Competition Commission v Air Products South Africa (Pty) Ltd (2009Mar4329) [2013] ZACT 18; [2013] 1 CPLR 62 (CT) (20 March 2013)

75 Reportability

Competition Law

Brief Summary

Competition — Consent agreement — Air Products South Africa (Pty) Ltd admitting to contraventions of sections 4(1)(b)(i) and 4(1)(b)(ii) of the Competition Act, 1998 — Agreement to amend existing contracts and implement compliance measures — Administrative penalty of R2 762 978.70 imposed for price fixing and market allocation in the supply of industrial gases.

Comprehensive Summary

Summary of Judgment

Introduction

This matter was a Competition Tribunal proceeding in which the Tribunal was asked to confirm a consent agreement as an order of the Tribunal in terms of the Competition Act 89 of 1998. The proceeding was not a contested complaint referral on the merits; rather, it concerned the formalisation of an agreed settlement between the enforcement authority and a firm alleged to have contravened the Act.

The parties were the Competition Commission (as applicant) and Air Products South Africa (Pty) Ltd (as respondent). The consent agreement related to alleged prohibited practices involving price fixing and market allocation.

The procedural history reflected that the Commission’s investigation originated from a Corporate Leniency Policy (CLP) marker application submitted by Sasol Chemical Industries Limited in March 2009, followed by the Commission’s initiation of an investigation on 1 September 2009 under Commission case number 2009Mar4329. After the investigation, the Commission and Air Products concluded and signed a consent agreement in February 2013, which was placed before the Tribunal for confirmation. The matter was heard and decided on 20 March 2013, on which date the Tribunal issued an order confirming the consent agreement.

The general subject-matter of the dispute concerned alleged collusive arrangements between competitors in the industrial and specialty gases sector, specifically relating to agreements governing the supply and marketing of products including liquid nitrogen (LIN) and liquid argon (LAR), and the alleged anti-competitive effects of those agreements.

Material Facts

The court record (as embodied in the consent agreement and the Tribunal’s confirmation order) identified that the Commission received a CLP marker from Sasol on 6 March 2009, which the Commission granted on the same date. Sasol thereafter submitted a formal CLP application on 31 March 2009, alleging that Air Products and Sasol had reached agreement regarding prices and markets through contractual arrangements that potentially contravened the Competition Act.

Following these disclosures, the Commission initiated an investigation on 1 September 2009 into the industrial and specialty gases industry against Sasol, Air Products, African Oxygen Limited (Afrox), Fedgas (Pty) Ltd, and Air Liquide (Pty) Ltd, for alleged contraventions of section 4(1)(b) and section 5(1) of the Act. The investigation focused on products described in the agreement, including liquid argon, liquid nitrogen, gaseous nitrogen (GAN), and gaseous oxygen (GOX).

A central factual foundation for the Commission’s findings was that, during 1998, Air Products and Sasol entered into a “suite of agreements” governing aspects of supply, management, utilities/services, and cooperation in relation to the supply and marketing of certain gases. These included a Co-operation Agreement, Supply Agreement, Management Agreement, and Utilities and Services Agreement, and came into effect on 4 April 1998. They were set to expire in April 2013, unless terminated earlier in accordance with their terms.

The Commission’s findings (as recorded in the consent agreement) proceeded on the basis that Air Products and Sasol were competitors in the supply of LAR, LOX, LIN, GOX, and GAN, because both were independent producers with capacity to produce the relevant products. The Commission further recorded its conclusion that the suite of agreements effectively gave rise to price fixing and market allocation, in contravention of sections 4(1)(b)(i) and 4(1)(b)(ii).

On the Commission’s version as adopted in the consent agreement, the alleged price fixing conduct related in particular to the sale of LIN and LAR to third parties, including the allegation that Sasol was required to obtain prior consent from Air Products regarding sales to third parties and the prices at which such sales would occur. On market allocation, the Commission recorded that the suite of agreements allocated the wholesale supply of the industrial gases to Air Products and had the effect of removing Sasol as a competitive constraint in the market.

The consent agreement further reflected that Sasol did not supply new customers despite being able to, and that it continued to supply only those customers supplied prior to the conclusion of the suite of agreements. It also recorded that the products GAN, GOX and LOX were mainly for Sasol’s internal consumption, and that there was no evidence found of a contravention of section 5(1) of the Act.

Air Products admitted in the consent agreement that it entered into the suite of agreements with Sasol, giving rise to price fixing and market allocation of industrial specialty gases, specifically LIN and LAR, in contravention of sections 4(1)(b)(i) and 4(1)(b)(ii) as set out in the agreement.

Legal Issues

The matter before the Tribunal primarily concerned the confirmation of a consent agreement as an order of the Tribunal under the Competition Act, rather than a disputed adjudication of liability after a fully contested hearing. The central legal questions were whether the consent agreement concluded between the Commission and Air Products should be confirmed in terms of the statutory framework governing consent orders, and what the resulting enforceable obligations would be.

Within the agreed framework, the consent agreement recorded admissions and findings relating to contraventions of section 4(1)(b)(i) (price fixing) and section 4(1)(b)(ii) (market allocation). The Tribunal’s function, as reflected in the order made, was directed to the application of the Act’s consent-order provisions to the agreement placed before it, including the administrative penalty mechanism.

The dispute as presented was therefore predominantly one of application of law to agreed facts and the implementation of an agreed regulatory outcome. It did not involve the Tribunal resolving contested factual disputes in the judgment text provided, and it did not include a developed merits-based evaluation in the Tribunal’s reasons beyond confirmation of the agreed order.

Court’s Reasoning

The Tribunal’s order reflected that it confirmed the order “as agreed to and proposed by the Competition Commission and the respondent”, annexed to the Tribunal order. The confirmation was made in accordance with the statutory provisions referenced in the consent agreement, namely section 49D, read with sections 58(1)(a)(iii) and 58(1)(b), and the administrative penalty provisions in sections 59(1)(a), 59(2) and 59(3) of the Competition Act.

The consent agreement itself encapsulated the Commission’s investigation outcome and Air Products’ admissions, and it contained the prospective remedial measures and the agreed administrative penalty. By confirming the consent agreement, the Tribunal gave binding effect to the agreed settlement terms, including obligations concerning amendment of the contractual arrangements, internal dissemination of the settlement terms, and the adoption and submission of a competition law compliance programme.

The Tribunal’s reasoning, as evident from the order, did not expand into a detailed exposition of the evidence or independent analysis of the merits. The operative judicial act was the confirmation of the agreement as an order, thereby rendering the settlement enforceable in the form and on the terms agreed between the Commission and the respondent.

Outcome and Relief

The Tribunal confirmed the consent agreement as an order of the Tribunal on 20 March 2013.

As a consequence of confirmation, the following relief (as contained in the consent agreement) took effect against Air Products. Air Products undertook to amend the suite of agreements within 10 days of the consent agreement. Air Products further undertook to circulate a statement summarising the content of the consent agreement to relevant employees (middle management and above) within 30 days of confirmation, to develop and implement a competition law compliance programme, and to submit a copy of that programme to the Commission within 60 days of confirmation. Air Products also agreed to desist from anti-competitive conduct.

An administrative penalty in the amount of R2 762 978.70 (stated to represent 1.5% of Air Products’ 2011 annual turnover in respect of LIN and LAR products) was agreed. Air Products was required to pay this amount to the Commission within 30 days of confirmation, and the agreement recorded that the penalty would be paid over to the National Revenue Fund in accordance with section 59(4) of the Act.

The Tribunal’s order as provided did not record any separate or additional costs order.

Cases Cited

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

Legislation Cited

Competition Act 89 of 1998 (as amended), including sections 4(1)(b)(i), 4(1)(b)(ii), 49B, 49D, 58(1)(a)(iii), 58(1)(b), 59(1)(a), 59(2), 59(3), 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 consent agreement concluded between the Competition Commission and Air Products South Africa (Pty) Ltd. The confirmed order embodied Air Products’ admission of contraventions of section 4(1)(b)(i) and section 4(1)(b)(ii) of the Competition Act arising from a suite of agreements with Sasol, imposed forward-looking compliance and conduct obligations, and required payment of an administrative penalty of R2 762 978.70 within the stipulated period.

LEGAL PRINCIPLES

A consent agreement concluded between the Competition Commission and a respondent firm may be placed before the Competition Tribunal for confirmation as an order in terms of section 49D of the Competition Act, read with the Tribunal’s remedial and penalty powers under sections 58 and 59.

Where a consent agreement is confirmed as an order of the Tribunal, the obligations recorded in that agreement become enforceable as a Tribunal order, including agreed remedial steps directed at ending prohibited conduct, implementing internal compliance measures, and paying an administrative penalty calculated and imposed under the statutory framework.

The statutory prohibitions in section 4(1)(b)(i) and section 4(1)(b)(ii) address collusive conduct between competitors in the form of price fixing and market allocation, and a consent order may be framed to resolve proceedings concerning such contraventions on terms agreed by the Commission and the respondent, including admissions and compliance undertakings.