Commerce Commission succeeds in Price Fixing Appeal

The recent Court of Appeal decision that two Hamilton real estate agencies and their directors fixed prices in breach of the Commerce Act 1986 (Act), highlights that any discussions with competitors where pricing is mentioned creates significant risk, even if the parties do not intend to fix prices.

The Court of Appeal overturned the surprising High Court judgment (see our earlier Alert here) with the appellate court finding that the agreement breached the price-fixing provisions of the Act – it had the purpose or effect of fixing, controlling or maintaining the price of real estate sales and advertising services charged by competing real estate agencies in Hamilton.

Links to the High Court and Court of Appeal judgments are available here and here.

Background

Following a change in TradeMe’s pricing structure from a monthly fee to a more expensive per listing fee, Lodge Real Estate Ltd (Lodge) and Monarch Real Estate Ltd (Monarch) agreed (with a number of other Hamilton-based agencies) to stop advertising property listings on TradeMe and, where TradeMe was used, the cost of listing was to be entirely vendor funded.

The High Court had found that while there was an arrangement or understanding, it did not have the effect of price-fixing because it did not affect the price to be charged, or the freedom of agents to charge any price to their vendors on an individual transaction. This finding was surprising given the intention of the agreement was that the costs of advertising on TradeMe would be borne by the vendor.

What were the key issues?

The Commerce Commission appealed the High Court’s finding that the arrangement did not control the price of real estate sales and advertising services.  The Court of Appeal considered two issues:

  1. Did Lodge and Monarch enter into an arrangement or understanding?
  2. If so, did this have the purpose, effect or likely effect of fixing, controlling or maintaining price?

The Court of Appeal confirmed the High Court’s finding that Lodge and Monarch entered into an arrangement or understanding.  However, contrary to the High Court decision, the Court of Appeal concluded that the arrangement constrained the freedom of real estate agencies to charge any price for the services they offered and the discretion to absorb part, or all, of the cost.  The arrangement controlled the price because:

  • Collusion on a start or offer price is enough to control the price. Even if the end price is subject to the vendor’s discretion, the starting position will ultimately affect the total price.
  • The arrangement interfered with the competitive setting of the price. The vendor lost the opportunity to be offered a price set wholly by competitive market forces. The TradeMe listing cost was no longer absorbed by the agency, meaning the overall real estate services price would increase.

Our view:

  • The Court of Appeal’s decision highlights that a high degree of vigilance is essential in any communications with competitors, whether formal or informal.
  • Any discussions with competitors where pricing is mentioned creates significant risk, even if the parties do not intend to fix prices.
  • This is particularly the case in light of the impending criminalisation of cartel conduct.
  • If in doubt about proposed discussions with competitors (or discussions which have already taken place) seek legal advice.

If you have any questions in relation to this judgment or the Commerce Commission, please contact one of our experts.

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