2 Hamilton agencies lose price-fixing appeal case

2 Hamilton real estate agencies & their directors will face penalties in the  5-year-old agency price-fixing case following a decision of the Court of Appeal released on Friday.

The court overturned a High Court ruling that had cleared Lodge Real Estate Ltd & Monarch Real Estate Ltd & the 2 companies’ directors, Jeremy O’Rourke (Lodge) & Brian King (Monarch), of engaging in price-fixing in breach of the Commerce Act.

The Court of Appeal didn’t set penalties, but referred the case back to the High Court to do that.

This case is one of many brought by the Commerce Commission after agencies reacted to a decision by Trade Me to change its billing practice of charging agencies low monthly fees for their ads.

Agency heads met in 2013 and agreed to pull their ads from Trade Me, and to switch to a vendor-funding model.

The High Court has so far imposed penalties of $16.425 million on Hamilton-based defendants Lugton’s Ltd & Success Realty Ltd, Manawatu-based defendants Unique Realty Ltd & Manawatu 1994 Ltd, as well as Barfoot & Thompson Ltd, Harcourts Group Ltd, LJ Hooker NZ Ltd, Ray White (Real Estate) Ltd & Bayley Corp Ltd, either by agreement or after court hearings.

In the Lodge & Monarch case, High Court judge Pheroze Jagose ruled that, although there was an arrangement or understanding between the agencies & directors and they gave effect to it, the agreement didn’t have the purpose or effect of fixing, controlling or maintaining the price for Trade Me listing services.

Under Trade Me’s old scheme, agencies paid a base fee plus a fee for every listing, capped at $999/month/agency office, with some variations. Most agencies absorbed this cost and offered standard Trade Me listings to vendors for no extra charge.

In mid-2013, Trade Me decided on a new fee structure for standard residential property listings. It proposed a single fee for each standard residential listing of $199, of which $40 was to be commission payable to the agency. Trade Me later dropped that commission, so the proposed fee was $159. This was a New Zealand-wide proposal, and provoked a New Zealand-wide reaction.

Lodge faced an increase from an annual Trade Me cost of $8–9000 to one of $200–220,000. Monarch faced an increase of $36,000 to nearly $225,000. The general manager of the NZ Realtors Network began to organise a meeting of local agencies.

Following the meeting it was the general intention to cease using Trade Me for listings of residential property for sale in January 2014, and advertise primarily on the industry-owned website, realestate.co.nz. All Trade Me listings after January 2014 were to be vendor funded.

The Court of Appeal bench of Justices Raynor Asher, Brendan Brown & Murray Gilbert held that funding by an individual agent was consistent with, and part of, the definition of vendor funding in the arrangement as pleaded by the Commerce Commission.

Justice Asher wrote in the Court of Appeal decision: “The evidence objectively established a consensus & mutual expectations between the agencies that they would move to vendor funding. Whilst many of the agencies were unlikely to be able to absorb the increased costs of Trade Me listings and were likely to shift to vendor funding, the evidence established that the agencies appreciated that, unless they all shifted to vendor funding, they may lose listings to other agencies. The arrangement, which involved a co-ordinated withdrawal from Trade Me and shift to vendor funding in January 2014, was not simply conscious parallelism.”

The Court of Appeal held that the Commerce Commission didn’t have to establish the existence of a moral obligation between the agencies, provided there were consensus & mutual expectations.

The court also held that the fact that the agencies retained a discretion to fund Trade Me listings themselves didn’t mean there was no anti-competitive effect, that an arrangement as to a starting point or offer price has the purpose & likely effect of price-fixing, and a consensus needn’t be absolute to be anti-competitive. 

The commission took cases against Barfoot & Thompson Ltd, Harcourts Group Ltd, LJ Hooker NZ Ltd, Ray White (Real Estate) Ltd & Bayley Corp Ltd. It also alleged Property Page (NZ) Ltd aided & abetted the agencies in establishing & implementing the agreement. Property Page is an incorporated company owned by Harcourts, LJ Hooker, Ray White, Barfoot & Thompson and Bayleys, and owns 50% of property listing website realestate.co.nz, which is a competitor to Trade Me.

The maximum penalty for breaches is the greater of $10 million or either 3 times the commercial gain obtained from the breach (if readily ascertainable) or 10% of the company turnover from trading within New Zealand.

Link:
Court of Appeal judgment, 23 November 2018: Commerce Commission v Lodge Real Estate Ltd

Earlier stories:
12 April 2017 (I need to return to all the decisions to tally up the penalties – this article may include $1.5 million of penalties a second time): Manawatu decision lifts price-fixing penalties to $17.95 million
3 July 2016: Bayleys lands $2.2 million penalty for anti-Trade Me agreement
17 December 2015: Commission files action against agencies over reaction to Trade Me move

Attribution: Court of Appeal decision & release.

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