1
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: CR277Feb18
In the matter between:
THE COMPETITION COMMISSION OF SOUTH AFRICA Applicant
and
WACO AFRICA (PTY) LTD First Respondent
TEDOC SGB CAPE JV Second Respondent
SUPERFECTA SGB CAPE JV Third Respondent
MTSWENI SGB CAPE JV Fourth Respondent
TEDOC INDUSTRIES (PTY) LTD Fifth Respondent
SUPERFECTA TRADING 159 CC Sixth Respondent
MTSWENI CORROSION CONTROL (PTY) LTD Seventh Respondent
Panel : Ms Y Carrim (Presiding Member)
: Ms S Goga (Tribunal Panel Member)
: Dr T Vilakazi (Tribunal Panel Member)
Heard on : 10,13,14,15,17,20,21,22, 23 June 2022 & 24 August 2022
Order Issued on : 30 May 2023
Reasons Issued on : 30 May 2023
_________________________________________________________________________
REASONS FOR DECISION AND ORDER
__________________________________________________________________________________________
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Introduction
[1] On 6 February 2018, the Competition Commission (“the Commission”),
following a complaint from Eskom and its own investigation referred a complaint
to the Competition Tribunal ("Tribunal") against WACO Africa (Pty) Ltd
(“WACO”), Tedoc SGB-Cape JV, Superfecta SGB-Cape JV, Mtsweni SGB-
Cape JV, Tedoc Industries (Pty) Ltd (“Tedoc”), Superfecta Trading 159 CC
(“Superfecta”) and Mtsweni Corrosion Control (Pty) Ltd (“Mtsweni”).
[2] The Commission alleges that these firms engaged in price fixing and collusive
bidding, in contravention of section 4(1)(b)(i) and (iii) of the Competition Act,
No. 89 of 1998 (“the Act”) and seeks an administrative penalty against them in
accordance with section 58(1)(a)(iii) read with section 59 of the Act.
The parties
[3] The parties in this complaint are SGB-Cape, a division of WACO International,
the three joint ventures into which SGB-Cape entered, and the three companies
with which SGB-Cape partnered.
[4] SGB-Cape is focused on the rental and sale of products and services related
to scaffolding, thermal insulation, corrosion protection and asbestos removal.
[5] Tedoc and Superfecta primarily trade as human resource companies and offer
services including placement, recruitment, payroll and HR related
administration and management.
[6] Mtsweni also provides human resource services but additionally provides
transport services and has engaged in some construction and scaffolding work
(though on a smaller scale than SGB-Cape).1
1 TB 0, page 158.
3
[7] The joint ventures (“JVs”) between SGB-Cape and each of the additional
parties (Tedoc SGB-Cape JV, Superfecta SGB-Cape JV, Mtsweni SGB-Cape
JV) were established specifically for the purpose of bidding for the tender
forming the subject matter of the Commission’s complaint referral. The
shareholding and black ownership levels in respect of each JV were as follows:
7.1 SGB-Cape/Tedoc JV: SGB-Cape held 51% and Tedoc 49%. This
resulted in the JV enjoying 70.9% black ownership and 51.7% black
woman ownership;
7.2 SGB-Cape/Superfecta JV: SGB-Cape held 55% and Superfecta
45%. This resulted in the JV enjoying 68.7% black ownership and
53.2% black woman ownership; and
7.3 SGB-Cape/Mtsweni JV: SGB-Cape held a 60% interest and Mtsweni
40%. This resulted in the JV enjoying 65.8% black ownership and
40% black youth ownership.
Background
[8] On 15 March 2015, Eskom issued an Invitation to Tender, inviting prospective
bidders to participate in a tender for the supply, transportation, delivery,
installation and dismantling of scaffolding and thermal insulation for its 15 coal
fired power stations under tender number CORP3130. The tender, valued at
approximately R 240 million, would run for a period of 5 years.
[9] Eskom received bids from 31 bidders. However, in assessing the bids for
completeness a concern was raised that four of the bids (those provided by
SGB-Cape, Tedoc SGB-Cape JV, Superfecta SGB-Cape JV, and Mtsweni
SGB-Cape JV) were signed by the same person and contained similar or the
same documents. This was referred to the internal forensic and auditing team
4
at Eskom who made a finding of collusive bidding and referred the matter to
the Competition Commission for investigation in March 2016.
[10] While this complaint was subsequently withdrawn by Eskom, the Commission
continued its investigation and has referred a complaint to the Tribunal that the
Respondents, while being firms in a horizontal relationship, entered into an
agreement or engaged in a concerted practice to fix prices and tender
collusively.
[11] SGB-Cape has historically had a commercial relationship with Eskom, having
provided maintenance, scaffolding and insulation services in respect of various
of Eskom’s power stations. At the time of issuing CORP3130, SGB-Cape was
the incumbent provider of scaffolding and insulation services at four stations,
namely, Matla, Kriel, Lethabo and Grootvlei power stations, having been
awarded the contract in 2010 (ENK275).2
[12] Various interactions had taken place between SGB-Cape and Eskom, in terms
of which Eskom informed SGB-Cape of its desire for SGB-Cape to improve its
empowerment status, indicating that failure to do so will endanger SGB-Cape’s
prospects of continuing to receive commercial opportunities at Eskom’s power
stations.3
[13] SGB-Cape made efforts to improve its empowerment status, with the result that
at the time of CORP3130 it had a Level 2 Black Economic Empowerment (BEE)
rating, with its Black Ownership status having increased from 16.49% in 2013
to 43.06% in 2015. In addition, its Black Woman Ownership status had
increased from 4.53% in 2013 to 14.83% in 2015.4
[14] This notwithstanding, upon the issuing of the Invitation to Tender in respect of
CORP3130, along with a set of technical, safety, quality and financial
2 Transcript p 342, lines 19-21.
3 TB 00 p 122, TB 01, p 45-46.
4 TB 01 p 85, TB 5.1 p W2, W115.
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requirements,5 reference was made to the requirement for bidders to have 51%
black ownership in accordance with section 2(1)(d-f) of the Preferential
Procurement Policy Framework Act6 (“PPPFA”).7 If this was a mandatory
requirement, SGB-Cape on its own would not meet the specifications of the
tender. Debate ensued within SGB-Cape regarding the wording of the tender
documents and whether this reflected a preference or a mandatory
requirement.8
[15] Having considered various options and permutations for bidding including
bidding alone and through various partnerships as had been entered into for
other contracts,9 SGB-Cape subsequently chose to bid individually in its own
name, and to also submit alternative bids with joint venture partners (“JVPs”).
[16] On 17 March 2015 SGB-Cape addressed an email to Eskom, acknowledging
receipt of the Invitation to Tender and advising that it intended submitting four
tenders in response to CORP3130, one in its own name (SGB-Cape) and as
Tedoc SGB-Cape JV, Superfecta SGB-Cape JV and Hygitech SGB-Cape JV.10
[17] The potential partnerships were subsequently discussed internally and in April
2015, SGB-Cape approached potential JVPs with a proposal. They eventually
reached agreement and submitted four separate bids, including one with each
of the three JVPs (though the identity of one of the partners had changed from
that indicated in their initial letter to Eskom from Hygitech to Mtsweni).
[18] JV partnerships were constituted for the purpose of the tender. It is noteworthy
that at the time of CORP3130, SGB-Cape, Tedoc and Superfecta had a pre-
existing relationship as they were partners to an incorporated joint venture,
5 TB 04 p 5-9.
6 5 of 2000.
7 TB 04 p 11.
8 Transcript p 620 lines 5-16, P 626 lines 15-21,p-627 lines 3-9.
9 TB 01 p 243 – 246.
10 TB 01 p 129 – 131.
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Octorex, which had provided thermal insulation services at Eskom’s Kusile
power station.
[19] JV agreements were subsequently drawn up on the basis that each partner
would supply inputs to the JV as follows:
19.1 The supply of goods and related services (project management
services) by the respective JVs would be subcontracted to SGB-
Cape, which would in turn supply goods and services to Eskom.
19.2 The supply of skilled, semi-skilled and unskilled labour (related
services) by the joint venture JVs would be subcontracted to the
respective JVP, who would supply such related services to Eskom.
[20] On 21 April 2015, each JV and SGB-Cape separately passed resolutions
authorising Mr Johan Bernard Falconer (“Mr Falconer”), the Commercial
Director of WACO Africa to sign tender documents and/or any other documents
which may be required for purposes of submitting a tender.11
[21] During April 2015, SGB-Cape unilaterally prepared and completed bid
documents on its behalf and on behalf of the three JVs for submission to
Eskom. The bid preparation comprised, inter alia, the determination of tender
rates, including discounts to be offered to Eskom and the compilation of the
mandatory commercial, financial, technical, SHE (safety, health and
environment) and quality proposals. Save for the submission of documentation
required by SGB-Cape to complete the respective JVs’ bids, Tedoc, Mtsweni
and Superfecta were neither required by SGB-Cape nor did they volunteer to
participate in any aspect of the bid preparation process including pricing of
labour components.
[22] While each of the JVPs were aware that SGB-Cape could potentially enter into
similar agreements with other companies based on email correspondence,12
11 TB 5.1 p W13, TB 5.2 p T13, TB 5.3 p S12, TB 5.4 p M12.
12 TB 01 p 251, TB 01 p 253, TB01 p 255, TB 01 p 257.
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they, at the time of bid submission, were not aware whether this had in fact
transpired, and if so, the identities of the other partner companies and what
terms of agreement were reached with these partners.
The tender
[23] It is important to note that CORP3130’s Invitation to Tender had various
requirements. To qualify for evaluation and/or award of the contract, bidders
were required to complete and submit mandatory SHE, commercial, financial,
technical, and quality proposals. Documentary requirements included a SHE
policy, SHE plan and assessment, an approval certificate as an Asbestos
Contractor, quality requirements such as ISO 9001:2008 quality management
accreditation and technical requirements including evidence of specialized
experience.13
[24] Tedoc, Superfecta and Mtsweni were not in possession of these documents
and did not meet the tender requirements. While it was argued that Mtsweni
could nevertheless have submitted a tender with a different partner who met
the tender requirements14, it is common cause that Tedoc and Superfecta were
unable to tender for this opportunity on their own.15 While SGB-Cape met the
technical requirements, it did not meet the requirement of 51% black ownership
(to the extent that it was mandatory).
[25] On 28 April 2015, four bids were submitted to Eskom, in the names of SGB-
Cape, Tedoc SGB-Cape JV, Superfecta SGB-Cape JV and Mtsweni SGB-
Cape JV. The four bids contained various similarities including Mr Falconer
being a common signatory and SGB-Cape being a common participant in
respect of each bid. In addition, the bids contained identical commercial,
technical, financial, SHE and quality documents.16
13 TB 04 p 5 – 9.
14 Transcript p 1101 lines 11-21, p 1102 lines 1-2.
15 Transcript p 981 lines 4-7.
16 TB 05.
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[26] Furthermore, all four bids offered Eskom a joint volume discount on all tendered
rates, measured against the number of power stations awarded to SGB-Cape
and/or the joint ventures as follows:
26.1 1.5% discount if awarded the existing four power stations, awarded
under a previous tender ENK275 (namely, Matla, Kriel, Lethabo and
Grootvlei);
26.2 3% discount if awarded a fifth power station, being either Hendrina,
Kendal or Duvha;
26.3 5% discount if awarded a fifth and sixth power station, being any 2
stations between Hendrina, Kendal or Duvha; and
26.4 7% discount if awarded all seven of the above-mentioned power
stations.
26.5 The bid document stated that the discount was applicable
“…to any of the offers which have been made to Eskom which involve SGB-
Cape, whether this is on their own, or in a joint venture with a partner…”.17
[27] The four bids differed in respect of tendered rates as the Tedoc SGB-Cape JV
and Superfecta SGB-Cape JV’s rates were consistently about [1%>] above
SGB-Cape rates in respect of each line item and the Mtsweni SGB-Cape JV’s
tendered rates were consistently [<10%] more than SGB-Cape’s rates.
[28] Eskom has various stages in evaluation of bids. First, the prequalification
documents are checked for completeness. Next, a functional assessment is
done on the basis of documentation submitted and a factory assessment with
50% awarded for technical attributes, 30% for safety (on an all or nothing basis)
and 20% for quality (on an all or nothing basis). The bidder requires a minimum
of 80% for the functional assessment to proceed. Other stages in evaluation
include evaluation for local production of content (Step 2), a financial analysis
(Step 3) and then a price and preference analysis. There is a further objective
criteria related to ownership with bid documents stating that Eskom would
17 TB 05, p W120-121, T245-246, S166-167, M 166-167.
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contract with suppliers that have 51% black ownership in accordance with
section 2(1)(d-f) of the PPPFA.18
[29] As far as the award of the tender is concerned there are two aspects that are
important to note.
29.1 Firstly, the bid documents note that the allocation of power stations
remained the prerogative of Eskom. This notwithstanding, bidders
were required to indicate the number of power stations they believed
they had the resources and capacity to service, based on typical
volumes;19
29.2 Secondly, Eskom reserved the right to award a tender to a supplier
who may not be the highest scoring or highest ranked supplier, for
the purposes of maximizing recognition of black ownership, black
management control, skills development and/or preferential
procurement in line with section 2(1)(f) of the PPPFA.20
The Commission’s Case
[30] On 22 March 2016, the Commission received a complaint against SGB-Cape
on allegations of collusion in respect of CORP3130.21 On 8 March 2017, the
Commissioner initiated a complaint to include Tedoc, Superfecta and Mtsweni
in allegations of collusion in respect of CORP3130.22
[31] During its investigation, the Commission received information and
documentation from Eskom and interrogated Mr Falconer23, Helen Peters (“Ms
Peters”) of Superfecta24, Doctor Jiyane (“Mr Jiyane”) of Tedoc25 and Sibusiso
Mtsweni (“Mr Mtsweni”) of Mtsweni.26
18 TB 04 p 11.
19 TB 04 p 12 – 13.
20 TB 04 p 18.
21 TB 00 p 22.
22 TB 02 p 112-115.
23 TB 02 p 39-43.
24 TB 02 p 44-70.
25 TB 02 p 71-94.
26 TB 02 p 95-102.
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[32] On 6 February 2018, the Commission referred its complaint to the Tribunal for
adjudication, seeking a declaration that the Respondents have contravened
section 4(1)(b)(i) and (iii) of the Act as well as the imposition of an administrative
penalty.27
[33] In terms of the complaint, the Commission alleged that SGB-Cape concluded
bilateral agreements with the JVPs, with a view to using them to tender
collusively. It alleged that in terms of the bids, all of which were signed by Mr
Falconer, SGB-Cape consistently quoted prices for itself which were lower than
those of the JVs and that SGB-Cape used the JVs’ bids to better its chances of
winning the tender. Finally, the Commission relied on the presumption of
collusion in section 4(2) of the Act28 on the basis that SGB-Cape and the JVs
have a common shareholder who submitted bids on behalf of and in
competition with the JVs.
[34] On 6 March 2018, the Respondents filed an exception against the
Commission’s referral on the basis that it failed to set out a lawfully initiated or
valid complaint, failed to meet the requirements of Tribunal Rule 15 and/or was
vague and embarrassing.29 On 8 August 2018, the Tribunal ordered the
Commission to file a supplementary affidavit in which it provides specified
particulars to the Respondents.30
[35] On 23 August 2018, the Commission filed its supplementary affidavit,31 in terms
of which it clarified that SGB-Cape and the JVs colluded when Mr Falconer
27 TB 00 p 1-31.
28 “An agreement to engage in a restrictive horizontal practice referred to in subsection (1)(b) is
presumed to exist between two or more firms if-
(a) anyone of those firms owns a significant interest in the other, or they have at least one director
or substantial shareholder in common; and
(b) any combination of those firms engages in that restrictive horizontal practice.”
29 Case no.: CR277Feb18/EXC300Mar18.
30 The Respondents were of the view that the Commission’s supplementary affidavit did not comply with
the Tribunal’s order and brought a second exception application against the Commission, under case
number: CR277Feb18/EXC180Sep18, which was later dismissed by the Tribunal on 31 July 2019.
31 TB 00 p 32-40.
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prepared and finalised tender documents on their respective behalf. Further,
that its presumption of collusion is limited to SGB-Cape and the JVs and does
not include the JVPs in their individual capacities. This notwithstanding, that
the JVPs are jointly and severally liable for the conduct of the JVs. The
Commission seemingly abandoned its reliance on section 4(2) as no reference
was made to it in the hearing or in its Heads of Argument.
[36] As indicated, the Commission’s case has evolved from its pleadings and now
focusses on two main allegations, namely:
36.1 the agreement between SGB-Cape and the JVs (and not JVPs) as
firms that could have independently competed with each other but
did not do so, as a result of their decision to mandate Mr Falconer to
prepare the bids on their behalf (the first impugned agreement). In
other words, the Commission alleges that the collusive conduct
between the JVs arose when the JVs mandated Mr Falconer to
prepare the bids on their behalf. Further, that the collusion stems
from Mr Falconer being aware of all the bids and prices for these
bids; and
36.2 the agreement between SGB-Cape and Mtsweni, in terms of which
a competitive restraint was imposed upon Mtsweni not to compete
for the tender (the second impugned agreement). The Commission
argues that Mtsweni is a potential competitor who by virtue of its
partnership with SGB-Cape was prevented from competing for the
tender. As such it further argues that this agreement between SGB-
Cape and Mtsweni is a collusive agreement.
[37] The Commission argued that the first impugned agreement was entered into
between SGB-Cape and the JVs on 21 April 2015 through the mechanism of
the mandate given by SGB-Cape and the joint ventures to Mr Falconer (and in
turn SGB-Cape), authorising him to complete bid documents on their behalf.
The Commission submits that the collusion takes place within Mr Falconer’s
capacity as representative of all four bidders. Its expert, Mr Aproskie submitted
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further that the moment the JVPs authorised Mr Falconer to represent them,
they, through Mr Falconer, became aware of each other as well as their
respective bids and SGB-Cape’s bid.32
[38] The Commission further contends that in attending meetings of SGB-Cape’s
tender committee where decisions were made on, inter alia, bid pricing, Mr
Falconer was binding SGB-Cape and the JVs to those decisions, thus removing
each bidder’s ability to independently determine their bids. Mr Aproskie posited
that while there is no evidence of the parties physically sitting in one room and
discussing the bid prices, through the mandate given to Mr Falconer, they are
effectively always in the same room. He stated that:
“MR APROSKIE: ……. So, if the argument is that there’s never been a
room where the joint venture partners have been in the same room, that
only necessarily applies to the empowered joint venture partners,
Mtsweni, and Superfecta, and Tedoc. But beyond that, once those joint
ventures give a mandate and they agree as joint ventures to give that
mandate to Falconer, they are effectively always in the same room, and
we can’t expect to see your typical agreement where everyone gets
together in a smoke-filled room to sign a paper, or to talk to each other,
or to shake hands, because ultimately that smoke filled room is within
Falconer’s head. There’s no way you could observe what’s happening
within his head, it’s just clear that the only way he can make a decision
for those four entities that he represents, is to coordinate that decision.”33
[39] The Commission submits that as a result of the mandate to Mr Falconer the
bidders were aware and had control over each other’s pricing decisions, which
took away their ability to independently and unilaterally determine their prices.
[40] The rationale given for this, posited in the Commission’s Heads of Argument,
is that Eskom was gradually reducing the number of stations to a single provider
is that Eskom was gradually reducing the number of stations to a single provider
and that market intelligence showed that no firm would get more than four
stations. Submitting multiple bids allowed SGB-Cape to increase its chances of
getting more than four stations.34
32 Transcript p 937 lines 1-7.
33 Transcript p 928 lines 1-17.
34 Consolidated Heads of Argument Bundle p 5 – 6, paras 10-11.
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The Respondents’ Case35
[41] The Respondents deny that SGB-Cape is in a horizontal relationship with either
the JVPs or the JVs themselves and submit that the Commission’s case fails
to establish the material requirements for contravention of section 4(1)(b) of the
Act.36 In addition, they argue that properly characterized, the economic
relationship between SGB-Cape and the JVs was, at the time that the bids were
prepared, vertical in nature.
[42] The Respondents submit that while SGB-Cape could alone satisfy the technical
requirements of COPR3130, the same is not applicable to the JVPs.
Furthermore, the only way in which the JVPs could satisfy Eskom’s technical
requirements would be through the formation of JVs. The JVPs were not
competitors to SGB-Cape because on their own they would not be able to fulfil
the requirements of the tender. As discussed above the Commission no longer
persists with the allegation that SGB-Cape and the JVPs were in a horizontal
relationship.
[43] Furthermore, the JVPs were not informed of each other’s identities, nor were
they informed that SGB-Cape intended to submit a bid in its own name. In
addition, none of the JVPs had knowledge of the prices submitted with SGB-
Cape’s bid or the other JV’s bids. Accordingly, no agreement was entered into
by the JVs or between the JVPs with each other. The Commission no longer
persists with this case.
[44] As to whether the JVs themselves colluded, the Respondents submit that SGB-
Cape was the controlling mind of each JV. The fact that each JVP mandated
SGB-Cape to determine the prices to be submitted to Eskom in response to
CORP3130 is of no moment because the JVs would not have been able to set
their prices without approval by SGB-Cape. The JVs existed only because
SGB-Cape established them. SGB-Cape could not collude with itself.
35 The Respondents filed a joint Answering Affidavit deposed to by Mr Falconer, with the contents
thereof confirmed by Ms Peters, Mr Jiyane and Mr Mtsweni through confirmatory affidavits.
36 TB 00 p 41 - 83.
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The Hearing
[45] Evidence in the matter was heard on 10,13,14,15,17,20,21,22, and 23 June
2022 with closing argument on 24 August 2022.
[46] Four factual witnesses and two expert witnesses were called.
[47] The Commission called one factual witness, namely Ms Asanda Mzileni ("Ms
Mzileni"), the Senior Advisor, Group Commercial at Eskom. Ms Mzileni was
involved in the evaluation of the bids submitted by SGB-Cape and the joint
ventures.
[48] The Respondents called three factual witnesses, namely Mr Kobus Visagie
(“Mr Visagie”), the erstwhile Divisional Director of SGB-Cape, Mr Falconer, the
Commercial Director of WACO Africa and Ms Helen Peters, the owner of
Superfecta.
[49] The Tribunal heard evidence from two expert witnesses. The Commission
called Mr Jason Aproskie (“Mr Aproskie”), a Principal Economist in its employ,
and the Respondents called Mr Stephan Malherbe (“Mr Malherbe”), an
economist employed by Genesis Analytics. Both experts provided their views
on economic issues pertaining to collusive tendering in the context of this
matter.
Analysis
[50] In terms of section 4(1)(b)(i) and (iii) of the Act:
“An agreement between, or concerted practice by, firms, or a decision by an
association of firms, is prohibited if it is between parties in a horizontal
relationship and if– it involves any of the following restrictive horizontal
practices:
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(i) directly or indirectly fixing a purchase or selling price or any other trading
condition;
(ii) […]; or
(iii) collusive tendering.”
[51] Section 4(1)(b) prohibits agreements or concerted practices by firms in a
horizontal relationship, relating to specific types of conduct listed therein,
namely, direct or indirect price fixing; market division (by allocating customers,
suppliers, territories or specific types of goods or services); or collusive
tendering. The Competition Act defines “horizontal relationship” as a
relationship between competitors.
[52] The agreements or concerted practices contemplated in section 4(1)(b)
are considered to be per se offences where harm to competition is presumed
and the Respondents are not permitted to put up justification or defences. In
the US these would be viewed as “hard-core cartels”. Agreements or concerted
practices contemplated in section 4(1)(a) are considered to be rule of reason
offences where the Commission is required to show harm to competition and
the Respondents are permitted to raise defences or justifications. In the US
these would be viewed as soft-core cartels.37
[53] When assessing whether the conduct complained of falls within the ambit of
section 4(1)(b), such conduct must be properly characterised. In other words,
such conduct must be the type of conduct which the legislature intended the
Act to condemn per se, with no scope for justification.
[54] Characterisation was introduced into South African law through the judgment
of the Supreme Court of Appeal (“SCA”) in American Soda Ash Corporation
and another v Competition Commission and others38 (“ANSAC”). The SCA
formulated an inquiry to be undertaken in the event that there is uncertainty as
37 The Competition Tribunal’s guide to select cases decided from 1999 to 2021, p 237-242.
38 2005 158 (SCA) (“ANSAC”).
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to whether the conduct complained of was of the character contemplated in
terms of section 4(1)(b).
[55] The Competition Appeal Court (“CAC”) in Competition Commission v South
African Breweries Ltd & others39 (“SAB”) held that when conducting a
characterisation exercise under the Act, it must be determined: “(i) whether the
parties are in a horizontal relationship, and if so (ii) whether the case involves
direct or indirect fixing of a purchase or selling price, the division of markets or
collusive tendering within the meaning of section 4(1)(b).”40 (own emphasis)
[56] The first step in our enquiry is therefore to assess the economic relationship
between the parties and whether, for purposes of section 4(1)(b), they were
competitors. The second step in the enquiry would be to assess whether the
conduct complained of is of the type contemplated within the scope of section
4(1)(b).
[57] The CAC went on to state that “…since characterisation in this sense involves
statutory interpretation, the bodies entrusted with interpreting and applying the
Act (principally the Tribunal and this Court) must inevitably shape the scope of
the prohibition, drawing on their legal and economic expertise and on the
experience and wisdom of other legal systems which have grappled with similar
issues for longer than we have.”41
[58] In the recent case of Tourvest Holdings (Pty) Ltd v Competition Commission
and Another42(“Tourvest”) the CAC established the test for horizontality in the
context of alleged collusive tendering. The CAC found that the accepted
economic discipline employed in the determination of horizontality is to
examine the relationship in the absence of the impugned agreement.43 It found
that this economic approach is espoused in the EU and US guidelines on
potential competitors and that “the application of this discipline enables an
39 2014 2 CPLR 339 (CAC) (“SAB”).
40 Ibid para 37.
41 Ibid para 37.
42 (195/CAC/Oct21) 2022 ZACAC 5 (30 June 2022) (“Tourvest”).
41 Ibid para 37.
42 (195/CAC/Oct21) 2022 ZACAC 5 (30 June 2022) (“Tourvest”).
43 Ibid para 47.
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examination of the counterfactual position (where there is no agreement) to the
existing factual position (where the agreement is in place). This is generally
accepted as the appropriate means to determine whether the agreement itself
resulted in harm to competition or not and, therefore, whether the conduct
should fall into the type of economic offences for which no defence should be
permitted.”44
[59] It went on to state that the question posed in terms of the counterfactual
analysis is whether the parties were competitors absent the impugned
agreement. Moreover that “If the answer to the question is in the affirmative,
then competition may have been harmed as the agreement would then have
removed a potential competitor from the market and therefore, itself, resulted
in potential harm to competition. For instance, this would be the case in a
situation of blatant market division. However, if the answer to this question is in
the negative - i.e. the two firms would not have been competitors absent the
agreement - then the agreement itself did not remove a potential competitor
from the market and, therefore, the agreement could not have harmed
competition.”45
[60] A fundamental enquiry into section 4 therefore involves determining whether
the parties are in a horizontal relationship or competitors, absent the impugned
behaviour.
Were the parties in a horizontal relationship?
[61] The Commission’s case and counterfactual are predicated upon its contention
that SGB-Cape and the JVs were in a horizontal relationship. It submits that in
submitting four separate tenders, SGB-Cape and the JVs became competitors
in respect of the tender and the collusion between them came about as a result
44 Ibid para 48.
45 Ibid paras 49 and 50.
18
of them authorising Mr Falconer (in turn SGB-Cape) to attend to the preparation
and submission of tender documents on their behalf.
[62] As indicated, the Commission concedes that the JVPs, Tedoc and Superfecta
are not in a horizontal relationship with SGB though it does argue that Mtsweni
was a potential competitor (which we turn to later). Hence there is no need for
us to deal with the relationship between SGB-Cape and each JVP (save for
Mtsweni) or the relationship between JVPs inter se.
[63] The Commission’s expert report relies on three arguments.
63.1 Firstly, it points to the fact that each JV entered a separate bid in its
own name.
63.2 Secondly, it relies on the matter of Competition Commission v Eye
Way Trading and Another46 (“Eyeway”) and the decision of the
Tribunal in Competition Commission v Tourvest47 to argue that
where firms bid on the same tender they become competitors at the
point of bidding.
63.3 Thirdly, it argues that the JVs are able to separately meet the
requirements of the tender in each case (even where the JVPs are
not able to) and that the counterfactual is four independent and
competing bids.
Bidding for the same opportunity
[64] During the hearing, both the Commission’s factual witness, Ms Mzileni, and the
economic expert, Mr Aproskie, focused on the fact that separate bids were
entered as evidence of horizontality.
ADV SUBEL SC: So if I’m understanding you, you’re talking at a high
level. You’re saying because they are now bidding for the same…
[intervention]
46 CR073Aug16/ CR074Aug16 (“Eyeway”).
47 (CT) (29 Sept 2021) Case no: CR022May15.
19
MS MZILENI: Yes.
ADV SUBEL SC: ...contracts, therefore each one is a competitor or
potential competitor. That’s as I understand you.
MS MZILENI: Yes.48
[65] When requested to provide a view as to the nature of the parties’ relationship,
Mr Aproskie also testified that by submitting bids, the JVs and SGB-Cape held
themselves out to be competitors. He testified as follows:
MR APROSKIE: Right, so horizontality here means that they’re
competitors. And as I mentioned earlier it’s clear that the JVs, the three
JVs, Joint Ventures, that they are competitors to SGB as they are – they
have put bids in…if you hold – put yourself in for a bid you’re a competitor
for that bid, which makes sense...49
[66] However, the Tribunal’s decision (in Tourvest) relied upon by the Commission
was overturned by the CAC. In Tourvest, the CAC held that bidding on the
same tender opportunity is insufficient to prove horizontality. The Court
expressly did not support this approach to horizontality in isolation. With
reference to A'Africa Pest Prevention CC and Another v Competition
Commission of South Africa (“A’Africa”) the CAC states that “the submission of
the two separate bids without more cannot, on its own, bring the impugned
conduct within the ambit of section 4(1)(b).”50
[67] Hence, it would be insufficient to find that the Respondents are competitors
solely on the basis that they submitted bids for the same opportunity (tender)
and it is necessary to understand more fully whether the parties would be
competitors absent the impugned agreement. This includes a consideration of
the context and the counterfactual.
48 Transcript, page 136 lines 15-21.
49 Transcript p 956 lines 6-9, 18-20.
50 168/CAC/Oct18) [2019] ZACAC 2 (2 July 2019). (“A’Africa”) at par 67.
20
The context and the counterfactual
[68] The Commission argues that the three JVs were separate companies that could
have done the work independently:
MR APROSKIE: But, of course, even SGB’s argument and Malherbe
also refers to this argument that they represented – Eskom were
somehow presented with a set of options. The idea of a set of options
presupposes that all those firms in the set of options can do the work.
So, it’s clear that the three JVs and SGB itself, are competitors in this
case, as they’ve all made bids in their own names.51
[69] It was argued that notwithstanding SGB-Cape being common to all bids and
holding the majority interest in the JVs, there are mechanisms which could have
been put in place to ensure that the bids were independent of each other. Mr
Aproskie hypothesised on a range of possibilities which could have been
explored to achieve independence, the first being for the JVPs to determine the
labour prices of the bids, alternatively, through the appointment of an
independent third party to act in each JV as a form of Chinese wall to guard
against information sharing.52
[70] The Commission submits that had such mechanisms been introduced to
ensure that there was no coordination in the pricing of the four bids, then the
correct counterfactual would have been the submission of four independent
bids53.
[71] Mr Aproskie seemed to argue that the JVPs should have played a bigger role
in setting prices (for individual labour components for example) rather than
51 Transcript p 956 lines 20-21, p 957 lines 1-5.
52 Transcript p 946 lines 3-21, p947 lines 1-15.
53 TB 00 p 172 paras 26, Transcript p1129 lines 10-18.
21
mandating Mr Falconer to set prices. Mr Aproskie’s testimony focused on the
importance of independence for achieving competitive outcomes, stating:
MR APROSKIE: So, independence is critical for competition and then
critical for competitive outcomes. As you remove independence you get
closer to a coordinated situation, because if you’re not making your
decisions independently as a competitor, you’re making them in
coordination with other people and their incentives. And when you’re
making that decision on a more coordinated fashion, then you’re
considering the incentives of not just yourself, but everyone else, you
start making decisions for the whole in terms of various parties or
coordinating, rather than just yourself. So, independence is a core part
of competition. I think that also came through the I-Way (sic) judgment
where, once you become a competitor, once you put yourself up as a
competitor to these tenders you need to be acting independently,
otherwise you can’t expect competitive outcomes. You can’t expect the
correct outcome in terms of a competitive market.54
[72] However, Mr Aproskie could not point to any commercial or economic incentive
a company would have to create four competing bids with itself for the same
tender, other than the crowding out theory posited by him and which we discuss
later.
[73] More importantly, the factual evidence led by the Commission to support Mr
Aproskie’s propositions was limited. No evidence was led to suggest that four
separate bids was a possible or probable outcome in the absence of the
impugned behaviour.
[74] While Ms Mzileni, the Commission’s witness, testified to her concern over
similarities between the bids, she conceded under cross-examination that she
was unaware of the JVPs and their ability to render any services to Eskom or
to have bid for the tender themselves.55 She further testified that she had no
54 Transcript p 944 lines 3-17.
54 Transcript p 944 lines 3-17.
55 Transcript p 82 lines 21-22, p 83 lines 1-6, p 244 lines 8-21, p 245 lines 1-21, P 246 lines 1-5.
22
knowledge as to SGB-Cape’s requirements in selecting JVPs and/or the
information shared between SGB-Cape and each JVP.56
[75] The Respondents argue three points on horizontality. Firstly, that the JVs and
bids were devised by a single controlling mind of SGB-Cape. Secondly, that
the different apparent competitors are actually an “artefact of the impugned
conduct” meaning they came into existence as a result of the alleged impugned
conduct. Thirdly, that the firms are not in a horizontal relationship but rather that
they are in a vertical relationship with the JVPs providing an input of skilled,
semi-skilled and unskilled labour services to each JV and SGB-Cape as the
core provider of specialized services to the JV.
[76] In support of these arguments the Respondents’ factual witness Mr Visagie
testified that SGB-Cape had decided to explore the submission of multiple bids
with different partners prior to approaching these partners.57 This is supported
by an email sent at the time from Mr Visagie to members of the SGB-Cape
tender committee, which included a list of options for different configurations
and partners.58 This was sent a week prior to the emails sent out to JVPs
inviting them to bid.59
[77] Furthermore, the factual witnesses testified to why four independent bids were
not possible. Mr Falconer and Mr Visagie testified to the processes involved
when SGB-Cape receives a tender of the magnitude of CORP3130. In order to
respond to a tender valued at R70 million or above, SGB-Cape’s processes
require that an internal tender committee be allocated (as required in terms of
the company structure), and that this committee presents their strategy to the
CEO of WACO International who in turn obtains approval from the board of
directors of WACO.60 Mr Visagie testified that he could not imagine how four
independent bids for the same tender (as theorised by Mr Aproskie) could be
created and approved within the existing governance structures at WACO with
created and approved within the existing governance structures at WACO with
56 Transcript p 95 lines 6-18, p 104 lines 10-22, p 105 lines 1-8.
57 Transcript p 481 lines 5-16, p 482 lines 17-18.
58 TB 01 p 242-246.
59 TB 01 p 251 – 258.
60 Transcript p 372 lines 10-21, p373 lines 13-21, p 374 lines 1-7.
23
a single tender committee, one executive management team and a single
board.61 Mr Visagie testified as follows:
MR VISAGIE: Chair, I cannot see how that could’ve worked in our
business. I think it was not possible, it was not practical. We simply have
not had the resources, we, I mean, for example, Mr Nathan Naicker
had what we call an estimating manual. That’s a manual that they use to
calculate the basic prices on. So, if, I mean, how – but I just can’t see
how we could’ve set up four different teams to do that. It’s unthinkable.
And the JV partners, not having had the experience or the expertise, my
belief is we also couldn’t hand it to them to prepare.62
[78] When asked how the notion of four independent bids would have applied at
Board level, Mr Visagie testified that:
MR VISAGIE: …I – in my view I cannot see that the board would’ve
been, it wouldn’t have made sense for the board to now consider four
different bids for the same tender by the same company.63
[79] When asked what the impact of different bids would be on price, Mr Visagie
testified that:
MR VISAGIE: …. I would say in terms of the material prices, they would
all start off from the same base in terms of what supplier has the best
price that suppliers could provide to us. The same reference in terms of
labour rates domain. It’s difficult to answer this in the context, but if
everybody abide to the same policies and principle in terms of mark-ups,
I don’t believe it would’ve served any, the outcome would’ve been
different. It’s unthinkable.64
61 Transcript p 427 lines 3-21.
62 Transcript p 427 lines 4-12.
63 Transcript p 428 lines 1-4.
64 Transcript p 428 lines 14 -20.
24
[80] While the Commission has speculated as to how a firm in such a JV could have
behaved with respect to negotiations, there is no evidence that these
companies did not contract in a manner that was a reasonable best response
(outcome) for them.
[81] The Respondents’ expert, Mr Malherbe argues that while the JVs are in fact all
able to undertake the work separately, this is by design by SGB-Cape as a
single controlling mind, and secondly that the appearance of the JVs as
competitors is a result of the way in which they were constructed:
MR MALHERBE: …the apparent multiplicity of competitors is an artefact
only of the impugned conduct and if you remove the impugned conduct,
the JVs themselves disappear as competitors to one another. You end
up with only one player instead of four. You don’t end up with two or
three or four players. So therefore all of these competitive concerns
disappear.65
[82] The Respondents make the argument that this is ultimately one firm presenting
different options rather than four companies colluding, leading to the conclusion
that collusion is not possible.
MR MALHERBE: …to paraphrase what the Chair stated this morning
perhaps in question form and that is I too believe that a firm cannot
compete with itself and if it cannot compete with itself, it cannot collude
with itself.66
[83] Mr Visagie testified that as part of its bidding strategy, SGB-Cape unilaterally
decided that it would submit a bid in its name and three other bids as part of
JVs in order to increase its chances of meeting the ownership criteria specified
in the tender and winning additional power stations.67 This was already
communicated to Eskom. The JVs were established for the purpose of this
particular tender and did not exist in the pre-tender environment.
65 Transcript p 1361, lines 16-20.
66 Transcript p 1362 lines 16-19.
67 Transcript p 500 lines 5-13.
25
[84] Mr Visagie further testified that SGB-Cape alone was responsible for putting
the proposals together, and would have been responsible for supplying the
technical and operational services, materials, financial, project and commercial
management, and administration of the JVs.68 Furthermore, the rates were all
determined by SGB-Cape.69 The emails between members of the senior
executive, CEO and estimators while the bids were being prepared show that
the management team was involved in discussions of the minutiae of the bids.70
[85] Moreover, the evidence from Ms Peters was that the JVPs could contribute by
providing specific inputs, but that they would not have considered bidding for
such a tender absent the specific knowledge and financial strength of SGB-
Cape. The JVPs were never competitors to SGB-Cape.
[86] Ms Peters’ evidence supported the contention that SGB-Cape was the single
controlling mind.
MS PETERS: The reason why I felt comfortable with them completing it
is because that is their core business. They’d be able to know that
material is needed where, what scaffolding is required for what. That’s
their – they were aware of the tender. That type of tenders would pass
me, I wouldn’t even take a second look at those types of tenders. At the
time in my view I wouldn’t be able to go, I wouldn’t have been able to go
to a company and say this is my services that I’d like to contribute, let’s
go into a JV and let’s do this. SGB was my first client, still is my only
client in that specific work activity with scaffolding and insulation. So,
that’s the only – they had all of the knowledge and they also came with
all of the monetary guarantees that is required for that type of work. I
wouldn’t have been able to bankroll, for lack of a better word, to bankroll
those kind of activities because I don’t have any guarantee of when I’d
be receiving payment.71
68 Transcript p 415 lines 3-21, p 416 lines 1-17.
be receiving payment.71
68 Transcript p 415 lines 3-21, p 416 lines 1-17.
69 Transcript p 420 lines 11-21, p 421 lines 1-14, p 423 lines 1-13, p 424 lines 1-21.
70 TB 01 p 270-273.
71 Transcript p 788 lines 4-18.
26
[87] Thus, the evidence before us shows that the JVs were devised by the single
controlling mind of SGB-Cape. It alone devised all the key components of all
four bids including the commercial proposal, financial, technical, quality and
SHE proposals. The creation of the JVs was specific to this tender opportunity,
and they did not exist for any other purpose.
[88] The Commission has proposed that the first impugned agreement was the
provision of the mandate to Mr Falconer after the JVs were set up. This theory,
however, relies on the assumption that the JVs were independent competitors.
As discussed above, in Tourvest the CAC held that analysis of potential
competition should apply in “the pre-tender environment (which is the correct
environment to assess the existence or otherwise of actual or potential
competition).”72
[89] The JVs were clearly established by SGB-Cape for the sole purpose of bidding
for this specific tender and the decision by SGB-Cape to provide multiple bids
with different partners.
[90] But even if we were to assume for purposes of argument that it was technically
feasible to duplicate estimating and accounting resources that SGB-Cape
utilised to develop their bids, the Commission’s arguments might apply only in
a scenario where the four JVs would be competing for different tenders. That
is, it would not be commercially rational for a firm to establish four entities in
which it is the controlling mind or majority shareholder, and then allow each one
of them to bid independently in competition with each other, without having
some influence in the pricing decisions of those firms, for the same piece of
work or tender. If it failed to exercise some influence in the pricing decisions of
these entities – either by providing guidelines or determining the margins – it
would run the risk of cannabilising its own margins.
72 Supra at para 87.
27
[91] Thus, it would not have made economic or business sense for SGB-Cape to
allow the JVs – which it had established – to run off and set their own pricing
for the same tender.
[92] Further, it is not clear how this would work within the existing governance
structures at WACO with a single tender committee and board that needs to
approve these tenders. While the Commission has speculated as to how a firm
in such a JV could have behaved with respect to negotiations there is no
evidence that these companies did not contract in a manner that was a
reasonable response for them.
[93] Extensive time was spent at the hearing by the Commission on the JVPs’ ability
to determine labour rates in respect of the tender to support the contention that
the counterfactual was four independent bids from the different JVs. Ms Peters
in particular was painstakingly taken through various line items of the tender to
determine which components she was able to estimate on her own. While Ms
Peters did concede that there were aspects she could estimate, on balance her
evidence suggested that this was not straightforward or practical and included,
for example, needing to investigate prices (for example, through asking
employees for payslips) that SGB-Cape already had on record and phoning for
quotations on equipment (and in many instances asking SGB-Cape for input
information) to estimate prices that SGB-Cape already had actual prices for on
record.73
[94] In our view, this does not assist the Commission’s case. Whether or not the
JVPs were able to determine certain line items of the tender, the incentive to
do so for a JV needs to be considered in the context of SGB-Cape’s authority
structures, business incentives and whether it is rational for the JVPs to go to
great lengths to collect information that SGB-Cape already had in order to
develop four separate bids.
73 Transcript p 761 line 7, p 756 lines 3-20, p 757 lines 4-20.
28
[95] To our minds the speculation that a company would as a counterfactual create
four independent bids for the same tender is unrealistic and at odds with the
evidence provided by the factual witnesses.
[96] The more plausible counterfactual, and the one supported by evidence led in
this case, is that forwarded by the Respondents who argue that the
counterfactual is a single bid from SGB-Cape (likely in a JV with one or more
partners).
[97] The relationship between the JVs in this matter cannot be classed as horizontal
competition. The JVs were constructed for the specific purpose of this tender
by SGB-Cape and absent the decision to create JVs for this bid they would not
exist.
[98] If SGB-Cape is the single controlling mind, it follows that it cannot collude with
itself.
[99] There are parallels with the CAC’s decision in A'Africa.74 In this case the CAC
found that a firm could not collude with itself as follows: “[a]lthough on paper,
by virtue of being separate entities, firms may be capable of colluding,
ultimately, the actual role players behind those firms are natural persons. The
question in this case, is who was Labuschagne colluding with? Could she
collude with herself, or engineer collusion between the two firms she completed
the forms on behalf of, and what would the effect of that be? In my view, those
are the questions that the Tribunal ought to have asked, because more and
more they highlight the reason why the conduct ought to have been
characterised. This on its own lacks the hallmarks of collusion, which
necessarily would involve individuals behind the firms conducting prohibited
practices. Labuschagne had no colluding partner, so I find it hard to find that
she could collude with herself in submitting the two tenders on behalf of the
appellants.”75
74 Supra.
75 Ibid par 71.
29
[100] The Commission has suggested that there is a danger in finding that there is a
single controlling mind and that this would give rise to companies being able to
collude by providing a mandate to a single individual. This is incorrect. If the
JVs were comprised of different scaffolding companies that met the tender
criteria and would have absent the JV tendered on their own this mechanism
would be collusive. Alternatively, if the JVs were used as a conduit for different
labour companies to exchange information about labour pricing with each
other, this would also be prohibited. However, in this instance the JVs are
bidding with each other for a particular tender solely on SGB-Cape’s strength
and design.
[101] The Commission’s hypothesis for multiple bids is that more bids would allow
SGB-Cape to get more than four stations (the crowding out hypothesis).
However, the idea that Eskom would provide four stations per bidder only
appears in internal SGB-Cape emails on 27 January 2015. This occurred prior
to the actual tender being published on 13 March 2015.76 The tender
documents themselves make no mention of a maximum number of stations per
bid but rather provide Eskom with the authority to apportion stations at its own
discretion.
[102] Furthermore, this hypothesis might hold true if SGB-Cape faced no external
competition. The evidence however shows that SGB-Cape ultimately faced
external competition from other large construction companies such as Kaefer,
RJ Southey, Basadi and TSI, of which they were aware as evidenced by their
internal documents77 and from attendance of the compulsory tender briefing.
Multiple different bids from the same company would not change the underlying
competitive dynamics of a bid in a case in which they had strong competing
companies that were also tendering and could undercut their pricing strategy.
[103] Furthermore, there is some evidence that SGB-Cape did not attempt to hide
[103] Furthermore, there is some evidence that SGB-Cape did not attempt to hide
the multiple bids. This includes that (i) the initial letter of acknowledgement sent
76 TB 01 p 116.
77 TB 01 p 268.
30
to Eskom included the name of SGB-Cape and three JVs, (ii) the fact that every
bid cross-referenced other bids in describing the joint discount that would apply
and, (iii) that all JVs included the name SGB-Cape explicitly. This is not
congruent with a situation in which the appearance of completely independent
and competing companies is created with the purpose of deception. Mr
Visagie’s evidence confirms this:
MR VISAGIE: Chairperson, my recollection and understanding was that
the way we would submit our bids was a joint bid and we would cross-
reference all the joint venture tenders, and we would make sure that the
partner names, everything is transparent. So, and the key in terms of my
recollection is that it would have been submitted as a joint bid.78
[104] In addition, the behaviour did not occur in a vacuum but rather is in the context
of SGB-Cape being in discussions with Eskom over their empowerment
credentials. It is important to note that on SGB-Cape’s version this structure
was aimed at improving empowerment options for Eskom in that had Eskom
mixed and matched SGB-Cape and the JVs across stations to fulfill its
empowerment objectives (in terms of youth owned and woman owned
companies) there could be arguments that this would benefit Eskom and the
BEE partners. The evidence from Ms Peters suggested that her small business
had benefitted greatly from entering into past joint ventures with SGB-Cape.
[105] Finally, it appears that partnerships and JVs were encouraged by Eskom and
that the rules did not expressly prohibit the submission of multiple bids by the
same bidder.79 But even if it was a strict rule there is still a question as to
whether this would make the behaviour collusive or whether it would be a form
of tender fraud or misrepresentation.
[106] Based on the above analysis we find that the JVs are not horizontal competitors
for purposes of section 4(1)(b). The JVs did not exist as independent
78 Transcript p 602 line 20, p 603 lines 1-5.
78 Transcript p 602 line 20, p 603 lines 1-5.
79 Invitation to Tender TB 04.
31
competitors but were created specifically by SGB-Cape for purposes of the one
specific tender. SGB-Cape retained control over the JVs and was the
controlling mind of the JVs and could not collude with itself. Furthermore, the
alleged impugned behaviour as now articulated by the Commission, namely the
granting of the mandate to Mr Falconer, cannot be characterized as collusion
within the meaning of section 4(1)(b).
The second impugned agreement
[107] Recall the Commission is no longer persisting with the case that the JVPs
colluded with SGB-Cape by forming the JVs or that the JVPs colluded with each
other through the JVs. The Commission seems to accept, other than in the case
of Mtsweni, that the JVPs were not competitors to SGB-Cape. But if there is
any doubt as to this, the evidence of Ms Peters was clear. The JVPs would not
have been able to submit a tender of this nature on their own without the
assistance of SGB-Cape.
[108] Furthermore, there is no evidence that any of the JVPs used the structure to
co-ordinate labour prices or markups with each other using SGB-Cape as a
conduit for collusion. Instead, all terms and prices were set by SGB-Cape and
labour administration fees were negotiated bilaterally with different partners
who did not know each other.80
[109] Hence there is no evidence whatsoever that the JVPs colluded with each other
or with SGB-Cape.
[110] As the arguments raised with respect to Mtsweni are different, we deal with
these separately below.
[111] The second impugned agreement which the Commission alleges gave rise to
the collusion is that between SGB-Cape and Mtsweni. The Commission alleges
that Mtsweni was restricted by SGB-Cape from submitting a bid in response to
80 Transcript p 603 lines 11-17.
32
CORP3130 either on its own or with another bidder, thus excluding an actual
or potential competitor from participating in the tender.
[112] Mtsweni is differentiated from the other two JVPs as it had some construction
and scaffolding experience, had attended the compulsory briefing on 26 March
2015 and had inquired with SGB-Cape as to whether it could submit a separate
bid. This occurred during a meeting with Mr Visagie in which Mr Mtsweni asked
whether he could tender as part of a joint venture and on his own, alternatively
whether he could submit a tender and subcontract the entire scope of work to
SGB-Cape.81
[113] On 21 April 2015, Mr Visagie had addressed an email to Mr Falconer (with Mr
Mtsweni in copy) confirming a telephone conversation with Mr Mtsweni in which
Mr Mtsweni “confirmed telephonically that he understands our requirement that
if we enter into a Joint Venture for the Eskom Maintenance Tender that Mtsweni
Corrosion Control will not submit a tender on their own. This to avoid possible
conflict of interest. Sibusiso agreed to this.”82
[114] The Commission’s argument is that preventing Mtsweni from bidding on its own
was collusive. The argument made is that Mtsweni could have bid on its own
or through subcontracting and that the impugned agreement with SGB-Cape
prevented this.
[115] The starting point again is whether the restraint that SGB-Cape placed on
Mtsweni can fall under section 4(1)(b). As a first step we need to consider
whether Mtsweni was a potential competitor or competitor.
[116] The only evidence led in this case about Mtsweni’s ability to compete on
CORP3130 (absent the joint venture) relates to the clarity sought by Mr
Mtsweni from Mr Visagie on whether he could bid alone and an untested
paragraph in Mr Mtsweni’s witness statement, indicating that (i) he had
81 Transcript p 435 lines 10-20.
82 TB 01 p 407-408.
33
preliminary discussions with other bidders,83 (ii) he has some experience in
scaffolding and heat insulation84, and (iii) Mtsweni operates a fleet of five
trucks.85
[117] The CAC in Dawn Consolidated Holdings (Pty) Ltd and others
v Competition Commission (“Dawn”) held that a potential competitor does not
mean merely a company with sufficient resources to enter the market. The
potentiality must be on realistic grounds, not just theoretical possibility.86 The
evidence led before this Tribunal does not support the contention that, absent
the JV, Mtsweni was a potential competitor.
[118] Even the Commission’s own expert on questioning by the panel was at pains
to explain in which way Mtsweni could pose a competitive constraint on SGB-
Cape:
MR APROSKIE: Yes. But maybe just to differentiate. So, they’re not an
actual competitor where I would look at them by themselves. As a
potential competitor it’s only with respect to the fact that they could join
with someone else. I don’t know if that answers your question. So,
they’re not a potential competitor or an actual competitor by themselves.
The potential is very much with – in respect of the fact that they could
form a competitor through joining someone else.87
[119] Hence the Commission’s own expert concedes that Mtsweni could not be
considered as a competitor to SGB-Cape on its own. Nor could it be considered
as a potential competitor on its own. It could only be considered as a potential
competitor in the fact that it could join with someone else.
83 He states in this paragraph that the discussions did not lead to any formal proposals.
84 He states that he has been employed in the scaffolding and heat insulation business and is familiar
with the skill requirements for such services. This notwithstanding, Mr Mtsweni further provides that he
has not provided scaffolding on the scale or with the technical requirements of CORP3130.
has not provided scaffolding on the scale or with the technical requirements of CORP3130.
85 Transcript p 1096 lines 8-10, Mr Aproskie testified that Mtsweni could provide to the joint venture
instead of hiring out.
86 [2018] 1 CPLR 1 (CAC) at para 23.
87 Transcript p 1241 lines 8-15.
34
[120] But there is no evidence to support that any agreement was likely to be reached
with the firms that Mr Mtsweni had approached for preliminary discussions
(Topfix, Oram Scaffolding, Zizwe Insulation and Joburg Scaffolding, which
tendered as FBC Johannesburg Scaffolding JV).88 In any event these
companies tendered in their own name. Allowing Mtsweni to be classed as a
potential competitor on the basis that it could possibly compete “through joining
someone else” is merely theoretical and not based on any realistic grounds.
Mtsweni is not a competitor or potential competitor and hence cannot be said
to be colluding with SGB-Cape.
[121] We now turn to deal with the restraint placed against Mtsweni submitting
additional bids. We do not find that SGB-Cape’s conduct in restricting Mtsweni
from submitting additional bids to be unreasonable, regardless of whether
Mtsweni was indeed a potential competitor (which we find he is not) on his own
or in a partnership. A restraint in these circumstances was necessary in order
to guard against the flow of information which Mtsweni could have carried
through different bids. Restraints in the context of a JV for a specific bid have
commercial and economic validity where they prevent a conflict of interest. A
company may not want its partner to share its information with its competitors.
On its own, a restraint on a partner who is engaged in a specific sub-component
of the work cannot be viewed as collusion. The restraint is common and
incidental to the JV, it does not exist outside the JV.
[122] This rationale for exclusivity was conceded by the Commission’s expert in
response to a question from the Panel.
MR APROSKIE: …. if I’m thinking about a JV. So, the exclusivity here is
saying that, as I understand the exclusivity provision in these JV
agreements is to say the Joint Venture will exclusively use that particular
Joint Venture partner for labour and the other one for the other goods. It
Joint Venture partner for labour and the other one for the other goods. It
would be difficult to conceive exactly how it work if that was not
exclusive. Ultimately, those two partners are coming together to form a
88 TB 00 p 160 para 13.1.
35
business and they’re doing that work together to form something new
which is able to meet the requirements of the tender. So, in that sense,
without anything else on my mind, I would think it is fine, because that’s
the ultimate purpose of their Joint Venture of coming together. It’s not a
completely hands-off vertical supply agreement where you say, this
person is supplying that person, but you could buy your product from
someone else. These are two firms who are coming together for a
specific purpose to serve Eskom in this tender and to work together in
doing that...89
[123] Accordingly, we find that Mtsweni was not a potential bidder for CORP3130
and the restriction placed against it by SGB-Cape did not have the effect of
removing a competitor from bidding for CORP3130. Furthermore, we find that
that such a restraint would not have been collusive in the context of parties
creating a JV for the purpose of a tender opportunity.
[124] During Mr Aproskie’s cross-examination, he was directed to Mr Mtsweni’s
witness statement and questioned on certain aspects thereof. Mr Ngcukaitobi
objected to this on the basis that the content of Mr Mtsweni’s witness statement
was inadmissible given the Respondent’s failure to call him as a witness. The
objection was raised in circumstances where the Commission had actually
introduced Mr Mtsweni’s statement.90 The objection was thus not upheld and
the evidence was allowed. We note from the Commission’s Heads of
Argument91 that it makes further references to Mr Mtsweni’s witness statement,
furthermore, the Commission’s objection was not raised during closing
argument. In the circumstances, we do not take the matter any further.
89 Transcript p 1242 lines 3-20.
90 Transcript p 1091 lines 2-21, p 1092 lines 1-15.
91 see Consolidated Heads of Argument Bundle p 18, para 36.
36
Conclusion
[125] We find that the Commission has failed to prove the first leg of the requirement
of section 4(1)(b), namely that the Respondents are in a horizontal relationship.
[126] We find that the JVs are not in a horizontal relationship and that the
counterfactual is a single bid by SGB-Cape (with or without a partner). The
relationship between the JVs cannot be classed as horizontal competition as
they would not have existed outside of this tender opportunity. The JVs were
constructed for the specific purpose of this tender by SGB-Cape and absent
the decision to create JVs for this bid they would not exist. Ultimately SGB-
Cape as the controlling mind, could not collude with itself for the same piece of
work. We further find that the JVPs did not collude with each other.
[127] The Commission’s theory of harm is not supported by the facts of this case.
[128] Accordingly, we find that there has been no contravention of section 4(1)(b)(i)
and (iii).
37
_____________________________________________________________
ORDER
_____________________________________________________________
We make the following order:
[1] The Commission’s referral under case no. CR277Feb18 is hereby dismissed.
[2] There is no order as to costs.
30 May 2023
Ms Sha’ista Goga Date
Ms Yasmin Carrim and Dr Thando Vilakazi concurring
Tribunal Case Managers: Matshidiso Tseki, Camilla Mathonsi and Baneng
Naape
For the Applicant: Adv Tembeka Ngcukaitobi SC and Adv Hannine
Drake, instructed by Ndzabandzaba Attorneys
For the Respondents: Adv Arnold Subel SC and Adv Michelle Le Roux
SC, instructed by Werksmans Attorneys
Signed by:Shaista Goga
Signed at:2023-05-30 14:08:02 +02:00
Reason:Witnessing Shaista Goga