Lodge Real Estate Ltd v Commerce Commission

• Jurisdiction: New Zealand
• Judge: O'Regan J
• Judgment Date: 02 April 2020
• Neutral Citation: [2020] NZSC 25
• Date: 02 April 2020
• Court: Supreme Court
• Docket Number: SC 116/2018

Between

Lodge Real Estate Limited

First Appellant

Monarch Real Estate Limited

Second Appellant

Brian King

Third Appellant

Jeremy O'Rourke

Fourth Appellant

and

Commerce Commission

Respondent

[2020] NZSC 25

Court:

Winkelmann CJ, Glazebrook, O'Regan, Ellen France and Williams JJ

SC 116/2018

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

Commercial — real estate agencies had entered into an agreement or understanding that amounted to a price fixing agreement — conscious parallelism — whether the agreement was to substantially lessen competition — Commerce Act 1986

Counsel:

L J Taylor QC and M A Cavanaugh for First and Fourth Appellants

D H McLellan QC and M S Anderson for Second and Third Appellants

J C L Dixon QC, L C A Farmer and M M Borrowdale for Respondent

• A The appeal is dismissed.

• B The appellants must pay costs of $35,000 plus usual disbursements to the respondent.

JUDGMENT OF THE COURT

REASONS

(Given by O'Regan J)

Table of Contents

	Para No.
Introduction	[1]
Issues	[6]
The facts	[7]
The law	[24]
Did the Hamilton agencies enter into an arrangement or arrive at an understanding?	[28]
The legal test	[29]
High Court	[42]
Court of Appeal	[44]
Appellants' argument	[48]
Our approach	[50]
The factual findings	[59]
High Court	[62]
Court of Appeal	[68]
Appellants' criticisms of the Court of Appeal judgment	[74]
Our assessment	[86]
Did the Hamilton agencies give effect to the arrangement?	[110]
Did the arrangement have the proscribed purpose or effect?	[112]
Appellants' argument	[117]
Vendor funding	[118]
Reliance on overseas cases	[127]
Failure to undertake analysis of effect?	[137]
Exceptions permitted	[139]
Small proportion of overall price	[149]
Departing from the High Court's findings of fact	[162]
Effect	[163]
Purpose	[172]
Result	[179]
Costs	[180]

Introduction

1 In September 2013, representatives of a number of Hamilton real estate agencies met to discuss a development that affected all of them. A similar meeting took place in October 2013. The development was the proposal by Trade Me Property, a division of Trade Me Ltd (Trade Me), to change its policies for charging for standard residential listings on its website, trademe.co.nz/property. The Commerce Commission alleged that as a result of these meetings, the agencies entered into a price fixing arrangement in breach of s 30 of the Commerce Act 1986.

2 The Commission commenced proceedings against the agencies and some of their principals, seeking pecuniary penalties. A number of agencies admitted liability and paid pecuniary penalties. The appellants — Lodge Real Estate Ltd (Lodge), its principal Jeremy O'Rourke, Monarch Real Estate Ltd (Monarch) and its principal Brian King — denied liability. 1

3 The Commission's claim against the appellants failed in the High Court. 2 The High Court Judge, Jagose J, found that the agencies which were represented at the September meeting had entered into an arrangement or arrived at an understanding and had given effect to that arrangement or understanding. 3 However, he found that the arrangement or understanding between the agencies did not have the purpose or effect of fixing, controlling or maintaining the price for the services provided by the agencies in competition with each other. 4

4 The Commission appealed to the Court of Appeal. The appellants (the respondents in the Court of Appeal) supported the High Court judgment on the ground that the High Court Judge had been wrong to find that they had entered into or given effect to an arrangement or understanding. So the Court of Appeal addressed all aspects of the High Court decision. The Court of Appeal upheld the High Court's finding that the appellants had entered into an arrangement or arrived at an understanding and had given effect to that arrangement or understanding. 5 However, the Court of Appeal concluded that the arrangement or understanding did, in fact, have the purpose of fixing, controlling or maintaining the price of the relevant services. 6 It therefore allowed the appeal and remitted the matter to the High Court for the determination of the pecuniary penalties to be imposed. 7

5 This Court gave leave to the appellants to appeal to this Court against the Court of Appeal's decision. 8 The approved question was whether the Court of Appeal should have allowed the Commission's appeal to that Court. However, the grant of leave excluded two specific grounds on which leave had been sought. 9

Issues

6 The issues before this Court are the same as those before the High Court and Court of Appeal. They are:

(a) Did the appellants enter into an arrangement or arrive at an understanding and give effect to that arrangement or understanding?

(b) If so, did the arrangement or understanding have the purpose, effect or likely effect of fixing, controlling or maintaining the price of services provided by the appellants in competition with each other?

The facts

7 Both Lodge and Monarch are significant real estate agencies in Hamilton. At the relevant time, they had market shares of approximately 35 per cent and 28 per cent respectively. Monarch is a franchisee of Harcourts while Lodge is a member of the New Zealand Realtors Network (NZRN), a network of geographically separate real estate agencies. The other agencies represented at the meetings in September and October 2013 were Lugton's Ltd (an independent agency) (Lugton's), Online Realty Ltd (a franchisee of Ray White) (Online) and Success Realty Ltd (a franchisee of Bayleys) (Success). Lugton's had about a 23 per cent market share in the Hamilton real estate market while Online and Success had smaller (single figure) percentages of the market. Other real estate agencies in Hamilton that were not represented at the meeting were Eves Realty (a sister company of Success) (Eves) and George Boyes & Company Ltd (a franchisee of LJ Hooker).

8 Lugton's, Success and Online all accepted liability for price fixing and have paid substantial pecuniary penalties. 10

9 The Court of Appeal referred to the agencies represented at the meetings (Lodge, Monarch, Lugton's, Success and Online) as “the Hamilton agencies” and we will do likewise.

10 The Hamilton agencies are competitors in the market for selling residential real estate in the Hamilton area for commission. As part of their services in endeavouring to sell property on behalf of the prospective vendor (to whom we will refer as the customer), the agencies undertake promotional and marketing activities which may be provided by the agency itself (listing in its own publication or on its own website) or by third parties (such as newspapers or third party websites, including Trade Me).

11 The present case concerns the advertising of listed properties on Trade Me, which was, at the relevant time, the most prominent third party website. Trade Me Ltd is a publicly listed company. It provided an online marketplace and other classified advertising services. It also provided a property listing service to prospective vendors and agencies representing them. Another website, realestate.co.nz (a website collectively owned by real estate agencies) also provided a service of listing properties for sale but this was not as comprehensive as Trade Me, which listed properties for customers of agencies as well as private sale vendors who were not represented by an agency.

12 Trade Me provided both a standard and premium service. The standard listing service involved an advertisement for the property that is listed for sale appearing on the Trade Me website, usually accompanied by photographs. The premium listing service (referred to as a “feature listing”) provided greater prominence on the Trade Me website for an additional fee.

13 Until 2013, Trade Me provided the standard listing service to real estate agencies on a basis which capped the amount payable by the agency in any month.

Trade Me charged a base monthly amount plus a fee for each listing. But because the cap was set relatively low, all listings after the first five or six were effectively free. Some national real estate agencies and real estate networks had negotiated different deals, but in all cases the cost of standard residential listings on Trade Me was such that it was normal for agencies to absorb the cost. Most agencies had an arrangement with Trade Me that allowed for an automatic upload of real estate listings to the Trade Me website along with the agency's own website and potentially other websites such as realestate.co.nz

14 In 2013, Trade Me decided to radically alter its charging policies in a way which it envisaged would lead to substantially increased revenue.

15 What Trade Me proposed was a fee for each individual standard residential listing of $199 plus GST. It proposed that this fee be paid by the customer. This included a $40 commission payable to the real estate agency but this was not seen as appropriate by most agencies. The effective proposed fee was therefore $159 plus GST per standard listing. This was a proposal made to real estate agencies nationwide, and it provoked an extremely adverse reaction.

16 The extent of the impact of the proposed new pricing structure is exemplified by the position of both Lodge and Monarch. In Lodge's case, it faced an increase from an annual overall cost for Trade Me standard listings of $8,000-$9,000 to one of around $250,000 if it continued to absorb the cost of standard listings on Trade Me. In Monarch's case, the increase was from approximately $36,000 to almost $250,000. The High Court judgment provides greater detail about the impact of Trade Me's proposal on real estate agencies and their reaction to it. 11 Trade Me's communications with real estate...