Legal community craved guidance in real estate dispute

When the Commissioner of Competition recently settled a long-standing abuse of dominance case against the Canadian Real Estate Association, it likely paved the way for a dramatic overhaul in the way that residential property is bought and sold, allowing Canadians to choose services à la carte from real estate agents.

But the settlement, approved  by 97 per cent of nearly 100 real estate boards across Canada representing approximately 96,000 real estate agents and brokers, has somewhat disappointed some in the legal community who are craving for more guidance in abuse of dominance cases, particularly since significant amendments were introduced to the Competition Act in 2009.

The enactment of Bill C-10 ushered fundamental changes to Canadian competition law, by introducing a U.S. style two-stage merger review process while giving the Federal Cabinet broad powers over investments that raise national security concerns, replaced criminal conspiracy provisions with a dual criminal-civil track approach, and granted the Competition Tribunal the power to order administrative monetary penalties of up to $15 million for violations of the abuse of dominance provisions. The Competition Tribunal is a strictly adjudicative body that operates independently of any government department that combines expertise in economics and business with expertise in law.

The abuse of dominance provisions target conduct by a “dominant” firm or group of firms that engage in practices that “prevent or lessen competition substantially” in a market. Before the amendments were introduced last year, the remedies under the abuse provisions were limited to merely prohibition orders to halt the anti-competitive conduct.

“One of the side-effects of settling cases is that it deprives us from official guidance from the courts,” noted Kevin Ackhurst, a competition and foreign investment expert with Ogilvy Renault in Toronto. “The cases that exist have been around for a while. It would have been useful to get a fresh take on things. This case could have provided guidance on what it means to be dominant, and what it means to substantially prevent or lessen competition.”

The Competition Bureau and CREA have been in a duel for the past three years. On February 2010, following years of discussions and months of intensive negotiations, the Commissioner of Competition challenged before the Competition Tribunal the “anti-competitive rules imposed by CREA” on real estate agents who list residential properties using the Multiple Listing Service (MLS) system, an Internet-based system that is Canada’s only comprehensive listing  of homes.

In its notice of application, Commissioner Melanie Aitkin alleged that the rules adopted by CREA through their control of the MLS imposed “exclusionary restrictions” on its use, and “thereby maintained substantial or complete control of the market.” As a result, “consumers have been denied the benefits of competition in the supply of residential  real estate brokerage services” because CREA’s rules restricted the ability of consumers to choose the real estate services they want and prevented real estate agents from offering innovative service and pricing options to consumers, added Aitkin in the notice of application.

Following the filing of the application, CREA offered to change its rules but the Aitkin was not impressed. CREA’s proposed changes would have allowed alternative business models to compete with the traditional commission-based structure but it did not prevent Canada’s national real estate association from arbitrarily changing the rules in the future. But after being approached by CREA to resume negotiations, the Competition Bureau announced in late September that it had reached an agreement in principle that “fully resolved the Commissioner’s concerns.”

The 10-year legally binding agreement calls for CREA to eliminate “its ability to adopt anti-competitive rules” that discriminate against real estate agents who want to offer à la carte services, including so-called “mere postings.” With mere postings, a real estate agent is hired only to list the property on the MLS system, leaving the task of selling the home in the hands of the consumer.

“The strategy that CREA has taken over the years is a bit misguided, based on protectionism,” said John Andrew, the director of the executive seminars on corporate and investment real estate at Queen’s University. “The only reason they agreed (to reach a settlement) was because they knew that if this went to the Competition Tribunal they were going to lose. They were also publicly disgraced in the media. CREA came off looking really bad, as a bunch of dinosaurs that weren’t willing to change.”

But Andrew points out that, while CREA’s ratified deal with the Competition Bureau now gives consumers more choice, the association still firmly controls the MLS system and the data generated by each sale. CREA is the registered owner of the MLS, which it licenses to member real estate boards and associations throughout Canada.

The data, says Andrew, is quite simply a gold mine as it contains information such as prior sales prices and comparable sales, “the most valuable piece of information in the MLS system” because it helps determine the health of a neighborhood’s real estate market, which in turn helps set a price for a piece of property. Consumers can only gain access to that information only through realtors. It now appears that access to the MLS data may be the grounds for a new fight between Competition Bureau and CREA.

“It’ll be very interesting to see what happens next,” said Andrew. “If the Competition Bureau goes after them to liberalize the MLS data, I think CREA is going to fight them tooth and nail. The issue here is that it is proprietary data. Since CREA owns the only MLS system, and the data that’s in it, can the Competition Bureau from a legal point of view force them to liberalize that information.”

The ratified settlement between the Competition Bureau and CREA demonstrated, if nothing else, that Aitkin “is not afraid to fight,” said Ackhurst.

“That settlement sends a couple of messages,” observed Ackhurst. “When she needs to fight, she will but neither will she shy away from settling on a principled basis. The Competition Bureau held tough so it shows that she means business.”

The case also demonstrated Aitkin’s savvy, added Ackhurst. The Competition Bureau was often perceived as a dreary, ineffectual organization whose work did not seem to bear an impact on Canadian consumers. The CREA battle seems to have changed that.

“This is a case where they got an effective resolution, an effective outcome and positive press,” said Ackhurst. “It was a great way for the Competition Bureau to enhance their profile. This case sent a strong message.”

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