 31 May 2016 and thereafter Cole IRT Ltd, each as to the remaining one-third share. Bloodstock 2000 Ltd ceased trading on 31 May 2016, has been removed from the Register of Companies.
At all material times, IRT Partnership and an unrelated competitor (“ABC”) provided equine airfreight services domestically and internationally. Equine airfreight services are those required to transport a horse by air from point A to point B, domestically or internationally (“services”), from the time the horse enters the airport of origin until it departs the destination airport.
The Commission and IRT Partnership agree IRT Partnership and ABC were parties to a joint venture pursuant to which they controlled the prices at which they would provide the services domestically and trans-Tasman and thereby breached s 27, via s 30, and more latterly s 30 in its own right.
A predecessor of IRT Partnership first formed the joint venture with ABC on or about 1 May 1989, entering into what is referred to as the “Overarching Agreement” and a separate “Transportation Agreement”. The purpose, effect or likely effect of the Overarching Agreement was to control the retail prices to be quoted and/or charged and the discounts to be given for the services. Likewise, the effect or likely effect of the Transportation Agreement, updated and amended from time to time, was to set the prices to be charged on specified flight sectors and to prohibit discounts except by mutual agreement.
It is agreed the joint venture was not without benefit to customers. The consolidated volume, and the pooling of the joint venturers' skills and resources, for instance professional grooms, allowed for regular, consistent, frequent and scheduled services.
The predecessor partnership wound down or was dissolved on or about 1 June 1999, and IRT Partnership, then comprising the partners referred to in [5] above, succeeded to its place in the joint venture, and adopted and gave effect to the Overarching Agreement.
Subsequently, IRT Partnership and ABC agreed “Rate Agreements” in each of November 2010, July 2011, July 2012, November 2013, May 2015, November 2016, and April, July and November 2017. The Rate Agreements were price schedules detailing the sums intended to meet the costs for the relevant sector, plus a profit component, and to provide the discounts that could be given. The agreements were revised from time to time to reflect changes in costs.
It was not inevitable IRT Partnership and ABC would charge customers the agreed prices, but that was the general consensus and, at the very least, the agreed prices/discounts were the starting point for discussions with customers.
IRT Partnership and ABC also engaged in ad hoc discussions to vary prices and discounts as circumstances required, for instance for a large shipment or on a charter flight.
The Commission commenced its investigation of IRT Partnership's actions in February 2018. The Commission advised IRT Partnership of this in late-June 2018. The Commission commenced this proceeding in early-October 2019.
In late-October 2018, IRT Partnership and ABC entered into revised and compliant arrangements as to the allocation of costs between them, rather than profit, as was the effect of their prior agreements.
Other relevant facts are as follows. First, directors of the partners of IRT Partnership, and its Senior Operations Manager, were all involved in the day-to-day management of IRT Partnership; in giving effect to the Overarching Agreement; and in entering into and giving effect to the Rate Agreements.
Secondly, the Commission and IRT Partnership have not agreed the financial impact the conduct of the joint venture had on prices charged to customers. The parties agree such a resource intensive exercise is not required in the circumstances of this case.
Thirdly, although IRT Partnership did not seek its own legal advice regarding the Overarching Agreement or the Rate Agreements, it knew ABC had done so and ABC shared its advice, to the effect the various agreements were lawful, on at least two occasions. The Commission accepts IRT Partnership's reliance on this legal advice indicates it did not necessarily intend to breach the Act. Equally, IRT Partnership acknowledges it should have been more careful to ensure compliance, and to obtain its own advice from time to time.
Fourthly, the first iteration of the partnership entered into the joint venture with ABC, fearing for its survival if it did not do so. The advantage to the partnership in the first instance was at least a share of the profit derived from its own volumes. The strength of this rationale diminished over time, however, and had ceased to be material by October 2009, being the start of the relevant period in this case.
Fifthly, IRT Partnership has co-operated fully with the Commission throughout, including by acknowledging and accepting it had contravened the Act at an early stage of the proceeding.
Sixthly, IRT Partnership has not previously been found to have contravened the Act, nor previously been warned for conduct the Commission considers likely to breach the Act.
Lastly, IRT Partnership has arranged competition law compliance training for its staff and strengthened internal policies and protocols for engaging with ABC and other competitors.
The Commission and IRT Partnership agree:
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(a) the Overarching Agreement was a contract, arrangement or understanding containing a provision with the purpose, effect or likely effect of controlling the price at which each of IRT Partnership and ABC supplied the services...
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