About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Appeal Court
SAFLII
>>
Databases
>>
South Africa: Competition Appeal Court
>>
2017
>>
[2017] ZACAC 6
|
|
Power Construction (West Cape) (Pty) Ltd and Another v Competition Commission of South Africa (145/CAC/Sep16) [2017] ZACAC 6; [2017] 2 CPLR 589 (CAC) (2 May 2017)
REPUBLIC
OF SOUTH AFRICA
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
IN CAPE TOWN
Reportable
CASE
NO: 145/CAC/Sep16
In
the matter between:-
POWER
CONSTRUCTION (WEST CAPE) (PTY)
LTD
First
Appellant
POWER
CONSTRUCTION (PTY)
LTD
Second
Appellant
And
THE
COMPETITION COMMISSION OF SOUTH
AFRICA
Respondent
JUDGMENT:
02 May 2017
DAVIS
JP
Introduction
[1]
This is an appeal against an order of the Competition Tribunal
("Tribunal") of 25 August 2016 in which the Tribunal
dismissed a series of
in limine
objections raised by the
appellants. The background to this appeal requires an examination of
the material facts which underpin
the substantive issues between the
parties.
The
factual matrix
[2]
During April 2006 SANRAL called for bids in an open tender for the
periodic maintenance of National Route N1 Section 4 from
Touws River
to Laingsburg.
[3]
Following a site inspection, Mr Kevin Konkol of Haw and Inglis (Pty)
Ltd ("H & I") considered H & I, Group
Five Limited
and first appellant to be the only possible bidders as these firms
met the required grading in terms of the Construction
Industry
Development Board Register. While preparing the bid, Konkol was
informed by suppliers of certain input materials that
they had not
been approached by any other firms for quotations relating to the N1
contract. He was concerned that H & I would
be the only viable
bidder for the N1 contract and SANRAL would then cancel the tender.
[4]
He contacted Mr John Beddingham, who at the time was employed as a
Chief Estimator with the first appellant, to request that
it submit a
cover price for the N1 contract. Beddingham agreed to this
arrangement and Konkol indicated that the cover price should
be
priced at above R 99 000 000,00. He also provided a Bill of
Quantities document to assist Beddingham in compiling a bid.
[5]
On 5 May 2006 first appellant bid a price of R 99 980 000,00 for the
contract while H & I bid R 98 500 000,00. Group Five
also
submitted a bid of which the first appellant and H & I were not
aware. On 28 July 2006 H & I was awarded the contract.
It
completed the project on 23 January 2008 and the final payment to it
was made on 17 February 2009.
[6]
On 30 June 2007 the first appellant sold its business to Power
Construction (Pty) Ltd, the second appellant, as a going concern,
the
sale of which formed part of an internal corporate restructuring.
[7]
On 1 September 2009 the respondent, initiated a complaint against
several identified firms in the construction industry as well
as
"other firms, including joint ventures in the construction
industry"
for allegedly engaging in prohibited practices,
including collusive tendering in the form of cover pricing. Neither
of the appellants
was identified in the complaint.
[8]
Following upon this complaint, the respondent conducted an
investigation, in the course of which it received information of
widespread, pervasive anti-competitive conduct in the industry. The
conduct consisted of
"entrenched and ubiquitous co-operation"
resulting in
"bid rigging'
or
"collusive
tendering',
which mostly took the form of cover pricing. The
firms that engaged in this conduct tendered for bids but colluded
with each other
to ensure that the successful bidder paid a price
which was unaffected by competition. Essentially, two or more firms
would collude
by ensuring that only one of them would be the true
bidder. The true bidder would make a comprehensive and detailed bid.
To ensure
that this bid was successful one or more of the other firms
who were not really interested in being successful would place (a)
bid(s) that would be priced much higher than the one placed by the
true bidder. This would assist that the true bidder to be successful
in securing the contract at the price stated in its bid. The true
bidder would reveal the price, also referred to as the
"cover
price",
and other confidential information about its bid to
the other firm(s). The other firm(s) would then place its/their
bid(s) at a
price which was much higher than the cover price.
Manifestly this practice was in contravention, of s 4 of the
Competition Act
89 of 1998 ('the Act').
[9]
On 1 February 2011 respondent published an Invitation to Firms in the
Construction Industry to Engage in Settlement of Contraventions
of
the. The second appellant, acting through its chairman Mr Graham
Power, responded to this initiative by way of a letter addressed
to
the respondent. The response was meant, and understood, to be from
both appellants. This is understandable, as by this stage,
the first
appellant had become a wholly-owned subsidiary of the second
appellant. In fact, in all dealings between the appellants
and the
respondent the parties approached the matter in a way that accepted
that the second appellant spoke for and on behalf of
the first
appellant. For this reason, this judgment will refer to both
appellants when considering or dealing with correspondence
sent or
received by the second appellant to the respondent.
[10]
In his letter Mr Power said the following:
“
2
Our experience of the industry
2.1
It has been our experience that the construction industry is
certainly not a "clean" industry and that anti-competitive
behaviour does occur. Anti-competitive behaviour takes many forms and
we have come across the following in our years in the industry:
2.1.1
bid-rigging (which took various forms, but usually entailed an
agreement between two or more firms as to which one should
win the
tender):
2.1.2
collusive tendering (mostly in the form of the provision of a cover
price/cover bid by one firm in agreement with another)."
[11]
The letter listed five contracts in which the first appellant was
involved where it engaged in anti-competitive conduct. All
five
contracts were completed between the period 2002 and 2004 and
therefore fell outside the scope of the complaint and the
investigation.
Mr Power concluded the letter with the following
statement:
“
In
conclusion, we wish to state that we are pleased that the Competition
Commission is focusing on the construction industry and
providing the
opportunity for the serious matter of anti-competitive behaviour in
our industry to be brought in the light. Whilst
it is indeed a sad
day for the construction industry, we believe that it is a very
necessary process, given the need for our country
to rule (sic) out
corruption in all spheres. It is our hope that our industry will
serve as an example of clean and ethical practices
in South Africa in
future.
Please
be assured of our full co-operation and support for the tremendous
work being done by the Competition Commission. Should
you require any
further information, please do not hesitate to contact us."
[12]
Notwithstanding these two paragraphs, the appellants informed the
respondent that the information supplied was not an application
for
settlement, as they viewed the matter as having been prescribed.
Appellants adopted the attitude that, out of courtesy they
were
merely informing the respondent of the transgressions.
[13]
On 15 April 2011 the appellants provided information with regard to
the N1 contract. The information was furnished in a letter
to which
the FTP1 form, which spelt out the details of the N1 contract, was
annexed. A relevant part of the Jetter reads:
"We
have found one contract which we are not certain whether we should
have submitted with our submission (i.e. of 31 March
2011), as a
competitive tender was submitted and no benefit discussed or
received."
[14]
It is clear from the contents of this letter that the appellants
pleaded ignorance as to whether the conduct of the first appellant
was unlawful.
[15]
On 23 November 2011 the respondent wrote to the appellants informing
them that its (the respondent's) investigation revealed
details of
unlawful conduct regarding the N1 contract for which they were to be
held accountable. The contents and import of this
letter is dealt
with later in the judgment. For the moment it bears recording that
the letter invited the appellants to engage
in settlement discussions
with the respondent over the contravention that occurred. It should
be remembered that the appellants
had confessed to the contravention
of the Act on 15 April 2011. Nevertheless, they elected not to settle
the matter with the respondent,
despite confessing to engaging in
anti-competitive conduct,
[16]
On 17 December 2014 respondent referred the dispute to the Tribunal.
On 12 February 2015, the appellants filed a single answering
affidavit thereto and the respondent replied on 24 April 2015, all of
which was a precursor to a hearing and which eventually resulted
in
the decision by the Tribunal on 25 August 2016. It is this decision
which is the subject of this appeal.
[17]
The answering affidavit was deposed to by a Mr Andries Jacobus, the
Chief Executive Officer of the first appellant, who made
the
following concession:
"The
first and second respondents (appellants herein) admit that the first
respondent participated in a tender in which its
employee, Beddingham
represented that the first respondent was a genuine bidder when truth
be told it was not."
[18]
However, at the hearing before the Tribunal, appellant pleaded four
points
in limine
being:
1.
the absence of a complaint initiation in respect of the conduct
referred to the Tribunal for adjudication;
2.
prescription of the complaint, in the event that the respondent was
able to prove a valid initiation;
3.
the characterisation of the conduct fell outside of the scope of the
prohibition contained ins 4 of the Act; and,
4.
the Tribunal could not impose a penalty on a firm which does not
contravene the Act, in this case by imposing a penalty on the
second
appellant, which had bought the business of the first appellant as a
going concern.
The
decision of the Tribunal
[19]
The Tribunal's decision, concluded that the September 2009 initiation
had met the requirements for a valid initiation. It,
accordingly,
dismissed the point
in limine
that the referral against the
appellant was jurisdictionally invalid. Similarly, it held, on the
basis of its approach to the evidence,
that the effect of the first
appellant's actions continued until 17 February 2009 when H & I
received the final payment for
a tender which had been the subject of
collusion. Accordingly, the impugned conduct had not ceased three
years prior to the initiation
of the compliant by respondent on 1
September 2009. It followed that the matter had not prescribed in
terms of s 67 (1) of the
Act.
[20]
Turning to the question of whether administrative penalties could be
imposed after the acquisition of the first appellant's
business by
the second appellant, the Tribunal held that this was an issue that
was better addressed in the main hearing wherein
it would enjoy the
benefit of seeing and hearing witnesses and receiving any other
evidence the parties deemed necessary or appropriate.
It thus
dismissed this point
in limine.
A similar approach was adopted
to the characterisation point which was raised
in
limine
by the appellants.
The
appellants approach on appeal
[21]
When the matter came before this court, Mr Brassey, who appeared
together with Ms Engelbrecht on behalf of the appellants,
informed
the Court that appellants' appeal was focussed exclusively on the
prescription point and the related question as to when
the initiation
had actually taken place. For this reason, it was not required that
this Court deal with any of the other points
in limine
referred to in [18].
The
prescription argument
[22]
Section 67 of the Act provides that
"a complaint in respect
of a prohibited practice may not be initiated more than three years
after the practice has ceased'.
Based on this wording, the
complaint can only be competently initiated if the prohibited
practice concerned has not ceased more
than three years prior to the
moment of initiation.
[23]
The appellants developed two arguments in this regard. In their view,
there was no initiation of the complaint concerning conduct
involving
the second appellant in September 2009, and there could not have been
an initiation of the complaint by November 2011
when respondent
questioned why the appellants had failed to report its participation
in the N1 project. Further, as the respondent
had not initiated the
complaint as at April 2011, there was no basis by which, on the
record, it could be concluded that an initiation
had taken place
before 5 December 2012.
[24]
On this argument it meant that, on any of these factual bases,
prescription had taken place. In explication of this submission,
the
appellants contended that the agreement between the second appellant
and H & I concerned the submission of a tender which
was
concluded on 3 May 2006. The tender was awarded to H & I on 28
July 2006. Thus, they contended that the collusive tendering
ceased
with the award of the tender on 28 July 2006. But even on the
argument raised by the respondent that the final payment date
of 17
February 2009 could be considered to be the cessation of the
prohibited practice, the appellants contend that given that
the
initiation statement had taken place by no earlier than 5 December
2012, s 67 (1) of the Act remained applicable. It is to
these
submissions that I now turn.
The
date of initiation
[25]
It is common cause that the respondent initiated a complaint in
respect of various participants in the construction industry
on 1
September 2009. At that time the respondent was not aware of the
prohibited practice which is now the subject matter of the
present
dispute.
[26]
As noted in [9], on 1 February 2011 the respondent issued a general
invitation to firms in the construction industry to come
forward with
information with regard to prohibited practices in the construction
industry. In response thereto, the appellants
then reported the
second appellant's participation in the N1 project which was in
contravention of the Act. This information was
received by respondent
on 15 April 2011.
[27]
The respondent contends, however, that the nature of the information
received concerned conduct other than that which is the
subject
matter of this referral. The respondent then decided to investigate
all firms that had come forward with information following
its fast
track invitation. Nonetheless, the appellants contend that no
initiation took place by respondent in April 2011 nor did
the
respondent investigate the conduct at that time.
[28]
In this connection much emphasis was placed by Mr Brassey on a letter
of the respondent dated 23 November 2011:
1.
The Competition Commission's ("Commission") investigation
of bid rigging conduct regarding Construction projects has
revealed
that your firm, Power Construction, is implicated in a project which
was not disclosed in their application for settlement
dated 31 March
2011. The details of this project are set out in Table 1 below:
Table
1: Construction projects
Maintenance of
N001-040-
Cover price
01 September
CE
National
route
2004/1
2008
N1 from Touws
to Laingsburg
2.
The Commission is thus inviting your firm to consider settling this
project in accordance with principles contained in the invitation
to
Firms in the Construction Industry to Settle Bid Rigging Conduct.
3.
Should your firm decide to settle this project, the Commission will
incorporate it into your settlement application, which is
currently
under evaluation.
4.
Your client is required to advise the Commission, before close of
business on 30 November 2011, whether it will settle this project.
5.
Should your client decide not to settle, the Commission will initiate
prosecution proceedings against your firm at the Competition
Tribunal
for this project."
[29]
Mr Brassey submitted that, if the respondent had indeed turned its
attention to the information contained in the appellants'
submission
of 15 April 2011, that is on the date respondent received the letter,
it could not, by the end of November 2011, have
been under the
impression that the appellants had failed to report the prohibited
conduct. Accordingly, the respondent's letter
of November 2011 was
inconsistent with any allegation that it had made a decision to
pursue a complaint against the appellants
from the date of
appellants' submission of the information contained in the letter of
15 April 2011.
Evaluation
[30]
In order to evaluate these submissions, it is important to keep in
mind two key sections of the Act, namely s 49 B entitled
"Initiating
a complaint”
and s 50 headed
"Outcome of
complaint”.
Section 49 B, insofar as it is relevant,
provides that
"the Commissioner may initiate a complaint
against an alleged prohibited practice".
Section 49 B (3)
provides that, upon initiating or receiving a complaint in terms of
the section,
"the Commissioner must direct an inspector to
investigate the complaint as quickly as practicable".
[31]
In terms of s 50 of the Act, at any time after initiating a
complaint,
"the Commission may refer the complaint to the
Tribunal'.
These sections and, in particulars 49 B, have been the
subject of significant litigation. In
Woodlands Dairy (Pty) Ltd v
Milkwood Dairy (Pty) v The Competition Commission
201 O (6) SA
108 (SCA) the court dealt with the requirements of a valid complaint
initiation and referral. In
Woodlands,
it appears that the
Competition Commissioner initiated, without any qualification, a full
investigation into the milk industry.
He did not initiate a specific
complaint against an alleged prohibited practice of specified firms
which would then have led to
a direction to an inspector to
investigate.
[32]
The SCA held, with regard to the initiation statement, that it must
be based on a reasonable suspicion that a prohibited practice
had
taken place. Harms JA, who penned the judgment, went on to say the
following at [35] -[36:
'"There
is in any event no reason to assume that an initiation requires less
particularity or clarity than a summons. It must
survive the test of
legality and intelligibly. There are reasons for this. The first is
that any interrogation or discovery summons
depends on the terms of
the initiation statement. The scope of a summons may not be wider
than the initiation. Furthermore, the
Act presupposes that the
complaint (subject to possible amendment and fleshing out) as
initiated will be referred to the Tribunal.
It could hardly be argued
that the Commission could have referred an investigation into anti
competitive behaviour in the milk
industry at all levels to the
Tribunal.
Members
of the supposed cartel were in fact mentioned in the initiating
statement. It was therefore not a case where no cartel member
had
been identified. The problem is that there were not facts that could
have given rise to any suspicion that others were involved.
A
suspicion against some cannot be used as a springboard to investigate
all and sundry. This does not mean that the Commission
may not,
during the course of a properly initiated investigation, obtain
information about others or about other transgressions.
If it does,
it is fully entitled to use the information so obtained for amending
the complaint or the initiation of another complaint
and fuller
investigation."
[33]
On the basis of these
dicta,
if an investigation by respondent
takes place and during the course of, or as a result thereof, it
learns of further parties which
may have committed the prohibited
practice, the complaint, from which these firms were initially
excluded, can be amended to so
include them, triggering further
consequences as set out in s 50 of the Act.
[34]
In
Competition Commission v Yara
2013 (6) SA 404
(SCA) the
court at [21], said the following about the requirement to so act:
"Since
no formalities are required, s 49 B (1) seems to demand no more than
a decision by the Commission to open a case. That
decision can be
informal. It can also be tacit. In argument, counsel for Omnia
informed us that, in practice, the initiation usually
takes the form
of a memorandum. I have no doubt that for the sake of good order and
certainty, that would be so. But it is not
a requirement of the Act."
[35]
Applying
Woodlands
and
Yara
together to the facts of
the present dispute, the following conclusion is reached: the
respondent initiated a complaint against
19 construction companies.
It included the following sentence:
"other firms including
joint ventures in the construction industry'.
At the very least,
the complaint highlighted the possibility that other firms could be
included in the complaint. Pursuant to this
initiation, on 1 February
2011, the respondent issued its
"Invitation to Firms in the
Construction Industry to Engage in Settlement of Contravention of the
Competition Act'
in
which it invited firms which had committed
infringements under the Act to provide particulars of any
contravention and to engage
in settlements in respect of such
conduct; thereby circumventing the need for the more formal and
intricate legal procedures to
be followed.
[36]
It was in response to this invitation, on 31 March 2011, that the
first appellant submitted details pertaining to five of its
projects
in which prohibited practices had taken place. Four days later,
further details were provided with respect to second appellant's
involvement in the N1 tender. Indeed, at this point Mr Callum, on
behalf of the appellants, wrote to the respondent explaining
that the
appellants were uncertain as to whether they should have included
this information with the previous submission, owing
to the alleged
fact that the second appellant had received no benefit from the
unlawful conduct in which it engaged.
[37]
As a result of this letter, the respondent generated a further letter
on 23 November 2011 inviting the appellants to settle
in accordance
with the February invitation. Significantly, in this letter,
respondent made it clear that, were the appellants to
eschew its
invitation,
"the Commission will initiate prosecution
proceedings against your firm at the Competition Tribunal for this
project."
This passage was a clear reference to s 50 of the
Act which provides that the respondent may refer a complaint to the
Tribunal.
[38]
Manifestly, in either April or in November 2011 the appellants had
been added to the initial complaint in this case, not as
a result of
an investigation which had taken place but, in this case, as a result
of the appellants' own response to the February
invitation. This act
is significant because the
dicta
in
Woodlands
upon
which appellant seeks to rely was based on a finding of illegality of
an action by the Commissioner, pursuant to a process
of investigation
by the respondent which had resulted in the interrogation of various
parties which had not, in any way, been made
party to the initiation.
Further, the complaints in
Woodlands
were the direct
consequence of an initially invalid complaint procedure. By contrast,
in this case, it was the appellants which
volunteered the relevant
information to the respondent, as a consequence of which they were
added as parties to a valid complaint,
admittedly informally. Viewed
accordingly, this addition falls within the framework set out in the
dicta
in
Woodlands
and
Yara
read together.
[39]
The appellants sought to take advantage of an
obiter dictum
in
Yara
which is open to an interpretation that it sought to
rewrite portions of
Woodlands,
at least by implication (see
[26] of
Yara).
There the dispute focussed on the degree of
correlation between an initiating complaint on the one hand and the
ultimate referral
on the other. But this is not the nature of the
dispute which confronts this Court in the present case.
[40]
In summary, the dispute which confronts this Court is whether, having
received information from the appellants pursuant to
its February
invitation, which in itself flowed from the initiation of a complaint
against 19 specified entities together with
others that could be
added, the respondent included the appellants as part of the entities
specified in the complaint of September
2009. Given that the judgment
in
Woodlands
accepts that it is permissible to add a firm to
an existing complaint subsequent to an investigation and that the
judgment in
Yara
recognises that the initiation does not
require any level of formality, the evidence clearly indicates that
the appellants were
made the subject of a referral in April 2011.
Even if this is not correct, at best for the appellants this addition
then took place
pursuant to the letter of the respondent to the
appellants dated 23 November 2011.
Cessation
of Practice
[41]
The only question which is then left for determination is whether the
prohibited practice ceased three years prior to November
2011, at the
latest. Appellant's main contention is that the practice ceased when
the tender was awarded to H & I on 28 July
2006. If this
submission is correct, it follows that the appellants must succeed in
terms of its plea based on s 67 (1) of the
Act. Hence, the issue now
to be decided is the meaning of the term
"cessation of the
practice"
within the context of the facts of this case.
[42]
In its decision, the Tribunal held that the practice, for the purpose
of s 67 (1) of the Act ceases when its effect has ceased.
It held
that the effects of the actions of appellant continued at least until
17 February 2009, when H & I received a final
payment pursuant to
the contract. On this basis, the conduct had not ceased for three
years prior to the initiation statement and
consequently no
prescription had taken place.
[43]
The key question is what is meant by
"cessation of the
practice".
In
Paramount
Mills
(Pty)
Ltd v The
Competition Commission
[2012]
ZACAC 4
one of the issues raised by the appellant was that it was
alleged to have contravened the Act for the first time when an
initiation
statement was issued on 02 October 2009. It argued that
this was more than three years from the latest date, September 2006,
on
which the respondent actually alleged that the appellant engaged
in conduct that constituted a contravention of the Act. The argument
raised by the appellant in this case was that the prohibited practice
in which the appellant was alleged to have engaged was the
conclusion
of an agreement either at a meeting or by telephone, which activity
had ceased in 2006. Admittedly, the case turned
on a number of
questions, including whether the appellant had placed sufficient
evidence in its answering affidavit before the
Tribunal to show that
the conduct had ceased in 2006. However, critical to the present case
is the following passage at [44]:
"The
prohibited conduct does not end or cease with the conclusion of the
agreement fixing the selling price. It continues to
exist and its
effect continues to be felt when the future prices, agreed upon
pursuant thereto are implemented."
[44]
A similar approach was adopted by this court in
Videx Wire
Products (Pty) Ltd v Competition Commission of South Africa
(CAC
Case Number 124/CAC/Oct12) at [80]:
"A
prohibited practice is generally constituted by initiating conduct
followed (if the initiating conduct is successful) by
the
anti-competitive effects intended by the colluding parties. Section
67(1) envisages that a prohibited act will be one which
continues
over a period of time and is thus capable of ceasing. The prohibited
act is thus not constituted only by initiating conduct
but also,
within appropriate bounds, by its intended ongoing effects. To take a
simple example, if two firms collude with each
other to fix prices,
and if each of them then concludes a three-year supply contract with
separate customers at the fixed prices,
the prohibited price-fixing
is constituted by the initiating act (where the suppliers strike
their secret illicit deal) and by
the conclusion and performance of
the resultant contracts with the customers."
[45]
The law to be applied in this case is thus settled and there is no
reason to depart therefrom. In this case, the prohibited
practice was
that of collusive tendering, in terms of s 4 (1)(b) (ii) of the Act,
as a result of which the second appellant agreed
to submit a tender
to SANRAL with the express purpose of keeping alive a tender process
for the maintenance of a stretch of the
N1 project. This action was
to the ultimate benefit of H & I. Appellant was thus a party to a
prohibited practice of collusive
tendering. The contract that flowed
from this practice and was inextricably linked to the prohibited
practice ended when the last
act relating thereto was performed,
namely the receipt of the final payment to H & I: this payment
was the completion of obligations
in terms of a contract which was
the product of a prohibited practice that occurred on 17 February
2009. It follows that the prohibited
practice ceased on 17 February
2009.
[46]
For this reason, as the initiation, on the finding of this Court,
took place in 2011, the provisions of s 67 (1) of the Act
are of no
assistance to the appellants. The
in limine
point raised in
respect of prescription was correctly dismissed by the Tribunal.
For
all of these reasons therefore, the appeal is dismissed with costs.
_________________
DAVIS
JP
VALLY
and MAKGOBA AJJA concurred