The real estate agency price-fixing court case – arising from meetings of real estate company chiefs in 2013 after Trade Me Ltd changed how it would charge for their ads – began with some agencies conceding to the Commerce Commission claim, then a win on a technicality for Hamilton’s 2 largest agencies in 2017, which was overturned by the Court of Appeal in 2018. Yesterday, the Supreme Court upheld the Court of Appeal judgment.
A Supreme Court bench of 5 judges heard the appeal – Chief Justice Dame Helen Winkelmann, Dame Susan Glazebrook, Sir Mark O’Regan, Dame Ellen France and Sir Joe Williams. Justice O’Regan wrote the court’s reasons.
A penalty hearing is yet to be scheduled for Lodge Real Estate Ltd & Monarch Real Estate Ltd & the 2 companies’ directors, Jeremy O’Rourke (Lodge) & Brian King (Monarch).
The penalties already imposed against 11 other companies & one individual total just under $19 million.
Agency meetings followed Trade Me change
The saga began in 2013 when Trade Me changed its method of charging for real estate ads. Agency heads met and agreed to pull their ads from Trade Me, and to switch to a vendor-funding model.
The 2 Hamilton agencies were among 13 national & regional real estate agencies the Commerce Commission filed court proceedings against. The commission also issued warnings to 8 more agencies. The proceedings related to 3 separate alleged price-fixing & anti-competitive agreements among national, Hamilton & Manawatu real estate agencies in response to Trade Me changing its fees for listing properties for sale on its website.
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, and Monarch from about $36,000, to charges of about $250,000/year. The general manager of the NZ Realtors Network began to organise a meeting of local agencies.
The agency group feared that, unless all agencies adopted the vendor funding model, individual agencies could lose listings to an agency or agencies that offered free Trade Me standard listings.
Following the 2013 meetings, 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.
Trade Me succumbed to pressure
The Court of Appeal noted: “Trade Me’s new pricing policy did not endure. As a result of the withdrawal of listings and the change to a customer funding model for the Trade Me listing fee by the Hamilton agencies, the number of residential listings in Hamilton on Trade Me declined. Trade Me listings in other regions were also decreasing. Eventually, in response to pressure from real estate agencies, Trade Me announced on 30 July 2014 that it would reintroduce a monthly subscription fee for its standard listing services to real estate agencies with a cap of $999/month for agencies in the regions and $1399/month for agencies in metropolitan areas.”
Distinction between “arrangement” & “fixing”
In the Auckland High Court in November 2017, Justice Pheroze Jagose held that there was an arrangement or understanding between Lodge & Monarch, to which they gave effect, but that it did not have the purpose or effect of fixing, controlling, or maintaining the price for Trade Me listings services.
However, a year later, the Court of Appeal held that the agreement fixed prices because consumers “lost the opportunity to be offered a price which had been set… in response to working competitive market forces”.
What agencies said versus what they meant
The Supreme Court, in its decision yesterday, said Lodge & Monarch argued that the purpose of the Hamilton agencies’ meeting in 2013 was to discuss the promotion of the realestate.co.nz website. In support of this they pointed to the evidence of Mr Lugton, Mr O’Rourke & others “who all said that was their understanding of the purpose of the meeting. We [the court] accept that is what they said, but they were discussing their subjective understanding of the purpose of the 30 September meeting, not that of the arrangement that the Hamilton agencies entered into.
“And the evidence just mentioned was not the only evidence of purpose. On the commission’s case, the advent of the substantially increased Trade Me listing fee opened up a potential field of competition between agencies that had not existed before. Given the new price level, there was potential for some agencies to absorb the cost of such listings in whole or in part as a way of attracting listings. There was evidence of concern about this….
“Ultimately the positions of the parties are not necessarily irreconcilable. We accept that part of the rationale for the 30 September meeting was to discuss how to promote realestate.co.nz. But that was not the only purpose. It went hand in hand with the purpose to establish a concerted approach to Trade Me listings that protected the Hamilton agencies from the risk that one would steal a march on the others by offering to absorb the Trade Me listing fee as a default setting, forcing the others to respond or risk the loss of listings.
“We consider the latter was a substantial purpose of the arrangement controlling the price Hamilton agencies charged for their services by restricting the field of competition between them on that element of the price.”
Commission urges businesses to understand court findings
Commerce Commission chair Anna Rawlings said in response to the Supreme Court ruling: “This is an important decision from the Supreme Court. It confirms the longstanding approach the commission has taken to determining whether competitor collusion has occurred…
“Cartels can harm consumers & businesses, by raising prices, restricting supply and changing the competitive dynamic between businesses. To protect the competitive process, we will continue to investigate & prosecute anti-competitive cartel conduct.
“This case will inform our future work and we urge businesses & their advisors to understand the court’s findings, and the scope of the prohibition against pricing collusion between competitors.”
The commission has a page on its website devoted to the criminalisation of cartel conduct.
The Commerce (Criminalisation of Cartels) Amendment Bill received royal assent in April 2019 and, from April 2021, cartel conduct can be a criminal offence punishable by up to 7 years’ jail.
Commerce Commission releases on penalties already imposed:
August 2017: Hamilton real estate agency Online Realty Ltd (trading under the Ray White banner) fined $1.05 million
April 2017: Property Brokers Ltd & its director, Tim Mordaunt fined a total $1.5 million
December 2016: Hamilton real estate agency Lugton’s Ltd fined $1 million
December 2016: Head offices of Barfoot & Thompson, Harcourts, LJ Hooker & Ray White fined total of $9.825 million
November 2016: Manawatu 1994 Ltd (trading under the LJ Hooker banner) fined $1.25 million
July 2016: Bayley Corp Ltd & Hamilton-based Success Realty Ltd fined $2.2 million & $900,000 respectively
May 2016: Unique Realty Ltd fined $1.25 million
Supreme Court judgment, 2 April 2020: Lodge Real Estate Ltd v Commerce Commission
Court of Appeal judgment, 23 November 2018: Commerce Commission v Lodge Real Estate Ltd
Commerce Commission: Cartel criminalisation
26 November 2018: 2 Hamilton agencies lose price-fixing appeal case
12 April 2017: 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: Supreme Court, Commerce Commission.