New Zealand's High Court has fined a real estate agency that engaged in price fixing and other anticompetitive conduct in the Manawatu real estate market. Unique Realty Limited had entered into an agreement with at least 10 other agencies to pass on to home sellers, rather than to absorb, listing fees charged by Trade Me, a New Zealand internet real estate auction website.
Companies with business dealings in New Zealand should be aware that the Commerce Commission will take enforcement action against companies for price fixing, even where they do not intend to restrict competition, and that New Zealand courts have the power to impose significant penalties.
In July 2013, Trade Me announced it would move away from its subscription-based pricing model and would instead charge $159 for each property listed. In response, numerous New Zealand real estate agencies nationally and in the Manawatu and Hamilton regions allegedly agreed on how to react to the pricing model change.
A group of real estate agencies in the Manawatu region, including Unique, agreed among themselves to pass on the entirety of the listing fee to their customers. Trade Me subsequently reverted to the subscription based model, but the agencies continued to pass on the Trade Me fees rather than absorb any part of the cost.
In December 2015, the Commission initiated proceedings alleging price fixing by 13 real estate agencies, a company owned by a number of real estate agencies, and three individuals.
Unique admitted that its conduct had the purpose and effect of fixing the price home sellers paid for services from competing real estate agencies, thereby substantially lessening competition in the market for real estate sales services in Manawatu.
The court found that, in the absence of the Manawatu agreement, the agencies independently would have decided whether to pass on the fees and to what extent, which would have been a point of competition. The court further noted that, even after the agreement ended, its effect would persist as it removed a degree of uncertainty about how each agency would respond to changes to Trade Me's pricing in the future. The court held that Unique's conduct in entering and giving effect to the Manawatu agreement contravened New Zealand's competition law, of the Commerce Act 1986 (the Act).
The maximum pecuniary penalty under the Act is the greater of $10 million, three times the value of any commercial gain arising from the conduct, or 10% of the turnover of the corporation. In this case, the maximum penalty was $10 million.
The parties jointly suggested a penalty of $1.25 million. In assessing the penalty to be imposed, the court observed that:
- general and specific deterrence is an important factor;
- the real estate market is important to "ordinary people";
- the agreement had the potential to affect a large number of transactions, as its participants represented the majority of real estate agents in the market;
- Unique's 19% market share made its involvement in the Manawatu agreement especially significant;
- Unique did not initiate the conduct but participated fully in it;
- while Unique did not knowingly breach the Act, it deliberately entered the Manawatu agreement;
- the agreement was entered into by staff at the highest level of the company;
- the agreement had a lasting effect despite its short term; and
- the potential harm to vendors included not only the $159 fee that was passed on, but the possibility that some vendors decided not to list their properties on Trade Me because of the fee, resulting in fewer "buyer eyes."
The court found that the appropriate starting point for determining the penalty was $1.5-$1.8 million.
Turning to aggravating and mitigating factors, the court also considered that Unique had not previously contravened the Act and that Unique did admit its responsibility at an early stage, although it did not actively cooperate with the Commission by providing witness statements. The court found a 25-30% discount on the maximum penalty was appropriate, so the penalty suggested by the parties was within range. Accordingly, the court imposed a pecuniary penalty of $1.25 million.
Proceedings against other real estate agents for participating in the Manawatu agreement remain pending. Some have settled and await their penalty proceedings.
This case serves as a reminder that the New Zealand authorities will impose significant penalties for price fixing, even where the defendant did not intend to lessen competition and was not aware its conduct was unlawful. Companies conducting business in New Zealand should exercise caution to ensure that their dealings with competitors do not amount to price fixing or otherwise substantially lessen competition in the market.