About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Appeal Court
SAFLII
>>
Databases
>>
South Africa: Competition Appeal Court
>>
2020
>>
[2020] ZACAC 8
|
|
Competition Commission of South Africa v NPC-Cimpor (Pty) Limited and Others (178/CAC/DEC19) [2020] ZACAC 8 (7 August 2020)
THE
COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
IN CAPE TOWN
CAC
CASE NO: 178/CAC/DEC19
In
the matter between
THE
COMPETITION COMMISSION OF SOUTH AFRICA Appellant
and
NPC-CIMPOR
(PROPRIETARY) LIMITED First
Respondent
AFRISAM
(SOUTH AFRICA) Second
Respondent
PROPRIETARY)
LIMITED
LAFARGE
SOUTH AFRICA
(PROPRIETARY)
LIMITED Third
Respondent
PPC
LIMITED Fourth
Respondent
JUDGMENT
Date:
07 August 2020
DAVIS
JP
[1]
This appeal turns on the question of whether first respondent was
party to an agreement or alternatively a
concerted practice as
prohibited in terms of s 4(1) (b) of the Competition Act 89 of 1998
(the Act ) and which continued until
2009. The appellant (the
Commission) contends that this agreement or concerted practice
commenced prior to the introduction of
the Act on 1 September and
continued at least until 2009. It involved the four respondents in
indirectly fixing cement prices in
contravention of s 4 (1) (b) (i)
of the Act and dividing the cement market through, inter alia, the
allocation of market shares
in contravention of s 4(1) (b) (ii) of
the Act.
[2]
The appeal concerns a number of important legal issues relating to
the scope and meaning of s 4(1) (b) of
the Act, including whether the
first respondent’s conduct constituted a prohibited practice
and even if it did whether it
continued after 2 June 2005, being the
initiation date of the complaint. The complaint upon which the
litigation has been predicated
was initiated in June 2008 by the
Commission for the purposes of investigating allege cartel behaviour
in the cement and cement
extender industry. Upon the commencement of
the investigation second, third and fourth respondents have all
confessed to having
participated in cartel conduct in breach of s
4(1) (b) of the Act. Leniency was granted to fourth respondent in
late 2009 and then
consent agreements were concluded between the
Commission and second and third respondents in 2011 and 2012
respectively. Seven
years after the initiation of the complaint and
three years after the conclusion of the final consent agreement, that
is with third
respondent in March 2012 the Commission referred a
complaint to the Tribunal in February 2015 against the first
respondent. The
Competition Tribunal (the Tribunal) dismissed this
referral in December 2019, finding that the Commission had failed to
prove an
ongoing agreement or concerted practice in the light of its
failure to show that the initial agreement upon which its entire case
had been predicated had been concluded in breach of s 4(1) (b) of the
Act. It is against this finding that the Commission has approached
this court on appeal.
The
factual matrix
[3]
According to the founding affidavit deposed to by Katlego Monareng on
behalf of the Commission. For many years
dating back to the 1940s,
cement producers in South Africa had been granted an exemption in
terms of the then legislation to conduct
the manufacturing and
distribution of cement by way of a lawful cartel. The main features
of this cartel were an agreement on market
shares largely based on
each cement producer’s original production capacity, the
division of South Africa into two major
regions, the northern region
and the southern region, a centralised sales and distribution system
and a unitary price model known
as a Twycross pricing model in terms
of which the Lafarge factory in Lichtenburg was used to determine a
base price.
[4]
The Competition Board which is the predecessor to the Commission
withdrew this exemption in 1995. This required
the main producers of
cement to find a fresh solution.
[5]
On 15 December 1995 at a meeting of the South African Cement
Producers Association (SACPA) it was agreed amongst
the cement
producers to set market share limits as follows:
Alpha 35 – 36%
Lafarge 22-23%
PPC 42-43 %
According
to the note of the meeting, the following was also agreed:
‘
The above market
share included one-third of NPC’s sales to each producer.
Lafarge received a larger market share envelope
than its 21, 64%
average for the period 1985 to 1995 due to its acquisition of African
Portland Cement (Otjiwarongo, Namibia) and
Petermix (Pietersburg and
Nelspruit). Alpha had acquired third-party blenders Inter-Africa
(Swaziland) and Potgietersrust Cement
Distributors. The above
resulted in PPC agreeing to a lower market share envelope than its
43,00% average during the period 1985
to 1995. Accurate market shares
as agreed to by the companies at that point in time were therefore: -
Alpha 35,33%
Lafarge 22,33%
PPC 42,33%’
[6]
Mr. Collin Jones the executive of fourth respondent was responsible
for sales and marketing testified that
‘the information
exchange was a critical part of the arrangement. A key thing that
they had to put in place was a replacement
for the data collection
process, which prior to that had been done under the auspices of
SACPA and the Cement Distributors (South
Africa)(Pty) Ltd (CDSA) and
which allowed the participants to monitor market shares and it had to
be a process that would withstand
scrutiny. Deloitte was approached
ultimately and they were asked to become custodians of the data, so
to speak, and so instead
of each of the parties submitting the data
to SACPA, a lot of discussion went into the format of the data that
would be submitted
to Deloitte and what consolidated data Deloitte
would circulate to the members.’ (my emphasis)
[7]
By 1996 a price war had broken out, particularly as a result of
fourth respondent aggressively competing with
the other producers of
cement. A series of preliminary meetings then took place in 1998 in
order to restore stability to the market
so that the global ‘cement
rules of the game’ could be concluded in order to ensure that
the market returned to stability.
In August of 1998 representatives
of first second, third and fourth respondent attended a two day
meeting near Port Shepstone in
KwaZulu-Natal (the Port Shepstone
meeting). The aim of this meeting was to discuss the return to
stability in the market. Present
at the meeting were Mr Strauss,
representing first respondent, Mr Fourie the third respondent, Mr
Pienaar the second respondent
and Mr Jones the fourth respondent.
According to the Commission, the meeting culminated in what was
referred to in the proceedings
as the Port Shepstone agreement and
which included the following:
‘
1. market
share allocation in line with the market share allocation under the
lawful cartel for the SACU market, being all
of South Africa,
Lesotho, Botswana, Namibia and Swaziland, although also referred to
by the cement producers as the “national”
market.
2. the target
market shares of the cement producers under the 1995 agreement were
refined.
3. market
share allocation for each producer per province, with provincial
market shares added up to the previous “national”
cartel
market shares;
4. the
pricing parameters for different types of cement;
5. the
scaling back of marketing and distribution activities, coupled with
agreed closure of certain depots in certain
regions; and
6. cement
producers not offering special discounts on higher quality cement.’
[8]
Until October 2002 first respondent was jointly owned by second,
third and fourth respondents equal shares.
The chairperson of first
respondent was appointed by the second respondent. In October 2002,
Cimpor acquired the shares in NPC
from each of second, third and
fourth respondents. Upon the acquisition of the shares in first
respondent, Cimpor appointed its
own directors to the board of first
respondent. All of the directors who had been appointed by second,
third and fourth respondents
resigned. Strauss however remained as
the managing director of first respondent.
[9]
The Commission contends that, notwithstanding the takeover and the
change in the composition of the board,
that first respondent
continued to abide by the cartel arrangements which had been agreed
to at the Port Shepstone meeting, submitted
sales to Deloitte and
continued to target its allocated market shares.
[10]
A meeting on 1 April 2003 was held in Paris between representatives
of Cimpor which included Mr Strauss of first respondent
and
representatives of Lafarge including Mr Fourie. It appeared that
Lafarge International had a shareholding in Cimpor and for
this
reason, representatives of third respondent attended the meeting. The
minutes of the meeting reflect the following:
‘
Lafarge indicated
that they have surplus clinker in South Africa. Their estimates
indicate that NPC will need more clinker in 2004
and they could be in
a position to supply. This will be a relatively short term
arrangement, but could postpone the need for NPC
to invest in more
clinker capacity. Cimpor indicated that more clinker milling capacity
would also be required and asked if the
Richards Bay grinding plant
would be for sale. Lafarge indicated that they are not considering
the disposal of Richards Bay depot.’
[11]
In August 2005 an agreement was reached between first and third
respondents in terms of which the former would import
clinker from
third respondent to grind on behalf of first respondent. Cement was
also sold to first respondent using third respondent’s
capacity
at Richards Bay. A minute of the meeting on 24 August 2005 reflects
that the arrangement was to have no impact on selling
prices or
market share.
[12]
On the basis of these facts, the Commission contends that the Port
Shepstone discussions had taken place in the shadow
of a series of
collusive discussions which preceded it and the need, which the
various cement producers considered to be vital,
for the
establishment of a new cartel arrangement following the actions of
the Competition Board which had brought the lawful cartel
to an end.
[13]
The Commission contends an agreement was reached at Port Shepstone,
which consensus constituted an agreement to establish
a cartel and at
which meeting Mr Strauss of first respondent was an active
participant; that is Mr Strauss as managing director
of first
respondent actively brought first respondent into the cartel
arrangement in which the other three respondents were also
participants. Central to the agreement were the allocated market
targets to second, third and fourth respondents and further that
the
first respondent would target a market share between 10% and 12% of
the total market in the SACU region.
[14]
The Commission also contended that the Port Shepstone agreement
included the allocation of territories between the four
respondents.
In particular, the Western Cape was allocated to the fourth
respondent together with the territory known as the Eastern
Cape,
being half of the province of the Eastern Cape whereas the other half
was allocated to second respondent together with Swaziland
and
Lesotho. Botswana was allocated to the fourth respondent in exchange
for it withdrawing from the market in Northern KZN to
the benefit of
third respondent. In particular, the Commission emphasised that there
was an agreement that second, third and fourth
respondents were all
to withdraw from the territory that the cement producers had defined
as South KZN which was then allocated
to first respondent which
generated the majority of its production in sales of cement in this
area.
[15]
The Commission then turned to the exchange of information between the
parties. It contended that to ensure that this
agreement could be
monitored, the four parties had adopted an information exchange
framework in terms of which they ‘inter
alia, provided detailed
sales volume information to an industry association known as the
Concrete and Cement Institute of South
Africa (C&CI), in terms
thereof which set of received a highly desegregated total figures
which allowed each of them to monitor
changes to their market shares
on a monthly (and later weekly) basis.
[16]
In this connection, the Commission placed considerable emphasis on
the evidence of Mr Jones who, as I have said, referred
to the
information exchange as ‘a critical part of the arrangement’
[17]
In his witness statement Mr Jones amplified on this point as follows:
‘
It is important to
note that the mechanism in place by the early 2000s were sufficient
to maintain the agreement without the need
for representatives from
cement producers to meet in person. The mechanisms that I am
referring to here are the information exchange
framework as well as
the mechanism of the C&CI to maintain the framework. Without the
information exchanges through the C&CI,
the monitoring of market
shares would have largely been guesswork.’
[18]
The Commission contended that all of the cement producers, including
first respondent, continued to submit their respective
data to the
C&CI until 2009 when the Commission prevented the continuation of
this information exchange.
[19]
In summary: it was the Commission’s case that, following the
Port Shepstone agreement, the first respondent operated
almost
entirely in Southern KZN until at least 2009. Together with its
competitors, it continued to submit its sales data with
C&CI
until 2009 whereby it retained the means to monitor its target market
shares. Its market share remained constantly within
the target
bracket of 10 – 12 %, even after it was taken over by Cimpor.
Furthermore, first respondent delayed expansion
of its production
capacity by some two years relying rather on cooperation from third
respondent which, in turn, had sacrificed
its own capacity which it
might have been able to employ to take market share away from first
respondent.
[20]
There was also some suggestion, based upon a memorandum from second
respondent (referred to as exhibit 4 in the proceedings),
that Cimpor
would not have purchased the total shareholding in first respondent
for the price ultimately paid, unless there had
been some assurance
given that the other cement producers would not encroach upon first
respondent’s territory after the
sale. Thus, it was for this
reason that Cimpor had ultimately paid a premium for its acquisition
of the shares in first respondent.
This argument was not foreshadowed
in the case presented by the Commission as set out in the founding
affidavit nor in the replying
affidavit where the following does
appear.
‘
The Commission is
not aware of the reasons behind the sale of NPC to Cimpor and puts
NPC to the proof thereof.’
The
Tribunal’s decision
[21]
The essence of the Tribunal’s finding that first respondent was
not a party to any agreement reached at Port Shepstone
is to be
located in the considerable emphasis it placed on the fact that,
until 2002,first respondent was a wholly owned subsidiary
of the
three respondents Accordingly it found:
‘
There was no
meaningful competition between NPC and its shareholders, and they
could not be considered to be in a horizontal relationship
because
NPC was selling and making profits for its shareholder. NPC was not
independent of the shareholders who decided what NPC
would buy from
them and the price of those purchases. Management was unhappy about
this fact but could not do anything about it.’
[22]
It then held that, once Cimpor had acquired the entire shareholding
of first respondent, it ‘was independent of
its founding
shareholders and stopped providing its former shareholders with its
company, financial and sales information. It submitted
the latter
only to the C&CI, confidentially through Deloitte. It saw only
the published C&CI statistics which it used independently
to plan
its production, sales and marketing. It also prepare a flash report
each month which provided the directors and management
with an
overview of the expected monthly results. Cimpor focussed on national
and not regional markets and staff were incentivised
to grow national
market shares. Post the Cimpor takeover, NPC was susceptible to a
possible contravention of the Act in its own
right. However, there is
no evidence that the newly constituted NPC implemented the prior
market sharing arrangements. There is
also no evidence of collusive
meetings involving NPC of the kind that characterised the pre-2002
period where the founding shareholders
met to reach an agreement or
to confirm the so-called global rules.’
[23]
To the argument that Mr Strauss had been an active participant in the
Port Shepstone meeting, the Tribunal found that
as the representative
of a company wholly owned by the three cartelists, being second,
third and fourth respondent, ‘he was
obliged to carry out the
instructions given to him by the other three and had to implement the
decisions taken by them in relation
to NPC. He appeared to resent
that and the fact that his recommendations to the shareholders were
not acted upon.’
[24]
Turning to the information exchange and the submission of the data to
the C&CI, the Tribunal referred to the Commission’s
own
witness Ms Corrie, an employee of fourth respondent who testified
that the C&CI data was aggregated information which could
not be
employed to determine, for example, first respondent’s actual
share of the market and whether it was enjoying a growth
or decline
in sales. In addition, she confirmed that, between 1999 and 2001/2,
she had attended regularly scheduled meetings with
second and third
respondent at which targeted market shares, the level or pricing and
the related matters were discussed but at
which meetings the first
respondent was invited. Thus, if evidence of the information exchange
had sufficed to further the collusive
agreement, the Tribunal found
the meetings which had been described by Ms Corrie would have been
unnecessary. As the Tribunal put
it: In other words, the information
exchange fell short of the information required by the three firms to
further the market sharing
arrangements and, hence they needed
further, clandestine meetings to gain additional information and to
facilitate communication
by direct contact.
[25]
For these reasons, the Tribunal found that the 1998 Port Shepstone
agreement could not be held to be an agreement within
the meaning of
that term as employed in s 4 (1) (b) of the Act. Further, in the
absence of additional evidence, it was not possible
to conclude that
there had been an agreement for the purposes of s 4 (1) (b) during
the period of the complaint; that is between
2005 and 2009.
The
appeal
[26]
On appeal, Mr Gotz who appeared together with Mr Marolen submitted on
the strength of the European Court’ of First
Instance’s
decision in Heinz van Landewyck SARL v Commission 2009/78 at para 8
that an agreement will be concluded for the
purposes of a cartel
arrangement where firms have ‘expressed their joint intention
to conduct themselves in the market in
a specific way. Mr Gotz
submitted this is precisely what unfolded at the Port Shepstone
meeting where representatives of the four
firms present jointly
expressed the intension to divide the market by allocating market
shares in territories between themselves.
In the view of Mr Gotz, the
evidence, particularly of the representatives of second to fourth
respondents, confirmed that it was
their joint intention to conduct
themselves in a market specific way which included the participation
of first respondent which
continued to operate at its full productive
capacity at that time which enabled it to maintain the historic
market share that was
understood to be between 10% to 12 % of the
SACU market.
[27]
Mr Gotz submitted further that the participants agreed that second to
fourth respondents would withdraw from Southern
KZN, effectively
allocating that territory exclusively to the first respondent. While
this agreement was entered into before the
Act took effect on 1
September 1999 the consensus reached at that meeting continued to
hold throughout the relevant period of the
complaint. Mr Gotz placed
emphasis on the evidence of Mr Strauss that an agreement had been
reached at Port Shepstone and that
first respondent would maintain a
particular market share, that he had participated in discussions at
the meeting and that he had
not objected in any way to the agreement
that was reached at the meeting.
[28]
The agreement which had been reached at that meeting at which Mr
Strauss of first respondent had participated sufficed
to bring the
four respondents conduct within the scope of s4 (1)(b) of the Act. In
the view of Mr Gotz, whatever the consequences
of the takeover by
Cimpor, the fact remained that first respondent submitted sales
figures to the C&CI and carefully monitored
its national share
throughout the relevant period. It continued to target a market share
of 10 to 12 % which remained remarkably
constant throughout the
relevant period. This conduct had to be viewed against the backdrop
of the evidence of the nature, purpose
and effect of the Port
Shepstone agreement and the exchange of information which constituted
the key mechanism by which the parties
were able to maintain the
agreement or to put it in the words of Mr Jones ‘without the
information exchanges through the
C&CI the monitoring of market
shares would have largely been guess work.’ In short, first
respondent continued throughout
the complaint period to comport its
conduct in terms of the agreement which had been reached at Port
Shepstone.
Evaluation
of Port Shepstone Agreement
[29]
The fundamental premise upon which the Commission’s case rests
is that a continuous thread must be drawn from the
conclusion of an
agreement reached in Port Shepstone in 1998, and that the conduct of
first respondent, , albeit under the control
of Cimpor from 2005 to
2009 manifested clear compliance with the terms of this agreement. In
so submitting the Commission relies
on the approach adopted by this
Court in Netstar (Pty) Ltd v Competition Commission (Case number:
97/CAC/May 10 at para 25) where
an agreement was defined as ‘actions
of and discussions among the parties directed at arriving at an
arrangement that will
bind them either contractually or by virtue of
moral suasion or commercial interest. It may be a contract which is
legally binding
or an arrangement or understanding that is not for
which the parties regard as binding upon them. Its essence is that
the parties
reach some kind of consensus.’
[30]
On the strength of this dictum, Mr Gotz submitted that the Port
Shepstone agreement clearly involved discussions among
as well as
actions which were directed at achieving a consensus between the
parties. In his view. the evidence of representatives
of second,
third and fourth respondents namely Jones, Pienaar and Fourie,
clearly confirmed the joint intention of the parties
to conduct
themselves in the market in a specific agreed way .This included the
fact that first respondent would operate to its
full productive
capacity at that time, would maintain a historic market share which
was known to the parties as between 10 to 12
% of the total SACU
market and that the other participants, being second third and fourth
respondents, would all withdraw from
the Southern KZN effectively
thereby allocating that territory to first respondent.
[31]
By contrast, Mr Maenetje who appeared together with Mr Turner on
behalf of the first respondent relied on the judgment
of the Court of
Justice of the European Union in Soliver NB v European Commission (10
October 2014). The case involved alleged
agreements and concerted
practices between various undertakings which were active in the
production and the distribution of car
glass. The applicant, a small
glass manufacturer which was active in the automobile industry was
found by the European Commission
to have participated in cartel
activity between 19 November 2001 to 11 March 2003. The Commission
contended that a group of car
glass suppliers had throughout the
relevant period monitored their respective market shares and further
the three major manufacturers
(which excluded the applicant) had
participated in trilateral meetings sometimes called “club
meetings”. These meetings
between competitors comprised of
discussions that took place with regard to the supply of car glass
for current or future car models,
the evaluation and monitoring of
market shares, the allocation of supplies of car glass to
manufacturers and the exchange of information
on prices as well as
the exchange of other commercially sensitive information and the
coordination of the pricing and supply strategies
of those various
competitors.
[32]
At some point the applicant began to participate in the cartel,
having been contacted by one of the large manufacturers.
According to
the court, the large manufacturers exploited the fact that the
applicant was dependent on the producers of the raw
material as it
lacked in house production of flat glass.
[33]
Central to the applicant’s argument before the Court was a
denial that it intended to contribute by its own conduct
with the
common objectives pursued by all the participants in the cartel, that
it was aware of the planned or actual conduct of
the other
undertakings in pursuit of these objectives or that it could
reasonably have foreseen the nature of the cartel activity
and that
it was prepared to take the risk. Of particular relevance was a
submission that since the applicant did not participate
in any of the
so-called club meetings it was not aware of the existence of
systematic and detailed agreements between the other
three covering
the entire market for car glass in the European Union.
[34]
The Court set out the relevant law as follows:
‘
The undertaking
must therefore be aware of the general scope and the essential
characteristics of the cartel as a whole…
where that is the
case, the fact that an undertaking did not take part in all the
constituent elements of a cartel or that it played
only a minor role
in the elements in which it did participate must be taken into
consideration only when the gravity of the infringement
is assessed
and, as the case may be, in determining the amount of the fine…
It is undisputed that the applicant did not
take part in all of the
constituent elements of the infringement. Moreover the Commission
acknowledged that the applicant had not
participated in any of the
actual meetings of the representatives of the club either prior to
the period in which according to
the Commission the applicant
participated in the cartel or during that period itself. It follows,
in accordance with the principles
set out …, that in order to
establish the applicants participation in the single and continuous
infringement to which the
contested decision relates, the Commission
must show not only the anti-competitive nature of the applicants
contacts… but
also that the applicant was aware or could
reasonably be expected to be aware of first the fact that those
contacts were intended
to contribute to achieving the cartels overall
plan and secondly the general and the essential characteristics of
the cartel.’
(paras 64-67)
[35]
Based on this approach which adds a necessary gloss to the Netstar
dictum of this Court, Mr Maenetje submitted that the
cartel was
constituted of second, third and fourth respondents. Furthermore the
Port Shepstone meeting was not the only meeting
between these three
parties. Between 1997 until 2006/7, multiple meetings were held
between these parties at different levels of
management. During 1998
and 1999 a group of middle managers met, including Messrs Pienaar,
Fourie and Jones. In late 1998 and during
1999 engagements took place
at a senior management level with Mr Doyle on behalf of the second
respondent, Mr Leo on behalf of
the third respondent and Mr Gomersall
on behalf of the fourth respondent.
[36]
There was some effort to contend on the basis of a written note of
the development of cartel discussions by Mr Blackbeard
that the Port
Shepstone meeting which had not been mentioned in the note was
therefore not critical to the constitution of a cartel.
But, even if
it was the vital meeting, Mr Maenetje contends that first respondent
was only included in two meetings and only one
in respect of which
evidence was led and that was the Port Shepstone meeting.
[37]
First respondent’s case based upon the Soliver dictum was to
the effect that the attendance by Mr Strauss, on behalf
of a wholly
owned subsidiary of the three admitted cartelists at the Port
Shepstone meeting could not of itself make first respondent
a member
of the cartel. This submission is buttressed by the further
observation that the content of the discussions that which
was
ultimately concluded concerned the implementation by the three
shareholders of the first respondent of a division of the national
market ,an agreement on an exchange of confidential information and
communication between operational personnel to ensure the
implementation and policing of these allocations. By contrast, as a
wholly owned subsidiary of the three cartelists, first respondent
was
obliged to provide its shareholders with all relevant information and
it was therefore any agreement regarding these matters
as they
concerned the first respondent was never necessary for the purpose of
the implementation of an allocation or the monitoring
of the
agreement. In short, the respondent’s case was that at that
meeting in Port Shepstone, first respondent was no more
than a
witness to an agreement between the other three respondents. It was
not asked to agree to maintain any national market share
in that it
did not have one. The 10 %to 12 % share simply comprised its share of
the KwaZulu-Natal market translated into the factor
that the other
firms employed to measure market share, namely a percentage of a
national market share.
[38]
Until the share of first respondent were acquired by Cimpor, second
respondent was the appointed manager of first respondent
and the
three shareholders constituted a board of directors which had full
strategic control over first respondent in addition
to which it
possessed the right of complete access to all first respondent’s
confidential commercial information. Having
decided that first
respondent would be restricted to an operation in the southern part
of KwaZulu-Natal, there was no need to do
more in that it was
operating at full capacity, in a geographical location which was
distant from the contested inland market where
all the key producers,
being the three cartelist operated.
[39]
According to Mr Strauss, upon his return to first respondent after
the 1998 meeting, it was not necessary to provide
any instruction to
anyone employed by first respondent to carry out any cartel related
activity. All that happened was that first
respondent continued with
its business activities in exactly the manner as it had conducted
them prior to the meeting,
[40]
In this connection Mr Strauss’ evidence is of particular
significance.
Notwithstanding
the attempt by Mr Gotz to seek to exploit it for the advantage of the
Commission’s case. The following passage
is instructive:
‘
At the 1998
meeting the representative of PPC, Alfa and Lafarge decided that each
of their companies and NPC should maintain certain
market shares in
designated geographic areas. Where a company’s market share and
a particular geographic area exceeded the
agreed market share a
company would increase prices in that area with a view to reducing
sales and market share in that area.’
[41]
In other words, the agreement was struck between the three
shareholders which then imposed their bargain on their wholly
owned
subsidiary, first respondent.
[42]
When these competing arguments are evaluated, at best for the
Commission is the conclusion that Mr Strauss on behalf
of NPC said
nothing to gainsay the drawing in of his firm into the agreement
struck by the other three respondents. This is not
entirely
surprising, bearing in mind that at that point the Act had not yet
been implemented. Nonetheless, given that Mr Srauss
had said nothing
in protest and therefore both knew about the agreement and never
distanced himself therefrom, the Commission’s
case rests on the
basis of a duty to speak against the participation in the cartel if a
party wants to show that it was not a party
thereto. By its silence,
first respondent, notwithstanding its inability to resist the will of
its shareholders, constituted a
party to the agreement. It was
precisely this conclusion which the Tribunal refused to accept. It
took account of the lack of independence
of first respondent from its
shareholders, which were clearly participants in the cartel. It noted
that any exchange of information
between first respondent and second,
third and fourth respondents was not dependent upon the conclusion of
a cartel agreement but
as of right as shareholders and because its
representatives constituted the board of first respondent.
[43]
The Commission sought to counter the argument that the first
respondent was a wholly owned subsidiary of three firms
that were
participants in a cartel by emphasising both Mr Strauss’
knowledge of the need to end the price war, his participation
in the
deliberations the Port Shepstone meeting and the organisational
autonomy possessed by first respondent to compete with its
shareholders. But what is never answered in the Commission’s
case is the implication of the many meetings that continued
to take
place concerning cartel activity in the absence of first respondent
nor the fact that there was no need to obtain agreement
from first
respondent to share confidential information, given its position as a
wholly owned subsidiary nor the autonomy it appeared
not to possess
in the allocation of market share.
[44]
Even if this Court assumes in favour of the Commission that an
agreement was reached at Port Shepstone which included
the first
respondent, the question arises as to whether the conduct of first
respondent constituted participation in a cartel for
the purposes of
s 4 (1) (b) of the Act subsequent to the purchase of its shares by
Cimpor from the three cartelists being second,
third and fourth
respondents.
[45]
It is to that issue that I must now turn.
The
takeover and its consequences
[46]
The Commission contended that there were no negative implications for
its case as a result of the 2002 takeover of first
respondent. Mr
Gotz submitted that a mere change in the shareholding did not justify
prior unlawful conduct in that to hold to
the contrary would permit a
cartel member to escape liability by ensuring that its shares were
transferred to another entity prior
to the referral of a complaint.
What was required of NPC under its new shareholding to justify the
argument that it was not part
of the cartel was ‘a firm
repudiation of its continued adherence to the Port Shepstone
agreement.’ This would be in
keeping with this Court’s
dictum in MacNeil Agencies (Pty) Ltd v the Competition Commission of
South Africa
[2013] ZACAC 3
at para 64: ‘under certain
circumstances our law imposes on a person the duty to speak and a
failure to do so where the duty
exists may amount to an objective
manifestation of consent regardless of the subjective intention of
the silent party.’
[47]
It was suggested by the Commission in argument that the price paid by
Cimpor for first respondent’s shares included
a premium paid to
keep the second, third and fourth respondent ,being the sellers away
from competing in the market of first respondent.
The only evidence
upon which the Commission could point to justify this submission was
an internal memorandum which appeared within
the organisation of
second respondent and in terms of which an unknown author speculated
as to what a potential third party buyer
might pay for the shares in
first respondent. All that is contained in the record concerning this
document, referred to as exhibit
4 in the record of evidence, was
that it was authored by certain Alpha 1 and was dated 17 July 2000.
It contemplates the possible
sale of first respondent and then: ‘Sell
to a Fourth Player The problem will be to find a fourth player
willing to run the
risk of low real returns unless there is an
implicit non-competition agreement which defeats the objectives of
the new Act.
A
new player
o does
not have the cement capacity to retaliate in the North to any
significant extent;
o its
only resort is a price war
…
Sale to one of existing
players
This could be more viable
than selling to an outsider as:-
o an
existing player would have more potential to retaliate than an
outsider by damaging competitors’ Northern
markets
o but
will only be considered viable if there is implicit non-competition.
Status Quo
This will however
require:-
o
removal of shareholder directors from Board and appointing outside
directors;
o loss
of control unless shareholders have the right to fire directors if
the Company does not perform;
o
implicit non-interference in NPC natural market.’
[48]
Mr Gotz referred to his cross examination of Mr Strauss and in
particular the questions put to Mr Strauss about the approximate
purchase price that Cimpor paid for the shares being R 984 million
which was considerably more than the R 500 m that had been referred
to in exhibit 4. In particular he emphasised the question put to Mr
Strauss by the Tribunal in which the former conceded that it
appeared
that Cimpor had paid a premium for the shares that it acquired.
[49]
A reading of Mr Strauss’ evidence shows that he was hardly a
model of clarity with regard to the payment of a premium.
In response
to a question from Mr Daniels of the Tribunal, Mr Strauss said:
‘
What I learned
later from Cimpor is that they had certain, call it rules of thumb.
So, they would say if you buy a Ready Mix company,
you would pay so
many EBITDA’s. If you buy a cement company, you would pay so
many EBITDA’s. So, they would related
the price to the
profitability of the company. That was their view. Whether they …
I don’t know if they did the IRR
under these scenarios.’
[50]
Pressed by Mr Daniels as to whether Cimpor would have wanted to
ensure that no one attacked the market of first respondent
in
Southern Kwa- Zulu Natal he said:
‘
Well I don’t
know what assumptions they made regarding the competition but they
certainly knew what the total market was and
what the competition was
doing.’
[51]
There were two further difficulties with regard to this aspect of the
Commission’s case. In the first place the
question of the
premium was not pleaded. It was not the case brought by the
Commission before the Tribunal. Secondly, the note
authored by an
anonymous writer could not be examined by the Tribunal and as the
first respondent expert economist Mr Smith pointed
out, when the note
was prepared in 2000, it could not be said with certainty that the
market conditions upon which the note was
predicated were the same as
those which applied when the Cimpor sale took place. In short, this
component of the Commission’s
case appeared to be an
afterthought. At the very least, it should have been pleaded and
evidence with regard to a fair market value
and/or premium for the
shares in the year of the sale, 2002, should have been produced by
the party on whom the onus rested to
show the existence of a cartel.
[52]
Mr Gotz referred to a meeting in Lisbon which took place immediately
after the Cimpor takeover in December 2002 at which
Mr Fourie of the
third respondent was also in attendance. It appears that Mr Fourie
attended as a representative of third respondent
which held shares in
Cimpor. Notwithstanding first respondent’s limited productive
capacity, a decision to expand its production
facility was not taken
at the Lisbon meeting although Mr Strauss had motivated for it.
[53]
On 1 April 2003 a further meeting was held in Paris which was
attended inter alia by Mr Strauss and Mr Fourie. The question
of
cooperation between the two companies certainly raised that the
minute of the meeting reflects the following:
‘
Lafarge indicated
that they have surplus clinkers capacity in South Africa. Their
estimates indicate that NPC will need more clinker
in 2004 and they
could be in a position to supply. This will be a relatively short
term arrangement but could postpone the need
for NPC to invest in
more clinker capacity. Cimpor that more clinker milling capacity
would also be required and asked if the Richards
Bay grinding plant
would be for sale. Lafarge indicated that they are not considering
the disposal of the Richards Bay depot.’
[54]
Following upon this meeting in April 2003, first and third respondent
concluded a supply agreement in terms of which
the former undertook
to mill clinker at its Richards Bay plant and to supply first
respondent with cement. Mr Gotz referred in
addition to the fact that
first respondent supplied both second and third respondents with
cement for their Ready Mix operations
in Southern and Northern KZN.
In other words, these competitors constituted customers of first
respondent. Further, the cement
was sold to them at prices lower than
the prices it offered to third party customers and in certain years
did not impose any price
increases with regard to these sales.
[55]
In summary, the Commission contended that the competitors of first
respondent appeared to sacrifice capacity that could
otherwise have
been used to take market share away from first respondent, and
further that first respondent used a significant
portion of its
capacity to supply its competitors when it could have redirected that
capacity to supply third party customers.
These facts, read with the
continued exchange of information and the maintenance of first
respondent’s market share, confirmed
the continued existence of
first respondent’s participation in a cartel which had its
origins in the Port Shepstone agreement.
[56]
To this argument, first respondent responds that there was a clear
proposal to expand capacity by way of expansion of
a fully-fledged
clinker and cement factory at Simuma. According to Mr Strauss, Cimpor
required studies to be done before investing
an approximate amount of
R 1 b in the expansion project. The forecast and assumptions relevant
to first respondents investigation
in 2003 were different from those
which had applied in 1996 when the issues of expansion was raised
previously.
[57]
There was evidence that throughout the period commencing in the
1990’s and continuing until to 2009, first respondent
supplied
cement to Ready Mix Concrete Operations owned by second and third
respondents in Durban. These operations were major downstream
customers located close to its factory and they bought large volumes
and indeed did receive preferential prices.
[58]
The difficulty confronting this Court in an evaluation of the
competing arguments relating to the supply of cement by
first
respondent to second and third respondents was that there was no
evidence produced by the Commission to justify the argument
that the
provision of this concrete formed part of any agreement either
concluded at Port Shepstone or otherwise. Furthermore,
no witnesses
from either the second or the third respondent were called to explain
how these agreements form part of the cartel.
Significantly, it would
have been possible for the Commission to have produced the kind of
evidence which might well have shone
better light, viewed from the
vantage points of the Commission’s case, on this issue. For
example, Ms Saizedes who was employed
by third respondent throughout
the relevant period made no mention of this arrangement or
implications thereof in her witness statement,
notwithstanding that
she referred in her witness statement to the cement producers
laboured under capacity constraints due to the
growth in demand of
cement.’ She was not called to give evidence on behalf of the
Commission which was clearly an option
available to the Commission as
were the employees of second and third respondents.
[59]
The regrettable consequence is that insufficient evidence was
produced by the party on whom the onus rested to draw out
what
possible implications this supply of product by first respondent
could have held for the overall case dealing with first respondent’s
participation in a cartel. While a court is entitled to draw an
inference from the proven facts, this inference must be the more
natural or plausible conclusion among several other possibilities;
that is it must be the more plausible acceptable or credible
inference that can be drawn by a court. See Accident Guarantee
Corporation Ltd v Koch
1963 (4) SA 147
(A) at 159.
[60]
Mr Maenetje submitted that an equally plausible inference to be drawn
was that these agreements had absolutely nothing
to do with the
cartel and had they held such importance, the Commission, having
access to the relevant witnesses, would have called
one or more of
them to testify before the Tribunal. Indeed, it would be a dangerous
precedent for this court to engage in speculation
in favour of the
Commission simply because, understandably all competition authorities
including this Court, must adopt as strict
as possible approach to
cartel behaviour being the most pernicious of all anti-competitive
practices.
The
balance of the Commission’s case
[61]
In a Directive issued by this Court to facilitate the oral hearing,
the parties were asked as to whether from 2005 to
2009, there was
evidence that the first respondent remained a member of the cartel.
To this critical question the Commission
answered as follows: First
respondent submitted sales to C&CI and monitored its national
market share during this period. It
continued to target a market
share between 10 to 12% throughout the period. These practices had to
be viewed against the backdrop
of the evidence, nature, purpose and
effect of the Port Shepstone agreement and the consequent exchange of
information. In support
of this argument, the evidence of Mr Jones
was again cited; in particular his testimony that ‘without the
information exchanges
through the C&CI the monitoring of market
share would have largely been guess work.’ Thus, by continuing
to submit information
to the C&CI, the first respondent through
Mr Strauss continued to act in accordance with this understanding/
concerted practice.
[62]
Mr Gotz submitted that the information exchange was of the utmost
importance. To this end he referred to the evidence
of Mr Strauss; in
particular the following passages:
‘
Mr Strauss, we
need not beat about the bush, what I want to put to you is that NPC
used the information in order to track its market
shares.
MR STRAUSS:
Mr Chairman, I can answer that, but the answer is not one word. I can
say no, and if you want me to
qualify it I can.
ADV GOTZ:
Sorry, I’m not sure I understand why you’re being
ambivalent Mr Strauss. Either the question
is yes or no, or the
answer is yes or no?
MR STRAUSS:
We did not …no, the answer has to be qualified. We can see our
weekly market shares. The fact
of the matter is there’s not a
lot that you can do about it. PPC wanted weekly stats because they
were under pressure from
their shareholders, why they couldn’t
supply the market, how big is the market, what is happening? We had
no way and it wasn’t
in NPC’s habit to just change prices
on a weekly basis. We didn’t do that, but we had to know what
our … our
objective was, as we said before, to run at full
capacity.
If we saw that we’re
falling behind on that, then it’s useful for us to understand
where did we lose? Did we lost it
in the South or the North, so we
can go and take action on that? That was our overall objective. The
market share is an outcome
of that strategy, it’s not the
target.’
And further:
‘
You see Mr Strauss
you’re monitoring your market share and you tell the Commission
that you know it moves in the range 9%
to 12%?
MR STRAUSS:
Yes.
ADV GOTZ:
You are utilising the C&CI data that you receive every month in
order to monitor this market share,
correct?
MR STRAUSS:
Yes, of course, we’re monitoring the market as well.’
[63]
In addition Mr Gotz submitted that first respondent’s market
share had remained relatively constant throughout
the period, being
between 10 to 12% share of the national market. Therefore, it was
consistently within the targeted range for
the relevant period. In
his view, this evidence showed the continuation of the behaviour
which was in compliance with the understanding
which could trace its
existence back to the Port Shepstone agreement. In this connection
reference was made by Mr Gotz to the dicta
of this Court in Videx
Wire Product (Pty) v Competition Commission of South Africa
[2014]
ZACAC 1
at para 16:
‘
The content of the
overarching agreement thus inferred might not be an agreement on the
specifics of prices to be charged / tendered
or of customer
allocation (that would happen at meetings held from time to time) but
rather than understanding that the firms will
benefit from ongoing
cooperation on these matters and will thus remain in communication
and have an open door for purposes of working
out details as occasion
demands.
[64]
In summary, the argument is that the fact that throughout the period
of 2003 to 2009 the first respondent continued to
exchange
information through the C&CI, that it continued to target a
market share and succeeded in achieving that market share
between 10
to 12%, notwithstanding changes in the demand for cement relative to
its productive capacity, cumulatively manifested
a continued
adherence to the Port Shepstone agreement. This it was argued was
buttressed by the evidence relating to first respondent’s
meetings with third respondent and various other cooperative
arrangement which took place subsequent to 2003.
The
evaluation of the Commission’s case read as a whole
[65]
An evaluation of the Commission’s case depends critically on
the weight this Court gives to the two core elements
of the
Commission’s case as applied to the compliant period;
being the exchange of information and the stability of
its market
share. In other words, even if this Court is prepared to assume in
favour of the Commission that the first respondent
was a party to the
cartel agreement forged at Port Shepstone in 1998, the question
arises as to what evidence exists to show that,
post the Cipcor
takeover, first respondent continued to be part of the cartel.
[66]
Absent satisfactory evidence about the reason for any premium paid by
Cipcor for the shares bought or the basis of the
supply agreements
between first, second and third respondents, the Commission’s
case must stand or fall on the legal implications
of the exchange of
information and the market share of first respondent.
[67]
It is common cause that first respondent submitted sales data to the
C&CI. But it appears that first respondent would
send data to
Deloitte during the relevant period which would aggregate this data
and then publish the aggregate statistics to reflect
‘inter
alia’ a national sales totals, regional sales totals ,specific
product totals (for example pure cement being
separate from extended
cement). Deloitte would also provide each firm with its own data
organised in a manner which would enable
that firm to determine its
market share as the published aggregate data. Other than giving back
its own data to each firm, Deloitte
kept the individual firms’
data confidential and did not even provide this data to the C&CI.
[68]
Of equal importance was evidence from both Ms Corrie and Ms Beverin
that the C&CI statistics did not provide insight
into what other
firms were doing and that these statistics could not be used to
calculate the share of competitors in the market.
Ms Corrie’s
testimony in this connection is of particular importance for the
evaluation of the significance of the Commission’s
argument
that the exchange of information between the parties was evidence of
cartel activity. For this reason, I set out an extensive
passage from
her evidence to the Tribunal :
ADV TURNER; ‘And
transparency, there are two levels of transparency, the first level
of transparency is the C&CI statistics,
you have details of the
full market and you have details of your production in that market,
correct?
MS CORRIE:
Correct.
ADV TURNER:
That first level doesn’t give you insight into what the others
are doing?
MS CORRIE:
No.
ADV TURNER:
The second level of transparency is when they give you the data and
you have full transparency into
what they are doing?
MS CORRIE:
Correct.
ADV TURNER:
And you achieved that but you achieved it only with AfriSan and
Lafarge
MS CORRIE:
Correct.
ADV TURNER:
You didn’t achieve transparency with NPC? MS CORRIE: I didn’t,
no.
ADV TURNER:
And predictability, you’ve explained in your witness statement
is that you had an open line
to your competitors so that if something
happened you could call them or you could call a meeting and you
could assess the situation
in consultation?
MS CORRIE:
Correct.
ADV TURNER:
That gave you predictability? MS CORRIE:
Correct.
ADV TURNER:
So if something happened and it didn’t seem in line with your
arrangements, you could pick up
the phone and you did pick up the
phone, correct?
MS CORRIE:
Correct.
ADV TURNER:
And you checked whether what they were doing and you could then
react, you could react and you could
react by maintaining stability?
MS CORRIE:
Correct.
ADV TURNER:
And that was the cartel conduct that you say was in place from 1999
through to when the meetings stopped
in around 2006/7/8?
MS CORRIE:
The informal get-togethers and informal cartel.
ADV TURNER:
Yes. So if I understand just the progression, you needed to have the
meetings around 1999 through
to 2002 and after NPC was sold, you
needed to make sure that everybody knew the rule correct?
MS CORRIE:
Correct.
ADV TURNER:
And as the rules were established and NPC had been sold, you needed
fewer meetings, because everyone
knew the rules?
MS CORRIE:
Correct.
ADV TURNER:
And when there was a hiccup or there was a problem in the market, you
could pick up the phone, speak
to you opposite number either at
AfriSam or Lafarge or both and you could resolve that quickly,
because you had established that
relationship of trust?
MS CORRIE:
Correct.
ADV TURNER:
You achieved none of that with NPC? MS CORRIE: I
didn’t communicate with NPC
at all.’
[69]
This evidence highlights the problem of attaching significance to the
system of the exchange of information for the purposes
of a s4(1)(b)
case. As the extensive passage of Ms Corrie’s testimony before
the Tribunal clearly reveals, the information
submitted to the C&CI
and distributed to Deloitte was hardly of the kind that could be
employed by cartel members to bring
a rogue member into line. As Ms
Corrie, who was a key witness for the Commission conceded in her
testimony, the nature of the information
provided could not
contribute to the implementation or the enforcement of the cartel
arrangements; in particular as it affected
the alleged participation
of first respondent
[70]
It is clear from the available evidence that various meetings that
took place, post the Port Shepstone agreement, which
did not include
first respondent. These comprised a regular series of secret meetings
between representatives of the three major
cement producers, being
the second to fourth respondents. It was at these meetings that the
three cartelists exchanged confidential
sales information the content
and nature of which manifestly fell outside of the C&CI process.
[71]
Returning to the dictum in Videx supra at para 16, this evidence does
suggest ‘some sort of ongoing cooperation’
in
circumstances where second, third and fourth respondent had frequent
discussion and engagements at which direct exchanges of
commercially
sensitive and confidential information was exchanged through these
meetings. This was described in some detail by
Ms Corrie but,
critically, in circumstances where the first respondent was not
involved in any of these processes.
[72]
The same problem arises in relation to the second pillar of the
Commission‘s case regarding conduct during the
complaint
period, that is that first respondent continued to target a national
market share of between 10 to 12%. There was, however
no agreement
which allocated a national market share to first respondent neither
at the Port Shepstone meeting nor elsewhere. At
the time of the Port
Shepstone meeting, when first respondent was a wholly owned
subsidiary, the three major producers divided
the market and simply
converted the existing market share of first respondent of Southern
KwaZulu Natal into an equivalent national
market share. This is how
the figure of 10 to 12% was calculated.
[73]
Subsequent to the acquisition by Cimpor of the shares in first
respondent, a change in the targets for market share to
be gained
were given to employees of first respondent In terms of the employee
KPI scorecards, which formed part of the record,
employees of first
respondent initially had been incentivised to maintain a target in
respect of the regional KZN market share.
But from 2003 the same
employees were incentivised to increase the national market share of
first respondent which was clear evidence
that Cimpor had altered the
strategic vision for its newly acquired company, being first
respondent.
[74]
As first respondent’s economic expert, Mr Patrick Smith,
pointed out, prior to its acquisition by Cimpor first
respondent had
shareholders being second, third and fourth respondents failed to
initiate the expansion of first respondent’s
productive
capacity. After its acquisition by Cimpor, the new board of first
respondent recognised the problem and set out to alleviate
this
capacity constraint. Hence first respondent engaged in a number of
strategic initiatives to expand its production. It commissioned
the
first new kiln in South Africa in over 20 years which doubled first
respondent’s clinker capacity. It grew its sales
volumes, in
particular over the period between 2004 to 2008. As Mr Smith noted
‘these initiatives marked a stark contrast
in the strategic
direction of NPC and demonstrated a clear break from its conduct as a
passive controlled subsidiary of the three
other respondents. These
initiatives also indicated that NPC was trying to compete on its
merits to expand outward in order to
enable it to win new business.’
Conclusion
[75]
To return to the Commission’s case: It alleged that the
agreement struck between second, third and fourth respondents
in 1998
was also entered into by first respondent, at the relevant time being
a wholly owned subsidiary of the other three respondents.
At that
time first respondent ,as a wholly owned subsidiary, was bound to
adhere to the constraints imposed upon it by its shareholders
.This
meant that it was allocated what was translated into a 10 to 12 %
national market share and an obligation was imposed upon
it to
exchange information, which in any event its shareholders possessed
as of right.
[76]
Critical to the evaluation of this case is what occurred after the
first respondent was uncoupled from its erstwhile
shareholders and
thus what conduct could be shown to evidence its continued
participation in the cartel.Needless to say this examination
depends
on a conclusion, contrary to that reached by the Tribunal, that first
respondent was a party to the 1998 Port Shepstone
agreement.
[77]
The central plank of the Commission’s case is the information
exchange. Apart from the argument that this was used
to enforce
compliance by all four participants to the cartel including first
respondent, the Commission contended that first respondent
had used
this exchange of information to engage in market share targeting;
that is limiting its total production sales as to maintain
a national
market share as contained in the cartel agreement. But as shown,
particularly although not exclusively from the evidence
of Ms Corrie,
the various respondents only obtained generalised statistics
processed through Deloitte. In addition through much
of the complaint
period, first respondent achieved a relatively constant market share
as it was constrained in its production facilities
until very late in
the period of the complaint.
[78]
Neither of these pieces of evidence on their own is sufficient to
justify cartel behaviour. Indeed they are in significant
part
gainsaid by the independent conduct of first respondent as shown
through the incentives given to employees and ultimately
the
production expansion of first respondent subsequent to its
acquisition by Cimpor. As I have already noted, to the extent the
Commission’s case could have been buttressed by evidence with
regard to a premium paid for the shares of first respondent
and the
reasons that lay behind the agreements which were entered into
between first and third respondents subsequent to the former
having
been taken over by Cimpor, this was never pleaded nor was any
evidence advanced. Where further evidence could have shone
more light
upon the implications of the supply agreement between competitors
after 2003, this was regrettably absent from the case
brought by the
Commission before the Tribunal.
[79]
That cartel activity represents the very worst strain of
anti-competitive conduct is surely trite. Courts need to be
vigilant
in ensuring the prohibition of this conduct. This is again manifestly
obvious. Indeed, this Court in cases which were
cited in argument in
this case, in particular Videx, MacNeil Agencies, and Netstar, supra
has developed a responsive jurisprudence
for the curbing of cartel
activity. But this does not mean that the rule of law does not apply
to cartel cases, and can be elided
over in favour of a result. That
the Commission must discharge the burden that the Act imposes upon it
to produce relevant evidence
that shows that the nature of the
conduct of the impugned party is such that it justifies a finding
that the conduct so proved
falls within the scope of s 4(1) (b) of
the Act.
[80]
As the European Court held in Soliver at para 63 with regard to the
enforcement of cartel conduct: ‘it is only
if the undertaking
knew or should have known when it participated in an agreement that
in doing so it was joining in the cartel
as a whole that its
participation in the agreement concerned can constitute the
expression of its accession to that cartel ….
In other words,
the Commission must show that the undertaking intended to contribute
by its own conduct to the common objectives
pursued by all the
participants and that it was aware of the unlawful conduct planned or
put into effect by other undertakings
in pursuit of the same
objectives or that it could reasonably have foreseen it and that it
was prepared to take the risk.’
[81]
This dictum needs to be read with the approach adopted in Videx,
supra at para16 and Netstar, supra at para 25. The overarching
understanding that must be shown to exist between the firms who can
be classified as part of a cartel is one which will result
in a
benefit (or perceived benefit) from the prohibited conduct so that
they remain in communication with each other and will be
bound by
moral suasion or more likely commercial interest .
[82]
In the present case, the facts which the Commission proved, for the
reasons set out, do not suffice to bring the first
respondent within
the scope of s 4(1) (b). The evidence presented by the Commission to
prove its case does not show that the first
respondent by its conduct
during the complaint period intended to contribute to the objectives
of the three cartelists. This conclusion
might not be necessary if
the Port Shepstone agreement is held, as did the Tribunal, not to
include first respondent as cartel
member. But if this finding can be
rejected, which rejection requires some measure of generosity to the
Commission’s case,
the facts as presented do not justify the
application to the conduct of first respondent of what are
established legal principles
regarding the existence of a cartel.
[83]
It therefore follows that the appeal is dismissed with costs,
including the costs of two counsel.
Davis
JP Siwendu and Fisher AJJA concurred