Brief Summary

Competition Law — Consent Agreement — Collusive tendering — Competition Commission and Esorfranki Ltd entering into a consent agreement regarding contraventions of section 4(1)(b)(iii) of the Competition Act — Esorfranki admitting to collusive conduct in the tendering process for the Lanxess Groundwater Remediation Project — Tribunal confirming the consent agreement as an order, promoting transparency and competition in the construction industry.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application to the Competition Tribunal for the confirmation of a consent agreement as a Tribunal order, brought in terms of section 49D read with section 58(1)(a)(iii) and section 58(1)(b) of the Competition Act 89 of 1998 (as amended).

The parties were the Competition Commission (as applicant) and Esorfranki (Pty) Limited (as respondent). The matter was heard by a Tribunal panel comprising N Manoim (Presiding Member), Y Carrim (Tribunal Member), and T Madima (Tribunal Member).

The procedural history reflected in the judgment and attached consent agreement was that the Commission had initiated complaints in February 2009 and September 2009 concerning alleged collusive conduct in the construction industry. Following the Commission’s invitation to firms in the construction industry to engage in settlement (published on 1 February 2011), Esorfranki applied for settlement and leniency on 15 April 2011, leading to the conclusion of a consent agreement signed in May 2013 (by Esorfranki) and June 2013 (by the Commission). The Tribunal heard the confirmation application on 18 July 2013 and delivered its decision on 22 July 2013.

The general subject-matter of the dispute concerned an admitted instance of collusive tendering (bid rigging) in contravention of section 4(1)(b)(iii) of the Competition Act, and the appropriate administrative penalty and forward-looking compliance undertakings to be made an order of the Tribunal through the consent agreement mechanism.

2. Material Facts

The material facts, as set out in the consent agreement that the Tribunal was asked to confirm, included the background that the Commission had initiated complaints under section 49B(1) into alleged prohibited practices in the construction industry, including collusion associated with major projects and broader industry conduct. The Commission’s investigation led it to believe that there was widespread collusion in contravention of section 4(1)(b)(iii), prompting it to issue an industry-wide settlement invitation on 1 February 2011 to facilitate a speedy and comprehensive resolution.

Esorfranki applied for leniency and settlement on 15 April 2011 and disclosed one non-prescribed prohibited practice relating to one project. It was recorded that Esorfranki was not the first to disclose that project and was therefore liable to settle it under the consent agreement.

The specific project disclosed and relied upon in the agreement was the Lanxess Groundwater Remediation Project (Tender Ref no 05-922-001). The agreement recorded that, on or about June 2006, Esorfranki reached an agreement with Stefanutti and Bressan Holdings Ltd that Stefanutti and Bressan would submit a higher bid than Esorfranki to ensure that Esorfranki would win the tender. It was further recorded that Esorfranki agreed to pay a “losers’ fee” of approximately R1 million to Stefanutti and Bressan, and that this amount was paid during June, August, September and October 2007. Esorfranki was awarded the tender in accordance with the collusive agreement, and the project was completed in July 2007. The client for the project was Lanxess (Pty) Limited, and the works related to the removal of fuel-contaminated groundwater together with minor civil and building works.

The consent agreement contained an express admission by Esorfranki that it had entered into the agreement described above, and that the conduct amounted to collusive tendering in contravention of section 4(1)(b)(iii) of the Act.

In addition to the admission and project description, the agreement recorded cooperation-related facts and undertakings, including that Esorfranki had provided truthful and timely disclosure, had cooperated expeditiously, had undertaken that it ceased the prohibited practice and would not engage in it in future, and had confirmed that it had not destroyed or falsified relevant information and had not misrepresented material facts.

3. Legal Issues

The central legal question before the Tribunal, as framed by the nature of the proceedings, was whether the Tribunal should confirm the consent agreement as an order in terms of section 49D read with section 58(1)(a)(iii) and section 58(1)(b) of the Competition Act.

Closely connected to that confirmation function was the issue, as articulated within the consent agreement, that Esorfranki’s conduct constituted a contravention of section 4(1)(b)(iii) (collusive tendering), and whether the proposed administrative penalty and behavioural/compliance undertakings fell within the statutory framework governing consent orders and administrative penalties.

The dispute presented primarily as a matter of application of law to admitted facts within a settlement/consent-order procedure, rather than a contested factual inquiry. The Tribunal’s role, as reflected in the order, was to exercise its statutory power to confirm the agreement presented by the parties, rather than to adjudicate disputed evidence.

4. Court’s Reasoning

The Tribunal’s reasoning, as contained in the judgment, was concise and confined to the confirmation function. The Tribunal recorded that it confirmed the order as agreed to and proposed by the Competition Commission and the respondent, annexed and marked “A”.

The consent agreement itself set out the statutory context relied upon by the parties for the proposed order. It identified the Commission’s investigative powers and its authority to conclude consent agreements under section 49D, and it located the prohibited conduct within the per se prohibition against collusive tendering under section 4(1)(b)(iii). It further linked the settlement approach to the Commission’s construction-industry invitation process, and to the Commission’s objectives and functions under the Act, including promoting competitive outcomes and addressing cartel conduct.

On the penalty component, the consent agreement recorded that the proposed administrative penalty was concluded with reference to sections 58(1)(a)(iii) and 59(1)(a), 59(2), and 59(3), and that the amount was calculated in accordance with the Commission’s invitation methodology, namely as a percentage of annual turnover in the relevant subsector (identified as the Civil Engineering CIDB subsector) for the financial year preceding the invitation date. The agreement also provided for payment mechanics and for transfer by the Commission to the National Revenue Fund in accordance with section 59(4).

On forward-looking relief, the agreement included undertakings directed at ensuring future compliance, including cooperation in subsequent proceedings, the development and submission of a competition law compliance programme, and internal circulation of a summary of the consent agreement to relevant staff. The Tribunal’s confirmation order gave these undertakings binding effect as part of the confirmed consent order.

5. Outcome and Relief

The Tribunal confirmed the consent agreement as an order of the Competition Tribunal.

As confirmed, the order recorded that Esorfranki’s conduct in relation to the Lanxess Groundwater Remediation Project amounted to collusive tendering in contravention of section 4(1)(b)(iii) of the Competition Act, based on Esorfranki’s admission in the consent agreement.

The relief confirmed included the payment by Esorfranki of an administrative penalty of R155 850, payable to the Commission within 30 days of confirmation of the consent agreement as an order of the Tribunal, together with the cooperation and compliance commitments described in the consent agreement. The agreement also recorded that it was in full and final settlement of the specific conduct listed in the disclosed project paragraph, and that it concluded all proceedings between the Commission and Esorfranki in respect of that conduct only upon confirmation.

The judgment itself did not record any separate costs order.

Cases Cited

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

Legislation Cited

The Competition Act 89 of 1998 (as amended) was cited, including sections 2, 4(1)(b)(i)–(iii), 19, 21(1), 22, 26, 49B, 49D, 58(1)(a)(iii), 58(1)(b), 59(1)(a), 59(2), 59(3), 59(4), and 67.

The Constitution of the Republic of South Africa, 1996, specifically section 217, was referenced in relation to public procurement principles.

The Construction Industry Development Regulations, 2004 (as amended) were referenced, including publication details Government Notice No. 692 of 9 June 2004, Government Gazette No. 26427 of 9 June 2004, and the substitution referenced as Government Notice No. 8936 of 14 November 2008, Government Gazette No. 31603 of 14 November 2008.

The Commission’s Corporate Leniency Policy was referenced with publication details Government Notice No. 628 of 23 May 2008, Government Gazette No. 31064 of 23 May 2008.

Rules of Court Cited

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

Held

The Competition Tribunal held, by confirming the parties’ proposed order, that the consent agreement between the Competition Commission and Esorfranki (Pty) Limited was confirmed as a Tribunal order.

As reflected in the confirmed consent agreement, Esorfranki admitted to participating in collusive tendering by arranging for competitors to submit higher bids (cover pricing) and agreeing to and paying a losers’ fee, in relation to the Lanxess Groundwater Remediation Project, which constituted a contravention of section 4(1)(b)(iii) of the Competition Act.

The Tribunal’s confirmation rendered enforceable the agreed remedial terms, including the administrative penalty of R155 850, the payment timeframe, and the agreed compliance and cooperation undertakings, with the settlement being full and final only in relation to the specific disclosed conduct.

LEGAL PRINCIPLES

The judgment applied the principle that the Competition Tribunal may, in terms of section 49D read with section 58(1) of the Competition Act, confirm a consent agreement concluded between the Competition Commission and a respondent firm, thereby making the agreed terms an enforceable order of the Tribunal.

The consent agreement proceeded on the statutory principle that collusive tendering (bid rigging) between firms in a horizontal relationship is prohibited under section 4(1)(b)(iii) of the Competition Act, and that such conduct includes arrangements that distort tender outcomes, including the use of cover pricing and the payment of compensation such as a losers’ fee to non-winning participants in the collusive arrangement.

The matter further reflected the principle that an administrative penalty may be imposed and confirmed as part of consent-order relief under the Competition Act, and that, once paid to the Commission, such penalty amounts are dealt with in accordance with section 59(4) of the Act (as recorded in the agreement).

Competition Commission v Esorfranki Ltd (016956) [2013] ZACT 68 (22 July 2013)