1
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 08/CR/Mar01
In the matter between:
The Competition Commission of Applicant
South Africa
and
Federal Mogul Aftermarket Southern Africa (Pty) Ltd 1st Respondent
Federal Mogul Friction Products (Pty) Ltd 2nd Respondent
T & N Holdings Ltd 3rd Respondent
T & N Friction products (Pty) Ltd 4th Respondent
Administrative Penalty and Reasons for the Competition Tribunal’s Decision
(non-confidential version)
Introduction
1. In our earlier decision on the merits of this matter we found that the first respondent
had contravened section 5(2) of the Act.1
1 Tribunal Case No: 08/CR/Mar01 of 28 January 2003
2
2. We postponed the issue of remedies for further evidence and argument. The only
further evidence that we received was an affidavit filed by the first respondent from its
managing director Mr. Frederick Nel.
3. The Commission has asked us to impose an administrative penalty upon the first
respondent of eight million five hundred thousand Rand (R 8 500 000.00) The
Commission had also sought a permanent interdict against the first respondent, but it
later abandoned this prayer, so we need only consider the appropriateness of the
administrative penalty remedy.
4. The Tribunal’s power to impose an administrative penalty arises from section 59(1)
and (2) of the Act which states as follows:
(1) The Competition Tribunal may impose an administrative penalty only –
(a) for a prohibited practice in terms of section 4(1)(b), 5(2) or 8(a), (b) or
(d);
(b) for a prohibited practice in terms of section 4(1) (a), 5(1), 8(c) or 9(1),
if the conduct is substantially a repeat by the same firm of conduct
previously found by the Competition Tribunal to be a prohibited practice;
(c) for contravention of, or failure to comply with, an interim or final order
of the Competition Tribunal or Competition Appeal Court; or
(d) if the parties to a merger have –
(i) failed to give notice of the merger as required by Chapter 3;
(ii) proceeded to implement the merger in contravention of a
decision by the Competition Commission or Competition Tribunal to
prohibit that merger;
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(iii) proceeded to implement the merger in a manner contrary to a
condition for the approval of that merger imposed by the
Competition Commission in terms of section 13 or 14, or the
Competition Tribunal in terms of section 16;or
(iv) proceeded to implement the merger without the approval of
the Competition Commission or Competition Tribunal, as required
by this Act.
(2) An administrative penalty imposed in terms of subsection (1) may not
exceed 10% of the firm’s annual turnover in the Republic and its exports from the
Republic during the firm’s preceding financial year.
5. At the outset the first respondent has taken a series of constitutional points
concerning the competence of this type of remedy and it is these issues, which we first
consider.
SECTION A - Constitutional point
6. The first respondent argues that section 59 of the Competition Act is
unconstitutional in three respects.
7. Firstly, section 59 of the Competition Act authorises the Tribunal, in the
circumstances set out in the section, to impose administrative penalties on firms found
to have contravened the Act. These penalties, argues the first respondent, are civil in
‘name’ only, but are criminal in ‘kind’ as they are punitive in nature. For that reason a
respondent, in prohibited practice proceedings where a penalty remedy is sought,
should have the same rights as an accused person has in criminal proceedings, rights
that are guaranteed by section 35(3) of the Constitution. The first respondent argues
that on a proper examination these protections are absent from the Act in several
material respects. We deal with these in more detail later.
4
8. Secondly, and we understand this as an alternative to the first point, that even if
section 35(3) does not apply to a respondent in prohibited practice proceedings, then
section 34 of the Constitution, which provides for the rights of persons to have access to
courts, does. Yet again there is, in the view of the first respondent, a want of
constitutional compliance, as the Tribunal is not an “independent and impartial tribunal
or forum” as required by that section.
9. The third submission is that section 59 is substantially irrational and accordingly
unconstitutional to the extent that it provides that a firm’s turnover should be used as a
basis for determining a maximum penalty in terms of that section.
10. The Commission and the amici 2 submitted that all three constitutional points were
without merit and that we should reject them. The Commission, however, argued that
we have no jurisdiction to determine the constitutionality of our own statute, as we are
not a court with the status of a High Court. 3 The first respondent argued that all it
sought was for us not to exercise our powers in terms of section 59. The tribunal is
permitted, argues the first respondent, to decide whether section 59 is unconstitutional.
If we decide it is not, we must not implement it. The amici in this respect took the side of
the first respondent and, whilst conceding that there was no direct authority on this
point, argued that some other decided cases might be persuasive, including a decision
of the Canadian Supreme Court in Douglas /Kwantlen Faculty Association v Douglas
College where the court held that:
“A Tribunal must respect the Constitution so that if it finds invalid a law it is called
upon to apply, it is bound to treat it as having no force and effect.”4
2 When the first respondent raised the constitutional points in its initial heads of argument the Tribunal decided that
the points of law were of such importance that it would be appropriate to brief amici curiae to make submissions on
these aspects. Advocates Gilbert Marcus SC and Mathew Chaskalson were briefed.
3 Section 170 of the Constitution states that courts of a status lower to that of a High Court may not enquire into or
rule on the constitutionality of any legislation.
4 77 DLR (4th) 94 (SCC)
5
11. As we have decided that the section is not unconstitutional we do not need to
decide this jurisdictional point, and we have proceeded on the assumption that the first
respondent and the amici are correct in this respect. In any event, we believe that
should this matter be taken to another forum, that forum may find it’s useful to have the
perspective of the body responsible for adjudicating competition matters.
Background
12. Prior to the Competition Act coming into force in 1999, its predecessor, the
Maintenance and Promotion of Competition Act (Act No. 96 of 1979) had a bifurcated
approach to what the present Act defines as prohibitive practices. Under the old Act,
some restrictive practices were susceptible to civil remedies, which did not include
penalties, whilst others, including resale price maintenance, were made offences and
could only be enforced by criminal law.
13. There were few if any criminal prosecutions under the repealed 1979 Act. It is not
hard to understand why. Competition cases are difficult to conduct not only because
they are fact intensive, but also because they involve the application of both law and
economics. Neither the Department of Justice nor the SA Police Service have people
with any special skills in this area - nor would it have been worth their while securing
them, since under the old Act the number of cases requiring prosecutions was too
insignificant to warrant the investment. This led to the demise of enforcement and, not
surprisingly, when the new Act was proposed, Parliament, in the explanatory
memorandum, stated that decriminalizing restrictive practices was a deliberate policy
choice to improve enforcement. The administrative penalty became a feature of the new
Act. What the Act sought to achieve was to improve enforcement by making a specialist
agency and adjudicative tribunal solely responsible.
14. At the same time the legislature intended to decriminalize anticompetitive actions,
14. At the same time the legislature intended to decriminalize anticompetitive actions,
believing that in modern law administrative penalties sufficed. 5
5 Note the motivation for a decriminalized administrative fine system in relation to tax violations in the United
6
“Infringement of competition legislation will not be subject to criminal sanction,
the only exceptions being in respect of breaches of confidence, hindering the
administration of the Act and failures to attend when summoned and to answer
truthfully to the Commission.”6
15. This is the background to the present section 59, which provides an administrative
penalty as a possible remedy to the Tribunal in the event of a finding that a respondent
firm has contravened certain provisions of the Act. 7
The Respondent’s Argument in Terms of Section 35 of the Constitution
16. Section 35 (3) of the Constitution states:
Every accused person has the right to a fair trial, which includes the right-
(a) to be informed of the charge with sufficient detail to answer it;
(b) to have adequate time and facilities to prepare a defence;
(c) to a public trial before an ordinary court;
(d) to have their trial begin and conclude without unreasonable delay;
(e) to be present when being tried;
(f) to choose and be represented by, a legal practitioner, and to be
informed of this right promptly;
Kingdom by the Keith report. “We have noted … the high resource cost of the investigation of fraud to the criminal
standard, and the understandable constraints this imposes on the investigation of the smaller frauds……. In those
cases where “civil” investigation techniques suffice to secure evidence of the true extent of the fraud, the process is
an economical one at least by comparison with the cost of a comparable criminal investigation. The investigation of
acts of dishonesty in relation to tax matters in a “civil” style, reinforced by inducements, rather than as criminal
offences under the Judge’s Rule, are as such generally welcome to our witnesses and we heard no consistent body of
criticism of the lower civil burden of proof in such cases as being unfair to the taxpayer.” This extract from the
Keith Report which investigated the VAT civil penalty code is referred to in the case of Han & Yau Martins and
Martins Morris v Commissioners of Customs and Excise [2001] EWCA Civ 1040 (3rd July, 2001), which we
discuss later in our reasons.
6 See Explanatory memorandum to the Competition Bill, [B98-98], page 68.
7 Note that an administrative penalty is only appropriate for contraventions that are set out in section 59(1).
7
(g) to have a legal practitioner assigned to the accused person by the
state and at the state expense, if substantial injustice would otherwise
result, and to be informed of this right promptly;
(h) to be presumed innocent, to remain silent, and not to testify during
the proceedings;
(i) to adduce and challenge evidence;
(j) not to be compelled to give self-incriminating evidence;
(k) to be tried in a language that the accused person understands or, if
that is not practicable, to have the proceedings interpreted in that
language;
(l) not to be convicted for an act or omission that was not an offence
under either national or international law at the time it was committed or
omitted;
(m) not to be tried for an offence in respect of an act or omission for
which that person has previously been either acquitted or convicted;
(n) to the benefit of the least severe of the prescribed punishments if the
prescribed punishment for the offence has been changed between the
time that the offence was committed and the time of sentencing ; and
(o) of appeal to, or review by, a higher court.
17. Measured against section 35(3) of the Constitution, the first respondent submits
that the Competition Act fails to comply with that constitutional standard in three
respects:
1) The Tribunal is not a ‘court’;
2) A respondent is not afforded the benefit of the more exacting standard of
proof in criminal proceedings, viz. proof beyond a reasonable doubt. Although
section 35(3) is silent on the burden of proof, the first respondent argues that this
8
right has been read into the section by the Constitutional Court interpreting
sections 35(3)(h), (i) and (j)8; and
3) A respondent is deprived of its right to silence.
18. Since all parties before us are agreed that we are not a court, at least in the
conventional sense implied by section 35, and that proof in our proceedings is based on
a balance of probabilities 9, the first respondent is correct that, at least in these two
respects, the Tribunals procedures fall short of section 35’s strictures. It is less clear
whether the Act can be read as to deprive a respondent of a right to remain silent
although the first respondent concedes that this was not an issue in the instant case. 10
19. Nothing turns on determining this latter aspect, because if the first respondent is
correct about the first two aspects, its argument must succeed.
20. In order to determine this we have to decide –
1) whether section 35 of the Constitution is intended to apply to Tribunal
hearings for which an administrative penalty may be imposed ?
2) if not, why not; and then further;
3) if not, whether our proceedings meet the standard set out in section 34 of
the Constitution.
21. The success of the first respondent’s section 35(3) argument is dependent on the
notion that the effect of section 59 is punitive in the criminal law sense – hence a
contravention of the Act that leads to the order of such a remedy is the analogue of a
8 See S v Zuma 1995(2) SA 642 (CC) at para 33
9 See section 68 which states: “In any proceedings in terms of this Act, other than proceedings in terms of section
49C or criminal proceedings, the standard of proof is on a balance of probabilities.”
10 Section 56(2) of the Act can certainly be read to protect this right.
9
criminal court imposing its stricture on a miscreant, at least in substance if not form, and
that accordingly, if the demands of the Constitution are not to be frustrated the
legislation must provide the contravening party no less rights than would their criminal
law counterpart.
22. There is no authority presently in our law to support such a view and hence the
first respondent’s case is so heavily reliant on European case law for its conclusions.
23. On the other hand, as the amici point out, what South African case law there is,
albeit not directly in point, tends to indicate our courts’ reluctance to expand the notion
of who is an accused person beyond its conventional notions in criminal law.
24. The leading case is Nel v Le Roux NO and others 11, where the Constitutional
Court had to decide whether the provision in the Criminal Procedure Act, which allows a
judicial officer to imprison a recalcitrant witness, was unconstitutional because it did not
meet the requirements afforded to an accused person in terms of the Interim
Constitution. Amongst the grounds on which that section was attacked was the fact that
the provision was incompatible with an accused person’s right to be presumed innocent
and remain silent (section 25(3)(c)), and the privilege against self -incrimination (section
25(3)(d)).
25. Whilst the Court held that such a person was entitled to procedural fairness, the
examinee was not entitled to section 25(3) rights,
“….for the simple reason that such examinee is not an accused facing criminal
prosecution. The section 189(1) proceedings are not regarded as criminal
proceedings, do not result in the examinee being convicted of any offence and
the imprisonment of an examinee is not regarded as a criminal sentence or
treated as such.” 12
11 1996(3) SA 562 (CC)
12 ibid at 571 D-E
10
26. This is where the first respondent ingeniously endeavours to use a case ostensibly
against it to bolster its own argument. The first respondent argues that the lesson from
Nel’s case is not that the Court is not prepared to extend the rights of an accused
person to a non -criminal trial context. Rather the test resides in understanding the
objective of the sanction. Reliance for this is placed on a remark by the Court later in the
same passage where it states:
“If, after being imprisoned, an examinee becomes willing to testify this would
entitle the examinee to immediate release; in American parlance such examinees
‘carry the keys of their own imprisonment in their own pockets’. The
imprisonment provisions in section 189 constitute nothing more than process in
aid of the essential objective of compelling witnesses who have a legal duty to
testify to do so; it does not constitute a criminal trial nor make an accused of the
examinee.”
27. Thus, the first respondent argues, Nel turns on the fact that the object of
imprisonment of recalcitrant witnesses is coercive, not punitive. This case it argues, is
therefore authority for the proposition that it is the ‘object’ of the sanction that is
determinative and if the object is to punish as opposed to coerce, section 35(3) rights
are still of application.
28. This is an interesting gloss on the Nel case but the first respondent cannot get
round the clear language of the Court that the rights were not triggered for:
“the simple reason that an examinee is not an accused facing criminal
prosecution.” 13
29. The first respondent also seeks to rely on the Baloyi14 case to reinforce this gloss.
The question there was whether the alleged violator of an interdict in terms of the
13 ibid at 571 E-F, par [11]
11
Domestic Violence Act (no 116 of 1998), who faced conviction and imprisonment (and a
fine), was an accused person as contemplated in terms of section 35(h) of the
Constitution. The Court held that such person was. The Court distinguished Nel’s case
on the basis that the objective was:
“..not to coerce the will to desist from on -going defiance, but to punish the body
for completed violation; and the convicted person carries no keys in his pocket –
indeed there is nothing in the Act to suggest that he can be released early if
either the complainant wishes or the judicial officer so decides.”15
30. However it is quite clear that Baloyi was not concerned with an administrative
penalty whose objective is punitive. It was rather concerned with a statutory offence for
which conviction and imprisonment were consequences for the transgressor. This is
illustrated by the following passage from the decision:
“The language of the Act is clear. Section 6 is headed Offences and Penalties
and says that a person who contravenes an interdict “shall be guilty of an offence
and liable on conviction” to a fine or imprisonment for a period not exceeding
twelve months. Section 3(4) states that the judicial officer shall enquire into the
alleged breach and “(b) convict the respondent of the offence contemplated in
section 6.”16
The European Convention cases
31. Devoid of any local authority that supports its proposition, the first respondent has
turned to European case law for assistance. In terms of Article 6 of the European
Convention a person charged with a criminal offence is afforded certain minimal rights.
17
14 S v Baloyi 2000(2) SA 425 (CC).
15 See Baloyi supra, para 22.
16 See Baloyi supra, para 22
17 The full name is the European Convention for the Protection of Human Rights and Fundamental Freedoms.
12
32. It appears that in an evolving jurisprudence over some years, that the majority of
the decisions handed down by the European Court of Human Rights, have been at
pains to ensure that Article 6 is not too easily evaded, leaving member states with no
fairness standard to adhere to in proceedings that may be seriously invasive of citizens’
rights. For this reason they have been at pains to find proceedings, despite their
outward administrative law trappings, as criminal in nature and hence subject to the
purview of Article 6.
33. As stated for instance in the Engel case, which dealt with disciplinary proceedings
against military conscripts in the Netherlands armed forces, member states are free to
classify anything as ‘criminal’ subject to the rights that the Convention protects. The
converse, that is, classifying something as disciplinary instead of criminal is not subject
to the same latitude.
“The converse choice, for its part, is subject to stricter rules. If the Contracting
states were able at their discretion to classify an offence as disciplinary instead of
criminal, or to prosecute the author of a mixed offence on disciplinary rather than
on the criminal plan, the operation of the fundamental clauses of Article 6 and 7
would be subordinated to their sovereign will. A latitude extending thus far might
lead to results incompatible with the purpose and object of the Convention. “18
34. The Engel case illustrates this distinction. The violation of Article 6 in this case
was limited to the fact that the military discipline proceedings had taken place ‘in
camera’ and hence did not constitute the public hearing that the Article requires.19
Article 6 states in its opening sentence: “ In the determination of his civil rights and obligations or of any criminal
charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and
impartial tribunal established by law.”
impartial tribunal established by law.”
18 Engel and Others v The Netherlands (No 1) 1 EHRR 647, 8 June 1976, para. 81, page 678
19 The article does provide for exceptions to a hearing in public but none of these had been pleaded by the
government. See Engel page 681.
13
35. Our Constitution on the other hand, by virtue of section 34, ensures that fairness is
not jettisoned from dispute resolution simply because a procedure is not characterized
as criminal. In our law ‘non-criminal’ disputes must still comply with section 34. The right
to a public trial, the issue in the Engel case, is, in terms of our Constitution, guaranteed
not only in criminal proceedings (section 35(3)(c)) but also by section 34.20
36. The court in Engel developed three criteria for determining whether a person
facing a proceeding was the subject of a ‘criminal charge’.
(a) Whether the provision defining the offence belongs to the criminal system of
the respondent State.
(b) The nature of the offence.
(c) The degree of severity of the penalty that the person concerned risked
incurring.21
37. Noteworthy, in relation to the latter criteria, the court said the following:
“In a society subscribing to the rule of law, there belongs to the ‘criminal’ sphere
deprivations of liberty liable to be imposed as a punishment, except those which
by their nature, duration or manner of execution cannot be appreciably
detrimental. The seriousness of what is at stake, the traditions of the Contracting
states and the importance attached by the Convention to respect for the physical
liberty of the person all require that this should be so.”22
38. It was argued for t he government in a later United Kingdom case that this aspect
of Engel, namely, the absence of any threat of imprisonment, is a powerful indicator that
20 Section 34 of the Constitution refers to a “fair public hearing”. The right is also protected in the Competition Act.
(See section 52(2)(a)).
21 See Engel para. 82
22 See Engel para. 82
14
proceedings in which only a penalty may be imposed do not give rise to a ‘criminal
charge’.23
39. However the Strasbourg Court has gone considerably further down the road on
these matters and subsequent cases indicate that the court would find a ‘criminal
charge’ in cases where penalties are sufficiently burdensome even though they may not
entail the loss of liberty.
40. This expanded notion of “criminal” has not been uncontroversial, involving, in
certain of the cases, spirited dissents. In dissenting the judges examined the fact that
in certain countries a policy of decriminalisation had taken place for sound reasons.
Among the reasons proffered are the removal of a moral judgment about the affected
person’s behaviour and enhancing the efficiency of the legal system by removing minor
offences from the criminal justice system and thereby reducing backlogs. Thus,
decriminalisation, far from being a retrogressive policy that requires the redress of the
Convention to correct, is a trend in modern societies faced with complex regulatory
regimes.
41. A good example of this approach is found in the dissenting opinion of Judge
Bernhardt in Ozturk v Germany24:
“ Thus the real problem in my opinion is whether the decriminalisation here under
consideration is a legitimate exercise of national determination and whether it is
in conformity with the object and purpose of Article 6. My answer is in the
affirmative. The reasons for removing some minor offences from the field of
criminal law, and for providing special sanctions and procedures for them, can
hardly be considered unfounded or disguised.”
23 See argument for counsel referred to in Han, paragraph 73.
24 See Ozturk v Germany 6 EHRR 409, page 437, para 2
15
42. Another of the dissenting judges, Judge Matscher had this to say in the same
case:
“I shall merely point out that decriminalisation is something very different from a
mere switch of labels. Social changes and new attitudes, as well as technical and
economic circumstances, are leading states to reassess the elements which go
to make up criminal offences; thus certain comparatively minor offences, which
nowadays are very common, have been removed from the criminal sphere and
classified as regulatory offences. This has important consequences, which
obliges us, in my view, to conclude that the nature of the offence itself has
changed. The moral verdict is no longer the same, in other words, a regulatory
offence no longer carries the blame which attaches to a crime; the court’s
decision is not entered into the criminal record; nor do regulatory offences carry a
more severe penalty in the event of recidivism, this being another feature of
criminal law; investigatory measures are also limited - there may, for example,
be none of those restrictions on the person’s liberty which apply in criminal
proceedings (neither police custody, nor detention on remand, nor the
interception of communication may be ordered).The sanctions, too, are
fundamentally different. There is no imprisonment.” 25
43. Notwithstanding this dissenting opinion, the Strasbourg jurisprudence was further
developed. In the case of AP, MP and TP v Switzerland 26 the court developed its
notion of t he nature of the offence in an important way. The first respondent has
latched on to this decision and it is fundamental to its argument.
44. The majority of the court said the following:
“ As regards the nature of the offence, it is noted that tax legislation lays down certain
requirements to which it attaches penalties in the event of non -compliance. The
25 See Ozturk page 434 para3
26 26 EHRR page 541.
16
penalties, which in the present case take the form of fines, are not intended as
pecuniary compensation for damages but are essentially punitive and deterrent in
nature.27
45. Note that the argument of the first respondent in this case has been that the
punitive and deterrent character of the administrative penalty under the Competition Act
is what imbues it with its ‘criminal ‘ character. Yet in the same case, again a dissenting
opinion by Judge Baka, who is joined by Judge Bernhardt, adopts an entirely different
stance on this point:
“ I consider that the fine imposed by the authorities on the heirs in the instant
case was fiscal in nature and not criminal. Such types of fine are designed to
prevent tax evasion. In so doing their main purpose is to protect the financial
interests of the state and in a broader sense those of the community. Their
undeniably severe punitive character is not just to punish for the tax, which was
withheld, but also to deter the offender, through the imposition of a financial
penalty, from committing further offences and to deter other taxpayers from
possible tax evasion in the future… It is more justified, however, to point to the
fact that while the incorrectly declared income was significant and the imposed
fine ‘not inconsiderable’ no entry was made in the criminal record of P’s heirs,
thus excluding the assumption that the fine was criminal in character.”28
46. Thus, unlike the majority who bundle the deterrent and punitive aspects of the
penalty, Judge Baka separates them and finds only the latter indicative of the existence
of criminal character. He goes further to discern the dominant purpose for the fine and,
finding it not to be punitive even though it has some aspects of punishment, concludes
that it is not criminal.
27 See AP, MP and TP v Switzerland page 558-9 paragraph 41.
28 See AP, MP and TP v Switzerland, the dissenting opinion of Judges Baka and Bernhardt, page 562.
17
47. The critique of the majority approach in Strasbourg has not been confined to some
eloquent dissents. In the UK in the Han case the majority of the Court, albeit following
Strasbourg, did so with the greatest reluctance as appears from their decision. 29The
court found that although their system of administrative penalties for certain tax
contraventions was not consistent with the Convention in terms of the European case
law, it was not an unfair system. Unlike the UK court we are not obliged to follow the
dominant European approach if we feel that the dissenting arguments are more forceful
and in accordance with our own system.
48. The impact of the Strasbourg jurisprudence and the Han case impacted directly on
competition jurisprudence in the NAPP30 case recently heard by the United Kingdom’s
Competition Commission Appeal Tribunal (CCAT).
49. The issue arose as to whether the burden of proof should be criminal or the civil
standard in a case for which a fine was being sought. The CCAT held that, although it
was, in following Han, bound to find that its proceedings were subject to Article 6, and
were, in this sense, ‘criminal’, it did not follow that:
“…these proceedings must be subject to the rules that apply to the investigation
and trial of offences that are classified as criminal law offences for the purposes
of domestic law.”31
50. The decision goes on to state:
“In our view it follows that neither Article 6 nor, the Human Rights Act 1998, in
themselves oblige us to apply the criminal standard of proof as established in
domestic law in cases where the Director seeks to impose a financial penalty in
29 The court at paragraph 74 indicated that it was reluctantly persuaded because in its view it was persuaded by the
Keith Report that the VAT Civil penalties scheme was a legitimate balance between the interests of Customs and
Excise and the taxpayer in avoiding the travails of a criminal prosecution and the stigma of conviction for a crime
involving dishonesty.
30 Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading, Case No 1001/1/1/1/01, 15 January 2002
unreported.
18
respect of alleged infringements of the Chapter I or Chapter II prohibitions under
the Act.”32
51. From the cases that we have considered we would make the following
observations:
1) The Strasbourg Court, faced with the Hobson’s choice of, on the one hand,
applying Article 6 of the European Convention according to a very broad sweep
set of criteria with the unintended consequences potentially flowing from this, or,
on the other hand, having no procedural protections at all for many administrative
proceedings, has opted in favour of an extended application.
2) These concerns, as the amici point out, are less pressing in our
constitutional dispensation because the procedural protections of sections 33
and 34 remain applicable to non -criminal proceedings. Accordingly, the concern
in Europe to develop an extensive notion of what is criminal in order to ensure
that citizens have some measure of procedural protection is more compelling in
Europe than it is in our circumstances.
3) Yet, even within the European jurisprudence there is a history of strong
dissents that suggest that the expansive notion of what is criminal is problematic
for nation states.
4) Note moreover that Article 6 of the Convention is less demanding than our
section 35(3) - section 59 would certainly withstand scrutiny under Article 6.
Noteworthy is the fact that in the Napp case, despite the CCAT finding that the
Article 6 applied, it did not consider itself bound to adopt the criminal law burden
of proof. As that Tribunal observed:
31 See Napp para 101
32 See Napp para 103
19
“Neither the ECHR itself nor the European Court of Human Rights has laid
down a particular standard of proof that must be applied in proceedings to
which Articles 6(2) or(3) apply, and still less that the standard should be
that of proof “beyond a reasonable doubt” which is not a concept to be
found in the domestic systems of many of the signatory states.”33
5) The minority decisions, in particular the Azturk and AP, MP and TP cases,
distinguish between the deterrent and retributive purpose of penalties, holding
that only the latter gives the penalty a criminal character. This distinction is
relevant as it emerges again in other decisions and literature that we consider
below.
The double jeopardy cases
52. Both the first respondent and the amici relied on several decisions in North
American jurisprudence involving pleas of double jeopardy. In most jurisdictions this
plea is typically raised when a person alleges that he or she is being tried twice for the
same crime. The court in dealing with this plea has to develop an approach to
classification, which helps it decide whether both proceedings are criminal in nature, in
which case the plea succeeds or whether there is some distinction that renders the one
proceeding non-criminal, and hence the plea fails. The first respondent and the amici
commended us to consider the cases on this theme as they believe that the
jurisprudence that has developed around this classification, will aid us in our effort in
deciding whether section 59 imbues our proceedings with a criminal character.
53. In the case of Canada, the Supreme Court has developed a test to decide when a
proceeding may be barred in terms of Section 11(h) of the Canadian Charter, their
double jeopardy provision. The test laid out in the case of Wigglesworth34 states that an
offence falls under section 11(h) if:
33 See Napp para 102
34 Wigglesworth v The Queen 32 CRR 219 (SCC)
20
i. The proceedings are by their very nature criminal proceedings
ii. The punishment invoked involves the imposition of true penal consequences.
54. According to Wilson J writing for the majority:
“.. a true penal consequence which would attract the application of section 11 is
imprisonment or a fine which by its magnitude would appear to be imposed for
purpose of redressing the wrong done to society at large rather to the
maintenance of internal discipline within a limited sphere of activity.”35
55. Applying the test the court held that a disciplinary action brought against a
policeman for assault in terms of the police code, a so -called ‘service offence’, did not
bar subsequent criminal proceedings for the same assault because the fine imposed
was designed to achieve a particular private purpose namely, discipline in the police
force, and not to redress harm done to society as a whole.36
56. The Wigglesworth test was applied in a subsequent case, Shubley,37 where a
prisoner had been disciplined for an assault and was placed in solitary confinement and
thereafter charged in criminal proceedings. Again the question was whether subsequent
criminal proceedings should be stayed on the grounds of double jeopardy. The majority
of the court applying the test held that the prison disciplinary proceeding did not stay the
criminal case. The minority, including Judge Wilson who had written the Wigglesworth
decision, also applied the test but came to the opposite conclusion – the punishment
they held was a true penal consequence and thus the accused was being punished
twice. The question arises, what is a true penal consequence? The majority said that
while a person such as a doctor or a policeman may be punished in both a disciplinary
and retributive way, they might not be punished twice in a retributive way for the same
offence.
35 See Wigglesworth page 237
36 See Wigglesworth page 237
21
57. What emerges from both these decisions is the recognition that punishment can
have a retributive element and that it is this characteristic that makes a proceeding
susceptible to being classified as criminal in nature. Whether the test otherwise
recommends itself is open to question given its unpredictable outcome in Shubley. But
the test seems to be designed to address specifically the problem of double jeopardy in
disciplinary hearings that are followed by a criminal prosecution. It does not answer
directly the question of whether the sanction itself was unconstitutional if not imposed by
a criminal court. At best the cases suggest the government must choose its procedure.
58. In the United States, the Supreme Court has had a more robust approach to the
problem. In United States v Ward38 the court held that:
“Only the clearest proof will suffice to override legislative intent and transform
what has been denominated a civil remedy into a criminal penalty “39
59. Ward was cited with approval in Hudson, the most recent Supreme Court decision
on double jeopardy to which we were referred, where the court held that even in a case
where a civil penalty is indicated, it would have to enquire further as to whether it was
so punitive either in purpose or effect. 40 In making this determination the court would
apply the factors set out in an earlier case, Kennedy v Mendoza -Martinez,41 which it
said provide useful guidance as to whether a sanction was civil or criminal in nature.
These, the Court held, are:
1) whether the sanction involves an affirmative disability or restraint(that is, loss
of liberty )
2) whether it has historically been regarded as a punishment
3) whether it comes into play only on a finding of scienter
37 R v Shubley 46 CRR 104 (SCC)
38 448 US 242, 1980
39 Ward at 249
40 Hudson v US 522 US 93, 99 (1997)
22
4) whether its operation will promote the traditional aims of punishment
5) whether the behaviour to which it applies is already a crime
6) whether an alternative purpose to which it may be rationally connected is
assignable to it
7) whether it appears excessive in relation to the alternative purpose assigned.
60. In Hudson the court observed that no one factor is controlling as they may point in
different directions. 42
61. The court in Hudson differed from an earlier decision in Halper 43 where the
emphasis was on the constituent elements of punishment, namely retribution and
deterrence. Commenting that Halper’s deviation from longstanding double jeopardy
principles was ill-considered, the Hudson court stated:
“As subsequent cases have demonstrated, Halper’s test for determining whether
a particular sanction is ‘punitive’, and thus subject to the strictures of the Double
Jeopardy Clause, has proved unworkable. We have since recognized that all civil
penalties have some deterrent effect. (The court then cites various cases).. If a
sanction must be totally remedial i.e. entirely non -deterrent to avoid implicating
the Double Jeopardy Clause, then no civil penalties are beyond the scope of the
clause.” 44
62. Later the court developed this theme when it stated:
“But the mere presence of this purpose is insufficient to render a sanction
criminal, as deterrence “may serve a civil as well as criminal goals…. For
example the sanctions at issue here, while intended to deter future wrongdoing,
also serve to promote the stability of the banking industry. To hold that the mere
41 (1963) 372 US 144, 9 L Ed 2d 644, 83 S Ct 554
42 ibid Hudson, page 460
43 US v Halper 490 US 435
44 Hudson pages 460-461.
23
presence of a deterrent purpose renders such sanctions ‘criminal’ for double
jeopardy purposes would severely undermine the Government’s ability to engage
in effective regulation of institutions such as banks.”45
63. Although Hudson deals with the Double Jeopardy Clause in relation to civil
penalties, an earlier decision of the Supreme Court in Atlas Roofing 46 held that an
administrative penalty imposed for deterrent purposes withstood the due process
requirements of the seventh amendment. Atlas Roofing was concerned with the issue of
whether an administrative hearing in which a civil fine could be imposed violated the
right to a jury trial in terms of the seventh amendment. The court held that:
“When congress creates new statutory rights it may assign their adjudication to
an administrative agency with which a jury trial would be incompatible, without
violating the Seventh Amendment’s injunction that jury trial is to be preserved in
‘suits at common law’. Congress is not required by the Seventh Amendment to
choke the already crowded federal courts with new types of litigation or
prevented from committing some new types of litigation to administrative
agencies with competence in the relevant field.”47
64. The first respondent relies on Halper as authority for the proposition that the
existence of a punitive element renders a proceeding criminal in nature. Apart from the
fact that Halper is no longer authoritative on this point, the problem with this reliance on
the double jeopardy cases is that they deal with a different problem of characterization
to the one we have here, as we pointed out with the Canadian cases. They say, in
effect, that when the government has available to it a criminal remedy and also a
remedy that, although civil in appearance, has penal consequences, it cannot utilize
both less it risk the successful invocation of double jeopardy. The cases do not decide
that the impugned civil type remedy is unconstitutional because it fails to provide the
that the impugned civil type remedy is unconstitutional because it fails to provide the
transgressor with the procedural protection to which a criminal accused is entitled - they
45 Ibid at 463
46 430 US 442 (1977)
24
only require the government to make a choice of which procedure it wishes to utilize
and Halper is clear on this.
65. A court’s answer to the question of when a proceeding exposes a person to
double jeopardy may not be the same as its answer to the question of whether the
proceeding affords the person adequate procedural protection given the nature of the
proceeding. It is entirely probable that a court, anxious not to expose a citizen to
overreach by the government’s many tentacles, may approach the first question more
expansively than it would the second.
66. Thus, the case law, whilst useful in introducing certain tests and principles, cannot
be decisive in respect of the issue we are called on to decide.
67. For this reason we see value in reframing the question that we have to decide:
Reframing the Question
68. Properly reframed the question is whether the remedy that section 59 affords the
Tribunal is subject to adequate procedural protection for a respondent, given the nature
of the sanction.
69. Despite the fact that in the case law that we have considered the courts have
applied different classification tests or, even when applying the same tests, have come
to opposing conclusions, one theme remains constant: the extent of procedural
protection afforded is a function of the extent to which a proceeding or penalty
encroaches upon a person’s rights. A continuum exists between these two values and,
classic criminal law proceedings aside, when one moves along the continuum no bright
line clearly demarcates when additional procedural protections must be afforded. The
47 See Atlas Roofing at 455.
25
answer lies in each case in an examination of the procedure, its remedies and their
purpose in each case. 48
70. The case law shows that courts no longer have a bipolar view of the law – that
something is either criminal or civil. With the increasing trend of modern governments to
extend administrative law and, at the same time, utilize administrative bodies to enforce
it, that division has blurred. The courts recognize that administrative bodies will be
enforcing the law through hybrids that are neither wholly criminal nor civil.
Administrative bodies not only have the power to enforce the law within their domain but
in some areas, competition law being one, are given their own tribunals to enforce it. In
our constitution this trend is explicitly recognized in sections 33 and 34 of the
Constitution.
71. Allied to this growth in the use of administrative institutions has been an increase
in administrative, as opposed to criminal, penalties. As Professor Mann has put it at
page 1847:
“The expansion of civil sanctions is part of a more general phenomenon that has
characterized law in recent history. There has been a constant search for new
ways to achieve social ends through the legal system.”49
72. Since the advent of the post -1994 order in South Africa we too have seen the
legislature making increased use of administrative penalties as part of the enforcement
of legal norms. The Competition Act is unexceptional in this respect. 50
73. The reasons for this are not hard to discern. When governments reserve new
areas for public regulation they opt for enforcement by specialist, expert bodies capable
48 The idea of the concepts existing in a continuum arises from an article by Professor Mann in the Yale Law
Journal, June 1992 entitled “Punitive Civil Sanctions: The Middleground Between Criminal and Civil Law”.
49 See fn. 47 supra.
50 See for example the Mine, Health and Safety Act 29 of 1996 (amended by Act 72 of 1997), The Basic Conditions
of Employment Act, 75 of 1997, The Employment Equity Act, 55 of 1998, section 45(1) of the Pharmacy Act 53 of
1974 as amended and section 102 of the Telecommunications Act, 103 of 1996 as amended.
26
of resolving issues speedily and efficiently. It is clear that, in so doing, they must have
regard for a person’s constitutional rights. Precisely how government must guarantee
those rights, so that they are not sacrificed on the altar of administrative efficiency, is
less clear. The answer, in our view, lies in situating the transgression and its remedy in
their proper place on the continuum.
74. The procedural ‘deficits’ in this case, as identified by the first respondent, are the
lower burden of proof, the alleged lack of a right to silence and the fact that the tribunal
is neither a court nor independent. We deal with the independence issue in the next
section. We will deal with the issues of burden of proof and the status of the Tribunal
relative to those of a court as part of an examination of where Competition Act
transgressions, and the section 59 remedy lie on the continuum and then, in that
context, examine whether these deficits are constitutionally fatal.
75. When deciding the classification of a transgression and, thus, the degree and
content of procedural protection to which it is entitled, three broad areas of agreement
are discernible from the case law referred to above.
76. These three broad areas seem to be:
1) What is the nature of the transgression? In other words is the transgression,
by reference to its history and what it seeks to prohibit, typically of a criminal
nature?
2) What is the nature of the penalty?
3) Is there a rational connection between the conduct the legislature seeks to
prohibit and the sanction it imposes? The greater the disjuncture, the more likely
is the sanction to be punitive in nature and, hence, the greater the degree of
procedural protection that must be afforded.
77. In particular we ask whether section 59 is a criminal remedy and thus subject to
procedural protection provided for in Section 35(3) of the Constitution. Our analysis will
27
show that we have concluded that section 59 does not require the Competition Act to
provide the heightened criminal law protection afforded by section 35(3) of the
Constitution, and that although the procedure must comply with section 34 of the
Constitution, it complies with that standard.
1) Nature of the transgression
78. As we indicated earlier, the legislature enacted the present Competition Act with
the express intention of decriminalizing competition transgressions. It did so because
of the enforcement failure associated with its predecessor where an array of
contraventions were dependent on criminal law enforcement remedies.
79. Apart from the brief, and inglorious period of Government Notice 801 of 2 May
1986, which converted certain competition transgressions to crimes, there is no history
to suggest that these contraventions have long been treated as criminal in our law.
80. In foreign jurisprudence the situation varies, although the modern trend is again
away from the use of criminal law as a tool of enforcement against restrictive practices.
The exception in some jurisdictions has been enforcement against cartels, where in the
United States and Canada, and recently the United Kingdom, criminal law is used.
51The reason for this is the concern that even huge fines were inadequate remedies
against cartels and that only the prospect of imprisonment of senior executives would
be an adequate remedy against corporate miscreants. This remedy thus places this
species of transgression at a different point on the continuum and for this reason
adherence to criminal due process standards is appropriate in those jurisdictions
seeking imprisonment as a remedy.
51 Nevertheless Areeda acknowledges that a basic policy dispute about antitrust law concerns the appropriateness of
criminal sanctions. See Areeda Hovenkamp, Antitrust Law, ¶ 300-397, ¶303b3, page 31. Areeda also points out that
because the courts have been usually dealing with Sherman Act cases in civil proceedings they have not felt
constrained as they might have been in developing the common law of antitrust, (¶303b4). Note that in the United
States although the Sherman Act, its principal antitrust statute, is criminal the Department of Justice may use it to
proceed, both civilly or criminally. The well-known Microsoft case is an example of the DOJ proceeding with a civil
28
81. Most competition law transgressions, however, fit uncomfortably into the cloth of
the criminal law. Firstly the state of mind of the transgressor, whether we term this
element ‘intention’ or ‘scienter’, is not typically an element of a prohibited practice. 52
What the Act refers to as prohibited practices are typically acts by firms with market
power who act in a manner that utilizes that power to exploit consumers or exclude
competitors. What the Act is concerned about is the ‘effect’ of a firm’s conduct in the
market place, not what it intended by that conduct. Hence the leitmotif of the word
“effect” to be found in each of the core prohibitions.53
82. The Competition Appeal Court has recently observed in relation to dominance
that:
“The concept of abuse is an objective one…”54
83. In doing so they followed the approach of the European Court of Justice in
Hoffman-La Roche and Co AG v Commission of the European Communities 55 where
that court had noted:
“The concept of abuse is an objective concept relating to the behaviour of an
undertaking in a dominant position which is such as to influence the structure of
the market where, as a result of the very presence of the undertaking in question,
the degree of competition is weakened and which, through methods different
from those which condition normal competition in products or services on the
basis of the transactions of commercial operators, has the effect of hindering the
case for monopolization under the Sherman Act.
52 See for instance Yeung who states: “While criminal offences typically depend on some proof of mens rea, be it
intent, knowledge or recklessness, in order to establish the commission of an offence, regulatory violations often
discard mens rea so that a regulatory offence may be committed, without the need to establish any mental element
on behalf of the offender. In other words liability is visited on the offender for breach of regulatory law without
proof of the offenders culpability or subjective wickedness.” See Karen Yeung, “Quantifying Regulatory Penalties:
Australian Competition Law Penalties in perspective” Melbourne University Law Review, August 1999, page at
459.
53 See these references in section 4(1)(a), 5(1), 8(c),8(d), 9(1)(a).
54 Patensie Sitrus Beherend Beperk v The Competition Commission and others, CAC Case No: 16/CAC/Apr02,
page 29
29
maintenance of the degree of competition still existing in the market or the growth
of that competition.” 56
84. The first respondent has tried to argue that because the penalty in section 59 may
only be imposed in limited cases, those which are so called ‘per-se’ violations and those
where there has been a repeat of the same conduct, an element of knowledge of
wrongdoing, of intent, is imputed as a threshold condition for the imposition of the
penalty. On this basis, it is argued that key elements that are part of a criminal finding
are present and, so, the protections available to a criminal defendant are required if
penalties for these contraventions are to be imposed.
85. However, this argument confuses two notions, on the one hand, transgressions for
which proof of a mental element is a requirement and on the other hand,
transgressions, which are so notorious as being anticompetitive, that firms ought to
know that they are wrong. In the case of the former, failure to prove mens rea must
result in an acquittal. However, in the latter, proof of intent is not essential - it is rather
the nature of the transgression itself and not the subjectivity of the respondent’s mind
that makes the penalty competent.
86. The Act makes only a limited number of transgressions susceptible to a
administrative penalty because it limits penalties to acts that are known to be
anticompetitive precisely in order to reduce the incentive on the part of potential
transgressors to engage in them. If a penalty was applied to all forms of anticompetitive
behaviour, including those at the cusp of legality, lawful or even pro -competitive
behaviour may be disincentivised. For this reason the penalty regime is limited to those
deemed notoriously anticompetitive, the so -called per se transgressions, and to the
repeat by a firm of conduct previously found anticompetitive. This approach is therefore
premised on an incentive-based model not a criminal one.
premised on an incentive-based model not a criminal one.
55 Case no 85/76[1979] ECR 461, para 89.
56 Hoffmann-La Roche supra para 91
30
87. Absence then of proof of a mental element as a component of a transgression is
an indication of the fact that it is not criminal in nature. 57
88. As Areeda points out:
“The most fundamental reason for limiting intent inquiries is that the relevant
intent – intent to harm one’s rival – is impossible to distinguish from the intent to
behave competitively in a broad range of situations ….In such a setting an ‘intent’
not to harm a rival is tantamount to an intent not to compete.”58
89. In addition competition transgressions contain no moral or normatively
condemnatory aspect. That is because the conduct itself is typically only objectionable
when performed by firms with market power. It is hard to apply some normative
standard to conduct whose legality is dependent on the protagonist’s share of the
relevant market. Thus when it comes to an abuse case, the same act perpetrated by
company A, which has market power, may be a prohibited practice, but is not in respect
of firm B if it lacks market power. In addition prohibited practices are usually a matter of
degree. Apart from the per se contraventions, most conduct that transgresses is a
matter not of the inherent nature but of degree. Thus ‘recommending’ a minimum resale
price is lawful, ‘maintaining’ it is not.
90. When we deal with the nature of the penalty we will take this theme of morally
neutral contraventions further.
91. With criminal cartel prosecutions as the one exception, most jurisdictions enforce
competition law violations with a lower burden of proof than they would in criminal
matters. This is not surprising given the nature of the contraventions, which, as we have
already stated, typically depend on an element of market power. A finding of market
power requires an analysis of the relevant market, which in turn requires an analysis of
57 Recall the test in Kennedy v Mendoza –Martinez supra.
58 See Areeda op cit ¶ 311(d)
31
whether certain products are substitutes for one another and therefore part of the
relevant market. To require that, in a dominance case, the Commission must, for
example, prove beyond a reasonable doubt, that a cola drink did not compete with other
carbonated drinks, would effectively render the section unenforceable. That kind of
certainty cannot be attained in such an evaluation, which must then, by its very nature
be established on the balance of probabilities rather than on the elimination of doubt.
92. In the United Kingdom, as we noted earlier in the Napp case, the CCAT, held that
the burden of proof in Competition cases involving penalties is the civil standard of proof
although the CCAT cautioned that it needed to be strong and compelling evidence. This
conclusion was reached notwithstanding the fact that Article 6 of the European
Convention applied to the proceedings and that they were for that purpose to be
regarded as ‘criminal ‘.
93. In Canada dominance cases are assessed by the civil standard, and whilst it is
conceded that they do not impose penalties for these, they do impose far ranging
remedies including divestiture - remedies firms may find far less palatable than
penalties.59 In the United States dominance is an infringement of section 2 of the
Sherman Act, a criminal statute, but the Department of Justice can proceed civilly for a
breach and it frequently does so in monopolization cases, even though its remedies
here are equitable rather than civil. Nevertheless in the United States private litigation
plays a major role in ensuring compliance with the antitrust laws and for this reason
plaintiffs are rewarded with treble damages. As Areeda states:
“Such a remedy not only compensates private persons for their injuries, but gives them
a powerful financial incentive to enforce the antitrust laws.”60
59 See section 79(2) of the Canadian Act. According to Paul Collins and D. Jeffrey Brown, until 1986,
monopolization was a criminal offence under the Act. The ineffectiveness of the former Canadian provision led to
its replacement with a new civilly reviewable provision for abuse of a dominant position..” See Paul Collins and
Jeffrey Brown , National antitrust law in a continental economy: A comparison of Canadian and American antitrust
laws, 65 Antitrust Law Journal 495 at 530.
60 See Areeda ¶ 303d.
32
94. Later he goes on to observe that although the private plaintiff need not act in
pursuit of the public interest,
“Nonetheless the most obvious feature of the treble damage action is punishment
“61
95. Treble damages are awarded on the basis of the civil burden of proof.
96. In South Africa the legislature’s choice of a civil as opposed to a criminal remedy
arose out of a concern that competition violations were insufficiently policed under the
old Act. This is specifically mentioned in the preamble of the Act:
“That apartheid and other discriminatory laws and practices of the past resulted
in …… inadequate restraints against anti-competitive trade practices… .”
97. The literature on economic regulation suggests that lawmakers typically prefer to
make transgressions of the law subject to a less demanding civil standard, as they fear
that there may be under -enforcement if the activity was criminalized. The history of the
failure of our predecessor the Competition Board in this respect is a matter of public
record and tends to validate the theory in the literature. There is little doubt that our
legislature would not contemplate reverting to the criminal law to act against
anti-competitive conduct given our past experience.
98. Not only may the use of a criminal standard in this respect lead to an
under-deterrence problem from the perspective of the enforcer, it may also from the
perspective of the target lead to an over -enforcement problem. Our legislature, whilst
regarding competition law infringements as very serious, does not believe that they
should be visited with the wrath and consequences of the criminal law. Furthermore
they believe that these transgressions are most efficiently policed and enforced by
specialist agencies not by our already crowded courts.
61 See Areeda ¶ 303d
33
99. We conclude that neither the nature of the prohibitions, their history, the legislative
intent or policy informing their treatment, suggests that prohibited practices are, in
substance, akin to crimes.
2) Nature of the penalty
100. It could of, course, be argued that, even if competition law transgressions are
best left as civil law violations, it does not follow that they should then be visited by
‘punitive’ remedies such as an administrative penalty, when other remedies are
available. It is true that the Act does conceive of a range of remedies, other than the
administrative penalty, for a violation, but not every case commends itself to such a
remedy, nor may they prove to be a sufficient deterrent. It would significantly undermine
the effort to curb anti -competitive practices if all that a miscreant firm was faced with
after being found in violation was a cease and desist order.
101. Hence for a species of violations the Act makes the imposition of a penalty
competent. Since, as discussed earlier, many antitrust contraventions may not be clear
to firms, the Act limits the imposition of a penalty to those which are either sufficiently
well known to be anti -competitive or where a firm is a repeat offender, that is, to
circumstances where the transgressor ought to have known that the particular conduct
was unlawful.
102. The case before us is an example of why a penalty is the only proper remedy. If
the remedy were limited to an interdict, it would pay firms to transgress the section until
detected and then to agree to abide by a cease and desist order. This is clearly an
unsatisfactory situation.
103. Furthermore, penalties may loom larger in the choice of remedies sought by the
Commission than may be the case in respect of their counterparts in the
better-resourced developed countries. Complicated behavioral remedies, which would
34
entail ongoing monitoring and enforcement over a period of time, may be beyond the
resources of the Commission. A penalty as a deterrent raises no such problems.
104. It is as well to examine now an issue, which we avoided in the previous
discussion on the case law, namely the question of whether punishment has a single or
multifaceted objective. We are of the opinion that much of the case law on which the
respondent sought to rely failed to make this distinction, which is absolutely crucial in
ascertaining the appropriate procedural safeguards a remedy attracts.
105. Writers on the subject have repeatedly distinguished between various goals for
the imposition of punishment.
106. Yeung argues that traditional criminal law offers five theories for punishment,
namely retribution, deterrence, incapacitation, rehabilitation, restitution, and
compensation.62 She states that of these, only retribution and deterrence are relevant to
regulatory penalties and compete as a possible theoretical basis for them. While Yeung
argues that a penalty regime should include both elements and suggests that ultimately
the two are impossible to untangle, other writers such as Rubin 63 suggest, after
considering the same theories of punishment that:
“Of these purposes, deterrence would appear to be the dominant one in the case
of administrative remedies. Compensation and inducement to take legal action
are essentially irrelevant, while punishment, a puissant but ambiguous idea, turns
out to be little more than deterrence when it is factored into its part.”64
107. He develops this ambiguity theme by looking at the way the notion has been
used in the literature and he then comes to the conclusion that:
62 See Yeung op cit 445. Yeung refers to retribution as desert.
63 See Punitive Damages: Reconceptualizing the Runcible Remedies of Common Law, Edward L. Rubin, Wisconsin
Law Review 1998
64 Rubin op cit 136.
35
“Punishment as a reason for imposing administrative fines, is a complex concept
that must be parsed to be assessed with any clarity. ..For present purposes, it is
useful to distinguish among different functions of punishment, the classic ones
being deterrence and retribution.
108. He goes on to argue that it is difficult to conceive that legislatures intend that
administrative agencies’ civil penalties are intended to be retributive because society
does not construe these institutions sufficiently highly to bestow them with the regard to
serve this purpose. As he puts it in a memorable phrase:
“It seems unlikely that most people believe that so biblical a purpose as
retribution should be assigned to these technocratic, unpoetic institutions.”65
109. He concludes that:
“ We are left with one dominant purpose for administrative penalties namely
deterrence. This term is itself derived from criminal law however; a more
administrative one is law enforcement, or compliance. The obvious purpose of
imposing penalty on a private actor is to induce that actor to obey a legal rule.
The message is not the moral judgment ‘you are a bad person’ but rather the
pragmatic instruction ‘cut it out’. This distinction can be derived from the nature of
the sanctions, the nature of the underlying violation, and from the conception of
administrative law.”66
110. As Feinberg has noted, penal sanctions for regulatory offences do not constitute
punishment, even though the imposition of such sanctions visits ‘hard treatment’ on the
transgressor, because they do not convey “reprobative symbolism” which he regards as
the essence of punishment.67
65 Rubin op cit 140.
66 Rubin op cit 142.
67 We rely on Yeung op cit footnote 73 for her summary of his views in this way. She sources the view to Joel
Feinberg, “The Expressive Function of Punishment” (1965) 49 The Monist 397.
36
111. Mann notes the growth in our legal systems of what he terms ‘deterrence
ideology’, which, he argues, has led to a decrease in the difference between the
purpose of criminal and civil law:
“Deterrence ideology with its philosophical background of law and economics,
became a significant causal factor in the growth of punitive civil sanctions.”68
112. Case law also distinguishes between deterrent and retributive effects of
punishment. In one jurisdiction, Australia, which is the system closest to ours (indeed
our section 59(3) appears to have been modeled on their section 76 of their Trade
Practices Act), the courts have repeatedly emphasized this point.69
113. In NW Frozen Foods v ACCC 70 the Federal Court of Appeals held that the
purpose of the administrative fine is not punishment but deterrence. The court quotes
with seeming approval from French J in TPC v CSR Ltd:71
“ The principal and probably the only object of the penalties imposed by section
76 is to attempt to put a price on contravention that is sufficiently high to deter
repetition by the contravenor and by others who might be tempted to contravene
the Act.
114. They then quote Lee J (293) who said that:
“ the object to be served by s 76, namely, to promote competitive conduct in
trade or commerce by use of penalties sufficient to deter acts that would tend to
be destructive of such competition”72
68 See Mann op cit 1846-7.
69 Although the Courts impose these penalties they do so on the basis of the civil burden of proof. The other
difference is that the cap for the penalty is set by an amount stipulated in the statute and not by reference to turnover.
70 1996 71 FCR 285
71 See NW decision at 292, 1991 ATPR 41 076.
72 There are various other quotes by Lee J in other decisions which are referred to, all of which emphasise the
37
115. The mantra of the duality of deterrence is repeated in ACCC v Rural Press and
Others73 where the court stated:
“ I am also mindful in assessing the level of the pecuniary penalty, that it is
directed to deterrence of acts that would tend to be destructive of competition.
That deterrence has two facets. They are the deterrence of the individual
contravener from engaging in conduct in contravention of the Act in the future,
and the deterrence of other traders from engaging in conduct in contravention of
the Act.”74
116. Whilst some Australian judges have expressed reservations about whether
deterrence is the sole criteria, this does appear to be the dominant view.75
117. We now examine the section itself. In the first place we note that section 59(2)
places a ceiling or cap on the maximum penalty that can be imposed. This is set at 10%
of the offending firm’s turnover during the firm’s preceding financial year. The fact that it
is set out in this way and not, as in section 74, which provides a set maximum penalty
for criminal offences, suggests that the legislature intended the penalty to be relative to
the economic impact of the respondent in the market, that is, the greater the turnover of
the firm, the greater the potential for it to be penalized .76 This relative, as opposed to
absolute cap, is more consistent with a deterrent than a punitive model, because given
that a deterrent model is incentive -based it requires greater administrative penalties to
be imposed on larger players.
deterrent effect
73 [2001] ATPR 41-833
74 ibid para 12
75 In a dissenting judgment in NW Frozen Foods case Carr J says that on his view of the cases punishment may still
be one of the purposes of section 76.
76 As Korah has explained the European model from which the 10 % turnover penalty is derived, the test is intended
to reflect the economic power of the firms responsible (See EC Competition Law and Practice, 7th Edition 2000, by
Valentine Korah, page 179 quoting the Court of First Instance.)
38
118. None of the factors set out in section 59(3) is inconsistent with a deterrence
model, although, we acknowledge that it is not pure in this respect. All the factors listed
either deal with the information the Tribunal would need to address in setting a
administrative penalty or in order to achieve the two aims of deterrence namely,
deterrence of the respondent and deterrence of others contemplating the same conduct.
119. Even a factor such as the degree of co -operation with the Commission and
Tribunal, although superficially more associated with the mitigation notions of criminal
law, has an incentive logic to it, and thus is consistent with the goal of deterrence as it
incentivises firms to settle with the authorities.
120. Notably absent from the criteria are any notions of moral judgment or censure
characteristic of criminal law. As Coffee 77 points out one of the features of the criminal
law is its deliberate intent to inflict punishment in a manner that maximizes stigma and
censure.
121. Nor are there any consequences of the penalty apart from the possibility that it
may be taken into account if the firm was again subject to a penalty. But this again is
perfectly consistent with a deterrence model, that is, if someone has been awarded an
administrative penalty, and again contravenes the Act, the penalty may have to be
increased the next time around as compliance had been insufficiently incentivised.
122. Nor do penalties impose upon a firm any disability as a criminal conviction
sometimes does. 78Further the legislature’s choice of the word ‘penalty’ as opposed to
‘fine’, the latter a term usually associated with the language of criminal law, is again
indicative of its civil aspect.79
77 See John C Coffee. Jr: Paradigms Lost: The Blurring of the Criminal and Civil Law Models and what can be done
about it, Yale Law Journal, June 1992
about it, Yale Law Journal, June 1992
78 Section 28(3)(d) of the Competition Act contains a typical example of this kind of disability. The section provides
that a person is ineligible to serve as a Tribunal member if the person has been convicted of an offence committed
after the Constitution of the Republic of South Africa, 1993 (Act No. 200 of 1993), took effect, and sentenced to
imprisonment without the option of a fine.
79 See for instance Robert F. Blomquist who writes on this distinction: “The purpose of a penalty is also to inflict a
pecuniary punishment for the violation of a law; however, the technical definition of a penalty is ‘that which is
39
123. We do not suggest that section 59 exhibits a ‘pure’ deterrent model devoid of any
retributive element. We do however suggest that it is by far the dominant element, and
that retribution is insufficiently a determinant in the final mix to alter the categorization of
the penalty into a punitive one.
124. For this reason the sanction imposed by section 59(3) is insufficiently retributive
in character to render it punitive in nature in a manner that requires the heightened
protections afforded by section 35(3).
3) Rational connection
125. We discuss this aspect in relation to the broader rationality challenge, which we
deal with below, so it is unnecessary to repeat these issues here.
Section 34 of the Constitution (the fairness standard)
126. It is noteworthy that the first respondent’s attack in terms of section 34 of the
Constitution has been confined to the issue of independence. It has not suggested that,
were section 34 to be the governing section, the Act fails to provide the necessary
degree of procedural fairness required by the Constitution. We submit that the Act does
so and, apart from the deficits explicitly mentioned earlier, would even comply with
section 35(3). One of the most notable features of the new Act which has not been
previously mentioned is the deliberate separation of what was once a single competition
agency with combined investigative and decision making functions into two separate
bodies. In prohibited practice cases such as the one in casu the Commission acts as
the prosecutor but cannot adjudicate, and the Tribunal adjudicates but cannot
prosecute. Both bodies are institutionally separate as we elaborate on below. Secondly,
demanded for a violation of a statute, which violation may or may not be a crime.’ This technical distinction
between a penalty and a fine survives in statutes that allow a penalty to be recovered in a civil action but require
that a crime be punished with a fine or imprisonment.” See Blomquist , Rethinking the citizen as prosecutor model
of environmental enforcement under the Clean Water Act, 22 Georgia Law Review 337,1998 at 360.
40
the Act has an elaborate set of procedures, from the requirements for a complaint
referral, to the nature of the way hearings are conducted, designed to ensure
compliance with the Constitution’s mandate of fairness.
127. A prohibited practice hearing, even where a section 59 penalty is competent,
finds itself located on the continuum at a place where the level of procedural protection
afforded is consonant with the severity of the proceeding.
Section 34 of the Constitution (the independence issue)
128. The first respondent’s second attack is based on section 34 of the Constitution.
This section states that:
Everyone has the right to have any dispute that can be resolved by the application of
law decided in a fair public hearing before a court or, where appropriate, another
independent and impartial tribunal or forum.
129. As already noted, the first respondent does not appear to contend that it did not
receive a fair hearing in terms of our proceedings.80 The Act and the Rules clearly make
ample provision for a fair hearing and were the Tribunal not to follow such a proceeding
it would clearly expose itself to review.
130. What the first respondent relies on is that the Tribunal is, in its opinion, not an
independent and impartial tribunal or forum. As we understand it the nub of the issue is
not impartiality but independence. The first respondent asserts that the Tribunal is not
independent as it forms part of the executive and that Tribunal members should be
viewed in the same way as public servants.
80 See transcript of 23 April 2003, page 31, line 20
41
131. A reading of the Competition Act shows that this contention is not well -founded.
The legislature has taken several steps to ensure the independence of the competition
institutions not only from the executive but also from one another.
132. In terms of section 20(1) of the Act the Competition Commission:
“(a) is independent and subject only to the Constitution and the law;
(b) must be impartial and must perform its functions without fear, favour or
prejudice.
133. Section 20(3) goes on to state that:
“Each organ of state must assist the Commission to maintain its independence
and impartiality, and to effectively carry out its powers and duties.”
134. These provisions apply equally to the Tribunal in terms of section 26(4).
135. Apart from this unambiguous statement in the legislation, which mirrors the
language of section 34 of the Constitution, by its specific reference to the institution’s
independence and impartiality, the Tribunal is functionally independent of the executive
in the sense that none of its decisions require consultation with or the ratification of the
executive.81
136. In the case of the Tribunal additional measures are taken to ensure that
members have relative security of tenure. Tribunal members are appointed by the
President on the recommendation of the Minister of Trade and Industry for a period of
five years.
81 Contrast this with the Tribunal’s predecessor the Competition Board whose decisions were recommendations only
and required Ministerial assent to have the force of law. See Maintenance and Promotion of Competition Act,
section: 6, 12, 13 and 14.
42
137. During the period of their appointment they may only be removed from office if
they become disqualified or in the limited circumstances set out in terms of section
29(5)(b) namely –
“(i) serious misconduct;
(ii) permanent incapacity; or
(iii) engaging in any activity that may undermine the integrity of the Tribunal.
138. Only the President on the recommendation of the Minister can remove a Tribunal
member from office.
139. In the Van Rooyen82 case the Court observed that:
“There is a difference between being nominated by the executive to perform a
duty which calls for an independent decision and being chosen by the executive
to perform a duty in accordance with its wishes. If the power to recall is subject to
objective criteria consistent with the Constitution, that power is not
constitutionally objectionable “83
140. In our view, the appointment and removal of the Tribunal members, in terms of
the Act, conforms with this observation by the Court. Thus although members are
subject to appointment by the executive it is clear from the Act that members are
appointed to perform an independent function. Secondly, as far as removal is
concerned the power to recall is subject to objective criteria.
141. The fact that members are appointed by the executive has been held not to
contravene the separation of powers in the Van Rooyen case:
82 Van Rooyen and Others v The State and Others (General Council of the Bar of South Africa Intervening) 2002
(5) SA 246 (CC)
83 ibid Para 93.
43
“The mere fact, however, that the executive and the legislature make or participate in
the appointment of judges is not inconsistent with the separation of powers or the
judicial independence that the Constitution requires.”84
142. In the Freedom of Expression case Hlophe ADJP (as he was then) observed:
“It is well established that there are degrees of independence. Indeed it is not
every tribunal that can be as completely independent as a court of law is
expected to be. The independence of courts of law and administrative bodies
cannot be measured by the same standard.”85
143. As far as financial independence is concerned, section 34(2) states that:
“The Minister may not during the term of office of a member of the Competition
Tribunal reduce the members salary, allowances or benefits.
144. The financial provisions that relate to the Tribunal and Commission that are set
out in section 40 and 41 of the Act indicate that the institutions are:
(a) financed by Parliamentary appropriation:
(b) have their own accounting officer
(c) Report to Parliament annually on their activities and finances.
145. These provisions indicate that the institutions report to Parliament and not to the
executive albeit that the Minister is their conduit to Parliament.
84 Van Rooyen supra para 106. The Court refers to the fact that in its first certification judgment it held that the
executive could have retained the power to appoint judges (and magistrates) itself, without infringing the
institutional independence required by the Constitutional principles. (Para 109)
85 Freedom of Expression Institute and Others v President of Ordinary Court Martial , and Others. 1999(2) SA 471
(C) at 483
44
146. In our view these features of the Act, coupled with the manner in which the
Tribunal functions, indicate a relationship of independence from the executive that
meets the requirements of section 34.
147. The constitutional attack in respect of this aspect must accordingly also fail.
Rationality argument
148. The final attack on section 59 is that it is irrational because it is turnover based.
The argument is that it is well known that whilst a firm may have a large turnover its
level of derived profit from these activities may be low. Hence a firm with a large
turnover but low profits is susceptible to a higher fine than one with larger profits but a
low turnover. The irrationality, the first respondent alleges, is that the firm, which has
profited less from its ill -gotten gains faces a potentially more formidable fine. There is
thus an irrational disjuncture between the firm’s sin and the sanction.
149. Whilst the economic observation that there is no consistent correlation between
levels of profit and turnover is correct, this does not the make the use of turnover
irrational.
150. The Act, as we stated earlier, is centrally concerned with regulating the abuse of
market power. One of the consequences of market power is the ability it gives a firm to
price above the competitive price. That so -called monopoly price is reflected in an
increase in turnover for the firm - a turnover greater than would have been in a
competitive market. From the perspective of the consumer the harm of the
anti-competitive pricing has been the increased price paid to the firm and hence its
increased turnover. The fact that the firm has not internalized that market power
efficiently into profit in each case is a secondary issue. Indeed this is why it is located as
a factor in section 59(3), not 59(2) i.e. we assess the loss to consumers in setting the
45
cap in section 59(2), we assess the gain to the firm under section 59(3). The approach
is, on the contrary, perfectly rational.86
151. Although the first respondent had raised the irrationality argument in its initial
heads of argument, following the amici‘s heads, which dealt comprehensively with this
issue, the argument was neither pursued in its second set of heads nor in the oral
submissions, although we were told that it had not been abandoned.
152. In our view the case law the amici have referred us to strongly supports their
major contention that all rationality review requires is that legislation has a purpose that
is not unconstitutional and that it is rational to believe that the legislation will advance
this purpose. The existence of a less invasive means to achieve a government purpose
is at constitutional law a question of proportionality and not a question of rationality.87
153. We find nevertheless that the 10 % turnover threshold is a rational one in the
Act’s schema but that even if we are wrong in this respect that given the high threshold
for rationality review set by our courts, the attack on section 59 by way of a rationality
review is unpersuasive.
Conclusion
154. We find that a section 59 penalty does not constitute the type of punishment
which necessitates the constitutional protection of section 35(3) given the restricted
scope our courts have given to the application of that section. We find further that
prohibited practice cases in the Tribunal are subject to sections 33 and 34 of the
Constitution. Measured against the procedural requirements of those sections, the Act
contains adequate and appropriate procedural protections to respondents to ensure
86 Note that even the choice of 10% as the measure has some pedigree in the field of competition economics. When
assessing whether a firm has monopoly power economists apply the test of the hypothetical monopolist – could the
firm raise its price by 5-10% without it not being feasible for it to do so. (See Competition Law, fourth edition by
Richard Whish, page 28)
87 The amici relied on the following cases for this proposition: Prinsloo v van der Linde 1997 (3) SA 1012 (CC) at
para 36, East Zulu Motors (Pty) Ltd v Empangeni/Ngwelezane Transitional Local Council and Others 1998 (2) SA
46
fairness, given the nature of prohibited practices and the penalties that may be
imposed. We also find that the Tribunal, although not ‘an ordinary court’ for the purpose
of section 35(3), is an independent and impartial tribunal for the purpose of section 34.
155. We further find that the penalty contemplated in section 59 is not irrational.
156. Accordingly all three of the first respondent’s constitutional points fail.
Per: N. Manoim
Concurring: D. Lewis and M.T.K. Moerane
SECTION B – THE ADMINISTRATIVE PENALTY
157. The Commission has asked that we exercise the powers granted us under
Section 59(1)(a) of the Act to impose an administrative penalty on the first respondents
who have been found to practice resale price maintenance, a contravention of Section
5(2). The Commission had initially also asked for interdictory relief but this was
withdrawn.
158. Contraventions of Section 5(2) constitute a species of price fixing, the vertical
variant of that set of contraventions generally construed as the most anti -competitive of
business practices. It is for this reason that resale price maintenance is prohibited per
se, why, in other words, it permits of no pro -competitive defence. And it is for that
reason that the Act provides for the imposition of administrative penalties on first -time
Section 5(2) offenders, a level of deterrence reserved for a mere handful of other
transgressions.
159. We interpret the legislature’s intention in designating a particularly powerful
sanction for this class of contraventions as, firstly, a manifestation of the serious nature
of the contravention, of its unequivocally deleterious impact on competition. Secondly,
61 (CC) at paras 24 and 30, S v Lawrence; S v Negal; S v Solberg 1997 (4) SA 1176 (CC) at paras 41-46.
47
we understand the particular treatment of these contraventions to manifest the degree
of ‘nakedness’, as it were, of the restraint in question, of the widespread appreciation
and understanding in the business and general community that Section 5(2)
contraventions offend the fundamental and most widely understood tenets of
competition law and economics. As such, they are to be distinguished from a range of
other potential contraventions which must be subjected to a ‘rule of reason’ analysis,
that is, to a complex legal and economic analysis, that may or may not establish a
contravention.
160. We have no doubt that it is appropriate that an administrative penalty be imposed
in this instance. As noted, it is not for nothing that the Act specifically empowers us to
award penalties to first -time contraventions of Section 5(2) – it is a serious
contravention and one proscribed by most antitrust statutes.
161. That having been said, we are, in determining the size of the administrative
penalty, in relatively uncharted territory. There is, ineluctably, a significant element of
discretion at work in arriving at a decision regarding the size of the penalty. 88However
discretion is never unfettered – it must be exercised justly and reasonably, and the
basis for the decision must be clearly set out. There are, moreover, as we indicate
earlier, two provisions in the Act that actually lay down the bare fundamentals of a
framework for determining the size of the administrative penalty. These are Sections
59(2) and 59(3). For ease of reference we reproduce them again:
162. Section 59(2) provides:
An administrative penalty imposed in terms of sub -section (1) may not exceed 10% of
the firm’s annual turnover in the Republic and its exports from the Republic during the
firm’s preceding year.
88 In Australia, whose section 76 as we mentioned earlier is the one that influenced our section 59(3), the Federal
Court has stated that: “the fixing of the quantum of penalty is not an exact science. It is not done by the application
of a formula, and, within a certain range, courts have always recognized that one precise figure cannot be
incontestably said to be preferable to another.” See TPC v TNT (1995) ATPR 41 - 375 ,40,165(Burchett J)
48
163. Section 59(3) provides:
When determining an appropriate penalty, the Competition Tribunal must consider the
following factors:
(a) the nature, duration, gravity and extent of the contravention;
(b) any loss or damage suffered as a result of the contravention;
(c) the behaviour of the respondent;
(d) the market circumstances in which the contravention took place;
(e) the level of profit derived from the contravention;
(f) the degree to which the respondent has co -operated with the Competition
Commission and the Competition Tribunal; and
(g) whether the respondent has previously been found in contravention of this
Act.
164. It has been argued by the first respondent with, it appears, some support from
the Commission, that the turnover figure referred to in Section 59(2) should not
influence the size of the actual penalty. 89 In other words, it is argued that the turnover
threshold is an upper limit, pure and simple, and should only come into play if the
amount arrived at after taking into consideration the factors listed in Section 59(3)
exceeds the specified threshold. Mr. Brassey, for the first respondent, has cautioned us
against adopting a formulaic approach to the determination of penalties when the Act
itself does not provide such a formula. The size of the penalty, on this contention,
should be determined after consideration of the Section 59(3) factors alone.
165. However, in our view, this is an unrealistic proposition. It would be extremely
difficult to specify the appropriate level of an administrative penalty without recourse to
any reference point. It would leave the determination of the level of the penalty as an
exercise of ‘pure’ discretion and would, as such, provide no certainty. Indeed this
89 For Commission’s view see Transcript, 7 April 2003, p6
49
appears to have been explicitly recognized by the Commission which favours following
a central aspect of the US approach by designating the ‘volume of affected commerce’
as the appropriate base level. There would appear to be no meaningful difference in
principle in using the reference point provided for in the Act – the 10% of turnover –
rather than utilizing the US reference point. Under the circumstances then it is surely
preferable to draw as much guidance from our own Act as is possible.90
166. Given that we have identified deterrence as the primary purpose of the
imposition of administrative penalties, and that the deterrence element must have some
relationship to the harm inflicted by the prohibited practice, it is obvious that we must
have regard to the maximum level of the penalty as our point of departure. If this were
not the case it would make it worth it for many firms to run the risk of incurring a penalty
and to treat it, as some courts have referred to it, as a license to do business.91
167. Our view is that the upper threshold of 10% of turnover should be reserved for
the most egregious contraventions and an absence of mitigating factors. By way of
example, a hard-core cartel in a significant area of commerce and in the investigation of
which the parties have refused to co -operate with the authorities may well attract the
maximum penalty. Using this approach we will examine each of the considerations that
the Act requires us to factor into our decision, although not all of the considerations
listed in the Act will bear with equal weight upon every decision regarding the scale of
an administrative penalty. We then proceed to examine those considerations that do
bear on our determination of the level of the administrative penalty to be imposed in this
matter.
90 Indeed the ‘volume of affected commerce’ is, on the Commission’s own version, itself measured by reference to
turnover. See Transcript p7
turnover. See Transcript p7
91 See R. v Browning Arms Company of Canada Ltd., (1974) 18 C.C.C (2d) 298 (Ont.C.A.), a judgment often
referred to in sentencing jurisprudence in Canada, according to Davies, Ward & Beck in Competition Law of
Canada, where the Court stated at 303 that: “The section’s role in the protection of free competition has commercial
importance and breach of it has important economic implications and consequences. The aspect of deterrence to
others who might be tempted to commit similar offenses is clearly an important factor to be taken into account. The
penalty imposed must not be so small as to be regarded by the accused or other corporations as a license fee for
carrying on business in a manner contrary to law.” Note that, although resale price maintenance is regarded as a
criminal offence in Canadian Competition law, the principle remains relevant for our purposes.
50
168. Before considering each of the factors listed in Section 59(3) we must determine
the year referred to in Section 59(2). The first respondent correctly observes that the
Act does not define the date by reference to which the ‘ preceding financial year’ is to be
calculated.
169. The first respondent contends for the year preceding the contravention. While
there are alternatives – the year preceding the handing down of this decision is one
possible alternative – we need not decide this point, as we will accept the first
respondent’s assurance which was not disputed by the Commission that we can accept
these figures as correct whichever year is contemplated. 92 Had this not been common
cause we would have had to decide the matter, but we need not. 93
170. The first respondent also insists that the turnover figure should refer only to sales
of the product in the relevant market – that is, Ferodo brake pads. The statute clearly
specifies ‘the firm’s annual turnover in the Republic and its exports from the Republic’
as the relevant reference point. In Europe the European Court of Justice has confirmed
that the basis of their penalty in Article 15(2) is the entire turnover of the group on all
products worldwide, but observed that the Commission habitually reduced the penalty
where the infringement concerned only one line of business among others.94
171. In our view that is the proper approach. There is no warrant to interpret the
legislation more restrictively than its clear language suggests, however we should
exercise a discretion to set the maximum threshold at a lower level based on the
turnover of the line of business where the infringement occurred in the appropriate
92 See transcript page 39-40.
93 It appears that the European Union, which also caps fines at 10% of the firm’s total sales in its previous financial
year interprets this as previous to the imposition of the fine, not to the cessation of the infringement.
94 See the European Court of Justice as articulated in Musique Diffusion Francaise (100 -103/80 ECR 1825), at
para 121: ‘It follows that, on the other hand, it is permissible, for the purpose of fixing the fine, to have regard both
to the total turnover of the undertaking, which gives an indication, albeit approximate and imperfect, of the size of
an undertaking and of its economic power, and to the proportion of that turnover accounted for by the goods in
respect of which the infringement was committed, which gives an indication of the scale of the infringement. On
the other hand, it follows that it is important not to confer on one or other of those figures an importance
disproportionate to the other factors and, consequently, that the fixing of an appropriate fine cannot be the result of a
simple calculation based on total turnover.’
51
circumstances. That discretion would be exercised by examining the relationship of the
affected turnover relative to the total turnover, and then determining where the penalty
cap should be set, given the object of deterrence.
172. For the purpose of this case we will exercise that discretion in favour of the first
respondent, and base the maximum threshold on the turnover in the infringing line of
business only. This amount is [confidential] which is 10 % of the turnover for the Ferodo
products. 95 (The alternative would have been to take the first respondent’s entire
turnover in the Republic, a figure of [confidential] – yielding a maximum permissible
penalty of [confidential].
The nature, duration, gravity and extent of the contravention
173. We have already indicated our views on the nature and gravity of the
contravention. We have underlined that resale price maintenance is a species of price
fixing, the most egregious category of anti -competitive practice. As elaborated above,
the Act explicitly indicates the serious view that the legislature takes of the practice of
resale price maintenance. 96 However, that being said, resale price maintenance is
generally not considered in the same light as the notorious horizontal varieties,
hard-core price fixing or market sharing cartels or bid rigging. Indeed, anti -trust
enforcement has, in recent years, tended to adopt a relatively benign attitude towards
vertical agreements in acknowledgement of economic theory and research that has
demonstrated the pro-competitive core that often lies at the heart of what, at first blush,
may appear to be anti-competitive arrangements.
95 The Ferodo turnover according to the first respondent’s figures which the Commission does not dispute is R
60,318,000.00
96 In adopting this approach we are at one with the European approach where, according to one authoritative text
placed on record by the respondents: ‘…a multitude of factors are weighed by the Commission. These factors can
broadly be summarised under three headings: the type of infringement, the importance and structure of the market
and the defendant’s position in it, and the defendant’s conduct.’ On the question of the type of infringement, the
writers note further that ‘clear-cut hard-core violations are viewed seriously and attract a heavier fine’. (Ritter,
Braun and Rawlinson EEC Competition Law: A Practitioner’s Guide (Kluwer) at page 683. Pertinent to the case
before us, another European authority notes that the EU authorities view ‘retaliatory measures against other
undertakings with a view to enforcing practices which constitute an infringement’ as an ‘aggravating circumstance,’
which will increase the basic amount of the fine. (Valentine Korah – Cases and Materials on EC Competition Law at
52
174. However, minimum resale price maintenance – the fixing by manufacturers or
wholesalers of a floor price in respect of the onward sale of their products – is still
widely construed to be an unequivocally anti -competitive variety of vertical arrangement
and this, as already noted, is reflected in the particular status that this contravention is
accorded in the Act. Indeed the first respondent has persistently raised a defence that,
ironically, serves to illustrate precisely why resale price maintenance retains its pariah
status even in the midst of a general reconsideration of the impact of vertical
arrangements. We refer to the first respondent’s insistence that its objective in setting
minimum resale prices was to prevent the ‘commoditisation’ or, as it sometimes terms it,
the ‘prostitution’, of its product.97
175. The first respondent insists – and we have no reason to dispute this claim – that
considerable resources have been devoted to establishing the Ferodo brand and that
the maintenance of the brand’s distinctive reputation would be undermined were its
distributors to compete for their market share by engaging in price competition. In other
words, a certain cachet, a signal of quality, attaches to the brand and consumers
purchase it for this reason. The superior reputation of the brand may not only support
sales volumes of Ferodo products but it may allow a premium on the price of the
product and hence the producer’s margins relative to that of other braking products. A
drop in price would distort the signal of superior quality that the manufacturers wish to
transmit to the market. The value of the brand, were it to enter price competition, would
be reduced to the level of products that do not enjoy its reputation and it would
henceforth be condemned to compete on price alone thus impacting negatively on the
margins to be earned from the product in question.
176. We understand the first respondent’s concern. It is perfectly legitimate to utilize
176. We understand the first respondent’s concern. It is perfectly legitimate to utilize
brand reputation as the core of a strategy aimed at maintaining the price of the product
and the margins earned. Hence many producers strive to maintain the reputation of
p234)
97 See First Respondent’s Affidavit Regarding Administrative Penalty (affidavit of Frederik Johannes Nel) para 24.3
53
their brands, the better to maintain a price level and/or sales volume higher than that of
functionally competitive products. Indeed vertical agreements, which may on the face of
it appear to be restrictive, are often tolerated precisely because they add value to a
particular brand and thus strengthen inter -brand competition. These may include
exclusive distribution arrangements or the specification of certain performance
standards and marketing support in the distribution and sale of the brand.
177. In other words the brand’s reputation must be supported by pro -competitive
means, through, for example, product innovation or by a marketing strategy that adds
value to the brand in question. It would, generally, be perfectly acceptable to insist that
wholesalers adhere to certain standards in the handling of the product and in after -sales
service and support. Strategies of this type, strategies that seek to distinguish the
product or brand in question from competing products or brands, legitimately permit the
maintenance of the price of the product and the margins that attach to it. They, in other
words, legitimately introduce an element of segmentation into the market for, in this
instance, braking products, with the prospect that the brand enjoys something akin to a
temporary monopoly in the segment that its marketing strategy or product development
has created for itself.
178. However, the objective of maintaining the reputation of a brand cannot be
legitimately pursued through a system of artificial price supports effected through the
agency of an agreement between, as in this instance, the producer and the wholesaler.
Indeed a large reason for anti -trust’s aversion to price supports of this nature is
precisely that it constitutes an alternative to other pro -competitive strategies aimed at
distinguishing the product or brand from its competition. However, resale price
maintenance is the path chosen by the first respondents and it is for this reason that the
maintenance is the path chosen by the first respondents and it is for this reason that the
practice has been found to be in contravention of Section 5(2) of the Act. This, as we
have repeated ad nauseam, amounts to nothing more or less than price fixing and, as
such, is a contravention of considerably gravity. That, as the first respondent insists, it
is intended to maintain the value of brand, does not excuse the practice – on the
contrary it clearly reveals its anti-competitive core.
54
179. So much for the nature and gravity of the contravention – it is a specie of price
fixing and, as clearly indicated by its treatment in the Act, a particularly grave
contravention. What of its duration?
180. The first respondent – and, it appears, the Commission – have taken the view
that the contravention has endured for a short time only. 98 The first respondent points
out that the period for which the complainant’s discount rate was cut lasted for a matter
of weeks. The first respondent points out further that we have acknowledged in the
reasons for our decision that there was no intention that the reduction in the
complainant’s discount should be of a lengthy duration, that it was instituted merely to
bring the complainant back into line and that once this objective had been achieved by
the complainant raising its price – or, what is the same thing, reducing the discount - to
its customers that it, the first respondent, would be willing to restore the discount to the
complainant. However, this argument misconstrues the nature of the contravention in
question.
181. The first respondent’s contravention does not reside in the reduction of the
discount available to the complainant. The cutting of the discount was merely the
sanction utilized to compel the complainant to restore the fixed price. The contravention
resided rather in the fixing of the resale price.
182. Unfortunately evidence has not been led that explicitly establishes the length of
time for which the price fix had been in existence, nor, indeed, whether in the wake of
the imposition of the sanction, the fixed price has simply been restored and continues to
prevail. Indeed had persuasive evidence to this effect been led, the Commission may
well have been able to sustain its initial request for interdictory relief.
98 Indeed the Commission formally concedes that the duration of the contravention is ‘short, being under a year’.
(Transcript p15)
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183. We do know for certain that from the time that the complainant entered the
market it had expected that, given the volumes that it expected to achieve, and that it
indeed very quickly succeeded in achieving, it would receive a 47,5% discount off the
first respondent’s list price and that it would on -sell the product at a discount of 35% off
the manufacturers list price. So strong was this convention, that the complainant, and,
it has been established, a number of the other large traders in Ferodo products,
immediately reacted to Midas’ decision to embark on a price war, to violate, in other
words, the established pricing convention.
184. Indeed, the strength of the convention, or, what amounts to the same thing, the
certainty of retribution, for a time successfully constrained Midas’ competitors from
reducing their own prices in response to Midas’ initiation of the price war. In other
words, they allowed Midas to take custom away from them because they firmly, and
correctly, believed that Midas was breaking the well -established rules of the game and
so their initial response was in the form of a plea to Federal Mogul reinstate the rules.
While this strongly suggests that the price fix had been in operation for some
considerable time, long enough to have become an established practice in the market in
question, it probably does not constitute evidence that enables us to establish
conclusively that the duration of the contravention extends beyond the period from
which the complainant had entered the market.
185. Indeed, the first respondent insists that, not only do we not know the duration of
the price fix, but, that the only evidence of a contravention on the part of the first
respondent is the evidence relating to the application of a sanction – the cut in the
discount. There is, argue the first respondents, no evidence that they fixed the price
but merely that they applied a sanction to a party that failed to apply the agreed
but merely that they applied a sanction to a party that failed to apply the agreed
price. In Nel’s words, ‘ no case was made out or evidence led at the hearing to the
effect that FM was responsible in any way for setting this price convention.’
186. However this argument is thoroughly unpersuasive. Federal Mogul applied a
sanction in order to compel those trading in Ferodo products to adhere to a pricing
56
convention that applied in respect of those products. Who else, would they have us
believe, established this convention if not the brand owners themselves? It may well be
that the convention was established and policed in collaboration with other brake
producers, that, in other words, the convention was a form of horizontal price fix. This
we do not know. However, we do know that Federal Mogul applied the sanction and it
makes no sense whatsoever that they applied the sanction in support of a convention
imposed upon them from elsewhere.
187. We know, too, with certainty that the contravention – the resale price fix – applied
to all Ferodo braking products. The Commission would have been well advised to
investigate the relationship between the prices of Ferodo braking products and those of
other braking products. It may then have established that Ferodo products - a powerful
presence in the market – played the role of a price leader. Had this been established
the extent of the contravention would have been very far -reaching indeed. On the
present evidence, however, we are only entitled to conclude that the contravention fixed
the price of Ferodo products, a leading braking products brand with a significant market
share. We do not know the extent to which this price fix influenced the price of braking
products generally. We return to this point later.
Any loss or damage suffered as a result of the contravention
188. Both the Commission and the first respondent have similarly misconstrued this
issue. The Commission, in its assessment of the damage, has sought to establish that
the first respondent’s contravention resulted in the complainant’s demise. The first
respondent, for its part, insists that it was the complainant’s tardy payment record and,
in particular, the level of debt that it assumed in consequence of its final purchase order
from the first respondent, that caused it to exceed its credit limit. It was this that gave
from the first respondent, that caused it to exceed its credit limit. It was this that gave
rise to the first respondent’s decision to put the complainant on stop supply and that,
ultimately, forced the latter to exit the market. Accordingly, the first respondent insists
that the discount cut, which, as we have pointed out, was of short duration, caused little
loss to the first respondent. Damage to the first respondent was induced by the
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cessation of supplies and that this in turn was caused by the complainant’s payment
record.
189. It is reasonably clear that, in administering the discount cut, the intention of the
first respondent was to discipline the complainant and to secure his adherence to the
pricing convention not necessarily to drive him from the market. The first respondent’s
decision to cease supplying its products to the complainant was clearly precipitated by
the latter’s final purchase order and the key role played by that purchase in raising the
complainant’s level of indebtedness to the first respondent. On the other hand, it is
equally clear that the reduction in the complainant’s discount rate was a key factor in a
chain of events that led to its demise, even if we accept that the factor that ultimately
precipitated the complainant’s demise was caused by his level of debt rather than by the
discount cut per se.
190. However, it is, in our view, not necessary to determine the role played by either
of these factors, namely the discount cut and the complainant’s payment record, in the
demise of the complainant. These factors may well assume central significance should
the complainant elect to pursue a claim for private damages. However, from our
perspective, the damage to the complainant is only significant to the extent that the
weakening or the exit of a robust competitor does undoubtedly diminish the level of
competition in the market for braking products.
191. Our task is rather to assess the damage to competition, the ‘public’ damage, as it
were, wrought by the practice of resale price maintenance. There is no simple way of
measuring this. Firmly established economic theory tells us that a range of investment
decisions are distorted – and a misallocation of economic resources occurs – in
consequence of producers fixing a supra -competitive price for their products. In this
instance the supra -competitive price fix will secure a supra -competitive return to
instance the supra -competitive price fix will secure a supra -competitive return to
investment in braking products and, as a result, the direction of scarce investment
resources to that activity when the competitive margins do not warrant that level of
investment. This excessive investment in braking products will occur at the expense of
58
investment in more deserving projects, ‘more deserving’ because on a level playing
field, a playing field that is not skewed by an illegal price fix, they would secure a
relatively higher rate of return than would investment in braking products.
192. On the other hand, in this particular instance, the price fix may well direct capital
away from investment in innovation in braking products. We have noted the first
respondent’s proclaimed desire to maintain the reputation of its brand. It could do this
through product innovation or through investing in superior service to its
customers. However, it has chosen to protect its brand’s reputation by placing a floor
beneath its price thus potentially resulting in a sub -optimal level of investment in
improving the quality of its product.
193. Expressed in the clinical language of micro -economic theory this may be
construed as a peculiarly ‘victimless crime’, a ‘mere’ statutory transgression that, while
giving offence to economic theorists, visits no harm on flesh -and-blood
citizens. However, this is not correct. It is those who have paid more for Ferodo
products than they would otherwise have paid who are immediately damaged. And,
equally, it is those who are effectively forced to accept an inferior product, a product that
has not had the benefit of continuing investment in quality, that are damaged by the
contravention.
194. Bear in mind, also, that by the first respondent’s own admission – a fact
unfortunately not verified by the Commission – Ferodo has a market share of slightly
below 30%. We note again that should the first respondent’s price fix have acted to
support prices of competing braking products, then the extent of damage increases
significantly. The first respondent will undoubtedly protest that there is no evidence of
price leadership on its part. However, it requires no great insight to predict that a
product, which the first respondent itself proclaims to be a leading brand and which has
product, which the first respondent itself proclaims to be a leading brand and which has
at least a 28% market share, will influence the price of competing products. Certainly, it
is perfectly reasonable to assume that, had the distributors of Ferodo products been
59
permitted to engage in a ‘price war’, the inevitable response of producers and vendors
of competing braking product would have been to decrease their prices as well.
195. In our view, the probability is that the likely damage wrought by the first
respondent’s practice of resale price maintenance is considerable and that this damage
significantly compounds the harm caused by the exit of a robust competitor from the
market for the sale of braking products.
The behaviour of the first respondent
196. The aspect of the first respondent’s behaviour that is most pertinent to the
calculation of the administrative penalty undoubtedly centers upon the level of
co-operation with the competition authorities. This is fully elaborated below.
197. The first respondent insists that the company should not be prejudiced by the
behaviour of two employees – Moll and Taylor – who were most directly responsible for
the offensive conduct. These employees did not represent the ‘controlling mind’ of the
company. Nel, on the other hand, did control the company and, he avers, has never
done anything to associate himself with the conduct of his two senior employees.99
198. However, the Commission points out that Nel has not, to this day, repudiated
Moll and Taylor. To the contrary he explicitly endorsed the incriminating letter drafted by
Moll. Also recall that Taylor was dispatched by Nel to communicate the news of the
discount cut to Erasmus in the wake of a meeting between Erasmus, Taylor and
representatives of Midas. It seems most probable that it is at this meeting where the
disciplinary strategy was devised.
199. Note also that Moll and Taylor are not merely overenthusiastic sales
representatives, anxious to meet their targets and, in the process, transgressing the
boundaries of company policy and the law. They are senior executives of the first
99 See First Respondent’s Affidavit regarding administrative penalty (affidavit of Frederik Johannes Nel), para 25.
60
respondent reporting directly to Nel, the Managing Director. We are satisfied that the
first respondent’s ‘controlling mind’ was thoroughly engaged with this contravention.
The level of profit derived from the contravention
200. Similar considerations apply to the calculus of profit derived from contravention,
as to the quantum of harm or damage generated. The first respondent has again
attempted to link the profit derived from the contravention to the sanction, to the
discount cut. They then insist that they derived no profit from their action, that if any
profit accrued from this then it did so in Midas’ favour rather than Federal
Mogul’s. Again this misconstrues the contravention.
201. Federal Mogul has profited – for all we know, still profits – from a distribution
scheme which maintained prices at a supra -competitive level and which reduced the
requirement to invest in building the quality and reputation of the Ferodo brand as part
of a strategy to maintain margins. We are obviously not able to put a precise figure on
this. However, we are able to observe that its 28% market share coupled with the
importance that the first respondent itself ascribes to brand development suggests that
the profits derived from the anti-competitive conduct – measured as the sum of the price
premium and the reduced investment in brand and product development - are
significant.
202. The Commission avers – and we agree – that ‘the benefits may not have been in
rands and cents but rather in the relationship with Midas in setting the tone for the
relationships with the independents’. 100 That is to say, the first respondent’s objective
in practicing resale price maintenance and in punishing transgressors was not directed
at the prospect of short -term pecuniary gain, but rather at keeping an entire
anti-competitive pricing scheme in place.
The market circumstances in which the contravention took place
100 Transcript p13
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203. We have already ventilated our concerns at the market circumstances in which
the contravention took place. We repeat: on the first respondent’s own admission,
Ferodo is a major brand with a significant market share. It stands to reason that Ferodo
is in a powerful position to influence the pricing and other competitive behaviour of its
competitors. If it introduced a scheme that ensured that its prices were maintained and
that reduced the necessity for capital investment, we can reasonably hypothesize that
this decision fed into the decisions of competitors. By contrast a luxury good producer
with a relatively small market share who wished to maintain the cachet surrounding his
product, may fix resale prices and, as such, would contravene the same provision of the
Act, but the market circumstances would serve to mitigate the consequences of the
contravention. In these market circumstances, the converse is true – the impact of the
contravention is exacerbated.
204. The first respondent has painted a picture of a highly volatile market, one in
which “ irrespective of dealers’ complaints, FM had a personal interest in preventing
price wars of this type”.101 As already noted it had a general interest in ensuring that its
product was not ‘commoditised’ or ‘prostituted’. Competitors were taking advantage of
the first respondents’ preoccupation with its attempts to restructure its corporate and
distribution structure and it did not want additionally to be burdened with the trauma of
its distributors engaging in a price war. It is, however, not at all clear why these
conditions or ‘market circumstances’ should mitigate the anti -competitive conduct of the
first respondent and thus the scale of the administrative penalty. These activities are
part of the process of doing business, which does not afford the luxury of a ‘time -out’
while one or other market participant prepares itself for robust competition in the
while one or other market participant prepares itself for robust competition in the
future. Indeed this vulnerable moment is precisely the moment when an able
competitor would attack. It is certainly not the time to allow a competitor the shield of
an anti-competitive restraint.
101 See First Respondent’s Affidavit Regarding Administrative Penalty (affidavit of Frederik Johannes Nel), para 24
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The degree to which the first respondent has co -operated with the Competition
Commission and the Competition Tribunal
205. The first respondent’s conduct in this matter leaves much to be desired.
206. While the first respondent is correct in pointing out that the Commission’ s initial
query received a prompt response, this appears increasingly to either reflect ignorance
or arrogance, rather than a willingness to co -operate. In the event Moll, a senior
executive of the first respondent, wrote a letter so incriminating that one must either
believe that he was entirely ignorant of widely accepted rules governing business
conduct or that he arrogantly believed his company to be beyond the reach of the
fledgling competition authority.
207. However, even if we were to accept that Moll’s prompt reaction reflected an
initially co-operative response from the parties, any semblance of co -operation ended
when it became clear that the Commission was not going to be fobbed off by Moll’s
response. Indeed it was immediately replaced by the most brazen
obstructionism. This is particularly manifest in the problems encountered by the
Commission in its efforts to identify the correct first respondent in this matter. Note the
following chronology:
· Pee Dee Wholesalers lodged its complaint against Federal Mogul Aftermarket
Southern Africa (Pty) Ltd (“Federal Mogul Aftermarket SA”) early in November 1999.
· On 19 November 1999 Federal Mogul Aftermarket SA replied to a letter of the
Competition Commission and informed the Commission that the complainant “ has been
dealing with Federal Mogul Friction Products (Pty) Ltd. Federal -Mogul Aftermarket
Southern Africa (Pty) Ltd is the company within the Federal -Mogul group that is in the
process of taking over the marketing and sales of the friction products.”
· The Commission proceeded with its investigation and on 7 February 2001 filed a
complaint referral against Federal Mogul Aftermarket SA with the Tribunal.
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· However, on 25 April 2001 Federal Mogul Aftermarket SA’s attorneys informed the
Commission that its client was not the entity with which the complainant had been
dealing. According to them the complainant had dealt with T&N Friction Products (Pty)
Ltd trading as Ferodo, a distributor of Ferodo’s products and advised the Commission to
withdraw the complaint against its client. Based on this the Commission instructed its
attorneys to investigate the information furnished with the Registrar of Companies. It
was found that Federal -Mogul Friction Products had bought T&N Friction Products in
1998.
· Although evidence submitted to the Commission indicated that Federal Mogul
Aftermarket SA was the correct party cited as the respondent the Commission decided
to apply to the Tribunal for the joinder of the 2nd – 4th Respondents.102 Subsequent to
hearing this application, as well as a counter challenge brought by the 2nd to
4th respondents that the Tribunal is not competent to order the joinder of respondents in
such proceedings, the Tribunal ordered that they be joined. Nel acknowledged at the
Hearing held on 27 August 2002, that he was aware at the time when his attorneys
wrote the 25 April letter that, although T&N Friction Products held Pee Dee’s account at
the time, Federal Mogul Aftermarket SA, in fact he himself, was since June 1999
responsible for any decisions concerning the account. The hearing of the complaint
referral proceeded on the basis that only the first respondent is the appropriate
respondent in the proceedings.
· Subsequent to the joinder hearing the Commission filed an amended complaint
referral. The Respondents were late in filing their amended answering affidavit stating
that the Commission’s amended complaint referral was misfiled. As a result the
Respondents’ attorneys were not aware of its existence and had answered the wrong
complaint referral when they eventually got around to doing it late in December 2001,
complaint referral when they eventually got around to doing it late in December 2001,
instead of the end of November 2001. The amended answering affidavits were only filed
by the end of January 2002.
208. While we reluctantly concede that this type of point -taking obstructionism is
standard fare in the practice of litigation, it clearly cannot be mistaken for co -operation.
102 Federal Mogul Friction Products (Pty) Ltd, T & N Holdings Ltd
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The Commission was obliged to spend considerable time and resources to identify the
proper ‘respondent’ a fact that later was conceded when it became clear to the first
respondent that the Commission was determined to pursue the complaint and was not
going to be fobbed off by an evasive strategy.
Conclusion and Finding
209. We have considered the factors set out in Section 59(3) of the Act. We are, in
our view, dealing with a grave contravention of the Act. On the present evidence we
know that the contravention had endured from the time that Erasmus entered the
market and, although it may not be unreasonable to infer a longer duration, we give the
first respondent the benefit of any residue of doubt and so conclude that the duration of
the contravention was short. The first respondent’s share of the market and the leading
character of its brand lead us to conclude that the contravention was of a far -reaching
extent. It is not possible to calculate precisely, the loss of damage suffered as a result
of the contravention, nor the level of profit, which accrued to the first
respondent. However, the nature of the product and the first respondent’s position in
the market enables us to conclude with confidence that the damage wrought to the
competitive fabric of the market was significant. While the first respondent has not
previously been found in contravention of the Act, it has not co -operated with the
Commission in its investigation – indeed it has resorted to the expedient of legal
technicality and plain deceit to throw the investigators off course.
210. Given that we have found that the threshold for the maximum penalty is the
turnover in Ferodo products and that is set at [confidential], we find that three million
Rand (R 3 000 000.00) is an appropriate penalty having regard to all the factors set in
section 59(3).
211. We make the following order:
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1) The first respondent is ordered to pay an administrative penalty of three
million Rand (R 3 000 000.00).
2) The penalty must be paid to the Commission within 21 business days of the
date of this order.
Date 21 August 2003
D. Lewis
Concurring: M.T.K. Moerane and N. Manoim