Foodstuffs North Island (FSNI) has been stung with a $3.25 million penalty by the High Court for lodging anti-competitive covenants with the intent of blocking its competitors in breach of the Commerce Act 1986 (the Commerce Act).

Dr John Small, the Chair of the Commission, has stated that the FSNI penalty should act as a deterrent to businesses and a reminder that the Commission will continue to pursue companies in any industry who use land covenants to stop rivals entering local markets.

The case underscores the Commission’s current enforcement focus in this area and the potential for significant penalties for engaging in anti-competitive conduct. Businesses should carefully review any historic or proposed restrictive covenants for compliance with the Commerce Act.

The key prohibition

Section 28 of the Commerce Act prohibits the giving of (or requiring the giving of) a covenant that has the purpose, effect or likely effect of substantially lessening competition in a market. The Commission identified in its market studies that restrictive land covenants are impacting competition in the residential building supplies, grocery and retail fuel sectors. The Commission’s conclusions regarding restrictive covenant use by grocery retailers directly led to the enactment of s 28A of the Commerce Act which deems certain grocery-related covenants as prohibited and unenforceable.

FSNI penalty decision

While the full written judgment is not yet available, the Commission’s media release states that FSNI lodged covenants in three locations across the lower North Island (Newtown, Petone and Tamatea) which blocked other supermarkets from opening new stores or expanding existing stores. The covenants were described as of a very long duration (up to 99 years) and were lodged with the purpose of hindering FSNI’s competitors in local towns and suburbs.

It is reported that Justice Radich, in his oral judgment, highlighted the serious competition issues arising from the ‘deliberate effort’ on the part of FSNI to hinder its competitors through the lodging of these covenants. It is also reported that His Honour acknowledged various mitigating factors (the historic nature of the conduct, the fact the covenants were not enforced, FSNI admitting the conduct at the earliest possible stage and the fact FSNI had sought legal advice and not intended to breach the law) which were recognised in the ultimate penalty ordered.

Other Commission action

This is the second proceeding the Commerce Commission has brought in relation to restrictive covenants in recent years. In 2023, NGB Properties Limited admitted it had breached the Commerce Act when it lodged a covenant on a site near the Mitre 10 Tauranga Gate Pa store, the purpose of which was to prevent the site from being used by Bunnings or any other potential rival of the Mitre 10 store. The High Court ordered that NGB pay a $500,000 penalty.

Notably, however, the Commission recently closed similar investigations into Foodstuffs South Island’s and Woolworths’ acquisition of land and lodging of land and lease covenants under the Commerce Act by deciding to take no further action against either party. The Commission’s case register records that in making these decisions, the Commission had regard to the strength of evidence and nature and extent of the parties’ alleged conduct, in addition to whether further proceedings would achieve additional general or specific deterrence in light of the enforcement action the Commission had taken against FSNI and the introduction of s 28A of the Commerce Act.

Where to go for further information

The Commission has published a Fact Sheet on anti-competitive land covenants which can be found here. If you have any questions about the Commerce Act implications of a restrictive covenant, or about what the recent penalty for FSNI means for you, please contact one of our competition and property law experts.