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[2014] ZACT 27
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Coolheat Cycle Agencies (Pty) Ltd v Competition Commission; In Re: Competition Comission v Fritz Pienaar Cycles (Pty) Ltd and Others (73/CR/Jul12, 015438) [2014] ZACT 27 (20 February 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case No: 73/CR/Jul12
(015438)
In
the matter between:
COOLHEAT CYCLE
AGENCIES (PTY) LTD
Applicant
and
THE COMPETITION
COMMISSION
Respondent
In
re:
The
complaint referral between:
THE COMPETITION
COMMISSION
and
FRITZ PIENAAR CYCLES
(PTY) LTD AND 19 OTHERS
1
st
- 20
th
Respondents
Panel : Norman
Manoim (Presiding Member)
Medi
Mokuena (Tribunal Member)
Anton
Roskam (Tribunal Member)
REASONS: EXCEPTION
APPLICATION
Introduction
1.
This
is an exception application brought by Coolheat Cycle Agencies (Pty)
Ltd (“Coolheat”), a wholesaler of bicycles
and cycling
equipment, which is one amongst twenty respondents facing a charge
that it has contravened section 4(1 )(b)(i) of the
Competition Act,
Act 89 of 1998, (the “Act” ).
[1]
2.
On 17
th
February we heard oral submissions from Coolheat and the Competition
Commission (the “Commission”). On the same day
we issued
our order dismissing the exception. A copy of this order is annexed
hereto marked A.
3.
We set out below our reasons for
dismissing the exception application.
Background
4.
This
is the second exception application brought by Coolheat in this
matter. In an earlier decision where we determined an exception
brought by other respondents including Coolheat, we set out the facts
of the case and its history. For reasons of brevity they
are not
repeated here, but can be gleaned from that decision.
[2]
5.
The essence of the case is that the
Commission alleges that retailers and wholesalers of bicycles and
cycling accessories had agreed
to raise the retail price of these
goods through agreements involving both retailers and wholesalers. In
these reasons our focus
is on the role of wholesalers, as Coolheat is
a wholesaler. Wholesalers are alleged to have agreed to raise the
margins available
to retailers by increasing the recommended retail
price. They are able to do so according to the Commission because
wholesalers
are responsible for advertising retail prices.
6.
A key element of the Commission’s
case is a meeting that took place in September 2008 attended by
several wholesalers and
retailers, amongst them the respondents and
Coolheat. The Commission also relies for its case on meetings that
preceded this meeting
as well as subsequent emails that were
exchanged.
7.
The
Commission alleges that these meetings resulted in an agreement or
agreements or concerted practices to directly or indirectly
“....fix
a purchase price or any other trading condition.” Accordingly,
the Commission concluded the firms had contravened
section 4(1
)(b)(i) of the Act.
[3]
(Although
the Commission relies on the contraventions constituting agreements
or alternatively concerted practices it relies on
the same facts for
these allegations. For this reason as a convenient short hand we will
simply refer to agreements but it can
be assumed that the reasons
apply to both)
8.
Several wholesalers excepted to the
referral and alleged that it was, at least in relation to their role
in the alleged contravention,
vague and embarrassing. They argued
that the lack of particularity could not be cured and the case
against them should be dismissed.
We shall refer to this as the first
exception.
9.
On 9 April 2013 we upheld the first
exception partially, by requiring the Commission to provide further
particulars on certain issues,
which we set out in our order.
However, we dismissed the remaining relief sought by the excipients,
in particular that the case
against them be dismissed.
10.
The Commission then provided the further
particulars by way of an affidavit from its investigator on 14 May
2013. In response, Coolheat
then brought a further application for
exception (the second exception) on 19 June 2013. Again, as was the
case with its relief
in the first exception, Coolheat sought an order
dismissing the case against it.
11.
It is this second exception that is the
subject matter of this decision.
12.
The
present exception, unlike the first exception, does not make out a
case that the particulars are vague and embarrassing. Now
Coolheat
argues what is known in practice as a ‘pure’ exception,
i.e. an objection that even if the facts alleged by
the Commission
are assumed to be correct, it nevertheless fails to disclose a cause
of action because it is bad in law. Since it
is bad in law it cannot
be remedied by any more further particulars and Coolheat sought an
order dismissing the referral against
them.
[4]
13.
To understand the basis of the exception
we have to consider the further particulars provided by the
Commission that gave rise to
it.
The
Commission’s further particulars
14.
From our previous decision we know that
the Commission’s case that the wholesalers were party to an
agreement alternatively
a concerted practice to fix prices, was not
entirely clear. The Commission has in its further particulars
remedied this. Indeed,
Coolheat cannot complain that the case is not
clear to them and certainly in oral argument it made no complaint of
this kind.
15.
The
Commission alleges that the wholesalers reached an agreement between
themselves. Since wholesalers compete with one another
this agreement
is one between parties in a horizontal relationship. The nature of
that agreement was to “ ...directly or
Indirectly fix(ed) the
selling price or other trading condition of bicycles and cycling
accessories sold by the retailer respondent
in contravention of
section 4(1)(b)(i)oftheAcf’.
[5]
16.
The
Commission then alleged that the content of that agreement between
the wholesalers was to use the recommended retail
price (RRP) as the
"... mechanism by which the downstream prices and margins of
bicycles and accessories could be increased
from October 2008
onwards”.
[6]
17.
The
Commission says it was agreed that the retailer respondents would
utilise the RRP and refuse to discount off it, to ensure higher
prices. The benefit for the retailers is obvious, but the Commission
explained that the wholesalers’ rationale was that if
retailers
were healthy they (the wholesalers) would benefit by getting paid
timeously and in full by the retailers.
[7]
18.
The Commission then goes on
to elaborate on the RRP pricing “mechanism” as it terms
it. We quote here from
paragraphs 25- 27 of the further particulars:
25)
“Given the fact the RRP is readiiy
available to consumers through advertisements and the industry
practice is to charge the
RRP to a retail consumer, this “price”
is not merely a recommendation that is of no significance in the
market for
the end consumer attending at a retail shop.
26)
The price set by the wholesalers and
subject to a known uniform markup, is, directly or indirectly,
the price that wiil become
known and charged to consumers by the
retailers. The uniformity of an agreed increase in the mark-up
between the wholesale price
and the effect of this on the RRP is the
mechanism by which the wholesaler respondents achieved the direct or
indirect fixing of
the selling price or any other trading condition
of bicycles and cycling accessories, respectively, by agreement
27)
... it is this RRP pricing mechanism
which was the subject of that meeting. Specifically the proposal was
made that the RRP for
bicycles be increased by a mark-up from 35% to
40% or 50% for bicycles and from 50% to 75% for bicycle accessories.
This increase
would result in the increase of the selling price of
these products by a similar percentage".
The
basis of the exception
19.
Coolheat argues that the wholesalers can
only be found to have contravened section 4(1 )(b)(i) if they collude
on the wholesale
price since that is the price they
as
competitors set and control. However, they do not control the retail
price - retailers do - the most wholesalers can be said
to affect
this price is to recommend the retail price but since retailers are
not bound to charge it they are free to charge a
higher or lower
price.
20.
Thus, the absence of a horizontal
agreement i.e. an agreement at wholesaler level to fix wholesale
prices means the Commission has
not alleged the necessary
jurisdictional fact for its case under 4()(b)(i) and the case should
be dismissed. Expressed differently,
those who are parties to the
agreement must operate at the same level in the supply chain as the
outcome of their agreement - in
this case price or other trading
condition - is operative. If the agreement to which competitors are
party has as its subject matter
an outcome downstream from them, then
such a case would fall outside of section 4(1 )(b)(i).
21
.The Commission raised three defences to this.
1)
The exception was a repeat of the
previous exception which had not been upheld;
2)
The exception was not a proper exception
as it did not allege that the Commission had not provided sufficient
particularity; and
3)
The exception relied on facts and law
which more properly should be argued at trial, not by way of
exception.
22.
We do not agree with the
Commission’s first two arguments. Given a lack of particularity
in the Commission’s
case against the wholesalers previously,
Coolheat was at least entitled to argue its legal point with more
certainty now that particularity
has been obtained. The second
argument that Coolheat cannot argue an exception based on a point of
law is also wrong. There is
nothing to prevent a respondent in an
appropriate case from taking such an approach which accords with both
our past practice and
that in the High Courts, as it means that cases
with no legal prospect of success can be nipped in the bud in their
incipiency.
23.
However, we do agree with the Commission
that this is not an appropriate case for us to decide on exception.
24.
In order to succeed Coolheat must
persuade us that the legal issue can be decided on the pleaded facts,
which in this case constitute
the referral as supplemented by the
further particulars and secondly, that it is appropriate to decide
the legal point now.
25.
We find that Coolheat has failed to
persuade us on either one.
26.
Indeed the factual allegations around
how the price is reached at retail level through the mechanism of an
agreement amongst wholesalers
is one material to the Commission’s
case and assumptions about what occurs at particular levels of the
value chain would
be made prematurely on this record. The Commission,
as noted, describes in the further particulars, how the agreement
between the
wholesalers has a bearing on the retail price, because of
the particular way this industry operates.
27.
For
the law point to be decided properly there needs to be clarity on
what the factual issues that underpin it are. But there is
not in
this case. Although Coolheat argues that it accepts the Commission’s
facts for the purpose of exception it is clear
from argument that it
does not. It argues that retailers are free to charge what they want.
But the Commission alleges that the
RRP operates as a mechanism to
determine retail price. It alleges that the RRP is not merely a
recommendation that is of no significance
in the market for the end
consumer attending at a retail bike shop."
[8]
28.
Clearly on this important fact there is
a dispute of fact and Coolheat’s contention that it accepts the
Commission’s
facts, as it has to in order to make an argument
on exception, is not correct.
29.
Furthermore what is crucial to the
Commission’s case is not the labelling of the firms as
wholesalers and retailers and the
price as upstream and downstream,
but an interrelationship between the wholesalers, the recommended
price they offer and the price
that retailers sell to their
customers. This is not a straightforward matter, but requires an
interrogation of the economic relationship
that exists between the
accused respondent firms who conclude an agreement and the outcome of
that agreement in a retail price.
30.
It is not fair to the Commission’s
case for us to assume at exception stage that this relationship is a
mechanistic one; where
retail and wholesale firms exist in discrete
planes of a supply chain with decisions at one level having no effect
on the autonomy
of the other. Deciding this matter now means taking a
view on this crucial allegation without the benefit of trial.
31.
Thus this remains a question
of fact best decided at trial. Secondly, the legal argument advanced
by Coolheat is itself
by no means uncontroversial. It relies on a
particular interpretation of section 4(1)(b)(i) which we have not had
any previous
occasion to decide, nor is it one with which the
Commission does not have a respectable counter legal argument to
advance.
32.
Coolheat, as noted, had argued that the
section suggests that the price and those who set it must of
necessity find themselves at
the same level in the value chain.
33.
But counsel for the Commission argued
the interpretation of section 4(1)(b)(i) contains language which does
not support these contentions.
34.
We set out section 4(1 )(b) below
because it helps to follow this argument:
(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;
(ii)
dividing markets by allocating
customers, suppliers, territories, or specific types of goods or
services; or
(iii)
collusive tendering. (our emphasis)
35.
The Commission argues that there are
several notable features in the language used in this sub-section
which support its interpretation
that the level of the conspirators
who reach agreement and the price affected by their agreement, do not
necessarily have to be
the same. If the more narrow view of the
interpretation contended for by Coolheat is correct, it argues, then
why is there:
1)
The use of the indefinite rather than
the definite article to describe what the agreement involves;
2)
The use of the term 'Involves’
suggestive of a less mechanistic relationship between parties to the
agreement and its outcome;
and similarly
3)
The use of terms ‘directly
or indirectly’
-
,
36.
We do not need to decide now
whether this argument is good. Indeed we have already stated that
such a law point should not
be decided in a vacuum without the
benefit of trial. We only wish to illustrate that the Commission is
not without a respectable
argument on this point which is worthy of
proper consideration, but after a trial.
37.
Harms,
in his treatise, prudently makes the point that the granting of an
exception is discretionary and that there are occasions
when it is
not appropriate to decide a law point without the benefit of a trial
of the facts.
[9]
38.
We consider the present one such an
occasion. The exception raises issues of mixed points of facts and
law, not purely ones of law.
The legal point insofar as it may be
considered severable from the factual issues (a point we do not
accept is correct) is novel,
and one for which no relevant authority
has been advanced and for which a respectable counter argument has
been advanced. Hence
it is not appropriate for determination now.
39.
For this reason we decided the exception
should be dismissed.
Costs
40.
The Commission sought costs as
well. It argued that Coolheat was repeating its previous objection
and given the delay in this
matter should not be indulged in its
bringing of a further exception that mirrored the previous one.
41.
We do not consider that this is a repeat
of the previous objection. However, even if it is, as a matter of
fairness until the Commission’s
case had been clarified by way
of the further particulars, such an objection was harder to argue the
first time around.
42.
We
also take the view that granting costs in such matters in prohibited
practice cases involving referrals by the Commission is
unprecedented
and no case is advanced in this one to alter that view.
[10]
43.
We are mindful that in seeking costs the
Commission was concerned about the delay in bringing this matter to a
hearing - a fact
the Commission fairly took some responsibility for
in argument - and hence we included in our order, directions for the
filing
of further pleadings, given that Coolheat has yet to file an
answer in this matter.
20
February 2014
Date
Mr.
Norman Manoim
Mrs.
Medi Mokuena and Mr. Anton Roskam concurring
Tribunal
researcher: Ipeleng Selaledi
For
the Coolheat : Adv. D Stephens instructed by Shaie Zindel Attorneys
For the Commission: Adv. MM Le Roux instructed by the Commission
IN
THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CT
Case No: 73/CR/Jul 12 (015438)
In
the matter between:
COOLHEAT CYCLE
AGENCIES (PTY)
LTD
Applicant
and
THE COMPETITION
COMMISSION
Respondent
In
re:
The
complaint referral between:
THE COMPETITION
COMMISSION
Applicant
and
FRITZ
PIENAAR CYCLES (PTY) LTD AND
19
OTHERS
1
st
'
20
th
Respondents
Panel
: Norman Manoim (Presiding Member)
Medi
Mokuena (Tribunal Member)
Anton
Roskam (Tribunal Member)
Heard
on
: 17 February
2014
Order
issued on : 17 February 2014
ORDER: SECOND
EXCEPTION APPLICATION
KINDLY
TAKE NOTICE
that after having heard
the parties in the above matter the Competition Tribunal orders as
follows:
1.
The Applicant’s Second Exception Application is dismissed.
2.
The Applicant must file its Answering
Affidavit to the Respondent’s Complaint Referral within 20
business days of this order.
3.
The Respondent must file its Replying
Affidavit, if any, within 15 business days of the filling of the
Applicant’s Answering
affidavit.
4.
There is no order as to costs.
17
February 2014
DATE
Mr. Norman
Manoim
Mrs. Medi Mokuena and
Mr. Anton Roskam concurring
[1]
Coolheat is the eleventh respondent in the case. At the time of this
decision some respondents have
entered
into consent agreements with the Commission.
[2]
Omnico (Pty) Ltd and 2 Others v The Competition Commission: Case No
73/CR/Jui12. See paragraphs 9 -17 in particular.
[3]
Paragraph
53-4 of the Complaint referral, record page 27.
[4]
See paragraph (b) of its prayer, record page 117.
[5]
See further particulars paragraph 10 record page 82 read with
paragraph 11.
[6]
Ibid paragraph 13 record page 84.
[7]
Ibid
paragraph 14, record page 85.
[8]
Ibid paragraph 25 record page 88.
[9]
Harms said “The court may allow the question raised by an
exception to stand over for decision at the trial especially
if it
appears that the question may be interwoven with the evidence that
will be led at the trial”-Civil procedure in the
superior
courts, B- 170(2).
[10]
Omnia Fertiliser Ltd and The Competition Commission, Case No:
77/CAC/Jul08.