Judge raps Carter Holt Harvey

By BRIAN FALLOW

WELLINGTON - The Commerce Commission has claimed a major scalp, with the High Court ruling that Carter Holt Harvey broke the law in its response to competition from a small Nelson firm making woollen insulation for buildings.

In 1992 New Wool Products began competing with Pink Batts, produced by a Carter Holt unit, INZCO, which enjoyed between 75 and 85 per cent of the market.

New Wool Products' Woolbloc batts are made from wool in a resin-bonding process developed by its principal, Lindsay Newton.

By early 1994 it had captured between 30 and 40 per cent of the Nelson market and was making inroads elsewhere in the South Island.

INZCO responded in late 1993 with a "me too" product, Wool Line, made from 60 per cent polyester and 40 per cent wool, but it was twice as expensive as Woolbloc.

Following complaints from its outlets, INZCO began supplying Wool Line on a buy-one, get-one-free basis which the court found was 30 to 40 per cent below cost.

That lasted for seven months and ended on the order of Carter Holt chief executive David Oskin only after the Commerce Commission and the then Nelson MP John Blincoe started to put the heat on the company.

Carter Holt has since sold the business to Tasman Insulation NZ.

Justice Hugh Williams ruled that INZCO breached section 36 of the Commerce Act in that it used its dominant position in the South Island insulation market for the purpose of preventing or deterring New Wool Products from engaging in competitive conduct in that market or eliminating it from that market.

While this was not predatory pricing in the normal sense, in that there was no evidence of any intention to subsequently recoup the loss from selling Wool Line below cost, it was still predatory behaviour, the judge found.

"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 [Pink Batts] from further harm."

Professor Ralph Lattimore, of Lincoln University, who sat as a lay member of the court, said a "very large share" of Carter Holt's profits was derived from INZCO, though his judgment does not quantify it.

While the costs of selling Wool Line at a loss may have been small in relation to INZCO's business, they were large in relation to New Wool Products.

"This level of predation could well have destroyed new Wool Products as a viable firm in the market," Professor Lattimore said.

Mr Newton is still in business. "We are nothing like we were back in 1994 in New Zealand but we have much improved markets overseas which keep us going," he said yesterday.

"Now that we have righteousness on our side we will go back into this market."

Mr Newton believes Carter Holt's main concern was not the threat his small company, with a staff of four, posed to their market share, but his allegations about the health risks of fibreglass insulation.

Carter Holt general counsel Nicolas Short said the company believed its conduct was acceptable and appropriate competitive behaviour.

It was too early to say if the company would appeal. Justice Williams has still to hold a penalty hearing, at a date yet to be set.