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[2014] ZACT 4
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Cape Gate (Pty) Ltd v Competition Commission; In Re: Competition Commission v Arcelormittal (Pty) Ltd and Others (018259) [2014] ZACT 4 (25 July 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 018259
In the matter
between:
CAPE
GATE (PTY)
LTD
...................................................................................................................
Applicant
and
THE
COMPETITION
COMMISSION
.........................................................................................
Respondent
In re:
The complaint
referral between:
THE
COMPETITION
COMMISSION
............................................................................................
Applicant
and
ARCELORMITTAL
(PTY)
LTD
...........................................................................................
First
Respondent
COLUMBUS
STAINLESS (PTY)
LTD
............................................................................
Second
Respondent
CAPE
GATE (PTY)
LTD
......................................................................................................
Third
Respondent
SCAW
SOUTH AFRICA (PTY)
LTD
................................................................................
Fourth
Respondent
Panel: Takalani
Madima (Presiding Member)
Fiona
Tregenna (Tribunal Member)
Anton
Roskam (Tribunal Member)
Heard on: 25 June
2014
Order issued on:
25 June 2014
Reasons issued on
: 25 July 2014
Introduction
1.
This is an exception application brought by Cape Gate (Pty) Ltd
(“Cape Gate”) against a complaint referral lodged
by the
Competition Commission (the “Commission”)- In the
referral the Commission alleges that Cape Gate, together with
three
other respondents, have contravened section 4(1 )(b)(i) of the
Competition Act, Act 89 of 1998, (the “Act”).
2.
The application was heard on 25 June 2014 and on the same day we
issued an order dismissing it. A copy of this order is annexed
hereto
marked A.
3.
I set out below the reasons for dismissing the application.
Background
4.
On 21 December 2009, the Competition Commissioner, acting in terms of
section 49B(1) of the Act, initiated a complaint against
four
respondents, namely, ArcelorMittal (Pty) Ltd (“Mittal”),
Columbus Stainless (Pty) Ltd (“Columbus”),
Cape Gate and
Scaw South Africa (Pty) Ltd (“Scaw”).
1
5.
Subsequent to its investigation into the complaint, the Commission
found that in the period commencing about 1998 to 2008, the
respondents entered into an agreement, alternatively, engaged in a
concerted practice to fix the purchase price of scrap metal
in South
Africa in contravention of section 4(1 )(b)(i) of the Act.
6.
Essentially the Commission’s allegations are that the
respondents, who are all manufacturers of steel products, operated
as
a buyer’s cartel in the market for the purchase of scrap
metal.
2
According to the Commission, the objective of the buyer’s
carte! was to standardise and coordinate the purchase of scrap
metal
by the respondents to ensure that they were charged similar purchase
prices by scrap merchants and further that the buyer’s
cartel
collaborated and acted in tandem with the scrap merchants.
3
7.
The Commission further alleges that the respondents adopted two main
interrelated mechanisms in coordinating the purchase of
scrap metal
from scrap merchants, namely, (i) standard pricing formula and (ii)
standard premiums (discounts).
8.
In relation to the standard pricing formula, the Commission alleges
that in the period between 1996 and 1998 initial discussions
took
place between scrap consumers (the respondents), on the one hand, and
scrap merchants, on the other, to develop a pricing
formula for scrap
metal.
9.
Following these discussions, scrap merchants and scrap consumers
eventually agreed jointly that the standard pricing formula
would be
made up of the following components: (i) a three week average of the
international base price of heavy metal scrap 1 (known
as “HAMS”)
4
,
(ii) multiplied by the average rate over the corresponding period to
convert the Metal Bulletin price to South African Rand (iii)
less
transport and FOB costs to reflect the cost of transporting scrap
from the coastal ports to the inland region and (iv) less
a
negotiated discount.
10.
According to the Commission, the standard pricing formula was
renegotiated on an annual basis in two phases from around 1999
as
follows. Firstly, discussions took place, one the one hand,
collectively among scrap consumers only, and, on the other hand,
collectively among the scrap merchants only, in each case to
formulate and agree their respective positions on the price
components
of the pricing formula. Secondly, the scrap merchants and
the scrap consumers jointly met to negotiate and agree adjustments to
the price components making up the formula.
11.
After each renegotiation of the pricing formula, the schedule setting
out the revised components of the scrap formula, which
yielded a
revised formula price for 205 grade scrap, was circulated to the
large scrap merchants and the large scrap consumers.
12.In
support of the above allegations, the Commission highlighted some of
the meetings and discussions that took place to renegotiate
and agree
on the standard pricing formula.
5
13.
In relation to the standard premiums (discounts), the Commission’s
allegations are that the three largest scrap metal
merchants, namely,
The New Reclamation Group (Pty) Ltd (“Reclam”), Universal
Recycling (Pty) Ltd (“Universal”)
and Rand Scrap (a
division of Scaw) reached an agreement with scrap consumers regarding
the premiums that would be charged by the
different “tiers”
of scrap merchants for the sale of scrap metal. According to the
Commission, the agreement was reached
on the basis that the scrap
consumers collectively discussed and agreed a common approach to the
standard premiums and then met
with scrap merchants. The Commission
also attached an example of the operation of the tier system.
6
14.
On 07 August 2013 the Commission referred the complaint to the
Tribunal for adjudication. Subsequent to the Commission’s
referral, Cape Gate filed an exception application on 02 October 2013
on the grounds that the Commission’s referral is contradictory
and further lacks averments which are necessary to sustain a
complaint. On 22 November 2013 the Commission filed a supplementary
affidavit in response to the exception.
Grounds
for the exception
15.
Cape Gate’s grounds for this exception are similar to the ones
that it raised in its exception filed on 02 October 2013
i.e. that
(i) the referral affidavits are vague and embarrassing and (ii) the
affidavits lack averments necessary to sustain a
referral.
16.
In respect of the first ground Cape Gate submitted that the
Commission’s founding and supplementary affidavits were
contradictory
i.e. the allegation made by the Commission in paragraph
5 of its supplementary affidavit that
"at
all material times the respondents, in their capacity of consumers
(therefore buyers of scrap metals, agreed to directly
or indirectly
fix the purchase price of scrap metal”
is
contradicted by the allegations made in paragraphs 32, 34, 37, 40,
52, and 61/2 of the founding affidavit and paragraphs 7,8
and 9 of
the supplementary affidavit.
17.
Essentially what the Commission sets out in these paragraphs is that
the respondents in some instances held meetings and discussions
amongst themselves as competitors whilst in other instances the
respondents held meetings and discussions together with their
suppliers (the scrap merchants) wherein they collectively negotiated
and had an agreement on the standard pricing formula which
was used
to determine the purchase price of scrap metal.
18.
Cape Gate therefore alleges that it cannot determine from the
Commission’s papers what case to meet, specifically if the
case
is based on agreements allegedly concluded between scrap consumers or
between scrap merchants or both.
19.
Further, Cape Gate argues that the allegations by the Commission that
the respondents and scrap merchants agreed jointly to
the components
of the pricing formula cannot be true because of the following
reasons: the heavy metal scrap 1 price (HAMS) is
available from the
metal bulletin and is not developed by anyone, the exchange rate is
determined by banks, for transport costs
one would need somebody in
the transport industry to find out the cost of transporting scrap
metal from the coast to inland. Cape
Gate further argues that even if
there were discussions between the scrap merchants and the
respondents regarding the formula,
it does not accept that the
formula could be renegotiated and that those discussions could only
have been irrelevant because there
could never have been any impact
on the price of scrap as alleged by the Commission. In respect of
discounts Cape Gate’s
submissions is that although it accepts
that negotiations of discounts can disclose an anticompetitive
conduct, the Commission
has failed to show a link between the
negotiations and the price that was ultimately agreed.
20.
In relation to the second ground of exception, Cape Gate’s
arguments is that in order for a complaint to be sustained
under
section 4(1 )(b)(i) of the Act, it has to be alleged that an
agreement or concerted practice was entered into by parties/firms
in
a horizontal relationship i.e. competitors and not by parties in
different levels of the supply chain like the respondents/scrap
customers and scrap merchants/scrap suppliers as alleged by the
Commission.
Analysis/Approach
21.
In this regard Í need to decide whether the Commission’s
case as pleaded in its founding and supplementary affidavits
sets out
what case Cape Gate has to meet.
22.
I must say that I have not been persuaded by Cape Gate’s
argument on both grounds.
23.The
Commission’s founding affidavit clearly sets out the conduct of
the respondents apart from that of the scrap merchants.
7
Further, the Commission’s supplementary affidavit gives further
particulars regarding the alleged anticompetitive conduct,
namely,
the conduct of the respondents as consumers of scrap metal of having
acted collectively instead of independently in deciding
what
adjustments they were prepared to pay to the scrap merchants for
scrap. The Commission has in paragraph 10 of its supplementary
affidavit clearly clarified this:
“
It
is the Respondents’ conduct of discussing and agreeing or
reaching an understanding amongst themselves, and then negotiating
jointly as opposed to individually and independently with scrap
merchants, on adjustments to the pricing formula and the premiums
or
discounts to be charged, which is the subject matter of the referral
”
24.The
Commission has further attached annexures which contain email
discussions that took place between the respondents and the
consensus
that they ultimately reached.
8
It is therefore apparent from reading both the Commission’s
affidavits together with the annexures that the Commission’s
case had been pleaded in a manner that is sufficient for Cape Gate to
be able to plead thereto. Cape Gate has simply ignored certain
paragraphs of the Commission founding and supplementary affidavits
and then chose the ones that it says are contradictory. However,
from
a reading of both affidavits together with the annexures it is clear
that there is nothing contradictory or confusing about
the
Commission’s case against Cape Gate and the other respondents.
25.I
now turn to consider the argument by Cape Gate that the referral
cannot be sustained due to the requirements of section 4(1
)(b)(i) as
the respondents and scrap merchants are not in a horizontal
relationship. This section states as follows:
(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.
26.
Although this section requires that firms that are alleged to have
contravened the Act must be in a horizontal relationship,
I am not in
a position, at the exception stage, to decide whether the
Commission’s case as pleaded under this section is
good or bad
as I need to properly understand the relationship between the
respondents and scrap merchants and how the scrap price
is ultimately
set. Thus, this issue requires the leading of evidence and is
therefore best left for trial.
9
Conclusion
27.
In the premise I make the following order:
27.1
The application is dismissed.
25
July 2014
Date
Dr.
Takalani Madima
Professor Fiona
Tregenna and Mr. Anton Roskam concurring
Tribunal
Researcher : Ipeleng Selaledi
For Cape Gate:
Adv. J Campbell SC and Adv 8 Makola
Instructed
by Bowman Gilfillan
For the
Commission : Adv. H Maenetje SC and Adv N Jele
Instructed
by the State Attorney
1
The
Commission has indicated that it is not seeking any relief against
Scaw by virtue of the fact that it
was granted
conditional immunity in terms of the Commission’s corporate
leniency policy.
2
The
respondents use this scrap metal as an input in the manufacture of
their respective steel
products.
3
According
to the Commission the conduct of scrap merchants forms part of a
separate referral.
4
HAMS
is published in the metal Bulletin (ex-Rotterdam) on a weekly basis).
5
Founding
affidavit, pages 24 - 26, paragraphs 52 - 59.
6
Founding
Affidavit, page 38.
7
Paragraphs
33, 35, 36, 42, 43, 44, 60, 62, 71 and 72.
8
Pages
47 - 54 of the record.
9
Also
see
Cool
heat Cycle Agencies (Pty) Ltd v the Competition Commission
,
Case no: 015438.