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[2012] ZACAC 10
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Competition Commission v Loungefoam (Pty) Ltd and Others, In re: Loungefoam (Pty) Ltd and Others v Competition Commission and Others (102/CAC/Jun 10) [2012] ZACAC 10; [2013] 1 CPLR 17 (CAC) (14 December 2012)
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CAC
CASE NO.102/CAC/Jun 10
CT CASE No:
103/CR/Sep08
CC CASE NO: 2007/Sep3164
In the
matter between
THE
COMPETITION COMMMISSION
............................................
Applicant
and
LOUNGEFOAM
(PTY) LTD
..................................................
First
Respondent
GOMMAGOMMA
(PTY) LTD
............................................
Second
Respondent
STEINHOFF
INTERNATIONAL HOLDINGS LTD
..............
Third
Respondent
STEINHOFF
AFRICA HOLDINGS (PTY) LTD
…
..............
Fourth
Respondent
In
re
LOUNGEFOAM
(PTY) LTD First Appellant
GOMMAGOMMA
(PTY) LTD
...................................
Second
Appellant
STEINHOFF
INTERNATIONAL HOLDINGS LTD
Third
Appellant
STEINHOFF
AFRICA HOLDINGS (PTY) LTD
…
....
Fourth
Appellant
and
THE
COMPETITION COMMISSION
...........................
First
Respondent
VITAFOAM
SA (PTY) LTD
…
..................................
Second
Respondent
FELTEX
HOLDINGS (PTY) LTD
..............................
Third
Respondent
KAP
INTERNATIONAL HOLDINGS LTD
.............
Fourth
Respondent
JUDGMENT
WALLIS
AJA (DAVIS JP AND NDITA JA concurring)
[1]
On 6 May 2011 this court
1
upheld
an appeal against certain decisions by the Competition Tribunal (the
Tribunal) in proceedings brought by the Competition
Commission (the
Commission) against
inter
alia
the
present respondents, relating to alleged contraventions of
s 4(1)(b)(i) of the Competition Act (the Act). Our judgment
dealt with two different appeals, the one referred to as the Feltex
appeal and the other as the Steinhoff appeal. This is an application
for leave to appeal to the Supreme Court of Appeal against our
judgment in respect of the Steinhoff appeal. The Commission has
already sought and been refused leave to appeal that judgment to the
Constitutional Court.
2
[2] The decisions dealt with in the Steinhoff appeal
granted the Commission leave to amend the terms of its complaints
against the
first and second respondents (Loungefoam and Vitafoam)
and ordered the joinder of the third and fourth respondents and the
addition
of certain relief against them. The amendments and joinder
both arose from the invocation by Loungefoam and Vitafoam of the
provisions
of s 4(5)(b) of the Act. This provides that s 4(1)
of the Act prohibiting restrictive horizontal practices, does not
apply to ‘the constituent firms within a single economic
entity’ similar in structure to that existing between a company
and its wholly- owned subsidiary or further wholly-owned
subsidiaries. In stating their defence to the Commission’s
allegations
Loungefoam and Vitafoam claimed that they were such a
single economic entity and therefore that they could not be guilty of
a restrictive
horizontal practice. In response to this the Commission
first sought to include what was described as the collusion
complaint.
Second it sought to add a contention that, if Loungefoam
and Vitafoam were in truth a single economic entity, then, in
relation
to the allegations that they had engaged in a restrictive
horizontal practice together with Feltex, they had done so in
consequence
of the direction of the third and fourth respondents,
their immediate and ultimate holding companies. Accordingly the
Commission
wished to contend that any administrative penalty imposed
for such behaviour would be payable by the third and fourth
respondents.
That required their joinder in the proceedings. In
seeking leave to appeal the Commission developed its argument in
regard to the
collusion complaint but, beyond saying that it stood by
its heads of argument, did not develop an argument in relation to the
joinder
point.
[3]
The argument in regard to the collusion complaint displayed a
considerable measure of confusion, both as to the contentions
being
advanced by the Commission and the basis for our judgment. It is as
well therefore to clarify both matters. When the application
for
amendment to include the collusion complaint was made, the deponent
on behalf of the Commission said in relation to the s 4(5)(b)
contention by Loungefoam and Vitafoam that:
‘…
any
sole control that Steinhoff might have enjoyed over Loungefoam (which
is not conceded) was as a consequence of a wider co-operation
or
collusion between firms in the Steinhoff group of companies and those
controlled by Daun or in which Daun had a significant
interest and
influence (which for convenience I refer to as the KAP group of
companies). Loungefoam and Vitafoam were a manifestation
of this
wider co-operation or collusion. Whilst in strict formalism, which is
also not conceded, it may appear that Steinhoff controlled
Loungefoam
sufficiently for purposes of section 4(5)(b) – because of this
wider co-operation or collusion – any such
control was rooted
in a stratagem to achieve what section 4(1)(b) prohibits and cannot
be permitted to benefit the Steinhoff group
of companies and/or the
KAP group of companies.’
This prompted the respondents to say
that it was unclear what case the Commission was now seeking to
advance. Two possibilities
were postulated. The first was that this
was an entirely separate complaint against the third and fourth
respondents and an entity
referred to as Kap. The second was a
contention that ‘
the
actions of Loungefoam and Vitafoam ought to be construed as the
result of co-ordination between Steinhoff and KAP as an alternative
to a complaint that Loungefoam and Vitafoam colluded as independent
firms.’ It was said that both approaches were impermissible.
[4]
The Commission expressly disavowed the first of these and adopted the
second. That emerges from the heads of argument it placed
before the
Tribunal, a copy of the relevant portion of which was attached to the
application for leave to appeal. It said therefore
that it was not
concerned with a new complaint of collusion. The problem was that in
its amendment it expressly alleged that, if
Loungefoam and Vitafoam
were in fact a single economic entity, that was because of a
‘
wider
co-operation or collusion between firms in the Steinhoff group of
companies and … the KAP group of companies
…
Loungefoam and Vitafoam were a
manifestation of this wider co-operation or collusion.’
Not surprisingly therefore the
Tribunal understood that what was being alleged was ‘in the
alternative a charge of a broader
or wider collusion between the
Steinhoff group of companies (“Steinhoff”) and the Kap
group of companies (“Kap”)’.
3
It said that the Commission’s
proposed allegations ‘extended the complaint of collusion to
Steinhoff International and
Kap International’
4
and held that ‘the complaint of
collusion between Steinhoff and Kap [was] initiated by the
Commission’.
5
In other words the Tribunal
understood, notwithstanding the Commission’s contentions that
it was not seeking to refer a new
complaint of collusion, that it was
in fact doing so by extending the existing complaint from Loungefoam
and Vitafoam to the parent
companies. It held that it was permissible
to do so on the basis that a statement in the original initiation
statement that:
‘
The
relationship between the parties and Steinhoff appears to have
orchestrated the collusive conduct complained of …’,
sufficed
to provide a rational link between the original complaint and the
amendment.
[5] In arguing the appeal counsel
initially sought to support this reasoning. However, he was faced
with the difficulty that the
statement relied on by the Tribunal in
granting the amendment was particularly inscrutable. It said that the
relationship between
Steinhoff, Loungefoam and Vitafoam ‘orchestrated
the collusive conduct’, when this was precisely what would be
expected
if Steinhoff controlled both Loungefoam and Vitafoam as a
single economic entity. Also it made no mention of Kap. In addition
the
Tribunal had held that it was at the least an extended complaint
of collusion and its reasoning was incompatible with the decision
by
the Supreme Court of Appeal in
Woodlands
Dairy,
6
which had not been decided when the
Tribunal gave its decision, but which held that its approach to the
adequacy of a referral was
incorrect.
Faced
with these and other difficulties, counsel shifted his ground and
sought to defend the amendment on the footing that it raised
nothing
more than factual allegations to support a contention by the
Commission that, even if the outward appearance indicated
that
Loungefoam and Vitafoam were a single economic entity under the
control of Steinhoff, that outward appearance was a façade
or
sham, created by Steinhoff and Kap, and in truth they were separate
entities.
[6]
As noted in para 62 of our judgment there could be no objection to
such a factual contention and counsel for the Steinhoff appellants
accepted this. What was not accepted was that the proposed amendments
could or should be construed in this way. We held that they
could not
be so construed. We did so on the basis that they were not so
expressed in the affidavit in support of the application
for
amendment, nor was that how they were put in argument before the
Tribunal, nor initially in argument before us. It was not
how the
Tribunal understood the amendment nor was it how the Steinhoff
respondents had understood it. They had specifically said
that it
meant something else and the Commission accepted their formulation in
their heads of argument before the Tribunal. It was
for that reason
alone that the appeal succeeded.
[7]
That did not in any way prevent the Commission from advancing before
the Tribunal the argument as finally formulated by its
counsel in
arguing the appeal. All that it required was for the Commission to
formulate its amendment in terms that reflected this
argument. I said
that specifically in para 63 of the judgment. That should not have
been difficult and it is a mystery why the
Commission did not do so
and proceed with the matter. Instead a further 18 months have passed
in fruitless attempts to appeal against
our judgment. The mystery
deepened when we were assured in the course of argument in this
application that the Commission is not
seeking to depart from the
approach of counsel when he argued the appeal. In other words it
wishes to do no more than advance factual
allegations to support a
contention by the Commission that, even if the outward appearance
indicated that Loungefoam and Vitafoam
were a single economic entity
under the control of Steinhoff, that outward appearance was a façade
or sham, created by Steinhoff
and Kap, and in truth they were
separate entities.
[8]
It was submitted that we had erred in our interpretation of the
collusion amendment. Even assuming this to be so it would not
justify
the grant of special leave to appeal to the Supreme Court of Appeal.
No final issue has been disposed of by setting aside
the Tribunal’s
decision to grant the amendment. As we made plain in our judgment all
that is required if the Commission wishes
to pursue these arguments
is for it to formulate its proposed amendment so as to reflect them.
It may be doubted in those circumstances
whether our decision is a
final judgment and susceptible to an appeal at all, but what is clear
is that an appeal on such a point
involves no issue of law or any
point of public importance. Indeed that is clear from the heads of
argument delivered by the Commission
in support of this application.
All that was said on this point was that ‘there can be no basis
for the Steinhoff respondents
to complain that they did not know the
basis for the amendment’ and that this court erred ‘in
finding that it was impermissible
for the Commission to advance the
narrow construction of the collusion amendment’. Not a word was
said to suggest that this
raised an issue of any substance or
importance, much less one that would justify the grant of special
leave to appeal.
[9] It was submitted on behalf of the
Commission that leave to appeal should be granted because, so it was
submitted, we had erroneously
interpreted the Act as requiring that a
referral to the Tribunal may not be wider than the initiating
complaint on which it is
based and in saying that in terms of s 50(2)
of the Act the Commission may not refer a complaint to the Tribunal
more than
a year after it initiated the complaint. In argument in
relation to the first of these points it was said that our decision
in
this case was inconsistent with the decision of the Supreme Court
of Appeal in
Woodlands
Dairy
and with the
jurisprudence of this court in cases such as
Glaxo
Wellcome
,
7
Netstar
8
and,
most recently,
South
African Breweries
.
9
Some reference was also made to the
Constitutional Court’s decision in
Senwes
.
10
[10] The argument is misconceived for
two reasons. First there is no difference of approach in these cases.
The proper starting
point is the decision of this court in
Sappi
.
11
There it was held that the Tribunal
has no general power to investigate anti-competitive conduct, but is
confined to determining
complaints of anti-competitive conduct that
have been referred to it by the Tribunal or a complainant. Whilst it
is vested with
inquisitorial powers it exercises those in the context
of a particular complaint that has been referred to it.
Glaxo
Wellcome
dealt with
the initiation of a complaint and said that ‘there must be a
rational and recognisable link between the conduct
referred to in the
complaint and the prohibitions in the Act’. Without that link
the Commission would be exercising its powers
in relation to matters
not comprehended by the Act. In
Netstar
the point was made that the Tribunal
exercises the jurisdiction it possesses by virtue of s 27(1) of
the Act in relation to
a specific referral. As the Constitutional
Court expressed it in
Senwes
,
12
it is the referral that triggers the
exercise of the tribunal’s adjudicative powers, the object of
which is to determine whether
the alleged prohibited practice has
occurred. The appeal succeeded because this court held that the
evidence did not justify the
Tribunal’s factual findings, and
that the complaint advanced by the Commission was not established on
the facts. In
Senwes
the appeal to the
Constitutional Court succeeded because it was held that on a proper
construction of the referral the case advanced
by the Commission
before the Tribunal was covered by the terms of the reference.
13
Similarly in
South
African Breweries
the
appeal succeeded on the basis that the case the Commission wished to
advance before the Tribunal was covered by the terms of
the referral.
[11]
Nothing in our judgment in the present case justifies the suggestion
that we laid down a rule that there must be ‘symmetry
between
the initiating document and the referral’. (I quote from the
Commission’s heads of argument.) Instead we applied
the law as
it has been laid down in the cases I have mentioned. There is
therefore no novel point of law of substantial importance
requiring
the attention of the Supreme Court of Appeal.
[12]
The second misconception flows from the fact that these arguments
relate to matters that are irrelevant in the light of the
Commission’s explanation of the case it wishes to advance.
That, as pointed out in para 8, is an issue of the construction
of its proposed amendment and whether it bears the meaning for which
the Commission contends. The legal contentions now advanced
simply do
not arise in relation to that issue. The same is true for the point
in regard to s 50(2) of the Act. All that the
judgment said in
regard to these two matters was that they ‘no doubt’ were
the reason for the Commission seeking to
argue its case on the narrow
basis outlined above. That does not amount to a decision on these
points and whether it was right
or wrong is of no moment as the
Commission expressly limits its case in this manner. We are being
asked to grant leave to appeal
on two legal points that, on the
Commission’s case, do not arise for consideration or
determination. An appeal would therefore
take place in a factual
vacuum. That is very different from those cases where the Supreme
Court of Appeal determines an appeal
notwithstanding the fact that as
a result of a change in circumstances it cannot give an order having
a practical effect. Here
the Commission is seeking leave to appeal in
relation to issues that on its case do not, and never did, arise for
decision.
[13]
Although no oral argument was addressed to us in regard to the
s 4(5)(b) issue I shall deal with it briefly. The Commission
wishes to allege that if Loungefoam and Vitafoam are in truth a
single economic entity then the third and fourth respondents may
be
ordered to pay any administrative penalty imposed as a result of
their participation in the chemical cartel in contravention
of
s 4(1)(b) of the Act. It founds its case on the provisions of
s 4(5)(b). However, if Loungefoam and Vitafoam have
participated
with Feltex in the chemical cartel, s 4(5)(b) has no relevance.
That section only applies to exempt the firms
forming a single
economic entity from liability under s 4(1) for conduct as
between themselves. Once the conduct involves
third parties the
section becomes irrelevant and all the participant firms are liable
to be held to have contravened s 4(1)
and be liable for the
penalties that such conduct attracts. The section does not provide
any basis for making a holding company
liable for administrative
penalties imposed on its subsidiaries. That does not mean that a
holding company may not in certain circumstances
be held liable for
prohibited anti-competitive conduct by its subsidiary – a
matter on which I prefer not to express any
view – only that it
cannot be held liable under s 4(5)(b). An appeal on this point
has no reasonable prospects of success.
[14]
In the result the application for leave to appeal is dismissed with
costs, such costs to include those consequent upon the
employment of
two counsel.
M J D WALLIS
ACTING
JUDGE OF APPEAL
DAVIS JP and NDITA AJA concurred
Appearances:
Appellant: Mr N H Maentje SC (with him Ms I Goodman)
Instructed by:
Cheadle Thompson & Haysom Inc.
Respondents: Mr D N Unterhalter SC (with him Mr M
Wesley)
Instructed by:
Norton
Rose South Africa.
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