Competition Commission South Africa v Foskor (Pty) Ltd (43/CR/Aug10) [2011] ZACT 10; [2011] 1 CPLR 99 (CT) (28 February 2011)

75 Reportability

Competition Law

Brief Summary

Competition Law — Consent Agreement — Allegations of excessive pricing by Foskor (Pty) Ltd for phosphoric acid — The Competition Commission received a complaint alleging that Foskor's pricing contravened section 8(a) of the Competition Act due to excessive pricing and monopolistic practices — Following an investigation, Foskor amended its pricing policy and entered into a Consent Agreement with the Commission — The Tribunal confirmed the settlement agreement, noting Foskor's commitment to refrain from excessive pricing and implement a compliance program, thereby concluding the proceedings without imposing a penalty.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was consent order proceedings before the Competition Tribunal of South Africa in which the Tribunal was asked to confirm a settlement agreement concluded between the Competition Commission of South Africa (the applicant) and Foskor (Pty) Ltd (the respondent). The underlying dispute concerned allegations of excessive pricing in contravention of section 8(a) of the Competition Act 89 of 1998 in relation to the supply of phosphoric acid in South Africa.

The procedural history reflected in the record begins with a complaint lodged with the Commission in December 2007 under Commission case number 2007Dec3382. Following an investigation, the Commission and Foskor concluded a consent agreement during July 2010 in terms of section 49D of the Act, which was to be made an order of the Tribunal in terms of section 58(1)(b). The matter served before the Tribunal under CT case number 43/CR/Aug10, was heard on 26 January 2011, and decided on 28 February 2011.

The Tribunal’s order was confined to confirming the settlement documentation placed before it, namely the settlement agreement (annexure A), an amendment (annexure B), and a further addendum to the consent order (annexure C).

2. Material Facts

The Commission received a complaint in December 2007 alleging that Foskor’s pricing of phosphoric acid in South Africa was excessive, and thus prohibited by section 8(a) of the Act. The complainants were identified as Bio-Minerale (Pty) Ltd, Kemira Phosphates (Pty) Ltd t/a KK Animal Nutrition, N-West Fosfaat CC, and SA Feed Phosphates (Pty) Ltd, described collectively as animal feed producers who relied on phosphoric acid as an input.

The Commission’s investigation recorded that the complainants depended on supply from Foskor and Sasol, and that users such as the complainants had no alternative to phosphoric acid for their production. It further recorded that Foskor was a significant producer and exporter of phosphoric acid from its Richards Bay plant, with most production exported (including substantial exports to India), and the balance sold domestically and into regional markets or used downstream.

In relation to market structure, the Commission recorded that Sasol and Foskor’s combined capacities comprised over 80% of total local production capacity of phosphoric acid and that following a toll manufacturing agreement with Sasol, Foskor effectively became the sole “owner” of that capacity. The tolling arrangement was recorded as having been terminated on 31 March 2008. The Commission contended that the tolling agreement amounted to market division by allocating customers and specific types of goods, but the settlement documentation recorded that Foskor was granted conditional immunity for that cartel conduct and that Sasol settled before referral.

The Commission’s findings (as recorded in the consent agreement for settlement purposes) described Foskor’s pricing policy prior to August 2008 as being based on a formula that included a variable reflecting freight charges normally payable by overseas customers. The investigation recorded that phosphoric acid destined for local sale was priced at the export price plus 75% of the freight rate for shipping to India. The Commission recorded that Foskor could control prices over a sustained period at levels substantially in excess of what it could or ought to have charged to customers dependent on it, and that the price was therefore excessive and detrimental.

The consent agreement recorded that, once informed of the Commission’s concerns, Foskor changed its conduct and pricing policy. From August 2008, Foskor removed the freight charge adjustment from its phosphoric acid prices, and the settlement documentation recorded that local customers benefitted from significantly reduced prices following the removal of freight and interest charges from the pricing formula. The documentation also recorded that Foskor altered its approach to certain fertiliser-related products, including selling bulk consignments of MAP and DAP directly to the retail farming community at wholesale prices after August 2008.

A disputed-versus-undisputed distinction was not developed through adversarial findings in the Tribunal’s order itself. However, the settlement documents included an express admission in the further addendum that Foskor’s pricing prior to August 2008 included a notional transport cost not related to local supply, unilaterally determined by Foskor as 75% of the freight rate to ship to India.

3. Legal Issues

The central legal question before the Tribunal was not a determination on the merits of excessive pricing, but rather whether the Tribunal should confirm the parties’ settlement as a consent order in terms of the Competition Act, based on the agreement concluded under section 49D and presented for confirmation under section 58(1)(b).

To the extent that the settlement included an administrative penalty, the Tribunal was also required to confirm relief contemplated by the Act’s penalty framework, as referenced in the addendum (including section 58(1)(a)(iii) read with sections 59(1)(a), 59(2), and 59(4)). This aspect concerned the application of statutory power to agreed facts and agreed relief, rather than the resolution of factual disputes through evidence.

Overall, the dispute before the Tribunal in this proceeding concerned application of law to an agreed settlement and the exercise of the Tribunal’s statutory function to make a settlement agreement an enforceable order, rather than a value judgment on contested evidence.

4. Court’s Reasoning

The Tribunal’s reasons are contained in a brief order. It did not provide an extended analysis of excessive pricing standards or market definition, and it did not make independent factual findings beyond what was embodied in the settlement documentation.

The Tribunal confirmed the settlement agreement and its subsequent amendment and further addendum. The legal basis for this confirmation was the statutory framework that permits the Commission and a respondent to resolve a complaint through a consent agreement and to apply for confirmation of that agreement as an order of the Tribunal. In confirming the agreement, the Tribunal effectively gave binding force to the undertakings recorded in the settlement documentation, including commitments regulating future pricing conduct, compliance measures, and (as ultimately agreed) payment of an administrative penalty.

Where the settlement documentation evolved over time, the Tribunal confirmed not only the original consent agreement (which recorded that Foskor would not pay an administrative penalty in light of remedial action), but also the later documents that modified the settlement position. In particular, the Tribunal confirmed the amendment clarifying Foskor’s undertaking not to revert to an import parity benchmark including notional freight to India, and the further addendum that included an express admission regarding the notional transport cost and an agreed administrative penalty calculated as a percentage of local sales.

5. Outcome and Relief

The Tribunal confirmed the settlement agreement between the Commission and Foskor, together with the amendment and the further addendum, as a consent order of the Tribunal.

As confirmed, the order incorporated, among other terms, Foskor’s undertakings to refrain from excessive pricing in contravention of section 8(a) in relation to phosphoric acid in South Africa, not to revert to the prior pricing policy, to implement measures aimed at increasing transparency in downstream fertiliser markets, and to develop and submit a competition law compliance programme to the Commission within the agreed timeframe.

The order also confirmed the further addendum providing for Foskor to pay an administrative penalty of R6 481 889.65, recorded as equivalent to 3% of its local sales in the 2009 financial year, payable into the Commission’s bank account for onward payment to the National Revenue Fund in accordance with the Act.

No separate order as to costs appears from the Tribunal’s order.

Cases Cited

No cases were cited in the Tribunal’s order or in the settlement documentation reproduced in the provided text.

Legislation Cited

Competition Act 89 of 1998 (as amended), including sections 8(a), 19, 22, 26, 49D, 58(1)(b), 58(1)(a)(iii), 59(1)(a), 59(2), and 59(4).

Rules of Court Cited

No rules of court were cited in the provided text.

Held

The Competition Tribunal confirmed, as an order, the settlement agreement concluded between the Competition Commission and Foskor, together with the amendment and the further addendum placed before the Tribunal. The confirmed order recorded Foskor’s undertakings regulating its future pricing conduct and compliance measures, and it confirmed an agreed administrative penalty of R6 481 889.65 (equal to 3% of Foskor’s local sales for the 2009 financial year), payable in accordance with the statutory scheme for administrative penalties.

LEGAL PRINCIPLES

The Competition Act 89 of 1998 permits the Competition Commission and a respondent firm to resolve complaint proceedings by concluding a consent agreement under section 49D and applying to the Competition Tribunal to have that agreement confirmed as an order in terms of section 58(1)(b).

Where the confirmed settlement includes an administrative penalty, the Tribunal may confirm that relief within the statutory penalty framework referenced in the agreement, including provisions contemplated by section 58(1)(a)(iii) read with sections 59(1)(a), 59(2), and 59(4), with payment ultimately directed to the National Revenue Fund as contemplated by the Act.

In the context of settlement confirmation proceedings, the Tribunal’s function (as reflected in this matter’s order) is to determine whether to confirm the agreed settlement terms presented to it, thereby rendering the settlement enforceable as an order, rather than to adjudicate the merits of the underlying allegations through contested factual findings.