MacNeil Agencies (Pty) Ltd v Competition Commission (121/CACJul12) [2013] ZACAC 3; [2013] 2 CPLR 416 (CAC) (18 November 2013)

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[2013] ZACAC 3
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MacNeil Agencies (Pty) Ltd v Competition Commission (121/CACJul12) [2013] ZACAC 3; [2013] 2 CPLR 416 (CAC) (18 November 2013)

THE COMPETITION APPEAL COURT OF
SOUTH AFRICA
CAC Case No: 121/CACJul12
In the matter between:
MACNEIL AGENCIES
(PTY) LTD
APPELLANT
And
THE COMPETITION
COMMISSION
RESPONDENT
Coram
: DAVIS JP, VICTOR AJA & ROGERS AJA
Heard: 20 SEPTEMBER 2013
Delivered: 18 NOVEMBER 2013
______________________________________________________________
JUDGMENT
______________________________________________________________
ROGERS AJA:
Introduction
The appellant (‘MacNeil’) was the 7
th
respondent in a complaint which the present respondent (‘the
Commission’) initiated on 18 March 2008 and referred
to the
Competition Tribunal (‘the Tribunal’) on 2 February
2009. I shall refer to the other respondents cited in
the referral
by the following abbreviated names: 1
st
– DPI; 2
nd
– Petzetakis; 3
rd
– Marley; 4
th
–
Swan; 5
th
– Amitech; 6
th
–
Flo-Tek; 8
th
– Andrag; 9
th
–
Gazelle.
The markets to which the referral relates were the
manufacture and supply of polyvinylchloride (‘PVC’) and
high-density
polyethylene (‘HDPE’) pipe products in
South Africa. The Commission alleged that the respondent firms had,
in violation
of s 4(1)(b) of the Competition Act 89 of 1998
(‘the Act’), colluded in these markets to fix prices and
to allocate
tender contracts issued by customers. The Commission
alleged that the collusion started prior to 1998 (when the Act came
into
force) and continued until 2007.
Shortly before making the referral the Commission
granted DPI conditional leniency. The other firms delivered
answering affidavits
in which they variously denied the allegations
of collusion outright or disputed the extent of their participation
or the appropriate
penalty. However, by the time the trial began in
the Tribunal in September 2010 Marley, Swan and Flo-Tek had reached
settlements
with the Commission in which they admitted their
participation in prohibited conduct and agreed to pay penalties of
6% of their
2007 turnover (or affected turnover, in the case of
Marley).
The trial ran for a number of days in September 2010
and January/February 2011. Argument was heard in April 2011.
MacNeil, Andrag
and Gazelle contended that they had not committed
any prohibited practices. Petzetakis (which had just failed to beat
DPI to
the post in submitting a leniency application) and Amitech
conceded participation in prohibited practices but denied that it

was as extensive as the Commission alleged or that they should be
penalised to the extent for which the Commission contended. The

Tribunal delivered its decision on 4 July 2012. MacNeil was found to
have participated in price-fixing through its attendance
at three
meetings which took place over the period February to October 2007.
An administrative penalty of R2 million was imposed.
Although the
findings in respect of the other firms are not relevant to this
appeal, I mention for the sake of completeness that
Andrag was found
to have engaged in prohibited conduct (unrelated in any way to
MacNeil) but the tribunal concluded that it would
be inappropriate
to impose any administrative penalty; the case against Gazelle was
found not to have been made out; and Amitech
and Petzetakis, which
in any event conceded participation in collusive conduct, were
ordered to pay administrative penalties
of R11,1 million and R9,92
million respectively.
MacNeil appeals to this court against the Tribunal’s
findings on the merits and against the extent of the administrative
penalty imposed on it. Mr Rosenberg SC, leading Mr Kelly, appeared
for MacNeil at the appeal, as he did in the Tribunal; and Mr

Maenetje SC appeared for the Commission, as he did in the Tribunal.
The evidence
The evidence before the Tribunal indicated that there
had been a cartel in existence for some years in the relevant
markets nationally,
the core members being DPI, Petzetakis and
Marley. In the latter part of 2006 MacNeil entered the PVC piping
market to which
the cartel related. MacNeil was based in Cape Town
and its customers were principally in the Western Cape. The
respondent firms,
apart from selling their piping products to
merchants and directly to contractors, occasionally sold product to
each other. MacNeil,
which mainly sold its pipes to merchants, also
undertook toll manufacturing for Flo-Tek. The firms with which
MacNeil was alleged
by the Commission to have colluded in
price-fixing were DPI, Petzetakis and Flo-Tek.
Insofar as the case against MacNeil is concerned, the
relevant personalities were DPI’s Andre Auret (national sales
and
marketing director) and Rene le Riche (who was, at the relevant
time in 2007, the sales director of DPI’s Incledon-DPI

division); Petzetakis’ Trevor Lombard; Flo-Tek’s Shaun
Hart; and MacNeil’s Neil Malherbe (managing director),
Sean
Diab (general manager) and Phillip Brink (sales manager). I shall
refer to these persons by their surnames.
The Commission’s allegations
in the referral affidavit, insofar as MacNeil is concerned, were
sparse. In para 36.6 the Commission’s
deponent alleged that
during February or March 2007 a meeting was held at DPI’s Cape
Town offices attended by Le Riche
of DPI, Lombard of Petzetakis,
Hart of Flo-Tek and Brink of MacNeil. These firms were alleged to
have
‘
reaffirmed
the pricing principles previously agreed between them as detailed
above in relation to PVC pipes, specifically PVC
sewer piping’
.
In truth, MacNeil was not mentioned in any earlier paragraphs. The
Commission went on to say, in para 37, that it was clear
from the
meetings mentioned earlier in the affidavit that at least until
March 2007 the respondent firms colluded in fixing prices
though the
Commission said that it had reason to believe that the firms’
collusive conduct continued beyond March 2007.
The referral
affidavit then went on to deal under a separate heading with the
topic of collusive tendering and market allocation.
No
particularised allegations were made under this head against MacNeil
nor did the Commission pursue such a case against MacNeil
at the
hearing before the Tribunal.
In Petzetakis’ answering
affidavit its deponent, Michelle Harding (its then managing
director), said that she had no personal
knowledge of the
February/March 2007 meeting but Petzetakis admitted the Commission’s
allegations. Harding referred to
a confirmatory affidavit by
Lombard.
1
Flo-Tek and MacNeil each delivered
answering papers in which they dealt with para 36.6 of the referral
affidavit and with various
meetings which had taken place between
DPI, Petzetakis, Flo-Tek and MacNeil during 2007. These answering
affidavits provided
details of meetings additional to those
mentioned in the referral affidavit but were exculpatory in nature –
both firms
contended in essence that they did not at these meetings
agree to fix prices. Flo-Tek’s main answering affidavit was
made
by its chief financial officer, Mr C Bandaru, but a
confirmatory affidavit by Hart was filed. Brink deposed to MacNeil’s

main answering affidavit and there was a confirmatory affidavit from
Diab.
2
Because DPI had been granted leniency, it did not
deliver answering papers in response to the referral affidavit. In
advance of
the hearing, however, the Commission delivered witness
statements by Auret and Le Riche. Le Riche’s statement
referred
to four meetings allegedly involving MacNeil in 2007. Auret
and Le Riche testified at the Tribunal hearing
It is unclear whether Petzetakis delivered witness
statements. Its principal deponent, Harding, left Petzetakis in July
2009 (before
the trial commenced) and was called by the Commission
as its first witness. We were told that we did not need to read her
evidence,
presumably because she did not claim to have attended any
meetings at which MacNeil was represented. Lombard, the only
Petzetakis
representative who could have spoken from direct
knowledge about meetings with MacNeil, did not testify nor is there
any witness
statement from him in the appeal record.
Because Flo-Tek had settled with the Commission by the
time of the trial, no witness statements from its representatives
were
delivered nor was Hart, the Flo-Tek employee alleged to have
been involved in meetings with MacNeil, called to testify. However,

both Mr Rosenberg and Mr Maenetje in cross-examination made
reference to Flo-Tek’s answering affidavit (which, in the
respects relating to Hart, had been confirmed by the latter).
MacNeil delivered witness statements by Malherbe, Diab
and Brink, and they all testified at the hearing.
By way of background to the meetings involving MacNeil
in 2007, it is relevant to note that Brink stated in MacNeil’s
answering
affidavit that it was common knowledge in the industry, at
the time MacNeil entered the PVC pipe market, that DPI, the dominant

player, strongly desired to establish fixed prices and to allocate
tenders. Brink had previously worked for Petzetakis and testified

that while he worked there he heard through the grapevine of
meetings which were taking place among the manufacturers. He was

given price lists and informed about the discount levels.
That such collusion was happening prior to 2007 was
clear from the evidence at the trial and from the Tribunal’s
findings
in relation to the other firms. MacNeil was a new entrant
seeking to gain market share by aggressive pricing. It was thus
inherently
likely that the larger firms with interests in the
Western Cape would seek to constrain this new disruptive force.
Collusive activity by its nature tends not to be
documented. There are no minutes of the meetings MacNeil attended
nor emails
or other correspondence relating to the discussions. By
the time of the hearing the witnesses were talking about events
which
had occurred three or more years previously. In the case of
Auret and Le Riche of DPI, their evidence concerned a broader canvas

than just the 2007 meetings with MacNeil. Complete consistency and
precision of recall could not fairly be expected of them.
The
evidence needed to be assessed holistically to see what was
established on a balance of probabilities.
There was contact between Auret of DPI and Malherbe of
MacNeil in 2006 and 2007, including a meeting in June or July 2007.
These
interactions were not shown to have involved collusion in
contravention of s 4(1)(b). Auret said in this context that
prices
would have been discussed among the firms ‘at a lower
level’.
Apart from the meeting between Auret and Malherbe in
mid-2007, Le Riche in his witness statement and oral testimony spoke
of four
meetings in 2007 involving MacNeil:
[a] The first meeting, allegedly attended by Diab
on behalf of MacNeil, occurred in about January/February 2007. This
was a
meeting where DPI (Le Riche), Petzetakis (Lombard), Flo-Tek
(Hart) and MacNeil (Diab) agreed not to supply product to a merchant,

Peakstar, which had secured three large-volume tenders in the Western
Cape at very low prices. (In his witness statement Le Riche
did not
mention Diab’s presence. In his oral evidence he said that this
was a detail he had forgotten but subsequently remembered.
The
Commission’s referral affidavit had not made reference to a
meeting concerning Peakstar.)
[b] The second meeting, which he placed in
February/March 2007 and was held at DPI’s Cape Town premises,
was attended
by the same four firms. DPI, Petzetakis and Flo-Tek were
represented as before but MacNeil, so Le Riche claimed, was
represented
by Brink. This was a meeting where, according to him,
pricing was discussed and agreed. (In broad terms, this would
correspond
to the meeting alleged by the Commission in para 36.6 of
the referral affidavit.)
[c] Third and fourth meetings, along similar lines
to the second, were held later in the year where pricing was again
discussed
and re-affirmed. In his witness statement Le Riche placed
the third meeting in July 2007 and the fourth (last) meeting in
September
2007. In his oral evidence he said the last meeting was
held in November 2007. However, it would not surprise me if his
recollection
as to timing was somewhat hazy. There was other evidence
(from MacNeil and Flo-Tek) that the third and fourth meetings
occurred
in about September and October 2007. One can fairly conclude
that Le Riche’s third and fourth meetings were the same two
meetings as those mentioned by MacNeil and Flo-Tek as having occurred
in September and October 2007.
As to the first meeting (where Peakstar was discussed),
there is no version in the answering affidavits of Petzetakis,
Flo-Tek
and MacNeil for the simple reason that no such meeting was
mentioned in the referral affidavit. Lombard of Petzetakis and Hart

of Flo-Tek were not called to testify. In oral evidence Diab denied
having attended any such meeting. MacNeil did in fact proceed
to
supply product to Peakstar.
The Tribunal accepted that it had not been proved that
MacNeil was a party to the Peakstar meeting. On this basis, Le Riche
was
in error in implicating MacNeil in the first meeting of 2007.
This finding has not been attacked on appeal. I shall thus confine

my attention to what Le Riche regarded as the second, third and
fourth meetings, where – according to him – pricing
was
discussed. For convenience I shall refer to them as the second,
third and fourth meetings even though they were the only
three
involving MacNeil.
The Tribunal appears to have thought that the rejection
of Le Riche’s evidence regarding MacNeil’s attendance at
the
first (Peakstar) meeting meant that his evidence fell away
altogether in regard to alleged price-fixing involving MacNeil at a

meeting in early 2007. The Tribunal instead relied on what MacNeil
and Flo-Tek had said in their answering affidavits and on
the
evidence of Diab and Brink. Even on this evidence, assessed in the
light of the inherent probabilities, the Tribunal concluded
that
pricing had been discussed at a meeting attended by MacNeil early in
2007 and that Diab had been told to tell Brink that
MacNeil should
‘fall into line’ on pricing.
However, I do not regard Le Riche’s evidence as
being irrelevant to an assessment of this – on his version,
the second
of four meetings involving MacNeil in 2007. If, as the
evidence in its totality indicated, prices were discussed at a
meeting
in early 2007, this would be Le Riche’s second meeting
but he would have erred in identifying MacNeil’s
representative
as having been Brink rather than Diab. Le Riche
obviously recalled Diab as having attended a meeting early in 2007
but seems
mistakenly to have placed him at the Peakstar meeting
rather than the pricing meeting.
Le Riche’s evidence in his
witness statement concerning what he styled the second meeting
(actually the first meeting involving
MacNeil) was that its purpose
was ‘to attempt to ensure stabilisation of the market, which
had been volatile as pricing
had remained unchecked and the price of
input-polymer was at an unsustainable level’.
3
He said that the parties
‘re-affirmed the previously agreed pricing principles (ie the
agreed-upon price list and maximum
discount) in relation to PVC
sewer piping’. The notion of reaffirmation was almost
certainly correct in relation to Petzetakis
and may also have been
right for Flo-Tek. There is no evidence, however, that MacNeil had
previously agreed to any pricing principles.
Nevertheless, in the
context of the long-standing cartel of which Le Riche had knowledge,
his use of the word ‘re-affirmed’
in the context of a
meeting attended by Petzetakis among others, is understandable.
In his oral evidence
4
Le Riche said that the second
meeting was arranged by Hart. He confirmed that the parties had
specifically discussed prices and
discounts. It was very clearly
spelt out that the firms would not go below certain prices for
product they sold directly to contractors
and would not drop below
certain further discounted prices when selling product to merchants.
It was put to Le Riche by Mr
Rosenberg for MacNeil
5
that Brink denied having been
present at the meeting in early 2007 (Le Riche’s second
meeting). It was also put that Diab
had been present, that certain
pricing proposals had been made but that no agreement was reached.
In cross-examination Mr Rosenberg
aligned MacNeil’s case with
Flo-Tek’s answering affidavit regarding this meeting, which in
summary was:
6
that Le Riche had tabled proposals
for the manner of pricing into the Cape Town market; that the
proposals were designed to preserve
DPI’s share of the Cape
Town market and its profit margins; that Le Riche told Flo-Tek as a
new entrant into the Cape Town
market that it was expected to adhere
to these proposals – that ‘this was how things worked in
the Cape Town market’;
and that Hart had attended the meeting
primarily as a ‘fishing expedition’, was ‘non-committal’
about
Flo-Tek’s involvement in the proposals ‘and did
not agree to them’. Quite how Flo-Tek’s supposed absence

of agreement was communicated, if at all, was not the subject of
oral evidence from Flo-Tek because Hart was not called as a
witness.
The supposed absence of agreement as alleged in Flo-Tek’s
affidavit might mean no more than that Hart subjectively
did not
intend to go along with the pricing proposals. It is not without
significance that Mr Rosenberg for MacNeil did not put
to Le Riche
that Hart had clearly distanced himself and Flo-Tek from DPI’s
pricing proposals.
Le Riche remained firm, under
cross-examination from Mr Rosenberg, that at the second meeting (as
well as at the third and fourth
meetings) the parties discussed the
specifics of pricing.
7
He said that his witness statement
had referred only to sewer pipe pricing because most of the time was
spent on setting the sewer
piping prices: they were the largest
piping component of civil contracts but agreement was also struck on
the pricing of other
PVC piping – that part was ‘easy’.
8
In re-examination Le Riche said
9
that he was concerned that his
cross-examination by MacNeil’s counsel created an impression
of confusion about the meetings.
He said he had re-read his witness
statement overnight which very clearly set out the four meetings
which took place in 2007.
The only contentious issue, he said, was
that he had forgotten that Diab attended the one meeting (Le Riche
was clearly referring
here to the Peakstone meeting, ie the first
2007 meeting). For the rest, he said that his witness statement
clearly described
all four meetings exactly as they occurred. He
added:
‘
As far
as the three other meetings with Philip Brink were concerned, we
discussed prices, we discussed the price on pressure pipe,
sewer pipe
and all the sewer fittings. After the meeting everybody left there in
agreement, I not once picked up that anybody is
not in agreement. So
yes, those three specific meetings on price definitely occurred
according to my witness statement.’
The ‘other three meetings’ to which Le
Riche was referring in the above passage were what I have referred
to as the
second, third and fourth meetings. We know that Le Riche
was mistaken in identifying MacNeil’s representative at the
second
of the four meetings (the February/March 2007 meeting) as
being Brink rather than Diab. This part of Le Riche’s evidence

nevertheless has a ring of sincerity and strength of feeling about
it.
We know that Petzetakis admitted in its answering
papers the Commission’s allegations in para 36.6 of the
referral affidavit,
which is essentially Le Riche’s version of
the so-called second meeting. Lombard filed a confirmatory
affidavit. This was
an admission by Petzetakis against its own
interest. Although the admission that MacNeil was represented by
Brink was incorrect,
the admission is not without evidential value.
MacNeil’s own answering affidavit regarding this
meeting (made by Brink and confirmed by Diab) was that MacNeil had
been
invited to attend several meetings which Brink understood to be
for purposes of fixing prices in accordance with DPI’s

requirements. As to the meeting early in 2007, Diab had been invited
so that Le Riche could tell him that MacNeil’s pricing
was too
low and that Diab should bring Brink (MacNeil’s sales manager)
‘into line’. At the meeting Le Riche
threatened MacNeil
that if it continued to price below the levels DPI found acceptable
DPI would dump product into the market
in order to cripple MacNeil.
MacNeil’s answering affidavit denied that Diab ‘affirmed’
any pre-existing principles
– MacNeil had not been party to
any earlier agreement. There were no allegations in the answering
affidavit as to how Diab
had reacted to what DPI said.
In Diab’s witness statement he confirmed that he
had attended the meeting in February/March 2007 at Hart’s
invitation.
He continued:
‘
(5) I
contributed little to this meeting. My only reason for being there
was to pick up useful information, if made available. There
was no
agreement reached regarding pricing principles, nor was there any
reaffirmation of any previously agreed pricing principles.
MacNeil
was a newcomer to the market, with an extremely small market share.
There was no sensible reason for it to engage in price
fixing or for
it to adhere to the requirements of the large manufacturers such as
[DPI]. [MacNeil] did not do so, as evidenced
by the records of its
sales over the period in question.
(6) As to Mr Le Riche calling on
me to bring Mr Brink “into line”, I cannot be sure
whether this was communicated to
me by Mr Le Riche at this meeting,
or whether I came to hear of this requirement on another occasion.’
This is a somewhat coy narration. Diab does not
specifically say that DPI made pricing proposals but the defensive
nature of the
quoted passages seems to imply that pricing proposals
were made, Diab’s version being that MacNeil did not agree to
them
at the meeting and did not in fact implement them. The
statement also appears to dilute what Brink had said about this
meeting
in MacNeil’s answering affidavit and which Diab had
confirmed in a supporting affidavit. (These discrepancies, as one
would
expect, were exposed in cross-examination.)
In his oral evidence Diab said that he attended the
meeting because it was an opportunity for MacNeil as a new player to
meet
the other manufacturers and he also hoped that he might get to
see DPI’s factory. He described his role as passive. The main

discussion was taking place among the other three firms. He
described the conversation as ‘general day-to-day stuff’,

‘general chatter’ – there was no agreement to set
prices or award contracts or allocate customers. When confronted
in
cross-examination with the purpose of this and other meetings as
stated in Brink’s affidavit, he at first denied that
Brink’s
affidavit was correct and then said that he could not recall and
conceded he had no basis to differ from Brink’s
description of
the purpose for which the meetings were called. He was taken in
cross-examination to Flo-Tek’s answering
affidavit. He claimed
not to recall the tabling of pricing proposals by Le Riche but said
he had no basis to dispute that prices
were discussed. Regarding Le
Riche’s instruction to Diab to bring Brink into line, Diab at
first denied this but was then
shown his witness statement after
which he accepted that it was possibly said.
Brink could naturally not speak from
personal knowledge regarding this particular meeting. He did
testify, however,
10
that Diab told him that DPI wanted
MacNeil to fall into line on pricing and threatened to dump product
if MacNeil did not comply
(Brink claimed not to take the threat
seriously). It must follow, despite Diab’s initial denial and
subsequent purported
absence of recollection in oral evidence, that
these statements were made by Le Riche to Diab at the meeting.
If it is accepted that DPI made pricing proposals and
told Flo-Tek and MacNeil that they would need to adhere to the ‘way

things worked’ in Cape Town, there is no evidence that Hart
for Flo-Tek or Diab for MacNeil gave any external manifestation
of
their alleged absence of agreement. Petzetakis’ version in its
answering affidavit, confirmed by its attendee Lombard,
was an
admission that previously agreed pricing principles had been
reaffirmed. Since Petzetakis was a long-standing core member
of the
cartel, and since it would have been in Petzetakis’ interest
to minimise the extent of its admitted involvement,
the admission in
my view must carry some weight. And Le Riche clearly gained the
impression that there was agreement.
Questions of precise timing aside, it is common ground
that there were two further meetings between the same firms in the
second
half of 2007 and that MacNeil was represented at these
meetings by Brink. These meetings (Le Riche’s third and fourth
meetings)
were held at Flo-Tek’s premises. These were not
mentioned in the referral affidavit and there was thus no specific
traversal
of the version to which Le Riche subsequently attested.
However, both Flo-Tek and MacNeil in their answering affidavits
volunteered
information about these further meetings.
In its answering affidavit Flo-Tek
placed the meetings in July 2007 and September/October 2007
respectively. Flo-Tek alleged
11
that the meetings (Le Riche’s
third and fourth meetings) were called because Flo-Tek and MacNeil
‘had declined to
implement the proposals made by Le Riche in
the February 2007 meeting’, that Le Riche tried to convince
Hart and Brink
to implement DPI’s proposals but that Hart ‘did
not agree’ to follow the proposals made on behalf of DPI and

Petzetakis. This version would imply that at least DPI and
Petzetakis (the latter represented by Lombard) were going along with

the proposals.
Brink said in MacNeil’s
answering affidavit
12
that the last two meetings took
place in September and October 2007 and that he attended only
because of an invitation by Flo-Tek
which was a substantial
customer. Elsewhere in his affidavit, though, he said
13
that during 2007 MacNeil was invited
to attend meetings, ‘which I understood were held for the
purposes of fixing prices
in accordance with [DPI’s]
requirements’ and that Brink refused to attend those meetings
‘save those which
occurred in September and October 2007’
which he attended only because of an invitation from Flo-Tek, a
substantial customer.
It would thus appear from MacNeil’s
answering affidavit that its version is that both Hart and Brink
attended the last
two meetings knowing the purpose thereof. Be that
as it may, Brink said, regarding the first of the two meetings he
attended
(Le Riche’s third meeting), that Le Riche complained
that MacNeil’s prices were ‘too cheap’, a remark
to which Brink decided not to respond – he stated in the
affidavit that because of the threats that had been made by Le
Riche
to Diab at the February/March 2007 meeting, he (Brink) was
disinclined to be confrontational. Le Riche produced a DPI pricelist

and ‘suggested’ that the other firms use the list with
an agreed discount structure. Le Riche also suggested that
the firms
keep a tender register and that Le Riche would decide the allocation
of tenders. Brink stated his recollection to be
that no one else at
the meeting was ‘impressed’ by Le Riche’s
suggestions ‘and that nobody agreed to
the terms thereof’.
Brink says that he certainly did not agree and that MacNeil did not
in fact implement the proposals.
Brink then mentioned
14
a similar meeting in October 2007
(Le Riche’s fourth meeting) ‘at which Le Riche again
attempted to impose [DPI’s]
requirements on MacNeil’.
Again, said Brink, he did not agree.
In its answering affidavit
Petzetakis did not deal with the third and fourth meetings.
Petzetakis’ Harding stated that she
had taken over as managing
director in May 2006. She said she became increasingly uncomfortable
with Petzetakis’ involvement
in illicit collusion and that on
28 May 2007 she announced to a special meeting of her sales managers
that Petzetakis would no
longer participate in any meetings, phone
calls or discussions with the other firms. She stated in her
affidavit that she later
learnt from the Commission’s
investigations that two employees, one of whom was Lombard, had, in
violation of this instruction,
participated in discussions with
competitors and that they were disciplined.
15
Accordingly, Lombard’s
participation in the alleged collusive meetings in the second half
of 2007 is not inconsistent with
Petzetakis’ affidavit but no
particulars of the conduct appear from that affidavit nor did
Lombard testify.
Le Riche’s version in his
witness statement, subsequently confirmed in his oral evidence, was
that these two meetings were
initiated by Hart of Flo-Tek and
reaffirmed the pricing principles previously agreed. At the last
meeting there was also discussion
‘regarding the difficulties
experienced in ensuring that the agreement regarding the pricing of
pipes and fittings for
the civils market was adhere to’.
16
It is not in dispute that the third and fourth meetings
were held at Flo-Tek’s premises. Although Flo-Tek in its
answering
affidavit said that Le Riche ‘chaired’ the
meetings, Flo-Tek did not say that DPI initiated them. Le Riche
testified
that both meetings were called at Hart’s instance.
Brink was invited to attend the meetings by Hart but did not say
(and
probably could not say) who initiated the meetings. Given that
the meetings were held at Flo-Tek’s premises, it strikes me
as
somewhat implausible that the exculpatory version offered by Flo-Tek
in its answering affidavit represents the full truth.
We know that
Flo-Tek subsequently reached a settlement with the Commission in
which it admitted that during 2007 it had contravened
s 4(1)(b)
by attending a series of meetings at which agreements, arrangements
or understandings to fix prices and discounts
in respect of PVC
pipes were reached. The settlement was made an order on 27 October
2010.
One of the lines of
cross-examination pursued with Le Riche was that even on his own
version he could not have understood there
to be agreement on prices
at the last two meetings. In that regard Le Riche said the following
when testifying in chief:
17
‘
Our
last meeting was round about November 2007 and that was the one
between Flo-Tek, Petzetakis, MacNeil and ourselves. It wasn’t

really working, people weren’t adhering to it, in fact the last
two meetings we had, for me it was an exercise just to go
and listen
to market information. We discussed prices, but I had been in the
industry a long time and you know, sometimes guys
shared information,
which was beneficial, which worked to our advantage. So the last two
meetings for me, weren’t, I realised
they weren’t working
and after November they just ceased. It was a waste of time.’
Importantly, though, he added that after the last of the
meetings he received several telephone calls from Hart accusing DPI
of
not sticking to the agreed prices. Le Riche then indicated that
nobody was really adhering to the prices anymore so DPI would be

‘doing our own thing from now onwards’.
When cross-examined by Petzetakis’
counsel, Le Riche said that there was still agreement reached at
these meetings but ‘the
relevance of the meetings started
fading in the last two meetings we had’.
18
When Mr Rosenberg pursued a similar
theme,
19
Le Riche said there ‘were
still discussions all the time as far as set prices were discussed’
and that it ‘really
only started unravelling at the seams in
2007,
after
the very last meeting where I
mentioned the four manufacturers involved’ (my emphasis). He
was shown certain figures which
indicated that MacNeil had not
followed DPI pricing. He said this did not surprise him but that the
advantage of the meetings
was that ‘you still set the bar
pretty high and it left a lot of gap for you to operate in’ so
there was definitely
an advantage in having the meetings. Although
by the time of last two meetings he thought it was a waste of time
but
‘
by
still sitting in the meetings, it still gave us an indication of
thinking of what the other guys felt where the prices should
be, but
when you sat in that meeting, some would table a price and all the
other guys would sit around and say we are not happy
with it; you
either lift it or move it up and by that you can understand where
they want to base it.’
It was put to him that he did not for one minute labour
under the misapprehension that anyone was going to follow the agreed
prices,
to which he replied: ‘The last two meetings, no.’
However, when Mr Rosenberg later
cross-examined Le Riche on the details of the last two meetings, Le
Riche said the following:
20
‘
MR
LE RICHE
:
Philip Brink was quiet at the meeting because he was a new entrant.
It’s the first time I had met him. Whether Lombard had
met him
before, I am not sure. He was, as I say, quieter than especially
Shaun Hart, but when we discussed prices, he would agree
and he would
say yes, I’m happy with that or let’s change it slightly.
ADV ROSENBERG
: He says
the prices were proposed or, in fact, put on the table and he merely
listened. He was a youngster. He hadn’t met
you. He listened
and was non-committal.
MR LE RICHE
: No, he was
party to it all.’
…
.
MR ROSENBERG
: …
Those two meetings [
ie the last two meetings
] you say were
meetings which were effectively not to be taken seriously for the
purpose of any firm commitment to pricing.
MR LE RICHE
: That was my
opinion and my feeling, but the meeting went on as normal. We all sat
down. We agreed on prices. We discussed exactly
what the prices
should be. I had been in the game quite a long time. So, I saw an
advantage there to listen and hear what was going
on. In fact, Trevor
Lombard from Petzetakis, when we walked out of the one meeting, also
said to me, you know, we gathered some
information here.
ADV ROSENBERG
: Well, it
appears that at these two meetings at the very least everybody
attended merely for the purpose of gathering some information
and
nobody believed that there was any commitment to setting or adhering
to prices.
MR LE RICHE
: There was a
lot of input put in setting those prices…A lot of time was
spent on it, a lot of input from each manufacturer
was given and we
all left the meeting in agreement that’s the price list.
ADV ROSENBERG
: I put it
to you that on your evidence that any meeting with Mr Brink in July
2007 and thereafter in October 2007 or any meeting
with Mr Brink
during that period at which ostensibly there was any kind of
commitment whatsoever to pricing, was one which you
would not have
taken seriously.
MR LE RICHE
: I think you
may be twisting my words a bit, because it was a serious meeting. I
am going back to my experience in the game. I
knew how to play the
game and I knew that let me use this as an information gathering
thing, but as far as I was concerned, everybody
had agreed to the
prices and a lot of people were applying them, especially at tender
stage. There was a clear indication we followed
it and I could see it
on tenders that were out there in the open marketplace. All the
manufacturers were their tendering at those
rates.
…
MR ROSENBERG
: I say on
your evidence there can be no question that MacNeil gave an
undertaking as understood by you that it would be charging
agreed
prices.
MR LE RICHE
: In those
meetings with Philip Brink there was agreement and consensus reached
that that is the price list and that’s what
we will all stick
to. He never once said he doesn’t agree. He never once said he
is not sticking to it. He never once did
not participate. So, when
the meeting was adjourned, my understanding was there was firm
agreement that the guys would implement
it. It was just the last two
where in my opinion it was a waste of time.’
I have already quoted a passage from Le Riche’s
evidence in re-examination where he said that the second, third and
fourth
meetings ended on the basis that there was agreement and that
Le Riche never picked up that anybody dissented.
Viewing Le Riche’s evidence in its totality, his
version is clear that by words or conduct the four firms agreed with
the
proposed prices and discount structures though by the time of
the last two meetings he (Le Riche) were starting to suspect that

the meetings were futile. The very fact that Hart, after the last
meeting, phoned Le Riche to complain that DPI was not adhering
to
the agreed prices shows that an understanding to follow a pricing
structure had, on Le Riche’s version, been reached.
On his
evidence, each of the participants, despite whatever private
reservations they may have harboured, agreed to adhere to
a price
list capped discounts.
Brink’s oral testimony in
chief was that he attended both of these meetings at the invitation
of Hart. At the first meeting
he was very quiet and basically said
nothing. He arrived late for the meeting. There was already a
pricelist on the table –
he could not remember whose, and
there was a discussion around tender pricing. He denied having
committed MacNeil to charging
prices with reference to any other
firm’s pricelist.
21
This version is at variance with his
affidavit, where he said that during the meeting Le Riche produced a
DPI pricelist and suggested
that the list be used by the other firms
as a base pricelist with an agreed discount structure.
He claimed in chief not to recall
what was discussed at the second meeting but denied that there was
an agreement to set prices.
22
This is again at variance with his
affidavit where he said that the last meeting was similar to the
September 2007 meeting and
that Le Riche again tried to impose DPI’s
requirements on MacNeil.
Under cross-examination
23
he accepted that a price list was
discussed at each of the two meetings though he could not recall
whether it was the same price
list. He recalled that MacNeil was
criticised at these meetings for its low pricing. He admitted that
the toll-manufacturing
arrangement between MacNeil and Flo-Tek was
not discussed at the meeting. It was put to him that para 34.1 of
his answering affidavit
on behalf of MacNeil stated that during 2007
MacNeil had been invited to attend meetings which he understood were
held for the
purpose of fixing prices in accordance with DPI’s
requirements. When he answered that this statement in his affidavit
was
incorrect, it was put to him that he was not being truthful. He
conceded that although the pricing discussed at the meetings was

contrary to MacNeil’s strategy he did not explain this to the
other attendees nor did he show any dissent from the discussions

that were taking place.
24
The legal framework
The Commission did not allege that MacNeil’s
conduct amounted to a ‘concerted practice’ for purposes
of s 4(1).
Its case was that an ‘agreement’ was
concluded at these meetings between MacNeil and the other three
firms and that
the agreement constituted the direct or indirect
fixing of selling prices contrary to s 4(1)(b)(i). The
expression ‘agreement’
is defined in s 1 as
including ‘a contract, arrangement or understanding, whether
or not legally enforceable’.
In
Netstar (Pty) Ltd & Others v Competition
Commission of South Africa & Others
2011 (3) SA 164
(CAC)
this court said the following in paras 25 and 26 after quoting the
definitions of ‘agreement’ and ‘concerted

practice’:
‘
(25) …
A
concerted practice arises from the conduct of the parties, and does
not amount to an agreement. A possible example might be the
type of
cartel arrangement where a market leader signals a price increase by
way of public announcement and, in accordance with
long-standing
practice in the industry, the other participants follow its lead.
However, care must be taken not to confuse independent
conduct with
interdependent conduct. It suffices for present purposes to say that
the emphasis is on the conduct of the parties.
By contrast, an
agreement arises from the actions of and discussions among the
parties directed at arriving at an arrangement that
will bind them
either contractually or by virtue of moral suasion or commercial
interest. It may be a contract, which is legally
binding, or an
arrangement or understanding that is not, 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 the contractual arrangement. However, what it
requires is still a 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. By contrast, a concerted
practice examines the conduct
of the parties to determine whether it
is coordinated conduct or if they are acting in concert. The absence
of any arrangement
between them, or any belief that they are obliged
to act in that fashion, is immaterial.
(26) … The case for a
concerted practice is based on evidence that assesses the nature of
the conduct of the firms said to
be party to the practice. By
contrast, the case for an agreement examines whether an agreement as
defined was concluded, and that
focuses on the existence of consensus
between the parties. Even where reliance is placed on the same
evidence in support of these
distinct cases, it requires separate
evaluation…’
Mr Maenetje submitted that the
Tribunal correctly found in this case that the requisite consensus
existed but argued that to the
extent that
Netstar
restricted the
wide definition of ‘agreement’ in the Act it would be
incorrect and could be departed from.
I do not consider that the passages
I have quoted from
Netstar
call for
reconsideration. This court, in distinguishing between a ‘concerted
practice’ and an ‘agreement’
held that the essence
of the latter was consensus – some form of arrangement that
the parties regarded as binding on each
other. In my view, consensus
is indeed the essence of the statutory definition of ‘agreement’
– consensus is
inherent in the words ‘contract,
arrangement or understanding’ (whether or not legally
enforceable). Consensus sufficient
to constitute a ‘contract,
arrangement or understanding’ must be proved on a balance of
probability (see s 68)
before a finding can be made in terms of
s 4(1) that the firms have committed a prohibited practice in
the form of an ‘agreement’.
This naturally does not mean
that the consensus need amount to a contract at private law.
Particularly in regard to the
per
se
prohibitions in
s 4(1)(b), the parties would, by the very illicit nature of
their arrangement, not contemplate legal enforcement.
They need not
even have agreed upon a punishment mechanism. Furthermore, the
content of the consensus need not, I venture to
suggest, rise to the
level of precision sufficient to satisfy the requirement of
certainty applicable to private law contracts,
ie the precision
needed to defeat an argument that the alleged agreement is void for
vagueness.
In the present case, the question is whether consensus
was reached to fix prices (whether directly or indirectly) at the
three
2007 meetings attended by MacNeil. Although the precise
content of the price lists and discounts structures which were
discussed
at each of the three meetings were not established, it was
never suggested that the proposals, made with reference to price
lists
and involving the capping of discounts with reference to those
price lists, were insufficient to amount to price-fixing if there

was consensus on them. The degree of precision required for
consensus is thus not an issue in this appeal. The question is

whether consensus on the proposals existed by the end of each
meeting.
Because Diab and Brink portrayed
themselves as passive participants at the meetings in question, the
Tribunal in the present case
referred to its earlier decision in
Competition
Commission v Aveng (Africa) Ltd t/a Steeledale & Others
[2012] ZACT 32
where, in para 16,
the Tribunal quoted with approval the following passage from
Aalborg
Portland A/S v Commission of the European Communities
,
25
decided by the European Court of
Justice in January 2004 (case citations omitted):
‘
(81)
According to settled case-law, it is sufficient for the Commission to
show that the undertaking concerned participated in meetings
at which
anti-competitive agreements were concluded, without manifestly
opposing them, to prove to the requisite standard that
the
undertaking participated in the cartel. Where participation in such
meetings has been established, it is for that undertaking
to put
forward evidence to establish that its participation in those
meetings was without any anti-competitive intention by demonstrating

that it had indicated to its competitors that it was participating in
those meetings in a spirit that was different from theirs
…
(82) The reason underlying that
principle of law is that, having participated in the meeting without
publicly distancing itself
from what was discussed, the undertaking
has given the other participants to believe that it subscribed to
what was decided there
and would comply with it.’
There are statements to similar effect in later
European competition case law. We were referred in argument, for
example, to the
relatively recent decision of the General Court (7
th
Chamber) in
DKKK Kaisha & Others v European Commission
delivered in February 2012 where, in para 52, the statement in
paras 81-82 of
Aalborg
was essentially repeated. The court
added the following in para 53 (case citations again omitted):
‘
It
must be pointed out in this regard that the notion of publicly
distancing oneself as a means of excluding liability must be
interpreted narrowly. In order to disassociate itself effectively
from anti-competitive discussions, it is for the undertaking
concerned to indicate to its competitors that it does not in any way
wish to be regarded as a member of the cartel and to participate
in
anti-competitive meetings. In any event, silence by an operator in a
meeting during which an unlawful anti-competitive discussion
takes
place cannot be regarded as an expression of firm and unambiguous
disapproval. A party which tacitly approves of an unlawful

initiative, without publicly distancing itself from its content or
reporting it to the administrative authorities, effectively

encourages the continuation of the infringement and compromises its
discovery…’ .
The tribunal dealt with this topic
later in its judgment in relation to the case against Andrag (see
paras 87-93). In that context
reference was made not only to
Aveng
but also to United
States law. The Tribunal quoted the proposition by Areeda and
Hovenkamp
26
that
‘
...
there will be an agreement even though the challenged arrangement
falls short of forming a contract because, for example, the
parties
declare an intention not to be legally bound, each party reserves the
right to abandon the venture at will and without
notice, offer and
acceptance are not fully in accord, or the understanding is too vague
to allow a court to enforce it (even though
it were not illegal)’.
In dealing with Andrag, the Tribunal said, with
reference to
Netstar
, that on the Tribunal’s
interpretation of that judgment there had to be ‘an element of
consensus’ and there
had to be some ‘form’ of
arrangement in order for there to be an agreement.
Netstar
did
not, said the Tribunal, decide ‘what form that consensus needs
to take or what facts would suffice to infer consensus’.
The
Tribunal observed that the latter issue had been considered by the
courts in the United States and Europe which had determined
that an
agreement may be inferred to exist in certain circumstances for
anti-trust purposes, even though they might be insufficient
for a
conclusion that an agreement existed at common law. The Tribunal
then said the following in paras 97 and 98:
’
(97)
Contract law is concerned with the private consequences of
agreements; competition law is concerned with the public
consequences.
Formal offer and acceptance, whilst rigid concepts in
the common law of contract, become more supple in the competition law
form
of the concept. Within the ambit of competition law, in a
particular context, where there is a duty to speak, silence or an
ambivalent
answer may suffice as well as the witnessed signature, to
signify assent.
(98) Thus when competitors meet,
even on an unintended occasion for some, once the conversation moves
to proposals of an unlawful
agreement, those attending must repudiate
the proposal by conduct in unambiguous terms, however awkward it may
be to do so, lest
the other firms present reasonably infer that the
accused firm had assented.’
In my respectful view, the Tribunal’s observation
that offer and acceptance are ‘rigid concepts’ in our
common
law of contract is not correct. Express offer and acceptance
are not required – the formation of contractual consensus may

be proved in a variety of ways and often it will be unnecessary and
difficult to isolate the distinct elements of offer and acceptance.

I also do not understand the need to ‘re-interpret’ the
lucid language in the passages I have quoted from
Netstar
. In
my opinion it is unnecessary for purposes of the present appeal to
determine whether this court’s approach to passive
attendance
and public distancing should be exactly as reflected in the above
passages from European case law or exactly in line
with United
States law. One is ultimately concerned with the factual question
whether a sufficient consensus was achieved to
constitute an
‘agreement’ as defined in our Act and as explained in
Netstar
. One should not substitute, for this relatively
simply stated enquiry, rules from cases which may reflect no more
than a manner
of assessing evidence or which incorporate strictures
not flowing naturally from the language of our Act.
That having been said, the basic rationale of the
European and American cases, namely that passive participation
without public
distancing is sufficient because it creates in the
minds of the other participants the belief that the passive
participant has
subscribed to the arrangement and intends to comply
with it, is not inconsistent with South African law. It has long
been accepted
in our private law of contract that a person cannot
escape from an apparent agreement merely because his subjective
intention
differed from the apparent agreement. This is known as the
doctrine of quasi-mutual assent. In
Sonap Petroleum (SA) (Pty)
Ltd v Pappadogianis
1992 (3) SA 324
(A) at 239F-240B the court
said that in various earlier decisions our courts had adapted, for
purposes of the facts of their
respective cases, the well-known
dictum of Blackburn J in
Smith v Hughes
(1871) LR 6 QB 597
at
607:
‘
If,
whatever a man’s real intention may be, he so conducts himself
that a reasonable man would believe that he was assenting
to the
terms proposed by the other party, and that other party upon the
belief enters into the contract with him, the man thus
conducting
himself would be equally bound as if he had intended to agree to the
other party’s terms’.
See also, for example,
Pillay &
Another v Shaik & Others
2009 (4) SA 74
(SCA) paras 55-60; and see Christie
The Law of
Contract in South Africa
6
th
Ed at 10-12.
In the present context, another relevant consideration
is that under certain circumstances our law imposes on a person a
duty
to speak, and a failure to do so where the duty exists may
amount to an objective manifestation of consent, regardless of the
subjective intention of the silent party (Christie
op cit
at
70-71 and the case there cited). The question whether a duty to
speak exists in particular circumstances is ultimately, it
seems to
me, a question of policy and fairness. In relation to delictual
misrepresentation by silence in a contractual setting
the duty to
speak is part of the wrongfulness enquiry which is avowedly
policy-laden (see
ABSA Bank Ltd v Fouche
2003 (1) SA 176
(SCA) paras 4-5). I do not see why the position should be different
when the question, for purposes of quasi-mutual assent, is
whether a
party by his silence has represented that he acquiesces. In
McWiliams v First Consolidated Holdings (Pty) Ltd
1982 (2) SA
1
(A) Miller JA said that acquiescence might be inferred where, in
‘ordinary commercial practice and human expectation’
a
firm repudiation would be ‘the norm’ (10E-F). In the
context of competition law, competing firms may have occasion
to
meet and discuss matters which are entirely innocent. However, if a
firm’s representative attends a meeting of competitors
knowing
that collusive activity will be discussed, or if he finds after
arrival at the meeting that collusive activity is being
proposed, I
have little difficulty in saying that in general the representative
would be under a duty to distance himself from
the proposals under
discussion, either by leaving or by stating that he wants no part of
them; in other words a ‘firm repudiation’.
In the
private law of contract, the duty to speak (or perhaps more
accurately, the peril of remaining silent), where it exists,
has to
do with fairness to the other party to the arrangement; where one is
dealing with attempts by firms to reach an ‘agreement’

prohibited by s 4(1), on the other hand, the duty to speak is
not concerned so much with fairness to the other firms but
with the
harm that could be caused to members of the public if the other
firms should proceed to conduct themselves on the reasonable

assumption that the passive attendee assented to their proposals.
Cartels are after all the most egregious form of anti-competitive

conduct.
Ultimately, though, it is a question of fact whether
the passive attendee’s conduct is such as reasonably to create
in the
minds of the other participants his assent to the proposals
under discussion (and it is the creation of that reasonable
impression
which poses the risk of competition harm). I do not
exclude the possibility that there may, in a particular case, be
surrounding
circumstances which show that the other participants
could not reasonably have understood the passive attendee to have
assented
to their proposals. That conclusion necessitates a careful
assessment of the facts to which I now turn.
Evaluation
The evidence must, as I have said, be viewed
holistically. Contrary to Mr Rosenberg’s submission, I do not
accept that Flo-Tek’s
answering affidavit should have been
left out of account because Hart did not give oral evidence. The
fact that he was not called
(conceivably either the Commission or
MacNeil could have called him) is a factor to be borne in mind in
assessing the weight
of the affidavit evidence. The same goes for
Petzetakis’ answering papers. The Tribunal does not operate as
a court of
law in accordance with strict rules of evidence (see, for
example, s 52(2) and s 53(3)). The answering affidavits of

the respondent firms constitute evidential material. In the present
case, confirmatory affidavits were filed by the individuals
who had
personal knowledge of the relevant facts (Lombard and Hart).
In my view, the evidence I have summarised establishes
on a balance of probability that pricing structures were proposed
and discussed
at three meetings in 2007, the participants being DPI,
Petzetakis, Flo-Tek and MacNeil (these would be Le Riche’s
second,
third and fourth meetings). Diab represented MacNeil at the
first of the meetings, Brink at the other two. Le Riche’s oral

evidence was that pricing was discussed and agreed at each meeting.
Petzetakis admitted this in relation to the first meeting,
which was
the only one alleged in the referral affidavit; and admitted that
after May 2007 Lombard attended further collusive
meetings. Given
that DPI and Petzetakis were long-standing members of the cartel,
there is no reason to doubt that at least Le
Riche and Lombard would
have expressed concurrence with the setting of prices.
MacNeil’s answering affidavit indicated that the
meetings to which MacNeil was invited in 2007 were initiated for the
purpose
of fixing prices in accordance with DPI’s
requirements. Brink acknowledged that it was common knowledge in the
industry
that DPI wished to have fixed prices in the market, and
Brink was aware, from his previous employment with Petzetakis, that
the
manufacturers were accustomed to meeting with each other. Diab
and Brink offered no plausible explanation for their attendance
at
the meetings other than to discuss pricing. Although they were
invited to attend on each occasion by Hart and although Flo-Tek
was
a substantial customer, neither Diab nor Brink maintained that they
thought they were going to a bilateral meeting to discuss
the
tolling arrangement between MacNeil and Flo-Tek. Indeed, the
February/March 2007 meeting took place at DPI’s premises,
so
Diab could not have thought this.
Diab tried to portray the meeting he attended in
February/March 2007 as amounting to no more than ‘general
chatter’.
The Tribunal found him to be a poor witness, and a
reading of the transcript does not bring me under any different
impression.
Although the Tribunal was inclined to discount Le
Riche’s evidence concerning this particular meeting, I have
already explained
why, in my view, his testimony was indeed germane,
even though Le Riche misidentified MacNeil’s representative at
the meeting.
The fact that pricing proposals were tabled and
discussed was in line with Le Riche’s evidence and with the
answering affidavits
of Petzetakis and Flo-Tek. Flo-Tek subsequently
conceded liability in circumstances where the only allegations
against it were
the same as those levelled against MacNeil.
MacNeil’s own answering papers were to the effect that
MacNeil’s low
pricing was discussed and that Diab was told to
see to it that MacNeil was brought into line. Despite Diab’s
evasion on
this point in oral evidence, Brink confirmed that Diab
told him this. The ‘line’ that MacNeil was to toe was
clearly
the price lists and discounts structures which, according to
the other evidence, were discussed at the meeting. Diab did not

claim to have articulated any dissent or to have done anything else
to show that he would not tell Brink about the ‘line’

which was to be followed.
In my opinion, the evidence established on a balance of
probability that Diab, by his failure to protest at the meeting of
February/March
2007, created the reasonable impression in the minds
of the other attendees that MacNeil would go along with the
proposals. DPI
and Petzetakis probably gave their express support.
Flo-Tek’s later admission of liability and payment of a fine,
and the
fact that after the subsequent two meetings Hart was
badgering DPI about non-compliance, suggests that Flo-Tek may also
have
expressed concurrence. There is at any rate no evidence from
either Le Riche or Diab that Hart articulated any opposition. A

statement that a particular attendee ‘did not agree’ to
a proposal is a vague and generalised conclusion – one
is more
concerned with the objective manifestations of the participant’s
reaction to a proposal than to a statement which
could amount to no
more than the attendee’s subjective mental attitude.
Similarly, to say that a participant was ‘not
impressed’
by a proposal is merely an assertion as to his state of mind. More
is required in order to establish that there
was a firm repudiation.
As to the other two meetings, Brink (against whom the
Tribunal made no express credibility finding but whose evidence in
transcript
comes across as evasive on essential details)
acknowledged that Diab had reported to him that MacNeil was expected
to fall into
line. Brink’s answering affidavit for MacNeil
stated the purpose of the two meetings he attended. The fact that he
did
so at Flo-Tek’s invitation is neither here nor there. It
is inherently implausible that he would have attended the meetings

without knowing their purpose. He did not suggest that he was
informed in advance of any legitimate business to be discussed.
Why
would he attend, one may ask rhetorically, if he did not intend to
participate in pricing discussions? I can understand that
privately
he may have intended to disregard the proposals but he certainly did
not attend with a view to stating clearly that
position because, on
his own evidence, he did not do so. One is driven to conclude on the
probabilities that he did not want
to be seen to be breaking ranks,
since MacNeil, as a relatively new player with a small market share,
might have been vulnerable
to retaliation. Brink himself said that
he did not wish to be confrontational with Le Riche because of the
dumping threat which
had previously been made. It appears, further,
that Hart, who represented Flo-Tek, which was a major customer of
MacNeil, was
probably a supporter of the proposals, contrary to the
picture painted in Flo-Tek’s answering papers. The last two
meetings
took place at Flo-Tek’s premises, and it was Flo-Tek
that got MacNeil involved. As I have said, there is no evidence that

any other legitimate business was scheduled for discussion. Le
Riche’s unchallenged testimony is that Hart phoned him after

the last meeting to complain that DPI was not adhering to the
pricing arrangements. This indicates that Hart understood an

arrangement to have been reached (as we know, Flo-Tek did in the
event settle with the Commission and pay a substantial fine).
Brink
did not testify that Hart made any protest at the meeting against
the proposals; and Brink did not claim himself to have
said anything
to distance MacNeil. The defence was in essence a contention that
there was no agreement because Brink did not
expressly say that he
agreed and because privately he had no intention of complying. But,
on a preponderance of probability,
that is not the impression which
his conduct reasonably created in the minds of the other attendees
in circumstances where, as
I have found, there was a duty on Brink’s
part to speak if he was against the illicit arrangement.
Mr Rosenberg, who did not in principle challenge the
Tribunal’s legal approach based on the European cases, said
that liability
on the strength of passive attendance and
non-distancing presupposes that the passive firm attended a meeting
where some agreement
was actually reached (ie between others). I
think this misses the point that, in circumstances such as the
present, the very
fact that an ‘agreement’ (within the
broad definition of the Act) has been struck can be inferred from
silence because
there was a duty to speak and because silence in the
face of such duty may create the reasonable impression of consensus
(in
private law, the doctrine of quasi-mutual assent). This could be
so even where the discussion is bilateral and the one party is

silent. As it happens, the meetings with which we are concerned here
were multilateral, and, on the probabilities, the attendees
must
have been aware of the purpose of the meetings. There is also no
reason to doubt that at least DPI and Petzetakis, and quite
possibly
Flo-Tek as well, positively assented to the proposed arrangements,
and that the proposals to which they thus assented
were intended to
encompass all four participants. (This assumes in favour of MacNeil
that its representatives were indeed passive
listeners. The evidence
of Le Riche indicates otherwise, and Diab conceded in
cross-examination that he had made some contribution.
It would be
remarkable, I think, if one of four attendees at a meeting should
say absolutely nothing when pricing was being discussed.)
Mr Rosenberg argued that it was implausible that the
other participants would have believed that MacNeil concurred in the
proposals,
given that the cartel in the industry had collapsed by
2007. We do not have the material before us to assess that question
in
regard to other firms nor in relation to the cartel of which the
long-standing core members were DPI, Petzetakis and Marley, except

that we know that Petzetakis’ managing director instructed her
sales managers in May 2007 to refrain from further participation
and
that Lombard was one of two sales managers who subsequently breached
this instruction. The question is not whether MacNeil
was part of
some other pre-existing cartel which was still in existence in 2007
or even whether the 2007 conduct in which MacNeil
was implicated
should be described as a cartel. It is enough that there is evidence
that there were three meetings at which,
on a balance of
probability, an agreement, understanding or arrangement on
price-fixing was reached and where the parties either
said or gave
the impression that they would comply.
The same goes for Mr Rosenberg’s argument that Le
Riche on his own version had no confidence in the utility of such
meetings
by September/October 2007. I have already given my
assessment of Le Riche’s evidence on that score.
I thus do not consider that there are grounds for
interfering with the Tribunal’s findings on the merits of the
case.
Penalty
Turning to the administrative
penalty of R2 million imposed on MacNeil, the Tribunal arrived at
this figure by following the six-step
procedure laid down in its
Aveng
decision,
a procedure in turn adopted in the light of this court’s
approach and suggestions in
Southern
Pipeline Contractors & Another v Competition Commission
[2011]
2 CPLR 239
, where reference was made to the European Guidelines of
2006.
27
In summary, the Tribunal applied
this approach as follows:
step
1
–
the
affected turnover (PVC sales) was found to be R29,2 million (taken
from MacNeil’s 2007 year);
step
2
–
the base
amount was set at 15% of the affected turnover, ie R4,38 million
(half of the of 30% reserved for the most egregious
cases);
step
3
–
a
multiplier of 7/12
ths
was used (on the basis that MacNeil
was only involved in collusion for about seven months), yielding a
figure of R2,5 million;
step
4
–
it was
not necessary to round down the figure in step 3 because it did not
exceed the s 59(2) cap;
step
5
–
the
figure of R2,5 million from step 3 was then reduced to R2 million
because mitigating factors were thought to outweigh
aggravating
circumstances; and
step
6
–
the
figure thus determined (R2 million) was within MacNeil’s total
turnover for the most recent financial year for which
the Tribunal
had figures (2009), so no further reduction was required.
Although Mr Rosenberg’s main heads of argument
did not foreshadow an attack on the six-step approach in principle,
he delivered
a supplementary note in which he argued that
Southern
Pipeline Contractors
contemplated a simpler process in which,
after determining affected turnover in the first step, one simply
selected a percentage
of the affected turnover after balancing all
the factors specified in s 59(3). He said that step 2 of the
Tribunal’s
Aveng
approach only had regard to the
objective gravity of the prohibited conduct and thus potentially set
the base amount too high.
The imposition of administrative penalties is a matter
entrusted by s 59(1) to the discretion of the Tribunal. The
Tribunal
is entitled, for the guidance of interested parties, to
indicate the process of reasoning it will ordinarily follow in
determining
a penalty, provided the guidance is not inherently
flawed and provided the Tribunal appreciates that it always retains
a discretion
which it cannot fetter, thus allowing itself to depart
from its own guidelines in appropriate circumstances (cf
Kemp NO
v Van Wyk
2005 (6) SA 519
(SCA) para 1). Although this court in
Southern Pipeline Contractors
adopted a more abbreviated
process of reasoning in disposing of that appeal, this did not
preclude the Tribunal from subsequently
adopting for itself the
guidance stated in
Aveng
. Although the process of reasoning
has been broken down by the Tribunal into additional steps, the
steps in their totality permit
all the factors listed in s 59(3)
to be taken into account. In step 2 the Tribunal considers those of
the s 59(3) factors
which concentrate on the objective features
of the contravention while in step 5 the Tribunal accommodates the
s 59(3) factors
which are individual to the respondent firm.
Although the objective features of the prohibited conduct may result
in a relatively
high amount after the application of steps 2 and 3,
step 5 places no limit on the extent to which the Tribunal can
reduce the
overall penalty where in its view mitigating factors
outweigh aggravating factors. (On the other hand, step 6 imposes an
ultimate
cap on the extent to which the amount in step 5 can be
increased where in the Tribunal’s view aggravating factors
outweigh
mitigating factors.) Mr Rosenberg was unable to explain to
us why his preferred approach, in which one simply determines in the

round a percentage to apply to affected turnover, would necessarily
yield different or fairer results.
Mr Rosenberg’s attack on the Tribunal’s
six-step guidelines was intertwined with a contention that in the
present
case this had led the Tribunal, in step 2, to treat the
prohibited conduct as being part of a cartel which had existed for a

number of years, even though MacNeil itself was only drawn into a
price-fixing conduct during 2007. This inevitably resulted, so
it
was argued, in a relatively high amount in step 2. I accept that it
would have been a misdirection for the Tribunal in step
2 to have
had regard to broader prohibited collusive conduct to which MacNeil
was not itself a party. However, I do not think
the Tribunal fell
into that error. It is quite clear from para 46 of the Tribunal’s
reasons that in step 2 it had regard
only to the limited regional
collusive conduct constituted by the three meetings between the four
particular firms in question
held over the period February to
September 2007. And in step 3 the Tribunal recognise the limited
duration of the prohibited
conduct by reducing the base amount by
7/12
ths
.
Mr Rosenberg, for the rest, argued
that the penalty here was too severe, having regard to dicta in
Southern Pipeline Contractors
and
Federal-Mogul
Aftermarket Southern Africa v Competition Commission & Another
[2005] CPLR 50
(CAC) that there needed to be proportionality between the sanction
and the firm’s degree of blameworthiness and that the
penalty
should not only advance the object of deterrence but also not lose
sight of fairness to the offending firm.
28
In pressing this argument, Mr Rosenberg pointed out
that the penalty of R2 million was R600 000 more than
MacNeil’s
total profit of R1,4 million for the 2007 year. He
also listed various features in mitigation (that MacNeil was a new
entrant
in 2006/2007, was pricing below market prices, that its
market share was small and its level of profitability low, that its
involvement
was regional not national, that it did not implement the
collusive prices, and that there was no evidence of harm to
consumers).
Mr Maenetje for his part said that
there was no basis for interference, reminding us of the statement
in
Federal-Mogul
that this court
does not enjoy an unfettered discretion to substitute its own view
for the Tribunal’s assessment and determination
of an
administrative penalty and that interference is permissible only
when the Tribunal has acted capriciously or on a wrong
principle or
not brought an unbiased judgment to bear on the question or has not
acted for substantial reasons.
As Mr Rosenberg acknowledged, the
mitigating factors listed in his submissions were taken into account
by the Tribunal (though
insufficiently, he submitted). This occurred
in two stages of the Tribunal’s reasoning: in setting the base
amount at 15%
rather than 30% of affected turnover; and in reducing
the base amount from R2,5 million to R2 million.
29
(In terms of para 25 of the EU
Guidelines it is recorded that the Commission will, in cases
involving horizontal price-fixing,
market-sharing and
output-limitation agreements, include in the base amount a sum of
between 15% and 25% of the affected turnover,
regardless of the
duration of the firm’s participation in the infringement –
this in order to deter undertakings
from entering into such
agreements.) There is a further feature of the Tribunal’s
assessment which was favourable to MacNeil.
The Tribunal used a
multiplier of 7/12
ths
in stage 3 of
the
Aveng
procedure
which reduced the base amount of affected turnover from R4,38
million to R2,5 million. The Tribunal may have been justified
in
taking a full year into account – the period March to October
2007 is eight months, and the Tribunal’s approach
assumed in
favour of MacNeil that the prohibited conduct ceased with the last
meeting, whereas quite plausibly the collusion
gave rise to ongoing
effects beyond October 2007, even if MacNeil itself was disregarding
the discounts fixed at the meetings.
(I note in passing that para 24
of the EU Guidelines states that, in determining the multiplier,
periods of less than six months
will be counted as half a year and
periods longer than six months but shorter than one year will be
counted as a full year.)
The penalty of R2 million, expressed with reference to
the statutory cap of 10% specified in s 59(2), was (as the
Tribunal
observed in footnote 28 of its decision) only 2,8 % of
MacNeil’s most recent turnover (taken as its 2009 year in the
absence
of more recent information).
As to the criticism that the penalty
exceeded MacNeil’s 2007 profit, the six-step approach which
the Tribunal now follows
and the similar procedure followed by the
Commission in Europe work with turnover, not profit. This does not
mean that profitability
is irrelevant – the Tribunal is
enjoined to take into account, as one of the factors relevant to the
assessment of a penalty,
the level of profit derived from the
contravention, and in the present case the Tribunal indeed took this
into account when it
recognised, as mitigating factors, that MacNeil
had not implemented cartel prices, that it priced below the other
firms and that
its level of profitability in 2007 was low (its
after-tax profit margin in 2007 was about 3%). This does not mean,
however, that
a firm’s total profit, or its profit from the
contravention, should be utilised in the calculation of penalties.
As was
stated in
Southern
Pipeline Contractors
(para
61) the statutory cap of 10% of full turnover for the most recent
financial year has been set lest a penalty should be ‘destructive

of the offending party’s business’. Of course, s 59(2)
is inevitably a blunt instrument to achieve this constraint,
and no
doubt the Tribunal could receive and take into account evidence that
a penalty arrived at along conventional lines would
jeopardise the
firm’s viability (cf para 35 of the EU Guidelines). Such a
case was not advanced by MacNeil at the hearing
nor did Mr Rosenberg
make that argument to us.
I can understand why competition
regulators would be reluctant to work with annual profit in
determining penalties. While an assessment
of turnover or affected
turnover may sometimes present difficulty, it will usually be
possible to extract the number with relative
ease from the firm’s
annual accounts or financial records. Profit, by contrast, depends
on the accounting policies of the
company and the precise way in
which its affairs are structured. A company’s profit may be
reduced by the payment of management
fees or interest to a related
company. Different companies may follow differing depreciation
policies. And what ‘profit’
does one use? Here,
MacNeil’s operating profit of R2 314 681 for 2007
exceeded the penalty though its profit
after financing costs was
R1 432 972 and its profit after tax R1 432 972.
30
Another consideration militating
against the use of annual profit figures is that, unless the
company’s entire turnover
is affected turnover, it would often
be a matter of considerable difficulty to determine what profit the
company had generated
from affected turnover. Some method of
allocating common items of expenditure would need to be determined.
(It would not be rational
to work with the overall profit on
affected and unaffected turnover – the overall profit might be
reduced by some unrelated
business activity.) The utilisation of
profit in quantifying administrative penalties would thus lead to
considerable complexity.
Given the object of deterrence, there is also no reason
why a penalty should not exceed a firm’s annual profit. The
Aveng
methodology, which is not dissimilar to that contained
in the European Guidelines of 2003, does not have an underlying
assumption
that the product of the procedure will be an amount lower
than the firm’s annual profit. Indeed, in many instances the

percentage adopted in arriving at the base amount of affected
turnover (in this case, 15%) could be expected to exceed the firm’s

profit margin. One must also bear in mind that collusive firms may
operate inefficiently. The harm that consumers feel is related
to
the amount they spend on the collusive firms’ products or
services (turnover), not to the firms’ profits.
Despite these various considerations which might be
thought to support the penalty ultimately imposed by the Tribunal,
there were
weighty mitigating factors. A fine of R2 million
strikes me as disproportionate, having regard particularly to the
fact
that MacNeil was a new entrant with a small market share and
that MacNeil priced aggressively and did not, despite its ostensible

acquiescence at meetings, implement the prices discussed at those
meetings. The difference between the penalty I would have imposed

and the one imposed by the Tribunal is sufficiently striking to lead
me to conclude that the Tribunal misdirected itself in its

assessment of the mitigating circumstances. It must be remembered
that in determining the base amount in step 2 the Tribunal
has
allowed itself a wide range – up to 30% for the most egregious
prohibited practices. In the OFT guidelines (mentioned
in footnote
27 above) the upper ceiling in determining the base amount is 10%.
While I have no difficulty with the larger range
(which accords with
the EU Guidelines), the use of relatively high percentages in step 2
might give rise to disproportionate
penalties if adjustments for
significant mitigating factors in step 5 are too miserly. In the
present case I consider that the
base amount of R2,5 million should
have been reduced by R1,25 million in step 5 to give appropriate
effect to the mitigating
circumstances. This would yield a final
penalty of R1,25 million, which differs sufficiently from the
penalty imposed by the
Tribunal to justify interference on appeal.
Despite the outcome in this particular case,
participants in cartel behaviour would do well to remember that
while a significant
weight of net mitigating circumstances might
justify greater reductions than those suggested by the Tribunal’s
approach
in the present matter, a significant weight of net
aggravating circumstances might well justify greater increases in
penalties.
Conclusion
It follows that I would allow the appeal to the limited
extent of substituting for the penalty imposed by the Tribunal a
penalty
of R1,25 million. Since MacNeil has failed on the merits but
achieved substantial success regarding the penalty, I think it would

be just and equitable for each party to pay its own costs on appeal.
______________________
ROGERS AJA
______________________
DAVIS JP & VICTOR AJA AGREED
APPEARANCES
For Appellant: Adv Sean Rosenberg SC and Mr L Kelly
Instructed by:
Smith Tabata Buchanan Boyes
2
nd
Floor Buchanan Chambers
Cnr Warwick & Pearce Road
Claremont
For Second Applicant: Adv NH Maenetje
Instructed by:
Gildenhuys Malatji Inc
GLMI House
Harlequins Office Park
164 Totius Street
Groenkloof
1
Lombard's
confirmatory affidavit is not in the appeal record.
2
Again,
the confirmatory affidavits of Hart and Diab are not in the appeal
record.
3
Para
51 at 5/451.
4
9/813-818.
5
10/886.
6
See
para 36.6 of Flo-Tek's answering affidavit at 2/252-3.
7
10/887.
8
10/896-7.
9
11/1009-1010.
10
12/1100-1102.
11
Paras
36.6.22 - 36.6.26 at 3/254.
12
Paras
29.4 - 29.8 at 4/269-270.
13
para
34.1 at 4/271-272.
14
Para
29.9 at 4/270.
15
Paras
24-28 at 1/50-52.
16
Paras
54-57 at 5/452-3.
17
9/826-827.
18
9/841.
19
10/870-879.
20
10/899-906.
21
12/1079-82.
22
12/1082-84.
23
12/1084-1099.
24
See
particularly at 12/1084-85 and 12/1095.
25
[2005]
4 CMLR 251.
26
Areeda
and Hovenkamp
Antitrust Law – An
Analysis of Antirust Principles and their Application
2
nd
Ed para 1406c.
27
Guidelines
on the method of setting fines imposed pursuant to Article 23(2)(a)
of Regulation No 1/2003 (2006/C210/02). For a discussion
of these
guidelines, see Whish & Bailey
Competition
Law
7
th
Ed at 276-279. In the United Kingdom the Office
of Fair Trading has adopted similar guidelines for the imposition of
penalties
under
s 38
of the
Competition Act 1998
c.41 (
op
cit
at 410-413). The current OFT
guidelines make provision for a maximum base amount of 10% (not 30%)
of affected turnover in its
step 1 though it was remarked in
Kier
Group plc v OFT
[2011] CAT 3
para 109
that the OFT had confined itself quite narrowly and it was observed,
with reference to the EU Guidelines (where the
maximum amount is
30%), that a more generous range would ‘provide more headroom
at the outset’. The CAT said that
this could be borne in mind
when the OFT came to review its guidelines. It should also be noted
that the OFT guidelines contain
a step 3 (absent from the EU
Guidelines) in which the base amount in step 1 as multiplied for
duration in step 2 can be increased
to achieve the policy objective
of deterrence – this is apart from adjustments in step 4 for
mitigating and aggravating
factors.
28
See
para 9 of
Southern Pipeline Contractors
and para 72 of
Federal-Mogul
.
29
The
amount at the end of stage 4 would have been R2 570 353:
affected turnover of R29 375 468 [record 13/1119]
x 15% x
7/12
ths
.
30
13/1166.