Kaohsiung Association of Real Estate Appraisers

1201st Commissioners' Meeting (2014)

Case:

Kaohsiung Association of Real Estate Appraisers violated the Fair Trade Law by imposing restrictions on its members’ bid offers

Key Word(s):

Trade association, bidding

Reference:

Fair Trade Commission Decision of November 12, 2014 (the 1201st Commissioners' Meeting); Disposition Kung Ch’u Tzu No. 103134

Industry:

Other Real Estate Activities Not Elsewhere Classified (6899)

Relevant Law(s):

Articles 7 and Article 14(1) of the Fair Trade Law

Summary:

Kaohsiung Association of Real Estate Appraisers (hereinafter referred to as the KAREA) imposed restrictions on its members' bid offers in violation of the Fair Trade Law.

Findings of the FTC after investigation:

(1) The KAREA had 74 members from Chiayi, Tainan, Kaohsiung, Pingtung, Taitung, and Hualien areas. These members were real estate appraisers who accepted delegations to appraise land and buildings and crops thereon, as well as the corresponding rights. The number of the KAREA's practicing members accounted for 23.27% of the total number of practicing real estate appraisers in Taiwan.

(2) As specified in Article 7 of the KAREA's member self-discipline agreement established in 2004, "No members shall adopt reduction of charges by a large margin or other inappropriate measures to compete for business with other members." The "reduction of charges by a large margin" was not defined and, as a result, the KAREA was never capable of handling complaints filed by its members regarding strategies on market competition by price undercutting. In order to give the content of Article 7 a precise definition, the KAREA reached a resolution on Jan. 15, 2014 at the 7th joint meeting of the board of directors and board of supervisors of the 4th term, providing that "reduction of charges by a large margin or other inappropriate measures" meant that "if the association is informed that three or more members have taken part in a tender and the winning offer is significantly lower than the offers of other bidders, it shall be regarded a violation of Article 7 of the member self-discipline agreement. The aforesaid " 'winning offer being lower than the offers of other bidders' shall be the difference between the winning offer and the average of the offers of other bidders reaching 20% or more." The KAREA also sent the resolution to all of its members by mail.

(3) After the abovementioned resolution was reached, the KAREA did notify five bid-winning members in eight tenders to provide written explanations on their offers and present their explanations to the association because their winning offers had been 20% lower than the average of the offers of other bidders.

Grounds for disposition:

(1) According to Article 7(4) of the Fair Trade Law, "The act of a trade association to restrict activities of enterprises by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means is also deemed as horizontal concerted action as used in Paragraph 2." Article 14(1) of the Fair Trade Law also prohibited concerted actions. Under the KAREA's restriction on the members' bid offers, when its members determined their bid offers, besides considering the possibility of "not winning the tender for bidding too high" or "suffering profit loss for bidding too low," they also had to make sure that their "bid offer is not lower than the average of the offers of other bidders by 20% or more" to prevent the risk of violating the above member self-discipline agreement. To avoid this risk, the members had no choice but to adopt more conservative bidding strategies and make higher bid offers. They might even resort to consulting with or jointly determining the bid offers with other bidders before bidding. Under such circumstances, price competition among bidders would be sabotaged.

(2) Although the resolution of the KAREA did not involve establishment of unified bid offers or bid rigging, their members, being afraid of becoming the targets of the association's investigations and sanctions for violating the above self-discipline agreement, were bound to avoid competition by offering low prices in subsequent tenders. They might even consult with one another on the bid offers or bid regions. In the long run, this would lead to suppression of price competition among the members.

(3) The KAREA contested that the resolution was merely moral persuasion and there were no concrete penalty regulations. However, according to Article 21 of the KAREA's member self-discipline agreement, the association could admonish or warn its members when they violate the agreement or even refuse to give them cases to be assigned by rotation. Those who involve serious violations might even receive sanctions. In reality, the KAREA did notify certain members offering "bids significantly lower than the bids of others" to present their explanations and to be questioned by the functionaries of the association. In other words, the resolution was by no means merely to serve as moral persuasion to its members.

(4) As for whether the case involved violation of Article 87(4) of the Government Procurement Act providing "a person who causes the supplier not to tender or not to proceed with price competition by means of contract, agreement or other forms of meeting of minds, with the intent to adversely affect the price of award or to gain illegal benefits," and the question as to the applicability of Article 26 of the Administrative Penalty Act providing that "if one and single act constitutes simultaneously a criminal offense or offenses as well as a breach of duty under administrative law, it shall be punishable under the criminal law," the Public Construction Commission's official opinion noted that whether the Government Procurement Act was applicable in the case would depend on whether the Government Procurement Act applied to cases in which the members of the KAREA offered bids. Meanwhile, the KAREA expressed that the resolution in question was to be applied in all public tenders, not only limited to tenders put up by government agencies or public enterprises. In other words, it also applied in public real estate appraisal service tenders put up by private businesses to which the Government Procurement Act did not apply. Therefore, the conduct involved in this case was a restriction imposed by a trade association on the bid offers provided by its members in unspecific public tenders. It did not concern bidding suppliers not bidding or not making price competition in specific government procurement projects as a result of contracts, agreements or other types of mutual understanding. Hence, the regulations against concerted actions in the Fair Trade Law were still applicable.

(5) After assessing the collective market power of the members of the KAREA, the nature and actual execution of the restriction, as well as its impact on market competition, the FTC concluded that the KAREA had violated Article 14(1) of the Fair Trade Law. Therefore, citing the first section of Article 41(1) of the same law, the FTC ordered the KAREA to immediately cease the unlawful act at issue and also imposed on it an administrative fine of NT$400,000.

Appendix:
Kaohsiung Association of Real Estate Appraisers ' Uniform Invoice Number: 8660292

Summarized by Lai, Hsin Yi; Supervised by Liao, Hsien-Chou

! : For information of translation, click here

(1)	The KAREA had 74 members from Chiayi, Tainan, Kaohsiung, Pingtung, Taitung, and Hualien areas. These members were real estate appraisers who accepted delegations to appraise land and buildings and crops thereon, as well as the corresponding rights. The number of the KAREA's practicing members accounted for 23.27% of the total number of practicing real estate appraisers in Taiwan.
(2)	As specified in Article 7 of the KAREA's member self-discipline agreement established in 2004, "No members shall adopt reduction of charges by a large margin or other inappropriate measures to compete for business with other members." The "reduction of charges by a large margin" was not defined and, as a result, the KAREA was never capable of handling complaints filed by its members regarding strategies on market competition by price undercutting. In order to give the content of Article 7 a precise definition, the KAREA reached a resolution on Jan. 15, 2014 at the 7th joint meeting of the board of directors and board of supervisors of the 4th term, providing that "reduction of charges by a large margin or other inappropriate measures" meant that "if the association is informed that three or more members have taken part in a tender and the winning offer is significantly lower than the offers of other bidders, it shall be regarded a violation of Article 7 of the member self-discipline agreement. The aforesaid " 'winning offer being lower than the offers of other bidders' shall be the difference between the winning offer and the average of the offers of other bidders reaching 20% or more." The KAREA also sent the resolution to all of its members by mail.
(3)	After the abovementioned resolution was reached, the KAREA did notify five bid-winning members in eight tenders to provide written explanations on their offers and present their explanations to the association because their winning offers had been 20% lower than the average of the offers of other bidders.

(1)	According to Article 7(4) of the Fair Trade Law, "The act of a trade association to restrict activities of enterprises by means of its charter, a resolution of a general meeting of members or a board meeting of directors or supervisors, or any other means is also deemed as horizontal concerted action as used in Paragraph 2." Article 14(1) of the Fair Trade Law also prohibited concerted actions. Under the KAREA's restriction on the members' bid offers, when its members determined their bid offers, besides considering the possibility of "not winning the tender for bidding too high" or "suffering profit loss for bidding too low," they also had to make sure that their "bid offer is not lower than the average of the offers of other bidders by 20% or more" to prevent the risk of violating the above member self-discipline agreement. To avoid this risk, the members had no choice but to adopt more conservative bidding strategies and make higher bid offers. They might even resort to consulting with or jointly determining the bid offers with other bidders before bidding. Under such circumstances, price competition among bidders would be sabotaged.
(2)	Although the resolution of the KAREA did not involve establishment of unified bid offers or bid rigging, their members, being afraid of becoming the targets of the association's investigations and sanctions for violating the above self-discipline agreement, were bound to avoid competition by offering low prices in subsequent tenders. They might even consult with one another on the bid offers or bid regions. In the long run, this would lead to suppression of price competition among the members.
(3)	The KAREA contested that the resolution was merely moral persuasion and there were no concrete penalty regulations. However, according to Article 21 of the KAREA's member self-discipline agreement, the association could admonish or warn its members when they violate the agreement or even refuse to give them cases to be assigned by rotation. Those who involve serious violations might even receive sanctions. In reality, the KAREA did notify certain members offering "bids significantly lower than the bids of others" to present their explanations and to be questioned by the functionaries of the association. In other words, the resolution was by no means merely to serve as moral persuasion to its members.
(4)	As for whether the case involved violation of Article 87(4) of the Government Procurement Act providing "a person who causes the supplier not to tender or not to proceed with price competition by means of contract, agreement or other forms of meeting of minds, with the intent to adversely affect the price of award or to gain illegal benefits," and the question as to the applicability of Article 26 of the Administrative Penalty Act providing that "if one and single act constitutes simultaneously a criminal offense or offenses as well as a breach of duty under administrative law, it shall be punishable under the criminal law," the Public Construction Commission's official opinion noted that whether the Government Procurement Act was applicable in the case would depend on whether the Government Procurement Act applied to cases in which the members of the KAREA offered bids. Meanwhile, the KAREA expressed that the resolution in question was to be applied in all public tenders, not only limited to tenders put up by government agencies or public enterprises. In other words, it also applied in public real estate appraisal service tenders put up by private businesses to which the Government Procurement Act did not apply. Therefore, the conduct involved in this case was a restriction imposed by a trade association on the bid offers provided by its members in unspecific public tenders. It did not concern bidding suppliers not bidding or not making price competition in specific government procurement projects as a result of contracts, agreements or other types of mutual understanding. Hence, the regulations against concerted actions in the Fair Trade Law were still applicable.
(5)	After assessing the collective market power of the members of the KAREA, the nature and actual execution of the restriction, as well as its impact on market competition, the FTC concluded that the KAREA had violated Article 14(1) of the Fair Trade Law. Therefore, citing the first section of Article 41(1) of the same law, the FTC ordered the KAREA to immediately cease the unlawful act at issue and also imposed on it an administrative fine of NT$400,000.