COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No. 100/CR/Dec00
In the matter between:
The Competition Commission Complainant
and
South African Forestry Company Limited First Respondent
York Timbers Limited Second Respondent
CJ Rance (Pty) Limited Third Respondent
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Reasons
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1. In this matter the Commission and the first respondent, who we shall refer
to as Safcol, have reached agreement on the terms of a proposed consent
order. The Commission on 29 August 2001 applied to have the agreement
made a consent order in terms of section 49D of the Competition Act.
2. When the Commission first brought the application on 29 August 2001 the
second and third respondents, who we shall refer to as York and Rance
respectively, opposed the granting of the application and sought leave to
file papers in opposition. We ruled that they were entitled to do so on 06
September 2001.
3. The respondents all filed lengthy answering papers, which dealt not only
with the procedural issues, but also engaged the merits of the dispute.
The Commission filed papers in reply.
4. At a prehearing conference held on the 24 April 2002 we directed that the
parties argue a point in limine. We formulated the issue as follows:
“whether, assuming that a prohibited practice has occurred, it is
competent for the consent order in its current form to be granted if
the other parties to the contractual clauses, which the applicant
seeks to have voided, have not consented thereto”
5. The Commission and the respondents all filed heads of argument on this
point and we heard argument on 19 June 2002. We ruled that it was not
competent for us to grant the consent order in its current form and
accordingly dismissed the application. We set out below our reasons for
this decision.
HISTORY OF THE CASE
6. In December 1999, Mondi Limited lodged a complaint of price
discrimination against Safcol with the Commission. On 18 December 2000
the Commission instituted a complaint referral against Safcol in terms of
section 9 of the Act alleging that certain provisions in the contracts it had
with York and Rance constituted price discrimination by a dominant firm.
As part of its relief the Commission sought to void these (certain)
provisions of these agreements. As York and Rance were not cited as
respondents the Tribunal at a prehearing conference held on 12 March
2001, gave the following directions:
1. “that York Timbers Limited is granted leave to intervene as a
respondent in these proceedings in terms of Tribunal Rule 46(2);
2. the Tribunal hereby condones the noncompliance with Tribunal
Rule 46 by York Timbers Limited
3. the Commission is granted leave to amend the terms of its referral
in this matter and to join as respondents any party whose rights
may be affected by the relief sought in these proceedings; the
amended complaint referral must be filed with the Tribunal and
served on all the respondents no later than 23 March 2001. If the
Commission does not wish to amend the terms of the complaint
referral it should give notice of its decision not to amend to the
Tribunal and the respondents by no later than 23 March 2001;
Tribunal and the respondents by no later than 23 March 2001;
4. York Timbers Limited and any other additional respondents that
may be joined to these proceedings must file their answering
affidavit within 20 business days after receiving the complaint
referral contemplated in 3 above;
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5. SAFCOL is entitled to file an additional answering affidavit
consequent upon the amended complaint referral, provided it does
so within 20 business days after receiving the amended complaint
referral
6. the Commission may file a replying affidavit within 15 business
days thereafter ; and
7. there is no order as to costs.”
7. Thereafter the Commission amended its papers and cited York and
Rance as second and third respondents, respectively.
8. On 19 November 2001 the Commission entered into a consent order
agreement with Safcol; this consent order agreement was filed with the
Tribunal for approval on 12 December 2001. The consent order
agreement was based on an admission by Safcol that it had contravened
section 5(1) of the Act. Note not section 9 which was the basis of the initial
complaint referral. In the consent agreement Safcol admits that various
clauses in its contracts with York and Rance amount to vertical restraints
and consents to them being declared void in terms of section 58(1)(a)(vi)
of the Act. 1 York and Rance have filed papers opposing the granting of
the consent order.
9. For the purpose of our decision it is not necessary for us to examine the
content of these clauses, which are similar in both agreements – it suffices
to say that they relate to prices, arbitration of price revisions and the
security of tenure of the buyers.
10. In their papers opposing the consent order, York and Rance inter alia
deny that the impugned clauses contravene section 5(1) of the Act and in
the alternative that if they do, they can be justified on the grounds that
they can prove that they can prove technological, efficiency or other pro
competitive gains resulting from the agreement that outweighs the anti
competitive effect.
1 They are clauses 3.2 and 4 of each of the longterm contracts with York and clauses 3.2, 3.3,
and 4 of each of the longterm contracts with Rance. Section 58(1)(a)(vi) provides that the
Tribunal “may make an appropriate order in relation to a prohibitive practice, including ..declaring
the whole or part of any agreement void.”
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NATURE OF THE RELIEF SOUGHT IN THE ORDER
11. If the consent order is granted it will have the effect of vitiating clauses in
the agreements which York and Rance consider vital to their commercial
interests. They argue that because they have an interest in the validity of
these clauses it is not competent to grant a consent order that voids them
without them (i.e. York and Rance) being heard.
12. Both the Commission and Safcol have argued that it is competent for us to
grant the consent order although for different reasons. The Commission
argues that York and Rance are not respondents within the meaning of
the Act. In terms of the Act a firm is only a respondent if “ it is a firm
against whom a restrictive practice is initiated in terms of the Act.”
13. As the restrictive practice was initiated against Safcol and not York and
Rance, they are not respondents. Their status is that of intervenors. That
being the case the Commission is entitled to enter into a consent order
with the true respondent, namely, Safcol, and to apply to have it confirmed
as an order by the Tribunal without the necessity of the consent of York
and Rance who are not respondents for the purposes of the Act.
14. This approach by the Commission overlooks the fact that what the
consent agreement purports to do is to nullify contractual clauses without
the consent or hearing parties to those contracts. We take with counsel for
Rance that it does not matter exactly what their formal status is. What
matters is that they have an interest in the outcome of the consent
agreement and accordingly absent their consent are entitled to be heard.
15. It is inconceivable that where the relief sought entails the voiding of a
contract that we could grant relief without all the contracting parties being
heard. That violates any notion of natural justice or fairness. 2 The relief
heard. That violates any notion of natural justice or fairness. 2 The relief
would mean that a party could have its contract set aside as unlawful
without it being given the opportunity to be heard to argue the contrary.
This approach is not only unfair but also open to abuse. It is especially
dangerous when in a case such as this, where the party to the consent
order allegedly has a commercial incentive to escape the consequences
of its agreement.
16. York and Rance detect in Safcol’s willingness to accede to a consent
order, a desire to use the Competition Act to rid itself of a commercially
2 See section 52(2) which mandates the Tribunal to conduct its hearings in accordance with the
principles of natural justice.
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troubling contractual regime. 3
17. We make no comment on whether this cynicism is justifiable, but what it
illustrates is the danger of not hearing parties to an agreement who have a
clear legal interest in the outcome of the consent order. We find no merit
in the Commission’s argument that we can grant an order in these
circumstances without hearing the other parties to the very contractual
clauses the consent agreement purports to void.
18. The Commission says that if we do not grant the order in these
circumstances it will render the consent order remedy meaningless in
future. Counsel for the Commission argued that if a member of a cartel
sought to settle with the Commission in circumstances where the
remaining members did not, the others would be able to object to the
consent order claiming a right to be heard. No one would have the
incentive to settle, in cases involving multiple respondents unless all of
them had agreed to the order.
19. This is not so. The problem in this case is not the need to gain the consent
of all respondents, but the nature of the remedy. This is not a case where
Safcol is pleading guilty and agreeing to a fine. It is agreeing to the
Tribunal ordering the excision of clauses from its contracts without us
hearing from the other parties to those contracts. It is surprising that such
an inappropriate use of the consent order procedure was not obvious to
the Commission. In the case of a cartel member admitting to a
contravention of section 4 of the Act and agreeing to pay a fine the
consent of the other members of the alleged cartel would not be required if
the remedy does not seek to vitiate the cartel agreement. The remaining
the remedy does not seek to vitiate the cartel agreement. The remaining
members of the alleged cartel would thus be free in any subsequent
proceeding to assert the lawfulness of their agreement as the prior
consent order had not invalidated it.
20. We now turn to the other leg of the argument, which was advanced by
Safcol, and it appears by the Commission in the alternative. That is that
we must hear York and Rance but after hearing them the order can still be
granted if they have not satisfied us that the agreements do not constitute
prohibited practices. Both York and Rance point out that this is an
absurdity. Consent order proceedings are by definition not intended to be
contested proceedings. For that the normal complaint referral proceedings
apply.
3 The papers refer to an ongoing commercial dispute between the parties in relation to inter alia
the validity of these clauses.
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21. The briefest examination of the consent order regime illustrates that that
cannot be so. In the first place a consent order can be granted even
before there has even been a complaint referral. (See Rule 18 of the
Rules of the Competition Commission). It is noteworthy that in this case
the complaint referral was founded on a case in terms of section 9 of the
Act, which deals with price discrimination by a dominant firm. The consent
order however is premised on section 5 of the Act, which deals with
vertical restrictive practices. Thus York and Rance would have to meet a
case in terms of section 5(1) without the benefit of a complaint referral
making out a case in terms of this section of the Act.
22. Secondly section 49D of the Act provides that the Tribunal may grant a
consent order without hearing any evidence. This suggests that the
legislature never contemplated that the consent proceeding could itself
become a contested proceeding on the merits. The legislative intent
appears quite the contrary.
23. Thirdly, the Act makes it clear that a consent order is not appealable. 4 As
counsel for Rance argued, it would be inconceivable that a contested
proceeding could be decided upon without the parties having a right of
appeal.
24. We reject the argument that the consent agreement in its present form can
be resurrected by us allowing some form of contested proceeding. Such a
proceeding is not contemplated by the Act and defies logic and common
sense.
CONCLUSION
25. It is not competent for us to grant the consent order in its current form. The
order requires us to strike down contractual provisions without the consent
of all the parties to that contract and without giving them an opportunity to
be heard. We accordingly make the following order:
1. The application for a consent order is dismissed; and
1. The application for a consent order is dismissed; and
2. There is no order as to costs.
______________ 26 June 2002
4 Section 37(1)(b)(i) which states that The Competition Appeal Court may review any decision of
the Competition Tribunal; or consider an appeal arising from the Competition Tribunal in respect
of any of its final decisions, other than a consent order.
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N.M Manoim Date
Concurring: P Maponya; D.H. Lewis
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