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[2014] ZACT 86
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Competition Commission v Louw N.O. and Others (017731) [2014] ZACT 86; [2014] 2 CPLR 387 (CT) (18 December 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 017731
In the matter
between:
COMPETITION
COMMISSION
.....................................................................................
Applicant
and
SAM LOUW
NO
.....................................................................................................
First
Respondent
ANITA
LOUW
NO
.............................................................................................
Second
Respondent
WELKOM KEY CENTRE
CC
...........................................................................
Third
Respondent
Panel: Norman Manoim
(Presiding Member)
Mondo Mazwai
(Tribunal Member)
Imraan Valodia
(Tribunal Member)
Heard on: 13-14
October 2014
Order issued on : 18
December 2014
Reasons issued on :
18 December 2014
Decision and
order
Introduction
[1] This case
concerns a complaint referral brought by the Competition Commission
(“Commission”) against Sam Louw N.O.
and Anita Louw N.O.
(trading as Louw’s Key Centre) and Welkom Key Centre CC
(“Welkom Centre”). For ease of reference
Sam Louw N.O.
and Anita Louw N.O. will be referred to as Louw’s Centre. The
Commission alleged in its referral that Louw’s
Centre and
Welkom.Centre entered into an agreement as far back as 1988, not to
sell locking products in each other’s territories.
The
Commission alleges that the substance of the agreement was that each
party to the agreement was allocated various territories
in the Free
State Province ("Free State'’) and in the Northern Cape
Province (“Northern Cape”). As a result
of such agreement
both Welkom Centre and Louw’s Centre are alleged to be in
contravention of section 4(1 )(b){ii) of the
Competition Act 89 of
1998 (“the Act”),
[2]
Lou
w's
Centre is a Trust registered in accordance with the laws of the
Republic of South Africa with its main place of business in
Bloemfontein.
Welkom Centre is a close corporation registered and
incorporated in accordance with the laws of the Republic of South
Africa with
its main place of business in Welkom. Weikom Centre is
owned by Mr John Shawe (“Mr Shawe”). Welkom Centre and
Louw’s
Centre are both agents of Multi-Lock Africa (“MTL”).They
distribute and supply locking products on behalf of MIL. They
both
supply and distribute locking products such as security cylinders,
matching keys, padlocks, electronic door solutions, multipoint
locks
and padlocks. They both sell locking products to end consumers such
as households, tertiary institutions, financial institutions
and the
mining industry. The respondents are thus in á horizontal
relationship as contemplated in section 4 of the Act.
History of the
case
[3]
The Commission's referral was a result of a complaint that was lodged
by Mr Marnitz Du Plooy (“Mr Du Plooy”) on
03 November
2011, about possible anticompetitive conduct between Louw’s
Centre, Welkom Centre and MTL. Mr Du Plooy was employed
at Louw’s
Centre between 2001 and 2010, first as a key-cutter and later as a
locksmith. In 2011 he started his own locksmith
business. In his
complaint, Mr Du Plooy alleged that there was an agreement between
Welkom Centre, Louw’s Centre and MTL
not to sell MTL locking
products in each other’s territories.
1
On 23 November 2011, Mr Du Plooy withdrew his complaint in accordance
with Rule 16(2) of the Rules for the Gonduct of Proceedings
in the
Competition Commission. Following the complaint withdrawal, the
Commissioner, acting in terms of section 49B(1) of the Act
initiated
a complaint on 11 September 2012 against the respondents for alleged
market allocation in contravention of section 4(1
)(b)(ii) of the
Act.
2
The Commission’s complaint whilst influenced by Mr Du Plooy’s
complaint was not identical to it.
[4]
Upon completion of its investigation, the Commission found that
Welkom Centre and Louw’s Centre had concluded an agreement
which contravenes section 4(1)(b)(ii) of the Act. The Commission also
discovered that Louw’s Centre and Welkom Centre divided
the
Free State and Northern Cape Provinces as follows:
In
the Free State, Louw’s Centre was allocated and still operates
in Bloemfontein, Ladybrand, Bethlehem, and Harrismith,
whilst Welkom
Centre was allocated and still operates in S.asolburg, Welkom,
Virginia, Hebron, Kroonstad and Odendaalsrus.
In
the Northern Cape, Louw’s Centre was allocated and still
operates in Kimberly, Kuruman and Springbok, whilst Welkom Centre
was allocated and still operates in all areas of the Northern Cape
save for the above three areas.
3
[5]
In relation to MTL, the Commission issued a notice of non-referral
after it became evident that MTL does not compete with Louw’s
Centre and Welkom Centre in the downstream market for the
distribution of locking products, and was therefore not party to the
horizontal arrangement between Welkom Centre and Louw’s
Centre.
4
Commission’s
case
[6] The Commission
then referred the matter to the Tribunal. !n the complaint referral
the Commission alleged that the respondents
had contravened section
4(1)(b)(ii) of the Act by agreeing not to sell locking products in
each other’s territory. The Commission
alleged that the
products that formed part of the agreement were: security cylinders,
matching keys, padlocks, electronic and multipoint
locks.
5
The Commission submitted that the relevant geographic markets were
the Free State and Northern Cape.
[7]
Finally, the Commission alleged that the conduct by the respondents
is still on-going.
6
[8] The Commission
sought the following relief:
1.
Declaring that the
conduct of Welkom Centre and Louw’s Centre contravenes
section
4(1)(b)(ii)
of the
Competition Act, 89 of 1998
(“Act”);
2. Interdicting
Welkom Centre and Louw’s Centre from contravening section
4(1)(b)(ii) of the Act:
3.
Imposing an administrative penalty against Welkom Centre and Louw’s
Centre in an amount equal to 10% of their respective
annual turnover
for the preceding year in respect of the contravention of section
4(1)(b)(ii) of the Act
,
or such amount as
the Competition Tribunal determines to be appropriate; and
4..
Granting the Applicant such further and/or alternative relief as the
Competition Tribunal considers to be appropriate
7
.
Respondents’
case
[9] In
their.answering affidavit the respondents did not place in dispute
two key aspects of the Commission’s case. They did
not deny
having been parties to the alleged agreement nor deny that it was
still in existence,
[10] Given these
concessions in the pleadings it is difficult to discern what their
defence was. However it appears the defence
case rested on three
legs. In the first place they contended that the nature of the
agreement was such that it was, as they described
it, a ‘gentleman’s
agreement’ whose rationale was to help Mr Shawe, an erstwhile
employee of Louw’s Centre
in Bloemfontein, establish his own
business in Welkom. Its purpose, so they contended, was not to deny
customers the right to shop
around for the best prices and services.
[11]
The second aspect of their defence was to assert, which the
Commission does not dispute, that the agreement had been concluded
in
1988 and thus 11 years prior to the commencement of the new Act on 1
September 1999. What it appears the respondents are saying
is that
the agreement, having been concluded before the commencement of the
Act, had not been implemented in any active sense,
post the operation
of the Act, because it was not necessary for them to have done so and
normal market circumstances prevailed
- each firm acquired its
natural customer base given its geographical location.
8
[12]
However despite this in their answering affidavit, the respondents do
not deny the allegation the Commission made that the
conduct is
on-going.
9
Rather the respondents make the curious remark that “they
continue to render services to clients in the areas where customers
normally contact them.”
10
This serves to reinforce rather than to contradict the Commission’s
assertion that the agreement is on-going.
[13]
The third line of defence was an attempt, to confine the ambit of the
complaint only to the MTL products, rather than, as the
Commission
alleges, to a range of lock products that included those of MTL They
argue that the Commission is confined to the facts
of Mr Du Ptooy’s
complaint, and since this was centred on MTL products, the Commission
could not include any other products.
11
Our Analysis
[14]
We will deal with this third defence first - that the complaint must
be restricted to MTL products. The complaint that was
referred by the
Commission to us is not the one that was lodged by Mr Du Plooy, but
rather a new complaint that was freshly initiated
by the Commission
as we noted earlier. As a matter of law the Commission was therefore
not confined to considering only MTL products,
but was at large to
consider the other products as well. When the Commission investigated
the case it made this quite clear in
the correspondence with the
respondents when it alleged the following:
[15]
“
The
Competition Commission of South Africa has concluded its
investigation of the alleged contraventions of the
Competition Act,
against
Welkom Key Centre. The Commission found that Welkom Centre
has contravened section 4(1)(b)(ii) of the Act by:
Dividing
markets by allocating
specific
territories in which to operate with regards to locking products
."
12
[16]
It is also clear from the response of the respondents in reply that
they understood this to be the case
13
.
[17] Finally, when
the Commission referred the case, it made it quite clear that its
case was one of market division in respect
of the following products
viz.
locking products
such as security cylinders, matching keys, padlocks, electronic door
solutions, multipoint locks and padlocks.
[18] We thus
conclude that the Commission was entitled to refer the case in
respect of all the products. We turn now to the question
of whether
the Commission has established this case in the evidence.
[19] The Commission
firstly relies on the correspondence from the respondents obtained
during the course of the investigation-
[20] Louw's Centre
when responding to a letter the Commission sent during its
investigation responded as follows:
“
Our
agreement with Welkom Key Centre applies to all products that we are
mutually agents of and is not limited to Mul-T-Lock Products
only.”
14
[21] Mr Louw did not
refute this when he gave oral evidence so this concession must stand.
[22]
In his correspondence Mr Shawe also mentions that the agreement
concerned locking products.
15
[23] We find
therefore that the Commission’s case is not confined to MTL
products and has properly been referred to include
all locking
products as alleged and that this aspect of the agreement has been
proved.
[24]
It is also clear from the pleadings and evidence led before us that
there is no dispute as to the relevant geographical market
identified
by the Commission in its referral papers.
16
[25] The Commission
has thus established the nature of the agreement, that it related to
market division and the subject matter
of the agreement, that it
related to the locking products previously mentioned in paragraph 17.
[26] We now deal
with the second aspect of the defence whether the agreement . is
on-going. As noted earlier this aspect has not
been expressly denied
on the pleadings as one would have expected had this been the
respondents case. This alone would suffice
to establish the
Commission’s case on this aspect, however we will also give the
respondents the benefit of the doubt by
considering whether the
evidence establishes that the conduct was ongoing in the sense that
it continued after the Act came into
operation in September 1999.
[27] Mr Louw was the
only witness to testify for the respondents.
[28]
During his cross-examination, Mr Louw testified that there was never
any need for them to discuss the agreement because, for
many years,
it just continued as was initially agreed upon.
17
He was asked if he could give examples of instances when the two
firms may have recently competed, Mr Louw, then mentioned a tender
for Central University of Technology. He testified that if he had won
the tender he would have given it to Mr Shawe.
18
[29]
In his correspondence with the Commission Mr Shawe makes it clear the
agreement is on-going. Mr Shawe submitted that they have
no problem
with the market allocations as they have been working like that since
1998.
19
[30] During the
Commission’s investigation, in response to a Commission’s
request for information letter dated July
2012, Mr Shawe replied as
follows:
[31]
“
As
far as the “gentleman’s agreement” is concerned,
when I opened Welkom Key Centre in 1988
,
Mr
Louw and myself verbally agreed on the specific areas we. would
service. Although this agreement is not set in stone, we try
to
adhere to it as far as possible.”
20
[32]
In the same letter mentioned above, Mr Shawe submitted that he does
not compete with Louw’s Centre regarding the sales
of locking
products as they do not sell in one another’s area. Mr Shawe
went further to submit that they have no problem
with the market
allocations as they have been working like this since 1988.
21
[33] Had the
agreement not been of an on-going nature one would have expected Mr
Shawe to state this, instead, on the contrary,.he
asserts its
continuation. Had of course there been any ambiguity about this
aspect one might have expected Mr Shawe to give evidence
to this
effect. The respondents provided a witness statement on his behalf,
but elected during the course of the hearing not to
call him. Mr
Shawe’s evidence in the correspondence on the on-going nature
of the agreement has therefore not been refuted.
[34] The on-going
nature of the agreement is also corroborated by the only witness for
the Commission, the one-time complainant,
Mr Du Plooy.
[35]
Mr Du Plooy testified that during his employment at Louw’s
Centre from 2001-2010, he was never sent to do any work in
the Welkom
area as he knew that there was some arrangement between Welkom Centre
and Louw’s Centre not to interfere with
each other’s
territory.
22
In addition to this, Mr Du Plooy in his witness statement submitted
as follows:
“
During
my employment at Louw’s Centre
I
became
aware of the friendship between Sam Louw and John Shawe. John Shawe
and Sam Louw would openly speak of the “arrangement
"
they
had not to enter each other's designated territories at locksmith
meetings.
”
23
[36] Mr Du Plooy’s
version on this aspect was not challenged during his cross
examination so it can be accepted. Given that
Mr Du Plooy started
working for Louw’s Centre in 2001, when the Act had already
been proclaimed, the respondents’ submission
that their
agreement was only in operation before the Act was enacted, cannot
hold water. Why would they stiil spoke openiy about
the arrangement
at a time when on their version it had ceased.
[37]
Mr Du Plooy further submitted in both his witness statement and
evidence that after setting up his locksmith business, he approached
Welkom Centre and was blatantly informed that it could not supply Mr
Du Plooy, as he did not want to cross into Mr Louw’s
territory.
24
[38] It is clear
from the evidence and papers before us that the alleged conduct is in
fact on-going. The respondents themselves
in correspondence between
them and the Commission make it clear that the agreement is still in
place and they have no problem with
their arrangement.
[39] The final
attempt by the respondent to refute the on-going nature of the
agreement was a reliance on geography. The respondents
contended that
an agreement between them was unnecessary give the distance of
approximately 160 kilometres between their respective
businesses.
[40]
Yet Mr Louw’s evidence shows that he offers services to
customers at far greater distances; He mentioned that he operates
in
Kuruman which is 400km from Bloemfontein.
25
Thus distance would not have been a natural bar to doing services in
each other areas; these are businesses accustomed to travel
far to
their customer base. Instead it is clear evidence that the
gentleman’s agreement is in fact still being adhered to.
[41] Finally we turn
to the third aspect of the defence which relates.to its rationale.
[42] This is
expressed by Mr Louw in the answering affidavit as follows:
“
Save
to state an agreement was concluded between the Trust and the third
respondent
,
it
is denied that it
was
intended
or factually is in contravention of the section relied upon
.
I
already set out how the two . businesses were established, their
fields of operation and
the
rationale for
the
agreement
and
the present state of affairs. The respective businesses also operate
outside the areas
,
which
were initially agreed upon.”
26
(Our
emphasis)
[43]
Although the argument being advanced in this paragraph is not very
clear, what it appears the respondents are relying on, is
having a
justification for the agreement which is not an anticompetitive one.
However as the Commission rightfully submitted, the
alleged conduct
in this matter is a per
se
contravention
and thus affords no justification, This was correctly held by the
Supreme Court of Appeal(“SCA”) in
American
Soda Ash
27
where
the court emphasized:
"
The Tribunal has
found that once the conduct complained of is found to fall within the
scope of the prohibition that is.the end
of the enquiry. There is no
potential for a further enquiry as to whether the conduct is
justified (an enquiry of the kind that
is envisaged by s4(1)(a), and
evidence to that end is not relevant and thus inadmissible. It is
this finding that the Competition
Appeal Court upheld and it is
clearly correct.”
[44]
This approach was also confirmed by the Tribunal in the
Pioneer
Foods
case
28
where the court held the following:
“
Hard
core cartels, as contemplated in section 4(1 )(b) of the Act are per
se offences. There is no need for the Commission to show
any
anticompetitive effects and there are no justification grounds
available to respondents
.
So egregious an
offence is this
,
that harm to
competition and harm to consumers is presumed by its mere existence.
Moreover the extent of loss suffered or damage
caused is presumed to
be extensive. ”
[45]
Although the respondents submitted that the agreement was watered
down overtime and no ionger served any purpose in the market,
we
cannot agree that this is in fact true. As is well known in cases of
cartels like this one, parties to a cartel agreement need
not meet
regularly to ensure that an agreement is adhered to. This approach
was also recognised in the
Pioneer
Foods
case,
where the Tribunal held that to find that an agreement of
coordination exists does not require evidence of daily co-ordination
or attendances at each and every meeting.
29
[46]
During the hearing when the respondents were asked when exactly the
agreement ceased, they were unable to give us an exact
time of when
the agreement ceased to exist, let alone an approximation of when the
agreement was no longer adhered to.
30
Even when the respondents were asked during the hearing whether there
is any evidence of competition between the respondents, between
1999
and 2014, such evidence was not forthcoming. Instead the evidence
given during closing argument of the different clientele
of the
respondents only proved that the market was still indeed divided as
agreed upon in 1988.
31
Conclusion
[47] Based on the
evidence before us, we are not convinced that the gentleman’s
agreement entered into by the respondents
in 1988 has ceased to
exist. To the contrary the respondents are still adhering to the
gentleman's agreement as they have submitted
themselves in various
documents before us. Further the agreement was not confined to MTL
products but to all the locking products
that the Commission alleged
in the complaint referral.
ORDER
1. Louw’s
Centre is found to have contravened section 4(1 )(b)(ii) of the Act,
by agreeing to enter into an agreement to divide
the Free State and
Northern Cape markets in relation to the supply and distribution of
security cylinders, matching keys, padlocks,
electronic and
multipoint locks;
2. Welkom Centre is
found to have contravened section 4(1 )(b)(ii) of the Act, by
agreeing to enter into an agreement to divide
the Free State and
Northern Cape markets in relation to the supply and distribution of
security cylinders, matching keys, padlocks,
electronic and
multipoint locks;
3. The agreement
referred to in paragraphs 1 and 2 was in existence prior to 1
September 1999 and still persists at date of this
order;
4. Welkom Centre and
Louw’s Centre are hereby ordered to immediately cease and
desist from contravening section 4(1 )(b)(li)
of the Act;
5. In relation to
remedies, as agreed during the hearing, a further Pre-Hearing will be
conducted to discuss the matter.
18 December 2014
Date
PROF. IMRAAN
VALODIA
Mr Norman Manoim
and Ms IVlondo Mazwal concurring.
Tribunal Researcher:
Caroline Sserufusa :
For the Applicant:
Advocate Tererai Mafukidze instructed by the
State Attorney
For the Respondents:
Advocate Rutdie Cronje instructed by .
Koekemoer
Attorneys
1
See
pages1-4 of the trial bundle part A.
2
See
Form CC1 at page 5 of the trial bundle part A.
3
See
pages 14-15 of the trial bundle part B.
4
See
Notice CCS at pages 39-41 of the trial bundle part A.
5
See page 12 of the trial bundle part B
6
See
page 15 of the trial bundle part B.
7
See
Form CT1(1) at page 5 of the trial bundle part B.
8
See
pages 33, 39 and 42 of the trial bundle part B. Also see page 6 of
the transcript of the hearing.
9
See
page 41 of trial bundle part B, in the respondents’ answering
affidavit
10
I
bid
11
See
page 172 Of the transcript of the hearing.
12
See
page 35 of the trial bundle part A.
13
See
page 33 of the trial bundle part A.
14
Ibid.
15
See
pages 15-16 of the trial bundle part A.
16
Supra
at footnote 3.
17
See
page 122 of the transcript of the hearing.
18
See
page 139 of the transcript of the hearing.
19
See
page 16 of the trial bundle part A.
20
See
page 25 of the trial bundle part A.
21
See
page 16 of the trial bundle part A.
22
See
pages 14-16 of the transcript of the hearing.
23
See
pages 5-6 of the witness statements file in Mr Du Piooy’s
witness statement.
24
See
page 3 of the trial bundle part A. Also see pages 24-25 of the
transcript-of hearing.
25
See
pages 104-106 of the transcript, also see page 138 of the transcript
of the hearing.
26
See
page 37 of the trial bundle part B.
27
American
Soda Ash Corporation and Another vs. Competition Commission and
Others
[2005] 1 CPLR 1
(SCA) at para 37.
28
The
Competition-Commission and Pioneer Foods (Pty) Ltd, Case No:
15/CR/Feb07, at para148 page 50.
29
Ibid
at paragraph 34, page 10.
30
See
page 185 of the transcript of the hearing.
31
See
pages 188-189 of the transcript of the hearing.