Competition Commission v Cycad Pipelines (Pty) Ltd (019224) [2014] ZACT 100 (19 August 2014)

75 Reportability

Competition Law

Brief Summary

Competition — Consent Agreement — Confirmation of settlement agreement between the Competition Commission and Cycad Pipelines (Pty) Ltd for contraventions of the Competition Act — Cycad admitted to engaging in collusive tendering practices regarding the Thabazimbi Pipeline Project — Tribunal confirmed the consent agreement as an order under section 58(1)(a) of the Competition Act, 1998.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings were brought in the Competition Tribunal of South Africa as an application to have a settlement agreement (consent agreement) confirmed as an order of the Tribunal in terms of the Competition Act 89 of 1998.

The Competition Commission acted as the applicant and Cycad Pipelines (Pty) Ltd as the respondent. The matter was heard before a panel comprising N Manoim (Presiding Member), M Mokuena (Tribunal Member), and Y Carrim (Tribunal Member).

The procedural history reflected in the judgment and annexure indicates that the Commission initiated a complaint on 1 September 2009 (CC case number 2009Sep4641) following leniency applications under the Commission’s Corporate Leniency Policy. After broader investigations and a public invitation to construction firms to settle alleged contraventions, Cycad—implicated as a non-responding firm—entered into a consent agreement with the Commission. The Tribunal hearing occurred on 13 August 2014, with the last submission and decision on 19 August 2014, when the Tribunal confirmed the settlement as an order.

The general subject-matter concerned alleged collusive tendering in the construction sector, specifically an agreement involving the payment of “loser’s fees” in connection with a pipeline tender, treated as a contravention of section 4(1)(b)(iii) of the Competition Act.

2. Material Facts

The Tribunal’s order confirmed a consent agreement which recorded the factual basis for the settlement. The relevant background, as set out in the consent agreement, was that the Commission initiated a complaint on 1 September 2009 under section 49B(1) into prohibited practices in the construction industry, including alleged price fixing, market allocation, and collusive tendering prohibited by section 4(1)(b).

The Commission’s subsequent investigation, together with numerous leniency applications, led it to believe there was widespread collusion in the construction sector. In response, the Commission published an invitation on its website on 1 February 2011 inviting firms to settle on favourable terms if they disclosed projects involving prescribed and non-prescribed prohibited practices. A number of firms concluded consent agreements which were confirmed by the Tribunal in July 2013. Cycad was among firms implicated by those who responded to the invitation, and later agreed to settle the specific project in which it was implicated.

The specific conduct admitted by Cycad related to the Thabazimbi (Northam) Pipeline Project. On or about February 2008, Cycad reached an agreement with competitors Shearwater Construction (Pty) Ltd and Phambili Pipelines (Pty) Ltd that the winning bidder would pay a loser’s fee to the losing bidders. Cycad was awarded the tender and paid loser’s fees to Shearwater (recorded as R1 143 420) and to Phambili (recorded as R1 140 000) in instalments between 31 August 2008 and 12 December 2008.

The project concerned the construction of a 750 mm diameter cement mortar-lined, fusion bonded medium density polyethylene coated steel pipe, approximately 30.4 kilometres in length, between Padda Junction and Tuschenkomst, required for a water purification system. The client was identified as Pilanesburg Platinum Mine at Northam, and the project was completed in January 2010.

Cycad admitted that it entered into the agreement with its competitors in contravention of section 4(1)(b)(iii) of the Act. The consent agreement further recorded Cycad’s cooperation with the Commission, including disclosure and undertakings to cease the prohibited practice and to cooperate in any further proceedings.

3. Legal Issues

The central legal question for the Tribunal, as reflected in the order, was whether the settlement reached between the Commission and Cycad should be confirmed as an order of the Tribunal under section 58(1)(a) of the Competition Act, read with the settlement mechanism in section 49D (as referenced in the consent agreement).

The dispute presented to the Tribunal at this stage was not framed as a contested determination of liability on the merits, but rather as an application of law to an agreed set of facts embodied in the consent agreement, together with the statutory question whether the agreement could properly be made an order of the Tribunal. The Tribunal’s function, on the face of the order, was thus directed at the confirmation of settlement terms (including the administrative penalty and behavioural undertakings) under the empowering provisions of the Act.

4. Court’s Reasoning

The Tribunal’s reasoning, as reflected in the judgment, was concise and limited to the confirmation mechanism. The Tribunal recorded that it confirmed as an order, in terms of section 58(1)(a) of the Competition Act, the settlement agreement reached between the Commission and Cycad, annexed to the order.

The legal principle applied was the statutory power of the Tribunal to confirm a settlement agreement as an order of the Tribunal. The order indicates that the Tribunal exercised this power in relation to the parties’ concluded settlement agreement (the consent agreement), thereby converting the agreed terms into an enforceable Tribunal order.

No additional evaluative reasoning on the merits of the prohibited practice allegations is contained in the order itself beyond the fact that the settlement agreement—containing Cycad’s admission of contravention and agreed penalty and undertakings—was confirmed.

5. Outcome and Relief

The Tribunal confirmed the settlement agreement between the Competition Commission and Cycad Pipelines (Pty) Ltd as an order of the Tribunal in terms of section 58(1)(a) of the Competition Act.

As a consequence of the confirmed consent agreement, Cycad became bound to the settlement terms, including payment of an administrative penalty of R3 394 151, recorded as representing 2% of Cycad’s annual turnover for the financial year ended 28 February 2011, payable within 30 days of confirmation. The consent agreement also recorded various behavioural and compliance undertakings, including refraining from future collusive tendering, circulating a summary to employees, and developing and submitting a competition law compliance programme to the Commission within 60 days of confirmation.

The judgment text provided does not record any separate or additional costs order beyond the confirmation of the consent agreement.

Cases Cited

No cases were cited in the judgment text provided.

Legislation Cited

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

Corporate Leniency Policy (Government Notice No. 628 of 23 May 2008, published in Government Gazette No. 31064 of 23 May 2008).

Rules of Court Cited

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

Held

The Competition Tribunal confirmed, as an order under section 58(1)(a) of the Competition Act 89 of 1998, the consent agreement concluded between the Competition Commission and Cycad Pipelines (Pty) Ltd concerning collusive tendering (payment of loser’s fees) in contravention of section 4(1)(b)(iii) of the Act, with the agreed administrative penalty and compliance undertakings becoming enforceable as a Tribunal order.

LEGAL PRINCIPLES

The Competition Tribunal may, in terms of section 58(1)(a) of the Competition Act 89 of 1998, confirm a settlement agreement concluded between the Competition Commission and a respondent as an order of the Tribunal, thereby rendering the settlement terms enforceable.

A consent agreement concluded under the Competition Act framework (including section 49D, as referenced in the agreement) may validly incorporate an admission of contravention, an agreed administrative penalty determined with reference to the statutory penalty provisions (including section 59), and forward-looking behavioural and compliance undertakings, all of which may be confirmed as part of the Tribunal’s order.