1
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: CR245Mar17
In the matter between:
Competition Commission of South Africa Applicant
And
Afrion Property Services CC First Respondent
Belfa Fire (Pty) Ltd Second Respondent
Cross Fire Management (Pty) Ltd Third Respondent
Fire Protection Systems (Pty) Ltd Fourth respondent
Fireco (Pty) Ltd Fifth Respondent
Fireco Gauteng (Pty) Ltd Now known as KRS Fire
(Pty) Ltd
Sixth Respondent
Tshwane Sprinklers CC Seventh Respondent
Introduction
[1.] This matter involves a complaint referral brought by the Competition Commission
(“Commission”) against seven respondents, Afrion Property Services CC (“Afrion”),
Belfa Fire (Pty) Ltd (“Belfa”), Cross Management (Pty) Ltd (“Cross”), Fire
Protection Systems (Pty) Ltd (“FPS”), Fireco (Pty) Ltd (“Fireco”), Fireco Gauteng
(Pty) Ltd now known as KRS Fire (Pty) Ltd (“Fireco Gauteng”), and Tshwane
Sprinklers CC (“Tshwane”). The Commission alleges that the respondents
Panel: Yasmin Carrim (Presiding Member)
AW Wessels (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on: 08, 11, 16, 24, 29 October 2018 and 16 January 2019
Last submission: 16 February 2019
Order issued on: 15 January 2021
Reasons issued on: 15 January 2021
REASONS FOR DECISION
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entered into an agreement and/or engaged in a concerted practice to directly or
indirectly fix prices, divide markets and tender collusively in relation to tenders for
the supply, installation and maintenance of fire control and protection systems in
contravention of section 4(1)(b)(i), (ii), and (iii) of the Competition Act, No. 89 of
1998 (“the Act”).
[2.] By the time the hearing began four of the respondents, Afrion, FPS, Fireco, and
Fireco Gauteng had reached settlements with the Commission.
[3.] These reasons thus deal with the remaining three respondents: Belfa, Cross and
Tshwane, against whom the Commission sought an order declaring that:
3.1. Belfa, Cross and Tshwane contravened sections 4(1)(b)(i), (ii) and (iii) of the
Act; and
3.2. Belfa, Cross and Tshwane are each to pay an administrative penalty of 10%
of their respective annual turnovers.
Background
[4.] On 13 March 2015, the Commissioner initiated a complaint against Afrion, Belfa,
Cross, FPS, Fireco, ITF Fire, QD Air and TFI for allegedly fixing prices, dividing
markets and tendering collusively in the market for the supply, installation and
maintenance of fire control and protection systems.
[5.] On 26 June 2015, the Commissioner amended the compliant initiation to include
Fireco Gauteng, QD Fire and Keren Kula as additional respondents.
[6.] On 29 March 2017, the Commissioner further amended the complaint initiation to
add Tshwane as an additional respondent. The matter was then referred to the
Competition Tribunal (“Tribunal”) on the same day.
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[7.] In its referral the Commission alleges that -
7.1. From at least 1996 to 2015, the respondents being firms in a horizontal
relationship entered into an agreement and/or engaged in a concerted practice
to directly or indirectly fix prices, divide markets and tendered collusively in
relation to tenders for the supply, installation and maintenance of fire control
and protection systems in contravention of section 4(1)(b)(i), (ii) and (iii) of the
Act.
7.2. Belfa, Cross and Tshwane, being competitors, had a general agreement to fix
prices, divide markets, and tender collusively in the market for the supply,
installation, and maintenance of fire control systems.
7.3. The respondents implemented their agreement through bilateral and
multilateral agreements by providing each other with cover prices in respect of
tenders issued by various customers of fire control and protection services.
The Commission alleged that the respondents exchanged cover prices through
various forms including, sharing of bills of quantities, telephone calls, faxes,
emails, meetings, etc. It records the tenders in which there was collusive
activity in a schedule attached to its supplementary affidavit. This schedule has
been reproduced and attached to these reasons as “Annexure A”.
[8.] In relation to the respondents before us the Commission specifically alleges that:
8.1. Belfa was involved in collusion and cover quoting with respect to fifty-three
(53) different tenders.
8.2. Cross was involved in collusion and cover quoting with respect to thirty-three
(33) different tenders.
8.3. Tshwane was involved in collusion and cover quoting with respect to three
(3) different tenders.
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[9.] Further, the Commission alleges that Belfa, Cross and Tshwane were party to an
agreement to divide the market by allocating customers. In doing so Belfa was
allocated Makro as a customer.
[10.] In its answering affidavit Belfa admitted certain instances of collusion, disputed
others for lack of clarity and disputed a third category of instances on the basis that
they occurred prior to the promulgation of the Act in September 1999. Annexed to
this was an “Annexure D” which provided details of the 53 tenders it was alleged
to have colluded on.
[11.] Cross admitted to its involvement in cartel activity up until, and no later than
February 2009, where-after it argued that it distanced itself from the cartel activity,
triggering a price war and placing its conduct outside of the cartel early enough
such that the time bar in section 67(1) immunises it from prosecution under the
Commission’s initiation in June 2015.
[12.] Tshwane denied its involvement in the cartel and was of the view that the
Commission had failed to establish a case against it. In furtherance of this
contention and at the close of the Commission’s case it made an application for
absolution from the instance. At that time, we dismissed the application on the
basis that the Tribunal had the ability, through its inquisitorial powers to consider
hearsay evidence and that unlike in other civil commercial disputes the nature of
cartel conduct was such that evidence against a party could emanate from another
respondent and not only from the Commission. On this basis we preferred to
consider Tshwane’s case with the benefit of the totality of evidence in the matter.1
The Hearing
1 Transcript of Proceedings CR245/Mar17 (Transcript) p201.
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[13.] Over the course of the hearing, the Commission called two witnesses. The first
was its investigator Mr Monareng (Monareng) the second was Mr Bruce Thomas
(Thomas) of FPS, the Fourth Respondent.
[14.] Tshwane called no witnesses.
[15.] Cross called three witnesses:
15.1. Ms. Catherine Stewart (Stewart) the Managing Director of Cross from
August 2009;
15.2. Mr. Anton Kriel (Kriel) the Managing Director of the Africa Division since
2014; and
15.3. Mr. Hemand Rampursat (Rampursat) the sales director at Cross.
[16.] Before turning to the merits of the case, we record here a situation that arose in
relation to Belfa. After filing its answering affidavit, Belfa made little else in the way
of submissions. It did not call any witnesses nor did it cross examine the
Commission’s witnesses. It was represented for the first three days of the hearing
however once the Commission concluded its case, the legal representative
indicated they would not attend further but reserved their rights to make
submissions in closing.2
[17.] Prior to closing argument, the legal representatives of Belfa withdrew from the
case and notified the Tribunal that Belfa had entered business rescue. Belfa did
not file heads of argument and made no submissions in closing.3
2 Email from George Wolfe Attorneys to the Competition Tribunal “B721- Competition Commission/Belfa
Fire” (18 October 2018) and (23 October 2018).
3 Email from George Wolfe Attorneys to the Competition Tribunal “B721- Competition Commission/Belfa
Fire” (05 December 2018).
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[18.] After closing argument, the Tribunal directed the parties to provide further
submissions on potential penalties, and specifically requested the Commission to
request the relevant financial documents from the liquidator of Belfa. It then came
to the Commission’s attention that a new entity called Belfa Solutions (Pty) Ltd
(Solutions) had started operating in the market. The Commission noted that
Solutions was using the same website as Belfa and that the contact details for the
two firms were the same. The Commission alleged that this amounted to Belfa
organizing its activities in a manner so as to avoid a possible fine by the Tribunal.
[19.] The Commission then sought various documentation from Solutions to determine
whether the two firms are the same and a directive from the Tribunal as to how to
handle the matter.
[20.] Solutions responded to the allegations in correspondence indicating that it was a
distinct company to Belfa with entirely different shareholders and a separate legal
personality. It submitted that it was irregular for the Commission to request any
documentation from it in relation to the matter involving Belfa.
[21.] On 15 February 2019, the Commission filed its submissions on remedies, i.e.
penalty calculations. The Commission submitted that it was of the view that the
voluntary liquidation entered into by Belfa was part of its strategy to avoid paying
a penalty for its cartel conduct and this should be viewed as an aggravating factor
when the penalty was calculated. Here the Commission relied on the fact that
Solutions and Belfa shared several common directors, a website, and both had the
listing status of “Supervising sprinkler installer” with the Automatic Sprinkler
Inspection Bureau (ASIB).
[22.] On the same day as its penalty submissions, the Commission filed a separate
application in which it sought a declaration from the Tribunal that Solutions and
Belfa were “the same” for the purposes of imposing an administrative penalty and
Belfa were “the same” for the purposes of imposing an administrative penalty and
ordering that Belfa and Solutions are jointly and severally liable for any penalty that
may be imposed on Belfa.
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[23.] This application was set down for hearing on 24 May 2019. At the hearing, the
parties came to an agreement whereby the Commission would withdraw its
application and information would be provided to the Commission about the
liquidation of Belfa.
[24.] On 7 June 2019 Solutions provided the information to the Commission. The
Commission thereafter, on 5 July 2019 stated that it was not withdrawing its
application and requested a pre-hearing to determine the path forward. Solutions
responded arguing that the Commission had withdrawn its application as part of
the agreement reached at the hearing of 24 May 2019.
[25.] As we had already issued an order, being the agreement reached in the hearing
on 24 May 2019, we were of the view that we were functus in relation to that
application and advised the parties of this.
[26.] Accordingly, we held our decision in abeyance until further communication from
the Commission. Such was never made.
[27.] In our view we are not precluded from determining the merits of this case while the
issue of the liability of Solutions is yet to be determined for purposes of the penalty.
The matter has already suffered significant delays and the interest of justice
requires us to provide certainty to all the parties involved without any further delays.
The Commission may still take whatever legal steps it deems necessary to pursue
its position that Solutions must be jointly and severally liable for the penalty
imposed on Belfa.
[28.] We turn now to first address the case against Tshwane.
Tshwane
[29.] In its referral affidavit, the Commission alleges that:
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“From at least 2010 to 2015, representatives of Tshwane and Belfa engaged in
collusive activities by agreeing to provide each other with cover prices in respect of
tenders issued by various customers of fire control and protection services. When
providing each other with cover prices, Tshwane was represented by Olivier and Belfa
was represented by either Deventer, Odd or Macbride. Tshwane and Belfa agreed to
exchange cover prices on at least three tenders. They exchanged cover prices
through various forms including sharing of bills of quantities, telephone calls, faxes,
emails, meetings, etc.”4
[30.] In Annexure A to the Commission’s supplementary affidavit to the referral,
Tshwane is mentioned as an implicated firm in three instances:
30.1. July 2010 Ford tender;
30.2. A 2014 Ford plant 1 Market Area tender; and
30.3. Makro Carnival.5
[31.] Monareng, the investigator for the Commission, describes the process through
which Tshwane was implicated in the cartel as follows:
“With Tshwane, when we started the investigation in 2015 we were not aware that
Tshwane is also involved in the collusion. Then in November, October / November
2016 we spoke to Belfa. Specifically, we spoke to Mr Charles Van Deventer, and we
asked Mr Charles Van Deventer in the interview if there are any other companies that
they exchange cover prices with. He said he could not remember all the companies
that he’s exchanged cover prices with. And then we requested him to make written
submission and give us a list of all tenders and names of companies that he’s
exchanged cover prices with. And when they made those submissions, in those
submission, Belfa implicated Tshwane. That was in November 2016. We then
amended the complaint to add Tshwane as a respondent. So that is why the tenders
were Tshwane’s implicated it’s Tshwane and Belfa Fire.”6
[32.] In the answering affidavit of Peter Booysen on behalf of Belfa, Belfa admits to
colluding in several contracts, whether by giving or requesting ad-hoc cover prices.
colluding in several contracts, whether by giving or requesting ad-hoc cover prices.
In Annexure D thereto, a schedule drafted by Mr Charles van Deventer (Van
4 Commission Founding Affidavit Trial Bundle (TB) p22.
5 TB p 40-41.
6 Transcript p91.
9
Deventer), also of Belfa, and confirmed in his supplementary answering affidavit,
Belfa implicates Tshwane in two of the three contracts. 7
[33.] The Commission presented no other evidence against Tshwane, whether in
documents or in oral testimony.
[34.] The absence of documentary evidence was not surprising because, on the version
of the Commission’s investigator, there was no investigation conducted in relation
to Tshwane:
“MR MODISE: There is a debate from Tshwane that this, there’s a strangeness about
how they came up to be a respondent, in that the initiation against them happened
very close to a referral. Are you able to put them at some kind of comfort why that
happened?
MR MONARENG: I agree with them. That’s very strange, because there was nothing
to investigate. The information that Tshwane is involved, we have someone who can
talk to that conduct. All that we did was to add Tshwane as a respondent to an existing
complaint, and then referred Tshwane to the Commission Tribunal for prosecution.
That’s all that we did. It was just to add them as a respondent.”8
[35.] Thus, the Commission’s only link to Tshwane being implicated in the cartel activity
is the affidavit of Van Deventer of Belfa.9
[36.] Under cross examination Monareng confirms this and testified that Van Deventer,
when he was called, would confirm the alleged collusion in his testimony to the
Tribunal:
“MS VORSTER: Okay Mr Monareng let me ask the question again did the
Commission, you or any of the other interrogators, see for themselves a document
linking Tshwane to collusion activities?
MR MONARENG: He’s going to come and testify.
MS VORSTER: Okay it’s a yes or no question it’s actually not difficult.
7 See items 38 and 51 of Annexure D to Belfa’s answering affidavit.
8 Transcript p92.
9 Transcript p50:
“Then we have Mr Charles Van Deventer he is an employee of Belfa, we have not, given our time
pressures, finalised the consultations with Mr Van Deventer. We intend to call him to specifically link
Cross Fire and Tshwane Fire to the collusion.”
10
MR MONARENG: I did not see tender documents we saw Mr Charles Van Deventer’s
statement and a list of tenders where they…(intervention)
MS VORSTER: That was based on his recollection so as far as he could remember.
MR MONARENG: Yes that is correct.”10
[37.] But ultimately Van Deventer was not called to testify before the Tribunal.11
[38.] In the course of the hearing, evidence to the effect that Tshwane was not a
participant in the cartel was elicited under cross-examination of Stewart from Cross
by Ms Vorster (the legal representative of Tshwane):
“MS VORSTER: Thank you. Ms Steward (sic), are you personally aware of the names
of some players in this old guard, as you call it?
MS STEWART: Yes.
MS VORSTER: Can you tell the Tribunal the names of those?
MS STEWART: Yes. I may miss off, but – are you talking about the names of firms?
MS VORSTER: Ja, and that you said that they would have the old guard, members
of the old guard would have lunch together or play golf and so on.
MS STEWART: Yes.
MS VORSTER: Do you have those names?
MS STEWART: So those names would have been Belfa, Fire Control, SA Fire, QD
Fire, Cross; off the top of my head.
MS VORSTER: Okay, thank you. In the time when your company was involved with
the collusive practices, did anybody from Tshwane ever call to ask for cover prices?
MS STEWART: I’m not 100% sure if they ever called the company, but I can say I’ve
never spoken to anybody from Tshwane.
MS VORSTER: Okay. Last question; in the times that you are referring to collusive
practices prior to 2009, was Tshwane considered as a major player in the market?
MS STEWART: No.”12
[39.] In summary, other than the allegation by Van Deventer in his supplementary
affidavit no other evidence incriminating Tshwane was produced. The Commission
could not support its own allegations because it did not call Van Deventer. Nor did
10 Transcript p 179.
11 Transcript p192.
12 Transcript p317-318.
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it conduct an investigation that could have yielded more details of when, where and
how Tshwane colluded with Belfa. No other witness confirmed Tshwane’s
participation in the cartel and no other evidence, either in documents or pricing,
was elicited by the Commission. Van Deventer’s allegation thus remains an
untested allegation, which is undermined by Stewart’s evidence that she could not
recall speaking to anyone from Tshwane.
[40.] The Tribunal is alive to the difficulties of prosecuting cartels, and these difficulties
may in the absence of direct evidence require the Tribunal to draw an inference
from the available evidence that a firm is/was involved in cartel activities. Such
inferences of collusion may be drawn on the balance of evidence in a specific
case.13
[41.] However, in the case of Tshwane, the Commission’s evidence was thin to begin
with. Tshwane is only referenced in a list of purportedly rigged tenders compiled
by Van Deventer on the basis of his recollection. There was no additional evidence
as to how this collusion occurred, who gave whom cover prices or the identity of
the parties involved.
[42.] The Commission simply added Tshwane to the referral on this basis. On its own
admission it did not conduct an independent investigation of its own, had no site of
the contracts, did not contact any customers, did not seek confirmation of the
alleged collusion from other competitors and most importantly did not call Van
Deventer, whose list was the sole piece of evidence for the Commission’s case
against Tshwane, to testify.
[43.] The Commission bears the onus to prove its case and, in our assessment failed to
do so in respect of Tshwane.
[44.] Thus, in our order below, we dismiss the case against Tshwane.
13 See Competition Commission v Thembekile Maritime Services (Pty) Ltd & others, unreported case
number CR067May17 (14 August 2019) at para 51- 55 which set out the principles for drawing
inferences.
12
Cross
[45.] The Commission alleges that Cross was involved in 33 instances of collusion. It
lists these instances in Annexure C of its supplementary affidavit. Cross responded
to the list as follows:
45.1. With respect to items 1 - 6, Cross, similarly to Belfa, contended that these
tenders occurred at a time when the Act was not yet in force (before 1
September 1999) and so the Act itself finds no application.
45.2. With respect to items 7 – 26 (tenders from 1999 to 2008) Cross admits to the
collusion. However, it argued that that these instances have prescribed in
terms of section 67(1) as the conduct ceased prior to 13 March 2012, being
three years before the Commission’s initiation against it on 13 March 2015.
Cross thus admits to these instances of collusive conduct but raises a
prescription argument. At the time of hearing this matter the Constitutional
Court had not yet delivered its judgment in Pickfords14 in which it was held
that 67(1) was a mere procedural and not a substantive bar to the
Commission initiating a complaint against conduct that had ceased three
years prior to such initiation.
45.3. With respect to items 27 – 33, Cross denies it colluded on these tenders.
[46.] Further, Cross denied participation in an agreement to divide markets by allocating
customers such as Makro to Belfa, arguing that the relationship between Makro
and Belfa was one driven by Makro’s requirements as a customer.
[47.] Cross’s second defence was that, whilst it may have participated in a cartel until
2008, it exited the cartel in 2009 and the last collusive conduct it was involved in
ceased more than three years prior to the Commission’s initiation date of 13 March
14 Competition Commission of South Africa v Pickfords Removals SA (Pty) Limited (CCT123/19) [2020]
ZACC 14.
13
2015. Thus, by the operation of section 67(1), the Commission’s referral against it
was time-barred.
[48.] Cross broadly argues that its exit from the cartel occurred around the tender related
to the One Monte Hotel and Retail project (One Monte Project). Cross argues that
its repudiation of the collusive agreement was indicative of its exit from the cartel.
In addition, its actions made its exit widely known in the industry. Finally, it argues
that under the leadership of Ms Stewart, Cross (i) at a board level implemented a
policy of competition law compliance and (ii) advertised this policy to its staff.
[49.] Cross argues that these facts, when read with the Commission’s failure to provide
any evidence of Cross’s participation in collusive activities after 2009, should prove
that it had exited the cartel at that time.
[50.] In response to this the Commission broadly argues that:
50.1. Cross’s actions which relate to the One Monte Project were insufficient proof
of a withdrawal as such was not communicated clearly to the market at large;
50.2. There was no evidence of Cross’s adoption of a competition law compliance
program;
50.3. Cross presented no evidence that it had told its competitors that it was no
longer interested in colluding;
50.4. Cross failed to approach the Commission to apply for leniency with respect
to the cartel, a clear sign that it had not fully exited therefrom; and
50.5. Cross was involved in instances of collusion after 2009 upon which the
Tribunal could sustain an inference of Cross’s continued participation in the
cartel conduct.15
15 The Commission relies on three instances:
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[51.] Before considering Cross’ defence that it exited the cartel we first set out what we
understand the nature of the impugned conduct to be.
Nature of the conduct
[52.] Both Cross and Belfa, while admitting to the collusion, have sought to argue that
the conduct constituted ad hoc collusive instances of cover pricing. In other words,
each instance of cover pricing given or received must be viewed as a discrete
instance of collusion.
[53.] Cross asserts that one of the facts that goes against the characterisation of its
conduct as an overall agreement or understanding amongst the respondents is the
occasional price war that occurred amongst them.
[54.] In Stewart’s witness statement she submits that:
“The arrangement, however, was only ever transient because as soon as a large
project went out to tender, one or more firms would ‘cheat’ in an attempt to secure
the large project for themselves. That would undermine the collusive arrangement
and other firms would respond by pricing as low as possible, a price war would ensue
and so the cycle would begin afresh.”16
[55.] For big projects it was every man for himself. In the words of Stewart:
“Yes everybody would want that big project and then they would say well the
agreement is off, I wouldn’t use exactly that terminology in terms of agreement but
gloves off it’s a free for all everybody quotes or tenders competitively.”17
[56.] We note that according to Stewart the alleged instances of competitive tendering
by all firms in the cartel were limited to the “large” / “big” projects and thereafter the
The first was an instance of information sharing related to an August 2009 tender for VW Centurion.
The second was the tender for Makro Alberton in 2012. The third was an alleged instance of information
sharing in 2015.
16 Stewart Witness statement Page 13 par 5.3.4.
17 Transcript p 223.
15
firms would again engage in collusive conduct, in her words “and so the cycle would
begin afresh”.
[57.] However, periodic price wars amongst cartels of long duration are not unusual.18
As has been shown in several matters before the Tribunal as well as abroad in
foreign jurisdictions.19
[58.] Of particular relevance is the European Commission’s decision in the rubber
chemicals cartel, in which the Commission was unpersuaded that the presence of
price wars could be used to signal the exit of the parties from the cartel, “a price
war resulting from deviation from the cartel cannot be considered to put an end to
the overall objective to restrict competition. If the parties truly wanted to quit the
cartel ... complaints about the past and negotiations about the future would no
longer have been necessary”.20
[59.] In discussing the duration of a common objective in European Law, David Baily
writes the following on price wars:
“The price war was an example of the possibility, indeed the probability, of
cheating in cartels. It is only normal in a cartel of long duration for there to be
moments of unity and moments of tension. Although competitors' reliance
upon one another's future behaviour may have been misplaced, the fact that
any reliance is possible is unacceptable. The Commission rejected similar
arguments in Copper Plumbing Tubes and Industrial Tubes. The reasons why
cartels succeed or fail are therefore separate from the question of whether
there has been a single and continuous infringement.”21
18 Some theorise that price wars may assist in the long- term success of cartels see Edward J. Green
& Robert H. Porter, Noncooperative Collusion Under Imperfect Price Information, 52 Econometrica 87
(1984).
19 See Competition Commission v Southern Pipeline Contractors & Another 23/CR/FEB09; Videx Wire
Products (Pty) Ltd v Competition Commission of South Africa (124/CACOct12) [2014] ZACAC 1 (14
March 2014); Competition Commission of South Africa v RSC Ekusasa Mining (Pty) ltd and Others
March 2014); Competition Commission of South Africa v RSC Ekusasa Mining (Pty) ltd and Others
(65/CR/Sep09) [2012] ZACT 82 (19 September 2012) para 65.; Competition Commission v DPI Plastics
(Pty) Ltd and Others (15/CR/Feb09) [2012] ZACT 47 (4 July 2012) para 66. Abroad see Rubber
chemicals, Commission Decision of 21 December 2005, Case No. COMP/F/38.443;
20 Rubber Chemicals, Commission Decision of 21 December 2005, Case No. COMP/F/38.443 para
217.
21 David Bailey, 'Single, Overall Agreement in EU Competition Law', Common Market Law Review,
(Kluwer Law International 2010, Volume 47 Issue 2) pp. 473 – 508 pp494.
16
[60.] Periodic cheating amongst members of cartels of long duration are commonplace
because cartels, aside from general bargaining problems often face the instability
brought about by opportunistic behaviour and entry into a market by non-members
of the cartel.22 Opportunistic behaviour can be said to arise in instances where an
individual cartel member has an incentive to deviate from the cartel to capture
higher individual profits at the expense of lower joint profits. It is the existence of
opportunistic behaviour which necessitates for disciplining mechanisms, such as
‘collective predation’ or price wars.23
[61.] Hence price wars may simply be an enforcement mechanism employed by
dominant cartel members to discipline mavericks or cheaters and not necessarily
an indication of durable competition amongst firms. For example, in Southern
Pipelines,24 the Tribunal found that price wars were used in particular regions to
discipline smaller entrants not adhering to a previously defined agreement.25
[62.] Moreover, the idea that the respondents would only collude on ad hoc projects
from time to time defies the economic rationale of cover pricing arrangements. It
would not make economic sense for a profit-maximising firm to engage in cover
pricing as a once off ad hoc practice without expecting a quid pro quo sometime in
the future. Why would a profit maximising firm agree to provide a cover price to its
competitor, at the risk of losing that customer or tender, if it did not have the comfort
of knowing that it could rely on its competitor(s) for a similar cover price sometime
in the future? It would be remarkably foolish of such a firm to extend a cover price
in the absence of at least an assurance that it too would benefit from such cover
sometime in the future. Thus, the argument that the respondents only colluded on
an ad hoc basis is unsustainable.
22 Margaret C. Levenstein & Valerie Y. Suslow, What Determines Cartel Success?, 44 J. Econ.
Literature 43 (2006).
Literature 43 (2006).
23 Fiona S. Morton, Entry and Predation: British Shipping Cartels 1879–1929 (Nat'l Bureau of Econ.
Research, BER Working Paper No. w5663, June 1996); David M. Kreps & Jose A. Scheinkman,
Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes, 14 Bell J. Econ. 326
(1983).
24 Competition Commission v Southern Pipeline Contractors & Another 23/CR/FEB09.
25 See generally Khumalo J et al Harm and Overcharge in the South African Precast Concrete Products
Cartel Journal of Competition Law & Economics, OUP 2014, Volume 10 (3)pp. 621.
17
[63.] By the same token, it would seem illogical to suggest that an agreement to provide
cover prices amongst the firms was not in effect also an agreement on customer
allocation. By the mere act of providing a higher cover price at the request of a
competitor, that firm effectively agrees not to compete for that specific customer
and thereby impliedly ‘allocates’ the customer to its competitor. Cross in fact admits
to such allocation as part of the agreements in relation to the One Monte Project,
where Cross, Belfa and FCS agreed that Belfa would be the preferred bidder.26
This implies customer allocation. Whether the alleged sustained customer
allocation of Makro (the one large customer alleged by the Commission to have
been allocated to Belfa) was an element of this understanding or agreement is not
a matter we need to make a finding on for purposes of this conclusion.
[64.] And indeed, the respondents’ self-admitted conduct over the many years and the
significant number of instances reflect precisely this kind of understanding namely
that they could approach each other for cover pricing or pricing information
regularly and could discuss tenders and customers with each other with relative
ease over many years.
[65.] Both Cross and Belfa admit that they engaged in collusive tendering/cover pricing
prior to the promulgation of the Act in 1999. While we accept that we would not
enjoy jurisdiction over conduct in that period, the fact that it occurred is something
we can have regard to in the process of characterising it. That the cover pricing
arrangements or understanding persisted over so many years suggest that this
was an overall arrangement or understanding amongst the firms which simply
continued after the promulgation of the Act.
26 Witness Statement Stewart p28-29 para 6. 9. “A cover pricing agreement was struck between Mr
Cross, FCS and Belfa in terms of which Belfa would be the preferred bidder. In line with that agreement,
Belfa prepared and provided to Cross Fire the (inflated) prices at which Cross Fire was supposed to
tender.”
18
[66.] Indeed, Cross itself, when it admits to its participation in the cartel, albeit claiming
prescription, describes it as the “long standing practice...of ‘providing cover’”27, and
the “collusive arrangement”28
[67.] There is no other reasonable explanation for why the relevant firms would continue
with this conduct with such relative ease over so many years unless there was a
general agreement, understanding or arrangement amongst them that they could
engage in cover pricing and collude from time to time.
[68.] Thus, we conclude that the nature of the conduct in this matter was not once-off
ad hoc instances of cover pricing or collusion on tenders but a long-standing overall
arrangement, understanding or agreement amongst the respondents involving
collusive bidding, cover pricing and customer allocation.
[69.] If the practice is a long-standing cartel and a particular firm that was part of it for
many years alleges that it has exited that arrangement, then the onus is on that
firm to show that it has indeed distanced itself from the cartel. It then becomes
relevant to ask what is expected of a firm seeking to do so. In this enquiry we would
necessarily assess what steps that firm took to send a clear and unambiguous
message to its competitors that it no longer was part of the cartel.29
[70.] We now turn to assess the facts put up by Cross in justification of its alleged exit
of the cartel in 2009 or at the latest 2011 when it alleges it received the last payment
in respect of the Nampak Kliprivier tender.
The Evidence on Exit
[71.] Stewart’s evidence was that she had always been uncomfortable with the practice
of cover pricing,30 but that prior to 2009, she had lacked sufficient authority to
27 In her witness statement, Stewart describes the series of events at the “long standing practice in the
industry of ‘Providing cover’ (par 5.3.4) p21.
28 Witness statement of Stewart p22 para 5.3.5.
28 Witness statement of Stewart p22 para 5.3.5.
29 Important to note is that the time at which a firm has exited a cartel is conventionally only relevant for
the calculation of penalties and not, as it was being used by Cross in this context, as the first leg of a
two stage enquiry to avoid liability and absolve itself entirely for participating in the cartel.
30 Witness statement Stewart p25 para 6.1.
19
challenge the status quo which had been instilled over decades.31 However, upon
being promoted to MD32 – which meant that she was in charge of the day-to-day
running of the firm33 – she sought to bring about an end to collusive behaviour at
Cross.
[72.] She submitted that she had indicated Cross’ exit from the cartel during the One
Monte Project tender in late 2008 / early 2009, just prior to her appointment as MD.
[73.] The One Monte tender process was being handled by an independent firm of
consulting engineers called Trevor Williams Consulting Engineers (TWCE). Only
Cross, FCS30 and Belfa were invited to bid.34
[74.] According to Stewart, a cover pricing agreement was struck between Mr John
Cross (the erstwhile MD and owner of Cross), FCS and Belfa in terms of which
Belfa would be the preferred bidder.35
[75.] In line with that agreement, Belfa prepared and provided to Cross the (inflated)
prices at which Cross was supposed to tender. However, on the tender closing
date, Mr John Cross was out of the country. Stewart submits that she and her
colleague, Kriel, saw this as their opportunity to repudiate on the collusive
arrangement36 and decided to not to submit a tender.37
[76.] Shortly thereafter, Stewart received a call from Mr John Goring (Goring), the
chairperson of ASIB. Goring enquired why Cross had failed to submit a tender and
Stewart informed him that Cross was no longer willing to be part of the collusive
arrangement(s).38
31 Ibid. p23 para 5.3.7 and 5.3.4. Where the industry is described as an “old boys club” providing
participants with no other option other than to adopt the industry norm or exit the industry.
32 Managing director.
33 Transcript p219.
34 Stewart’s witness statement, para 6.8 and 6.9, pp 28 – 29 of the witness statement bundle.
35 Witness Statement Stewart p28-29 para 6. 9. See note Error! Bookmark not defined. above.
36 Stewart’s witness statement, para 6.9, p 29 of the witness statement bundle. See too Kriel’s witness
statement, para 7.5-7.7, pp 205 – 206 of the witness statement bundle
37 Stewart’s witness statement, para 6.9, p 29 of the witness statement bundle, as well as the transcript,
p209 et seq.
38 Transcript p 212.
20
[77.] Stewart then points to TWCE’s “Tender Adjudication Report” dated 14 February
200939 as evidence that (i) Cross repudiated on the collusive arrangement by
refusing to submit a tender, and (ii) that word of decision had spread throughout
the industry. It reads, in relevant part:
“This report serves to provide an overview of the results following the invitation for
tenders … of an automatic sprinkler installation to the following areas of the One
Monte project, Fourways…
Tender invitations were issued to the following contractors: Belfa Fire, Cross, Fire
Control Systems
Based on our analysis, we believe that this tender has been substantially “fixed” and
are of the considered opinion that collusion occurred between the tenderers.
As can be seen, Cross failed to return a tender… Subsequent discussions have
indicated that the actual reason for declining to tender appears to be the fact that they
were unwilling to participate in the collusion which took place between the other two
parties.40
[78.] TWCE’s report does not detail who the subsequent discussions were held with.
Nor was Trevor Williams called to explain or confirm his report.
[79.] Kriel, in his testimony at the Tribunal, testified that Messrs. Odd (Odd) and Dave
Ford (Ford) from Independent Fire knew of Cross’s repudiation from the cartel.
Kriel testified that he met Mr Odd and Mr Ford at a restaurant where the two were
ordering expensive whiskey. Kriel’s version was that he bemoaned that he could
only afford cheaper drinks, to which Odd and Ford commented that he (and Cross
by implication) had chosen their fate. Kriel submitted this as proof that the industry
was aware that Cross had exited the cartel. No date was given for this interaction,
but we assume that it occurred about the same time as the One Monte tender.
39Witness Statement Bundle p66.
40 Page 3- 5 of the TWCE report, pp 70 – 71 of the witness statements bundle.
21
[80.] Reliance was then placed on an extract of the Commission’s interrogation of a Mr
Stephen Ayerst of FPS, the Fourth Respondent, who in response to being asked
when the cover pricing arrangement in the industry came to an end, states:
“I think it was round about 2007. I might be wrong with the year, but it was the pivoted
Monte Casino [project] that [ended it] …”41
“… Trevor Williams was a fire consultant. He phoned and he was querying, and
because I was now nervous all of a sudden, the questions he was asking…”42
[81.] In that interrogation, when pressed by the Commission to admit to cover pricing
post-2009, Ayerst responded “I don't recall a project post 2009...”43 and “I can’t
recall it”.44
[82.] Finally, Ayerst explained to the Commission that in the aftermath of the One Monte/
Monte Casino project, and having been very concerned by Trevor Williams’ calls,
FCS scheduled a strategy session, identified collusion as a big threat to its
continued success and FCS no longer engaged in collusion.45
[83.] Thus far the evidence relied upon by Cross until this point in time (early 2009)
raises a few inherent contradictions and is unpersuasive in the main.
[84.] In the first instance, by her own admission, Stewart did not enjoy the necessary
authority at the time of the One Monte tender to withdraw Cross from the cartel.
The owner John Cross had struck the agreement with Belfa and FCS. Second, she
herself explained that there was another reason, other than the fact of collusion
which caused unhappiness for her. She was concerned that the agreed tender
prices were too inflated, and that this might raise suspicions on the part of the
customer.46 Third, the fact that she and Kriel withheld Cross’ bid, without any
41 Transcript, pp 157 – 158, transcript of Ayerst’s interrogation, p 13.
42 Transcript, p 158, and transcript of Ayerst’s interrogation, p 13.
43 Transcript of Ayerst’s interrogation, p 20.
44 Transcript of Ayerst’s interrogation, p 18.
45 Transcript, p 159 – 160.
44 Transcript of Ayerst’s interrogation, p 18.
45 Transcript, p 159 – 160.
46 Transcript p 303. This was also sourced from correspondence between the Commission and Cross
(8 December 2016). Confidential Bundle p2.
22
explanation to its competitors at the time, does not in itself suggest a withdrawal
from the cartel. It could simply suggest a decision not to compete in that one tender
which in effect amounted to abiding the agreement struck between John Cross and
Belfa that Belfa would be the preferred bidder.
[85.] Bid rigging agreements can take many forms, such as providing cover pricing or
not putting in a bid, the objective of the agreement being to reduce competition for
that tender/contract and raise prices. The fact that Cross failed to put in its bid for
this tender does not on its own suggest exit from the collusive arrangements. It can
only serve as confirmation that Cross did not submit its bid, which meant that the
other cartelists could carry on with their cartel arrangement.
[86.] Further, as to Stewart’s claim that her communication to Goring amounted to
communication to the rest of the industry, no explanation is given by her what role
Goring played in the collusive arrangements so that telling him would amount to
sufficient notice to her competitors that Cross had exited the single overall
arrangement. Her claim that this was a communication to the entire industry seems
to be based on the fact that Goring was the chairperson of the ASIB as if this was
an industry association. Yet no details were provided to us about the role or status
of ASIB. The Commission points out that ASIB is an inspection bureau which
inspects fixed automatic sprinkler installations with a view to issuing clearance
certificates for the systems that have complied with the nominated standard of
design and is thus not an industry association. Significantly, no date was provided
for this communication. But we assume in favour of Stewart that it occurred more
or less at the time the TWCE report was produced.
[87.] Goring was not called to confirm that this communication took place or that he in
fact was in a position to convey Stewart’s claim to the rest of the industry.
fact was in a position to convey Stewart’s claim to the rest of the industry.
[88.] Mr Williams of TWCE was not called to testify. What is unambiguous in the
language of the TWCE report of 14 February 2009, is that the concerns of collusion
pertained only to the One Monte tender and not to the overall collusive agreement
between respondents.
23
[89.] Kriel’s evidence provides us with no time or date as to when these discussions with
Odd and Ford took place or why a discussion about the affordability of whiskey
should require us to treat that as evidence of exit from a cartel. In any event, Kriel’s
evidence does not hold up in the context of an email sent by Ford to Stewart
(discussed later in these reasons) in March 2014, more than 5 years later, in which
Ford shows that he considers Cross to still be part of the cartel.
[90.] As to the evidence of Ayerst, this remained untested. He was not called. Even if
we are to have regard to his remarks under interrogation by the Commission, what
we cannot discern is how this applies to Cross’ exit from the cartel. What is clear
from his evidence is that he was nervous for FCS after the TWCE report, not that
Cross had stopped colluding with other players in the market.
[91.] We turn now to consider the evidence put up by Cross of events subsequent to the
One Monte tender.
[92.] On 1 July 2009, after the undated conversation with Goring, and after the One
Monte tender in February 2009, which Stewart says was the defining moment of
Cross distancing itself from the cartel, Stewart herself provided Ford with Cross’
pricing information in respect of the Nampak Kliprivier project in an email. When
asked about this during the proceedings she stated that she could not recall it and
was only made aware of it after reviewing the Commission’s supplementary
discovery. Her explanation for it was that she was not the author of the attachment
and assumes that she was given the document and told to send it and at that time
she lacked sufficient authority to overrule the instruction.
[93.] This stands in stark contrast to her testimony under oath that she had the authority
to repudiate and withdraw from the cartel in her communication with Goring at the
time of the One Monte tender.
[94.] Stewart was appointed MD in August 2009. Yet on 20 August 2009 Kriel, who
[94.] Stewart was appointed MD in August 2009. Yet on 20 August 2009 Kriel, who
supported her version that Cross had withdrawn from the cartel around February
2009, called Ford and asked him to confirm that the prices Cross was quoting to
24
Volkswagen (VW) were ‘market related’. Recall that Ford was from Independent
Fire.
[95.] Kriel had sent Ford Cross’ pricing information that he had worked out for VW.
Kriel’s explanation for doing this is that VW and Cross had a good relationship and
Cross was asked to do an estimate for the configuration of a new warehouse. VW
had asked Kriel to confirm that the prices were ‘market related’. Kriel sent the
information to Ford at Independent Fire, Cross’ competitor, to get an indication if
his prices were market related. Ultimately Cross won the VW contract.
[96.] Ford was not called to testify. But the explanation provided by Kriel is implausible
in the context of his and Stewart’s own evidence. On their own version Cross had
withdrawn from the cartel around February 2009 because they disagreed with
colluding on the One Monte tender because in their view it was ‘wrong’. This
suggests, which is later confirmed by Stewart in her evidence on her action in 2010,
that they understood this to constitute illegal conduct. Yet Kriel sees nothing
‘wrong’ in sharing Cross’ confidential pricing information with a horizontal
competitor, Ford at Independent Fire. In this exercise which Kriel claimed to have
been done at the request of VW, he must have had sight of or discussed not only
Cross’ but Independent Fire’s pricing. In any event the explanation by Kriel that
VW asked him to check that pricing was ‘market related’ can hardly be relied upon
as a defence to illegal conduct.
[97.] Throughout the hearing, much was made of Stewart’s attempts to ‘right the ship’
internally within Cross. It was submitted that Stewart made a presentation to the
Cross board of directors in 2010 in which she explained her understanding of
collusion47 and highlighted the following:
“Collusion is criminal. Cross’s longevity and reputation is at risk. Cross is Squeaky
clean – put the word out that we price things our way”48
47 PB p172.
48 PB p172.
25
[98.] She also explained that if Cross was to get “bust for collusion”, that could mean the
end of the company.49 The main thrust of the presentation was that Cross should
adopt an official policy in terms of which (i) it becomes squeaky clean, (ii) it prices
independently, and (iii) it makes that decision known publicly. Stewart and Kriel
both testified that the policy was duly adopted by the Board,50 which at that stage
comprised Stewart herself, along with Odd John Cross, Netherlands and Kriel.51
[99.] Further it was submitted that on 23 July 2010, following the Board’s adoption of the
policy, Stewart supposedly made the presentation to Cross’ relevant staff
members.52
[100.] The Commission argues that there was no evidence of the presentation being
adopted as a strategy of Cross, either in the form of minutes or board resolution.
[101.] Ms Stewart explained the absence of official minutes as follows:
“MS STEWART: There actually isn’t, so what we – this was an extraordinary
meeting, and it wasn’t attended by the people that normally – secretarial staff that
would take our management minutes.
So it was actually held on a weekend in 2010, and I think it was a Saturday morning,
in our offices where only the directors were present. We did not take minutes. In
hindsight that would have been really nice if we did, because we would have had
documented stuff.
MR WESSELS: So there’s no document that tells us what the Board’s feeling was
about your presentation on collusion?
MS STEWART: No.”53
[102.] We note that on this version the Board only adopted the policy of non-collusion at
a workshop in mid-2010.
49 PB p171.
50 Transcript, p 218 and 336-337.
51 Transcript, p 218.
52 Stewart’s witness statement, para 6.20.2, p 34 of the witness statement bundle and the transcript,
p218 and 272. There was some debate as to whether the presentation was made to all Cross Fire staff
or only the relevant staff.
53 Transcript p277.
26
[103.] But even if were to accept that Cross had adopted this anti-collusion policy
internally, this does not mean that it had communicated its withdrawal from the
cartel to its competitors at large.
[104.] Had Cross’ withdrawal been known by the industry at large, competitors would not
be under the impression that they could still approach Cross for collusive pricing
arrangements.
[105.] That Cross’ competitors were unaware of its firm and unambiguous exit from the
cartel is confirmed by two relatively recent instances.
[106.] The first of these is the email sent by Ford to Stewart on 21 March 2014. From the
content of this email which we reproduce below, he was aggrieved by the way he
had been treated. In this email he threatens to tell all and approach the
Commission with information about the cartel.
“Morning Cathy
It’s amazing when one’s down and out how irrational they become, I’ve compiled a list
of projects including all supporting documentation which includes the fire protection
industry, consultants and certain people within the private sector relating to their
knowledge and involvement with regards to the cartel within the fire protection industry.
At this stage there is no alternative for me as this has been on my conscious for many
years and feel it is only right to report this to the Competition Commission and turn
state witness.
If i’m going down i intend taking everybody down with me
Dave Ford”54
[107.] It appears that Ford and his erstwhile employer Mr Prinsloo of Independent Fire
had fallen out. He did ultimately approach the Commission. As interesting as this
development was, Stewart’s response to this email is even more interesting,
[108.] Her response to Ford is not that which we would expect from a firm who has
announced and made clear to its competitors in early 2009 that it had withdrawn
from the cartel. We would have expected Stewart to simply point out to Ford that
from the cartel. We would have expected Stewart to simply point out to Ford that
54 Email from Dave Ford to Cathy Stewart Untitled (4 March 2014) Confidential Document Bundle p14.
27
Cross had withdrawn from the cartel in 2009 because it had believed collusion to
be wrong.
[109.] Instead, we see Stewart playing for time in her response and wanting further
engagement with Ford:
“Hi Dave
Please can you please call me or let me have your number so we can chat.
Regards”55
[110.] But that is not where the discussion ends. Later in the month, Ford emails Stewart
again. This time referring to a conversation he had with John Cross. He writes:
“Hi Cathy, i don’t know if John has spoken to the main players of the mob (listed below)
to discuss my intentions the ramifications and possible solutions if any. You know my
situation and all I can give you is 2 weeks to try and resolve this issue.”56
[111.] The “mob” listed by Ford included Dave McBride, Van Deventer, Odd, Mr John
Robertson, Mr Dave Fish, and a number of other participants named only by their
first name (Mike, Ralph, Don, and Roy).
[112.] Again, Stewart’s response is not that which one would expect from a firm which
had clearly distanced itself from a cartel. Stewart writes:
“Hi Dave,
Thanks for your mail. What kind of solution are you looking for?”57
[113.] After two weeks, Ford sends a further email suggesting that Stewart come up with
a decent proposal and he would “get out of [her] face”.
[114.] At this stage Stewart obtains legal advice from Lesley Morphet of Webber Wentzel.
Ms Morphet responds to Ford on behalf of Stewart indicating that:
55 Email from Cathy Stewart to Dave Ford Untitled (4 March 2014) Confidential Documents Bundle p15.
56 Email from Dave Ford to Cathy Stewart Untitled (21 March 2014) Confidential Documents Bundle
p25.
57Email from Cathy Stewart to Dave Ford Untitled (21 March 2014) Confidential Documents Bundle
p25.
28
“We are instructed to inform you that your threats are without foundation insofar as
our client is concerned, and our client is satisfied that it has nothing to fear from the
competition authorities. A complaint may only be initiated in respect of conduct taking
place within the last three years, and our client’s conduct over that period had been
exemplary”58
[115.] Stewart submits that it was these mails that caused her to seek legal advice both
on the immediate threat posed by Mr Ford’s emails as well as a broader strategy
of competition law compliance. Her explanation for this was that she needed expert
advice because “Mr Ford’s mails kind of gave me a wakeup call about what we
did.”59
[116.] What remains unexplained by Stewart are two aspects flowing from this incident.
[117.] The first is her response to Dave as we discussed above. Nowhere does she say
or lay claim to Cross’ alleged withdrawal from the cartel in early 2009 or the latest
2011. If she was confident that her communication to Goring effectively sent out
an unambiguous message of distancing from the cartel, we would have expected
her to say something along the lines to Ford.
[118.] The second is that this incident offered Stewart, who was now MD of Cross, a
further opportunity to categorically distance Cross from the cartel, which she clearly
failed to take. At the stage of receiving this email and after taking legal advice from
Ms Morphet, Stewart must have been aware of the Commission’s corporate
leniency policy since Ford threatens to “turn state witness” and “taking everybody
down”. However, Cross still does not approach the Commission with information
about the cartel.
[119.] In any event none of her evidence explains why in February 2015, nearly a year
after this email, Fireco, another competitor, still thought it could approach Zane
58 Letter from Lesley Morphet to Dave Ford “Cross Fire Management (Pty) Ltd: Competition Query” (27
March 2014) Confidential Document Bundle p26
59 Transcript p274.
29
Cousins (Cousins), a senior employee of Cross, to discuss increasing prices in
the industry.
[120.] In February 2015, some 6 years after it was claimed by Stewart that she had
withdrawn Cross from the cartel, Cousins, the Cross Branch Manager in Cape
Town, still received proposals on how to increase prices in 2015 from Fireco, a
competitor.
[121.] This incident was first mentioned in Stewart’s witness statement. Attached thereto
was a Cross Branch management report from the Cape town Branch. In it, under
the heading “market related issues” Cousins writes as follows:
“Some of the other companies have said that the year has started off very busy.
As mentioned Fireco have a discussion about increasing future rates and I
have not responded to them.”
[122.] The Commission was of the view that this communication illustrated that Cross
continued to communicate or at least receive collusive information from
competitors up to 2015 which was indicative of its failure to distance itself from the
cartel.
[123.] We agree. Had Ford, previously employed at Independent and Fireco known of
Cross’ withdrawal, these approaches would not have occurred.
[124.] Finally, we come to the Commission’s reliance on several Makro contracts as proof
of Cross’s continued involvement in the cartel. The Makro contracts formed the
basis of two allegations from the Commission. The first was that, on the basis of a
margin analysis, the Commission sought an inference that the bid submitted by
Cross relating to Makro Alberton in July 2012 was one submitted pursuant to a
collusive agreement. The second was that, as Makro consistently awarded work
to Belfa, there must have been a customer allocation arrangement in place, which
would have endured throughout all the Makro tenders listed in Annexure C.
[125.] The Commission’s first allegation ran as follows:
30
125.1. Mr Cross, during an interview with the Commission indicated that the
average margin for a project within which there was collusion was 27%
and above. A margin of 20 to 24% would be indicative of a bid where there
was competition between firms. Ms Stewart supposedly supports this
claim by submitting that the strategy of a 20% price margin was used
during a price war.
125.2. Cross’ margins in relation to ‘Makro Contracts’ (which are taken to be the
bids relating to Makro Alberton and Makro Bloemfontein in 2012) appear
to be in the % range whereas the bids for the tenders relating to Makro
Cape Gate and Makro Carnival had margins of % and % respectively.
125.3. This was sufficient to draw an inference that Cross continued its
participation in the Cartel throughout at least the Alberton and
Bloemfontein tenders.
[126.] The Commission’s second allegation was that Makro’s continued award of work to
Belfa was a strong enough foundation from which to draw an inference of a
customer allocation arrangement in which Cross was involved.
[127.] Cross raised an objection to this aspect of the Commission’s case on the basis that
it had not pleaded a case based on margins and this constituted a new case which
was unfair to the respondents.
[128.] In our view there is no need for us to make conclusions on the Makro tenders. We
are not required to. A finding that Cross was still a party to the underlying cartel
agreement is dependent upon whether we are persuaded by the evidence put up
by Cross in support of its defence that it exited the overall cartel in 2009. We find
the evidence is not persuasive.
Conclusion on Cross
[129.] In evaluating the evidence put up by Cross we come to the conclusion that its
alleged withdrawal from the cartel did not occur in 2009, 2011 or at all.
Cape Gate and Makro Carnival had margins of % and % respectively.Cape Gate and Makro Carnival had margins of % and % respectively.
31
[130.] It may be that Stewart had a moral dilemma about the extent of collusion in the
industry and that she might have made certain efforts to persuade her Board and
employees of the risks to Cross of persisting with this conduct but her actions and
that of the other employees did not amount to a clear and unambiguous
communication to Cross’ competitors that Cross had distanced itself from the
cartel.
[131.] We say clear and unambiguous because that is what the law requires firms to do.
[132.] The reason why the law requires a firm to clearly, and without ambiguity
communicate its withdrawal or distancing from cartel activities is because
competition law is concerned with economic signals that cartel members send to
each other. For as long as a firm does not distance itself from a cartel in a manner
that is clear to its competitors, those competitors will continue to conduct
themselves in the industry on the basis of co-ordination and not competition.
[133.] While the manner in which a firm is required to communicate its withdrawal from a
cartel is not prescribed, the law requires a standard of conduct from that firm which
ensures that competitors of the firm have no doubt that it has distanced itself
unambiguously.
[134.] In addressing the requirements for a firm to successfully distance itself from cartel
conduct, the CAC held in MacNeil60 that under certain circumstances our law
imposes on a person to speak and a failure to do so where the duty exists may
amount to an objective manifestation of consent, regardless of the subjective
intention of the silent party. In such circumstance, what is required is a firm
repudiation.61 The CAC made the prescient observation that silence on the part of
the respondent was not in itself sufficient to draw the inference that it was not
involved in the cartel. This is because these types of meetings between
competitors involve them giving each other economic signals as to their individual
competitors involve them giving each other economic signals as to their individual
60 MacNeil Agencies (Pty) Ltd v The Competition Commission of South Africa Case No: 121/CACJul12.
61 Ibid para 64.
32
positions. Silence could be understood as acquiescence or agreement. A
respondent firm had to do something more than remain silent in order to distance
itself from anti-competitive conduct. In that case the respondent was found not to
have distanced itself from the anti-competitive conduct.62
[135.] The CAC in the case of Omnico63 found that where the Commission has made out
a prima facie case against the respondent, the respondent attracts an onus to put
up rebuttal evidence and “their failure to overtly disagree or distance themselves
from the contents of the September meeting [the cartel] meets the necessary
standard of proof”64 required for a finding of guilt, and that there is a duty to speak
or to publicly distance oneself from a cartel.
[136.] The position in the EU, as it relates to whether a firm might escape liability for a
cartel it was part of, is that it is obligated to either approach the relevant competition
authority or publicly distance itself from the cartel.
[137.] Professor Richard Whish explains the rationale behind the public distancing theory
thus:
The reason for the rule is that having participated in the cartel without publicly
distancing itself … the undertaking has given the other participants to believe that it
subscribed to what was decided…65
[138.] In Adriatica v. Commission,66 the Court of first instance explained what was
required by the public distancing approach:
In order to avoid liability by distancing itself, an undertaking … need do no more than
inform the other companies represented, with sufficient clarity, that, despite
appearances, it disagrees with the unlawful steps which they have taken
62 Ibid para 70.
63 Omnico (Pty) Limited and Another v The Competition Commission and Others 142/CAC/JUNE16 (19
December 2016).
64 Ibid para 58.
65 Whish, Competition Law, 9th ed OUP (2018), p 554.
66 Case T-61/99, Adriatica di Navigazione SpA v. Commission [2003] ECR II-5349
33
What must be proved is that the means chosen by the undertaking in order
publicly to distance itself did in fact have the effect of conveying its
disagreement….67
[139.] In the case of Westfalen,68 on appeal to the court of first instance, it was held that
the concept of public distancing requires “firm and unambiguous disagreement”
with what had been agreed, together with proof that the dissenting firm
“independently determined its commercial policy”.69
[140.] In Archer Daniels Midland70 the European Court of Justice emphasized that when
assessing whether a firm has adequately distanced itself from the unlawful
agreement, what is of critical importance is the understanding of the other
participants in the cartel have.71
[141.] A case that comes to mind in this regard is the DPI Plastics case.72 In that case
Michelle Harding, the then CEO of Petzetakis (second respondent) decided to
withdraw the firm from all collusive activities on the basis of her recent conversion
to support anti-corruption in the corporate sector. She convened a meeting of her
competitors in which she advised them of the firm’s withdrawal. Unbeknownst to
her, DPI (the first respondent in the case), having sought legal advice as a
consequence of her announcement, ended up being first at the door of the
Commission in seeking corporate leniency.73 DPI became the recipient of the
conditional leniency despite being the leader of the cartel and despite the fact that
the de facto termination of the cartel and restoration of competition to the industry
was brought about by Petzetakis. Ms Harding’s conduct however still stands out
67 Ibid para 137.
68 Case T-303/02, Westfalen Gassen Nederland BV v. Commission [2007] 4 CMLR 334.
69 Ibid para 43; 86-87.
70 Case C-510/06 P, Archer Daniels Midland Co. v Commission of the European Communities.
71 ibid para 120.
72 Competition Commission v DPI Plastics (Pty) Ltd and Others (15/CR/Feb09) [2012] ZACT 47 (4 July
2012).
2012).
73 The breakdown of a cartel may, in itself, be an indication that firm has successfully distanced itself
therefrom. It is intuitive to us that a self-interested participant in a cartel, when faced with the clear and
unambiguous communication of exit from another participant, would consider this an existential crisis
and bolt for the safety of the Commission’s leniency policy.
34
as the hallmark of the type of evidence that would be persuasive of a firm’s clear
and unambiguous distancing of itself from a cartel.
[142.]This is not to say that every firm has to demonstrate the courage of Harding when
it distances itself, as long as there is convincing evidence of clear and
unambiguous distancing.
[143.] However, in this matter, Cross has been unable to show that its competitors clearly
knew that it had withdrawn from the cartel. The evidence shows that this was not
the case at all because as late as February 2015 competitors of Cross still laboured
under the impression that Cross was open to discussions on “market related
issues” and pricing.
[144.] We thus find that Cross was a party to the overarching understanding, arrangement
or agreement (single overall conspiracy), which it itself describes as a “a long-
standing practice of çover pricing” and “collusive arrangements” in contravention
of section 4(1)(b)(i)-(iii) and continued to be so until at least the Commission’s
initiation and referral because there is no evidence of it clearly distancing itself from
this arrangement.
[145.] This finding means that we do not need to deal with the argument that, with Cross’
exit being in 2009, the initiation as against it was time barred by section 67(1).
Belfa Fire
[146.] During the proceedings before the Tribunal, Belfa did not call any witnesses, nor
did it file heads of argument or make any submissions on potential penalties when
requested by the Tribunal to do so.
[147.] In Belfa’s answering affidavit it had attached an “Annexure D” which detailed the
53 tenders it was alleged to have colluded on. With respect to these tenders, it
answered as follows:
35
147.1. Items 1 – 16 of “Annexure D” were disputed as the tenders took place before
the current Act came into force. These tenders were all dated before 1
September 1999, before the Act came into force and cannot be within the
jurisdiction of the competition authorities.
147.2. Items 17 – 22 of “Annexure D” were disputed for a lack of particularity, Belfa
claimed that it did not have sufficient institutional memory to deal with these
allegations.
147.3. Items 23 – 53 of “Annexure D”, save for items 25, 43, 50, 52, and 53 was said
to fall in the direct knowledge of Van Deventer, a Belfa sales director from 10
June 2005. Crucially Belfa conceded that the remaining items were tenders
that were colluded on. In summary Belfa conceded to collusion in 26 instances
of cover quoting.
[148.] Belfa disputed that all of the Makro contracts were secured by collusive cover
prices. For example, the Makro Cape Gate contract, item 43 on “Annexure D”, was
won by Belfa despite competition from Cross. Another contested Makro contract
which Belfa won was the Makro Carnival City in August 2015. This is item 52 on
“Annexure D”. Again, Belfa won the bid against, inter alia, Crossfire.
[149.] However, Belfa conceded that six of the Makro contracts listed in “Annexure D”
were subject to collusion involving cover prices. On Belfa’s submissions, each one
of these instances was an ad hoc arrangement of cover prices, rather than the
expression of a broader overarching agreement to allocate customers.
[150.] In response to the market allocation allegation, Belfa contended that it never
colluded to divide markets by allocating customers or by being allocated Makro as
a customer. Belfa stated that it became the preferred supplier to Makro because it
complied with the Makro specifications fastidiously.
36
[151.] None of the allegations made in Belfa’s affidavits could be tested due to its virtual
non-participation in the proceedings and the failure of Van Deventer to testify to
the 53 items listed on Annexure D.
[152.] However, by its own admission it had colluded on at least 26 tenders/contracts. In
light of our finding that the nature of the conduct was a long-standing overall cartel,
we find that Belfa’s defence of prescription by virtue of s67(1) cannot apply. In any
event there was an onus on Belfa to put up facts to support its own defences which
it failed to do.
[153.] We are thus able to conclude that Belfa contravened section 4(1)(b)(i)-(iii) in that it
was party to an understanding, arrangement or agreement to directly or indirectly
fix prices, divide markets and collusive tendering for the supply, installation and
maintenance of fire control and protection systems.
PENALTY
Cross
[154.] After closing argument was heard, the Commission and Cross were requested to
make submissions as to the penalty to be imposed. Cross proposed that an
administrative penalty in the region of R 684,427.00 would be fair and
proportionate, as well as consistent with the established jurisdiction. The
Commission deemed that a penalty of R19 341 168.00 was appropriate in the
circumstances of this case.
[155.] The Commission arrived at their figure through the application of the Aveng 6 step
approach. An approach which, both the Tribunal and the CAC jurisprudence
maintains may be used as a guideline by the Tribunal in its determination of the
penalty amount, but which we are not strictly bound to apply. The Commission
process is summarised below:
37
155.1. Step 1 Determination of the affected turnover in the relevant year of
assessment, the Commission used Cross’s turnover for the year end 2015
which was R
155.2. Step 2: calculation of the base amount, the Commission used %,
considering the nature, gravity and extent of the cartel conduct resulting
in an amount base amount of
155.3. Step 3: multiplying the base amount by the duration of the contravention.
The Commission used the multiplier of 16 years, being from 1999-2015.
This resulted in penalty of R441 850 336.
155.4. In step 4, the Commission rounded the proposed penalty down to % of
Cross’s turnover in 2017. This resulted in an amount of (as
Cross’s turnover in 2017 was R
155.5. In step 5 the Commission proposed a % reduction of the amount,
arriving at the total figure of This did not need to be rounded
off further.
[156.] Cross took issue with several of the calculations utilised by the Commission. It
argued that the base amount should be calculated from 2011, rather than 2015,
that the use of the totality of turnover for the calculation of the affected turnover
was overly broad, that the multipliers used in step 2 and 3 were too high, and that
the mitigating factors involved militated for a greater discount than proposed.
[157.] It has been held by the CAC that the overriding principle in the determination of
penalties is fairness and proportionality. 74 The Tribunal therefore had to take a
holistic view of the penalty. As to duration we have rejected Cross’ defence of exit
and the Commission’s reliance on the 2015 turnover is appropriate. Whilst Cross
74 Federal Mogul Aftermarket Southern Africa (Pty) Ltd v Competition Commission and Another [2005]
1 CPLR 50 (CAC), page 72. See too Competition Commission v Southern Pipeline Contractors &
another, 105/CAC/Dec10 and 106/CAC/Dec10, para 9.
Cross’s turnover in 2017 was R
155.5. In step 5 the Commission proposed a % reduction of the amount,
38
was involved in the cartel for an extended period of time it was seemingly not the
leader of the cartel. Whilst internal steps were taken by Stewart, as claimed by
her, to change a long-standing collusive arrangement, these were not sufficient to
prove its exit. Further, whilst it is true that Cross opposed the Commission’s
referral, its opposition was, at all times, conducted with the overarching intent to
resolve the matter as quickly and efficiently as possible. It participated in the
Tribunal proceedings and made its witnesses available to testify and be cross-
examined.
[158.] In the context we find that there are mitigating factors in favour of Cross which are
deserving of a larger reduction than the 40% mitigation proposed by the
Commission. We have increased this from 40% to 60%. Thus, the penalty would
be:
158.1. R – (R x %)
= R – R = R12 894 113
[159.] A further rounding off of this amounts to a penalty of R12 894 000 (twelve million
eight hundred and ninety-four thousand rand).
[160.] We thus conclude that this penalty amount is just and equitable in the
circumstances of the case.
Belfa
[161.] The situation with regard to Belfa was more complex and, indeed can be said to
be the reason behind the substantial delay between closing argument in this matter
and the release of our order and reasons.
[162.] In its heads of argument related to the penalty, the Commission alleged that one
factor which should be taken as a factor in aggravation was that Belfa had
purposefully elected to undergo liquidation to avoid the payment of an
administrative penalty for its cartel conduct. The Commission argued that the
owners of Belfa had liquidated Belfa and had established a new firm, namely
158.1. R – (R x %)
39
Solutions. This, the Commission argued, was sufficient grounds for the Tribunal
to rule that not only should we view this step as aggravation in calculating the
penalty amount, but also that we should hold the erstwhile Belfa and the new firm,
Solutions, jointly and severally liable for the penalty.
[163.] To give effect to this, the Commission brought an interlocutory application for an
order from the Tribunal declaring Solutions as the same as Belfa for the purpose
of imposing an administrative penalty and ordering Belfa and Solutions jointly and
severally liable for any penalty that the Tribunal may impose on Belfa.
[164.] As discussed earlier, the Tribunal heard the application, at which point an
agreement was struck between the Commission and Belfa that the Commission
would withdraw the application and Belfa would file further information as to the
circumstances around its liquidation. This agreement was recorded in an oral order
issued by the Tribunal.
[165.] The Commission was thereafter afforded ample opportunity to bring a further
application to join Belfa solutions to the proceedings. The Commission failed to
bring this application. We will thus make our determination on penalty below on
the information which is before us. The Commission is free to, at a later stage,
take whatever legal steps it deems necessary to pursue its position that Solutions
must be jointly and severally liable for the penalty we impose on Belfa below.
Quantum of the penalty
[166.] The Commission applied the six-step approach to Belfa and arrived at a penalty
amount of R6 060 076.
[167.] Their calculations are listed below:
167.1. Step 1: Determination of the affected turnover in the relevant year of
assessment. The Commission used Belfa’s turnover for the year end 2015
which was R150 585 802.
40
167.2. Step 2: calculation of the base amount. The Commission used 15%,
considering the nature, gravity and extent of the cartel conduct resulting
in a base amount of R22 587 870.
167.3. Step 3: multiplying the base amount by the duration of the contravention.
The Commission used the multiplier of 16 years, being from 1999-2015.
This resulted in penalty of R361 405 920.
167.4. In step 4, the Commission rounded the proposed penalty down to 10% of
Belfa’s turnover in 2017. This resulted in an amount of R10 100 126 (as
Belfa’s turnover in 2017 was R101 001 259).
167.5. In step 5, the Commission proposed a 30% reduction of the amount,
arriving at the total figure of R6 060 076. This did not need to be rounded
off further and it amounted to 7% of Belfa Fire’s annual turnover for the
year 2017.
[168.] Belfa admitted to collusion over a long period of time. It identified 53 projects in
which it was involved. Belfa says nothing about whether its culture or its conduct
changed. On the contrary its conduct in our proceedings suggest a degree of
contempt for the Act and the law in general. None of its executives or employees
testified before the Tribunal. Furthermore, neither its business rescue practitioner
nor the liquidator sought to present themselves to the Tribunal with an explanation.
[169.] Indeed, the only time the erstwhile shareholders and management of Belfa
bothered to participate in these proceedings was when the Commission sought to
hold Solutions jointly and severally liable for the penalty to be imposed on Belfa as
discussed above.
[170.] In the absence of any mitigating factors put up from Belfa, we further found its
conduct to be an aggravating factor and we therefore disregard the 30% discount
(mitigation) proposed by the Commission.
41
[171.] Accordingly, we find the amount of R10 100 126 (10% of Belfa’s turnover in 2017)
to be appropriate in the case of Belfa.
[172.] We thus make the order below.
42
ORDER
The following order is made:
[1.] The Commission’s complaint against Tshwane Sprinklers CC is dismissed.
[2.] Cross Fire Management (Pty) Ltd contravened section 4(1)(b)(i)-(iii) in that it
engaged in an understanding, arrangement or agreement to directly or indirectly
fix prices, divide markets and collusive tendering for the supply, installation and
maintenance of fire control and protection systems.
[3.] Cross Fire Management (Pty) Ltd is ordered to pay an administrative penalty
amounting R12 894 000 (twelve million eight hundred and ninety-four thousand
rand) within 30 days of the date of this order.
[4.] Belfa Fire Pty Ltd contravened section 4(1)(b)(i)-(iii) in that it engaged in an
understanding, arrangement or agreement to directly or indirectly fix prices, divide
markets and collusive tendering for the supply, installation and maintenance of fire
control and protection systems.
[5.] Belfa Fire Pty Ltd is ordered to pay an administrative penalty amounting to
R10 100 126 (ten million, one hundred thousand and one hundred and twenty-six
rand) within 30 days of the date of this order.
15 January 2021
Ms Yasmin Carrim Date
Mr Andreas Wessels concurring
43
Tribunal case manager : Kameel Pancham, Alistair Dey-Van Heerden,
Camilla Mathonsi
For the Commission : Mfundo Ngobese and Katlego Monareng
For the Second Respondent : George Wolfe of George Wolfe Attorneys
For the Third Respondent : Adv. A Gotz SC and Adv. S Quinn instructed by
Cliffe Dekker Hofmeyr
For the Seventh Respondent : Isa Vorster of Stegmanns Attorneys