Brief Summary

Competition — Collusive tendering — Allegation of cartel conduct in construction sector — Competition Commission alleging respondents engaged in collusive tendering for Thabazimbi Project — Respondents disputing classification as a firm under the Competition Act and claiming prescription of the complaint — Tribunal finding that the respondents constituted a firm and that the complaint had not prescribed, thus allowing the matter to proceed.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was heard by the Competition Tribunal of South Africa as part of a complaint referral brought by the Competition Commission under the Competition Act 89 of 1998. The proceedings were concerned with alleged collusive tendering (a form of cartel conduct) in relation to a tender for the construction of a steel pipeline.

The applicant was the Competition Commission. The respondents comprised Delatoy Investments (Pty) Ltd as first respondent, together with a range of related corporate entities and natural persons cited in their capacities as trustees of family trusts (the second to eleventh respondents). Two additional pipeline construction firms, Cycad Pipelines (Pty) Ltd and Phambili Pipelines (Pty) Ltd, were cited as the twelfth and thirteenth respondents respectively, but the Commission sought no relief against them in this proceeding because of their settlement positions (Cycad having concluded a consent agreement made a Tribunal order in August 2014, and no relief being pursued against Phambili).

The matter came before the Tribunal for determination of two preliminary issues directed to be heard first following a pre-hearing held on 28 October 2015. Those issues were whether the first to eleventh respondents collectively constituted a “firm” for purposes of the Act (in the sense relevant to liability and attribution within a corporate group), and whether the Commission’s complaint had become time-barred by prescription under section 67(1) of the Act.

The dispute arose from an investigation conducted in the construction sector (including a “fast track process”), which led the Commission to allege that certain entities associated with the “Delatoy Group” participated in collusive tendering in February 2008 relating to the Thabazimbi Project, a pipeline project issued on tender by Boynton Investments (Pty) Limited and Barrick Platinum South Africa (Pty) Limited.

2. Material Facts

The Tribunal treated it as common cause that the Thabazimbi Project involved the construction of an approximately 31 kilometre pipeline from Padda Junction to Tuschenkomst for the Pilanesberg platinum mine at Northam. It was also accepted that Shearwater Construction (Pty) Ltd, later known as Delatoy Investments (Pty) Ltd, together with Cycad Pipelines (Pty) Ltd and Phambili Pipelines (Pty) Ltd, tendered for the project.

The Tribunal proceeded on the basis that, on or about 28 February 2008, Shearwater Construction/Delatoy Investments, Cycad and Phambili concluded an unlawful collusive tendering arrangement in which bid prices were inflated by about R2 million, and the successful bidder would pay “loser’s fees” to the unsuccessful bidders. Cycad won the tender and paid loser’s fees. The first respondent, Delatoy Investments, admitted that it contravened section 4(1)(b)(iii) of the Act.

A key feature relied upon by the Tribunal was that the loser’s fee agreed to be paid to Delatoy Investments was not paid directly to it. Instead, Cycad was directed to pay the fee to ATPD Properties (Pty) Ltd (the third respondent). ATPD issued Cycad with fictitious invoices for equipment hire, where it was common cause that the “equipment” was not supplied. The Tribunal also noted that Delatoy Investments was, by the time of the proceedings, said to have no assets.

The Tribunal considered the corporate and trust structure and structural changes within what the Commission described as the “Delatoy Group.” In 2008, the relevant holding company (then Shearwater Group Holdings (Pty) Ltd, later Delatoy Group Holdings (Pty) Ltd) held 100% of Shearwater Construction/Delatoy Investments. Shareholding and control structures later changed, with family trusts (including the POD Family Trust and the Andrew Toy Family Trust) and intermediary investment vehicles (Dream World Investments 344 (Pty) Ltd and Dream World 345 (Pty) Ltd) featuring in the ultimate ownership structure. The Tribunal regarded evidence of common directorship and control by Mr Delamere and Mr Toy as significant.

The Tribunal accepted evidence of substantial dividend flows from Delatoy Investments to Delatoy Holdings over the period 2008 to 2011 (including dividends of R9 million in 2008 and R27,472,140 in 2009, and further large dividends in 2010 and 2011), and evidence of soft or uncommercial intercompany loans among entities within the group. The Tribunal also relied on evidence that Delatoy Investments’ assets were later stripped, leaving it with minimal residual value.

Although the Delatoy Group scheduled Mr Delamere to testify, the respondents ultimately did not call him to give oral evidence, relying instead on an affidavit. The Tribunal stated that untested affidavit evidence carried little weight compared to cross-examined testimony.

In relation to prescription, the Tribunal accepted the Commission’s evidence that the investigation into collusion in the construction sector was initiated in 2009, and that it was not necessary for the suspected firm to have been notified at that time. The Tribunal treated as immaterial, for purposes of initiation, the date on which the Delatoy entities were first contacted (17 October 2012) and the later date said to reflect revival of investigative steps (30 January 2014).

3. Legal Issues

The first central question was whether the first to eleventh respondents—companies, trusts, and natural persons cited in trustee capacities—constituted a single “firm” for purposes of the Competition Act, such that the conduct of Delatoy Investments/Shearwater Construction could be treated as imputable to the broader group structure described in the referral.

The second central question was whether, on a proper application of section 67(1) of the Act, the Commission’s complaint was prescribed because it was allegedly initiated more than three years after the prohibited practice had ceased.

Both issues required an application of legal standards to facts. The “firm” enquiry required evaluation of the functional and economic relationships among entities and the extent of common control and coordinated conduct. The prescription enquiry required determining, on the evidence, the legally relevant date of “initiation” of a complaint by the Commission under the Act and whether it fell within the three-year period after cessation of the practice.

4. Court’s Reasoning

On the meaning of “firm,” the Tribunal started from the Act’s inclusive wording, noting that while the Act does not exhaustively define “firm,” it provides that a firm includes a person, partnership, or trust. The Tribunal reasoned that this inclusive formulation indicates that the concept is not confined to a single incorporated entity, and is capable of extending to natural persons and trust structures, depending on the functional and economic reality.

The Tribunal accepted the Commission’s submission that, for an economic statute such as the Competition Act, the analysis should not be confined to a company-law formalism of separate juristic personality. Instead, the Tribunal endorsed a functional and economic approach, asking whether the entities operated as a single economic unit. In this connection, the Tribunal relied on the evidence of common control and orchestration by Messrs Delamere and Toy across Delatoy Investments, Delatoy Holdings, ATPD, and the investment vehicles and trust structures.

The Tribunal placed weight on the manner in which the loser’s fee was handled. It treated as significant that the fee was not paid to Delatoy Investments (the participant in the collusive tendering), but was diverted to ATPD, accompanied by fictitious invoicing. The Tribunal noted the absence of any satisfactory explanation from the respondents for why the payment was structured in that manner, why the invoices were false, and why the payment needed to be disguised. The Tribunal also considered that Delatoy Investments was later stripped of assets, and that funds were distributed through dividends and ultimately reached the controlling trusts.

In assessing whether the group operated as a single economic entity, the Tribunal considered the pattern of large dividend declarations and the intercompany loan arrangements as indicative of integrated financial activity within the group rather than arms-length dealings among truly independent entities. The Tribunal viewed these features cumulatively as supporting a conclusion that the relevant entities were used as instruments within a single coordinated economic activity.

The Tribunal aligned itself with European competition law authority addressing attribution within corporate groups, specifically referring to AKZO Nobel NV and Others v The Commission of the European Communities. It extracted from that authority the idea that an infringement may be imputable within a group where there are economic, organisational, and legal links and where decisive control is exercised, supporting a single economic unit approach to responsibility in competition law.

The Tribunal further referenced European authorities such as Tokai Carbon Co Ltd v Commission of the European Communities and AOK Bundesverband and Others v Ichthyol-Gesellschaft Cordes, Hermani & Co and Others to support the functional focus on economic activity rather than formal structural characteristics, treating those cases as consistent with an approach that identifies the relevant “firm” by how the entities operate in practice.

The Commission had advanced an alternative “route” based on the “attribution doctrine” or piercing the corporate veil, and the Tribunal discussed this doctrine by reference to authorities including Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others, Wallersteiner v Moir (No.1), and Prest v Prest. The Tribunal took the view that, on the evidence, the conduct displayed features associated with stratagem, deception, and abuse of corporate personality (particularly the use of ATPD to receive and disguise the loser’s fee). However, the Tribunal concluded that it was not necessary to pierce the corporate veil in order to decide the preliminary “firm” question, because the Commission had led sufficient unrefuted evidence to show that the group functioned as a single economic unit for purposes of the Act.

On prescription under section 67(1), the Tribunal analysed when the complaint was “initiated” by the Commission, and rejected the respondents’ focus on when they were first contacted or when investigative activity resumed after a hiatus. The Tribunal accepted the Commission’s evidence that the investigation was initiated during 2009 as part of broader construction sector investigations, and that no formalities were required for initiation.

In this respect, the Tribunal relied on the Supreme Court of Appeal’s decision in Competition Commission v Yara (South Africa) (Pty) Ltd and Others for the proposition that initiation by the Commission under section 49B(1) does not require prescribed formalities, and may take the form of an informal, even tacit, decision to open a case. The Tribunal also adopted the understanding, supported by Yara and the authorities it discusses, that the purpose of initiation is to trigger an investigation that may lead to a referral, and that suspect firms need not be notified at the initiation stage. On that basis, the Tribunal found that the investigation was commenced within three years after the collusive conduct ended, and that the respondents had not shown that initiation occurred outside the statutory period.

5. Outcome and Relief

The Tribunal held that the complaint had not prescribed in terms of section 67(1) of the Competition Act 89 of 1998. It further declared that the Delatoy Group (the first to eleventh respondents) constituted a “firm” for purposes of the Act.

The Tribunal’s order was limited to these preliminary determinations, consistent with the pre-hearing direction that group liability and prescription be determined first. The Tribunal made a costs order that each party pay its own costs.

Cases Cited

AKZO Nobel NV and Others v The Commission of the European Communities (Court of Justice, Third Chamber, 10 September 2009).

Tokai Carbon Co Ltd v Commission of the European Communities (T-71/03) (CFI) [2005] 5 C.M.L.R. 13.

AOK Bundesverband and Others v Ichthyol-Gesellschaft Cordes, Hermani & Co and Others [2004] 4 C.M.L.R. 2.

Prest v Prest [2013] 2 A.C. 415.

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others [1995] ZASCA 53; 1995 (4) SA 790 (A).

Wallersteiner v Moir (No.1) [1974] 1 W.L.R. 991.

Competition Commission v Yara (South Africa) (Pty) Ltd and Others 2013 (6) SA 404 (SCA).

Simelane and Others NNO v Seven-Eleven Corporation SA (Pty) Ltd 2003 (3) SA 64 (SCA); 2003 (1) ALL SA 82.

Novartis SA (Pty) Ltd v Competition Commission CT 22/CR/Jun01 (Competition Tribunal decision, as referred to in Yara).

Legislation Cited

Competition Act 89 of 1998, including sections 4(1)(b)(iii), 19(1), 49B(1), 49B(2), 59(1), and 67(1).

Treaty establishing the European Community, Article 101 (formerly Article 81), as referenced for comparative context.

Rules of Court Cited

No rules of court were expressly cited in the judgment.

Held

The Tribunal found, on the evidence before it, that the first to eleventh respondents operated as a single economic unit and therefore constituted a “firm” for purposes of the Competition Act 89 of 1998. The Tribunal further found that the Commission’s complaint was not time-barred, because the Commission had initiated the investigation within the statutory three-year period contemplated by section 67(1), applying the principles in Competition Commission v Yara (South Africa) (Pty) Ltd and Others concerning initiation and the absence of prescribed formalities.

LEGAL PRINCIPLES

A “firm” for purposes of the Competition Act 89 of 1998 is not confined to a single incorporated company. The Act’s inclusive language (firm includes a person, partnership, or trust) supports an enquiry directed at the economic and functional reality of how entities operate, rather than a strict company-law focus on separate juristic personality.

Where multiple entities are linked by common control, common directorship, integrated financial flows, and coordinated conduct, and where they operate in practice as a single economic unit, competition law may treat them collectively as a single “firm” for purposes of the Act. The Tribunal accepted that the relevant focus is on economically functional relationships, including whether particular entities are used as instruments within the group to receive or disguise payments connected to prohibited practices.

In considering attribution within a group, comparative authority supports that an infringement of competition law may be imputable within a corporate group where there are economic, organisational, and legal links supporting an inference of decisive control and unified conduct, as discussed with reference to AKZO Nobel NV and Others v The Commission of the European Communities and related European jurisprudence.

For purposes of prescription under section 67(1) of the Competition Act, the key question is when the Commission initiated the complaint, meaning when it made a decision to open an investigation under section 49B(1). In line with Competition Commission v Yara (South Africa) (Pty) Ltd and Others, initiation by the Commission requires no prescribed formalities and does not depend on when a suspected firm is notified or engaged. The initiation stage is a preliminary investigative trigger and is distinct from referral and adjudication, which is the stage at which procedural fairness is realised through the Tribunal process.

Competition Commission v Delatoy Investments (Pty) Ltd and Others (CR212Feb15) [2016] ZACT 37; [2016] 1 CPLR 67 (CT) (14 April 2016)