Competition law – Infringement – Online property portal – Estate agent – Respondent establishing online property portal – Estate agent membership subject to three rules – Respondent issuing claim against appellant member alleging breach of contract – Appellant arguing rules infringed section 2(1)(b) of Competition Act 1998 – Competition Appeal Tribunal (CAT) deciding terms on which portal operated not anti-competitive “by object” contrary to section 2(1)(b) – Appellant appealing – Whether CAT failing to have proper regard to actual contractual restrictions on the members – Appeal dismissed
The respondent was established in 2013 by a number of estate agents and at the relevant time had only estate agents as members. The legal relationship between the respondent and its members included a listing agreement pursuant to which a member agreed to list its properties on OnTheMarket. The agreement laid down three rules which were at the heart of this appeal. The One Other Portal Rule, stipulated that a member might list its properties on no more than one other portal. The Bricks and Mortar Rule restricted membership to full-service office-based estate or letting agents, as opposed to those operating only an online business model. The Exclusive Promotion Rule required members to promote only OnTheMarket and no other portal. The One Other Portal Rule and the Exclusive Promotion Rule were provided for in the listing agreement. The Bricks and Mortar Rule was derived from the Membership Rules.
In February 2016, the respondent issued proceedings in the Chancery Division of the High Court alleging breach by the appellant of the One Other Portal Rule. Amongst the points that the appellant raised by way of defence was the contention that its agreement with the respondent was void because the One Other Portal Rule, the Bricks and Mortar Rule and the Exclusive Promotion Rule infringed competition law. It maintained that they were anti-competitive “by object”, contrary to section 2(1)(b) of the Competition Act 1998 since their object was to restrict competition. The High Court transferred the competition issues to the Competition Appeal Tribunal (CAT) which held that there had been no breach of section 2 of the 1998 Act by rules in the parties’ agreement. Accordingly, the rules had not been anti-competitive by object or by effect. The High Court then ordered that the competition issues in the main Chancery proceedings should be determined in accordance with the CAT’s judgment, as if it had been a judgment in the High Court proceedings.
The appellant appealed. The central question was whether the One Other Portal Rule and the Bricks and Mortar Rule breached the Chapter I prohibition as “by object” restrictions. The appellant contended that the CAT wrongly focussed on the fact that the respondent portal was a new entrant to the market and failed to have any, or any proper, regard to the actual contractual restrictions on the member estate agents.
Held: The appeal was dismissed.
(1) For an agreement to restrict competition “by object”, it had to reveal a sufficient degree of harm to competition that it was unnecessary to examine its effects. In deciding whether a sufficient degree of harm was apparent, regard should be had to the provision’s objectives, the economic and legal context, and the real conditions of the functioning and structure of the market or markets in question. The concept had to be interpreted restrictively: Sainsbury’s Supermarkets Ltd v Mastercard Inc [2016] CAT 11 and Groupement des cartes bancaires (CB) v European Commission (Case C-67/13 P) [2014] 5 CMLR 22 applied.
(2) In its overall assessment of the One Other Portal Rule, the CAT had been fully justified in concluding that the rule was not a restriction “by object”. Given the rule’s nature and the specific legal and economic context, including in particular the respondent’s lack of market power, it was entirely legitimate for the CAT to consider that the rule did not reveal a sufficient degree of harm to competition that it was unnecessary to consider its effects and that the rule could not be regarded, by its very nature, as harmful to the proper functioning of normal competition. The rule was properly seen as falling into the category of cases in which an agreement was ambivalent in terms of its effects on competition. It was by no means every contractual restriction that infringed the Chapter I prohibition, let alone amounting to a restriction “by object”. The CAT had addressed the legal and economic context of the rule. It had clearly been correct to take account of the respondent’s lack of market power, the fact that a new entrant suffered a much greater barrier to entry to a market with a two-sided platform and the fact that the rule provided for limited rather than absolute exclusivity. There was nothing in the judgment to suggest that the CAT had based its decision on the overall pro-competitive purpose that it perceived OnTheMarket to have. The CAT had considered that it should be cautious about extending by object restrictions to hitherto untainted categories of conduct. It had not been saying that there was an absolute bar to extending restrictions, but had been right to think that the concept of restriction of competition “by object” should be construed restrictively: Competition Authority v Beef Industry Development Society Ltd (Case C-209/07) [2009] 4 CMLR 6 considered.
(3) The CAT had concluded that the Bricks and Mortar Rule had the purpose of defining the nature and scope of the business created by the respondent, rather than clearly having the object of harming competition from or between those undertakings not covered by its terms and stressed the absence of market power. The rule could possibly become a threat to competition if OnTheMarket acquired market power, but, as things stood, it was not. That being so, the CAT was right to consider that it did not reveal a sufficient degree of harm to competition for it to be deemed a restriction “by object”.
Paul Harris QC and Philip Woolfe (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) appeared for the appellant; Alan Maclean QC and Josh Holmes QC (instructed by Eversheds Sutherland (International) LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Gascoigne Halman Ltd v Agents’ Mutual Ltd
