Competition Commission v Shell South Africa Marketing (Pty) Ltd (06/CR/Mar10) [2012] ZACT 12; [2012] 1 CPLR 115 (CT) (22 February 2012)

80 Reportability

Competition Law

Brief Summary

Competition Law — Settlement Agreement — Confirmation of settlement agreement between Competition Commission and Shell South Africa Marketing (Pty) Ltd regarding alleged price-fixing — Shell admitted to contravening section 4(1)(b)(i) of the Competition Act by agreeing to a mechanism for calculating the Wholesale List Selling Price (WLSP) of bitumen — Tribunal confirmed the settlement agreement as an order of the Tribunal.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were before the Competition Tribunal and concerned the confirmation of a settlement agreement (consent order) concluded between the Competition Commission (the applicant) and Shell South Africa Marketing (Pty) Ltd (the respondent).

The matter arose from a broader complaint investigation and referral involving alleged restrictive horizontal practices in the bitumen industry. Although multiple firms were implicated in the Commission’s investigation and complaint referral (including Chevron SA (Pty) Ltd, Engen Petroleum Limited, Total SA (Pty) Ltd, Masana Petroleum Solutions (Pty) Ltd, Sasol Limited, Tosas (Pty) Ltd, and the Southern African Bitumen Association), the decision recorded in the judgment concerned only the bilateral settlement reached between the Commission and Shell.

In procedural terms, the Commissioner had initiated a complaint under the Competition Act following a leniency application by Sasol and its subsidiaries. The Commission then referred the complaint to the Tribunal. Prior to the referral (and continuing thereafter), Shell engaged the Commission in settlement discussions, culminating in a written settlement agreement that the parties requested the Tribunal to confirm as an order. The Tribunal heard and decided the matter on 22 February 2012, issuing an order confirming the settlement agreement as annexure “A”.

The general subject matter of the dispute was an alleged contravention of section 4(1)(b)(i) of the Competition Act 89 of 1998, namely price fixing (or conduct intended to directly or indirectly fix purchase or selling prices) in relation to base bitumen and bituminous products, including the development and adoption of mechanisms influencing wholesale list prices in the industry.

Material Facts

A central undisputed factual foundation for the Tribunal’s order was that Sasol, together with its subsidiaries (including Tosas), applied for and obtained conditional immunity under the Competition Commission’s Corporate Leniency Policy, in respect of participation in the development of, and agreement to adopt, a pricing mechanism for base bitumen and bituminous products. This leniency application triggered the Commission’s initiation of a complaint.

Following Sasol’s disclosures, the Commission initiated a complaint on 12 January 2009 in terms of section 49B(1) of the Competition Act and conducted an investigation into the relevant conduct. The Commission concluded from its investigation that various firms operating in a horizontal relationship had engaged in conduct amounting to a contravention of section 4(1)(b)(i).

The Commission’s investigation, as recorded in the settlement agreement, identified that in the period commencing from September 2000 to December 2009, and possibly thereafter, the implicated firms (including Shell) entered into agreements and/or engaged in concerted practices intended to directly or indirectly fix the purchase or selling price of bitumen and bituminous products in South Africa.

The settlement agreement recorded the Commission’s factual allegations that the respondents were producers and/or suppliers of bitumen, competing with one another, and that certain of them were also members of the Southern African Bitumen Association (SABITA). It further recorded that the respondents, operating through SABITA and via other communications (including bilateral communications), agreed to a formula for determining pricing of base bitumen and bituminous products.

Historically, the agreement recorded that an industry-wide retail price list, known as the Wholesale List Selling Price (WLSP), had been collectively calculated by petroleum companies, with a period of government sanction and exemption from price-fixing prohibitions between 1986 and 2000. The settlement recorded that, in contravention of section 4, the respondents discussed establishing a mechanism to set the WLSP in relation to a Bitumen Pricing Index (BPI), later termed the Bitumen Price Adjustment Factor (BPAF), and adopted it as a basis for adjusting list prices.

For purposes of the Tribunal’s confirmation order, a key admitted fact was that Shell admitted it had contravened section 4(1)(b)(i) by agreeing with competitors to a mechanism to calculate the WLSP and to the development and implementation of the BPI/BPAF in relation to the sale of penetration grade bitumen in South Africa.

In the settlement, Shell also undertook future-facing obligations, including cooperation with the Commission in the prosecution of the complaint referral (including testifying if required and providing evidence in its possession or control), desisting from the admitted conduct, and developing and implementing a competition law compliance programme with specified components and timelines. The parties further agreed that Shell would pay an administrative penalty of R 26 259 480, stated to be within the statutory cap of 10% of Shell’s 2009 annual turnover in South Africa and exports from South Africa.

Legal Issues

The central legal question before the Tribunal, as reflected in the judgment’s terms, was whether the Tribunal should confirm the settlement agreement concluded between the Commission and Shell as an order of the Tribunal, as contemplated by section 27(1)(d) read with section 58(1)(a)(iii) of the Competition Act.

The dispute, in the form in which it came before the Tribunal, did not require the Tribunal to resolve contested factual issues regarding the underlying cartel conduct through evidentiary adjudication. Instead, it concerned the application of statutory powers to an agreed outcome, namely whether the Tribunal should grant an order in the terms jointly proposed by the Commission and Shell, including confirmation of the agreed administrative penalty and the agreed future conduct obligations.

To the extent that evaluative judgment was implicated, it lay in the Tribunal’s institutional function of making an order in terms of the Competition Act on agreed terms, including an administrative penalty stated to be within the statutory maximum contemplated by the Act.

Court’s Reasoning

The Tribunal’s reasoning, as recorded in the judgment, was concise and outcome-directed. The Tribunal indicated that it was confirming “the order as agreed to and proposed by the Competition Commission and the respondent,” which was annexed to the order and marked “A”.

The settlement agreement itself framed the legal basis on which the confirmation was sought. The parties agreed that an application would be made to the Tribunal for confirmation as an order under section 27(1)(d) read with section 58(1)(a)(iii) of the Competition Act. The settlement also expressly addressed the statutory context for the administrative penalty, recording that the penalty was agreed “having regard to” sections 58(1)(a)(iii) read with sections 59(1)(a), 59(2) and 59(3), and that the agreed amount did not exceed the maximum of 10% of Shell’s relevant turnover for the 2009 financial year.

On the facts presented in the settlement, Shell’s admission of a contravention of section 4(1)(b)(i) formed the basis for the agreed remedial and punitive components. The Tribunal’s order, in confirming the settlement, gave binding effect to (i) Shell’s undertakings relating to cooperation and compliance measures, (ii) the obligation to desist from the conduct, and (iii) the payment of the administrative penalty within the specified time period and into the specified account, with the settlement noting the Commission’s obligation to pay the penalty into the National Revenue Fund in terms of section 59(4).

No additional judicial exposition or independent factual findings beyond the settlement’s recorded terms appeared in the judgment. The Tribunal’s reasoning was thus reflected in its acceptance of the parties’ agreed resolution and its exercise of its statutory power to embody that resolution in a Tribunal order.

Outcome and Relief

The Tribunal confirmed the settlement agreement as an order of the Tribunal on 22 February 2012, in the terms annexed and marked “A”.

As confirmed, the settlement required Shell to pay an administrative penalty of R 26 259 480 within 30 business days of confirmation of the settlement as an order. The settlement also imposed commitments on Shell to cooperate with the Commission in the prosecution of the broader complaint referral (including giving testimony if required and providing evidence where available), to desist from the prohibited conduct, and to implement a competition law compliance programme, submit it to the Commission within 60 days, and circulate a statement summarising the settlement to management and operational staff within 60 days.

The judgment, as reproduced, did not set out a separate costs order. The operative relief was the confirmation of the agreed terms.

Cases Cited

No cases were cited in the judgment text provided.

Legislation Cited

Competition Act 89 of 1998 (as amended), including sections 4(1)(b)(i), 19, 22, 26, 27(1)(d), 49B(1), 58(1)(a)(iii), 59(1)(a), 59(2), 59(3), and 59(4).

Rules of Court Cited

No rules of court were cited in the judgment text provided.

Held

The Tribunal held, in effect, that the settlement agreement concluded between the Competition Commission and Shell South Africa Marketing (Pty) Ltd should be confirmed and made an order of the Tribunal in the terms proposed by the parties.

By confirming the consent order, the Tribunal gave binding effect to Shell’s admission of a contravention of section 4(1)(b)(i) (price fixing through agreement on a mechanism to calculate the WLSP and the development and implementation of the BPI/BPAF), Shell’s future-conduct obligations (cooperation, cessation, and compliance programme commitments), and Shell’s obligation to pay the agreed administrative penalty.

LEGAL PRINCIPLES

The Tribunal may, pursuant to section 27(1)(d) read with section 58(1)(a)(iii) of the Competition Act, confirm a settlement agreement between the Competition Commission and a respondent as an order of the Tribunal, thereby making the agreed terms enforceable as Tribunal relief.

In a consent-order context, where a respondent admits a contravention of section 4(1)(b)(i), the Tribunal’s confirmation may incorporate both behavioural remedies (including undertakings to desist and to implement compliance measures) and an administrative penalty, provided the penalty is dealt with under the Competition Act’s penalty framework (including the statutory cap referred to in section 59), and the settlement records the parties’ agreement within that framework.