The High Court has ordered Ronovation Limited to pay a penalty of $400,000 after it admitted to price fixing in Auckland’s residential real estate market.
Ronovation (trading as Ronovationz) was set up in April 2009 and conducted business advising members on how to acquire and improve investment properties in Auckland. By March 2018, Ronovation had over 400 paid members. As Ronovation’s membership grew its members found themselves competing with each other to purchase houses they had identified as suitable targets for investment. In 2011 Ronovation’s director Mr Hoy Fong developed a set of rules to ensure members were not competing against each other.
In summary, the rules required members to notify the group of their interest in a property. The first member to notify their interest then had priority over other members, who were not permitted to negotiate or bid for that property in competition with the first member. The conduct came to an end in 2018.
Commission Chair Anna Rawlings said the Ronovation case was the first time the Commission had brought proceedings against a buyer side cartel.
“Even agreements entered into by competing buyers can amount to price fixing. It is important that businesses and individuals are aware of the risks of engaging in this type of conduct, especially since price fixing will become a criminal offence from April 2021,” Ms Rawlings said.
“The purpose of the rules was to remove competition between members for those properties. While we cannot calculate the loss, some properties may have sold for less than they would have if Ronovation members had been competing against each other. A house is many New Zealanders’ most valuable asset, and it is important that the integrity of the sales processes for properties is maintained.”
In her judgment, Justice Sarah Katz said Ronovation’s rules were deliberately anticompetitive and designed to suppress competition between members in a manner that was to the detriment of vendors. Justice Katz noted there was no evidence that Mr Hoy Fong, or the members, realised that the conduct breached New Zealand’s competition laws.
“The clear aim of the Agreement was to supress competition between members, due to concerns that increased competition between members would drive up prices for the properties they were seeking to acquire. The conduct was therefore designed to supress the normal rivalry between members that would arise in a competitive sale process, in a manner that was to the detriment of any vendors who were directly impacted by the operation of the Agreement,” Justice Katz said.
“Publication of the facts of this case, and the penalty imposed, will likely lead to greater public awareness of the unlawfulness of anticompetitive buyer side conduct of this nature, and the serious consequences that can result from engaging in such conduct.”
A copy of the judgment will be available shortly on the Commission’s website.
The Commerce Act has recently been amended by the Commerce (Cartels and Other Matters) Amendment Act 2017. The Amendment Act came into force on 15 May 2018 and as a result the Commission brought proceedings for two separate periods:
- conduct in the period prior to 15 May 2018 that may breach section 27 via 30 of the Act; and
- conduct from 16 May 2018 that may breach the amended section 30 of the Act.
Before the Amendment Act, section 27 via section 30 of the Commerce Act prohibited contracts, arrangements or understandings between competitors that had the purpose, effect, or likely effect, of fixing, controlling or maintaining the prices for goods or services.
The Amendment Act introduced a prohibition on entering into or giving effect to a cartel provision. A ‘cartel provision’ includes provisions contained in a contract, arrangement, or understanding related to price fixing, restricting output, or market allocation.
Agreements not to compete at auctions or on tenders are also commonly known as “bid rigging”. “Bid rigging”, or collusive tendering, occurs when there is an agreement among some or all of the bidders about who should win a tender or auction. Bid rigging is a form of cartel conduct and is prohibited by both the former and current s 30 of the Commerce Act.