PGW
22/12/2015 12:14
GENERAL
NOT PRICE SENSITIVE
REL: 1214 HRS PGG Wrightson Limited
GENERAL: PGW: PGW settles proceeding relating to NAIT saleyard fees
The High Court has approved the penalty agreed between PGG Wrightson Limited
(PGW) and the New Zealand Commerce Commission (Commission) to resolve the
proceeding brought by the Commission against PGW, among other companies that
operate livestock saleyards. The settlement avoids protracted and costly
litigation.
The proceedings alleged there were agreements between PGW and other livestock
industry competitors in relation to the charging of fees for services
provided at saleyards to comply with the requirements of the National Animal
Identification and Tracing Act 2012 (NAIT) introduced in July 2012.
NAIT was enacted to provide traceability of cattle and deer to enhance New
Zealand's ability to respond quickly in the event of a biosecurity event such
as a disease outbreak. Traceability is seen as having a number of benefits
for the sector and for New Zealand as a primary producer and exporter.
Implementing the NAIT regime required PGW's livestock business to invest in
new technology and systems to ensure accurate records could be kept of the
movements of animals through its saleyards.
The implementation of NAIT impacted all livestock businesses with saleyard
operations and consequently the New Zealand Stock & Station Agents
Association (Association) played an industry role in co-ordinating its
implementation. In advance of the new legislation coming into effect, the
regulator, NAIT Limited sought livestock industry collaboration through the
Association and its members to assist the transition to the new regime and to
achieve consistent procedures across the industry.
In the absence of government funding to cover costs incurred by livestock
businesses in gearing up for and delivering NAIT related services, fees were
intended to be introduced by Association members, principally to defray
service delivery costs.
At the time NAIT was introduced into Parliament, PGW understood that the
implementation of the new tracing requirements would involve a significant
amount of management time and resources. Consequently, PGW established a
project early on to implement the NAIT requirements and was ahead of its
peers in planning for the new requirements. In its capacity as an
Association member, PGW shared a lot of its knowledge with other members and
saleyard joint venture partners. This sharing of information included the
NAIT-related fees that PGW had determined to implement.
PGW independently determined the fees it considered it needed to charge to
cover the saleyard services it was obliged to provide under NAIT. PGW's
approach in determining those fees was principally to recover the additional
costs to the business in delivering NAIT tracing services. Saleyard tagging
fees were also introduced to deter the delivery of untagged cattle to
saleyards in order to give effect to the legislation and to minimise saleyard
operational issues.
In the context of the NAIT project implementation, Association members
entered into dialogue about how members could recoup the costs of
implementing the new requirements. Accordingly, while PGW implemented the
fees it had independently determined through its project planning it
understood that other livestock companies would also be charging the same fee
regime PGW proposed through the Association.
In reaching agreement with the Commission, PGW has agreed to pay a pecuniary
penalty of $2.7 million and to review the NAIT related fees it charges. This
payment reflects the role PGW took in coordinating much of the industry
response and planning relating to the implementation of NAIT including errors
made in reaching arrangements affecting price in breach of the Commerce Act.
The penalty includes a discount which reflects resolution prior to trial and
the fact that PGW provided its full cooperation to the Commission
investigation into the matter.
The court acknowledged that the circumstances in which the matter came about
were unusual "because PGW got together with the other companies on the
initiation of NAIT Ltd, which was tasked with executing the transition to the
new animal identification and tracing regime. These competing entities, all
members of the NZSSAA, were acting in response to a new regulatory
environment. They had to work out cost structures to respond to the new NAIT
requirements as NAIT Ltd would not pay for or subsidise the set-up and
ongoing costs of compliance with the Act. Agreeing to NAIT procedures led,
it would seem almost incidentally, to decisions on the appropriate fees."
Justice Raynor Asher in his judgment noted that "PGW drifted into
infringement as a consequence of endeavouring to comply with the complex
regulatory scheme, rather than through making a knowing decision to price fix
at the outset." He went on to comment that PGW's "actions in accepting
responsibility and promptly ending the price fixing warrant significant
discount" in terms of penalty.
PGW's Chief Executive Mark Dewdney said "it was a tough lesson for the
business to learn and was especially disappointing given all the good work
that was done facilitating the implementation of the NAIT scheme, an
'industry good' initiative."
"From everything I have heard or read about PGW's involvement in the
implementation of the scheme it seems we were well intentioned and made an
earnest effort to be fair and transparent. However, with the benefit of
hindsight, more care should have taken in respect of matters relating to the
fees imposed when NAIT came into effect." Dewdney said.
"There are definite learnings to be taken from this matter and as a business
we have carefully looked at what occurred and have implemented initiatives to
improve our internal processes and controls."
In a separate penalty hearing in relation to the same matter the Court has
fined Rural Livestock Limited $475,000.
The Commission has also filed court proceedings making similar allegations
against Elders New Zealand Limited and five individuals. Settlements have
not been agreed in those proceedings, which remain before the courts.
The Commission also considers that a number of other livestock companies and
the Association are likely to have breached the Commerce Act. The Commission
has therefore issued warnings to:
o Allied Farmers Limited
o Peter Walsh & Associates Limited
o CRT Livestock Limited
o L.I Redshaw Limited
o Central Livestock Limited
o Hazlett Rural Livestock Limited
o Southstock Limited
o the New Zealand Stock and Station Agents' Association.
22 December 2015
Ends.
End CA:00275571 For:PGW Type:GENERAL Time:2015-12-22 12:14:18
