Competition Commission v Vrystaat Kooperasie Bpk (43/CR/Jun11) [2011] ZACT 91; [2012] 1 CPLR 121 (CT) (9 November 2011)

75 Reportability

Competition Law

Brief Summary

Competition Law — Consent Agreement — Alleged price-fixing in grain storage tariffs — The Competition Commission initiated a complaint against multiple respondents, including Vrystaat Kooperasie Beperk (VKB), for contravening section 4(1)(b)(i) of the Competition Act by fixing grain storage tariffs. VKB admitted to participating in the price-fixing conduct as a member of the Grain Silo Industry (GSI). The Tribunal confirmed a Consent Agreement, imposing an administrative penalty of R 1,286,969.22 on VKB and requiring it to cooperate with the Commission in future proceedings and implement a compliance program to prevent further contraventions.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter concerned consent order proceedings before the Competition Tribunal of South Africa, in which the Tribunal was asked to confirm a consent agreement concluded between the Competition Commission (as applicant) and Vrystaat Kooperasie Beperk (VKB) (as respondent). The proceeding was brought in terms of section 49D read with sections 58(1)(a)(iii) and 58(1)(b) of the Competition Act 89 of 1998 (as amended).

The judgment forms part of a broader Commission investigation and enforcement process relating to alleged price fixing in the grain storage industry, particularly the determination of a daily grain storage tariff recommended for use in connection with SAFEX (the South African Futures Exchange) traded contracts. VKB was one of several firms implicated as members or shareholders of the Grain Silo Industry (Pty) Ltd (GSI).

Procedurally, the matter arose after a Commission-initiated complaint and investigation, an expansion of the investigation to cover additional respondents, and a decision by the Commission to refer the complaint to the Tribunal. VKB then entered into a consent agreement with the Commission, which was placed before the Tribunal for confirmation. The Tribunal hearing and decision occurred on 9 November 2011, and the Tribunal confirmed the order as agreed between the Commission and VKB, annexed to the Tribunal’s order as “Annexure A”.

2. Material Facts

On 17 March 2009, the Commissioner of the Competition Commission initiated a complaint under section 49B of the Competition Act against several entities in the grain silo sector (including VKB) and against the GSI. The complaint included allegations of price fixing in respect of the determination of grain storage tariffs, alleged to contravene section 4(1)(b)(i) of the Act.

Following the initial investigation, the Commission concluded that the conduct under scrutiny was not limited to the entities originally identified. The Commission found that the storage rate at issue was agreed to and assented to not only by the entities named in the initial initiation, but by all members and shareholders of the GSI. On 25 May 2010, the Commissioner therefore expanded the initiation to include all seventeen respondents identified in the consent agreement documentation.

The Commission’s investigation, as recorded in the consent agreement, identified that the first to sixteenth respondents were competitors in the market for grain storage services, and that they were also shareholders or members of the GSI. Although the GSI was a private company, the Commission treated it, on the recorded facts, as functioning in substance as an industry association for the grain storage sector.

A material component of the factual matrix was the role attributed to SAFEX and the process by which the relevant daily storage tariff was determined. SAFEX placed the onus for determining a storage rate on the GSI on the basis that it possessed industry knowledge and cost understanding relevant to storage provision. The process described in the consent agreement was that GSI consulted its shareholders, shareholders submitted individual proposals, those proposals were collated and evaluated by the GSI technical committee (with members drawn from competing silo companies), and the technical committee decided on a rate which was then submitted to SAFEX on behalf of the GSI and its shareholders.

The Commission recorded as material that the daily storage tariff proposed by the GSI was agreed to and assented to by all of the respondents, and that the respondents’ joint determination of the daily storage rate (in circumstances where they were competitors) amounted to prohibited price fixing. The Commission further recorded that the respondents exchanged detailed cost information in the context of the tariff-setting process, and that the SAFEX tariff was used to determine storage fees in the physical market.

In the consent agreement, VKB made an express admission that it participated, as a member of the GSI, in the fixing of the daily grain storage tariff recommended to SAFEX, in contravention of section 4(1)(b)(i) of the Act. VKB also accepted that such a contravention could lead to an administrative penalty, and agreed to pay an administrative penalty of R 1,286,969.22, stated to constitute 4% of VKB’s total grain silo storage turnover for the 2009 financial year, payable within 10 days of confirmation of the consent agreement as an order of the Tribunal.

3. Legal Issues

The central legal question before the Tribunal was whether it should confirm the consent agreement as an order of the Tribunal under section 58(1)(a)(iii) read with section 58(1)(b) of the Competition Act, in circumstances where the agreement recorded an admission by VKB of participation in conduct contravening section 4(1)(b)(i).

Within that framework, the matter primarily concerned the application of law to agreed facts rather than the resolution of factual disputes. The consent agreement set out the relevant factual basis as accepted between the Commission and VKB, including VKB’s admission of participation in price fixing, and the agreed administrative penalty and forward-looking undertakings.

A further issue implicit in the relief sought was whether the agreed administrative penalty and ancillary undertakings were capable of confirmation as part of a consent order under the Competition Act, given the statutory scheme for penalties (including the Tribunal’s powers in relation to administrative penalties in terms of sections 58 and 59).

4. Court’s Reasoning

The Tribunal’s order was issued in the context of consent proceedings, and the Tribunal’s reasoning, as reflected in the published decision, was confined to confirming the order “as agreed to and proposed by” the Commission and VKB, annexed as “A”. The Tribunal did not engage in a detailed contested analysis of evidence or competing submissions, consistent with the nature of confirmation proceedings where parties place a concluded consent agreement before the Tribunal.

The legal framework applied was that the Competition Act permits the Commission and a respondent firm to conclude a consent agreement in respect of alleged prohibited practices, and to seek confirmation by the Tribunal so that the agreement becomes a Tribunal order. The consent agreement in this matter expressly referenced section 49D (consent agreements), and sections 58(1)(a)(iii) and 58(1)(b) (Tribunal confirmation powers), thereby situating the requested relief within the statutory mechanism.

As reflected in the annexed consent agreement, the Tribunal confirmation carried with it consequences recorded in the agreement itself, including the imposition of an administrative penalty in a specified amount, payable within a fixed period following confirmation, and the recording of VKB’s commitments regarding cooperation with the Commission in the prosecution of the complaint referral and the ongoing implementation and submission of a competition law compliance programme. The agreement also recorded that, upon confirmation, it constituted full and final settlement of proceedings between the Commission and VKB relating to alleged contraventions that formed the subject of the Commission’s investigation under the identified case number.

5. Outcome and Relief

The Tribunal confirmed the consent agreement between the Competition Commission and VKB as an order of the Tribunal on 9 November 2011, incorporating the terms contained in “Annexure A”.

As confirmed, the order included an obligation on VKB to pay an administrative penalty of R 1,286,969.22 (recorded as 4% of VKB’s total grain silo storage turnover for the 2009 financial year), payable to the Commission within 10 days of the Tribunal’s confirmation. The consent agreement recorded that the Commission would pay the amount over to the National Revenue Fund in accordance with section 59(4) of the Act.

The confirmed order further incorporated VKB’s undertakings to cooperate with the Commission in relation to the prosecution of the complaint referral (including, where applicable, testifying and providing evidence in its possession or control), to refrain in future from contractual undertakings with the potential to contravene section 4(1)(b), to continue developing and monitoring a competition law compliance programme, and to submit a copy of its compliance programme to the Commission within 60 days of confirmation.

The published Tribunal decision did not record any separate or additional order as to costs.

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), 19, 22, 26, 49B, 49D, 58(1)(a)(iii), 58(1)(b), 59(1)(a), 59(2), 59(3), 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 Vrystaat Kooperasie Beperk. The confirmed order recorded VKB’s admission of participation in prohibited price fixing of the daily grain storage tariff recommended to SAFEX in contravention of section 4(1)(b)(i) of the Competition Act, imposed an agreed administrative penalty of R 1,286,969.22 payable within 10 days of confirmation, and incorporated undertakings relating to cooperation with the Commission and ongoing competition law compliance measures, with the consent order operating as full and final settlement between the Commission and VKB in relation to the specified investigation.

LEGAL PRINCIPLES

The Competition Act provides a statutory mechanism for the conclusion of a consent agreement between the Competition Commission and a respondent firm in relation to alleged prohibited practices, and for the confirmation of that agreement by the Competition Tribunal so that it has the status and enforceability of a Tribunal order, as contemplated by section 49D read with section 58.

Price fixing between firms in a horizontal relationship constitutes a prohibited practice under section 4(1)(b)(i), and participation in a collective process that results in a jointly determined tariff or price may found such contravention where competitors agree to and assent to a common storage rate.

Where a contravention is admitted or established, the Tribunal may, where appropriate and within the statutory framework, confirm an agreed administrative penalty and related remedial undertakings, with penalties governed by section 59, including the payment over of penalties to the National Revenue Fund in terms of section 59(4).

A consent order may incorporate forward-looking commitments by the respondent, including cooperation with ongoing proceedings and the development, implementation, monitoring, and submission of a competition law compliance programme, where those obligations are recorded as part of the agreed settlement placed before the Tribunal for confirmation.