COMPETITION TRIBUNAL OF SOUTH AFRICA
(HELD IN PRETORIA)
Case No: 103/CR/Sep08
In the matter between:
LOUNGEFOAM (PTY) LTD First Applicant
VITAFOAM (PTY) LTD Second Applicant
and
THE COMPETITION COMMISSION OF SOUTH AFRICA Respondent
In re:
THE COMPETITION COMMISSION OF SOUTH AFRICA Applicant
and
LOUNGEFOAM (PTY) LTD First Respondent
VITAFOAM (PTY) LTD Second Respondent
FELTEX AUTOMOTIVE (PTY) LTD Third Respondent
STEINHOFF INTERNATIONAL HOLDINGS LTD Fourth Respondent
KAP INTERNATIONAL HOLDINGS LTD Fifth Respondent
GOMMAGOMMA (PTY) LTD Sixth respondent
1
Panel : N Manoim (Presiding Member), M Holden (Tribunal
Member) and N Theron (Tribunal Member)
Heard on : 26 November 2009
Order issued on : 26 November 2009
Reasons issued on : 4 December 2009
REASONS FOR WITHDRAWAL OF SEPARATION ORDER
[1] On 25 September 2008, the Competition Commission referred a complaint against the
respondents to the Tribunal.
[2] In its referral the Commission identifies four separate alleged contraventions of section
4(1) of the Competition Act, (the ‘Act’).In brief the Commission alleges that:
1. Loungefoam (Pty) Ltd (the first respondent “Loungefoam) and Vitafoam (Pty) Ltd
(the second respondent “Vitafoam”) and or Gomma Gomma (Pty) Ltd (the sixth
respondent “Gomma Gomma”) agreed to fix the selling price of foam supplied to
the furniture industry ( paragraphs 29.23 of the complaint referral); 1
2. Loungefoam and Vitafoam and/or Gomma Gomma agreed to jointly purchase
from certain suppliers ( paragraphs 29.56 of the complaint referral);
3. Loungefoam and Vitafoam and/or Gomma Gomma agreed not to compete for
one another’s customers (paragraphs 29.88 of the complaint referral); and
1 The second respondent appears not to be a separate corporate entity, but a division of the sixth
respondent, Gomma Gomma, but for convenience we repeat the language of the referral.
2
4. Loungefoam and Vitafoam and/or Gomma Gomma agreed to divide markets
between themselves and another firm Feltex Holdings Limited (the 3 rd respondent
“Feltex”) by allocating customers, territories and specific types of goods or
services (paragraph 30 of the complaint referral).
[3] Vitafoam and/or Gomma Gomma and Loungefoam have pleaded a common defence to
the first three counts. 2 They allege that they are all controlled by the fourth respondent,
Steinhoff International Holdings Ltd (“Steinhoff”), and hence for the purposes of section
4(5) of the Act, must be regarded as constituting a single economic entity. 3
[4] Because the issues were raised in the pleadings in this way, the first and second
respondents brought an application before the Tribunal on 21 July 2009, for an order to
separate the single economic entity issue from the remaining issues in the case, and to
require us to rule on this aspect first. The Commission did not oppose the application.
[5] Essentially the rationale for the separation was that if this defence was good then it would
end the case against the Steinhoff respondents in respect of the first three counts.
[6] If the defence was not good then the hearing would proceed at a later date on the
remaining issues against all the respondents. At the time the order was made the utility of
such an approach was persuasive. It also had the advantage of not requiring the third
respondent, Feltex, to be in attendance to deal with an aspect of the case in which they
apparently had no interest.
2 For convenience, and not because we are preempting a live issue in this case, we will refer to these
respondents from now on as the ‘Steinhoff respondents’ since they are represented by the same legal
team and associate themselves with the same defence.
3 In terms of section 4(5) of the Act, firms that form the constituent parts of a single economic entity,
cannot be held liable for contraventions of section 4(1) of the Act for concerted practices or agreements
between themselves.
3
[7] We set out the terms of this order (the “July order”) below:
“The following issues are separated from the remaining issues in these proceedings:
a. WHETHER the acquisition of control by Steinhoff of Vitafoam was lawful
having regard to item (4A) of schedule 3 of the Competition Act 89 of 1998
(“the Act”), and hence, Loungefoam and Vitafoam are not in contravention of
the Act because they are not competitors; or
b. WHETHER in the alternative, and in any event, since Steinhoff, as a matter
of fact, acquired control of Vitafoam in April 1999 and has exercised control
over Loungefoam and Vitafoam since then, Loungefoam and Vitafoam have
merged and Section 4 of the Act is therefore not of application to their
conduct;
and
c. WHETHER in April 1999, Steinhoff acquired sole control of the Cornick
Group, of which Vitafoam was a division of a subsidiary, Afcol Manufacturing
(Pty) Ltd (which was subsequently renamed Gommagomma (Pty) Ltd) under
the now repealed Maintenance and Promotion of Competition Act, 1979 and
accordingly, Vitafoam has remained a business division of Steinhoff, or a
division of a wholly owned subsidiary of Steinhoff, since April 1999 and,
accordingly, has at all material times been under the control of Steinhoff;
and
d. WHETHER Vitafoam and Loungefoam are controlled by Steinhoff and form
part of the Steinhoff Group, and accordingly, are constituent firms within a
single economic entity as envisaged in section 4(5)(b) of the Competition Act
89 of 1998 (“the Act”).
(henceforth, “the separated issues”)
4
The separated issues are to be heard prior to the remaining issues in the referral, and
are to be determined by this Tribunal before proceeding to hear the remaining issues in
the referral.”
[8] Witness statements were filed in October 2009 and the hearing on the separated issues
was set down to be heard at the end of November, for four days.
[9] The terms of the July order thus confine the evidence to a narrow remit. It is concerned
solely with the issue of control and does not permit of evidence that might concern the
alleged collusion itself in respect of the first three counts or any evidence that may pertain
to the relationship of the Steinhoff respondents to Feltex.
[10] This narrow demarcation has regrettably led to a dispute between the Commission and
the Steinhoff respondents. In brief the Commission no longer favours hearing the case in
terms of the narrow remit of the July order. Instead it seeks to lead evidence to prosecute
this case in much wider terms, so that the issue of whether the firms constitute a single
economic entity cannot be properly evaluated, without reference to a much larger factual
framework.
[11] The Commission in its reply in the main matter links the issue of control with the issue of
collusion. This emerges in its reply in paragraphs 12.12, where in dealing with the
respondents answering affidavit on the relationship between the Steinhoff respondents
the Commission states:
“12.1 The Commission denies that Steinhoff has exercised control over
Loungefoam since 1997.
12.2 The question of control has been raised conveniently to try to avoid a
5
contravention of section 4(1)(b) as alleged by the Commission” 4
[12] But the Commission goes further than this and alleges that the probable cause of the co
ordinated conduct between the Steinhoff firms is attributable to a wider association and
cooperation between the KAP Group, the fifth respondent and owner of Feltex and the
Steinhoff Group. 5
[13] In the Commission’s replying affidavit this is expressed in this way:
“12.3 The long association between Mr Daun and Steinhoff, as well as the
likely
existence of cross directorships, is the probable explanation for the co
ordinated conduct (as opposed to competition) among the first, second
and third respondents.” 6
[14] Admittedly, in the extract quoted, the Commission alleges the relationship to be between
a Mr Daun, rather than KAP or Feltex, and Steinhoff. However elsewhere in the record it
appears that it will lead evidence connecting Daun to KAP and Feltex.
[15] On the Commission’s version, Daun has an interest in KAP, the 5 th respondent, which in
turn controls Feltex. 7 Thus allegations which may prove relevant to the other non
4 See record page 160.
5 See transcript of proceedings, page 23.
6 See record page 161.
7 In the Commission’s statement of conduct which is annexed to its complaint referral the following is
stated: “Feltex is a subsidiary of Feltex Holdings (Pty)Limited and is 100% owned by KAP International
Holdings Limited ( “KAP”). Claas Daun through Daun & Cie is a majority shareholder as he owns 37%
shares in KAP, Steinhoff Africa Holdings owns 24% of KAP shares. (See record page 24).
See also the witness statement of Nick Hammersley who states “ This probably arose because of the
wider cooperation between Daun, a shareholder of KAP International which owned Feltex, and Mr
Markus Joost,the CEO of Steinhoff International which owned Vitafoam. Daun also had a shareholding in
Steinhoff”. (See paragraph 42,record page 227). See also the witness statement of Troy Carelse who
states that “The automotive business went to Daun under the fifth respondent (KAP)” ( See paragraph 24,
record page 202).
6
Steinhoff respondents (Feltex and KAP) are being levelled in the course of the case
against the Steinhoff respondents.
[16] Indeed two of the Commission’s witness statements, which were filed after we made our
July order, make these allegations. 8
[17] Not surprisingly this has led to the present dispute between the parties. The Steinhoff
respondents contend that the statements traverse issues that go far wider than the terms
of the July order and that we should, as a preliminary question, hear argument on this
point as to what part of the testimony was permissible in terms of the separation, and
make a ruling. The Commission contends that it cannot separate the issue of a single
economic entity from the wider issues.
[18] Thus we had precisely the kind of dispute over proper demarcation that undermined the
original logic of separation. No longer, it appeared, at least on the Commission’s version,
could a discrete set of facts be conveniently isolated for prior separate adjudication.
[19] As we got counsel to address us on this issue it emerged that there were three options for
proceeding with this matter. We could proceed with the case in terms of the “single
economic entity issues” separation, as per the July order, ( the’ first option’) a second
option for a widened form of separation that would dispose of the first three counts, and a
third, that the case be heard as a single hearing in respect of all the counts, as originally
conceived.
Mr Unterhalter for the Steinhoff respondents, criticized Mr Maenetje, who appeared for the Commission,
for referring to the relationship as being between Mr Daun and Steinhoff, because the former is an
individual not a company. However the Commission is not alone in referring to individuals who hold
interests in the firms concerned. The Steinhoff respondents have used similar language when referring to
their shareholding structure.
According to the Steinhoff respondents a firm called Geros Bedding Pty Ltd has a 47,5 % shareholding
and they refer to this company as being “ ultimately controlled by Claus Daun through a number of firms
including Geros.. GmbH….” . (See answering affidavit, paragraph 47, record page 1089). Later they refer
to the “ interest of Mr Claus Daun “( see paragraph 50 record page 109).
8 See footnote 8 above.
7
[20] Little more need be said of the first option as by now this approach no longer had any
enthusiastic adherents amongst the parties. 9
[21] The Steinhoff respondents had now accepted that this separation was too narrow to be of
much utility, but argued instead for the second option – which still meant retaining a
separation of issues, but this time a separation to cover a wider canvas that is
separating the first three claims that related to the Steinhoff respondents, from the fourth
claim that related to the market division issues between the Steinhoff respondents and
Feltex. In essence this meant that we would still have to decide on the single economic
entity defence, but the difference between this approach and option one, would be that if
the defence was unsuccessful, we would then, in the same hearing, consider the merits,
including any residual defences. 10
[22] The Commission was as opposed to proceeding with the second option as it was to the
first, as it foresaw the same problems arising. The Commission would want to lead its
wider case about the relationship between Steinhoff and Feltex’s alleged controllers and
this would be the subject of the same objections from the Steinhoff respondents.
[23] The matter was further complicated by the fact that a dispute exists between the Steinhoff
respondents and the Commission as to whether the ‘paragraph 12 issues’ referred to
above, have been properly pleaded. According to the Steinhoff respondents they were
not raised in the referral, but only by way of reply.
[24] Thus on the Steinhoff respondents’ version they have no case to meet on the paragraph
12 issues, hence the separation they propose is feasible and of great utility.
9 Mr Unterhalter for the Steinhoff respondents stated of the July separation “It may not be on reflection as
good as perhaps as it could have been…” (See transcript page 20).Mr Maenetje, for the Commission,
referred to the fact that the “.. experiment with separation had not worked.” (Transcript page 27)
10 In respect of the one claim at least, the Steinhoff respondents on the pleadings have additional
defences should the single economic entity defence not prevail.
8
[25] The Commission does not concede the argument that the matter has not been properly
pleaded. The most the Commission will concede is that the section 12 issues may have
been overlooked at the time they agreed to the separation. However, Mr Maenetje
indicated that the Commission was nevertheless determined to make its case on these
issues and hence its advocacy of the third option – that we proceed to hear the case as a
whole in a single hearing. 11
[26] We do not need to take a view on the correctness of the respective arguments on the
pleadings. Our obligation is to see to the good order of proceedings. The utility of
separating, in the name of expedition, is rendered futile if the parties remain in dispute as
to where the line gets drawn. What is clear is that there is no consensus on whether the
matter is capable of convenient or sensible separation. The Steinhoff respondents’
advocacy of option two only makes practical sense if one takes their view on the
limitations of the pleaded case. With this view accepted, the clean slice is possible.
However the Commission has a different view on the nature of the case. On this view the
clean slice is impossible because one cannot neatly separate the factual issues through
which one seeks to cut.
[27] If we grant the second option proposed by the Steinhoff respondents, we would
effectively be ruling that the Commission could not bring its case in the manner it wishes
to. That would be a far reaching decision to make at this stage before the hearing has
even commenced. There are two reasons for not doing so. In the first place the
Commission is dominus litis in this matter and must be given a fair opportunity to present
the case without prematurely confining it. In the second place, as the Competition Appeal
the case without prematurely confining it. In the second place, as the Competition Appeal
Court has recognised, pleadings are not as central to Tribunal proceedings as they are to
civil courts. As the Court explained in the Senwes matter:
“[39] These sections indicate that the purpose of the Act is to ensure that the
Tribunal would not be constrained by the law relating to pleadings in the
same way as would a civil court during a trial. The Tribunal is entitled to
11 See transcript, page 24
9
conduct its hearing ‘as expeditiously as possible’ and ‘in accordance with
the principles of natural justice’. Thus, it is empowered, if it so decides,
to conduct its hearings in an informal manner or choose an inquisitorial
model.
[40] The Act does not view the Tribunal as functioning in the same way as
would an ordinary court, inflexibly constrained by an adversarial model of
adjudication. While a party, against whom a complaint has been lodged,
is clearly entitled to sufficient information to determine the nature of the
prohibited practice, in terms of which the complaint has been lodged, the
enquiry as to the requisite level of understanding should not be sourced
in principles which apply to the nature of adversarial proceedings
employed in a civil case.” 12
[28] On the other hand, proceeding with the case as a whole does not preclude the
respondents from objecting to the leading of evidence they consider not part of the case
against them. Nor, even if they succeed on this point, would the remedy inevitably be to
deny the Commission the right to lead this evidence. Other remedies could be to require
an amendment and to allow the respondents to respond accordingly.
[29] Nor does adopting the second approach mean that we could have continued with the
proceedings immediately. The Steinhoff respondents indicated that if we favoured this
option they would still want to amplify their witness statements to deal with the wider
issues. Thus the matter would still need to be postponed to later dates when everyone
was available. Thus the second option offers no advantage over the third in terms of
avoiding a postponement of the present proceedings.
12 See Senwes Limited v Competition Commission of South Africa (CAC) Case number 87/CAC/FEB09 at
paragraphs 3940(Unreported dated 13 November 2009.
10
[30] The advantage of the Commission’s third option is convenience. Having a single hearing
obviates the need to determine demarcation disputes as to whether evidence led should
form part of the separated prior hearing or the subsequent hearing.
[31] It also obviates the need to run two proceedings and the possible recall of certain
witnesses who might have to give evidence a second time. It is also not convenient for
the Tribunal to hear witnesses limited to confined issues (for instance only the first three
counts) when the witnesses may be able to testify on all four issues in the case.
[32] There is also the position of Feltex to consider. Feltex was not an applicant in the
separation application it was brought only in the names of the first and second
respondents.13 In the application it is simply recorded by the first and second
respondents that Feltex had no objection to the separation, because it would be able to
avoid the costs of having a hearing concerning all the issues. 14 As we understood it, this
was because of a common perception at that time that Feltex would not be implicated in
evidence concerning the first three counts.
[33] This consideration is no longer common cause; on the present conception of the case by
the Commission, Feltex might well have an interest in the evidence led in respect of the
first three counts. 15 If Feltex’s interests are impacted upon in a prior hearing to which it
had expectations of not needing to be present, this would be unfair to it. Nor is it fair to
those witnesses if the remedy for this unfairness is for them to give the same testimony
again at a subsequent proceeding.
[34] The case law on separation of issues in civil proceedings in the High Court is instructive
on the proper approach. According to Harms “if the evidence will overlap it may be
inconvenient to grant a separation.” 16
13 The separation application was filed on3rd July 2009. The Commission did not file any affidavit.
14 See founding affidavit of Heather Irvine, separation application, paragraph 9
15 See transcript, page 28.
16 See Harms, “ Civil Procedure in the High Court ”, paragraph B33.11
11
[35] The Supreme Court of Appeal in the Ansac case, which dealt with a prosecution in terms
of section 4(1) of the Act, cautioned that:” the present proceedings underline the need for
care to be taken when isolating issues and dealing with them separately from the
remaining issues” 17
[36] They quoted from an earlier decision of that court in Denel (Pty) Ltd v Vorster , where in
discussing separation applications, the following was said of the application of High Court
rule 33(4):
“Rule 33(4) ...is aimed at facilitating the convenient and expeditious disposal of
litigation. It should not always be assumed that that result is always achieved by
separating issues. In many cases, once properly considered, the issues will be
found to be inextricably linked even though at first sight they might appear to be
discrete. And even where the issues are discrete the expeditious disposal of the
litigation is often best served by ventilating all the issues at one hearing
particularly where there is more than one issue that might be readily dispositive
of the matter. It is only after careful thought has been given to the anticipated
course of the litigation as a whole that it will be possible properly to determine
whether it is convenient to try an issue separately.” 18
[37] In hindsight, careful thought was not given to the separation issue. It was the subject of
an unopposed application brought by the Steinhoff respondents in which the following
was said in the founding affidavit:
“Only limited evidence is necessary for the Tribunal to determine these
separated issues”
17 See American Natural Soda Ash Corp v Commission of SA [2005] 3 All SA 1 (SCA), 2005 6 SA 158
paragraph 64.
18 2004 4 SA 481 (SCA).
12
[38] The possibility of the present dispute was not drawn to the attention of the panel making
the July order either by the applicants for the order or the Commission. Instead, it was
moved unopposed and was presented as an agreed position – separation was
uncomplicated and uncontroversial, premised on expedition. As we have seen this has
not proved to be correct. The seeds of this dispute were already apparent, if not from the
terms of the referral at the very least in the reply of the Commission. We are not
attributing blame to any party in particular for this. We seek only to alert parties,
especially the Commission, in the future to think these issues through more carefully
before agreeing to recommend a separation of issues to us. At the time the application for
separation is moved, the parties are in the best position to determine whether issues are
ripe for separation. The panel hearing the application as an unopposed matter cannot be
expected to divine them. As Harms observes:
“It is crucial therefore that the court be given sufficient information to enable it to
come to a meaningful decision.” 19
[39] For this reason we consider that separating the issues as originally conceived in our July
order would neither be convenient nor lead to orderly proceedings and given the lack of
consensus between the litigating parties over the wisdom of any other form of separation,
the matter must proceed as originally conceived in the referral i.e. we will hear the whole
matter concerning the four counts in a single hearing.
[40] Our order of 21 July 2009 is withdrawn. 20 A prehearing will be arranged to direct the way
the matter proceeds.
________________ 4 December 2009
N Manoim DATE
Tribunal Member
M Holden and N Theron concurring
19 Harms, op cit, paragraph B33.11
20 Neither party has argued that we are not entitled to withdraw our earlier ruling. It is clearly of an
interlocutory nature.
13
Tribunal Researcher: I Selaledi
For the Applicants: D Unterhalter (SC), and M. Wesley, instructed by Deneys Reitz Attorneys
For the Respondent (Commission) : H Maenetje, instructed by the State Attorney
14