Competition Commission v Afgri Operations Ltd; In re: Competition Commission v Afgri Operations Ltd and Others (43/CR/Jun11) [2011] ZACT 36; [2011] 1 CPLR 93 (CT) (15 June 2011)

80 Reportability

Competition Law

Brief Summary

Competition — Consent Agreement — Confirmation of consent agreement between the Competition Commission and Afgri Operations Limited regarding alleged price fixing — Afgri admitted to participating in the fixing of SAFEX tariffs and using these tariffs to determine non-SAFEX rates — Tribunal confirmed the consent agreement as proposed by the parties, finding that the conduct constituted a contravention of section 4(1)(b)(i) of the Competition Act, 1998.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was heard by the Competition Tribunal of South Africa as proceedings to confirm a consent agreement concluded between the Competition Commission (the applicant) and Afgri Operations Limited (the respondent). The Tribunal’s decision, delivered on 15 June 2011, took the form of an order confirming the terms agreed to by the Commission and Afgri.

The consent agreement arose within a broader Commission investigation and referral concerning alleged prohibited practices in the grain storage industry, involving multiple silo operators and the Grain Silo Industry (Pty) Ltd (GSI). Although the “in re” portion of the case caption reflected multiple respondents, the Tribunal order in this judgment concerned only the bilateral settlement between the Commission and Afgri.

The procedural history reflected in the consent agreement was that the Commissioner initiated a complaint on 17 March 2009, later expanded on 12 April 2011 following further investigative conclusions. The Commission decided to refer the complaint to the Tribunal, but Afgri resolved its exposure by concluding a consent agreement in terms of section 49D of the Competition Act, with confirmation sought from the Tribunal under the Tribunal’s statutory powers to make the agreement an order of the Tribunal.

The general subject-matter of the dispute concerned allegations of horizontal price fixing in relation to SAFEX grain storage tariffs, associated conduct affecting non-SAFEX storage rates, and the exchange of detailed cost information among competing grain silo operators through the GSI.

2. Material Facts

The material facts were largely contained in the consent agreement and were presented as the Commission’s investigative conclusions together with Afgri’s admissions.

The Commission’s investigation concluded that the relevant silo operators (including Afgri) were competitors in the market for grain storage services, and that they were also members and/or shareholders of the GSI, which, although a private company, operated as an industry association for members of the grain storage industry. The Commission’s factual account further recorded that SAFEX placed the onus on the GSI to recommend SAFEX tariffs, based on the GSI’s perceived industry knowledge and understanding of storage costs.

The mechanism described was that the GSI’s technical committee, comprising representatives of silo operators, proposed SAFEX tariffs in response to requests from SAFEX. In doing so, the GSI consulted its shareholders, who submitted individual proposals; these proposals were collated and evaluated, after which the technical committee decided on and submitted proposed tariffs to SAFEX on behalf of the GSI and its members. These tariffs were accepted and applied by SAFEX. The Commission’s conclusions characterised the “essence of the conduct” as the joint determination and agreement to SAFEX tariffs by firms in a horizontal relationship (competitors), which the Commission considered to be price fixing.

In addition, the Commission concluded that, in certain instances, the fixed SAFEX tariffs were used by silo operators as, or in order to determine, their non-SAFEX storage rates, in a way described as indirectly collusive because the SAFEX tariffs had been fixed in contravention of the Act. The Commission also concluded that the silo operators exchanged detailed cost information annually by providing it to the GSI, which aggregated the information and provided members with an annual average cost of conducting a grain storage business.

Against this backdrop, Afgri admitted that it participated (as a member of the GSI) in the fixing of SAFEX tariffs as described in the agreement, that it used SAFEX tariffs as or in order to determine its non-SAFEX rates in the manner described, and that it exchanged detailed cost information with other silo operators through the mechanism set out in the agreement. The consent agreement recorded that Afgri no longer engaged in that conduct at the time of settlement, and that non-SAFEX rates determined via the SAFEX-tariff method had been applied by Afgri until approximately November 2008 (wheat), March 2009 (sunflower seed and soy bean), and May 2009 (maize).

The consent agreement further recorded Afgri’s acceptance that a contravention of section 4(1)(b)(i) may lead to an administrative penalty if the Tribunal deems it appropriate, and Afgri’s agreement to pay a penalty of R15 600 000.00, described as 4% of Afgri’s total grain silo storage turnover for the 2009 financial year. The agreement also included forward-looking undertakings that Afgri would cooperate with the Commission in the prosecution of the wider referral, and that Afgri would develop and implement a competition law compliance programme and provide training, with a copy to be submitted to the Commission within 60 business days of confirmation.

3. Legal Issues

The central legal question before the Tribunal in this judgment was whether it should confirm the consent agreement concluded between the Competition Commission and Afgri, thereby making its terms an order of the Tribunal.

Within the four corners of the consent agreement, the legal characterisation of the admitted conduct was that it constituted a contravention of section 4(1)(b)(i) of the Competition Act, namely prohibited conduct arising from an agreement between competitors involving price fixing (as framed in the consent agreement). The consent agreement also recorded that the original complaint had been initiated against initial respondents for alleged contraventions of sections 4(1)(b)(i) and 8(a), although the settlement with Afgri proceeded on the basis of the section 4(1)(b)(i) contravention as set out in the agreement.

The dispute as presented to the Tribunal for purposes of this judgment was not a contested adjudication of facts or law. It was primarily the application of statutory settlement and confirmation provisions (as invoked in the consent agreement) to an agreed factual and legal basis, coupled with an agreed administrative penalty and remedial undertakings.

4. Court’s Reasoning

The Tribunal’s reasoning, as reflected in the judgment, was confined to confirming the agreed order. The Tribunal recorded that it confirmed the order as agreed to and proposed by the Competition Commission and the respondent, annexed to the order and marked “A”.

The Tribunal thus acted consistently with the statutory framework contemplated in the consent agreement, which expressly sought confirmation in terms of the Competition Act provisions governing consent agreements and the Tribunal’s power to confirm settlements. The judgment did not engage in an extended analysis of the underlying contravention, nor did it set out additional evaluative findings beyond the confirmation of the agreement as an order.

To the extent that the outcome entailed an evaluative component, it lay in the Tribunal’s acceptance of the settlement structure presented to it, including the agreed administrative penalty, the timing and mechanics of payment, the cooperation undertakings, and the compliance programme obligations, all of which were incorporated into the confirmed order by reference to the annexure.

5. Outcome and Relief

The Tribunal confirmed the consent agreement between the Competition Commission and Afgri Operations Limited, making it an order of the Tribunal.

The confirmed relief included Afgri’s obligation to pay an administrative penalty of R15 600 000.00 within 30 business days of confirmation, to cooperate with the Commission in the prosecution of the referral (including testifying and providing evidence within the agreement’s ambit), to refrain from future conduct that would contravene section 4(1)(b), and to develop, implement, and monitor a competition law compliance programme, with a copy to be submitted to the Commission within 60 business days of confirmation.

No separate costs order was set out in the judgment text provided.

Cases Cited

No cases were cited in the text of the judgment or the consent agreement as provided.

Legislation Cited

Competition Act 89 of 1998 (as amended), including section 4(1)(b)(i), section 8(a), section 19, section 22, section 26, section 49D, section 58(1)(a)(iii), section 58(1)(b), section 59(1)(a), section 59(2), section 59(3), and section 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 consent agreement concluded between the Competition Commission and Afgri Operations Limited. The confirmed order incorporated Afgri’s admissions in relation to participation (through the GSI) in the fixing of SAFEX tariffs, associated use of SAFEX tariffs to determine non-SAFEX rates in certain instances, and the exchange of detailed cost information through the GSI, as well as the agreed administrative penalty, cooperation obligations in the broader referral, and competition compliance programme undertakings.

LEGAL PRINCIPLES

The judgment applied the statutory mechanism under the Competition Act for resolving competition law complaints through a consent agreement concluded with the Commission and confirmed by the Tribunal as an enforceable order.

Within the agreed factual and legal basis recorded in the consent agreement (and confirmed by the Tribunal), the matter proceeded on the principle that competitors acting through a common industry body to jointly determine or agree tariffs applicable in the market constitutes conduct falling within the prohibition on price fixing as contemplated in section 4(1)(b)(i) of the Competition Act, and that an administrative penalty may be imposed (and agreed) in accordance with the Act’s provisions governing penalties and Tribunal confirmation.

The confirmed order further reflected the remedial and preventive principle (as embodied in the settlement terms) that a respondent may be required to implement competition law compliance measures, including training and monitoring, and may undertake to cooperate with the Commission in the prosecution of related proceedings arising from the same investigative matrix.