Watchdog backed off pinging Lion

By JAMES GARDINER

The Commerce Commission decided to prosecute Lion Breweries over its misleading Speight's beer labels, but backed off after receiving a 30-page letter from Auckland law firm Russell McVeagh.

Documents released under the Official Information Act reveal for the first time that rival brewer DB, which was also in the gun last year over the way it labelled Tui beer, urged the commission to prosecute Lion.

Lion had previously been warned over false claims on Mac's beer labels that it was a family owned brewery when in fact Lion had bought the brands.

The Speight's issue was over claims on the labels and packaging that it was brewed in Dunedin when most is actually brewed in Auckland and Christchurch.

DB's problem with Tui was similar: It gave the impression the beer all came from Mangatainoka, when most of it, including all the cans and stubbies, were brewed in Auckland.

Under the Fair Trading Act, misrepresenting a product's place of origin can bring a fine of $100,000 but the commission has discretion to ignore a breach, issue a warning, or make an out-of-court settlement.

After a three-month investigation, the commission advised Lion on August 7 last year that it would be prosecuted. Two months later it agreed to an out-of-court settlement after Lion said it would change the labels and publish an acknowledgement of its wrongdoing.

The documents show Lion was taken by surprise when the commission decided to prosecute, argued its innocence even after admitting breaching the act, and blamed "self-interest" by a Herald reporter for the whole investigation.

Lion executives became almost obsessed with the idea that the Herald, rather than one its customers, had complained to the commission about Speight's labels.

In fact, the Herald did not complain about Speight's - that came from a Christchurch man who bought beer at his supermarket - but did ask the commission to consider whether Tui's labels breached the Fair Trading Act.

In his letter seeking to stave off the impending prosecution, Russell McVeagh partner Matthew Dunning said it appeared that Herald journalist James Gardiner complained to the commission, which meant he could "break" the story of a complaint. "We understand that this is the only complaint."

What the papers released do not show is why the commission changed its mind. It claimed legal privilege in relation to advice from legal and investigating staff.

But handwritten notes, presumably by a commission lawyer, which appear on a copy of a coversheet of the letter faxed by Mr Dunning suggest the initial reaction was to continue the prosecution.

"Gut feeling to carry on," says one bullet point, followed by: "faulty logic", "settlement offer doesn't admit the liability", and "not offered anything new".

What happened to change that position is not known.

* james_gardiner@nzherald.co.nz