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[2013] ZACAC 4
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Reinforcing Mesh Solutions (Pty) Ltd and Another v Competition Commission and Others (84/CR/DEC09) [2013] ZACAC 4; 2013] 2 CPLR 455 (CAC) (15 November 2013)
THE
COMPETITION APPEAL COURT OF
SOUTH
AFRICA
CT
CASE NO
:
84/CR/DEC09
(CAC CASE NO:
119/120/CAC/May 2013)
In
the matter between:
REINFORCING
MESH
...............................................................................................................................................................................................................................
1
st
Appellant
SOLUTIONS
(PTY)
LTD
....................................................................................................................................................................................................................
(2
nd
Respondent a quo)
VULCANIA
REINFORCING
.....................................................................................................................................................................................................................
2
nd
Appellant
(PTY)
LTD
..............................................................................................................................................................................................................................................
(3
rd
Respondent a quo)
and
THE
COMPETITION
...................................................................................................................................................................
Respondent
COMMISSION
..........................................................................................................................................................
Cross-Appellant
and Applicant a quo)
and
AVENG
(AFRICA)
LTD
...............................................................................................................................................................................................................................
1
st
Respondent
t/a
STEELEDALE
REINFORCING
MESH
............................................................................................................................................................................................................................
2
nd
Respondent
SOLUTIONS
(PTY) LTD
VULCANIA
REINFORCING
....................................................................................................................................................................................................................
3
rd
Respondent
(PTY)
LTD
BRC
MESH
REINFORCING
...................................................................................................................................................................................................................
4
th
Respondent
(PTY)
LTD
Coram:
DAVIS JP, DAMBUZA JA et NDITA AJA
Heard:
5 December 2012
Delivered:
15 November 2013
ORDER
On
appeal from: Competition Tribunal
1.
The first appellant’s appeal is
dismissed with costs.
2.
The second appellant’s appeal is
dismissed with costs.
3.
The cross- appeal is dismissed with costs.
JUDGMENT
NDITA,
AJA
Introduction
[1]
This judgment concerns two appeals and a cross-appeal against orders
of the Competition Tribunal for the contravention of s
4(1)(b)(i) and
4(1)(b)(ii) of the Competition Act No.89 of 1998 (“the Act”).
On 01 May 2012, the Competition Tribunal
found the first and second
appellant guilty of involvement in a cartel of wire mesh producers
during a period which lasted from
2001 to 2008. It imposed an
administrative penalty in the amount of R5,600 000.00 on the first
appellant and R21,600 000,00 on
the second appellant. The basis on
which the penalty amounts were calculated is
the
subject of the present appeal and will
be dealt with later in this judgment. In the cross-appeal, the
Competition Commission appeals
against the administrative penalties
imposed against the appellants as well as the first and fourth
respondents in the cross-appeal.
[2]
The first appellant Vulcania Reinforcing (Pty) Ltd (“Vulcania”)
is a private company duly incorporated in accordance
with the company
laws of the Republic of South Africa and has its principal place of
business at 19 Molecule Road, Vulcania Extension
2, Brakpan. Vulcania
is the manufacturer of brick mesh and reinforcing mesh, galvanised
wire, hard drawn wire, nails and wall tiles.
The second appellant,
Reinforcing Mesh Solutions (“RMS”) is also a company with
its place of business at 30 North Reef
Road, Elandsfontein,
Germiston. RMS was established in 2002 as a division of Capital
Steele (Pty) Ltd. RMS manufactures reinforcing
mesh and the cutting,
bending and installation of reinforcing bars. The appellants are the
second and fourth respondents, respectively,
in the cross-appeal by
the Competition Commission.
[3]
The first respondent in the cross-appeal is Aveng (Africa) Ltd t/a
Steeledale. Steeledale comprises of six business units namely,
Steeledale Mesh, Steeledale Reinforcing Gauteng, Steeledale
Reinforcing KZN, Steeledale Reinforcing Freestate, Steeledale
Reinforcing
Cape Town and Imsteel. The first respondent is for the
purpose of this judgment referred to as Steeledale. Steeledale
is
part of Aveng Group which consists of a number of operating
divisions, including inter alia, Lennings Rail Services, Infraset,
Duraset and Grinaker LTA, a construction and engineering business
that is regarded as an in-house customer of Steeledale’s
construction products. The fourth respondent in the cross-appeal, BRC
Mesh Reinforcing (Pty) Ltd (“BRC”) is a subsidiary
of
Murray and Roberts Steele Group. It manufactures and sells
reinforcing mesh to the construction industry in South Africa. The
Murray and Roberts construction group’s other subsidiaries and
associated companies are Cape Town Iron and Steele Works (“CISCO”),
Concor, Freyssinet, Posten and Toll Road Concessionaries (“TOLCON”).
[4]
The appellants and the respondents in the cross-appeal manufacture
and supply reinforcing mesh products, including welded mesh
to the
construction industry.
[5]
It must be emphasised from the outset that Steeledale admitted
being involved in anti-competitive behaviour of wire mesh
products
and rebar (reinforcing bar). Pursuant to the admission, a penalty (in
terms of a settlement agreement with the commission)
in the amount of
R128 904 640, representing 8% of Steeledale‘s (Aveng
was trading as Steeledale) turnover for the
2008 financial year was
imposed. BRC was granted conditional leniency by the Commission
in terms of its corporate leniency
policy (“CLP”)
published in Government Gazette no. 31064 of 23 May 2008.
Factual
Background
[6]
The Competition Commission, after investigating the prohibited
anti-competitive behaviour against the appellants and the respondents
in the cross-appeal, referred to the Tribunal on 2 December 2009, a
complaint against the latter. According to the Commission,
the
respondent’s conduct constituted a contravention of sections
4(1)(b)(i) and 4(1)(b)(ii) of the Act. The sections
provide as
follows:
“
Restrictive
horizontal practices prohibited
4 (1) An agreement
between or concerted practice by, firms, or a decision by an
association of firms is prohibited if it is between
parties in a
horizontal relationship and if ---
(a)
. .
(b)
It involves any of the following
restrictive horizontal practices:
(i)
directly or indirectly fixing a purchase or
selling price or any
other trading
condition;
(ii)
dividing markets by allocating customers,
suppliers, territories or specific type of goods or services.”
The
Commission alleged that the respondents entered into agreements with
other firms in a bid to prohibit competition in the reinforced
mesh
products, on the following terms:
1. price setting for
reinforcing mesh products;
2. the allocation of
the market for mesh reinforcing products by agreeing not to compete
for and to share only certain customers
according to a list
circulated to sales and marketing staff. In terms of this agreement
the appellants also designated in-house
customers;
3.
the level of discounts to be offered to a certain category of
customers.
[7]
The reinforcing wire mesh is a product manufactured from steel,
placed in sheet formations and is mostly used to reinforce concrete
slabs. Rebar (reinforcing bar) is described as a steel product
manufactured in bars and is used for cement reinforcement. The
production of the reinforcing mesh commences with the purchasing of
coils of steel from suppliers. The coils are drawn into wire,
welded
at specific intervals and the end product distributed to the
construction or building industry for use in the construction
of
residential and commercial buildings. It follows that customers were
mainly construction companies as well those selling building
and
related products. As earlier stated, RMS and VULCANIA are
manufacturers and distributors of the aforementioned products. It
appears from the record that Steeledale enjoyed a presence all over
the country, whilst the RMS custom was largely in the East
London
area. BRC operated on a national basis and Vulcania, although based
in Cape Town, had influence over the Gauteng market.
According to the
evidence of Mr Griffin, the main role players in the production and
supply of mesh were all the respondents in
the cross-appeal.
The
Cartel
[8]
The record does not reveal any factual disputes with regard to the
existence of a cartel in the wire mesh industry involving
both
appellants. RMS readily admitted its involvement in the cartel and
the Tribunal therefore only had to consider the appropriate
administrative penalty to impose on it. In so far as Vulcania is
concerned, its role in the cartel was placed in dispute before
the
Tribunal. In the light of the dispute, evidence from members of the
cartel was led.
[9]
Mr Michael Hartnady (“Hartnady”), the marketing manager
of Steeledale Mesh, testified that the main players in the
mesh
market in 2000 were BRC,Allen Meshco, Hendoc Meshrite, and Vulcania.
He had been involved in the South African Fabric Reinforcing
Association (SAFRA) activities since joining the industry in 1975 and
was elected to serve on its committee. At that time SAFRA
was
canvassing the mesh producers to join the association but its
chairman or director had to approach and recruit new members.
SAFRA
held meetings which were attended by its members. During those
meetings the wire mesh manufacturers would discuss and agree
on a
recommended price list for their products. CIFSA or SAFRA supplied
its members with indices and calculated price increases
or decreases,
as the case may be. The manufacturers applied the increases suggested
by the association. The price list would be
distributed to members,
who in turn, after effecting minor changes or adjustments, duplicated
it onto their own letterheads and
implemented the agreed price.
[10]
During 2005, SAFRA stopped supplying the members with a list.
Regarding discount levels, Hartnady confirmed that discussions
were
held as to what sort of levels they should be applied to, and it
would be agreed that they be adjusted in line with the market
change.
The members specifically agreed to apply the discount structures to
their in-house companies, other construction companies
and low cost
housing. When SAFRA stopped supplying its members with a price list,
the members called to one of its meetings Mr
Costa Casa (“Costa”),
who at that time was the managing director of Steeledale. Costa
supplied them with a formula
which enabled the competing firms to
uniformly pass on input costs increases by providing a common
mechanism for determining the
final price. The cartel meetings
according to Hartnady stopped some time in 2008 because the
members, pursuant to advice
from Steeledale, were afraid that the
Competition Commission might uncover the collusion and or
anti-competitive agreements. Vulcania,
although not a major player,
participated in some of these meetings and it is to its involvement
that I now turn.
Vulcania’s
liability
[11]
The involvement of Vulcania in the cartel, according to a statement
deposed to by its managing director, Mr Sean Greve (“Greve”),
commenced in February 2006, after he was co-opted by Mr Adrian
Mountford to join SAFRA. He attended the first SAFRA meeting on
7
February 2006 and thereafter several informal meetings. The thrust of
the discussions at the informal meetings related to pricing
levels
that should be allowed to various customers as well as the fact that
SAFRA members should not supply customers of another
supplier. In
short, members agreed on pricing adjustments and customer
allocations. It is for this reason that they were required
to provide
a list of their existing customers. From time to time members of the
cartel would be provided with an updated price
list, the formula for
escalations and the customer allocation list. However, according to
Greve, Vulcania did not abide by any
decisions taken at the meetings.
Neither did it implement the formula created by Costa. All Vulcania
did was to create an impression
that it was abiding thereby, whereas
in reality it sold mesh at prices significantly lower than the prices
reflected in the price
list. This it had to do because of its
vulnerability in the market at that time. All its raw material
input for mesh
production was purchased from its competitors. In any
event, so testified Greve, in the five or six meetings he attended,
he did
not play any active role. He only listened and took
instructions. According to Greve, shortly after concluding an
agreement with
Cape Gate to purchase rod in coil at a competitive
price, it acted independently of the cartel and Greve stopped
attending the
meetings.
[12]
The role played by Vulcania in the cartel is further explained in the
statement and testimony of Mr Martin Cawood (“Cawood”),
who in 2007 was a Sales and Marketing Manager at BRC, a position
which was previously held by Griffin. Cawood testified that
he
was introduced to Greve by Griffin at the latter’s farewell
function attended by the role players in the mesh market.
During
October 2007, the steel mills announced that there would be a 3%
steel price increase which would be effective from the
following
month, i.e November 2007. Mesh manufacturers held a meeting wherein
it was decided that the 3% increase should be applied
to the selling
price and not to the cost of the raw material. BRC’s general
manager Mr Koszweski rejected the cartel’s
formula and directed
that the increase be applied to the raw material.
[13]
According to Cawood, had BRC applied the cartel formula, it would
have derived profits that it would not have been entitled
to at the
expense of the customers. When a further 6% increase, was announced
by the steel mills in January 2008 a meeting of the
manufacturers
took place. Cawood was admonished by the manufacturers; including
Greve, for having applied the earlier increase
to raw material.
Cawood testified that when it became obvious to the cartel that he
was charging customers a lower price than were
other suppliers, Greve
took out his calculator and performed a calculation which
demonstrated that Cawood was not implementing
the increase as agreed.
[14]
Greve’s version of the incident is that he performed the
calculations merely to help Cawood implement the formula correctly.
Vulcania had contended that, although Greve attended between
five and six meetings, he was passive throughout. By contrast,
both Griffin and Hartnady testified that Greve contributed to
the deliberations. The Tribunal emphasised that,
as Greve
had taken out his calculator and thus intervened in the meeting, even
on his own version, he was hardly passive.
[15]
The Tribunal thus rejected Greve’s evidence and held that
Vulcania was a willing participant in the cartel and had benefitted
from the cartel agreements, and in the result had contravened
sections 4(1)(b)(i) and (ii) of the Act.
Vulcania’s
Appeal
[16]
In the present proceedings Vulcania appeals against the decision of
the Tribunal on the following grounds:
1. The Competition
Tribunal erred in holding that Vulcania was guilty of contravening
sections 4(1)(b)(i) and (ii) in that it was
a party to the prohibited
agreement between members of the cartel.
2. The Tribunal
ought to have accepted or given sufficient weight to Greve’s
evidence to the effect that his attendance of
the meeting was a sham,
necessitated by the Vulcania’s need to create an appearance of
cooperation with the cartel in order
to protect its supply of raw
material it received from cartel members.
3. Vulcania did not
apply any of the discounts and prices agreed upon by members of the
cartel and withdrew from it when it was
no longer necessary for it
(Vulcania) to rely on them for the supply of raw material.
4.
Given that the Act specifically requires it be shown that Vulcania
was a party to the cartel agreement, the Commission had to
show that
there was consensus with other participants. In finding the
presence of such consensus, the Tribunal applied principles
applicable in European law
The
Decision of the Tribunal
[17]
The above grounds of appeal were raised as defences before the
Tribunal. The Tribunal, after considering the evidence, was
satisfied
that the conduct of Vulcania fell squarely into the prism of the
anti-competitive behaviour envisaged in s 4(1) (b).
It held that
Vulcania’s participation in meetings with competitors at which
prices and discounts were set and customer allocation
agreed upon,
rendered it liable. More particularly, it held that Greve’s
evidence with regard to an existence of an understanding
between the
cartel members to the effect that no member was to poach from the
other allocated customers, sufficed for liability
even if some
ratification by some major firms was required before the
understanding could be implemented.
ANALYSIS
[18]
I deem it prudent to first deal with the contention that the conduct
complained of on the part of Vulcania does not amount
to a cartel
agreement between the parties as defined in the Act and the
application of foreign legal principles. The Act defines
agreement
thus:
“‘
agreement’,
when used in relation to a prohibited practice, includes a contract,
arrangement or understanding, whether or
not legally enforceable.”
In
Netstar (Pty) Ltd and Others v Competition Commission and another
[2011] 1 CPLR 45
CAC, this court considered the definition of
agreement and stated that:
“
[25]
By contrast, an agreement arises from the actions 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, but which the parties
regard as binding upon them. Its essence is that
the parties have
reached some kind of consensus. No doubt in many cases, the same
evidence may be relied upon as pointing towards
either an agreement
or a concerted practice. However, sight should not be lost of the
fact that they are different. The definition
of an agreement extends
the concept beyond a contractual agreement. However, what it requires
is some form of arrangement that
the parties regard as binding upon
both themselves and the other parties to the agreement. Absent such
an arrangement there is
no agreement even in the more extended sense
embodied in the definition.”
[19]
Flowing from the above, conduct of the parties alleged to be in a
cartel agreement directed at arriving at an arrangement that
will
bind them either contractually or by virtue of moral suasion or
commercial interest is central to determining whether the
parties
have reached some kind of consensus. It is abundantly clear from the
wording of s 4(1)(b) that in order to establish a
contravention, the
Competition Commission must produce proof which shows an agreement to
engage in the prohibited anti-competitive
behaviour. The key concern
is to determine whether a sufficient consensus was achieved to
constitute ‘an agreement’
as defined in the Act and,
which, as explained in
Netstar
, cannot be determined solely by
recourse to private law principles of contract. In holding Vulcania
liable, the Tribunal extensively
referred to European jurisprudence
relevant to the determination of passive participation. There cannot,
in my view, be anything
amiss with this approach as the Act itself
sanctions recourse to foreign and international law for it provides
that:
“
(2)
This Act must be interpreted ---
(a)
in a manner that is consistent with the
Constitution and gives effect to the purposes set out in section 2;
and
(b)
in compliance with international law
obligations of the Republic.
(3)
Any person interpreting or applying this
Act may consider appropriate foreign and international law.”
It
was contended that the Tribunal did not only have due regard to
foreign jurisprudence, but imported the interpretation thereof
and
applied it to the facts and found Vulcania liable on that basis. If
this contention is correct, the approach of the Tribunal
would be
clearly wrong because as early as 2004, this court in
Federal-Mogul
Aftermarket Southern Africa (Pty) Ltd v Competition Commission and
another
[2004] 1 CPLR 25
(CAC) considered the application of
foreign law and explained that:
“
There
is no justification for the application of foreign dicta that may not
only be at odds with an express purpose of the Act but
the result of
which would lead to an interpretation which is at war with the
express words of the section.”
The
Tribunal did not in my view, import foreign legal principles and
apply them to the facts of the present matter. Its judgment
amply
demonstrates that it found Vulcania liable on the basis of the
interpretation of the Act and the rejection of Greve’s
evidence
to the effect that the informal meetings could not take binding
decisions. To this end, it stated that:
“
[97]
Greve’s evidence on this aspect cannot be accepted.
[98]
Nor as a matter of law does it have substance. The Act makes it
abundantly clear that agreements amongst firms do not require
the
formality of agreements in contract. The Act has extended the
ordinary definition of the term agreement when used in relation
to a
prohibited practice to include ‘. . . a contract, arrangement
or understanding, whether or not legally enforceable’.
It is
clear that the meetings arrived at ‘understandings’ or
‘arrangements’ between competitors on customer
allocation
to the effect that a member would not compete for another firm’s
customers, as well as establishing the formula
for adjusting selling
prices to cater for increases in input costs. It is also clear from
all the witnesses that the firms declared
their intention to
implement the decisions reached at these meetings, even though some
‘cheating’ occurred in practice.”
[20]
The issue on appeal, as was in the Tribunal, is whether the
Commission established the existence of an agreement between members
of the cartel to engage in anti-competitive behaviour.
[21]
To the extent that it is necessary, I should add that the basic
rationale of European law, that passive participation without
some
indication that the firm in question distances itself from the
arrangement, is not incongruent with the principle in our common
law
that silence may amount to acceptance of an offer where there is a
duty to speak. See Christie
The
Law of Contract in South Africa
(6
th
ed) at 70 and the authorities cited therein. The duty to speak
exists, in this context, in order to reject participation in the
most
egregious of anti-competitive forms of behaviour.
[22]
With this in mind, I now proceed to consider whether Vulcania was
part of the consensus or arrangement reached between members
of the
cartel. This exercise necessitates the consideration of the evidence
in detail. It is trite that where consensus is in dispute,
an
inference of its existence can be made from the facts of the case.
[23]
With regard to price fixing in wire mesh products, it is common cause
that members of the cartel, including Vulcania were members
of SAFRA.
It was during SAFRA meetings that a recommended industry-wide price
of mesh was discussed and adopted. Once the recommended
base price
was adopted, it was circulated to SAFRA members and they would adopt
it in exactly the same form for their individual
pricing, albeit with
insignificant adjustments. After SAFRA’s base price practice
ceased to exist, pursuant to advice received
from Mr Macdonald, to
the effect that the discussions and agreements could be perceived as
anti-competitive, cartel members continued
to use and implement the
SAFRA price list as a guide when discussing discounts in their
informal meetings. Vulcania formed part
of those meetings. The
meetings were usually held after the steel mills had announced an
increase in the price of steel. This was
designed to ensure that
cartel members implemented the increase consistently and uniformly
and that the prices were applied simultaneously
so as to limit the
choices of customers. Vulcania attended five or six informal meetings
at which the increase in the price of
steel was discussed and agreed
upon. By Greve’s own admission, Vulcania did apply the 3%
discount agreed upon by the cartel
on the selling price.
[24]
Similarly, when the steel mills announced an increase of 7%, in
January 2008, the cartel convened another meeting to discuss
and
regulate the manner in which it would be applied. Again, Vulcania was
a party to this agreement. When it became apparent that
Cawood did
not pass on the previous increase, Greve took it upon himself to
calculate and assist in clarifying the “proper”
calculations to be adopted. According to Greve, Vulcania’s
participation was a sham intended to create an impression to cartel
members that he was part and parcel of the agreement because of fear
of commercial reprisals that would ensue had Vulcania demonstrated
otherwise. However, Hartnady, in his statement, explained that there
were a number of firms that were not part of the cartel and
which
competed against the members of the cartel in the Mesh market. He
further stated that:
“
Together
the suppliers that were not part of the cartel arrangements,
accounted for approximately 40-50% of the productive capacity
in
respect of Mesh. Some of these firms, such as Barnes Wire Industries,
managed to grow their share of the Mesh Market during
the period
2001-2008 despite the presence of the cartel.”
[25]
In my view, the conduct of Vulcania in implementing the price
increases agreed upon by the cartel amply demonstrates an intention
to be bound by the cartel agreements and was in consensus with the
cartel’s anti-competitive behaviour. To suggest
that it
was all this time shamming is in the face of this evidence, in my
view, improbable. To my mind, even if Vulcania
was a relatively
small player, and was passive during the price fixing discussions, it
did more than simply acquiesce, and when
it implemented the cartel
prices it directly fixed a purchasing or selling price in
contravention of s 4(1)(b). It
never distanced itself
from the cartel but by contrast followed the agreement. Based
on the evidence, it clearly operated
at the very least, in accordance
with the terms of the arrangement or understanding when it
implemented the cartel prices and discounts.
To hold otherwise would
defeat the very object and purport of the Act, which is to prevent
price fixing and participation in cartels.
Furthermore, there can be
no doubt that the price fixing as well as discount allocation
arrangement of which Vulcania
was part of had the effect of
lessening or preventing competition in the mesh market. This is borne
out by the fact that Vulcania
itself sought protection by joining the
cartel.
[26]
The second leg of the cartel conduct relates to the allocation of
customers. Subsequent to Vulcania’s joining the cartel,
a
meeting was held wherein cartel members were requested to provide a
list of their existing customers. According to the evidence,
the
customer list was updated every now and again and contained names of
customers that were allocated to members of the cartel
as well as the
cartel members’ existing customers. The agreement pertaining
thereto was that cartel members would not target
other members’
customers. The list divided customers into three categories, namely,
the “
in-house customers
”,
“
preferred customers
”
and “
free for all customers”
.
The methodology adopted is best explained by Griffin in his statement
as follows:
“
32
The preferred customers were those that were associated with the
competitor due to the existence of a long standing supplier-customer
relationship. The “free for all” customers were those
customers that could be supplied by any competitor.
33
In order to ensure that customers only bought from their suppliers, a
“cover price” in the form of reduced discount
rates was
applied. For example, where a customer belonging to one competitor
approached another competitor for supply, the former
would allow for
a discount that would be less than that offered by the latter. In
this way, customers were ‘encouraged’
to only buy from
the allocated suppliers.”
[27]
Greve in his evidence readily conceded that Vulcania benefitted from
the customer allocation arrangement as other firms respected
its
customers. To this end, he stated thus:
“’
Apex
who was my customer was allocated to me and what I mean is that the
other guys wouldn’t … well, they said
they didn’t
ever go there and try and take business away from me, from Apex.”
[28]
Vulcania’s stance is that it did not implement the customer
allocation agreement. According to Greve, it did not
consider
it binding upon it. The Tribunal considered this assertion in the
light of the history of the emergence of Vulcania in
the mesh market.
[29]
In order to fully comprehend the approach adopted by the Tribunal in
this regard, it is necessary to repeat the history of
Vulcania. It is
common cause that Vulcania evolved out of a firm known as Polymesh,
which entered the market in the 1990s. Polymesh
produced mesh from
wire in coil. Faced with a cost disadvantage of 10%, Polymesh became
a supplier to small building contractors.
Vulcania took over the
business from Polymesh. In the beginning, it experienced the same
hardships brought to bear upon Polymesh.
In 2005, Vulcania purchased
a 50%interest in a company known as Steel Straighteners. Its partner
was an Alens Meshco subsidiary.
It took some time for Vulcania to
establish itself in the mesh market. Things changed for the better
when it acquired the custom
of Cape Gate. This background must be
understood in the context of Greve’s testimony that Vulcania,
as a small player in
terms of its market share in the mesh industry,
was vulnerable. It is for this reason that it pretended to adhere to
the cartel
agreements, whereas it had no intention of being bound by
the agreements relating to allocation of customers. In its version,
it
had its own customers before it joined the cartel.
[30]
It must be accepted that Vulcania did not attend all the cartel
meetings. Similarly, the evidence does not support a finding
to the
effect that it implemented the decisions relating to customer
allocation agreement. This is understandable when regard is
had to
the fact that it is nigh impossible for the cartel members’
collusive conduct to be monitored or enforced. However,
an agreement
comes into existence once the parties agree on a particular course of
conduct to be followed regardless of the number
of meetings.
Vulcania’s defence that it never intended to adhere to the
terms of the agreement is unsustainable.
[31]
The Tribunal, in rejecting this defence, was of the view that an
agreement itself is covered by s 4 (1) (b). It held that the
section
does not render it necessary for the Commission to show that it has
been implemented. Assistance for this interpretation
can be
gleaned by reference to the European Commission judgment in
Industrial and Medical Gases
[2003] OJ L 84/1. I do so
advisedly, bearing in mind the caution sounded by this court in the
Federal-Mogul
judgment relating to the application of
comparative jurisprudence. Be that as it may, the European
Commission said the following:
“
351.
The Commission notes that the fact that Air Liquide and
Westfalen participated in several meetings, and that the
object of
these meetings was to restrict competition, is confirmed by the
documentary evidence in the Commission’s file.
The
finding that the behaviour described constitutes agreements within
the meaning of Article 81 (1) of the Treaty is not
altered even if it
is established that one or more participants had no intention to
implement the joint intentions expressed by
them. Having regard
to the manifestly anti-competitive nature of the meetings at which
intentions were expressed, the undertakings
concerned, by taking part
without publicly distancing themselves, gave the other participants
the impression that they subscribed
to what was discussed and would
act in conformity with it. The notion of ‘agreement’ is
objective in nature.
The actual motives (and hidden intentions)
which underlay the behaviour adopted is irrelevant.”
[32]
Vulcania submitted that, because the customer allocation agreements
were not ratified by the major or senior players, the requirements
of
s 4(1)(b)(ii) had not been satisfied. I turn to consider this
contention.
[33]
The Tribunal rejected this defence on the basis that it was bad in
both fact and the law as it was not supported by evidence.
Furthermore, the Act does not require that an arrangement or
understanding should have the status of a contract. As stated
earlier,
the approach of the Tribunal is correct in respect of the
law. Regarding the facts, the evidence establishes that Vulcania
submitted
its tonnages and customer lists to the cartel. It is not in
dispute that the purpose of the list was to establish each member’s
market share. Neither is there any indication that when Vulcania did
so, it raised any of the concerns relating to the ratification
it now
relies upon. In my view, such conduct is inconsistent with Vulcania’s
alleged state of mind of not being bound by
the agreement due to lack
of ratification. Even if that were so, it still would not exonerate
it from the liability envisaged in
s 4(1)(b)(i) as is evident from
the attendance of the cartel meetings and the division of markets by
allocating customers. Sutherland
and Kemp,
Competition Law of
South Africa
, at 5.59, summarise this position as follows:
“
Section
4(1) (b) determines that ‘dividing markets by allocating
customers, suppliers, territories, or specific goods or services’
is per se prohibited. Four types of market allocation are prohibited
here.
Firms may not
collude to allocate customers. They may not agree that certain
classes of customers will be served only by particular
firms eg A
will supply to state institutions while B will supply to private
companies.
.
. . “
[34]
In conclusion, the collusive conduct of fixing mesh prices,
allocating customers and discounts on the part of the cartel,
inclusive of Vulcania, falls squarely within the prohibition of s
4(1)(b) as the parties were in a horizontal relationship. In the
light of this finding, there is no reason to disturb the finding of
the Tribunal to the effect that Vulcania contravened s 4(1)(b).
It
follows that Vulcania’s appeal must be dismissed with costs.
The
Appeals against the Administrative Penalties imposed by the Tribunal:
[35]
The legislative framework that underpins the imposition of
administrative penalties is set out in s 59 of the Act which provides
thus:
“
59
Administrative penalties
(1)
The Competition Tribunal may impose an
administrative penalty only-
(a)for
a prohibited practice in terms of section (4(1)(b…,
.
. .
(2)
An administrative penalty imposed in terms
of subsection (1) may not exceed 10% of the firm’s annual
turnover in the Republic
and its imports from the Republic during the
firm’s preceding financial year.
(3)
When determining an appropriate penalty,
the Competition Tribunal must consider the following factors:
(a)
the nature, duration, gravity and extent of
the contravention;
(b)
any loss or damage suffered as a result of
the contravention;
(c)
the behaviour of the respondent;
(d)
the market circumstances in which the
contravention took place;
(e)
the level of profits derives from the
contravention
(f)
the degree to which the respondent has
cooperated with the Competition Commission and the Competition
Tribunal; and
(g)
whether the respondent has previously been
found in contravention of this Act.”
[36]
Both Vulcania and RMS’ grounds of appeal are premised on the
basis that the administrative penalties imposed on them
respectively,
are inconsistent with the purpose of s 59. RMS specifically alleged
that no penalty ought to have been imposed on
it, given that it
enjoyed no turnover in the financial year preceding the imposition of
the penalty by the Tribunal. Vulcania,
on the other hand, contended
that because its involvement in the cartel was maintained at a
minimum level required to protect its
business and ceased when it
gained the ability to sustain itself, as well as the fact that from
its evidence, it was clear that
its participation did not yield any
gain, no penalty should have been imposed it.
[37]
In the cross-appeal, the Commission’s grounds of appeal are
that, first, because cartel conduct is the most egregious
offence in
competition law, the Tribunal should have imposed a penalty higher
than the 15% of the affected turnover. Second, the
Tribunal erred in
its assessment of the loss or damage caused by the cartel as well the
level of profit derived. Accordingly, the
Tribunal should have, due
to the deleterious effect of cartels on competition, not limited its
consideration to monetary profit
and ought to have imposed higher
penalties than those imposed upon the appellants, subject to the cap
in section 59(2). Furthermore,
the individual circumstances of the
appellants did not justify the same discount, and where a discount
was justified, it should
have been less than 40%.
Evaluation
[38]
The approach to an appeal against the Tribunal’s assessment and
imposition of a penalty was stated in
Federal-Mogul
supra
thus:
“
This
court does not enjoy unfettered discretion to interfere with the
Tribunal’s assessment and imposition of an administrative
penalty. Even if we decided that a different penalty was appropriate
we are not merely at large to substitute a finding for that
of the
tribunal. This approach is consistent with general principle that an
appeal against the exercise of its discretion by a
court or statutory
body, the court on appeal has limited power to interfere. It can only
do so on a certain well recognised grounds
namely the court a quo
exercises its discretion capriciously or upon a wrong principle or it
has not brought its unbiased judgment
in the question or it does not
act for substantial reasons.”
[39]
In considering factors to take into account in imposing
administrative penalties, the Tribunal adopted a six step approach.
This approach constitutes, in part, an adaptation of the European
Union guidelines relevant to s 59. It is necessary to set out
the
steps as the Commission’s cross-appeal is premised on one of
them.
“
Step
one
: determination of the affected
turnover in the relevant year of assessment.
Step
two
: calculation of the base amount,
being that proportion of the relevant turnover relied upon.
Step
three
: where the contravention exceeds
one year, multiplying the amount obtained in step 2 by the duration
of the contravention.
Step
four
: rounding off the figure obtained
in step 3, if it exceeds the cap provided for by section 59(2).
Step
five
: considering factors that might
mitigate or aggravate the amount reached in step 4, by way of
discount or premium expressed as
percentage of that amount that is
either subtracted from or added to it.
Step
six
: rounding off this amount if it
exceeds the cap provided for in section 59(2). If it does, it must be
adjusted downwards so that
it does not exceed the cap, as explained
by the CAC in SPC.”
[40]
In
Southern Pipeline Contractors and
another v Competition Commission
[2011]
239 (CAC), this Court emphasized that the cap described in s 59(2) is
the determination of the maximum penalty that can
possibly be imposed
and becomes operative only after the Tribunal has taken account of
the factors set out in s59(3) and decided
upon a penalty. It is then
required to determine whether that proposed penalty falls within the
maximum allowable penalty as provided
for in s 59(2).
[41]
The Tribunal in implementing its formula considered that the last
full financial year in which Vulcania participated in cartel
activity
was the financial year ending 31 December 2007. It accepted that
Vulcania’s turnover for reinforced wire mesh for
that year, as
reflected in its financial year figures, was R31,6 million. Using the
EU guidelines, it regarded 15% of the turnover
as appropriate which
it calculated thus 31,6 x 15% = 4,74. The amount of R4, 74 million
was then multiplied by 2 (Vulcania’s
years of participation in
the cartel) which gave rise to a figure of R9,48 million. It noted
that Vulcania was not an instigator;
it was coerced to join, and
refrained from implementing some of the cartel’s decision.
However, the presence of senior members
in the cartel meetings was
considered to be an aggravating factor. Nonetheless, it was of the
view that the mitigating factors,
cumulatively examined, entitled the
company to a substantial reduction of the penalty by 40% in the basic
amount. The overall amount
for which Vulcania became liable in the
result was, R5, 6 million. According to the Tribunal,
this amount does not
exceed Vulcania’s turnover for either 2010
or 2011 and as such it was not necessary for it to be rounded so that
it fell
below the cap.
[42]
With regard to RMS, the Tribunal noted that the Commission
distinguished between the wire mesh and hard drawn wire turnovers,
but for the purpose of the penalty the affected turnover was
restricted to R62 million. Applying the same 15% base, the overall
amount became R9.3 million, which was multiplied by 4, resulting in a
figure of R37 million. Seeing that this amount was in excess
of 10 %
of RMS’s turnover of R363 million for the 2007 financial year,
the Tribunal reduced it to R36 million. This amount
was further
reduced by a 40% discount to R21, 6m. The Tribunal justified the
discount on the basis that although in the case of
RMS there were
aggravating factors, these were outweighed by the fact that it (RMS)
disrupted the cartel both prior to its joining
it and during its
period of involvement.
RMS’s
submissions
[43]
Mr Cilliers, who appeared together with Ms Engelbrecht on behalf of
the first appellant, submitted that the Tribunal misdirected
itself
when it imposed a penalty upon RMS. A penalty calculated
on the basis of a turnover of the last year of the
company’s
economically active year rather than the financial year immediately
preceding the imposition of the penalty ran
contrary to the clear
wording of s 59(2) of the Act. Had the Tribunal followed the wording
of s 59(2), no penalty could have been
imposed on RMS, as it had nil
turnover in the year immediately preceding the imposition of a
penalty. In particular, it was contended
that, in terms of s 59, the
Tribunal is required to make an appropriate order within its
jurisdictional limits. This is especially
so because the Act provides
for a single financial year. Furthermore, by resorting to a purposive
approach in interpreting s 59(2)
and imposing the penalty on RMS, it
acted arbitrarily and in variance with the wording of the key purpose
of the administrative
penalty regime, when it justified its approach
as follows:
“
In
our view the clear purpose of
section 59(2)
of the
Competition Act is
to prevent a penalty being levied which is disproportionate in
relation to the size of the firm concerned and hence the cap imposed
on turnover. Since however the preceding financial year may not
always reflect the firm’s ‘real economic situation’,
as the ECJ referred to it, it is permissible to rely on another year
which reflects the firm’s turnover in a year of ‘normal
economic activity’”.
According
to RMS, this approach to penalties would have the effect of crippling
or extinguishing a firm and could not have been
intended by the
legislature. If this gives rise to a
lacuna
,
the court cannot substitute uncertainty for absurdity.
[44]
In relation to the Commissioner’s cross-appeal, RMS reiterated
the contentions alluded to above and emphasized that
s 59(3)
enjoins
the Tribunal to take into account all the prescribed factors. This in
essence entails the individualized consideration
of the evidence, not
a generalised approach and presumed effects of the cartel activity
aimed at solely punishing cartel conduct.
In
Southern
Pipelines Contractors
supra, this court
bemoaned the absence of evidence regarding significant considerations
that the Tribunal was mandated to take
into account, including ‘loss
or damages suffered as a result of the contravention, the level of
profit derived from the
contravention and the effect on the market’.
Vulcania’s
submissions
[45]
Mr McNally, who appeared for Vulcania, criticised the fact that the
Tribunal, when it imposed the penalty, treated all the
years the
same, whereas Vulcania’s annual turnover was not the same over
the years. According to Vulcania, the imposition
of penalties is not
a mechanical process. Certain factors ought to weigh more than
others. Furthermore, the Tribunal accepted
that there was no
meaningful participation on its part in the cartel and its
involvement took place during the dying years of the
cartel. The
effect of participation also ought to be taken into account. In
addition, the Tribunal in its judgment failed to take
into account
that Vulcania joined the cartel when it was at its weakest and
shortly thereafter the meetings ceased. For all of
these reasons, so
contended Vulcania, the penalty imposed by the Tribunal was
disproportionate to the role it played and fell foul
of
s 59(2)
as
the cap imposed was irrational as it bore no relation to the trading
activities.
The
Commission
[46]
Mr Maenetje, who appeared with Mr Ngcangisa for the Commissioner,
contended that there is justification in
s 59(3)
for use of the
affected turnover as a basis for determining the appropriate penalty
before applying the provisions of
s 59(2).
In his opinion, the use of
affected turnover achieves proportionality between the nature of the
offence and the benefit derived
therefrom, the interests of the
consumer community and the legitimate interests of the offender. He
further submitted that this
court is entitled to interfere with the
penalties imposed by the Tribunal as its step 2 has no foundations in
s 59.
Mr Maenetje also submitted that this step seemed to bend over
backwards to accommodate a situation where the cap in
s 59(2)
was not
exceeded before the Tribunal considered the mitigating and
aggravating factors. In addition, the basic amount of 15% was
too low
in respect of cartel conduct which constituted the most egregious of
all contraventions; it is deleterious and causes substantial
harm in
the market. This ought to be presumed when factors in
s 59(3)(a)
and
(d) are considered. In the view of the Commission, the Tribunal
failed to attach due weight to the need to discourage entry
into
cartel conduct. Besides, it is an error to insist on quantification
of loss or damage or the level of profit derived in determining
penalties in cartel cases. Similarly, the discount of 40% is too high
when regard is had to the impact of cartels. It effectively
undermines the objective of deterrence; and in any event, the
Tribunal ought not to have implemented uniform discounts; instead,
it
ought to have tailored them such that individual circumstances
applied to the appellants.
Evaluation
[47]
It is necessary for the purpose of evaluation to restate the
provisions of 59(2):
“
An
administrative penalty imposed in terms of subsection (1) may not
exceed 10 per cent of the firm’s annual turnover
. . .
during the firm’s preceding financial year.”
Two
crucial questions flow from this section:
1.
Whether the preceding financial year must
be understood to mean the firm’s last year of economic activity
or the year preceding
the imposition of the administrative penalty.
2.
Whether the words “annual” and
“year” indicate that the subsection refers to a single
financial year.
A
third issue which was raised in this appeal relates to the
calculation of the administrative penalties applicable to the
respective
appellants.
[48]
The first two issues turn on the interpretation of
s 59
(2).
The proper approach to statutory interpretation has been set out by
Wallis JA, in
Natal Joint Municipal Pension Fund v Endumeni
Municipality
2012 (4) SA 593
SCA at 603 - 604 para 18 as follows:
“
[18]
The present state of the law can be expressed as follows:
Interpretation is the process of attributing meaning to the words
used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon its
coming
into existence. Whatever the nature of the document, consideration
must be given to the language used in the light of the
ordinary rules
of grammar and syntax; the context in which the provision appears;
the apparent purpose for which it is directed
and the material known
to those responsible for its production. Where more than one meaning
is possible each possibility must be
weighed in the light of these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred to one that
leads insensible businesslike results
or undermines the apparent purpose of the document. Judges must be
alert to, and guard against,
the temptation to substitute what they
regard as reasonable, or businesslike for the words actually used. To
do so in regard to
a statute or statutory instrument is to cross the
divide between interpretation and legislation; in a contractual
context, it is
to make a contract for the parties than the one they
in fact made. ‘The inevitable point of departure is the
language of
the provision itself’, read in context and having
regard to the purpose of the provision and the background to the
preparation
and production of the document.”
[49]
With this background in mind, I turn to consider the interpretation
of
s 59(2).
The Oxford English Dictionary gives to the word ‘precede’
the following meaning:
“
To
come before in time, to happen, occur, or exist before: to be earlier
than or anterior to.”
It
follows that the textual meaning to be attached to the term
‘preceding financial year’ is the financial year
preceding
the imposition of the administrative penalty.
Similarly, the literal interpretation to be accorded to the term
“annual
turnover” is that it refers to a single year.
[50]
This interpretation presents a number of difficulties which may lead
to an absurdity that could never have been contemplated
by the
legislature. For example, as correctly pointed out by Mr Maenetje, if
a firm had been involved in cartel activity for five
years and had
for the period preceding the imposition of a penalty ceased to trade,
and thus had a nil turnover in the year immediately
preceding the
imposition of the penalty, it would mean that for all the years it
had been benefitting from the cartel, no sanction
could be
imposed. The following example illustrates the
problem. Firm A is a key participant in a
national
cartel. In October 2010, a complaint is lodged in terms of s
4(1) (b) of the Act and is referred to the Tribunal.
The
hearing is finalised in June 2013. Between January 2011 until
March 2012, Firm A does not trade. By May 2012
it resumes
trading. Its financial year is between 1 March to 25
February. As it has a nil turnover in the immediately
preceding
year, no penalty can be imposed, save if the suspension of trade was
a sham.
[51]
This scenario is repugnant to the very purpose of the legislation.
(See
Commissioner SARS v Multichoice
Africa (Pty) Ltd & another
(218/10)
[2011] ZASCA 41
(29 March 2011). In my view, there is nothing in the
Act, either expressly or impliedly stated, that could indicate that
the drafters
of the legislation intended that no penalties should be
imposed for contraventions in these circumstances. In similar
vein,
the dictionary meaning of the word ‘preceding’
cannot be restricted to ‘immediately’ preceding. The
determination
of a penalty must for all intents and purposes relate
to the time the firm was trading otherwise the Act will serve no
purpose.
[52]
It is clear to me that in order to give effect and coherent meaning
to the Act, s 59 must be interpreted purposively. In so
interpreting
this section, the starting point ought to be the purpose of the Act.
To this end, s 2 provides that:
“
The
purpose of this Act is to promote and maintain competition in the
Republic in order to:
(a)
to promote the efficiency, adaptability and
development of the economy;
(b)
to provide consumers with competitive
prices and product choices;
(c)
to promote employment and advance the
social and economic welfare of South Africans;
(d)
to expand opportunities for South African
participation in world markets and recognise the role of foreign
competition in the Republic;
(e)
to ensure that small and medium-sized
enterprises have an equitable opportunity to participate in the
economy; and
(f)
to promote greater spread of ownership, in
particular to increase the ownership stakes of historically
disadvantaged persons.”
[53]
This section provides a contextual indication of the legislature’s
intention. This approach is affirmed by the
Competition Commission
of South Africa v Senwes
Ltd
2012 (7) BCLR 667
(CC) when
commenting on the approach to the interpretation of the Act with
regard to referral of complaints, the court noted that:
“
There
is no indication in the Act that the interpretation and determination
of the ambit of the referral should be narrowly or restrictively
interpreted. Excessive formality would not be in keeping with the
purpose of the Act.”
Although
this was stated in the context of the referral procedure, according
to Mr Maenetje, by parity of reasoning it is equally
applicable to
the contentious provisions in this appeal. Further support for the
adoption of the purposive approach can be found
in
Southern
Pipeline
Contractors
where it was stated that:
“
[9]
Given the constitutional dispensation in terms of which the Act is
located, and the further injunction of section 39(2) of the
Constitution of the Republic of South Africa 108 of 1996 that, a
court must promote the spirit, purport and object of the Bill
of
Rights. . . .”
[54]
The purpose of administrative penalties is to punish and deter firms
for the contraventions of the Act.
Khumalo, Mashiane and Roberts
in their paper titled
Harm and Overcharge in the South African
Precast Concrete Products Cartel
give an overview of the effects
of cartel activity and state thus:
“
.
. . our study does indicate that cartels are nonetheless very harmful
to consumers and the economy in general, and that the effects
importantly extend far beyond the specific turnover on which prices
are mantained at above competitive levels. These effects include
on
consumers who are denied alternatives, the dampening of non-price
rivalry, and the undermining of dynamism from such arrangements.”
[55]
Section 59(1) empowers the Tribunal to impose penalties, inter alia,
for contraventions of s 4(1)(b) of the Act, affords it
guidelines for
determination of appropriate penalties. Such penalties should not
exceed the cap in s 59 (2). When the Tribunal
considers an
appropriate penalty, it must determine the level of profit derived
from the contravention. To do so, it must first
identify a turnover
from which the profit can be established. Logically, the turnover can
only be determined by reference to the
time when the firm was
trading. Section 59(2) operates on the factual premise that turnover
was achieved in the financial year
preceding the imposition of the
penalty. Stated differently, it presupposes that there was a full
financial year of normal economic
activity immediately preceding the
imposition of the penalty. On this basis, it makes perfect sense in
my view to interpret the
‘preceding’ year to mean the
year in which the firm traded. Where no turnover was achieved, the
cap should not operate.
[56]
As illustrated above, the interpretation contended for by Mr Cilliers
is untenable because
,
not only does it defeat the purpose of the Act, but it would enable
firms involved in cartel activities to circumvent the Act and
avoid
punishment by simply ceasing to trade in sufficient time prior to the
adoption of the Tribunal decision.
[57]
Returning to the calculation, the affected turnover should include
the number of years the firm was involved in the cartel.
This
approach is in line with that adopted by the Court of Justice in
Britannia Alloys & Chemicals v Commission of the European
Communities
, (case No. C76-06 on 7 June 2007) which when faced
with facts similar to the matter at hand reasoned as follows:
“
25.
It is clear from the above considerations that, in determining the
“preceding business year” , the Commission must
assess,
in each specific case and having regard to both to the context and
the objectives pursued by the scheme of penalties created
by
Regulation No 17, the intended impact on the undertaking in question,
taking into account in particular a turnover which reflects
the
undertaking’s real economic situation during the period in
which the infringement was committed . . .
30 Accordingly,
where, as in the present case, the undertaking concerned has not
achieved any turnover for the business year preceding
the adoption of
the Commission decision, the Commission is entitled to refer to
another business year in order to be able to make
a correct
assessment of the financial resources of that undertaking and to
ensure that the fine has a sufficient deterrent effect.”
It further held
that:
“
The
Court of First Instance therefore did not err in law by holding that
the Commission could refer, pursuant to the first subparagraph
of
Article 15(2) of Regulation No 17, to the last complete business year
preceding the adoption of the contested decision . . .”
[58]
It must be acknowledged that the approach I have adopted in this
matter appears to be at variance with the remarks made by
this court
in
Southern Pipeline Contractors
to the following
effect:
“
[61]
Although not strictly necessary for the determination of this case, I
intend to accept the approach adopted by Sutherland and
Kemp
Competition Law of South Africa at 12 – 11 that a plain reading
of s59(2) supports a conclusion that the base year for
the
determination of the cap is the financial year preceding that in
which the penalties were imposed. This conclusion therefore
illuminates the animating idea that the legislature was concerned
that the penalty, although severe, should not, on its own be
destructive of the offending party’s business; hence the
restraint of the cap.”
However,
the court in
Southern Pipeline
was not confronted with the
specific problem of a nil return in the immediately preceding year.
When the court in
Southern Pipeline
referred to the preceding
year, it did so to reinforce its view that the penalty should not
destroy a business. It did not
deal with the problem
confronting this Court and to that extent, its approach requires a
qualification.
Hence,
the ‘preceding year’ in s 59 (2) means the firm’s
year of economic activity.
It
follows that the approach adopted by the Tribunal cannot be faulted.
The
Administrative penalties
[59]
The Tribunal imposed an administrative penalty in the amount of
R5,600 000.00 on Vulcania and R21,600 000,00 on RMS. The purpose
of
administrative fines, is captured with clarity by Wils, in an article
with the title optimal
Antitrust Fines: Theory and Practice:
“
Fines
are however an important instrument in the prevention of violations.
As already indicated, the imposition of fines on companies
that are
found to have breached the antitrust prohibitions could in three ways
contribute to preventing such violations. First,
it may have a
different effect, by creating a credible threat of being prosecuted
and fined which weighs sufficiently in the balance
of expected costs
and benefits to deter calculating companies from committing antitrust
violations. Secondly, it may at the same
time have a moral effect, in
that it sends a message to the spontaneously law-abiding, reinforcing
their commitment to the antitrust
prohibitions. Thirdly, through
leniency policies and through the use of other aggravating or
attenuating circumstances affecting
the amount of the fine imposed,
the cost of setting up and running cartels can be raised.”
In
short, and as set out in this court’s jurisprudence, the
imposition of penalties entails a proportionality exercise.
[60]
In exercising its discretion, the Tribunal, acknowledged that
Vulcania was not an instigator. It accepted that to a certain
extent, it was strong-armed by the bigger firms to join the cartel,
and its profit therefrom was slight and it also did not implement
the
cartel decisions. However, it did not escape the Tribunal that the
most senior members of Vulcania attended the cartel meetings.
Hence,
the Tribunal carefully weighed all the relevant factors and in my
view, the penalty imposed on Vulcania is justified.
[61]
With regard to RMS, the Tribunal justified its 40% reduction, (as was
also applied to Vulcania) on the basis that the evidence
established
that RMS disrupted the cartel meetings prior to its involvement.
The role played by RMS is much more significant
than Vulcania’s.
It will be recalled that RMS’s executive chairman Mr Di Nicola
attended a meeting where it was agreed
that members should respect
each other’s operations. Mr Hankey, a senior manager at RMS,
acting in concert with Mr Di Nicola
implemented the decisions. RMS
was also instrumental in recruiting Vulcania to join the cartel. What
aggravates its role is that
RMS, despite having been advised by Mr
MacDonald that the cartel conduct was prohibited, continued to attend
secret meetings and
persisted with this conduct. It only stopped when
the Commission commenced its investigation of the cartel activity.
Taking all
these factors into account, I find no basis to interfere
with the Tribunal’s exercise of its discretion. In the result,
the
penalty imposed on RMS is in my view appropriate.
The
Cross-Appeal
[62]
I have already set out the basis on which the Commission assails the
Tribunal’s administrative penalty determination.
Suffice to
restate that the main basis is that the penalties imposed were too
lenient. Having found that the penalties imposed
by the Tribunal were
justified, I think, it would be unjustified to decide differently in
respect of the cross-appeal. The reasoning
alluded to in the
examination of whether the penalties were justified manifestly
applies equally to the cross-appeal. The purpose
of s 59 is not to
crush the business of the affected firms, but to deter. Whilst I
consider the conduct of the appellant to be
egregious, in my view,
the objectives of the Act have been achieved by the penalties imposed
by the Tribunal.
[63]
What remains to be considered is whether step four of the Tribunal’s
approach constitutes an inappropriate step and is
not justified by
the scheme of the Act. The Commission did not seriously pursue this
line of argument. In its Heads of Argument,
it unequivocally
states that it “does not have objection to the Tribunal’s
overall approach to the determination of
penalties as set out in its
decision, which in essence is an attempt to achieve a level of
certainty and to remain faithful to
the provisions of s 59(20) and
(3)”. I have difficulty with the isolation of one step from the
entire proceedings as a basis
for the appeal given that in the final
analysis, the administrative penalty so imposed serves the purpose
and objective of the
Act. To my mind, the cross-appeal unnecessarily
places emphasis on form rather than substance.
The
inescapable conclusion that flows from this approach is that the
cross-appeal is to be dismissed with costs.
[64]
In the light of the aforegoing, the following order is made:
1. The first
appellant’s appeal is dismissed with costs.
2. The second
appellant’s appeal is dismissed with costs
3.
The cross – appeal is also dismissed with costs.
__________________
NDITA,
AJA
DavisJP
and Dambuza JA concurred
___________________
CORAM:
THE
HONOURABLE NDITA AJA
(DAVIS
JP, et DAMBUZA JA) concurs
FOR
THE 1
st
APPLICANT - Adv. SC Cilliers (SC) & Adv MJ
Engelbrecht
INSTRUCTED
BY - Cliffe Decker Hofmeyr Inc
FOR
THE 2
nd
APPLICANT - Adv. JPV McNally (SC)
INSTRUCTED
BY - Chritelis Artemidis
FOR
THE RESPONDENT-Adv. N H Maenetje (SC) & Adv. G Ngcangisa
INSTRUCTED
BY -
DATE
OF HEARING - 15 November 2013
DATE
OF JUDGMENT - 05 December 2013