Fair Trading: National Mini Storage v. National Storage

National Mini Storage failed to get an injunction blocking Australian-listed rival National Storage gaining an internet presence prior to a move into the under-supplied Auckland self-storage market.

Australian-owned National Storage Ltd has over one hundred self-storage centres in Australia.  It has a high profile in sports sponsorship, sponsoring the Wellington Hurricanes and Brisbane Broncos.    National Storage moved into New Zealand in 2015, first into Christchurch and later into Hamilton and Wellington.  It now has eyes on Auckland.  The High Court was told existing self-storage facilities in Auckland are running at over ninety per cent occupancy, driven primarily by high immigration and limited housing availability.  National Mini Storage and Storage King currently control about eighty per cent of the Auckland market.

National Mini sued National Storage alleging passing off and breaches of the Fair Trading Act.  It says internet advertising in the Auckland market promoting the National Storage brand is likely to cause confusion for potential customers of National Mini.  In business since 1991, National Mini has nine Auckland branches between Albany and Takanini.

The High Court was told there is little brand awareness of self-storage companies.  Customers live locally, most within seven kilometres of any storage facility.  Evidence was given of detailed analyses of internet data derived from searches for self-storage.  The extent of analysis undertaken had the perverse effect of warping search data extracted.

Justice Muir ruled there was insufficient evidence of actual confusion or potential confusion between the two companies by consumers undertaking internet searches for self-storage facilities. Refusal to grant an injunction was assisted by National Storage undertaking to restrict its on-line marketing.  It undertook not to utilise search engine optimisation techniques to promote its own site by piggybacking on search queries for National Mini.     

National Mini Storage Ltd v. National Storage Ltd – High Court (31.07.17)

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Electricity: Vector v. Electricity Authority

Powerful appeals to sanctity of contract did not succeed in Vector’s unsuccessful challenge to Electricity Authority proposals to impose a standard-form supply contract between lines companies and electricity retailers.

Vector holds a natural monopoly as the lines company supplying power to much of Auckland City.  Most of its profits are returned to local consumers by way of dividend channelled through its major shareholder, Entrust.  Entrust was put up as a stalking horse in Vector’s attempts to derail Electricity Authority plans to standardise Use-of-System agreements between lines companies and retailers.

Established by the 2010 Electricity Industry Act, the Electricity Authority was designed as a new broom to sweep through failed attempts at industry self-regulation.  It is required to improve competition in the industry.  One task is to reduce transaction costs by standardising agreements between industry players.

Vector sued in the High Court to block current Authority proposals.  It says the proposed model prevents Entrust having access to Vector’s customer database and consequently Entrust will be unable to pay annual dividends to Auckland consumers.  While highlighting database access as a specific issue, Vector sought a High Court ruling that the Authority had no statutory power at all to force on it any standardised supply agreement.  Freedom of contract is paramount, it said.   

Justice Simon France commented that while society has moved from feudalism (where legal relationships were governed by membership of a class within society) to capitalism (where relationships are governed by legally enforceable private agreements), freedom and sanctity of contract are not conclusive of the public interest.  Legislation is used to redress inequality.  The 2010 legislation does allow the Authority to dictate the “core” terms in agreements between distributors and retailers, he ruled.

Vector also claimed the Authority has no jurisdiction over Use-of-System agreements because these are covered by the Commerce Commission.  There is overlap between the two, but they are not in conflict, Justice Simon France ruled.  The Authority is primarily interested in the reliable and efficient supply of electricity while promoting competition.  The Commission is primarily concerned with consumer welfare and pricing.  This does include control over performance levels; in a price-controlled industry suppliers are tempted to compromise performance in pursuit of higher profits.   

Vector Ltd v. Electricity Authority – High Court (31.07.17)

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Racing Industry: NZ Greyhound Racing v. Racing Board

The racing industry is going to the dogs: gallops and trots are increasingly dependent on betting turnover from greyhound racing.  Greyhound sued for a bigger share of the annual surplus, complaining the other two codes were ganging up on it.  The Racing Board acted unlawfully when it assumed to itself powers to vary distributions, the High Court ruled.

In 2016, the Racing Board distributed $135.2 million to the three racing codes: thoroughbred racing, trotting and greyhounds.  Its annual report does not highlight how this amount is divided between the three codes.  And for good reason argues Greyhound NZ.  It complains a permanent cross-subsidy is being promoted by the Racing Board with the connivance of both thoroughbred racing and trotting.  In the High Court, Justice Williams ruled there was no evidence that the gallops and the trots were angling to gain a permanent subsidy but he warned that any failure by them to revitalise their codes could result in a successful legal change to the distribution formula.  The Racing Board acted unlawfully by assuming to itself the power to vary distributions by reference to its own unstated criteria, he ruled.

Greyhound’s complaints have their origins in a 2010 agreement between the codes allocating base funding on a formula: gallops (55%); trots (30%); and greyhounds (15%).  This formula understated greyhounds share of TAB betting.  The Racing Board controls all race and sports betting in New Zealand through its TAB brand.  Greyhound conceded ground because of the dire state of domestic horse racing, particularly thoroughbred racing.  Burdened with the high cost structure of maintaining 64 tracks around the country, horse racing was struggling financially.  By comparison, greyhound betting was booming.  It is a made-for-television sport with multiple quick-fire races.  Greyhound’s concession was intended to give horse racing a chance to revitalise its sport.  Monday horse racing, intended to attract Australian punters, subsequently proved a failure and was scrapped.

Distribution of sports betting profits is governed by the Racing Act.  The Act states profits are to be divided between the three codes in proportion to their respective shares of betting turnover, unless a different formula is agreed by majority vote.  Attempts by the Racing Board to control distributions was chopped out of the draft act before it was passed.

The High Court was told that when the 2010 formula came up for renegotiation in 2016, Greyhound’s share of betting which amounted to 19 per cent of TAB turnover in the previous year translated to only a 13.5 per cent share of base funding for Racing Board distributions.  Over Greyhound complaints, the two horse racing codes signed off on the deal and the Racing Board added its signature.

The Racing Board has a statutory obligation to ensure the long-term viability of racing.  This can involve degrees of cross-subsidisation.  But it is for the codes to decided how betting surpluses will be distributed, Justice Williams ruled.  The Racing Board is a broker.  It does not make the decisions.  The racing industry generally, and thoroughbred racing in particular, will need to make some hard decisions in relation to its structural problems, Justice Williams said.  Permanent cross-subsidisation between codes would eventually amount to a breach of the Act, he ruled.         

NZ Greyhound Racing v. Racing Board – High Court (28.07.17)

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