Publications

Competition Update – The high cost of deterrence: real estate agency fined $1.25 million for $9,000 gain from price fixing arrangement

Home Insights Competition Update – The high cost of deterrence: real estate agency fined $1.25 million for $9,000 gain from price fixing arrangement

Contributed by:

Contributed by: Sarah Keene, Troy Pilkington, Christopher Graf and Ben Gregson

Published on:

Published on: December 01, 2016

Share:

The High Court has imposed a penalty of $1.25 million on real estate agency, Manawatu (1994) Ltd, trading as LJ Hooker (LJ Hooker), for its involvement in a price-fixing agreement.1

LJ Hooker is the fourth agency, after Unique Realty, Success Realty and Bayleys, and the second Manawatu based agency, to admit involvement in the price-fixing agreement. Penalties imposed to date now total $5.6 million.

LJ Hooker admitted entering into and giving effect to a price-fixing agreement with at least ten real estate agencies. In October 2013 the parties met in response to Trade Me’s proposal to increase listing fees for its real estate platform. Trade Me had previously charged agencies a $699 monthly subscription fee for the service, but planned to change this to a per-listing fee of $159. At the meeting, the agencies present (which included LJ Hooker) agreed to pass on the revised Trade Me fee to vendors from 1 February 2014, instead of absorbing them as overheads as they had previously done.2

Points to note from the judgment imposing the $1.25 million penalty include:

  • The admission of liability and imposition of the penalty provides a reminder that price-fixing conduct does not need to affect price competition. Although the agreement did not eliminate all price competition,” the mere existence of the agreement was sufficient to give rise to liability under the Commerce Act.
  • Price-fixing conduct does not need to yield substantial benefits to warrant a substantial penalty. Although the benefit LJ Hooker derived from the price-fixing agreement was very modest (approximately $9,000), its involvement attracted a penalty almost 140 times the value of the gain.
  • In approving the penalty of $1.25 million jointly proposed by the Commerce Commission (Commission) and LJ Hooker, the Court observed that the loss suffered by vendors (the agency’s customers) could have been greater than the $159 listing fee in that vendors suffered fromless comprehensive marketing and exposure through not having their properties listed on Trade Me” (due to the agreement to pass on the listing costs).
  • The fact that LJ Hooker acted in ignorance of the law had no bearing on the penalty. By emphasising the attendance of senior personnel at the meeting, the Court appears to be signalling an expectation that such personnel ought to be aware of their competition law obligations.
  • LJ Hooker was granted a 25 to 30% discount for its admission and cooperation with the Commission. Interestingly, Unique Realty was granted the same discount for admitting its involvement at an early stage, despite the fact that it had not actively co-operated” in the Commission’s investigation.

With the Commission alleging price-fixing and anticompetitive conduct by 13 agencies, nationally and in the Manawatu and Hamilton regions, further penalties are inevitably still to come.


FOOTNOTES
  1. Commerce Commission v Manawatu (1994) Ltd [2016] NZHC 2851.
  2. Commerce Commission v Unique Realty Limited [2016] NZHC 1064, at [12].

This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

Read more:
Competition Update
Talk to one of our experts:
Related Expertise