Naturally Resourceful

09 Sep 2009

The "Supermarket circus" – Trade Competition under the RMA

A person is currently free to use any of the tools that the RMA provides in order to pursue a competitive advantage, subject only to the potential sanction of costs. This has led to the "supermarket circus", a situation where an individual, organisation, or company uses the mechanisms of the RMA for the competitive advantage in delaying the introduction of a competing activity into the marketplace. 

The use of planning legislation and processes for trade competition purposes has long been identified as an issue both under former town and country planning legislation and then under the RMA. It has now been addressed in the Resource Management (Simplifying and Streamlining) Amendment Bill. 

This article is intended to describe how the issue is currently considered under the RMA and whether the Government's proposed approach is likely to achieve its stated objectives.

The "supermarket circus" was explained by Jeff Grant MP during the second reading of the Resource Management Bill (Hansard, 29/08/90, page 4103) as:

"When beginning such a development, one company may apply for consent to be given for a development within an area. All of those people who are in competition with that company effectively use the mechanism [provided by the Town and Country Planning Act 1977] that was in place before the Bill, and is also contained in the Bill, to block the application at every turn for commercial gain. One supermarket could play against another, and for commercial reasons may do anything to delay for perhaps 3 years the building of a supermarket on a site…"

This speech identified an issue with the original Resource Management Bill that was not resolved at the time. Whilst the RMA has been subsequently amended to exclude consideration of trade competition, the opposition of trade competitors to new developments that may impact on their financial interests has continued largely unabated for reasons that are discussed below.

In recent years, we have seen examples of the "supermarket circus" in the resource consent process in a variety of contexts including service stations, mega-centres, supermarkets, and shopping malls. 

Most recently attention has focussed on the proposed Pak 'n Save supermarket in Wairau Park, which has been through hearings at consent authority, Environment Court, High Court, and Court of Appeal levels. The latest decision of the Environment Court in relation to the Wairau Park Pak 'N Save (Progressive Enterprises Limited  v North Shore City Council W075/08) was appealed to the High Court. The High Court has recently rejected that appeal (Progressive Enterprises Limited v North Shore City Council CIV-2008-485-002584). However it is possible that the appellants will seek leave to appeal to the Court of Appeal, further prolonging the judicial process that began as far back as 2001. 

While litigation by a trade competitor may arguably be seen as using a market position to prevent the entry of another into the market (contrary to section 36 of the Commerce Act 1986), the explicit provision of the appeal right in the RMA would seem to fall within an exception to that Act, as the behaviour is authorised by statute (section 43(1) of the Commerce Act). This may no longer be the case under the proposed trade competition amendments, but that is not the focus of this article. 

Town and Country Planning Act 1977

Under the Town and Country Planning Act 1977 (TCPA), opposition by trade competitors was not uncommon. In Mercantile Developments & Anor v Auckland City Council (1977) 6 NZTPA 317, the Planning Tribunal found that a rezoning to allow a shopping centre in a suburban area would result in "wasteful duplication and under-utilisation of resources". Considerations of economic efficiency, and a prescriptive approach to use or utilisation of resources allowed for some consideration of trade competition effects.

In Nathan v Paeroa Borough Council A94/87 (3 December 1987), a case concerning a proposal for a new supermarket in Paeroa under the TCPA, there was an explicit acknowledgement that the competition aspect of the opposition was excluded from the Tribunal's reasoning. The Court stated "It is not part of the rationale of this decision that Woolworths should be protected against competition" and the material factors in the decision were related instead to the subsequent effects of that competition, not on the competitor directly, but on the amenity and viability of the town centre of Paeroa (page 12):

"The town centre could benefit from substantial redevelopment or new development but is ill equipped to meet the challenge to its viability and character which would flow from the establishment of the proposed supermarket."

These impacts, based on consequential effects of competition, can be categorised as social or economic effects and are not dissimilar to arguments currently being raised in opposition to developments under the RMA.

RMA - Current Position

Under the RMA, any person, which includes the Crown, corporations sole, and bodies of people, whether corporate or unincorporated, has a right to submit on a plan change, policy statement, or notified resource consent. In other words, any competitor has a right to submit in opposition to a notified application for consent for a competing development. In the case of a non-notified application, the decision not to notify and to grant a consent can be subject to judicial review in the High Court.

However, when making decisions on resource consents, regional policy statements, or the preparation of a plan (or plan change) under the RMA, consent authorities must not have regard to trade competition (sections 61, 66, 74, and 104).

The Environment Court has held that trade competition includes not only effects on direct competitors such as supermarkets through loss of market share, but also the property owners who lease those supermarkets through a lessening in rental values. In other words, the Court will not consider purported effects on land or rental values, as these are expressly excluded from consideration (see Queenstown Property Holdings v Queenstown Lakes District Council [1998] NZRMA 145).

That specific position has not been tested in the higher courts, but it seems apparent that actions taken on the basis of protecting the value of an investment (even that of the local authority) would fall within the trade competition prohibition.

The prohibition under the RMA on consideration of trade competition has created a shift in the arguments raised by trade competitors. There is nothing at present to stop a trade competitor objecting to a development based on its wider effects on the environment. The recent Progressive case turned partly on arguments related to the effects of the development on traffic flow at the adjacent intersection, but also significant social and economic impacts. 

The Environment Court has commented that trade competitors can properly raise concerns about sustainability of a resource (Southern Alps Air Limited v Queenstown Lakes District Council (C68/2006)). Further, that trade competitors can raise genuine issues of public interest especially if a proposal is on a site which is in an area of considerable public as opposed to private use, where the general public may be unaware of what is proposed or is not sufficiently informed to be concerned about difficulties which may impact on future amenities (Foxley Engineering Limited v Wellington City Council (W12/94)). Trade competitors would likely have both an awareness of such issues, and resources to raise the issues at Council and subsequent hearings.

Trade competitors frequently raise the social and economic effects of trade competition - "subsequent effects" - on other centres, due to the effects of competition, distinguishing these effects from direct trade competition effects. The Supreme Court has held that subsequent effects of competition on, for example, the amenity of other centres are able to be considered, but a relatively high threshold has been set. Justice Blanchard's decision in Westfield (New Zealand) Limited v North Shore City Council [2005] 2 NZLR 597, [2005] NZSC 17 at paragraphs 119-120 stated:

"The committee was required to disregard the effects of trade competition from the Discount Brands centre, since competition effects would have to be disregarded upon the substantive hearing of the resource consent application. But, as Randerson J said (High Court), significant economic and social effects did have to be taken into account. Such effects on amenity values would be those which had a greater impact on people and their communities than would be caused simply by trade competition. To take a hypothetical example, suppose as a result of trade competition some retailers in an existing centre closed their shops and those premises were then devoted to retailing of a different character. That might lead to a different mix of customers coming to the centre. Those who had been attracted by the shops which closed might choose not to continue to go to the centre. Patronage of the centre might drop, including patronage of facilities such as a library, which in turn might close. People who used to shop locally and use those facilities might find it necessary to travel to other centres, thereby increasing the pressure on the roading system. The character of the centre might change for the worse. At an extreme, if the centre became unattractive it might in whole or part cease to be viable.

The Court of Appeal considered that only "major" effects needed to be considered, since only then would the effect on the environment be more than minor in terms of s94(2)(a). But in equating major effects with those which were "ruinous" the Court went too far. A better balance would seem to be achieved in the statement of the Environment Court, which Randerson J adopted, that social or economic effects must be "significant" before they can properly be regarded as  beyond the effects ordinarily associated with trade competition on trade competitors. It is of course necessary for a consent authority to first consider how trading patterns may be affected by a proposed activity in order that it can make an informed prediction about whether amenity values may consequentially be affected."

Based on the Westfield decision, the social and economic effects subsequent to the trade competition effects have to be "significant" before they can be beyond what could normally be considered an effect of trade competition and therefore not taken into account. 

Arguments based on consequential economic and social effects of competition frequently feature in proceedings under the RMA involving trade competitors. While the ultimate issue relates to the effects on the environment, evidence as to the commercial effects of trade competition appears to be a necessary consideration to determine whether those effects will occur.

The Environment Court in the recent Progressive decision stated (at paragraph 59):

"…The end result is that decision-makers are not to take account of effects such as the erosion of patronage or profit margins, or even the enforced closure of competing businesses. Those are caused …simply by trade competition. But if the effects of allowing a new business into the arena would be to cause significant economic and social effects to an existing centre as a whole - to the point where its amenity values are affected in a significantly adverse way, then that is to be weighed in coming to an overall decision under s5. The term significantly adverse must be taken as meaning more than minor, but not necessarily so bad as to be ruinous. It is to be noted that even if there are shown to be likely significantly adverse effects on the amenity values of a centre, that will not necessarily be decisive. That would be but one factor to be weighed in the s5 decision-making process." [emphasis original]

Social or amenity effects must therefore be considered to be significant before they can be considered to be beyond the effects usually associated with trade competition. While the Court of Appeal has identified a scale of effects, it is not clear where on this scale, from minor to ruinous, "significant" would fall. Unfortunately, any hearing now involves a consideration of a substantial amount of evidence related to the amount of trade that will be diverted, to determine whether the subsequent effects are "significant". Therefore, it is necessary, in order to determine whether there are subsequent effects that are "significant", to consider of factors that squarely fall within "trade competition". 

There is an inherent uncertainty in using economic and social evidence to predict subsequent effects. This can be shown by a corollary to His Honour's reasoning (in the Westfield case), in relation to the "hypothetical example" (above):

"Suppose as a result of trade competition, some retailers in an existing centre closed their shops and those premises were then devoted to retailing of a different character. That might lead to a different mix of customers coming to the centre. Those who had not previously been attracted by the shops which closed might choose now to go to the centre. Patronage of the centre might increase, as boutique retail outlets that previously may not have been able to pay market rent become established and the centre becomes a destination of a different type. Patronage of community facilities in the centre may also increase…The character of the centre may change for the better."

Subsequent effects of trade competition and a resulting change in focus for a centre may result in urban revitalisation rather than urban decay. This issue has not often been addressed, as it is even more difficult to predict than a "tumbleweed" scenario, but it is clear that some centres have an inherent strength to re-market a loss in trade. Predicting subsequent effects of trade competition based on the potential for some shops to close is inherently uncertain, and generally the arguments raised by trade competitors paint worst case - "tumbleweed" - scenarios. 

Proposed changes to the RMA

The Resource Management (Simplifying and Streamlining) Amendment Bill was introduced to Parliament, and had its first reading on 19 February 2009. Submissions on the Bill close on 3 April 2009. 

The proposed changes include the introduction of a new Part 11A "Act not to be used to oppose trade competitors".

This Part imposes limitations on trade competitors who wish to submit on resource consents, plan changes and other consents sought by their competitors, unless they are "directly affected" by the subject matter of the application and that effect "adversely affects the environment".

The proposed new Part also provides the ability for any party to Environment Court proceedings (including the consent authority) to obtain a declaration from the Environment Court that the trade competitor has breached these requirements where appeals have been determined "in favour of Person B" and to seek an award of costs. If the declaration is granted, the applicant may also apply to the High Court for damages against the trade competitor. 

While the intent of these provisions is clearly to discourage trade competitors from taking steps to delay development proposals, there are practical concerns with the provisions and it appears that, as drafted, they may fall short of achieving their intended purpose. One concern is that it is not clear whether an award of costs under clause 139 (proposed new section 308A(7)) includes additional expense incurred at consent authority level because there has been opposition on trade competition grounds, or where an Environment Court appeal is allowed on unrelated grounds, but a trade competitor has breached the proposed new section 308B and unnecessarily prolonged the Environment Court hearing. 

There is also little guidance as to how a damages claim in the High Court is to be categorised or as to what losses can be claimed. In particular, establishing causation may be problematic if an appeal is brought raising legitimate RMA grounds as well as for trade competition purposes. To be really effective, the legislation needs to clarify the causation issue and provide for damages which remove the profit element for a competitor, and/or impose significant monetary penalties.

Another issue arises with the wording of proposed new section 308B, which limits making submissions to effects that do not relate to "trade competition and the effects of trade competition". This amendment does not appear to capture "consequential effects" as discussed above in the Progressive case. The Ministry for the Environment's Regulatory Impact Statement accompanying the Bill stated that one of the preferred options for dealing with this issues was:

"Make it explicit that decision-makers are prohibited from having regard to trade competition or its effects…

This is necessary because of recent attempts to argue that while trade competition itself must be disregarded, its effects are still a relevant matter for consideration. Although this argument was rejected by the High Court there is the potential for it to be raised in other cases."

The case being referred to was General Distributors Limited v Waipa District Council CIV-2008-404-004857 (19 December 2008, High Court, Auckland, Wylie J), where the argument outlined above was rejected. This decision does not deal with the case law that deals with consequent effects (as discussed above). 

It is the relevance of consequential effects (which are effects on the environment), and the need for evidence to establish these effects, that has been the focus of most recent cases involving trade competitors, and this is likely to continue at least at consent authority level. Proposed new section 308D of the Bill provides for an additional purpose test relating to the bringing of an appeal to prevent a competitor from engaging in competitive conduct, or deterring a person from competitive conduct in the same market. While this is of assistance, there may well be evidential difficulties to establishing such a purpose and then obtaining a declaration to that effect.

As consequential effects are effects "on the environment", the requirement for trade competitors to be directly affected where there are adverse effects on the environment in order to have standing, only removes appeals where the trade competitor was raising valid environmental issues (potentially for the public good) that did not affect the competitor. The Foxley Engineering case referred to earlier would be a case in point - Shell had raised issues about the potential conflict between vehicles to and from a proposed Mobil service station and the commuters who flow from Wellington Railway Station at peak hours. The commuters may have been insufficiently informed about the proposal to be aware of the risks.

The so-called "vexatious" appeals, where the key issue was the consequential effects of trade competition would appear to be able to proceed under the proposed amendments. There is still room in our view for a trade competitor to assert that it is directly affected for the purpose of proposed new section 308B of the Bill by consequential economic and social effects (being effects on the environment).

Also of note is that the ability of territorial authorities to insert competition based provisions in the district plans does not appear to be materially affected.

However well intentioned the proposed changes might be, it does not appear that they will succeed in shutting down all trade competitor opposition, and in the absence of amendments to the drafting of the proposed trade competitor provisions, we can look forward to continued trade competitor litigation.

Authors

Heather Ash

Partner - Public Sector

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Duncan Laing

Partner - Public Sector

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Bill Loutit

Partner - Public Sector

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Padraig McNamara

Partner - Public Sector

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James Winchester

Partner - Public Sector

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