The final stage in the real estate price-fixing saga: Penalty

Commerce Commission v Lodge Real Estate Limited [2020] NZHC 2329

In our April blog, we summarised the effect of the Supreme Court’s decision in the Trade Me/real estate agents price-fixing saga.  On dismissal of the real estate agents’ appeal, the Supreme Court referred the matter back to the High Court for determination of the penalty to be paid by Lodge Real Estate (“Lodge”) and Monarch Real Estate (“Monarch”).

Background

Before we turn to the penalty, we first summarise what the case was about. 

In 2013, Trade Me changed its fee structure for property listings whereby it would charge a fee for each listing instead of charging real estate agents a capped monthly fee.  The Hamilton real estate agents reached an ‘understanding’ that they would withdraw all listings from Trade Me and pass the listing costs onto their clients, rather than absorbing the costs themselves. 

Judgments

In its 2017 judgment, the High Court found in favour of the real estate agents.  On appeal, however, the Court of Appeal disagreed and found that the understanding had a price-fixing effect.

The Supreme Court unanimously upheld the Court of Appeal’s decision and referred the case back to the High Court for fixing of the penalty.

Penalty

The High Court considered the approach to sentencing for regulatory offences.  In particular, it looked at s 80(2A) of the Commerce Act which stated that the Court must have regard to all relevant matters including the nature and extent of the act or omission, any loss or damage suffered, the circumstances in which it occurred, and whether the person has engaged in any similar conduct on other occasions.

The Court noted that the Commerce Act’s purpose is regulatory and the primary consideration is deterrence.  Penalties must be set at a level that achieved both specific and general deterrence.  The size and resources of the firm, and its position of influence in the industry are relevant to deterrence. 

While the Court had reservations against drawing too close an analogy with criminal sentencing principles, it noted that some have ‘resonance’, being the gravity of the contravention, the culpability of the contravenor, and the general desirability of consistency of outcome with similar contravenors.    

One of the contentious issues was how to calculate the commercial gain resulting from the contravention.  The Court did not accept that the avoidance of the Trade Me fees was the commercial gain.  Rather, it adopted the approach taken by the High Court in the case of the other contravenors.  The most important consideration was Lodge and Monarch’s respective market share. Based on this factor, the Court set the starting point of $1.7m to $2.1m.   

After finding no aggravating or mitigating individual factors to exist, the Court ordered Lodge to pay $2.1 million and Monarch to pay $1.9 million.

The directors fared much better.  Noting that the directors of the other contravenors were not prosecuted, the Court required them to pay no penalty.

Comment (Philippa Fee)

Philippa Fee comments that this decision affirms the Courts’ very tough approach to penalising behaviour which contravenes the Commerce Act.  In particular, the High Court’s rejection of the argument limiting the commercial gain to the consequences of the particular contravention is important.  Insurers need to be aware that the usual rules relating to causation and loss do not apply to prosecutions under the Commerce Act.  Rather, the penalties will be connected to the size of the contravenor’s market share.  Consequently, they can be very large indeed.

Philippa Fee is a Partner at Fee Langstone