Competition Commission v Aveng (Africa) Ltd t/a Steeledale and Others (84/CR/Dec09, 08/CR/Feb11) [2011] ZACT 18 (6 April 2011)

80 Reportability

Competition Law

Brief Summary

Competition — Settlement Agreement — Confirmation of settlement agreement between the Competition Commission and Aveng (Africa) Ltd t/a Steeledale regarding alleged contraventions of the Competition Act — The Competition Commission initiated complaints against multiple respondents for engaging in prohibited practices of price fixing and market allocation in the mesh and rebar markets — The Tribunal confirmed the settlement agreement as an order, reflecting the parties' resolution of the alleged contraventions.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings took the form of an application to the Competition Tribunal for confirmation of a settlement agreement concluded between the Competition Commission of South Africa and Aveng (Africa) Limited trading as Steeledale. The matter was determined by the Competition Tribunal sitting in Pretoria, with the panel comprising N Manoim (Presiding Member), Y Carrim (Tribunal Member), and A Wessels (Tribunal Member). The application was heard and decided on 6 April 2011.

The settlement related to two underlying complaint referrals by the Competition Commission, namely a complaint concerning welded mesh fabric reinforcement products (“mesh”) and a complaint concerning steel reinforcing bars (“rebar”), each involving alleged cartel conduct prohibited by the Competition Act 89 of 1998. The settlement agreement was placed before the Tribunal for confirmation as a Tribunal order in terms of the statutory settlement-confirmation and administrative-penalty provisions relied upon by the parties.

Procedurally, the Commission had initiated and investigated the mesh and rebar complaints, referred them to the Tribunal under separate Tribunal case numbers, and then entered into settlement discussions with Steeledale. The judgment itself is confined to a short order in which the Tribunal confirmed the settlement agreement as an order of the Tribunal, annexing the agreed terms.

2. Material Facts

The material factual basis recorded in the settlement agreement (and relied upon for the confirmation order) began with the initiation of the mesh complaint on 26 January 2009 by the Commissioner under section 49B(1) of the Competition Act. The initiation followed a corporate leniency application by Murray and Roberts Steel (Pty) Ltd filed on behalf of its subsidiary, BRC Mesh Reinforcing (Pty) Ltd. On the information placed before the Commission through that process, the Commission investigated and concluded that, from as early as 2001 to at least 2008, certain firms (including Steeledale) had engaged in price fixing and market division through customer allocation in the mesh market.

On the Commission’s investigation findings as recorded, the mesh conduct included participation in an industry body, the South African Fabric Reinforcing Association (SAFRA), through which suggested or recommended price lists and periodic adjustments were calculated and circulated. In addition to formal SAFRA meetings, the relevant firms also met informally and communicated telephonically to agree on discount levels for customer categories and to coordinate the implementation of price increases. The Commission further recorded the existence of an understanding that certain customers “belonged” to specific competitors, and that pursuit of those customers would be met with retaliation; a customer sheet was prepared identifying customer allocations and which customers were “free game”.

The settlement agreement also recorded the initiation of the rebar complaint on 26 January 2009 under section 49B(1), following a leniency application made on 9 October 2008 by Murray and Roberts Steel on behalf of its subsidiary Reinforcing Steel Contractors (Pty) Ltd. The Commissioner later amended the initiation on 31 January 2011 to include additional rebar suppliers based on further information received during the investigation. The Commission’s investigation led it to conclude that cartel conduct in the rebar market took place in five regions, namely Gauteng, KwaZulu-Natal, Mpumalanga, Limpopo, and the Western Cape, and that, although regionally implemented, it formed part of a single overall national conduct with common participants, a similar modus operandi, and the same object of price fixing, customer allocation, and collusive tendering. The Commission recorded that the respondents used an agreed price list for pricing and cover pricing, and an agreed allocation sheet for allocating customers and colluding on tenders.

As to what was disputed, the settlement agreement explicitly recorded that Steeledale did not dispute its contraventions as alleged in the mesh referral affidavit. The agreement then contained express admissions by Steeledale in relation to both markets. In respect of mesh, Steeledale admitted agreements, arrangements, or understandings with competitors involving price fixing and customer allocation. In respect of rebar, Steeledale admitted agreements, arrangements, or understandings involving price fixing, customer allocation, and collusive tendering.

The settlement agreement recorded that Steeledale first approached the Commission to settle the mesh referral after it was referred on 2 December 2009, but that the parties were at that stage unable to agree on an appropriate penalty because the rebar investigation had not been finalised. After the rebar referral in February 2011, Steeledale approached the Commission again with a view to settling both matters, culminating in the signed settlement agreement dated 28 February 2011.

3. Legal Issues

The central legal question presented to the Tribunal in this decision was whether the agreed settlement agreement between the Competition Commission and Steeledale should be confirmed as an order of the Tribunal in terms of the Competition Act provisions invoked by the parties, including the statutory provisions enabling settlement confirmation and the imposition of an administrative penalty.

Although the settlement agreement contained extensive factual admissions of prohibited practices under section 4(1)(b)(i), (ii), and (iii) of the Act, the Tribunal order itself did not reflect a contested adjudication on the merits of whether the conduct contravened the Act. Instead, the matter before the Tribunal, as presented, primarily concerned the application of the statutory settlement mechanism to the agreed facts and admissions, together with the formal confirmation of agreed relief (including a penalty and forward-looking undertakings).

Accordingly, the dispute as reflected in the judgment was not framed as a live dispute of fact. It was also not framed as a contested value judgment on liability. It was, rather, an exercise of the Tribunal’s statutory function to make the agreed terms binding as a Tribunal order, on the basis of the parties’ agreement and admissions.

4. Court’s Reasoning

The Tribunal’s reasons were expressed in a brief form. The order stated that the Tribunal confirmed the order as agreed to and proposed by the Competition Commission and the respondent, annexed and marked “A”. The Tribunal did not set out a detailed analysis of the evidence, nor did it articulate an extended reasoning process in the text provided.

What can be extracted from the judgment, without adding to it, is that the Tribunal acted on the basis that the Commission and Steeledale had concluded a settlement agreement intended to be made an order of the Tribunal under the Competition Act. The Tribunal’s confirmation indicates acceptance of the settlement mechanism invoked by the parties and of the appropriateness of issuing an order in the agreed terms, including the administrative penalty and the agreed undertakings.

The confirmed settlement agreement embodied several distinct elements: formal admissions of contraventions of section 4(1)(b) in both mesh and rebar markets; an agreed administrative penalty calculated as a percentage of turnover; and forward-looking obligations concerning compliance, internal circulation of a summary statement, and cooperation with the Commission’s ongoing prosecution of remaining respondents in the referred matters. The Tribunal’s reasoning, as reflected, consisted of endorsing these agreed terms through confirmation rather than independently re-determining each element in a reasoned merits judgment.

5. Outcome and Relief

The Tribunal’s final decision was to confirm the settlement agreement as an order of the Tribunal. The relief confirmed included, in particular, the following consequences as set out in the settlement agreement.

The settlement imposed an administrative penalty of R 128 904 640, stated to represent 8% of Steeledale’s total annual turnover for the 2008 financial year. The settlement further provided that the penalty would be paid into the Commission’s designated bank account and then paid over by the Commission to the National Revenue Fund in accordance with the Act.

The settlement confirmed a structured payment arrangement under which Steeledale would pay the penalty within 24 months of confirmation, in four equal instalments, with the first instalment payable within seven days of confirmation and the subsequent instalments payable at eight-month intervals.

In addition to the penalty, the confirmed order included undertakings by Aveng/Steeledale to circulate a summary of the settlement to its directors and shareholders within 30 days of confirmation, to refrain from engaging in conduct contravening sections 4(1)(b)(i), (ii), and (iii), to take reasonable steps to ensure divisions or subsidiaries do not engage in similar conduct, to continue implementing its compliance programme, and to cooperate with the Commission in prosecuting remaining respondents in the mesh and rebar referrals, including making employees available for consultation and evidence where possible. The settlement also recorded a commitment to cooperate in the Commission’s Construction Fast Track Settlement Process.

No distinct costs order was recorded in the Tribunal’s order as provided.

Cases Cited

No cases were cited in the text provided.

Legislation Cited

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

Rules of Court Cited

No rules of court were cited in the text provided.

Held

The Competition Tribunal confirmed, as an order of the Tribunal, the settlement agreement concluded between the Competition Commission and Aveng (Africa) Limited trading as Steeledale. The confirmed order incorporated Steeledale’s admissions of prohibited practices in contravention of section 4(1)(b) in relation to mesh and rebar, imposed an administrative penalty of R 128 904 640 payable in instalments over 24 months, and made binding Steeledale’s undertakings regarding future compliance measures and cooperation with the Commission in ongoing cartel prosecutions.

LEGAL PRINCIPLES

The Tribunal’s order reflected the application of the Competition Act’s mechanism permitting the Competition Tribunal to confirm a settlement agreement between the Competition Commission and a respondent as an order of the Tribunal, thereby making the agreed terms enforceable as a Tribunal order.

The confirmed settlement applied the statutory framework under which administrative penalties may be imposed for prohibited practices, with the penalty quantified by reference to a percentage of the firm’s annual turnover as recorded in the agreement, and with payment directed through the Commission for onward payment to the National Revenue Fund as contemplated by the Act.

The settlement also reflected the principle that cartel conduct falling within section 4(1)(b) includes price fixing, market division through customer allocation, and collusive tendering, and that a respondent may, by agreement with the Commission, bind itself to forward-looking obligations aimed at ensuring compliance and facilitating enforcement against other alleged cartel participants.