Competition Commission v Foodcorp (Pty) Ltd, In re: Competition Commission v Pioneer Foods (Pty) Ltd and Others (10/CR/MAR10, 15/CR/MAR10) [2012] ZACT 103; [2013] 1 CPLR 90 (CT) (13 December 2012)

80 Reportability

Competition Law

Brief Summary

Competition Law — Price Fixing — Settlement Agreement — Competition Commission initiating complaint against Foodcorp and others for collusive conduct in wheat and maize milling industries — Respondents found to have engaged in price fixing and market allocation — Settlement Agreement confirmed by Tribunal as an order, addressing contraventions of section 4(1)(b) of the Competition Act 89 of 1998.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings took place before the Competition Tribunal of South Africa and concerned an application by the Competition Commission for the confirmation of a settlement agreement concluded with Foodcorp (Pty) Ltd as an order of the Tribunal.

The matter arose within the broader context of two complaint referrals in the milling industry, reflected under Tribunal case numbers 10/CR/MAR10 and 15/CR/MAR10, in which multiple milling firms were cited as respondents (including Pioneer Foods (Pty) Ltd, Premier Foods (Pty) Ltd, Tiger Brands Limited and others). The present decision, however, addressed the bilateral settlement between the Commission and Foodcorp.

The procedural history, as set out in the settlement and the annexed correspondence, was that the Commission initiated complaints on or about 14 March 2007 (under Commission case number 2007Mar2844) and referred the complaints to the Tribunal on 31 March 2010 (white maize milling complaint) and 15 March 2010 (wheat milling complaint). Foodcorp and the Commission thereafter concluded a written settlement agreement (signed during November 2012), which was presented to the Tribunal for confirmation at a hearing on 12 December 2012, with the Tribunal issuing its order on 13 December 2012.

The dispute’s subject matter was alleged cartel conduct in the white maize milling and wheat milling industries, specifically conduct prohibited by section 4(1)(b) of the Competition Act 89 of 1998, including price fixing, and in the wheat context also customer allocation.

2. Material Facts

The Tribunal’s order confirmed a settlement agreement whose material factual basis was the Commission’s investigation findings and Foodcorp’s admissions regarding prohibited conduct in the milling industry.

It was recorded that, following corporate leniency applications made to the Commission (including one from Premier in 2007 and a further application from Tiger), the Commission initiated investigations into collusive conduct in the milling sector. The Commission’s investigations, as summarised in the settlement agreement, concerned conduct occurring during the period 1999 to at least January 2007 (in relation to white maize) and 1999 to at least 2007 (in relation to wheat).

In relation to white maize milling, the Commission’s findings (as captured in the settlement agreement) were that competitors attended meetings and held telephone discussions where they agreed on the fixing of selling prices, the creation of uniform price lists for various customer categories, and the timing and implementation of price increases. The conduct was described as operating at both national and regional levels and as mutually reinforcing across regions and meetings. Foodcorp was recorded as having participated in such meetings, including meetings associated with the National Chamber of Milling.

In relation to wheat milling, the Commission’s findings (as recorded) similarly alleged agreements on prices, uniform price lists, and the timing and implementation of price increases. In addition, the Commission alleged that competitors agreed to allocate customers between themselves in relation to milled wheat products.

A central material fact for purposes of the Tribunal’s confirmation order was Foodcorp’s admission of contraventions. The settlement agreement included an admission that Foodcorp contravened section 4(1)(b) in the period 1999 to 2007 through participation in meetings with competitors where agreements were reached. In correspondence annexed to the settlement, it was further recorded that the Tribunal requested that clause 4 of the settlement be amended so that Foodcorp’s admissions were stated distinctly for the two complaints, namely an admission of section 4(1)(b)(i) contraventions in white maize, and an admission of section 4(1)(b)(i) and (ii) contraventions in wheat (thereby expressly including customer allocation in the wheat matter).

Further material terms accepted by Foodcorp included an undertaking to co-operate with the Commission in the prosecution of other respondents in the complaint referrals, including by testifying and providing evidence within its possession or control. Foodcorp also undertook to develop and implement a further compliance programme, incorporating corporate governance measures, and to submit that programme to the Commission within 60 days of confirmation of the settlement as a Tribunal order. Foodcorp confirmed that it had ceased engaging in the conduct described and undertook not to repeat it.

As to penalty, Foodcorp accepted liability for an administrative penalty and agreed to pay R88 500 000.00, stated in the agreement to be 10% affected turnover for the 2010 financial year of its milling division. The agreement provided that payment would be made in three equal tranches of R29 500 000.00: within 30 days of confirmation, on the first anniversary, and on the second anniversary of confirmation. The settlement recorded that the Commission would pay the amounts to the National Revenue Fund in terms of the Act.

No factual disputes requiring adjudication were recorded in the Tribunal’s order; the matter proceeded on the basis of the agreed settlement and its amended provisions.

3. Legal Issues

The central legal question was whether the Tribunal should confirm the settlement agreement concluded between the Commission and Foodcorp as an order of the Tribunal in terms of section 49D, read with sections 58(1)(b) and 59(1)(a) of the Competition Act 89 of 1998.

The issues were not framed as a contested factual dispute requiring the Tribunal to resolve credibility or probabilities. Instead, the matter primarily concerned the application of statutory powers to an agreed set of admissions and remedial terms, including whether the settlement appropriately captured the relevant contraventions under section 4(1)(b) and whether the penalty and ancillary undertakings were structured in a manner capable of confirmation as an enforceable order.

A further, narrow issue (reflected in the annexed letter) concerned the accuracy and formulation of the settlement’s clauses, specifically the proper articulation of Foodcorp’s admissions for each complaint and the correction of an internal drafting error in the penalty payment clause (the replacement of the word “second” with “third” in clause 6.5).

4. Court’s Reasoning

The Tribunal’s reasoning is reflected succinctly in its order and the annexed correspondence. The Tribunal proceeded on the statutory framework that permits the confirmation of a consent agreement/settlement agreement as an order of the Tribunal, thereby rendering its terms enforceable.

The approach taken by the Tribunal, as indicated in the letter annexed to the confirmed order, was to ensure that the settlement agreement accurately and expressly recorded the nature of the admitted contraventions for each component of the Commission’s case. The Tribunal advised that the parties amend clause 4 so that it separately addressed the white maize milling complaint and the wheat milling complaint, with the latter expressly including admissions under section 4(1)(b)(ii) (customer allocation) in addition to section 4(1)(b)(i) (price fixing). This reflected an evaluative concern with the precision of the admissions underpinning confirmation.

The Tribunal also required a correction to clause 6.5 to address an evident drafting inconsistency by replacing “second” with “third” in the first sentence of that clause, consistent with the settlement’s structure providing for three penalty instalments. This reflected an administrative and interpretive function to ensure the order was coherent and executable.

Having required these amendments, the Tribunal confirmed the settlement agreement (together with the annexed letter addressing the amendments) as its order. The Tribunal did not, in the text provided, engage in an extended analysis of evidence or contested legal argument; rather, it exercised its confirmation power in relation to an agreement that contained admissions of prohibited conduct, undertakings relating to future compliance and cooperation, and an agreed administrative penalty.

5. Outcome and Relief

The Tribunal confirmed the settlement agreement between the Competition Commission and Foodcorp (Pty) Ltd as an order of the Tribunal, including the annexed letter reflecting the amendments required at the confirmation hearing.

The confirmed order thus incorporated, among other things, Foodcorp’s admissions of contraventions of section 4(1)(b) of the Competition Act 89 of 1998, its undertakings to cooperate with the Commission and to implement an enhanced compliance programme, and its obligation to pay an administrative penalty of R88 500 000.00 in three instalments according to the timetable set out in the settlement agreement (as corrected).

The text provided does not record any separate or additional order as to costs.

Cases Cited

None are recorded in the text provided.

Legislation Cited

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

Rules of Court Cited

None are recorded in the text provided.

Held

The Competition Tribunal confirmed, as an order of the Tribunal, the settlement agreement concluded between the Competition Commission and Foodcorp (Pty) Ltd in relation to admitted contraventions of section 4(1)(b) of the Competition Act 89 of 1998 in the white maize milling and wheat milling industries, including an agreed administrative penalty and compliance- and cooperation-related undertakings. The confirmation included the annexed correspondence recording amendments required by the Tribunal to clarify the admissions and correct an internal drafting inconsistency in the payment clause.

LEGAL PRINCIPLES

The matter reflects the application of the statutory mechanism permitting the Competition Tribunal to confirm a settlement agreement (consent agreement) between the Competition Commission and a respondent as an order of the Tribunal under section 49D, read with the Tribunal’s remedial and penalty powers in sections 58 and 59 of the Competition Act 89 of 1998.

It also reflects the treatment, within the settlement confirmation framework, of conduct prohibited by section 4(1)(b) as including price fixing (section 4(1)(b)(i)) and customer allocation (section 4(1)(b)(ii)), with the Tribunal requiring that the settlement’s admissions be framed with sufficient specificity to correspond to the distinct prohibited practices implicated by the Commission’s complaints.

Finally, the confirmed settlement illustrates that a consent order may incorporate not only an administrative penalty (structured in instalments and directed to be paid into the Commission’s designated account for onward payment to the National Revenue Fund) but also forward-looking obligations, including cooperation with enforcement proceedings against other respondents and the development and submission of a competition compliance programme, as enforceable components of the Tribunal’s order.