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[2023] ZACAC 6
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Tsutsumani Business Enterprises CC v Competition Tribunal and Others (205/CAC/Jul22) [2023] ZACAC 6; [2023] 3 CPLR 34 (CAC) (13 October 2023)
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
AT PRETORIA
Case
No:205/CAC/Jul22
In
the matter between:
TSUTSUMANI
BUSINESS ENTERPRISES CC APPLICANT
and
THE
COMPETITION TRIBUNAL FIRST
RESPONDENT
MONDO
MAZWAI SECOND
RESPONDENT
ANDISWA
NDONI THIRD
RESPONDENT
ANDREAS
WESSELS FOURTH
RESPONDENT
THE
COMPETITION COMMISSION FIFTH
RESPONDENT
ORDER
The
review application is dismissed with costs.
JUDGMENT
Delivered
on: 13 October 2023
Poyo Dlwati AJA ( Manoim
JP and Masipa AJA concurring)
[1]
This
review concerns the issue whether the Competition Tribunal (first
respondent, referred to herein as the Tribunal) exercised
its powers
improperly in finding that Tsutsumani Business Enterprises CC (the
applicant) engaged in excessive pricing and thereby
contravened s
8(1)
(a)
of
the Competition Act 89 of 1998 (the Act).
[1]
[2]
The background to this review is that the
Competition Commission (the fifth respondent, referred to herein as
the Commission), a
regulatory body established in terms of s 19(1) of
the Act referred a complaint of excessive pricing to the Tribunal
against the
applicant. As a result of the outbreak of the covid-19
pandemic, the President of the Republic of South Africa declared a
National
State of Disaster in the country. Pursuant to that the South
African Police Services (SAPS) issued requests for quotations (RFQ)
to several firms including the applicant for the supply of 3 ply
surgical face masks to be provided to its employees. A complaint
of
excessive pricing of masks arose during the covid-19 pandemic against
the applicant which was investigated by the Commission.
[3]
In order to prevent the escalation of the
disaster and to contain and minimise its effect, the Minister of
Co-operative Governance
and Traditional Affairs (COGTA) published
amended regulations in terms of
s 27(2)
of the
Disaster Management
Act 57 of 2002
. The regulations made the wearing of masks compulsory
especially in public areas. Masks, therefore, were part of the
personnel
protective equipment (PPE) used for containing and
preventing the spread of covid-19 and were identified as essential
goods.
[4]
According
to the Commission, when responding to the SAPS’ RFQ, the
applicant contravened s 8(1)
(a)
of
the Act read with Regulation 4 of the Consumer and Customer
Protection and National Disaster Management Regulations and
Directions
(Consumer Protection Regulations)
[2]
in that it was a dominant firm that had charged excessive prices
to
the detriment of customers and/or consumers. The Commission received
a complaint against several firms that responded to the
SAPS’
RFQ including the applicant. The applicant supplied the SAPS with 500
000 surgical face masks at a unit price of R32.50
and generated an
income of R16 250 000 (Sixteen million two hundred and fifty thousand
rand). The applicant, however, denied the
allegations of excessive
pricing and averred that the SAPS could have rejected or accepted its
quotation. It further stated that
the supply of masks was a once-off
transaction.
[5]
On further investigation, the Commission
found that the applicant started supplying masks in April 2020 when
it responded to the
SAPS’ RFQ. It procured the 500 000 masks
from various entities at an average cost of R17.50 per mask. It,
however, charged
the SAPS R32.50 per mask, being a mark-up of 87% and
a margin of 47% per mask. According to the Commission, the applicant
made
a profit of R6 586 311 which in its view was excessive. It,
therefore, sought an order
declaring
that
the
applicant’s
conduct
contravened
the
provisions
of
s 8(1)
(a)
of
the Act, read with Regulation 4 of the Consumer Protection
Regulations. It also sought an order interdicting and restraining
the
applicant from engaging in any such further conduct and for the
applicant to be ordered to pay an administrative penalty in
terms of
s 58(1)
(a)
(iii)
of the Act, which was equal to 10% of its annual turnover during its
preceding financial year.
[6]
The applicant opposed the application. It
contended that it was not an active role player in the supply of PPE
equipment and that
the transaction complained of was once-off.
Therefore, its active participation in that market was limited.
Furthermore, that the
SAPS had no obligation to accept its quotation,
but because the applicant’s product was of a better quality
than that of
its competitors, it accepted its quotation. Since the
applicant’s business involved mainly waste disposal but is
diversified
as it also included transportation services as well as
plant hire, the price charged was justified in light of its broader
business
operations and general business needs.
[7]
The applicant disputed that it was dominant
in the market of supplying PPE’s. It stated that it lacked a
significant market
share which would enable it to qualify under the
provisions of ss 7
(a)
or
7
(b)
of
the Act. Furthermore, as the applicant’s participation in the
supply of PPE’s was a once-off transaction, it could
not exert
any market power over any of its competitors or end customers. It
denied that it had any power to control prices or exclude
competition
or customers and suppliers. According to the applicant, the SAPS was
a willing buyer and the applicant was a willing
seller.
[8]
The applicant further contended that its
costs included transportation, loading and off-loading of the masks
as well as administration
costs. All these costs accounted to about
5% of the price quoted. Its price was, therefore, not unreasonable.
Further,
it
stated
that
no
comparative
analysis
was
provided regarding the behaviour of other
firms regarding the same allegations which made it difficult to
confirm the allegations.
The applicant submitted that as the
Commission had failed to substantiate its case the application ought
to be dismissed.
[9]
In a statement of issues submitted by the
parties to the Tribunal, various undisputed facts were stated. These
were that the applicant’s
turnover was in excess of R5 million;
that no single supplier had the capacity to satisfy the requirements
of the number of masks
required by the SAPS and that the applicant
knew that its price was higher than the price charged by other
suppliers.
[10]
The
Tribunal found in favour of the Commission and held that the
applicant had contravened s 8(1)
(a)
of
the Act read with Regulation 4 of the Consumer Protection Regulations
during the period of the complaint.
[3]
It imposed an administrative penalty on the applicant of R3 441
689.10. But it refused to grant the interdict as it did not believe
that it was an appropriate remedy in the circumstances of this case.
It is this decision that the applicant seeks to have reviewed
and set
aside. The applicant in its notice of motion also sought an order for
condonation for the late filing of its review. This
was so because
the Tribunal’s order was handed down on 28 April 2022 whilst
the review was only launched on 21 July 2022.
[11]
The
applicant stated in its founding affidavit that its review was
premised on the Promotion of Administrative Justice Act 3 of
2000
(PAJA) and was in the alternative the principle of legality. It is
unclear why the applicant proceeded with a review instead
of an
appeal. Most of the issues raised by the applicant seem to attack the
correctness of the Tribunal’s decision. These
would more
appropriately be the subject matter of an appeal. However, since this
is a review application, the only question for
determination is
whether the Tribunal exercised its powers properly.
[4]
But
the choice to proceed by review rather than an appeal is not the only
problem facing the applicant. The review has not been
brought within
the time periods provided in terms of the Rules of this court. This
time period (15 days) is far shorter than that
provided in terms of
PAJA (180 days). For this reason, the applicant has also sought
condonation.
[12]
It
is apposite at this stage to deal with the condonation application.
It is trite
[5]
that an
application for condonation is not for the mere asking but that an
applicant has various hurdles to go through before the
application
can be granted. In terms of section 61 of the Act a “person
affected by a decision of the Competition Tribunal
may …apply
to the Competition Appeal Court to review that decision in accordance
with the Rules of the Competition Appeal
Court ….” This
makes it clear that the time periods set out in the Rules and not in
PAJA, apply for reviews of decisions
of the Tribunal.
[6]
The relevant rule is Rule 23(2)
(b)
which
states that any review of a decision of the Tribunal must be brought
within 15 business days.
[13]
The
applicant therefore had up to 19 May 2022 to launch its review
application. It was, it is common cause, two months late.
Nevertheless,
this court retains an inherent power to condone the
late filing of a review if it is properly motivated. In
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
[7]
the Constitutional Court re-emphasised that a litigant seeking
condonation is required to provide a full explanation covering the
entire period of the delay and that explanation must be reasonable.
The applicant has failed to explain the delay and its causes.
All it
said in its founding affidavit was that:
‘
[132]
We submit an application for condonation
ex
abundanti cautella
as we were entitled
to. There are also Constitutional considerations brought to bear in
this case, as envisaged by section 34 as
read with sections 168, 171
and 173 of the Constitution of the Republic of South Africa Act 108
of 1996 (“the Constitution”)
in that everyone has the
right to access the CAC or other forum and as such I am not precluded
to call the said provision in aid
of my application for condonation.
[133] According to the
CAC Rules, we were supposed to file our review application within 15
days of the Tribunal ruling. We submit
the delay be condoned as there
is no prejudice to the parties. Also if one is to use the PAJA route
or legality principle, then
there is no delay at all.’ It is
evident from the above that there has been no explanation at all
about the delay by the
applicant.
[14]
The unexplained delay of almost two months
is unreasonable in the circumstances and ought not to be condoned.
This is especially
so in light of the fact that the application by
the Commission was initially launched on an urgent basis but because
of the applicant’s
failure to adhere to the timelines set by
the Tribunal to hear the matter, the matter lost its urgency. Its
review ought to have
been brought within 15 business days of the
Tribunal’s decision and it was not.
[15]
The
applicant has also failed to deal with the other considerations for
an application for condonation including but not limited
to the
interests of justice, the prospects of success and any prejudice that
the party may suffer.
[8]
The
applicant has not explained why it is in the interests of justice to
condone its late filing of the review application. It
has not
explained what prejudice it will suffer if its delay is not condoned
save for illustrating the effects of paying a penalty.
More was
required of the applicant. The Commission has gone to great lengths
in explaining the prejudice it will suffer should
condonation be
granted
which
also
includes costs of litigation.
[16]
The
applicant has also failed to deal with the prospects of success of
its review application. In this regard, we agree with the
Commission’s contention that the applicant’s prospects of
success are non-existent. We will deal with this aspect
simultaneously with the merits of the review. The first is whether
the Tribunal erred in finding that it was a dominant firm. It
is
trite that in order to find that a firm is dominant two
jurisdictional grounds must be satisfied. First, in terms of section
6 of the Act, the firm’s turnover must exceed a threshold of
annual turnover or asset size determined by the Minister.
[9]
Second, assuming it does, then the firm is only dominant if it
qualifies in terms of the market share or market power criteria
set
out in section 7.
[10]
[17]
There is no dispute that the applicant’s
turnover exceeded R5 million during its preceding financial year.
This was part of
the agreed facts. But what the applicant argues is
that this turnover
in
the preceding financial year (March 2019 to February 2020), was not
in respect of the sale of masks, but other sales, and hence
section 6
of the Act did not apply. Put differently the applicant argues that
when section 6 refers to a turnover threshold it
means turnover in
the affected product market not any turnover. In this respect, it
alleges the Tribunal erred. But this argument
wrongly conflates the
requirements of sections 6 and 7. There is nothing in the language of
section 6, or the regulations made
pursuant thereto that says the
relevant turnover is the turnover in the market affected by the
transgression. Nor is there any
purpose served by this
interpretation. Section 6 serves as a screening mechanism to exclude
from the application of the dominance
provisions, firms whose size in
terms of assets or turnover makes them economically trivial. This is
intended to be an easily applied
form of screening that can be
ascertained from the firm’s financials and does not require a
detailed market definition enquiry.
[18]
Section 7 on the other hand requires
consideration of the effect of the firm on the market in which the
alleged abuse takes place.
Here the enquiry may be detailed and
complex. The Tribunal correctly kept these enquires separate. With
regard to the turnover,
there can be no dispute that the applicant
met the s 6 threshold as its turnover was above R5 million. To that
extent, the Tribunal
did not exercise its powers improperly.
[19]
The next leg of the enquiry is to consider
whether during the period in question the applicant had market power
and was therefore
a dominant firm for purposes of s 7
(c)
of the Act. The Tribunal held as
follows in this regard:
‘
[71]
Tsutsumani’s argument that it cannot be found to be dominant or
to have market power since 18 suppliers responded to
the RFQ cannot
hold. This is because in
Babelegi
,
the CAC stated: “The lucky monopolist might not be a single
firm in the relevant market. Given prevailing exogenous factors,
multiple firms can be found to be dominant during the crisis…”.
The finding of the Commission was that customers can
be completely
dependent on a firm for the supply of scarce products during a
crisis. In such a case, more than one supplier can
be in a dominant
position in respect of its normal customers.’ (Footnote
omitted.)
[20]
That the Tribunal took into account the
factual constraints facing SAPS is evident from the following
conclusion it drew from the
facts:
“
We
find that the reason SAPS purchased masks from Tsutsumani at high
prices is because it had no other choice given the crisis context,
amplified by the large volumes of masks required as well as the
utmost urgency in order for SAPS staff to safely fulfil their duties
during the state of disaster.”
We
are bound by
Babelegi
Workwear and Industrial Supplies CC v Competition Commission
[11]
unless we are convinced that it was incorrectly decided and it has
also not been demonstrated to us that it was wrongly decided.
Therefore, we agree with the Tribunal’s finding that the
applicant had the market power, in the supply of masks in that period
and was dominant in terms of s 7 of the Act. This ground of review
must fail.
[21]
We turn now to the Tribunal’s
analyses of the abuse; whether the applicant charged excessive prices
for the masks. As already
stated, it was common cause that the
applicant quoted R32.50 for the masks which it had procured from the
various suppliers at
the rate of R17.50 and R17.00 respectively. The
applicant’s argument in this regard was that no investigation
was conducted
to prove that its pricing was excessive. In any event,
the SAPS, according to the applicant, was at liberty to accept or
reject
its quotation. Furthermore, as the applicant was not in the
business of supplying masks, the Commission would have been unable to
assess its margin or mark-ups for those goods for three months prior
to the period 1 March 2020.
[22]
The Commission’s argument was that
the applicant’s mark-up was 87%. According to the Commission,
the SAPS accepted the
applicant’s offer because it had no
choice. It was a price taker and obliged to accept the price from any
firm which could
secure the supply. It had no bargaining power as the
demand exceeded supply.
[23]
Section 8(1)
(a)
of the Act provides that it is
prohibited for a dominant firm to charge an excessive price to the
detriment of consumers or customers.
Section 8(3) provides the test
for excessive pricing and states: ‘Any person determining
whether a price is an excessive
price must determine if that price is
higher than a competitive price and whether such difference is
unreasonable, determined by
taking into account all relevant
factors…’.
One of these factors is
listed in sub-paragraph 8(3)(f) as: “any regulations made by
the Minister, in terms of section 78
regarding the calculation and
determination of an excessive price.” Acting in terms of this
power, the Minister made the
Consumer Protection Regulations.
[24]
Regulation 4.2 of the Consumer Protection
Regulations provides that:
‘
In
terms of
section 8
(3)
(f)
of
the
Competition Act during
any period of the national disaster, a
material price increase of a good or service contemplated in Annexure
A which –
4.2.1
does not correspond to or is not equivalent
to the increase in the cost of providing that good or service; or
4.2.2
increases the net margin or mark-up on that
good or service above the average margin or mark-up for that good or
service in the
three month period prior to 1 March 2020, is a
relevant and critical factor for determining whether the price is
excessive or unfair
and indicates
prima
facie
that the price is excessive or
unfair.’ The Consumer Protection Regulations listed masks under
the category of medical and
hygiene supplies and as being those
products that deserve special regulatory protection, given their
critical value in fighting
the spread of covid-19.
[25]
The applicant in the statement of issues
submitted to the Tribunal conceded that it was aware that its price
was higher than that
charged by other suppliers to government.
Furthermore, the Commission presented the evidence of the Treasury’s
pricelist
for masks at the relevant time. To the benefit of the
applicant, the Tribunal also took certain costs into account even
though
in its view they were not substantiated by the applicant. It,
however, still found that the price was excessive, comparatively
speaking. It found that:
‘
[83]
There is no conceivable explanation which might account for
Tsutsumani’s pricing other than the existence of market power
on the part of Tsutsumani in the context of the Covid-19 health
crisis that disrupted the demand and supply of masks. In the relevant
period, Tsutsumani had the power to act independently of its
competitors on the supply side and independently from SAPS as a
customer
on the demand side.’
[26]
The Tribunal further found that the mark-up
and margin earned by the applicant were accordingly significantly
higher than a competitive
benchmark of 10-15% margin for resellers
and thereby met the first part of the test for an excessive price
under s 8(3) of the
Act. The applicant could not rebut this finding
before us. The next leg of the test as provided for in s 8(3) of the
Act was to
determine whether the price was unreasonable. The
applicant had to justify its price. However, the applicant failed to
substantiate
the costs it claimed justified its pricing. The Tribunal
thoroughly examined all the costs it deemed were relevant to the
applicant’s
pricing. One of the costs it excluded were the
applicant’s historical tax costs which the latter alleged
amounted to R208
million. The Tribunal explained why it did so:
“
We
note that tax is not an expense that is to be included when assessing
excessive pricing by comparing the price charged to appropriate
benchmarks. It is the profit before tax that is relevant to the
determination of this issue.” We were not referred to any
authority that suggested this approach was incorrect.
[27]
The
applicant contended that the detriment of its pricing could not be
felt where there was only ‘one consumer and buyer’
being
the SAPS. The Tribunal rejected this argument. In coming to this
conclusion, the Tribunal placed reliance on what this court
held in
Babelegi
,
[12]
which we respectfully agree with and that is: ‘in a crisis
situation, such as that induced by the Covid-19 pandemic, one
needs
to use a somewhat different conceptual framework from what ordinarily
would be employed in an excessive-pricing case’.
In this
regard, that different framework has been provided for in the
Consumer Protection Regulations. The other difference is
that the
applicant’s excessive pricing was not only detrimental to the
customer, being the SAPS, since the effects of excessive
pricing
would have affected the country as a whole as the masks were used to
curb the spread of covid-19. The applicant’s
argument in this
regard cannot be sustained.
[28]
For all these reasons therefore, we are of
the view that the applicant has no prospects of success in the review
and this is another
reason why its condonation application should not
succeed. Perhaps for completeness, we should deal with the issue of
the penalty
imposed on the applicant. The Tribunal imposed the
administrative penalty in terms of s 59(1) of the Act which empowers
it to do
so. The penalty imposed was 10% of the applicant’s
turnover which is the maximum permissible in terms of s 59(2) for a
first-time
contravention. Nevertheless the Tribunal justified doing
so because:
“
This
figure is significantly lower than the excess profit which Tsutsumani
derived from the sale of the masks to SAPS, even if certain
costs are
included in favour of Tsutsumani.”
[29]
In
terms of section 59(3)(e), one of the factors the Tribunal must
consider is the level of profit derived from the contravention.
The
Tribunal’s approach was that even the maximum penalty would not
lead to a disgorgement of the excess profit derived from
the
contravention. As we have previously held in
Stanley’s
Removals,
absent
a misdirection or fundamental error in methodology, this Court has a
narrow power to interfere with a penalty imposed by
the Tribunal.
[13]
In our view, there was nothing improper with the Tribunal’s
exercise of its power.
The
review application must fail.
[30]
Accordingly, I make the following order:
‘
The
review application is dismissed with costs’.
Poyo
Dlwati AJA
Manoim
JP
Masipa AJA
APPEARANCES
Counsel
for Applicant: Adv
MacGregor Kufa, Assisted
by Adv Philip Sila
Instructed
by: Aphane
Attorneys
Counsel
for Respondent: Adv
Shannon Quinn
Instructed
by: Bopape
Attorneys
Date
of Hearing: 8
June
2023
Date
of Judgment: 13
October 2023
[1]
Section
8(1)(a) of the Act reads: ‘(1) It is prohibited for a dominant
firm to-
(a)
charge an excessive price to the detriment of consumers or
customers;
…’
[2]
Regulation
4 reads: ‘Excessive Pricing:
4.1
In terms of
section 8(1)
of the
Competition Act a
dominant firm may
not charge an excessive price to the detriment of consumers or
customers.
4.2
In terms of
section 8(3)(f)
of the
Competition Act during
any period
of the national disaster, a material price increase of a good or
service contemplated in Annexure A which –
4.2.1
does not correspond to or is not equivalent to the increase in the
cost of providing that
good or service; or
4.2.2
increases the net margin or mark-up on that good or service above
the average margin or mark-
up for that good or service in the three
month period prior to 1 March 2020, is a relevant and critical
factor for determining
whether the price is excessive or unfair and
indicates prima facie that the price is excessive or unfair.’
The
Consumer Protection Regulations were published by the Minister of
Trade and Industry on 19 March 2020 to protect consumers
and
customers from excessive, unfair, unreasonable, or unjust pricing of
goods and services during the national state of disaster.
[3]
Competition
Commission v Tsutsumani Business Enterprises CC [2022] ZACT 97.
[4]
See:
TWK Agriculture Limited v Competition Commission and Others
[2007]
ZACAC 3
para 28.
[5]
See:
Melane v Santam Insurance Co Ltd
1962 (4) SA 531
(A) at 532C-E; Van
Wyk v Unitas Hospital and Another (Open Democratic Advice Centre as
amicus curiae)
[2007] ZACC 24
;
2008 (2) SA 472
(CC) paras 20-22; Giwusa and Another
v Milco SA (Pty) Ltd and Others
[2022] ZACAC 12
para 6.
[6]
The
Rules provide for the same time period for bringing an appeal (15
days) as a review, and hence the Rules are intended to be
time
neutral as to the choice of procedure. An applicant in a review
cannot use the fact it is waiting for the record to bring
the
application, as the rules specifically provide the applicant the
right to supplement. (Rule 23(6)).
[7]
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
2019
(4) SA 331
(CC) para 52.
[8]
Brummer
v Gorfil Brothers Investments (Pty) Ltd and Others
[2000] ZACC 3
;
2000 (2) SA 837
(CC) para 3.
[9]
See
s 6(1) of the Act which reads: ‘Restrictive application of
Part
(1)
The Minister, in consultation with the Competition Commission, must
determine-
(a)
a threshold of annual turnover, or assets, in the Republic, either
in
general or in relation to specific industries, below which this
Part does not apply to a firm; and
(b)
a method for the calculation of annual turnover or assets to be
applied
in relation to that threshold.
(2)
The Minister may make a new determination in terms of subsection (1)
in consultation with the Competition Commission.
(3)
Before making a determination contemplated in this section, the
Minister,
in consultation with the Competition Commission, must
publish in the Gazette a notice-
(a)
setting out the proposed threshold and method of calculation for
purposes
of this section; and
(b)
inviting written submissions on that proposal.
(4)
Within six months after publishing a notice in terms of subsection
(3),
the Minister, in consultation with the Competition Commission,
must publish in the Gazette a notice-
(a)
setting out the threshold and method of calculation for purposes of
this section; and
(b)
the effective date of that threshold
[10]
Section
7 of the Act reads: ‘Dominant firms
A firm is dominant in a
market if-
(a)
it has at least 45% of that market;
(b)
it has at least 35%, but less than 45%, of that market, unless it
can
show that it does not have market power; or
(c)
it has less than 35% of that market, but has market power.’
[11]
Babelegi
Workwear and Industrial Supplies CC v Competition Commission 2021
(6) SA 446 (CAC).
[12]
Ibid
para 49.
[13]
Competition
Commission v Stanley’s Removals CC, Case No. 149/CAC/Jan17,
paragraph 30.