Supermarket stoush clogs up quick fix

By BRIAN FALLOW economics editor

Foodstuffs' battle to stymie a merger of its two main rivals in the supermarket business, Progressive Enterprises and Woolworths, has moved to Parliament's commerce select committee.

The committee has been asked to make emergency repairs to the Commerce Act, but its task has been complicated by a bid to exclude the proposed supermarket merger from the scope of the quick-fix amendment.

The two-page Commerce (Clearance Validation) Amendment Bill has been introduced under urgency because of a surprise judgment by the Court of Appeal on August 13.

The court ruled that Progressive Enterprises' application to buy Woolworths New Zealand should have been determined under a new test which came into force on May 26 - would the acquisition substantially lessen competition? - rather than the less exacting old test - would it create or strengthen dominance in a market?

The judgment threw into doubt another 10 clearances for acquisitions granted by the Commerce Commission, for which the clearance applications were still "live" when the law changed.

This decision wrong-footed the commission, which had told applicants that the old test applied, and the Government.

Hence the quick fix, which is intended to clarify that the 11 applications should indeed have been considered under the old law.

The commerce select committee has been hearing submissions on the issue and is due to report the bill back to the House on Monday.

Foodstuffs, the cooperative supermarket chain with a 55 per cent market share, does not wanted to see Progressive's 21 per cent merged with Woolworths' 19 per cent. It is afraid the merged entity may fall into the hands of one of the global mega-retailers like Wal-Mart, putting Foodstuffs at a competitive disadvantage.

It was Foodstuffs that challenged in court the Commerce Commission's use of the old test.

The Progressive merger, creating an entity with a market share of 40 per cent, may struggle to get past the new test.

Progressive managing director Ted van Arkel told the MPs that although other parties might be interested, Progressive had the inside running in the race for Woolworths, provided the legislative mess could be sorted out.

Constitutional lawyer and former Prime Minister Sir Geoffrey Palmer, appearing for Foodstuffs, told the select committee that it would be constitutionally wrong for Parliament now to deprive it of the fruits of that victory in the courts.

"If a mistake is made, by all means Parliament should rectify it. But it should not take away the fruits of forensic victory," Sir Geoffrey said.

"Foodstuffs wrote to the commission [disputing its approach]. The commission did not respond. Foodstuffs went to court and prevailed. When people have gone to that much trouble, it would not make the business community happy to see the effect of particular litigation overturned in this way."

But Progressive's constitutional lawyer, Professor Philip Joseph, disputed that Foodstuffs was being deprived of anything and argued that it would be wrong for Parliament to single out any one of the 11 parties for separate, discriminatory treatment just because it had been the target of litigation.

Foodstuffs had sought and obtained a declaratory judgment from the court on what the law was. The court had expressly not made any order in relation to the Progressive case or any of the others. No rights had been created or taken away.

That was splitting hairs, Foodstuffs responded. To take court action applying the Court of Appeal's judgment to the Progressive case would be "the proverbial open and shut case".

The judgment was to the benefit of Foodstuffs and the detriment of Progressive. Otherwise the parties would not be there, arguing about it before the select committee.

Commerce Commission chairman John Belgrave told the committee that, as matters stood, the commission was likely to ask the High Court what should be done about the 11 clearances which are now unsafe, and that could take "some time".

In five cases the transactions have been completed, including Caltex's purchase of Challenge Petroleum and Lowe Corporation's purchase of the tannery business Colyer Mair from Richina.

Jim Ferguson for Lowe Corp described the frustrations of the "innocent bystanders" in this fiasco. Acting on the strength of its clearance, it had acquired a business with $40 million in assets and 500 staff.

Now it faced the uncertainty that the clearance might be unsafe and it could take months to clarify the situation if the status quo continued.

Could it, for example, negotiate a collective employment contract with Colyer Mair staff? Could it contract with overseas buyers?

Carter Holt Harvey is also unimpressed.

Its application for a clearance regarding the central North Island forests was subject to several delays on the written understanding that the old test would apply.

Support is therefore widespread for Parliament, having contributed to the problem by not having transition provisions in the original amending legislation, now to pluck the cat from among the pigeons.