Foodstuffs pays high costs in merger row

By Mike Ross

Friday 22nd November 2002

In the last rites over the battle for Woolworths, the High Court ordered retail giant Foodstuffs to pay above-average legal costs of $120,000 to the government for unnecessarily prolonging litigation over Foodland Associated's purchase of Woolworths earlier this year.

Foodstuffs dragged the government into court when trying to fend off the purchase of Woolworths NZ by West Australian retailer Foodland.

Justice Paul Heath criticised Foodstuffs, which operates under the New World, Pak 'N Save and Four Square brands, for chewing up taxpayers' money unnecessarily by continuing legal proceedings against the Overseas Investment Commission (OIC) and the ministers of finance and lands long after the commercial war was over.

In May this year, Foodstuffs had written to OIC stating that it wanted to make submissions should Foodland seek approval to buy Woolworths. The OIC operates a "neither-confirm-nor-deny" policy. Its reply to Foodstuffs skirted around the issue, not letting on that Foodland had been given conditional consent for the deal in August last year.

When Foodstuffs discovered its Australian-owned archrival already had government clearance, it sued both the OIC and government ministers responsible for clearing the decision. It alleged senior public officials had acted in bad faith.

It further argued the OIC letter indicated no decision would be made without Foodstuffs first being given a chance to comment. Foodstuffs wanted government approval for the Woolworths purchase to be put on hold. Foodstuffs sued for judicial review: a public law action alleging irregularities in government decision making.

Justice Heath said this litigation was part of a commercial war between Foodstuffs and Foodland. The litigation was designed to increase its leverage in negotiations with its competitor, he said.

Foodstuffs abandoned legal action against the government last August after an out-of-court deal with Foodland.

The government demanded Foodstuffs pay all its legal costs incurred in the now-abandoned case. The High Court was told the OIC spent about $105,000 preparing for the case; the two government ministers a lesser amount.

Under High Court rules, litigants can be forced to pay all legal costs incurred by the other side if litigation is undertaken "vexatiously, frivolously, improperly or unnecessarily."

Justice Heath ruled it was improper for Foodstuffs to carry on with the litigation beyond July 2002. By this time Foodstuffs had access to all relevant government documents.

Foodstuffs was alleging serious impropriety by government officials bordering on dishonesty, he said. There was no evidence of dishonesty disclosed by the documents and it was unlikely contrary evidence would arise through cross-examination at a trial.

Justice Heath ruled Foodstuffs liable to make an extra contribution to the government's legal costs, paying for all legal expenses incurred on the case from the end of July this in addition to a partial contribution to government legal costs up to this point.

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