Court of Appeal upholds Commerce Act breach by CHH

Media Release

Issued 9 November 2001/111

Court of Appeal upholds Commerce Act breach
by Carter Holt Harvey

The Court of Appeal upheld a High Court judgment that Carter Holt Harvey Building Products Group Limited breached the Commerce Act by trying to deter competition from a small Nelson company, New Wool Products Limited.

In Wellington this week, the Court of Appeal ruled in favour of the Commerce Commission that Carter Holt, the manufacturer of "Pink Batts" fibreglass insulation, used its market dominance to deter New Wool Products from competing against it in the South Island insulation market, with its all woollen product, Wool Bloc. This was a section 36 breach of the Commerce Act.

"The Commission is obviously pleased with the Court of Appeal decision," said Commission Chair John Belgrave. "It is important that the Commerce Act is effective in protecting innovation in the marketplace.

"This case is about a small Nelson company, New Wool Products, inventing a leading edge process to produce an all woollen insulation product to compete against Carter Holt's dominant fibreglass product "Pink Batts."

The Court in its judgement said: "There was a determination [by Carter Holt] to compete with New Wool Products Limited on price and to prevail by virtue of the strength of the distribution structure. So focussed was that objective that the true cost of the product was not even calculated. The price proved to be well below even average variable cost. That was not competing vigorously and legitimately; it was, for a firm enjoying a dominant position in the market, illegitimate use of that market position to prevent New Wool Products Limited consolidating and expanding its market entry."

Although the Court of Appeal upheld the section 36 breach, it dismissed the Commission's cross appeal on a section 27 breach and also the Commission's appeal for a higher penalty than the $525,000 penalty previously awarded by the High Court.

Background

New Wool Products began operation in 1992 as the manufacturer of "Wool Bloc", the only completely woollen insulation product in New Zealand. In a short time it proved very popular in the Nelson region and claimed to significantly reduce the sale of "Pink Batts" in that and other areas.

In response to the popularity of Wool Bloc, Insulation New Zealand Company (INZCO), a division of Carter Holt, introduced a 60% polyester/40% wool insulation product called Wool Line. It was approximately twice the price of Wool Bloc and its sales were low.

As a result, in March 1994, INZCO supplied Wool Line to hardware outlets, mainly in the Nelson/Marlborough region, on a "2 for 1" basis with the effective result that Wool Line was sold at half its previous price and approximately 30 or 40% below its cost of production.

The High Court described Pink Batts as the source of INZCO's profitability and the "dreadnought" of the INZCO fleet and the "behemoth" of the insulation marketplace. The High Court found that Carter Holt had sold its Wool Line insulation product below cost to preserve its "Pink Batts" sales and through them the profitability of INZCO.

Media contact: Commission Chair John Belgrave Phone work (04) 498 0963, cellphone 021 650 045

Senior Advisor Communications Jackie Maitland Phone work (04) 498 0920, cellphone (025) 249 3407

Commission media releases can be viewed on its web site www.comcom.govt.nz

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