Bayly AndrewCOMMERCE (GROCERY SECTOR COVENANTS) AMENDMENT BILLThird ReadingDebate resumed.ANDREW BAYLY (National—Port Waikato): Thank you Mr Speaker. I'm glad we clarified that piece of arithmetic. It's a pleasure to be talking on the third reading of the Commerce (Grocery Sector Covenants) Amendment Bill. This has been an interesting process to be involved in and I just want to acknowledge first of all the Economic Development Science and Innovation Committee and the Minister during this process.It's just worthwhile reflecting a little bit on the process. This legislation was introduced to the House under urgency at Budget time and basically the select committee had just on a week to look at the bill in that current draft and make changes which we subsequently did. Unfortunately I only had the opportunity to listen to five submissions. Some were particularly good but all of them were useful. But it was a very limited period for people to make submissions and unfortunately we didn't hear from the grocery retailers themselves but none the less we have arrived at a point with this bill in that very shortened period which I think gets to a position where most parties are pretty comfortable with its outcome.I think when the bill was first introduced we had a number of quite significant issues with it. One is that the first bit was whether in fact the bill actually dealt substantively with the issue of restrictive covenants. And we went on to define two types of those which I'll talk about shortly. This is part of what the Commerce Commission's recommendations were. How do you improve access to wholesale trade? And of course there was a bit of focus with what supermarkets have been doing with wholesale access and wholesale arrangements but how do you actually achieve wholesale supply?The third thing was—and the Commerce Commission recommended that there should be a mandatory code of conduct that is imposed on the industry particularly with the major retailers—there was a requirement that major grocery should be very clear about their promotional and pricing arrangements and terms and be transparent about what those arrangements were. And the last thing that the Commerce Commission talked about was the need to monitor the conduct of the major grocery retailers. So that was all in the original document that the Commerce Commission presented and of course the bill leveraged off. But the bill only deals with one of all those issues and that is namely just about what sort of property arrangements were grocery retailers putting in place and had put in place and the need to make sure that they weren't restrictive in the way that they were operating. So the first thing is—and we heard this from a very good submission from Katherine Rich and her team at the Food and Grocery Council—in terms of the covenants the big issue was in the lease arrangements whether and to what extent the grocery trade was restricting other competitors unnecessarily. One of the interesting things was that the examples that were provided to the committee that in many cases the major grocery retailers in their lease agreements would be saying Look you cannot allow a person or company or an entity whatever to sell for instance jewellery luggage electronics gear as three examples of many without first of all getting our approval." That in itself was deemed to be a very very extensive and probably overburdensome constraint on competition of all sorts. And of course the other one from competitors most likely the way that supermarkets perceived it and actioned it was against cafes and restaurants and people like that. The second element was what was described as first right of refusal clauses. This is a situation where the grocery retailers in the lease agreement required the option to be able to take up any space and have a first right of refusal. The third one was requiring the grocery retailers in their lease agreements and also on some occasions required landlords to oppose planning-law changes if indeed they may compromise the operation of a supermarket or retailer. And that was an obligation placed on the landlord through the lease agreement. And the last one was the linking of rent to turnover which particularly as some people have a view that that was inducing the landlords to make sure that the grocery trade in the situation where they had an incentive if the turnover increased the rent went up accordingly to make sure they protected the business of the grocery retailer. So those are the four bits around the covenants that were particularly of interest to the committee. Now our particular concerns were around the covenants that we didn't actually adequately cover the covenants in the initial draft of the legislation. The covenants have been defined in the legislation to two areas. One is the "restrictive covenant" which is around product such as the electronic sales or the language and one is around the "exclusivity covenant" which is the one around stopping people getting access to land.Now the big issue was when you define "covenant" how is that actioned? Could it be actually just through a lease agreement or could it be through the deed of lease that's actually reached on the title or could it be done via a side letter which is probably the norm if you're doing a first right of refusal. So our first issue was that we wanted to make sure that we adequately covered all the different covenant arrangements and how they were executed and enforced by the grocery retail. The issue around the land banking: the bill was actually silent on the land banking issue but we came to a view that with the Resource Management Act (RMA) changes that wasn't something that needed to be addressed. But the next big issue was: who is going to be monitoring these supermarkets and the ability to make sure that it was getting adequate information? So that's been dealt with through a Supplementary Order Paper that the Minister referred to which updates clause 4 to insert new clause 28C which means that the Commerce Commission will now have the right to go and seek information from retailers. It is an interim step because as the Minister just said now and has confirmed on previous occasions the intent is to establish a grocery retailer and we think it's absolutely important that the grocery retailer actually has teeth to be able to go and enforce and be able to monitor the situation on a proactive basis not on a reactive basis which is the current mode of operation for the Commerce Commission. We're yet to see the arrangement for the grocery retailer and we're looking forward to seeing what that is but that is why the committee sought the requirement and I'm glad that the Minister responded in terms of being much clearer about making sure that the Commerce Commission could act proactively could seek necessary information and that was an interim step until we got through to the next stage. So in the end we've ended up addressing the first right of refusal—that's been covered in the covenant arrangements the way it's been now defined—confirmation of the grocery regulator and the ability for the Commerce Commission to proactively go and get information. What we set aside was the planning law requirements under the RMA and also the issue of compensation. We were concerned that grocery retailers may take a view that they may unnecessarily seek compensation but we've come to a view that that can't cannot occur and it's under the Fair Trading Act. So look I think it's a pretty good outcome we've ended up with. There are some other minor changes around the fuel exemption that's only related to environmental outcomes. The most heartening thing is the supermarkets are now moving to removing some of the covenants proactively. There is no longer a requirement that they have to seek the landlord's permission to remove these restrictive covenants and indeed Foodstuffs in particular I should highlight who have been very keen to move proactively and get through this situation. I want to finish off by thanking the members of the select committee; Jamie Strange the chair; my colleagues on our side in particular Melissa Lee; and the officials and the Minister; and all we now wait for is ALDI and Costco hopefully to come in time if they find New Zealand an attractive enough destination."