Commerce Commission v Unique Realty Ltd

• Jurisdiction: New Zealand
• Judge: Venning J
• Judgment Date: 20 May 2016
• Neutral Citation: [2016] NZHC 1064
• Docket Number: CIV-2015-404-003054
• Court: High Court
• Date: 20 May 2016

Between

Commerce Commission

Plaintiff

and

Unique Realty Limited

Defendant

[2016] NZHC 1064

CIV-2015-404-003054

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

COMMERCIAL LIST

Penalty for contravention of s27 Commerce Act 1986 (CA) (Contracts, arrangements, or understandings substantially lessening competition prohibited) — the defendant real estate agency entered into an arrangement with other real estate agencies to pass on to vendors an increase in advertising costs charged by the Trade Me website — Trade Me later reverted to its original charging module based on a subscription fee, but the agencies continued to charge the advertising fee — the defendant had a 19 per cent share of the residential sales market — it accepted that it had breached the CA at an early stage — the parties were agreed that an appropriate penalty range for its actions was between $1.2 and $1.65 million and they jointly suggested a penalty of $1.25 million as appropriate — whether the agreement had resulted in a commercial gain — whether the agreed penalty was within the appropriate range of penalties.

Appearances:

J C L Dixon and L Farmer for Plaintiff

G Hall for Defendant

JUDGMENT OF Venning J

Introduction

1 Unique Realty Limited (Unique) is a real estate agency operating in the Manawatu region. It is associated with The Professionals' group.

2 After an investigation into the activity of a number of real estate agencies, including Unique, the Commerce Commission (the Commission) commenced proceedings against Unique alleging that it had contravened ss 27(1) and 27(2) via s 30 of the Commerce Act 1986 (the Act); that is, it had entered into, and given effect to, a contract deemed to substantially lessen competition. The Commission seeks declarations of contravention and a pecuniary penalty.

3 Unique accepts that it entered and gave effect to a price fixing agreement with at least 10 other real estate agencies in the Manawatu region, including Property Brokers Limited and Manawatu (1994) Limited (trading as LJ Hooker Palmerston North).

4 The parties are agreed that an appropriate penalty range for Unique's actions is between $1.2 and $1.65 million. They jointly suggest a penalty of $1.25 million as appropriate.

The parties

5 Unique has four branch offices located in Palmerston North (including a separate office dealing in rental property only), Feilding and Foxton. Its market share in the Manawatu region is approximately 19 per cent. Unique was formed in 1992 by Mr Maxwell Vertongen. Mr Vertongen is currently one of two directors and one of three shareholders. Mr Daniel Cunningham is Unique's residential manager. For the 12 months ended 31 March 2014 Unique's gross residential commissions totalled [redacted], comprising [redacted] residential sales. For the financial year ending 31 March 2014 the annual net profit before tax was approximately [redacted].

Background to the offending agreement

6 Unique listed its properties for sale with Trade Me. Trade Me charged a monthly subscription of $699 for the service. The subscription had been negotiated by The Professionals' head office. The number of properties that could be listed under that monthly subscription was unlimited.

7 In July 2013 Trade Me began informing key participants in the real estate industry of proposed changes to its pricing model. Trade Me intended to charge $159 for each property listing uploaded to its website.

8 On 17 October 2013 representatives from Unique, Property Brokers and LJ Hooker Palmerston North, together with others, met to discuss the possibility of an industry wide response to Trade Me's proposal. Mr Vertongen and Mr Cunningham were both at the meeting. The agencies viewed the pricing change as only the first step in likely ongoing efforts by Trade Me to increase its revenues for property listings on its website.

9 The discussion strayed into unlawful price-fixing when the agencies present at the meeting agreed that as from 1 February 2014 they would no longer absorb the cost of the Trade Me listings, but pass on the whole of the increased fee to their vendor customers (the Manawatu agreement). Unique, Property Brokers and LJ Hooker Palmerston North began passing on the cost of standard Trade Me listings to vendors from 1 February 2014 onwards in accordance with that agreement.

10 In July 2014, Trade Me announced that it was revising its pricing again and intended to revert to a subscription based model with effect from 1 August 2014. With Trade Me's revision to its pricing approach the unlawful agreement effectively came to an end but the effect of the agreement persisted. Despite the reintroduction of the subscription based model, none of the agencies reverted to the previous approach under which they had absorbed some or all of the Trade Me costs to the benefit of their vendor customers.

11 Unique accepts that the entry into and giving effect to the agreement had the purpose and effect of fixing, controlling or maintaining the prices vendors paid for the services from real estate agencies in competition with one another, and as such substantially lessened the competition in the Manawatu real estate sales services market.

12 Unique gave effect to the agreement by directing its personnel that from 1 February 2014 onwards the costs of standard Trade Me listings were to be passed on to those vendors who wished to use Trade Me to advertise property. On 17 January 2014 Mr Campbell, Unique's company manager, sent an email to Realestate.co.nz advising that all Manawatu agencies had decided to exit Trade Me by 1 February 2014. From 1 February 2014 onwards, Unique, together with Property Brokers and LJ Hooker Palmerston North passed on the cost of the standard Trade Me listings of $159 plus GST to the vendors. While the per-listing pricing model did not come into effect until 1 March 2014 for Unique because of its contractual arrangements, it implemented the vendor funding from 1 February 2014 onwards.

13 Although a number of agencies were involved the Commission has taken action against only three – Unique, Property Brokers Limited, (which had approximately 25 to 28 per cent of the residential real estate market in the Manawatu region), and Manawatu (1994) Limited trading as LJ Hooker Palmerston North, (which held approximately 23 to 26 per cent of the residential real estate market in the region).

The commercial gain/loss or damage caused

14 In the absence of the Manawatu agreement the relevant real estate agencies would have been required to decide whether or not to impose the additional fee on vendors and if so at what level. The fees would have been a point of competition. There was clear potential for commercial gain arising out of the agreement.

15 While Unique did not recover more from vendors than it was charged by Trade Me (except for the first month when it passed on the standard listing fee to one vendor before it began incurring the fee), it avoided the prospect that it would have had to absorb at least part of the fee to remain competitive with other real estate agencies.

16 Vendors who paid the full $159 fee have suffered harm to the extent they may have paid more for the standard listing than they would have in the absence of the agreement. It is also likely that some vendors elected not to list on Trade Me because they were confronted with paying the full $159 fee for a standard listing. The impact on competition that the Manawatu agreement has had is likely to persist into the future because it has removed a degree of uncertainty about how each agency will respond to future changes to fees by Trade Me, and consequently reduced the intensity of competition in this area.

Penalty

17 Under s 80 of the Commerce Act the Court may impose a penalty for contravention of any of the provisions of Part 2 which include the prohibitions against anti-competitive behaviour engaged in by Unique. The Court must have regard to all relevant matters including the nature and extent of any commercial gain. 1

18 The maximum pecuniary penalty is set out in s 80(2B):

(2B) The amount of any pecuniary penalty must not, in respect of each act or omission, exceed,—

• (a) in the case of an individual, $500,000; or

• (b) in the case of a body corporate, the greater of—

  • (i) $10,000,000; or

  • (ii) either—

    • (A) if it can be readily ascertained and if the court is satisfied that the contravention occurred in the course of producing a commercial gain, 3 times the value of any commercial gain resulting from the contravention; or

    • (B) if the commercial gain cannot be readily ascertained, 10% of the turnover of the body

      corporate and all of its interconnected bodies corporate (if any).

19 Turnover is defined as the total gross revenue (exclusive of any tax required to be collected) received or receivable by a body corporate in an accounting period as a result of trading by that body corporate within New Zealand.

20 Accounting period has the same meaning as in s 5 of the Financial Reporting Act 2013 and means the year ending on a balance date of the entity. Balance date itself is defined as the close of 31 March. In previous cases the Court has taken the accounting period to mean the most recent year. 2

21 In Unique's case it is difficult to ascertain the value of the commercial gain. The actual gain to Unique is likely to have been minimal. It is the impact on the potential clients of Unique and on the operation of the market generally which is of more significance.

22 By the way s 80(2B) is structured Parliament has acknowledged, that there may be occasions (such as the present) where the contravention may not produce any particular commercial gain. In that case the penalty is the maximum of 10 per cent of the company's...