The end of the road in the real estate price-fixing saga

Lodge Real Estate Limited v Commerce Commission [2020] NZSC 25

The Supreme Court has recently delivered its judgment in the Trade Me/real estate agents price-fixing case, making this the final episode (on liability at least).  Two Hamilton real estate agencies lost their seven-year battle against price-fixing allegations by the Commerce Commission.

Background

This legal battle began for Lodge Real Estate and Monarch Real Estate in 2013 when Trade Me changed its fee structure for property listings. Instead of charging the real estate agents a capped monthly fee for unlimited property listings, Trade Me said it was going to charge a fee for each property listing.  This would have drastically raised the overall cost of listings for all real estate agencies.

The Hamilton real estate agents met in September 2013 and were said to have reached an ‘understanding’ that they would pass the listing costs onto their clients, rather than absorbing the costs themselves.  They also agreed to support an alternative website to Trade Me for their listings.

The Commerce Commission alleged that this agreement was in breach of sections 27 and 30 of the Commerce Act, as it amounted to unlawful price fixing between the competing real estate agents.

Two issues had to be determined:

• Whether there was an “arrangement” between the real estate agents; and

• If so, did that arrangement have the purpose or likely effect of controlling the price?

High Court decision

In its 2017 judgment, the High Court found in favour of the real estate agents.  Jagose J held that whilst there was an arrangement entered into, it did not have the effect of fixing, controlling or maintaining prices of the relevant services as required by section 30.  In part, this was because there was no controlling of price, since the real estate agents still had a discretion as to whether they would absorb some or all of the fees.

Court of Appeal decision

The Commerce Commission subsequently appealed the decision to the Court of Appeal.  The Court found that, contrary to Jagose J’s decision, the existence of a discretion did not negate the price-fixing effect of the arrangement.  A low threshold for offending behaviour was set, being “an arrangement or understanding that will be likely to interfere with the competitive setting of price.  That understanding does not need to be precise and to cover all possible eventualities, or indeed relate directly to the ultimate price.”

Supreme Court decision

The Supreme Court unanimously upheld the Court of Appeal’s finding that the arrangement had the effect of fixing prices.  In so doing, it said that the increased Trade Me listing fees was a significant part of the competition between the agencies.  While each agency could absorb the fee in an individual transaction, the default position was to on-charge the fee to either the vendor or their agent.

The Court noted that while the September 2013 meeting included a discussion about promoting the listing website in competition to Trade Me, it held that this was not the only purpose.  Rather, there was a “concerted approach” established during the meeting to restrict the field of competition between the agencies on the Trade Me listing fee.  This had a “substantial purpose” of controlling the price the agencies charged for their services, as it protected them from the risk that one “would steal a march on the others” by offering to absorb the listing fee.  This would force the other competitors to respond or risk the loss of listings.

The penalty to be imposed on the defendants has yet to be determined.  The case was remitted back to the High Court for this purpose.  But if the penalties imposed on  other real estate agencies sued in earlier proceedings is anything to go by – a total upwards of $20m – the penalties will be very large indeed. 

Comment - Philippa Fee

Philippa Fee comments that there are several remarkable features to this litigation.  First, it was the behaviour of a dominant market player, Trade Me, which kicked off the chain of events in the first place.  Trade Me proposed to drastically increase the listing price.  Had the real estate agents simply passed the huge increase onto the public, the real estate agents would not have run afoul of the Act.  But this would hardly have been in the public interest, nor would it be within the purpose of the Act.  Ultimately, Trade Me backed down from implementing its plans. 

Second, while it is theoretically possible that some agents may have decided to absorb the costs, the promotion of an alternative website offering cheaper marketing than what Trade Me was offering, was not only the kind of competition the Act envisages, but also was bound to happen because it made sound business sense. 

Finally, this recent decision confirms the Courts’ tough stance against any behaviour which – even theoretically – may dampen competition in a marketplace.  The penalties against this behaviour are already very severe, but from this month, they are going to become even more so.

From 8 April 2021, the Commerce (Criminalisation of Cartels) Amendment Act 2019 will come into force, which will make it a criminal offence for a person to enter into a contract or arrangement that contains a cartel provision, or to give effect to a cartel provision.  The penalties include up to seven years’ imprisonment or up to a $500,000 fine (or both) for individuals in breach.  For companies, this will be up to $10 million.

Philippa Fee is a Partner at Fee Langstone