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Competition Commission v Senwes Ltd (110/CR/Dec06) [2013] ZACT 34 (15 May 2013)

80 Reportability
Competition Law
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Brief Summary

Competition Law — Anti-competitive practices — Differential tariff fees for grain storage — Competition Commission alleging exclusionary practices by Senwes Ltd — Tribunal finding contravention of section 8(c) of the Competition Act — Settlement agreement reached post-appeal, confirming remedial actions to ensure non-discriminatory practices in grain storage and trading — Tribunal's order to establish separate entity for grain trading to prevent anti-competitive behavior.

Comprehensive Summary

Summary of Judgment


1. Introduction


The proceedings were before the Competition Tribunal of South Africa and concerned the confirmation of a settlement agreement as a consent order. The settlement related to a long-running complaint referral brought under the Competition Act 89 of 1998 concerning alleged exclusionary conduct by a dominant firm.


The Competition Commission was the applicant (complainant and referring authority) and Senwes Limited was the respondent (the firm accused of engaging in prohibited conduct).


Procedurally, the matter originated as a complaint referral to the Tribunal under section 8(c) of the Competition Act. The Tribunal previously determined the merits before dealing with remedies, and thereafter the case proceeded through a sequence of appeals culminating in the Constitutional Court, which clarified the scope of the referral and required an amendment to the Tribunal’s earlier formulation of its finding (specifically by deleting reference to “margin squeeze”). Following that appellate process, the parties agreed to settle the outstanding remedies phase and jointly approached the Tribunal to have the settlement confirmed as an order in terms of section 49D, read with sections 58(1)(a) and 58(1)(b) of the Act.


The general subject-matter concerned the competitive relationship between grain storage services (an upstream input in which Senwes was dominant in the relevant area) and grain trading/marketing activity downstream, and the extent to which Senwes’ storage pricing/conditions allegedly impeded rival grain traders’ ability to compete.


2. Material Facts


The Tribunal’s order, together with the annexed settlement agreement, recorded that the Commission’s referral alleged that Senwes engaged in conduct prohibited by section 8(c) of the Competition Act. The conduct complained of included Senwes’ practice of charging differential tariff fees for grain storage, with the alleged effect that downstream rivals (grain traders competing with Senwes) were impeded or prevented from expanding in the downstream grain trading market. The Commission’s pleaded theory, as recorded, was that the exclusionary effect of the differential storage fees outweighed any technological efficiency or other pro-competitive gain.


It was recorded as part of the procedural history (and therefore treated as established for purposes of settling remedies) that the Tribunal had earlier found the complaint established on the merits under section 8(c), that Senwes pursued appeals, and that the merits/remedies were separated such that remedies were stayed pending the outcome of the appeal process. The settlement agreement further recorded that the Supreme Court of Appeal upheld Senwes’ appeal on the basis that the Tribunal had exceeded its powers by characterising the contravention as a “margin squeeze”, and that the Constitutional Court subsequently held that “margin squeeze” did not form part of the referral; it set aside the Supreme Court of Appeal’s order and directed that the Tribunal’s ruling be amended by deleting reference to “margin squeeze”.


By the time of settlement, a portion of Senwes’ grain marketing business in relation to certain grain types had already been transferred to the Bunge Senwes Joint Venture pursuant to a merger approval (identified in the settlement as annexure material). The settlement therefore focused on Senwes’ remaining grain marketing business (described as comprising client base and goodwill in relation to white maize, sunflower, and diverse commodities) and on ensuring separation and non-discrimination in relation to storage access and pricing.


The settlement recorded agreed remedial steps, including a future transfer of the remaining grain marketing business to a separate legal entity owned by Senwes (“Newco”) by a specified deadline, interim controls to ensure operational separation between Senwes’ storage business and its grain trading/marketing activities pending transfer, governance separation (including a distinct board for Newco with at least one non-executive director not affiliated to Senwes), restrictions on information flow beyond specified agreements, a service level arrangement for support services at market-related rates, an agency model allowing Senwes to procure grain on behalf of traders on a non-discriminatory basis, and a commitment to provide storage options to all parties on identical terms subject only to differentiation that may legitimately be made under the Competition Act.


The settlement also contained compliance-monitoring arrangements, including annual written confirmations of compliance for five years following the order, verified by external auditors if required by the Commission.


3. Legal Issues


The central legal question before the Tribunal in this specific decision was not the merits of the prohibited practice, but whether the Tribunal should confirm the parties’ settlement agreement as an order of the Tribunal under the Competition Act, on the terms agreed between the Commission and Senwes.


The dispute at this stage therefore principally concerned the application of statutory powers to agreed facts and agreed remedies, rather than contested factual determinations. The Tribunal’s function in the decision as provided was to make an order in terms of the Act confirming the agreement, rather than to conduct an evaluative merits inquiry.


A connected issue, reflected in the settlement’s background, was that the remedies phase remained outstanding after appellate proceedings that affected the characterisation of the merits finding (by excluding “margin squeeze” as part of the referral). The settlement was presented as resolving those outstanding remedial issues finally.


4. Court’s Reasoning


The Tribunal’s published decision in this report was confined to a short order. It recorded that the Tribunal confirmed the order as agreed to and proposed by the Competition Commission and Senwes, annexed to the order and supplemented by annexures.


The Tribunal’s reasoning, as expressed in the text provided, did not set out a detailed analysis of the settlement’s content, proportionality, or competitive effects. Instead, the Tribunal exercised the procedural power contemplated by the Competition Act to confirm a settlement agreement as a Tribunal order, thereby making the negotiated remedial framework binding and enforceable as an order of the Tribunal.


The settlement agreement itself reflected the parties’ approach to remedies. It used a combination of structural and behavioural measures, including transferring the remaining grain marketing business to a distinct entity (Newco), implementing governance and information barriers, ensuring non-discriminatory access to storage options on identical terms subject to permissible differentiation, and establishing compliance and monitoring mechanisms. The Tribunal’s decision, however, did not independently articulate why each measure was necessary; it confirmed the agreement as presented.


5. Outcome and Relief


The Tribunal confirmed the settlement agreement between the Competition Commission and Senwes Limited as an order of the Competition Tribunal, together with the attached annexures (Annexures 1 to 3).


The effect of the confirmed order was to make binding the settlement’s remedial obligations, including the transfer of the remaining grain marketing business to Newco within the stipulated period, the interim and ongoing separation controls, non-discrimination obligations in respect of storage services and procurement agency services, governance and information-flow restrictions, service-level support conditions, and compliance reporting obligations.


The provided text did not record any separate or express costs order.


Cases Cited


No external case law citations were set out in the text of the Tribunal’s decision. The settlement agreement referred to prior appellate proceedings in the Competition Appeal Court, the Supreme Court of Appeal, and the Constitutional Court in this matter, but did not provide formal law report citations for those decisions in the text provided.


Legislation Cited


Competition Act 89 of 1998 (as amended), including section 8(c), section 49D, section 58(1)(a), section 58(1)(b), section 58(1)(a)(iv), section 60(2), and section 65.


Companies Act (referred to in relation to statutory reports to a holding company structure, without specifying an Act number in the text provided).


Consumer Protection Act (referred to in relation to communication of tender/auction information, without specifying an Act number in the text provided).


Rules of Court Cited


No rules of court were cited in the text provided.


Held


The Competition Tribunal made an order confirming, as a Tribunal order, the settlement agreement concluded between the Competition Commission and Senwes Limited in relation to the section 8(c) complaint referral (Case No. 110/CR/Dec06), including the settlement’s annexures. The confirmed order finally resolved the remedies issues between the parties arising from the referred complaint.


LEGAL PRINCIPLES


The Tribunal confirmed that a settlement agreement concluded between the Competition Commission and a respondent in complaint-referral proceedings may be made binding by being confirmed as an order of the Tribunal in terms of section 49D, read with sections 58(1)(a) and 58(1)(b) of the Competition Act, with the result that the agreed remedial framework becomes enforceable as a Tribunal order.


The settlement as confirmed reflected the remedial principle (applied by agreement between the parties) that addressing exclusionary concerns under section 8(c) may involve a mix of behavioural and structural measures, including separation of potentially conflicting business units, governance and information barriers, and non-discrimination commitments in respect of access to essential or strategically significant upstream services (here, grain storage).


The confirmed order also reflected that where operational separation and non-discrimination obligations are central to the agreed remedy, the remedy may be reinforced through ongoing compliance monitoring and reporting obligations, including provision of periodic written confirmations and, where required, auditor verification, for a defined period after the order.


The settlement further reflected (as an agreed term) that any subsequent variation of the confirmed agreement would require a written amendment signed by both parties and confirmation by the Tribunal pursuant to an application to the Tribunal setting out the proposed amendment and grounds for it, thereby tying variation to continued Tribunal oversight in the manner agreed by the parties.

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[2013] ZACT 34
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Competition Commission v Senwes Ltd (110/CR/Dec06) [2013] ZACT 34 (15 May 2013)

COMPETITION
TRIBUNAL
REPUBLIC
OF SOUTH AFRICA
Case
No: 110/CR/Dec06
016484
In
the matter between:
The
Competition Commission
.......................................................................................................................
Applicant
and
Senwes
Limited
...........................................................................................................................................
Respondent
Panel:
N Manoim (Presiding Member), Y Carrim (Tribunal Member) and M Holden
(Tribunal Member)
Heard
on: 25 April 2013
Final
submission received on: 14 May 2013
Decided
on: 15 May 2013
Order
The
Tribunal hereby confirms the order as agreed to and proposed by the
Competition Commission and the respondent annexed hereto
marked “A”,
supplemented by Annexures 1 to 3 thereto.
Presiding
Member
N
Manoim
Concurring:
Y Carrim and M Holden
IN
THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CT
Case No. 110/CR/DEC06
CC
Case No. 2004/DEC1332
In
the matter between:
THE
COMPETITION COMMISSION
.....................................................................................................
Applicant
and
SENWES
LIMITED
.................................................................................................................................
Respondent
In
re:
THE
COMPETITION COMMISSION
.....................................................................................................
Applicant
and
SENWES
LIMITED
.................................................................................................................................
Respondent
SETTLEMENT
AGREEMENT BETWEEN THE COMPETITION COMMISSION AND SENWES LIMITED IN
REGARD TO THE CONTRAVENTION OF
SECTION 8(C)
OF THE
COMPETITION ACT,
89 OF 1998
, AS AMENDED.
1. BACKGROUND
Whereas:
1.1. The Commission
referred a complaint against Senwes to the Tribunal in terms of,
inter alia,
section 8(c)
of the Act, in which it was alleged, inter
alia that Senwes' practice of charging differential tariff fees for
storage was exclusionary
and had an anti-competitive effect as it
impeded or prevented grain traders who compete with Senwes from
expanding within the
downstream market for grain trading, was thus
in contravention of the Act and that the anti-competitive effect of
the differential
storage fees charged by Senwes outweighed any
technological efficiency or other pro-competitive gain that it might
have;
1.2. It was agreed by
the parties and decided by the Tribunal that the merits of the
complaints referred against Senwes would
be dealt with in advance of
dealing with remedies;
1.3. After hearings
conducted before the Tribunal, the Tribunal found that the
Commission had established its complaint against
Senwes in respect
of margin squeeze and that such conduct amounted to a contravention
of
section 8(c)
of the Act;
1.4. Senwes appealed
to the Competition Appeal Court;
1.5. On application by
Senwes the Tribunal ordered that the Remedies Hearing be stayed
pending the outcome of any appeals by either
party but that the
parties exchange affidavits pertaining to the issue of remedies
pending the outcome of such appeals;
1.6. Pursuant thereto,
the remedies and orders sought by the Commission were that:
1.6.1. Senwes be
interdicted from charging a tariff (or imposing any other storage
condition) for the storage of grain that was
different to that
charged or imposed to any farmers/producers or from offering to any
farmer/producer any benefits or discount
in respect of storage costs
that was not available to grain traders;
1.6.2. Directing, that
in the event that Senwes offered farmers/producers or any other
third party terms and conditions for storage
of grain which included
a capped tariff in respect of such storage (i.e. an agreement not to
charge for storage after a certain
period), that the same terms and
conditions for storage of grain be offered to all traders who stored
grain with Senwes;
1.6.3. Directing that
all parties who stored grain with Senwes be charged for such storage
on the same terms and conditions;
1.6.4. In conjunction
with the three immediately preceding paragraphs, that Senwes be
ordered, in terms of
section 58(1)(a)(iv)
read with
section 60(2)
of
the Act to sell its grain trading division or its storage division
to a separate registered company (which may be a subsidiary
or
associate company of Senwes) (the “New Company”). The
New Company was to have a separate and distinct board to
that of
Senwes and the directors of the New Company would have to include
non-executive directors not affiliated to Senwes;
1.6.5. Senwes comply
with the order referred to in the immediately preceding paragraph
within 90 days of date of the order;
1.6.6. Declaring that
the margin squeeze conduct found to be a contravention of
section
8(c)
of the Act constitutes a prohibited practice in terms of the
Act for the purposes of
section 65
of the Act and that for clarity
it be recorded that such conduct was the conduct of Senwes in
supplying storage, in a market
in which it was dominant, to
downstream rivals, i.e. traders which traded in the physical market
for grain at a price that prevented
traders which trade in the
physical market for grain (i.e. competitors of Senwes) from earning
a viable price/cost margin in
the area in which Senwes is dominant
for the period 1 May 2003 to 20 December 2006;
1.7. After its appeal
to the Competition Appeal Court was unsuccessful Senwes appealed,
with the leave of the Supreme Court of
Appeal, to the Supreme Court
of Appeal;
1.8. The Supreme Court
of Appeal upheld Senwes' appeal and held that the Tribunal had
exceeded its powers under the Act when it
ruled that Senwes had
contravened
section 8(c)
by engaging in a margin squeeze;
1.9. The Commission
appealed to the Constitutional Court which Court held that a margin
squeeze complaint did not form part of
the referral but instead that
the referral covered a contravention of
section 8(c)
of the Act,
consequently set aside the order issued by the Supreme Court of
Appeal and ordered that the ruling of the Tribunal
be amended by
deleting reference to ‘margin squeeze';
1.10. The Commission
and Senwes have agreed that the issues pertaining to remedies be
settled in terms of this Settlement Agreement.
1.11. The Competition
Commission and Senwes Limited hereby agree that application be made
to the Competition Tribunal for the
confirmation of this Settlement
Agreement as an order of the Competition Tribunal in terms of
section 49D
as read with
section 58(1
)(a) and 58(1 )(b) of the
Competition Act, 89 of 1998
, as amended on the terms set out below,
2. DEFINITIONS
For the purposes of
this Agreement the following definitions shall apply:
2.1.
"Act'
means the Competition Act, 1998 (Act No. 89 of 1998), as amended;
2.2.
"Agency
Agreement”
means the Agency Agreement contemplated in
clause 4.1.1.10. below, in terms of which Senwes, shall, from time
to time, procure
grain on behalf of grain traders, including Newco;
2.3.
"Agreement”
means this Settlement Agreement duly signed and concluded between
the Commission and Senwes;
2.4.
"Commission"
means the Competition Commission of South Africa, a statutory body
established In terms of section 19 of the Act, with its principal

place of business at 1st Floor, Muiayo Building (Block C), the DTI
Campus, 77 Meintjies Street, Sunnyside, Pretoria, Gauteng;
2.5.
"Commissioned”
means the Commissioner of the Commission, appointed in terms of
section 22 of the Act;
2.6.
"Senwes"
means Senwes Limited, a company registered and incorporated in
accordance with the laws of the Republic of South Africa with

registration number 1997/005336/06 and with its registered office
and main place of business at 1 Charel de Klerk Street, Klerksdorp,

North West Province, South Africa;
2.7.
"Service
Level Agreement”
means the Service Level Agreement to
be entered into between Senwes and Newco, as contemplated in clause
4.11.8;
2.8.
"Parties”
I means the Commission and Senwes;
2.9.
"Tribunal”
means the Competition Tribunal of South Africa, a statutory body
established in terms of section 26 of the Act, with its principal

place of business at 3rd Floor, Muiayo Building (Block C), the DTI
Campus, 77 Meintjies Street, Sunnyside, Pretoria, Gauteng.
3. INTRODUCTION
3.1. The parties to
this agreement are the Commission and Senwes,
3.2. Senwes and the
Commission have agreed upon the terms of an appropriate order to be
submitted to the Tribunal for confirmation,
without prejudice to
their right to enter into a remedies hearing should the Agreement
not be confirmed as an order of the Tribunal.
4. THE ORDER SOUGHT
4.1. The Commission
and Senwes propose that the following order be confirmed by the
Tribunal;
4.1.1. It is noted
that Senwes has already transferred part of its grain marketing
business in relation to certain types of grain
to the Bunge Senwes
Joint Venture, as per the merger approval, attached hereto as
Annexure 1. The terms of the transaction documents,
submitted during
that merger, shall continue to apply, and the terms of this
Agreement shall, accordingly, govern the remaining
grain business of
Senwes which does not form part of the Bunge Senwes Joint Venture.
4.1.1.2. The remaining
grain marketing business owned by Senwes, comprising Senwes' client
base and goodwill in relation to white
maize, sunflower and diverse
commodities, will be transferred by Senwes to a separate legal
entity owned by Senwes (referred
to as "Newco”) by 31 May
2014 or a date falling 9 months after the confirmation of this
Agreement by the Competition
Tribunal, whichever is earlier. A
period of time is required to configure Senwes1 financial and IT
systems to accommodate the
arrangement with Newco according to an
indicative project plan, which has been submitted to the Commission,
attached hereto as
Annexure 2, and which will need to be updated
upon the approval of this agreement by the Tribunal. During the
period between
the confirmation of the settlement by the Tribunal
and the transfer date of the business to Newco, strict controls and
processes,
as appear in Annexure 3 hereto, will be implemented and
that will continue to ensure that Senwes' grain trading business and

its storage business are operated as distinct business units and
that the former is not treated differently to any other trader
in
terms of storage.
4.1.1.3 Senwes shall
be the sole shareholder of Newco but ft may introduce another
company ('‘Holdco") between itself
and Newco, provided
that Holdco is a 100% subsidiary of Senwes and Holdco holds 100% of
the shares in Newco. Although Senwes
may introduce other
shareholders at a later stage or restructure Newco or Holdco, any
such steps will be subject to the prescribed
merger notification
procedure in terms of the Act.
4.1.1.4. Senwes may
retain a separate grain procurement arm (as part of "Senwes
Grainlink Operations11, its sifo business),
which shall be entitled
to contract with any grain trader, including Newco, on a
non-discriminatory and arm's length basis, in
terms of an Agency
Agreement, as contemplated in clause 4.1110, and which may procure
grain subject to the restrictions set out
in clause 4.1.1.11 below.
Senwes1 Grainlink Operations shall pay the normal storage and
handling costs that will be applicable
from time to time in respect
of the grain procured by its procurement arm. Senwes shall ensure
that its Grainlink Operations
are accounted for separately, to
enable adequate monitoring of its compliance with these conditions
as contemplated in clause
4.1.1.12.
4.1.1.5. Senwes shall
offer all parties who store grain with It, including Newco, other
grain traders and its Grainlink Operations
(contemplated in clause
4.1.14 above), equal access to its various storage options on
identical terms save for such differentiation
that may legitimately
be made under the
Competition Act, taking
into consideration that
different storage options may be offered by Senwes, based, on the
volume of grain stored, the duration
or time of storage, the
location of the relevant silo, the type and quality of the
commodity, the capacity utilisation of the
silo or such other basis
of distinction as may be permitted by the Tribunal pursuant to an
application brought in terms of clause
6 below. The various options
shall be equally available to all Senwes' clients and its Grainlink
Operations.
4.1.1.6. Newco will
have a separate and distinct board of directors to that of Senwes,
which will include (a) non-executive director/s
not affiliated to
Senwes. Newco and Senwes shall have their own employee incentive
schemes.
4.1.1.7. Newco will
provide statutory reports to Holdco in terms of the Companies Act
(which Holdco may provide to Senwes), but
no further information
shall pass between Senwes and Newco, except as is generally
available in the market, as is contemplated
in or required for the
purposes of the fulfilment of the Service Level Agreement or the
Agency Agreement or as is made available
pursuant to the latter
agreement.
4.1.1.8. In terms of
the Service Level Agreement to be entered into between Senwes and
Newco, a copy of which has been provided
to the Competition
Commission, Senwes will provide support services to Newco, such as
financial management, information technology
and compliance services
at market related rates.
4.1.1.9. Newco will
procure grain on its own behalf in the market.
4.1.1.10. In terms of
an Agency Agreement, a copy of which has been provided to the
Competition Commission, grain traders, including
Newco, may approach
Senwes to procure grain on their behalf, based on mandates given to
Senwes. The Agency Agreement will provide
that information flows
will take place between grain traders (being Newco or other grain
traders), as principals, on the one
hand, and Senwes, on the other
hand, as is customary in any anms-length principle-agent
relationship. The Agency Agreement shall
contain a provision in
terms of which Senwes shall provide agency services on a
non-discriminatory basis to al! grain traders
(including Newco) and,
in particular, on a non-discrimrnatory basis, as between Newco, on
the one hand, and other grain traders,
on the other hand.
4.1.1.11. Senwes'
procurement arm (forming part of its Grainlink Operations), may,
from time to time, procure grain in Senwes’
own name, but such
grain will be sold on a tender or auction basis, to all traders so
that Newco and other grain traders are
treated equally, information
regarding the details of tenders or auctions will be communicated in
accordance with the Consumer
Protection Act, where applicable, and
all traders will be treated equally in terms of access to
information regarding the time,
place and the subject matter of the
auction or the terms of the tender. Alternatively, Senwes shall be
entitled to deliver the
grain procured in its own name onto the
South African Futures Exchange ("Safex"), where all
participants will have
equal opportunity to purchase it according to
the rules of Safex.
4.1.1.12. Senwes shall
monitor that it is in compliance with the terms of this Agreement In
the event that the Commission requests
Senwes to confirm that it is
compliant with the terms of this Agreement, Senwes shall provide
written confirmation to the Commission,
verified by its external
auditors, If so required by the Commission. Provided that for the
first five years following the date
of this order, Senwes shall
provide the written confirmation of its compliance verified by its
external auditors to the Commission.
The confirmation shall be
provided annually to the Commission within three months of the end
of Senwes’ financial year.
5. FULL AND FINAL
SETTLEMENT
This Agreement, upon
confirmation as an order of the Tribunal, is entered into in full
and final settlement and concludes ail
proceedings between the
Commission and Senwes relating to the subject matter of the hearing
before the Tribunal under case no.
110/CR/Dec06.
6. VARIATION OF THE
AGREEMENT
The parties agree that
any variation or amendment to this Agreement shall only be binding
once it has been reduced to writing,
signed on behalf of both
Parties and confirmed by the Competition Tribunal, pursuant to an
application brought by the Parties
to the Tribunal, setting out the
proposed amendment and the grounds upon which such amendment is
sought.
SIGNED at Sandton on
13 May 2013
For and on behalf of
SENWES LIMITED
SIGNED at Pretoria on
14 May 2013
For and on behalf of
THE COMPETITION
COMMISSION

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