Ruling on car price fixing sets off alarms

By CHRIS DANIELS

A High Court ruling that Giltrap City Toyota joined a price-fixing scheme in the early 1990s has prompted warnings for New Zealand businesses about the extent of their responsibilities.

The ruling is the latest chapter in a marathon legal battle between the Commerce Commission and the car company, which began at a meeting of Auckland Toyota dealers on June 3, 1993.

But the saga is not over. Giltrap Toyota has lodged an appeal against the ruling and, even if the verdict stands, the issue of penalties has yet to be decided.

Lawyers who have seen the decision say that, if it survives the appeal, it should make businesses look carefully at how they operate.

In her reserved judgment, Justice Susan Glazebrook said the issue arose when Toyota dealers felt the car market was becoming too competitive.

She said: "1993 was a good year for Toyota buyers. Dealers vying with each other to provide the best deal, offering incentives, trespassing on each other's territories, poaching clients, discounting at times even below cost, reaching a point where some dealers became worried about profitability, reaching a point where some dealers decided something must be done. And they acted."

The judge found the action taken, an arrangement between dealers to set maximum discounts on cars they sold, breached the Commerce Act.

In December 1996, seven other Auckland Toyota franchise holders admitted they breached the law and were ordered to pay $50,000 each.

But Giltrap denied it had done anything wrong or played any part in such an arrangement, and has defended the charges for eight years, including a failed 1998 attempt to take an appeal to the Privy Council in London.

Its lawyers have argued on several fronts, saying there was no price-fixing agreement; or if there was an agreement Giltrap was not involved; or it was not concluded when the Giltrap representative left the meeting. Furthermore, any such agreement would not have been in the interests of Giltrap, they say, so its employee would never have agreed to participate and in any event it was never implemented.

Giltrap counsel Michael Reed, QC, yesterday described the case as "only half finished". The company said it was not in a position to comment because the case was still before the courts.

The Commerce Commission also declined to comment on the judgment because legal action was proceeding.

Justice Glazebrook acknowledged that Giltrap Toyota executives did not know of, support or condone the price fixing.

But she said two men involved in the price-fixing agreement, who worked for the company, were "acting within the scope of their actual or apparent authority and within the scope of their employment. The law is that, as a consequence, Giltrap City Toyota was also a party to the arrangement and involved in giving effect to it ... "

Mark Williamson, a senior solicitor in the business and corporate division of law firm Phillips Fox, said the case raised several issues that business should be wary of. It highlighted the dangers, especially for franchise holders, of discussing certain matters among themselves and showed companies should have compliance regimes for staff further down the ladder.

"The fact that head office didn't condone it - well, this case shows that the company is not going to be absolved merely because they delegate this type of thing to a manager - it's a good lesson on that front," he said.

Mr Williamson said the case also showed that silence at a meeting was no defence to being part of an agreement.

Giltrap argued that since its employee had remained silent he was not a party to any arrangement.

Mr Williamson said the judgment showed that someone at a meeting could not just remain silent if price-fixing discussions were going on.

"If you're in a situation where there's talk like this, you need to make your objection to it known, otherwise you're going to be carried along with it," he said.

Buddle Finlay partner Bernie Hill said it was interesting that the Commerce Commission had chosen to pursue a price-fixing prosecution relating to "intra-brand" rather than "inter-brand" competition.

If Toyota had sold cars through approved agents, it could dictate the sale price. But in this instance, because of the method it used to sell vehicles, it could not.

"If Toyota had organised its distribution on the basis that these people were simply its agents there would be nothing to stop them doing exactly what happened," he said.

Mr Hill said that, in a competitive market such as motor vehicles, price fixing by the sellers of one brand was irrelevant to consumers.

The vigorous competition between those selling different brands of cars would mean consumers would not be harmed by any price-fixing arrangement organised by one.

In the circumstances, he questioned why the commission was bothering to pursue cases where consumers were not hurt.