More clarity on price-fixing

The Court of Appeal recently overturned the High Court in a rare decision on liability for price-fixing under the Commerce Act 1986. Its decision in Commerce Commission v Lodge Real Estate Ltd [2018] NZCA 523 clarifies some important aspects of the law on price-fixing, which will remain pertinent in the future despite the amendment of the relevant provisions in August 2017.

Andy Glennie

Facts

In mid 2013, Trade Me advised real estate agencies that it was increasing its prices for real estate listings (in some cases by several hundred per cent). The five major Hamilton agencies were dismayed. In September 2013, they met to discuss how they would respond.

The Commerce Commission alleged that the agencies agreed at that meeting that they would withdraw property listings from Trade Me, and that any listings which remained on Trade Me would be “vendor-funded” (meaning that the Trade Me fee would be paid either by the vendor or by the individual real estate agent rather than the agency).

Decision

In the High Court, Jagose J held that the agencies had entered into and then given effect to an arrangement or understanding – but that arrangement or understanding lacked the purpose, effect or likely effect of fixing, controlling or maintaining prices for real estate services. The agencies were thus not liable under section 30.

The Court of Appeal dismissed the agencies’ arguments on appeal, and held that the arrangement or understanding did have the prohibited purpose or effect. The agencies had therefore breached section 30. The case was remitted to the High Court to determine an appropriate pecuniary penalty.

Take-aways

The Court of Appeal has confirmed and clarified several aspects of the law on price-fixing:

1. Whether an arrangement or understanding exists is an objective question. Here, the Court answered that question by close analysis of the few contemporaneous documents, and important passages of cross-examination in the High Court.

2. The key elements of an arrangement or understanding under both section 30 and the more general section 27 are consensus (a meeting of the minds) and mutual expectation (that at least one party will act or refrain from acting in the way contemplated by the consensus). It is not necessary for a plaintiff to separately prove that the parties had assumed some form of moral obligation to each other. Here, the necessary consensus and mutual expectation were found to arise from the September 2013 meeting.

3. Conscious parallelism is not sufficient to make out an arrangement or understanding under section 27 or 30. Conscious parallelism occurs where a party acts in a certain way believing that its competitors will act in a similar way. An arrangement or understanding requires there to be an element of conditionality, in the sense that a party has committed to act in a certain way on the basis that the other parties have committed to act in a similar way. Here, the agencies could point to no evidence that they would have acted as they did had they not met in September 2013.

4. Acting in accordance with an arrangement or understanding will usually amount to giving effect to it. Here, the agencies each reduced their Trade Me listings by up to 90% after the meeting and clearly shifted to vendor funding. That amounted to giving effect to the arrangement or understanding.

5. The decisive point in the High Court and the Court of Appeal concerned the level of discretion which the agencies retained as to the final price they would charge to consumers. The Trade Me fees could be paid by the vendor, the individual real estate agent, or even by the agency. Jagose J considered that relatively high level of pricing discretion to be fatal to the claim. But the Court of Appeal disagreed. It was enough for a plaintiff to show that the parties to the arrangement or understanding agreed on a starting point. For example, competitors who agreed on a retail asking price would run into trouble even though the parties could ultimately charge different final prices. Here, the agencies had agreed that the starting point would be vendor funding of the Trade Me fees. That was sufficient.

6. There is no de minimis defence to price-fixing. An arrangement or understanding as to any component of a price (even a Trade Me fee which represented only a few percent of overall real estate charges) could still fall foul of the prohibition.

7. The Court of Appeal also confirmed the irrelevance of evidence of the actual effects of an arrangement or understanding on competition. Admitting such evidence would block the per se shortcut to liability under section 30, and force parties to engage in full competition analyses.

It is understood that leave to appeal to the Supreme Court has been sought. If no appeal is determined, this decision will stand as the most recent exposition by the senior courts of the substantive law on price-fixing.

For readers interested in this topic, on Wednesday 20 March 2019 ADLS will be holding a webinar entitled “The Commerce Act, Cartels and Recent Developments” where this case will be discussed. For more information or to register for this event, please visit adls.org.nz/cpd. 

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