The NZCC brought an action against companies and individuals for engaging in price fixing. The decision at first instance confirms that discussions in relation to price with competitors may not constitute price fixing in NZ. The decision is under appeal.
A New Zealand Court has found in favour of two real estate agencies and two directors, dismissing an action by the New Zealand Commerce Commission ("NZCC") against alleged price fixing conduct.
The NZCC brought proceedings in 2015 against 17 defendants, including 13 real estate agencies, across New Zealand, as well as one company owned by a number of national real estate agencies (realestate.co.nz) and four individuals (all directors of one of the 13 defendant real estate agencies).
In the proceedings the NZCC alleged breaches of the Commerce Act 1986 (NZ) ("Act") by the defendants, which can broadly be referred to as prohibiting 'price fixing' behaviour. All but two of the real estate agencies and two of the individual directors settled the actions brought against them by the NZCC prior to the hearing, with the matter proceeding to judgment against only Lodge Real Estate Limited, Monarch Real Estate Limited, and the directors, Mr. King and Mr. O'Rourke.
Businesses should be alert to the NZCC's ongoing monitoring of price fixing behaviour and willingness to impose significant fines on those that breach the Act.
Trade Me is a publically listed corporation operating the largest online auction marketplace in New Zealand, facilitating transactions between buyers and sellers of both new and used goods, charging the sellers of those goods a fee to do so. Trade Me Property ("TMP") is a specialised, real estate listing service operated by Trade Me that publishes real estate listings for a fee charged to real estate agents.
Until late 2013, TMP charged real estate agents a capped subscription fee to utilise its services. Under this agreement, an agency paid a flat fee regardless of the number of listings it had posted on the website at any one time. According to evidence led at the hearing, the agencies in question (and in fact, the vast majority of the industry) covered this cost themselves, treating it as a cost of doing business in an online era, rather than passing it on to each vendor as a specific cost incurred in the sale of their property.
In late 2013 however, TMP notified agents that it planned to move from the subscription price model to a per listing price model, where the fees paid by an agency would correlate directly with the number of listings that agency advertised on TMP. Trade Me acknowledged in its correspondence with agencies that this would result in a significant increase in the fees incurred by agencies for listings on its website, but suggested that agencies pass that cost on to individual vendors (referred to as "the vendor funding model" by Trade Me in its correspondence with agencies).
The NZCC alleged, and the agencies and individuals in question accepted, that in response to this change in price structure, a meeting of several representatives of Hamilton-based agencies occurred on 30 September 2013 ("30 September meeting"). The NZCC alleged that at that meeting, the agencies came to an agreement to withdraw listings advertised with TMP by no later than 20 January 2014. It was further alleged that the agencies agreed to only list properties for sale with TMP in the future in the event the vendor agreed to pay the per listing fee.
The four defendants denied both coming to an agreement at the 30 September meeting to fix or maintain prices and that they gave effect to any such agreement arising from the meeting.
The Act prohibits parties who compete with one another in the sale or acquisition of goods or services from making or engaging in conduct that gives effect to agreements having the purpose, effect, or likely effect of fixing, maintaining, or controlling prices for those goods or services ("Provisions"). These Provisions are very similar in their application to the price fixing prohibitions contained in Australia's Competition and Consumer Act 2010 (Cth).
To secure a pecuniary penalty, the NZCC must therefore show that a party:
Was in competition with another party in the supply or acquisition of goods or services;
Came to an agreement, arrangement, or understanding with that party;
Which had the purpose, effect, or likely effect of fixing, maintaining, or controlling the prices of the goods or services the parties competed for in the market.
Following extensive cross examination of attendees of the 30 September meeting at the hearing and their examination during the NZCC's initial investigation of the matters, the court accepted:
That the defendants were in competition with one another for the supply of real estate services in the marketing and sale of residential property;
That the defendants entered into a contract arrangement or understanding (in this instance either an arrangement or understanding); and
That the defendants gave effect to that arrangement or understanding through their subsequent behaviour.
The court did not accept however, that the agreement had the requisite purpose, effect, or likely effect of fixing, controlling, or maintaining the prices of real estate sales or advertising services. On this point, the NZCC's case failed.
His Honour came to this view on the basis that [at 231]:
The defendant's refusal to absorb the cost of Trade Me's new fees says nothing about the price of their services to vendors. Nothing in the arrangement or understanding reached between the defendants constrains any freedom to charge any price to any individual vendor or any individual transaction, including by absorbing part or all of the cost of the residential property's standard listing on Trade Me…the only relevant constraint on an agency's price-setting is the degree to which it is prepared to absorb, rather than to pass on, the expenses it incurs in the delivery of the service.
His Honour went on to add [at 232]:
…Even if the comfort any agency drew from knowing of its competitors' intentions made it less likely any proportion of those expenses would be absorbed, that does not 'provide for' price fixing in a s 30 sense. 'Providing for' means steps taken in advance of the direct fixing, controlling or maintaining of the price as well as alternative means of achieving that result. But agencies retained their full pricing discretion, despite the arrangement or understanding.
Points of Interest
The 13 parties (out of the original 17 defendants) that chose to admit liability have so far paid almost $NZD20 million in fines to the NZCC for their alleged anticompetitive conduct.
The NZCC has also issued warnings to a significant number of national and regional agencies for behaviour relating to the Trade Me price structure changes, but has not yet filed any further proceedings against any of those agencies.
In November 2017, the NZCC announced its intention to file an appeal of the court's decision in the New Zealand Court of Appeal, citing the "significant legal issues" raised by the case that merit further attention by the NZ judiciary.
Subject to a different outcome on appeal, businesses should also take comfort from the fact that discussing and even coming to an arrangement over prices with competitors does not fall foul of the Act if they maintain discretion to set their own prices, despite any agreement reached.