Ipsofactoj.com: International Cases [2002] Part 3 Case 3 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Carter Holt Harvey

Products Group Ltd

- vs -

Commerce Commission

RICHARDSON P

GAULT J

BLANCHARD J

5 NOVEMBER 2001


Judgment

Gault J

(delivered the judgment of the Court)

  1. Carter Holt Harvey Building Products Group Ltd appeals against the judgment of the High Court (Williams J and Professor Lattimore) delivered on 18 April 2000 in respect of the determination that it contravened s36 Commerce Act 1986. The Commerce Commission cross-appeals in respect of the determination that the same conduct did not contravene s27 of the Commerce Act. The Commission also appeals against the separate judgment delivered on 5 July 2000 fixing the monetary penalty for the breach of s36 at $525,000 on the ground that it is inadequate.

  2. The substantive claim by the Commission was that Carter Holt Building Products Group Ltd, by a division known prior to February 1994 as New Zealand Fibreglass Co Ltd and, from February 1994 until April 1998, as Insulation New Zealand Company (hereafter INZCO) had, in 1994, breached both ss27 and 36. It was tried over a period of six weeks in October and November 2000. Over that time, as is usual for such cases, a great deal of evidence was given. Williams J, in his judgment, summarised the facts at some length. They were not seriously challenged on appeal, although we were invited to draw quite different inferences from them. Professor Lattimore wrote a separate judgment. His first paragraph records that he was in full agreement with the facts given in the judgment of Williams J. He said his "supplementary" judgment presents arguments in support of some of the conclusions reached in the judgment of Williams J. In fact the Professor did refer to some of the evidence. We were invited to find inconsistencies between the two judgments and, where they occur, to prefer the findings of Williams J. We have not found the differences to be material, and in examining the case, we have drawn upon both judgments. For his part, Williams J adopted the economic analysis of Professor Lattimore. The judgments are now reported ((2000) 9 TCLR 535) so that it is unnecessary to set out in detail the factual background. A summary is sufficient.

  3. Installation of wall and ceiling insulation is compulsory in New Zealand for all new construction and renovation. That has led to the development of a market for insulation materials that is inelastic in terms of demand. The High Court finding that the relevant market for our purposes is the market in the South Island for the supply of all forms of insulation materials used in building or renovation is not in issue.

  4. We are concerned with the structure of the market and the competitive process in and after the company New Wool Products Ltd (NWP) introduced its insulation product early in 1992. The product was in an all-wool mat form made from carpet wool off-cuts according to a process for which patent protection was sought. It was marketed under the brand name "Wool Bloc" directly to users, initially in the Nelson area, and was promoted as environmentally friendly. It proved attractive to customers.

  5. At that time INZCO was a major participant in the insulation market. Under a long-standing licence agreement it manufactured and sold throughout the country a glass wool (fibreglass) product, mainly in mat form, under the brand name Pink Batts. This product, in mat and other forms (loose fill and blanket) having appropriate insulation ratings, was produced in manufacturing facilities in Auckland and Christchurch.

  6. INZCO sold other insulation products. By the time with which we are primarily concerned these included foil laminates, building papers and roof under-lays, a polyester product (Comfort Zone) and a mineral fibre product (Rocwool). INZCO purported to offer a "full range" of insulation products. The products were marketed through the major merchant chains with which INZCO had distribution agreements. They constituted a concentration of large buyers and long-standing relationships with them were regarded as of major importance.

  7. There was a decision of the Commerce Commission in 1990 (decision No 255) in which INZCO’s parent was granted clearance to acquire assets for the manufacture of the Rocwool product. In that decision, after reviewing the market, the share of the national insulation market controlled by INZCO’s parent was assessed (after acquisition of the Rocwool plant) at around 90 percent. On the evidence presented, the High Court found, as recorded in the judgment of Williams J, that in 1994 INZCO had a market share nationally for insulation of at least 75 percent and perhaps as high as 85 percent. He recorded that it was not suggested that the figures for the South Island regional insulation market would have been substantially different. Professor Lattimore expressly agreed with that. Neither judgment refers to the fact that because INZCO had a manufacturing facility in the South Island, whereas competitors, apart from NWP, faced transport costs from Auckland, the share of the market enjoyed by INZCO in the South Island might have been higher.

  8. There were other wool insulation products appearing on the national market (Thermofleece and Insulwool). In addition there were some polystyrene and macerated paper insulation materials available. Not all were shown as having been available in Nelson.

  9. From the early 1990s INZCO faced potential erosion of its market share from two directions. One was the appearance of the wool products. The other was the entry into the New Zealand market of a subsidiary of the major Australian company CSR referred to as Bradfords, which had established a plant in Sydney for the manufacture of glasswool insulation.

  10. To meet the competition from the wool products, INZCO first introduced in 1992 its polyester (dacron) product Comfort Zone. This did little to slow the advance of NWP’s Wool Bloc marketing in the Nelson area. INZCO also sought to develop a directly competing product. Both new products were "bought in" from the manufacturer Autex Industries Ltd. Autex until then had been manufacturing for Woolhouse International Ltd the wool-based product Thermofleece as well as another insulation for Rintoul Industries Ltd. Having unsuccessfully negotiated to acquire the company or the technology for the manufacture of Thermofleece, INZCO negotiated an agreement with Autex under which INZCO would become the exclusive distributor for insulation materials manufactured by Autex, subject to Autex being able to continue to supply those companies to which it was contracted for a short period, but on the understanding that that would be discontinued.

  11. Autex had been able to produce the polyester product Comfort Zone but encountered difficulties in producing the further wool/polyester blend product INZCO wanted in order directly to meet the competition from the wool insulation. Although it was intended initially that the new product would be ready for marketing by February 1993, because of the difficulties, it was not launched until December 1993. The brand name adopted was Wool Line. The cost of production was such that INZCO’s price to merchants was much higher than for the directly competitive products. Sales were small. The merchants in Nelson made plain to INZCO that the product would not find buyers as it was then priced. At that time Wool Bloc had captured an estimated 30 percent of the insulation market in the Nelson/Marlborough area.

  12. After discussions with merchants, INZCO changed its pricing for the Wool Line product to distributors in the Nelson/Blenheim area. It offered one free bale for each bale purchased, effectively reducing the price by half and substantially below cost. This was to enable the distributors to compete with the Wool Bloc product in that region. Distributors were advised that the pricing change was effective from 1 March 1994 and that credits would be passed on previous purchases by Blenheim/Nelson distributors. Pricing on this basis was to continue for three months "subject to changes in competitive pricing". This reduced pricing operated only in the Nelson/Blenheim region (with minor exceptions) and was rolled over in June for a further three-month period. The reduced prices were also offered in Queenstown where Wool Bloc was enjoying market success. It appears that in Queenstown, rather than pricing on a 2 for 1 basis, the price of each bale was reduced.

  13. The price reduction had the desired effect and sales picked up in the areas in which it operated. Williams J records that national Wool Line sales figures during the 2 for 1 period showed that Nelson accounted for 75 percent of all sales with Blenheim accounting for a further approximately 20 percent.

  14. NWP complained to the Commerce Commission which commenced an investigation into INZCO’s pricing conduct. NWP also protested to senior executives of INZCO’s parent company who had not previously been aware of the situation. Eventually the 2 for 1 pricing was discontinued on 27 September 1984, although it continued to be available to distributors who had made commitments in the belief that they could obtain the product on that basis.

  15. The effect of the 2 for 1 pricing of the INZCO product upon NWP could not be precisely determined. A sharp reduction in sales occurred soon after introduction of INZCO’s 2 for 1 pricing. However, it happened, seemingly coincidentally, that very close to the time of the introduction of the 2 for 1 pricing NWP raised its prices. It is also difficult to assess the potential accelerating impact of NWP’s practice of funding promotional activities from sales revenues so that a reduction in sales led to less promotion. There is further an issue of the seasonal nature of sales for insulation products. There was also some impact from the introduction by INZCO of an authorised installer programme to match the installation service provided by NWP in conjunction with sales direct to users. The evidence did disclose that in the period during which the 2 for 1 pricing operated NWP ceased manufacture of Wool Bloc although sales continued from accumulated stocks. After the 2 for 1 pricing ceased NWP’s progress in the market did not recover its original momentum. Mr. Newton of NWP expressed the opinion that over the period the position of the Pink Batts product had been re-established in the market.

    THE JUDGMENTS OF THE HIGH COURT ON THE S.36 CLAIM

  16. In his judgment, Williams J reviewed the authorities on s36 and the corresponding s46 in the Australian Trade Practices Act 1974. They included particularly the Privy Council decision in Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385, and the judgment of this Court in Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554. On the present appeal counsel proceeded on the basis that the general principles are well-established and there were no submissions that the High Court’s approach was incorrect in law.

  17. In terms of s36 the Commerce Commission contention that was upheld was that INZCO was in a dominant position in the market and used that dominant position for the purposes of preventing or deterring NWP from engaging in competitive conduct in, or eliminating NWP from, the retail market for the supply of insulation products.

  18. As already recorded, there was no issue on the appeal concerning the relevant market. The findings that were challenged were;

    • that INZCO was in a dominant position in the market;

    • that it used that dominance in implementing its 2 for 1 pricing strategy; and

    • that the strategy had the purpose of preventing or deterring NWP from competing in, or eliminating it from, the market.

  19. There were references in the course of argument to the fact that INZCO and NWP were in different markets and did not compete because INZCO supplied merchants whereas NWP supplied users. We are unable to see that anything turns on this. Any claim that INZCO did not know or expect that the 2 for 1 pricing would be passed on to retail customers is untenable. Section 36 does, of course, recognise a dominant position in one market being used to prevent or deter competition in another market.

  20. In his judgments, Williams J approached the issue of dominance with reference to s3(8) which reads:

    For the purposes of sections 36 and 36A of this Act, a dominant position in a market is one in which a person as a supplier or an acquirer of goods or services either alone or together with any interconnected body corporate is in a position to exercise a dominant influence over the production, acquisition, supply, or price of goods or services in that market and for the purposes of determining whether a person is in a position to exercise a dominant influence over the production, acquisition, supply, or price of goods or services in a market regard shall be had to –

    (a)

    The share of the market, the technical knowledge, the access to materials or capital of that person or that person together with any interconnected body corporate:

    (b)

    The extent to which that person is constrained by the conduct of competitors or potential competitors in that market:

    (c)

    The extent to which that person is constrained by the conduct of suppliers or acquirers of goods or services in that market.

  21. We have already mentioned the finding recorded by Williams J that in 1994 INZCO’s share of the national market was at least 75 percent and perhaps as high as 85 percent. The same range was agreed by Professor Lattimore. In his written submissions counsel for INZCO accepted the finding that the market share was around 75 percent but contended it was not as high as 85 percent. He did not elaborate in the course of oral argument and we were not taken to material justifying rejection of the range up to 85 percent. One of the difficulties in this area is the absence of reliable evidence of the situation in the South Island. The reason the separate South Island regional market was focused upon was because of transport costs for such high bulk products. With the sources of most products except those of INZCO and NWP being in the North Island, the reason why the South Island market share would be at the low end of the national range is not immediately obvious. The inference from the evidence of the availability (perhaps the unavailability) of some of the products in the Nelson region together with the evidence of a representative of one of the Nelson merchants of the tiny share of the market occupied by wool insulation, might well be that the high end of the range would be more accurate. Little turns on the point however.

  22. Although the concept of barriers to entry is not mentioned expressly in the s3(8), it is generally accepted that, because potential competition can be an important constraint upon market participants, a careful examination of barriers to entry to the relevant market is an important part of the test for dominance. This was an important factor in this case. Williams J’s finding was as follows:

    In the Court’s view, notwithstanding the number of competitors and products which the evidence suggested entered and left the insulation market in the 1990-1996 period, barriers to entry to that market were high but not insuperable. As the Commission observed in Decision 255, the capital cost of setting up another fibreglass or Rocwool insulation factory in New Zealand was prohibitively high. Bradford did not build in New Zealand but used excess capacity in its new Sydney factory. Freight and distribution costs were high, at least for the fibreglass product. Despite the success of Thermofleece and New Wool Products, INZCO’s difficulties with Wool Line show that insulation technology was by no means straightforward. Other than for firms with Bradford’s financial backing or those such as New Wool Products which capitalised on its regional base and waged effective marketing and defensive strategies participation in the insulation market remained precarious for competitors, as was demonstrated by the numbers leaving. All competitors were able to do was obtain modest market share and then, for the most part, only for technologically undemanding product. Even Bradford, with all its technological know-how and fiscal strength, did not succeed in gaining more than about 7% market share. And all those who wished to compete in insulation market had to face the well-established brand loyalty of the behemoth of the insulation marketplace, Pink Batts. Direct sales were more difficult than sales through merchants and competitors also had to face distribution agreements which meant that most of the major building product outlets were likely to give preference to INZCO products.

  23. With reference to the other factors in s3(8), the Judge took account of the technical knowledge available to INZCO under its licence agreement for the manufacture of Pink Batts and its access to the manufacturing expertise of Autex. He referred also to the access to capital and materials enjoyed by INZCO as a member of one of New Zealand’s largest industrial groupings. The Judge said that the evidence showed INZCO felt itself largely free of constraints as indicated by company documents and market conduct. He referred to the distributor agreements noting that while they did not legally bind merchants to deal only in INZCO products, their existence and the longevity of the relationships resulted in merchants being disinclined to deal with competitors and giving preference to INZCO’s products. He saw this as an important indicator of dominance.

  24. Professor Lattimore in his judgment examined dominance by reference to factors he regarded as indicative of market power. In addition to the high market share enjoyed by INZCO, primarily with the Pink Batts products, he examined INZCO’s ability to maintain and control insulation prices over the period 1990 to 1994. In this respect he said:

    Evidence was given of the gross margins associated with INZCO’s products and these were at a level, which is consistent with the high relative profitability of INZCO. Mr. Hagen correctly pointed out in evidence that there are cases in other companies in New Zealand of gross margins being significantly higher than those INZCO was able to make through its pricing of, mainly, Pink Batts. However, INZCO was getting high gross margins on a product, which constituted a very high proportion of its total sales. Small innovative items which capture the attention of consumers can be priced in such a way as to result in extremely high gross margins in the short-run, as Mr. Hagen discussed. However, in this case the high gross margins were being achieved on products which constituted 75-85 percent of the market. This is evidence of a very high degree of, not merely price influence, but of market price control.

  25. Professor Lattimore also gave weight to the prominence of the Pink Batts brand image, the "interconnectedness of INZCO and the major retail distributors", and the manufacturing capacity both of INZCO and Autex. He concluded:

    INZCO had a very high market share over the period 1992-94. This market share enabled INZCO to control the prices and sales of Pink Batts and its other products to a very high degree when taken together with the behavioural considerations and structural barriers to entry. INZCO had effective control of the South Island insulation market. Its behaviour was constrained by competitive forces only to a very limited extent. It was dominant in the South Island market for the manufacture and supply of insulation materials over the period.

  26. In his judgment, Williams J dealt with use of dominance by INZCO and the purpose of such use under a composite heading. His reasoning is not easily summarised but it does demonstrate consideration of both issues. First the Judge traced through references in company documents the identification by INZCO personnel of the potential threat from wool insulation (both Thermofleece and Wool Bloc) and particularly from the inroads being made by Wool Bloc in the Nelson region. Concerns at geographical expansion by NWP were recorded. There was increasing irritation at provocative comparative advertising by NWP, frustration at the delays in developing a competitive product and the "increasingly strident chorus of merchant complaints in the Nelson/Marlborough area". The Judge referred to the disastrous rush to launch the Wool Line product at prices that proved unacceptable. In respect of the period following the launch, and referring to the responsible INZCO employees he found:

    [T]hat over the next three months and more Messrs Trevena-Brown and Peters’ focus shifted away from any concentration it may have had on Thermofleece and became fixed on eliminating Wool Bloc or preventing or deterring it from engaging in further competitive conduct in the South Island regional insulation market. This was particularly the case once they received the trenchant criticism of the Wool Line price from the Nelson/Marlborough merchants. It is noteworthy that, although sales were small, the evidence discloses no criticism of the Wool Line price from any other part of the country so it must have been clear to Messrs Trevena-Brown and Peters that the only area with a problem with the Wool Line price was Nelson/Marlborough and other Wool Bloc areas and the problem only arose because Wool Line was twice the price set by its major regional competitor, Wool Bloc.

  27. The Judge examined the circumstances surrounding the introduction of the 2 for 1 strategy and the conduct subsequently in maintaining it and extending the pricing to Queenstown after receiving reports of NWP’s activities there. He noted the acceptance by INZCO’s own accounting expert that throughout the whole of the 2 for 1 period INZCO was selling each pair of bales of Wool Line at least 17-28 percent below the costs of production, transport and delivery into store at Nelson. He found unmistakable evidence of INZCO’s purpose of preventing or deterring NWP from competing in the market or eliminating it.

  28. Williams J then turned to the implications of the relationships between INZCO and its distributors. Those relationships had been actively cultivated, particularly from 1990. They extended to all of the large hardware merchants in the Nelson/Marlborough region and represented "a closeness which both valued". INZCO therefore knew that the 2 for 1 pricing would carry through to retail prices that would be similar to those of NWP and would be sufficient to substantially undermine Wool Bloc sales because of the advantage enjoyed through the strength of the distribution channel. The Judge said:

    This is because INZCO knew that Wool Bloc was not being marketed through merchants and because it knew that most insulation buyers, whether builders or home-owners, purchased their insulation and their home building products through merchants rather than directly from manufacturers. It follows that Messrs Trevena-Brown and Peters and, through them, INZCO, intended that the "2 for 1" would divert sales from Wool Bloc – as Schedule 3 shows it did – by having comparable products at comparable prices so that when builders and the public went, as they usually did, to merchants to buy their insulation they had the full range available, including comparably-price wool-based insulation batts, and were thus much more likely to buy all their insulation from merchants rather than going to New Wool Products for their woollen batts. Further, in this case INZCO was also relying not just on merchants’ commercial necessity to sell Wool Line but the close contractual and personal relationships which INZCO fostered with merchants at all levels coupled with the geographical foci of the "2 for 1".

  29. The Judge went on to refer to the concept of "predatory pricing" known in the United States of America and characterised by below-cost pricing accompanied by intention to recoup the loss by increasing prices after the competition has been seen off. He said:

    The evidence shows clearly that, far from future recoupment being a conscious factor in selling Wool Line below cost, what INZCO, through Messrs Trevena-Brown and Peters, was endeavouring to do with the "2 for 1" was preserve Pink Batts sales and, through them, INZCO’s profitability. Pink Batts was the source of most of that profitability. It was the dreadnought of the INZCO fleet.

    ....

    Accordingly, the Court holds that INZCO, through Messrs Trevena-Brown and Peters, intended to predate New Wool Products but did not engage in predatory pricing in the normal sense. It engaged in behaviour which was predatory in the sense that the behaviour of Akzo [Chemie BV v E C Commission [1993] 5 CMLR 215] and the Victoria Egg Marketing Board v Parkwood Eggs Pty Ltd (1978) ATPR 40-018 was predatory. It priced a comparable product at a level and in circumstances which it knew would undermine a rival’s business and preserve a highly profitable product from further harm.

  30. For these reasons the Judge concluded that the implementation of the 2 for 1 strategy was INZCO using its position of dominance in the market to target the competitive conduct of NWP.

  31. Professor Lattimore dealt with use of dominance and purpose separately. Under a heading "Use of dominance" he referred to the market circumstances underlying INZCO’s plan to develop a wool/polyester blend product and the difficulties encountered in that project. He found that the way in which the Wool Line product was launched indicated that INZCO thought it had a high degree of market power. He mentioned the absence of test marketing, product introduction efforts and pricing research. He noted that the first bales of Wool Line from the Autex production line went straight to the Placemakers store in Nelson at cost plus the normal margin.

  32. This introductory price was comparable with that of the competitive polyester/wool blend Thermofleece and INZCO’s own Comfort Zone polyester product, but considerably higher than Pink Batts and Wool Bloc. The 2 for 1 price effectively halved the prices to merchants. On the evidence Professor Lattimore found that the reduced prices were below average variable cost to the extent of 30 percent for the R1.7 rated form and 40 percent for the R2.2 rated form. He noted that total costs (including overhead costs) would have been higher than the variable costs but that no complete estimates had been given.

  33. Professor Lattimore considered that selling in the Nelson region to directly compete with the NWP’s Wool Bloc at these prices constituted the action of a dominant supplier that would not be carried out by a non-dominant supplier in the circumstances. He said:

    INZCO could recoup the cost of the Wool Line special pricing arrangement if the scheme meant that NWP was constrained from expanding in the market or eliminated from it. The recoupment would take the form of maintaining the list prices of Pink Batts at levels that were otherwise threatened by NWP. And at the same time increasing its market share for Pink Batts and other INZCO products.

  34. It is to be remembered that Professor Lattimore, in dealing with dominance, had emphasised the high margins achieved by INZCO on its Pink Batts product which held such a high market share. Maintaining that, he said, was where INZCO focused most of its resources. He acknowledged that low-cost promotions may increase market efficiency but he considered that the Commerce Act set limits on what dominant firms can do in this respect. He then concluded:

    Promotions have three dimensions: the extent to which price is below cost (price cut), the length of time the promotion operates and the quantity of the product supplied through the promotion in relative terms. It would not be reasonable to limit the extent of the price cut in a promotional arrangement. Samples given away at zero prices will almost always be below variable cost and certainly below the total cost of supplying that product. Promotions can take place over an extended period of time. All year round sales may be a useful marketing gimmick. However, promotional arrangements by dominant firms cannot involve such a large proportion of total market demand over a given time period that they cause significant harm to the sales of competitors. If a dominant firm were permitted to sell a large proportion of total market demand for a product, priced significantly below cost for a long period of time, competition would be harmed. The promotional pricing arrangement would be predatory: smaller competitors would be driven out of business or financially weakened even where they were significantly more efficient (lower cost) than the dominant predator. Competitors would be unable to make sales at prices that reflected costs even if they were more efficient (i.e. had lower costs) than the dominant firm. In this case it is the combined effect of targeting NWP and of pricing 30-40 percent below variable cost over a period of months for a significant quantity of Wool Line that constitutes misuse of dominance.

  35. On the issue of the purpose of INZCO’s use of dominance, Professor Lattimore found that the purpose of the 2 for 1 pricing arrangement was to lower the price of Wool Line to such an extent that it would stem the rising market share of NWP’s Wool Bloc or even to recapture the South Island market share for insulation products that NWP had gained in the preceding two years. The purpose was to hinder the expansion of NWP or to eliminate it from the market. He noted that the strategy was targeted directly at NWP, being advanced initially in the Nelson region and later extended to Queenstown in pursuit of NWP’s marketing efforts. He noted that distributors, competing among themselves, had to pass on the effective 50 percent price reduction. This was known to and intended by INZCO so that the source of the anti-competitive behaviour was that part of the manufacturing and supplying sub-market owned by INZCO whose relationship with the retail market meant that the market as a whole was effectively controlled by the dominant firms through the distribution channel.

    THE JUDGMENTS OF THE HIGH COURT ON S.27 CLAIM

  36. The Commission’s claim of contravention by INZCO of s27 was that there was a provision included in contracts between INZCO and hardware merchants in Nelson/Marlborough that two Wool Line product items would be supplied for the price of one, and the inclusion of such a provision had a purpose of, and was likely to, or did in fact, have the effect of substantially lessening competition in the retail market for the supply of insulation products.

  37. Section 27(1) and (2) read:

    Contracts, arrangements, or understandings substantially lessening competition prohibited

    (1)

    No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

    (2)

    No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.

  38. Williams J, determined that the contracts that arose when merchants placed Wool Line orders during the currency of the 2 for 1 pricing were made in the ordinary course of business on the basis of the published price and could not offend against s27. The Judge went on however to find that the 2 for 1 pricing, which INZCO knew would be passed on, was a provision in an "arrangement" or "understanding" within the section. After noting that the merchants would have been ignorant of the below-cost pricing and so would not themselves be liable for any breach, the Judge proceeded to consider the purpose, effect or likely effect of the pricing arrangement or understanding.

  39. The effect was not a substantial lessening of competition, the Judge held, because at no time was the full range of insulation not available in the market. Although NWP ceased manufacture it did not cease sales.

  40. Having reminded himself that the section is concerned with competition not competitors, the Judge stated:

    A further problem for the Commission with this aspect of the case is that no evidence was led as to any effect the "2 for 1" had on any aspect of the South Island regional insulation market other than as regards Wool Bloc. Neither Mr. Jarvie nor Mr. Wolk was asked about the effects of the "2 for 1" other than as between Pink Batts, Comfort Zone and Wool Line on the one hand and Wool Bloc on the other. Apart from Nelson/Marlborough, there was no evidence as to the number of merchants in the South Island regional insulation market at the relevant time, no evidence as to their insulation turnover, market share, or of any other factors which might bear on the question central to this aspect of the case. Any suggestion that competition was lessened, prevented or hindered in the South Island regional insulation market during the currency of the "2 for1" was therefore unproven other than as regards New Wool Products, and New Wool Products was no more than one out of a considerable number of competitors and was not by any means the whole of the competition in that market.

  41. This provided the reason for rejecting the claim of anti-competitive effect and seems to have been the basis also for the rejection of anti-competitive purpose.

  42. On the further limb of likely effect of substantially lessening competition Williams J made an assessment of what likely would have happened even if NWP had been eliminated from the market. He reviewed possibilities but concluded that it was not proved that there likely would have been a substantial lessening of competition. He dismissed the second cause of action accordingly.

  43. Professor Lattimore outlined the view that, as a matter of economic theory, INZCO’s 2 for 1 below-cost pricing over time would have impacted on the efficiency of the market and would have maintained INZCO’s dominance. But, he said:

    A problem with this line of argument is that the Court only has evidence regarding one INZCO competitor upon which to judge the impact of the "2 for 1" on the market as a whole. If NWP was representative of other firms in terms of cost structure and other factors, such extrapolation would be warranted but there is no evidence that this was the case.

    NWP concentrated its activities in the Nelson region. We know very little indeed about the rest of the South Island market. The quantity of Wool Line that was dumped onto the market strategically by INZCO was certainly sufficient to affect NWP very significantly in Nelson and Queenstown but there is no evidence that the quantities were sufficient to adversely affect the market as a whole.

  44. We were referred to the difference in the significance attached to NWP’s cessation of manufacture by Williams J and Professor Lattimore. But they were making different points. Williams J saw the fact that NWP continued to sell as indicative of the fact that competition was not actually lessened during the 2 for 1 pricing. Professor Lattimore placed emphasis on the cessation of manufacture as an indication that NWP had begun a process of exiting the market.

    THE HIGH COURT JUDGMENT ON PENALTY

  45. A separate judgment of the court was delivered by Williams J on 31 July 2000. This was directed to the assessment of a monetary penalty to be imposed on INZCO for breach of s36.

  46. The judgment sets out s80 which provides that in determining an appropriate penalty the court shall have regard to all relevant matters including the nature and extent of the act and of any loss or damages suffered as a result, the circumstances in which the act took place and whether there has been previous similar conduct. The judgment then includes reference to the helpful checklist fleshing out these criteria which is to be found in the judgment in TPC v Annand & Thompson Pty Ltd (1987) ATPR 48,390; 48,394, as follows:

    1. whether the conduct was deliberate or not;

    2. whether damage was caused by the conduct to the public or to the retailer;

    3. the size of the corporation’s activity in the relevant market;

    4. the degree to which the conduct was initiated or condoned by senior management;

    5. what steps were taken by the employer to educate its employees prior to the contravention;

    6. the existence or otherwise of a policy by the corporation against breaches of the provisions of the Act;

    7. whether the conduct was the result of a mistake on the part of an employee;

    8. whether there has been similar conduct in the past;

    9. whether, since the occurrence, controls over employees, particularly sales personnel, have been increased or improved to prevent a repetition of the conduct.

    10. whether the corporation has made a full and frank disclosure and co-operated with the Commission.

  47. The judgment next refers to points made in particular cases emphasising the need for deterrence in light of the size and resources of the offender and any compliance programme that may have been instituted. In this last respect it is noted that Carter Holt Harvey instituted a comprehensive compliance schedule after the Commission’s investigation.

  48. In applying the criteria referred to the Court first mentioned the finding that the 2 for 1 pricing was a device deliberately decided upon by two middle management staff members unknown to their superiors but noted, as of importance, that once senior management learned of it, it was not discontinued but allowed to run for almost three further months. This included the period after 5 July 1994 when the company first replied to the Commission. The Court then pointed, by way of mitigation, to the fact that the 2 for 1 pricing affected only one product in the INZCO range which was a small volume product sold in a relatively small proportion of the South Island for a limited time. Mentioned as also of importance was the point that merchants and consumers benefited from the price matching between Wool Line and Wool Bloc.

  49. The Court found it difficult to quantify loss or damage to NWP for the reasons already indicated and therefore regarded this factor as having only a modest effect on penalty.

  50. Mention was made of INZCO’s co-operation with the Commission, although it had not disclosed that it was selling below cost, nor that staff had deliberately targeted NWP. These matters were not regarded too critically because INZCO apparently did not make the necessary calculations of its costs until some years later, and the deliberate targeting by middle management was only established in the Court’s decision.

  51. The Court went on to comment:

    As regards Annand & Thompson’s criterion (c), this Court has difficulty in giving great weight to the size of INZCO or Carter Holt Harvey in the market. It is difficult to see why the same actions by a large and affluent corporate should give rise to a greater penalty under the Act than if the same actions were carried out by a small and indigent company if any difference in penalty results solely from difference in size.

  52. After referring to submissions made by counsel and penalties imposed in other cases, which were seen as providing little guidance, the judgment expressed the conclusion as follows:

    Having carefully considered all counsel’s submissions and read the cases to which reference was made, balancing all those factors one against the other, this Court takes the view that the appropriate level of penalty to be imposed is $525,000. All the above factors have been taken into account but the major influence on that figure is the impermissible targeting through the "2 for 1" of New Wool Products by INZCO employees for whose actions the company is responsible for about 4 months until the Commission’s inquiry became known and the continuation of the "2 for 1" for a further 3 months. The impact of those factors is mitigated by the restricted product range, area, short-term public benefit, and the other factors earlier referred to.

    THE APPEAL ON S.36

  53. The appeal against the finding of contravention of s36 was presented in the form of a comprehensive attack on the whole assessment of the case by the High Court. Since that rested almost entirely on findings of fact made after hearing the witnesses, Mr. Williams QC recognised the task he was undertaking. He accepted that there were no significant issues of law involved and he did not argue that the review of the applicable principles extracted from the authorities by Williams J was erroneous. His case was that the finding of contravention of s36 should be overturned as contrary to the established principles. He addressed detailed argument to the three elements; whether INZCO was in a dominant position in the market, whether that dominant position was used and whether that use was for one of the proscribed purposes.

  54. We were invited to see the conduct of INZCO in a completely different light and as no more than fair and vigorous competition in which even dominant market participants are entitled to engage.

  55. INZCO, it was submitted, was entitled to add to its range of insulation products to enable its distributors to offer a full range to builders and specifiers. A product was developed with the expertise of Autex and was introduced to the market in Nelson where NWP’s Wool Bloc was established and had set the price. The introduction price for Wool Line drew protest from the merchants because the product was completely uncompetitive. To placate them "and for other good reasons" INZCO was forced to offer a "promotion" to the merchants. This was done using the "common marketing technique" of supplying two bales for the price of one. This involved matching, not undercutting, NWP’s price so that it was not forced into uneconomic trading to compete. The pricing strategy was extended beyond the initial three months whilst INZCO continued to work on a cheaper and better product and to meet the obligation to Autex to take agreed tonnages. It was a strategy that was not unduly costly to INZCO and in fact resulted in benefits to the Nelson merchants and wider public. This, it was said, was no more than competition at work.

  56. The members of the High Court did not agree with that portrayal of the matter and our task is to determine whether the findings they made in respect of the essential elements of the statutory offence have been shown to be in error.

    DOMINANT POSITION

  57. It was submitted that the finding that INZCO was in a dominant position in the South Island market for the supply of insulation products was wrong. It was said to have resulted from over-emphasis on market share and insufficient recognition of the low barriers to entry and the constraints from existing and potential competition and customers.

  58. It was contended that while INZCO might have been in a dominant position before the 1990s – as found in the Commission’s decision No 255 – by 1994 the position had changed and that the factors set out in s3(8), when applied in a dynamic rather than "snapshot" view of the market, demonstrate that INZCO was no longer in a dominant position.

  59. We were presented with no grounds on which to differ from the finding of INZCO’s market share in 1994 as between 75 percent and 85 percent and we have already commented on that. We agree that a high market share can reflect efficiency and superior competitive performance rather than dominance. But it is important to avoid a fragmented approach compartmentalising the relevant factors. They are to be evaluated as they inter-relate. It is the overall commercial situation that is to be considered.

  60. Although marshalled differently, the factors relied on by both members of the High Court as pointing to a dominant position were substantially the same. There was no issue about INZCO’s access to resources and technology (through the glasswool manufacturing licence and through Autex). In addition to high market share and price margins on Pink Batts, the factors taken into account fall under the general head of barriers to entry. They in turn point to absence on limitations on constraints referred to in s3(8)(b).

  61. Professor Lattimore described the barriers to entry as "very high" whereas Williams J said they were "substantial". That may perhaps reflect the impact on Williams J of his conjecture (when dealing with the s27 claim) on what might have occurred had NWP been eliminated from the market. He thought the NWP technology could have been exploited by someone else.

  62. That raises the matter of the inference to be drawn from the successful entry and rapid market share gain in the Nelson/Marlborough region by NWP. As an initial comment it might be said that it would seem hardly consistent with the purpose of s36 to find the entry of the very competitor targeted by the anti-competitive conduct instrumental in negating dominance when the very purpose of the conduct is held to have been to eliminate that competitor. On its face NWP’s entry may suggest low barriers to entry. But it is to be kept in mind that it was based on a patented innovation that enabled NWP to produce a product from low cost material that Autex with its technology and resources could not match. That suggests, not that the barriers to entry were low, but that the innovation surmounted such barriers as there were. The NWP entry is to be compared with that of Bradfords, a company with ample resources, technology and excess production capacity, which succeeded in gaining only a 7 percent toehold in the New Zealand market with a product directly competitive with Pink Batts on which INZCO still maintained a healthy profit margin. No other entrant (apart from NWP in its region) achieved even that. The High Court attributed this to the strength of the distribution structure and brand leadership of INZCO.

  63. INZCO operated an insulation production facility in the South Island and enjoyed some freight advantages over those who imported or manufactured in the Auckland area. The Pink Batts brand enjoyed high recognition and consumer loyalty. This, together with the high market share, enabled INZCO to maintain a strong distribution structure. In addition to the leading brand, it offered alternative products so as to present a range to enable merchants to present "one stop shops" without holding bulky stocks of competing products. The relationships with merchants had been strengthened since 1990 and were maintained by the use of volume purchase discounts and de facto exclusivity. All of the major merchant chains had distributorship agreements and worked closely with INZCO as company documents demonstrated.

  64. Merchants were not legally bound not to stock or sell competitive products but the incentives to deal only or primarily in the products of INZCO were strong.

  65. The strength of the distribution structure was graphically evidenced by the steps taken by INZCO successfully to secure reversal of a decision of the manager of one outlet of a major chain to handle Bradfords’ products.

  66. INZCO’s market strength was also such that Autex was persuaded to agree to a sole distributorship even though that required gradual discontinuance of other supply arrangements.

  67. INZCO conducted its business confident of its market power, as is best illustrated by a "Positioning Paper" directed to the proposed new wool product it was developing in which it was said:

    We require a ‘me too’ product and by using our distribution strength, Company to Company Agreements’ strength, Authorized Installer strength and Advertising/Promotional strength to overwhelm competition initiatives.

  68. We do not accept that the number of entries and exits from the market reflects low or minimal barriers to entry. Toeholds, while the major player is able to maintain high profit margins, indicate that there are operating in the market forces inhibiting substantial gains. They equally must be regarded as barriers.

  69. The High Court accepted that INZCO was not entirely free from constraints. Threats to its position, especially from Bradfords, were closely monitored, but, save for the 2 for 1 strategy, they were not shown to have had any significant impact on the prices for Pink Batts, the market leader. Few traders in the real world are totally unconstrained so the fact that there were some constraints cannot be determinative. We find no error by the High Court in this respect.

  70. Constraints from customers upon INZCO were said to be exemplified by the pressure imposed by the merchants to reduce the price of the Wool Line product and INZCO’s response in offering the 2 for 1 arrangement. There was also evidence from merchants’ representatives to the effect that they did not consider they were prevented from switching to other suppliers. But they did not do so. Their arrangements with INZCO and its position in the market provided incentives not to do so.

  71. We are not persuaded that the assessment by the Court below that INZCO was in a dominant position in the market in the South Island for the supply of insulation should be disturbed.

    USE OF DOMINANCE

  72. We preface our consideration of the issue of use by INZCO of its dominant position with some brief comments on the appropriate approach. In Telecom Corpn v Clear Communications the Privy Council said (p403) that it cannot be said that a person in a dominant position uses that position unless he acts in a way which a person not in a dominant position, but otherwise in the same circumstances, would have acted. That is similar to the approach of the High Court of Australia in Queensland Wire Industries Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167 CLR 177, where it was said that contravention arose when the firm acted as it did because there was not a competitive market. The majority of the High Court subsequently, in Melway Publishing Ltd v Robert Hicks Pty Ltd [2001] 178 ALR 253, expressed the view that undertaking a hypothetical analysis – how would Melway have behaved in a hypothetically competitive market? – may be difficult and may not always be necessary. This Court noted in the recent decision in Telecom Corporation of New Zealand Ltd v The Commerce Commission CA281/00, judgment 17 September 2001, that it is not clear whether the Privy Council intended that the hypothetical "counterfactual" test is to be applied in every case. At least one commentator (not Gault J) has suggested that to do so would result in s36 having very limited impact: Gault on Commercial Law para: CA36.10(3).

  73. In the present case, Williams J noted a comment in the judgment of this Court in Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554, 577 in which the need to postulate artificial scenarios was questioned and went on:

    The Court of Appeal presumably took that view because there is little conduct which would contravene s 36 if the test were to be that a firm could not be using its dominant position if it acted in the same way as one not in a dominant position but otherwise in the same circumstances would act. In particular, predatory pricing would be excluded under such a test because a reduction in prices, without proof of the elements of s 36, is pro- rather than anti-competitive (Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 13 ATPR 52,876, 52,895 Gault op cit para CA36.10(3) p 3-50(a) 36.11 (4) p 3-151 para CA36.11A(5) p 3-152(a)).

  74. In making his assessment of the conduct of INZCO, Williams J did not expressly employ the counterfactual test. Professor Lattimore, on the other hand, did set out why he considered INZCO went beyond what a firm not in a dominant position would have done.

  75. In the course of argument on the appeal Mr. Williams was asked to identify the circumstances he would postulate for a firm not in a dominant position but otherwise in the same situation as INZCO. He contended for a firm with the same distribution structure as INZCO had. However, the distribution structure was seen both by the High Court and by this Court as an important factor in contributing to INZCO’s dominant position. This rather demonstrated that the counterfactual test substitutes new questions (what are the circumstances of the non-dominant firm) for those it seeks to solve. In a case of below-cost pricing, where, as Mr. Williams accepted, whether the alleged conduct went further than the law should allow as merely vigorous competition is a matter of degree, a counterfactual test seems merely to restate the question. If the test is to be applied, we do not accept that the hypothetical scenario should include INZCO having the strong de facto distribution arrangements with all major merchant chains held by agreements providing for volume rebates and close to practical exclusivity. In a fully contestable market competitors would have competing distribution structures.

  76. Also in a competitive market, INZCO would not have "super profits" from high margins on the Pink Batts product from which to subsidise below-cost trading in another product.

  77. We are not persuaded that in his assessment Professor Lattimore erred in concluding that the extent of the below-cost pricing and the period over which it operated meant that INZCO went beyond what a non-dominant firm would have done. The 2 for 1 strategy was adopted, in a practical and commercial sense, because INZCO was in a dominant position in the supply market.

    PURPOSE

  78. There was ample evidence in the form of company documents indicating that INZCO’s objective was to restrict NWP’s growth in the market and expansion into other regions. The rhetoric found in them would be common in firms competing vigorously and legitimately. But when the stated intentions are considered together with the conduct in the circumstances, there is no basis for differing from the conclusion of the High Court that INZCO used its dominant position for the purpose of deterring NWP from engaging in competitive conduct in, or eliminating it from, the market. It did this by instituting and maintaining the 2 for 1 pricing strategy targeted at NWP over a sustained period. At no time, until the Commission investigation began, was there any reference to a "promotion". It was "rolled over" after the initial three months, and extended to Queenstown when NWP threatened to capture market share there. But for the Commission’s investigation and representations by Mr. Newton to the corporate group Chairman, the inference is that it would have continued. It was claimed that it was maintained while INZCO, with Autex, developed a cheaper and better product. We asked for the evidence showing development efforts. There was little. We were referred to a communication from Autex to INZCO dated 10 August 1994, late in the period of the 2 for 1 pricing, indicating that no significant progress had been made and that no real development programme was in place. It seems there had been little activity other than inquiries for less expensive sources of wool.

  79. This is of considerable significance as it suggests that there was after the Wool Line product was launched and for almost the entire period of the 2 for 1 pricing little evidence of attempts to acquire or develop technology to enable a wool insulation product truly competitive with Wool Bloc to be produced. Certainly there was no indication that such a product would be available within such a short period as would justify seeking to hold a market position by below-cost selling in the interim.

  80. It was argued that the only purpose INZCO had for instituting and maintaining the pricing strategy was to meet the pressure from merchants. But we are unable to see that anti-competitive conduct is justified simply because it meets the wishes of someone else. More importantly, the interest motivating the strategy was really that of INZCO. There was the determination to compete with NWP on price and to prevail by virtue of the strength of the distribution structure. So focused was that objective that the true cost of the product was not even calculated. The price proved to be well below even average variable cost. That was not competing vigorously and legitimately; it was, for a firm enjoying a dominant position in the market, illegitimate use of that market position to prevent NWP consolidating and expanding its market entry.

  81. It is correct that the 2 for 1 pricing did not undercut NWP’s price. But as Williams J recognised, that was not necessary because of INZCO’s distribution advantages. NWP had been able to overcome these to the extent of capturing market share by efficiencies generated through innovative technology which INZCO and Autex could not match. The benefits of that efficiency advantage was negated by below-cost sales subsidised from high margins on the high volume sales of Pink Batts. The strategy had the purpose of detracting from NWP’s ability to compete. The requirements of s36 were met.

  82. The appeal against the finding of contravention of s36 is dismissed.

    THE CROSS-APPEAL ON S.27

  83. Mr. Brown QC for the Commission acknowledged that if the appeal under s36 were dismissed the Commission could achieve no more by pressing its cross-appeal against the finding that INZCO did not breach s27.

  84. Since there are no significant issues of law involved, we can deal with this aspect of the case briefly.

  85. There are some points made in the judgment of Williams J which are not easily reconciled with his findings under s36, particularly his view that the "arrangement" or "understanding" he found did not have the purpose of lessening competition. However, the principal reason given both by Williams J and Professor Lattimore – that there was no sufficient evidence of a substantial lessening of competition (actual or likely) in the South Island market – is unassailable.

  86. Section 27 is directed to competition. That is, by definition, workable and effective competition in the market as a whole. It is not concerned with the position of individual competitors in the same way as s36. This was recognised by the members of the High Court. They were not able to assess the state of competition in the South Island retail insulation markets because the evidence was not directed to that. Even given the finding under s36 that INZCO was in a dominant position in the South Island manufacturing market with the obvious impact that would have had on the competitive process, the evidence just did not extend to the impact the 2 for 1 strategy had, or would have had, on such competition as was taking place.

  87. There was, of course, evidence of the impact NWP had in the Nelson/Marlborough region, and of the significance of wool insulation in the market as a whole in that region. But the evidence did not extend to the state of competition elsewhere in the South Island, the participants, the product types, the market shares. It was not shown that even the departure of NWP would have substantially impacted on the state of competition in the market as a whole.

  88. Mr. Brown submitted, in effect, that there was a sufficient basis for inference that there would have been a substantial lessening of competition from the effect of the 2 for 1 strategy on NWP. The inroads made by NWP and the response from the dominant firm INZCO certainly suggest that, in the perceptions of INZCO’s responsible executives, confining or eliminating NWP would lessen the competition it was facing.

  89. However, in light of the clear findings in the Court below, we do not consider we should substitute the perceptions of INZCO executives for the objective requirements of the statute.

  90. Nor, in light of our conclusion on s36, do we consider it necessary to undertake an analysis of what factors are appropriate to take into consideration in the determination of the likelihood of a substantial lessening of competition. We are therefore not to be taken as necessarily endorsing the approach of Williams J where he attempted at one point to predict what might have happened if NWP had been eliminated from the market.

  91. The cross-appeal on s27 is therefore dismissed.

    PENALTY

  92. For the Commission, Mr. Brown submitted that the monetary penalty of $525,000 is manifestly inadequate and should be increased. His first three points were that the Court wrongly disregarded, or gave insufficient weight to, the size and strength of INZCO as part of the Carter Holt Harvey group; the period over which the contravening conduct occurred; and its national significance because its objective was to maintain the position and pricing of the Pink Batts products. His further point was that the Court erred in giving weight to benefits that were said to have flowed to merchants and customers.

  93. We were asked to contrast factor (c) in the factors listed in TPC v Annand & Thompson Pty Ltd the size of the corporation’s activity in the relevant market – with the statement in the Court’s judgment that there should be no greater penalty for a large and affluent corporation.

  94. There is some merit in this point. The Court’s comment, as a matter of general principle, seems inconsistent with its recognition of the importance of deterrence. It is commonly accepted that it requires higher monetary penalties to constitute deterrence to affluent parties than to "indigent" ones. Indeed it is not easy to envisage a small and indigent company contravening s36.

  95. While it was the case for the Commission that the objective of INZCO was to protect its market for and profits from its Pink Batts products, and there was some evidence to support that, Mr. Brown was not able to identify with any clarity the mechanism by which this was said to be achieved. We do not see just how success in attracting customers to the Wool Line product was to achieve this. Perhaps it was that once NWP had been eliminated the Wool Line product would have been withdrawn. There was no evidence to support that. It may have been that there was no clearly formulated long term strategy other than to have customers continue to deal through the major merchant chains where the misinformation purveyed by NWL about glass wool (see para [99] below) could be corrected. Whatever the Commission theory may have been, we do not consider it was so clearly established as to require the penalty to be assessed by reference to a nationwide strategy beyond the established regional impact of a relatively small volume product. In saying that we do not discount the need to assess the potential competitive developments which the public were denied by the impact of the contravening conduct. But for INZCO’s 2 for 1 strategy, NWP might well have maintained its momentum and expansion leading to wider erosion of INZCO’s dominant position. In competition terms that was a potential benefit the realisation of which was impeded.

  96. In any predatory pricing situation that is halted before recoupment is obtained there will be short-term benefits to those who have taken advantage of the low prices. But competition law is not focused on short-term benefits – especially where longer term structural harm is an objective. The culpability of the conduct is not much lessened because it is brought to an end by official intervention. We accept this is not a strong mitigating factor.

  97. We are not convinced the lower Court incorrectly assessed the period over which the 2 for 1 pricing operated in any significant way. The start was back-dated by offering credits to Nelson/Marlborough merchants and there was some run-on at the end because of commitments. The Court was well aware of that. We do not take the references to the period of seven months as so precise as to suggest that the Court misconceived the real extent of the conduct.

  98. There are factors to be weighed on the other hand. Professor Lattimore misunderstood the position when he said in his separate judgment that a very large share of INZCO’s parent company’s profits was derived from INZCO. That led to evidence being tendered by affidavit at the hearing on penalty showing that in the relevant years INZCO’s contributions to the parent company results were small in percentage terms. That provided some justification for the Court declining to give "great weight" to the size of Carter Holt as a group.

  99. There is a further factor not articulated by the Court in the penalty judgment nor in the submissions of counsel. It is the provocative conduct of NWP. Comparative advertising containing apparently unsubstantiated assertions of serious health hazards involved in the handling of glass wool and promoting the environmental merits of wool went beyond what was reasonable and vigorous competition. Though its actions constituted an improper response, it is possible to have some sympathy with INZCO.

  100. There is also the unanswered question of the harm directly caused to NWP by INZCO’s 2 for 1 pricing. It did not prove possible to quantify the extent to which the fall in NWP sales was attributable to INZCO’s pricing rather than the other factors already referred to. It may be that its market advance had simply passed its zenith given the relatively unorthodox marketing methods employed.

  101. Having considered the arguments, we have reached the view that the High Court approached the question of penalty by reference to the correct principles. It might be said that some factors were undervalued and others over valued. But it was for that Court to assess the appropriate quantum. We are not disposed to interfere with the conclusion reached. We are satisfied the penalty was one open to the Court to impose. It reflects a contravention that potentially was harmful to the development of competition yet, as it eventuated, was not shown to have seriously done so. It represents an appropriate deterrence for a contravention that is not to be placed high on the scale of seriousness.

  102. The appeal against the penalty also is dismissed.

  103. Although it was unsuccessful on its cross-appeal and the penalty appeal, the Commission has held the judgment on the s36 contravention which occupied the major part of the argument. The appellant therefore should pay towards the Commission’s costs $10,000 together with disbursements fixed (if necessary) by the Registrar.


Cases

Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385

Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554

TPC v Annand & Thompson Pty Ltd (1987) ATPR 48,390

Queensland Wire Industries Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167 CLR 177

Melway Publishing Ltd v Robert Hicks Pty Ltd [2001] 178 ALR 253

Telecom Corporation of New Zealand Ltd v The Commerce Commission CA281/00, 17 Sept 2001

Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554

Legislations

New Zealand

Commerce Act 1986, s.3, s.27, s.36

Australia

Trade Practices Act 1974, s.46

Authors and other references

Gault on Commercial Law para: CA36.10

Representations

DAR Williams QC, MR. Dean and GM Wishart for Appellant (instructed by Russell McVeagh, Auckland)
BWF Brown QC and PH Rainsford for Respondent (instructed by PH Rainsford, Wellington)

Notes:-

The company appealed against the dismissal by the Court of Appeal. The Privy Council (Lord Scott of Foscote & Baroness Hale of Richmond, dissenting) on 4 July 2004 allowed the appeal. See Carter Holt Harvey Building Products Group Ltd v The Commerce Commission @www.ipsofactoJ.com/international/index.htm [2004] Part 10 Case 7 [PC]


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