Beware of meeting with competitors

Beware of meeting with competitors

By Roxanne Ker

In South Africa, under the Competition Act, directors and managers face jail time for participation in a cartel (including unlawful price fixing).  In New Zealand, the same will apply as of April 2021. 

Lodge Real Estate Limited v Commerce Commission, a judgement of the Supreme Court of New Zealand (the apex Court) on 2 April 2020, illustrates just how easy it is unwittingly to enter into an unlawful cartel arrangement.

The saga began in 2013 when TradeMe increased the cost of advertising residential property listings on TradeMe for real estate agencies.  Until then, standard practice had been for real estate agencies to absorb such advertising cost, and not to pass the cost on to the individual estate agents.  The TradeMe listing fee was a small but significant aspect of the competition between the agencies.

In response, real estate agency representatives (competitors) around the country met to share what they intended to do, including whether they should bear the cost themselves, or have the individual estate agents bear the cost.  Having shared that information with one another, they then behaved in a similar fashion, by passing the cost on to individual agents and reducing their listings on TradeMe.

The Commerce Commission determined that the real estate agencies had entered into an unlawful price fixing arrangement in breach of the Commerce Act.  A number of agencies admitted liability and paid hefty penalties to the Commerce Commission.

But two real estate agencies appealed to the High Court, and won.  Then the Commerce Commission appealed to the Court of Appeal, and won.

The real estate firms then appealed to the Supreme Court, which Court unanimously dismissed the appeal:

“If there is a consensus or meeting of minds among competitors involving a commitment from one or more of them to act (or refrain from acting) in a certain way, that will constitute an arrangement (or understanding) [unlawfully to fix prices]. The commitment does not need to be legally binding but must be such that it gives rise to an expectation on the part of the other parties that those who made the commitment will act or refrain from acting in the manner the consensus envisages.”

It is likely that on similar facts a South African court will come to a similar conclusion.

So, competitors ought to be vigilant when meeting or communicating with competitors in any forum.  Discussions with competitors about any aspect of pricing, customers, strategies, or plans should be avoided.  And it is important to minimise risks by having proper policies and procedures in place and properly training staff.

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