Clark DavidCOMMERCE (GROCERY SECTOR COVENANTS) AMENDMENT BILLSecond ReadingHon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): I present a legislative statement on the Commerce (Grocery Sector Covenants) Amendment Bill.ASSISTANT SPEAKER (Ian McKelvie): That legislative statement is published under the authority of the House and can be found on the parliamentary website.Hon Dr DAVID CLARK: I move That the Commerce (Grocery Sector Covenants) Amendment Bill be now read a second time. Groceries are an essential purchase and a major expense for most households in New Zealand. Competition is a key driver of price quality range and service offered by grocers in New Zealand. Back in March the Commerce Commission published its final report on the market study into New Zealand's retail grocery sector and that report found that competition was not working well for consumers in New Zealand with excess profits estimated conservatively at $1 million a day accruing to the duopoly straight out of Kiwi's pockets—a million dollars a day every day over a period of some time.The bill addresses the weak competition by giving effect to one of the Commerce Commission's recommendations. I intend to introduce the second bill addressing the commission's other recommendations later this year. The commission confirmed what was already suspected: that the duopoly had been engaging in anti-competitive land wars where they buy up land or dictate the terms of leases to block their competitors from getting a foothold in any particular area. The Commerce (Grocery Sector Covenants) Amendment Bill amends the Commerce Act 1986 banning restrictive covenants on land and exclusive covenants on leases and it also makes existing covenants unenforceable. The bill will apply to the duopoly: so to Foodstuffs North Island Ltd Foodstuffs South Island Ltd and Woolworths New Zealand including any successors franchisees or transacting shareholders of these companies. And it also provides the flexibility for including other grocery retailers—and that would be designated by Order in Council in the future under that provision.I would like to thank members of the Economic Development Science and Innovation Committee for their consideration of this bill. I do want to acknowledge the chair Jamie Strange for leading this work and for his contribution and also want to acknowledge Opposition spokesperson Andrew Bayly for the constructive way he has engaged on these matters. I'd also like to thank all the submitters who considered the bill and took the time to provide feedback especially given the shorter time frame. The committee received 22 written submissions on the bill and heard oral evidence from five interested parties. Most submissions were either supportive of the bill or supportive of its intents and purposes. Some submitters considered the bill was an important first step but want further measures in future to improve competition; I agree with them and that will be covered off in the second bill coming through. Two submitters considered the bill would be ineffective or harmful to business confidence—I say for completeness.On 16 June the committee unanimously reported the bill back to the House recommending some amendments which I endorse. And I would like to mention five of these changes. Again as I do that I do want to acknowledge the committee and I do want to acknowledge Jamie Strange's leadership but also Andrew Bayly's constructive engagement on these matters as the detail was worked through by the committee over a brief period of time. So the committee raised concerns that that new section 28A of the bill may not be effective in capturing the full range of anti-competitive agreements supermarkets might use to limit the availability of land to others. And to address that the bill as reported back includes several changes to new section 28A. And the Economic Development Science and Innovation Committee recommended therefore that amending the definition of an exclusivity covenant to explicitly include rights of first refusals that the landlord might give the supermarket should be included. I think that's a sensible thing to do.Extending new section 28A to include other provisions in a lease or agreements outside the lease or land covenant that may contribute to a purpose or effect of impeding use of a site by competing retailers—and that's to prevent designated grocery retailers obtaining the same benefit by combing covenants with other restrictive provisions. Broadening the scope of other retailers who might be affected by covenants the bill prohibits—and so that's another recommendation. The bill would also apply therefore to covenants that impede other non-grocery retail stores that may compete with a designated grocery retailer. And the committee also recommended limiting the exception for covenants on retail fuel sites to those which are reasonably necessary for environmental impact reasons. So the reported-back version of the bill also contains a process to make it easier for designated grocery retailers to voluntarily remove covenants affected by the bill from the title of the burdened or benefiting land or to modify the covenant so that it no longer contravenes new section 28A. This process would be available where a designated grocery retailer would if not for Part 2 of the Act as amended be entitled to enforce the covenant. Finally the reported back bill clarifies the possible ways a designated grocery retailer may have an interest in a covenant. This is to make this provision more explicit. So the Government Supplementary Order Paper (SOP): I want to say a few things about that. The committee recommended creating a new power for the Commerce Commission to require information directly from designated grocery retailers about relevant contractual arrangements and the process for negotiating those arrangements. This would allow the commission to proactively monitor compliance with the provisions of the bill the Commerce Act and the Fair Trading Act 1986. This power would eventually be replaced by the powers given to the regulator of the grocery retail sector once that position is established. This recommendation was unanimously agreed on by the committee but it was not included in the bill because it would likely have been struck out as beyond the scope of the bill. Instead the committee opted for a provision it has inserted as new section 28A subsection 3A which would give the Commerce Commission a monitoring function in relation to the bill.So apropos the earlier point I accept the committee's view that a bespoke information-gathering power along the lines that were suggested would work better than the new monitoring function in subsection 3A. So I therefore intend to table a Supplementary Order Paper under Standing Order 315 to give effect to that recommendation. To address the scope issue the SOP specifies that the commission's power is limited to contracts arrangements understandings or covenants to which new section 28A may apply. These requests for information would also be limited to the purpose of assessing compliance with specified provisions in the Commerce Act and Fair Trading Act. Finally I note the committee raised concerns that a designated grocery retailer may be able to make unreasonable claims for compensation or damages from their landlord because of the bill making the exclusivity covenant in their lease unenforceable. So section 89 of the Commerce Act has the potential to facilitate a process of renegotiating the lease to reflect actual losses incurred by the supermarket from greater exposure to competition in the area. The committee's concern was about landlords having little protection against the potential for supermarkets to abuse that process. There are general provisions in contract law the Commerce Act and the Fair Trading Act which prohibit the kinds of behaviours the committee was concerned about—for example undue influence coercion or unconscionable conduct. I considered these provisions should provide protection to mall and shopping centre owners. I also considered that the SOP would help mitigate some of these concerns by giving the commission the ability to proactively monitor these arrangements including the process of renegotiating them as a result of the bill to assess compliance with both the Commerce Act and the Fair Trading Act.So the bill will remove an important barrier to the availability of land for grocery retail increasing the likelihood of a competitor to rival the current duopoly emerging in the retail grocery market. We are moving with speed because this is one of the more straightforward aspects of the Commerce Commission's report to implement. I do thank again the members of that committee because I do believe in the time frame that we've set significant value has been added by the contributions both of the Government members—and I singled out Jamie Strange—and the Opposition's Andrew Bayly to improve the bill to make sure that the purposes we laid out have been achieved and that the commission is set to have the monitoring powers it requires to do the job that will make for a more competitive grocery retail sector as a result of this bill and therefore I commend this bill to the House.ASSISTANT SPEAKER (Ian McKelvie): The question is that the motion be agree to.