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IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
(HELD AT PRETORIA)
Case No: 73/CR/Jul12
In the matter between:
OMNICO (PTY) LTD First Applicant
CYTEK CYCLE DISTRIBUTORS CC Second Applicant
COOLHEAT CYCLE AGENCIES (PTY) LTD Third Applicant
and
THE COMPETITION COMMISSION Respondent
In Re:
THE COMPETITION COMMISSION Applicant
and
FRITZ PIENAAR AND 19 OTHERS 1
st - 20 th Respondents
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member) and
Medi Mokuena (Tribunal Member)
Heard on : 20 February 2012
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Reasons issued on : 09 April 2013
REASONS AND ORDER
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TH TO 11 TH RESPONDENTS’ EXCEPTION APPLICATIONS
Introduction
[1] On 20 February 2013, the Competition Tribunal ( the “Tribunal”) heard
three exception applications brought by Omnico (Pty ) Ltd (“Omnico”),
Cytek Cycle Distributors CC (“Cytek”) and Coolheat Cycle Agencies
(Pty) Ltd (“Coolheat”) (the “excipients”). These ex ceptions came about
as a result of a complaint referral filed by the Co mpetition Commission
(the “Commission”) against the applicants together with 17 other firms.
The excipients are the 9 th , 10 th and 11 th respondents respectively in the
complaint referral. In the referral the Commission alleges that all 20
respondents (who are either wholesalers or retailer s of bicycles and
bicycle accessories) have contravened section 4(1)( b)(i) of the
Competition Act , 1998, (the “Act”).
[2] In this application the applicants seek a dismi ssal of the Commission’s
referral. The applicants, all of whom are wholesale rs, raised a common
set of exceptions. For this reason we deal with the exceptions in the
same decision.
Background
[3] In September 2008 the Commission received infor mation from an
anonymous source indicating that retailers and whol esalers in the
cycling industry had had meetings to discuss pricin g, in particular how
to embark on a common approach to setting margins f or bicycles and
accessories.
[4] Based on the above information, the Commission initiated a complaint
on 5 March 2009 against two alleged instigators of the meetings,
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namely, Fritz Pienaar Cycles (Pty) Ltd (“Fritz Pien aar”) and Melody
Street 18 (Pty) Ltd (“Melody Street”). Fritz Pienaa r and Melody Street
are the 1 st and 2 nd respondents respectively in the complaint referral .
The Commission later amended the initiation to incl ude other
respondents, after obtaining further information im plicating those
respondents. After conducting an investigation the Commission
referred the complaint to the Tribunal against 28 r espondents on 25
June 2010.
[5] On 10 June 2011 the Commission, however, withdr ew the complaint
against all 28 respondents.
[6] A fresh complaint into the allegations was init iated by the Commission
on 18 July 2011.
[7] Since the filing of the July referral, the resp ondents in this case have
followed different approaches. Some firms have file d answering
affidavits, some have been involved in settlement d iscussions with the
Commission, whilst others have filed exceptions. So me of these
exceptions were withdrawn and we are now left to de cide the present
three.
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Industry background
[8] It was common cause amongst the Commission and the excipients that
wholesalers supply particular retailers with their brand of bicycles.
1 At a pre-hearing meeting held on 22 November 2012 it was agreed that all exception
applications would be heard and decided by the Trib unal before the hearing of the merits of
the case. At that time six respondents, namely Bowm an Cycles (Pty) Ltd (“Bowman”),
Omnico, Cytek, Coolheat, Dunkeld Cycles (Pty) Ltd ( “Dunkeld”) and the New Just Fun Group
(“New Just Fun Group”) had filed exceptions to the Commission’s referral. Bowman, Dunkeld
and the New Just Fun Group are the 7 th , 16 th and 20 th respondents respectively in the
complaint referral. By the time the hearing commen ced only three applicants wished to
proceed with their exception applications viz. Omnico, Cytek and Coolheat.
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Wholesalers are responsible for advertising and hen ce recommend a
retail price to their particular retailers. It is g enerally accepted that
retailers either follow this price or discount below it.
Case background
[9] The Commission’s case is that sometime in May 2 008, members of the
industry had meetings to discuss concerns about mar ket conditions in
the industry. The meetings included both wholesaler s and retailers.
Omnico was the only one of the excipients to attend these meetings.
The referral provides little detail of what was sai d at these May
meetings or if anything was agreed at them. As far as wholesalers are
concerned, the referral states that amongst other m atters, discussion
concerned “ ...support by wholesalers for retailers through the
adjustment to the recommended retail selling price which would allow
retailers to increase the mark-up on goods and incr ease their margins
as well”. 2
[10] These meetings culminated in a meeting in Sept ember 2008 attended
by all the respondents in this matter and others. F or present purposes
the allegation is that all three excipients attended this meeting.
[11] The September meeting was preceded by an email ed invitation from
the owner of the first respondent, Fritz Pienaar of FPC, a retailer.
[12] The email is addressed to bicycle wholesalers and retailers and invites
them all to come to a meeting. 3 In it Pienaar refers to the existence of
prior discussions between retailers and wholesalers . Pienaar states
that the aim of the meeting is to “... increase the profit margins of
retailers ”. The rationale for the meeting he explains is tha t retailers are
not making enough profit. Pienaar then indicates th at wholesalers will
benefit from a healthy retail industry.
2 See complaint referral paragraph 50.4
3 See record page 55 Annexure SM 6.
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[13] The meeting to which the invitation refers occ urs on 10 September
2008 and was allegedly minuted. The purported minut es are also
annexed to the referral, as annexure SM2 and the Co mmission places
great reliance on them to make out the essential elements of its case.
[14] Subsequent to this meeting Pienaar is alleged to have sent a further
email to those who attended in which he states that it is “...of utmost
importance that we sign-up and state that you suppo rt this decision ...”
Recipients are asked by Pienaar to “ Please click here if you are
supportive of higher prices in the Bicycling Retail sector ...”.4 To avoid
confusion with Pienaar’s earlier invitation email w e refer to this
subsequent email as the follow-up email.
[15] The Commission goes on to allege that several of the respondents
pursuant to the follow-up email, then indicated the ir ‘agreement’ by
reference to a spreadsheet which it again annexes a s an annexure.
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The Commission names the firms who indicated “...their agreement” .
Three wholesalers are named, but amongst the excipi ents, only
Cytek’s name appears. 6
[16] As we understand the referral, the conduct on which the Commission
relies on for its allegation that the respondents h ave contravened
section 4(1)(b) of the Act are contained in a narra tion of the facts
contained in paragraphs 39 – 47 of the referral. We say this because in
paragraph 48 of the referral, the Commission states its legal conclusion
and alleges that it is based on the factual narrati on contained in the
preceding paragraphs: “...this conduct [presumably a reference back to
39-47] is evidence of an agreement ....” If this reading is correct, then
the best summation of the case, at least as it affe cts the excipients, is
that set out in paragraph 41 of its referral. We qu ote this in full for this
reason:
4 Paragraphs 43-45.
5 SM8.
6 Paragraphs 48.7 to 48.9.
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“ 41. The meeting was convened on 10 September 2008, in
Midrand and the different ways in which retailers c ould increase
their margins were discussed, as reflected in the minutes. These
included:
41.1 Increasing gross margins by increasing mark- ups
for cycling accessories from 50% to 75%, and for bicycles
35% to 50%;
41.2 A proposed time for the price increase (as f rom the
1st October 2008);
41.3 Getting rid of discounting and of shops
undercutting each other;
41.4 Getting wholesalers to provide higher RRPs t o the
retailers and advertise that price to the public.”
[17] Note the conduct allegations are not different iated as between
wholesalers and retailers. Indeed they are elided i n this paragraph and
in paragraph 52 which follows in which the legal co nclusions are made.
We discuss this more fully when we deal with the ob jections.
7 In
paragraph 43, wholesalers again receive an express mention, but not
in a manner that distinguishes them from retailers. Reference is made
to the response to the follow-up email from Pienaar and the
Commission says some retailers and wholesalers “...agreed to the new
proposed mark-ups” .
Grounds for the Exceptions
[18] As indicated above, the excipients’ grounds on which the exceptions
are based, are common. These grounds are that: (i) the complaint
referral lacks the necessary averments to sustain a cause of action (i.e.
the referral does not comply with the Tribunal Rule 15(2)), (ii) no
horizontal agreement has been pleaded by the Commis sion and (iii) no
agreement not to compete on price is alleged by the Commission.
7 See annexure SM2 record page 32- 38.
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[19] In relation to the first exception the excipie nts argue that the
September 2008 meeting and minutes thereof are insu fficient to
support an alleged agreement let alone a concerted practice. If there is
other evidence which the Commission relies on in or der to support a
case of concerted practice, they argue this should be specifically
pleaded. If there are no facts of this type then th e Commission should
give clarity that its case alleges an agreement and not an agreement
and a concerted practice. The excipients admitted t hat this exception
was curable by the furnishing of further and better particulars.
[20] The second exception was taken against the cha racterisation of the
agreement as a horizontal agreement. The agreement seems from the
referral affidavit to be between wholesalers and re tailers in terms of
their recommended retail price (“RRP”). This potent ially has both
horizontal and vertical aspects, since wholesalers are in a vertical not a
horizontal relationship with their customers the re tailers, and,
furthermore, there are two horizontal layers of pot ential agreement i.e.
retailers having an agreement since they are in a h orizontal
relationship with one another, and similarly, for t he wholesalers. The
excipients submitted that the referral affidavit do es not clearly lay out
the horizontal agreement between the upstream (whol esaler)
respondents. To this extent, they argued that the r eferral affidavit was
vague and embarrassing. The wholesalers they argued did not know
what case they had to meet. Again the excipients co nceded that the
embarrassment caused them could be cured by further and better
particulars.
[21] The excipients argued that unlike the first tw o, the third exception could
not be cured by further particulars because it disc loses no cause of
action in terms of section 4(1)(b)(i) of the Act and falls to be dismissed.
[22] In order to follow this argument, we must cons ider the language of
Section 4(1)(b)(i), which states:
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“(1) An agreement between, or concerted practice by , firms, or a
decision by an association of firms, is prohibited if it is between
parties in a horizontal relationship and if -
...
(b) it involves any of the following restrictive horizontal practices:
(i) directly or indirectly fixing a purchase or selling price or
any other trading condition”
[23] The excipients argue that the RRP is neither t he price nor a sales
condition on sales by wholesalers to retailers. Rat her it is the margin
that they recommended to retailers. They further ar gue that section
4(1)(b)(i) is very specific about what would consti tute a contravention.
Cytek in particular suggested that should the Commi ssion seek to
pursue a case against the wholesalers this should h ave been pleaded
under section 4(1)(a) of the Act.
Approach/Analysis
[24] In this decision we have to decide two issues. First, whether the
Commission’s pleadings suffice for the purpose of i ts case against the
wholesalers in terms of section 4(1)(b)(i). Second, if we find that they
do not, whether the pleadings can be remedied by fu rther particulars or
whether, as suggested in argument, this can never b e a section
4(1)(b)(i) case.
[25] We have decided on the first issue in favour o f the excipients. The
Commission’s pleading of the case against the whole salers has
become so entangled with that of the retailers, tha t it is unclear to the
reader what the case is against the wholesalers. Wh ilst the
Commission has provided the alleged minutes of the meeting their
terms do not indicate the legal conclusions on which a case against the
wholesalers can be clearly appreciated. What the Co mmission needs
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to do is to translate those facts into legal conclu sions. For instance as
concerns the wholesalers it is unclear from the ref erral whether; (a) the
wholesalers had an agreement amongst themselves or whether they all
had the same arrangement with their respective reta ilers and hence an
agreement between them (the wholesalers) is inferre d; (b) if they did
have an agreement between themselves what its conte nts were i.e. did
they agree on the retail price or a wholesale price ? Another possibility
is that the agreement they reached concerned the pr ice wholesalers
would pay retailers for performing retail services i.e. this would be an
agreement on purchase price for services as opposed to a selling price
for goods; or (c) the agreement might be a more com plex one relating
to some interrelationship between the retail price and the wholesale
price. Counsel for the excipients referred to this as a ‘feedback
mechanism’.
[26] More permutations are of course possible and w e mention but a few,
which highlights precisely the reason why the Commi ssion needs to
particularise this, so that the excipients can unde rstand the case
against them.
[27] Similarly it is also not clear what role the f ollow-up email plays in the
Commission’s case. We know that only one of the exc ipients replied. Is
the reliance on firms that replied, a form of ‘offe r and acceptance’ or
does the Commission allege that the contravention h ad already taken
place by what occurred at the September meeting and that the follow-
up email and the response thereto are acts in furth erance of the earlier
formed conspiracy or are relied on as collaboration of its prior
existence or does it simply constitute evidence. Th is is not clear from
the referral because as noted, paragraph 48 contain s the phrase “...
who indicated their agreement as reflected on the s preadsheet...”. This
is an important issue that the Commission needs to clarify.
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[28] We have set out in our order the particularity that is required in this
respect and need not take this issue further as the detail required by
the order is self-explanatory.
[29] The next issue requiring particularity is the nature of the alleged
collusive conduct. Did it amount to an agreement, a concerted practice,
or both? The Commission appears to rely on both. Ca se law suggests
that if a concerted practice is relied on it needs to be specifically
pleaded. 8 For instance, parties may commence with an agreeme nt but
later follow on conduct may constitute a concerted practice. Sometimes
the difference may be theoretical and the distincti on elides.
Nevertheless, due to the case law this difficulty m ust at least be
grappled with by the pleader when seeking to allege both as the
Commission has in the present referral. It is uncle ar if the conduct that
is relied on for the concerted practice is the same as that for the
agreement or something different or additional ther eto. This requires
further particularity and we address this in paragraph 2.5 of our order.
[30] The second issue is whether the complaint can be remedied. We
consider that it can. The excipients have contended they do not
understand what the case is that they have to meet and hence the
need for particularity, but at the same time they a re sufficiently certain
that there can never be a case made out against the m in terms of
section 4(1)(b)(i). In this respect the excipients’ argument is circular. If
the agreement is not properly alleged then it is pr emature to argue that
something yet to be properly formulated can never c ontravene the
section. Until we have further particularity from t he Commission we
cannot begin to consider such an argument let alone decide whether it
is one that should be decided at exception stage. T here is no basis laid
for dismissing the case against the excipients on t he basis of no cause
of action, until the particulars have been supplied.
of action, until the particulars have been supplied.
8 Netstar (Pty) Ltd and Others v Competition Commissi on South Africa and Another 2011 (3)
SA 171 (CAC) (15 February 2011) , at para [27].
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[31] We therefore make the following order:
ORDER
PART A
The Competition Commission must give further partic ulars regarding
the issues set out in paragraphs 1 – 3 below.
1. Is it alleged that there was an agreement/concer ted practice
between wholesalers? If not, on what facts does the
Commission rely to assert that wholesalers had cont ravened
section 4(1)(b)?
2. If the Commission alleges that there was such an agreement/
concerted practice between wholesalers, then furthe r
particularity is required on the following –
2.1. What facts does the Commission rely on to asse rt the
existence of an agreement/concerted practice betwee n the
wholesalers?
2.2. What was the content of the agreement/concerted practice?
2.3. Is it alleged that the agreement had an effect on wholesale
or retail pricing or both, and if so, how?
2.4. Is it alleged that the agreement/concerted pra ctice was
implemented, and if so, details of the period of
implementation should be provided.
2.4.1. More specifically, apart from the email sent out,
referred to in paragraph 42-45 of the referral and the
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replies thereto, is there any allegation of any fur ther
conduct by the wholesale respondent firms thereafte r,
on which the Commission relies?
2.4.2. On what does the Commission rely for the all eged
“... indications of agreement.. .” signified by those firms
named in the spreadsheet. More specifically is it a lleged
that liability occurred already by attendance at th e 10
September 2008 meeting, and if so, what reliance is
placed on the firms who allegedly indicated their
agreement as opposed to firms who are not so-named
in the spreadsheet? The Commission has alleged that
only one of the excipients had indicated agreement by
means of clicking the email from Pienaar as reflect ed in
the spreadsheet marked Annexure SM8. What is the
legal significance of this alleged acceptance? How does
the liability of the non-signifying excipients diff er from
that of the firm that allegedly did? More specifica lly had
liability occurred already at or prior to the meeti ng and if
so what is the significance of reliance on the
subsequent “acceptance”.
2.5. If the allegation of a concerted practice reli es on facts that
differ from those relied on for the agreement these should
be set out.
3. If the respective respondents are implicated dif ferently in the
Commission’s case this distinction should be indicated.
PART B
1. The Commission’s further particulars should be s upplied in the form
of a supplementary affidavit, which may include mor e information
than that indicated in Part A, but must, at a minim um, address itself
to the particulars sought in Part A.
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2. The supplementary affidavit should be filed with in 20 business days
of this order.
3. The respondents must file their answering affida vits, if any, within
20 business days of the filing of the supplementary affidavit.
4. The Commission must file its replying affidavits , if any, within 15
business days of the filing of any respondent/s answering affidavit.
5. The remaining relief sought by the respondents i s dismissed.
_____________ 09 April 2013
Norman Manoim Date
Yasmin Carrim and Medi Mokuena concurring.
Tribunal Researcher : Ipeleng Selaledi
For Omnico : Adv. Jerome Wilson instructed by Lownd es
Dlamini
For Cytek : Adv. Anthony Gotz instructed by Webber Wentzel
For Coolheat : Adv. David Stephens instructed by Sh aie Zindel
For the Commission : Adv. Michelle Le Roux instruct ed by the State
Attorney