Canada implements stringent new conspiracy law:
Some words of caution for REALTORS®

By Kevin Wright, Partner, Davis LLP

Overview

On March 12, the new “per se” conspiracy offence under the Competition Act came into effect. Agreements or arrangements between competitors to fix prices, allocate markets or control production –– so-called “naked restraints”–– may now result in fines and/or imprisonment even where implementation has not, or would not have had any effect on the level of competition in a market.

The new conspiracy offence marks a significant departure from Canada’s time-tested, market-effects requirement, i.e. that the conspiracy would lessen or prevent competition “unduly”. The changes are not merely cosmetic; they deserve the full attention of all REALTORS®.

Implications for REALTORS®

It’s difficult to predict how court decisions will define and shape Canada’s new conspiracy laws (indeed, the former conspiracy law had a 121 year history of judicial and academic development without ever attaining true certainty in its application). With this in mind, a few preliminary cautions are offered:

An agreement between as few as two competing REALTORS® could violate the new conspiracy offence. For example, it may be an offence simply where two (or more) REALTORS® informally agree to:

• minimum commissions or commission structures they would each charge or offer to their respective clients for similar services,

• stay out of each other’s territory,

• not to “poach” each other’s customers, or the types of listings each agent might pursue.

It does not matter that the REALTORS® together only have a tiny market share or that the agreement may not result in any harm to customers or other REALTORS®. It would not be a defence to criminal charges that the REALTORS® later decided not to implement their agreement.

The agreement need not be formal or in writing. A conspiracy might be inferred from casual discussions, emails or communications between REALTORS® about sensitive subjects such as pricing, customers, and plans for marketing.

The New Criminal Provision

A person is prohibited from conspiring, agreeing or arranging with a “competitor” of that person with respect to a “product” (“products” include services) to:

• fix, maintain, increase or control the price for the supply of the product.

• allocate sales, territories, customers or markets for the production or supply of the product.

• fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

If convicted, potential penalties include a term of imprisonment of up to 14 years, a fine of up to $25 million, or both. Further, private parties may sue to recover their loss and damage resulting from violation of this provision, plus the costs of their investigation, even in the absence of a criminal proceeding or conviction.

One of the few exceptions to the new offence is for restraints that are ancillary to and reasonably necessary to give effect to a broader or separate (and otherwise legitimate) agreement involving the same parties. Thus, in appropriate cases, REALTORS® might be able to engage in lawful cooperation that involves restrictions on fees, services provided and/or market allocation, but they must exercise caution and should seek legal advice about specific collaborations and business structures.

The New Civil Provision

As an alternative to criminal prosecution, agreements between competitors may be reviewed by the Competition Tribunal under a new civil provision which incorporates a competitive effects test.

The Competition Tribunal may prohibit persons from implementing or enforcing an agreement or arrangement between competitors that prevents or lessens, or is likely to prevent or lessen, competition “substantially” in a market. The civil provision is intended to address those competitor collaborations that may have some legitimate or pro-competitive purpose but which may nevertheless have an anti-competitive effect. To this end, the Tribunal must weigh the evidence of the parties’ market power and other factors in order to determine whether there has been or will be a substantial lessening or prevention of competition.

Conclusion

REALTORS® should be extremely careful and diligent about all communications with other REALTORS®. Brokerages should consider educating all staff and agents about the new laws and reviewing current business practices to ensure compliance.

It may be appropriate to seek legal advice about ongoing business arrangements between REALTORS®, including independent agents working in the same brokerage. If a REALTOR® or a brokerage suspects that they may have been involved in an illegal arrangement, they should contact legal counsel immediately.