Brief Summary

Administrative Law — Review of administrative decision — Competition Act 89 of 1998 — Exemption application — Respondents, associations of advocates, sought exemption from provisions of the Competition Act, alleging the Commission's decision was procedurally flawed and lacked proper consultation — High Court set aside the Commission's decision and exempted certain rules, leading to an appeal by the Commission — Court held that the Commission's failure to comply with the audi alteram partem principle warranted the setting aside of its decision, and remittal to the Commission was not necessary due to its demonstrated lack of competence and good faith.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were an appeal and cross-appeal in the Supreme Court of Appeal concerning the review of an administrative decision taken by the Competition Commission under the Competition Act 89 of 1998, specifically in relation to an application by professional bodies of advocates for an exemption of certain professional rules from the application of competition law.

The appellant was the Commissioner of the Competition Commission. The respondents were the General Council of the Bar of South Africa (GCB) and ten constituent regional Bars (associations of advocates practising in various High Court Divisions). The GCB maintained a code of conduct intended to regulate professional conduct, but because the regional associations had not adopted uniform rules in identical form, each association continued to operate under its own rules.

The matter originated in the Transvaal High Court as review proceedings brought by the respondents after the Competition Commission communicated its exemption decision. In the High Court, the Commission conceded that the decision was reviewable because of non-compliance with the audi alteram partem principle. The principal dispute in the High Court then became whether the matter should be remitted to the Commission for reconsideration or whether the court should itself decide the exemption question. The High Court (Roos J) declined to remit the matter and instead made an order exempting certain rules while refusing exemption for others. The Commission appealed against the refusal to remit and the substitutionary relief; the respondents cross-appealed against the refusal to exempt some of the rules.

The general subject-matter of the dispute was the extent to which rules of professional associations of advocates, including the so-called referral rule (restricting advocates from accepting briefs directly from the public, subject to exceptions), could or should be exempted from the application of Part A of Chapter 2 of the Competition Act, under the exemption scheme applicable to professional association rules.

Material Facts

The respondents, suspecting towards the end of 1999 that some of their professional rules might contravene section 4 of the Competition Act, made a joint application to the Competition Commission for an exemption from Part A of Chapter 2 of the Act. The application was made under Schedule 1 (Part A) of the Act, which provided a specific exemption mechanism for professional association rules.

About a year later the Commission communicated its decision by letter dated 8 November 2000, enclosing an “Exemption Certificate” and a document styled as “conditions”. Although the letter and certificate indicated that an exemption had been granted (subject to conditions), the “conditions” document, on its face, amounted to a refusal to exempt several important rules and an indication of willingness to negotiate exemption of some other rules if amended to the Commission’s satisfaction. This created uncertainty for the respondents as to the nature and content of the decision.

Around the same time, the respondents obtained from the Ministry for Justice and Constitutional Development a copy of a document not disclosed to them by the Commission, headed “DRAFT RESPONSE TO THE COMPETITION COMMISSION”, containing adverse comments on the application for exemption. Initially, the respondents believed the document emanated from a policy unit and did not reflect the Minister’s views. They contended in the review that the Minister had not been consulted as required by Schedule 1, that the Commission had wrongly considered the application under section 10 (the general exemption provision) rather than Schedule 1, and that the conditions attached were not authorised under Schedule 1.

After receiving the certificate, the respondents asked the Commission for reasons but did not receive them. They obtained an order compelling the furnishing of reasons and eventually received a document described as a “summary of reasons”, with an undertaking that “full reasons” would be disclosed in an answering affidavit. The “full reasons” later emerged principally in the form of a report prepared by a consultant, Mr Wouter Meyer (the “Meyer report”).

In its answering affidavit in the High Court, the Commissioner asserted that the application was considered under Schedule 1 and that the disputed rules had been refused exemption. The Commissioner also alleged that the Minister had been properly consulted and that the “draft response” had in fact been signed by the Minister and contained his official comments. The Commission conceded that the Minister’s comments had not been disclosed to the respondents before the decision was taken and accepted that this rendered the decision reviewable for failure to comply with audi alteram partem. The Commission sought remittal for reconsideration.

By the time of the appeal, there was no longer a dispute that the “draft response” constituted the Minister’s official comments. The respondents also no longer persisted with the contention that the Commission had decided the matter under section 10 or that the application had in truth been granted subject to unlawful “conditions”, although they maintained that the earlier confusion remained relevant to whether remittal would be fair.

The statutory framework in Schedule 1 required a two-stage enquiry. First, the Commission had to determine whether the relevant rules contained a restriction substantially preventing or lessening competition (item 1(a)). Secondly, if such restriction existed, the Commission had to decide whether, having regard to internationally applied norms, the restriction was reasonably required to maintain professional standards or the ordinary function of the profession (item 1(b)). The Meyer report concluded that certain rules restricted competition but did not reflect an application of the Schedule 1 item 1(b) test, instead repeatedly aligning the Commission’s position with the Minister’s broader policy perspective on reforming the profession.

Legal Issues

The central legal question was whether, after setting aside the Commission’s exemption decision for procedural unfairness, the reviewing court should remit the application to the Competition Commission for reconsideration, or whether it was permissible and fair for the court to substitute its own decision by granting exemptions in respect of particular rules.

This question primarily concerned the application of administrative-law principles (review remedies and remedial discretion) to the established facts, together with an evaluative assessment of fairness to both parties. It also raised a subsidiary question of the court’s institutional competence to determine, on the papers, whether particular professional rules satisfied the Schedule 1 item 1(b) standard of being “reasonably required” for professional standards or the ordinary function of the profession.

A further issue concerned the proper treatment of the referral rule in light of existing case law recognising the divided profession and referral system in South African law, and whether the Competition Commission could refuse exemption in a manner that effectively sought to “bend” the common law.

Court’s Reasoning

The court examined the statutory structure of Schedule 1 and emphasised that items 1(a) and 1(b), read together, required a two-stage enquiry: determining first whether there was a substantial restriction of competition, and, if so, deciding secondly whether the restriction was nonetheless reasonably required to maintain professional standards or the profession’s ordinary function, with reference to internationally applied norms. The court considered that the Commission, through its adoption of the Meyer report as the essence of its reasons, had failed to engage properly with the item 1(b) enquiry.

In assessing the Meyer report, the court accepted that it contained extensive discussion of competition-related matters (market structure, supply and demand, anti-trust experience) and that it reached a conclusion that some rules restricted competition. However, it found a material deficiency: the report did not demonstrate a proper evaluation of whether those restrictions were reasonably required for the purposes specified in item 1(b). Instead, rule-by-rule evaluations largely consisted of juxtaposing the respondents’ positions against the Minister’s comments, with the Commission consistently adopting the Minister’s view, without articulating reasons focused on the statutory standard in item 1(b).

The court further reasoned that the Minister’s comments, as reflected in the report, were framed within the broader context of government policy and transformation of the legal profession, including contemplated legislation (a “Legal Practice Bill”) and a public-interest perspective on regulation. The court held that the Commission’s function under item 1(b) was distinct: it had to determine whether restrictions were reasonably required to maintain professional standards or the profession’s ordinary function. By “blandly accepting” the Minister’s policy-driven commentary, the Commission became embroiled in a broader reform debate and lost sight of the question it was statutorily required to resolve.

On the remedial question of remittal versus substitution, the court restated the general principle that a court is slow to assume a discretion entrusted to an administrative body, but held that the position is not absolute. The remedy turns on the court’s discretion, guided by the constitutional imperative of lawful, reasonable, and procedurally fair administrative action, and by fairness to both parties. In this connection, the court referred to authority indicating that remittal is ordinarily appropriate, but substitution may be justified where remittal would operate unfairly.

The respondents argued that the Commission’s conduct showed incompetence, lack of candour, objectivity, and good faith, and that it would be unfair to require them to return to the Commission. The court rejected the proposition that the Commission’s failure to disclose the Minister’s comments and to afford an opportunity to respond necessarily indicated bias. It reasoned that administrative bodies vary in competence and that failure to observe audi alteram partem does not, by itself, justify an inference of bias.

Nonetheless, the court expressed concern about the Commission’s misunderstanding of its functions under item 1(b), and particularly that the Commissioner appeared not to appreciate that the Commission had erred beyond the audi defect. The court considered that if there were no change in approach, the prospects of proper treatment on remittal were not good. This concern weighed against an unqualified remittal.

Against that, the court held that it had grave doubt that a court (including the High Court and the Supreme Court of Appeal) could decide the exemption application comprehensively on the papers for all disputed rules. While judicial experience may equip a court to assess the practical necessity of some professional rules, the court held that in the Competition Act context the item 1(b) enquiry cannot be resolved solely by professional practice considerations. It involves a balancing exercise weighing the benefits of the restriction against its anti-competitive effect and potentially taking account of economic and social factors beyond ordinary judicial expertise. Where the court is not equipped, exemption should not be granted unless the evidence justifies it.

Applying these considerations, the court differentiated between the referral rule and the other rules. It held that Roos J was correct to exempt the referral rule. The court relied on the effect of prior judgments (including an appellate confirmation) recognising that South African law recognises a divided profession coupled with a referral system. On this basis, the Commission was not entitled to refuse exemption in a manner that sought to “bend” the common law. The development of the common law lies with the courts, not the Commission; any attempt by the Commission effectively to develop the law would be ultra vires. No case had been made for constitutional development of the common law under section 39(2) on the papers, and it was not contended for the Commission that such development should be undertaken in the appeal.

In contrast, for the other two rules that Roos J exempted (in addition to the referral rule), the court held that it lacked sufficient knowledge of their economic and other effects to determine whether they were “reasonably required” under item 1(b). It held that Roos J had erred in exempting those rules. The court applied the same approach to the rules Roos J refused to exempt (the subject of the cross-appeal) and concluded that it could not find that Roos J erred in refusing to exempt them on the material available.

Outcome and Relief

The Supreme Court of Appeal upheld the Commission’s appeal in part and dismissed the respondents’ cross-appeal. It set aside the High Court’s order and replaced it with an order that (i) set aside the Commission’s exemption decision, (ii) granted an exemption only in respect of the rules prohibiting advocates (subject to certain exceptions) from accepting briefs from persons other than attorneys (the referral rule), and (iii) remitted the remainder of the exemption application to the Competition Commission for reconsideration, subject to the referral-rule exemption.

As to costs, the court ordered that each party pay its own costs in the appeal, including the costs of the cross-appeal. The respondents were awarded their costs in the High Court, including the costs of two counsel, payable by the Competition Commission (the first respondent in the High Court proceedings).

Cases Cited

Society of Advocates of Natal v De Freitas and Another 1997 (4) SA 1134 (N).

General Council of the Bar of South Africa v Van der Spuy 1999 (1) SA 577 (T).

General Council of the Bar of South Africa v Van der Spuy 2001 (3) SA 750 (SCA).

Johannesburg City Council v Administrator, Transvaal and Another 1969 (2) SA 72 (T).

Livestock and Meat Industries Control Board v Garda 1961 (1) SA 342 (A).

Erf One Six Seven Orchards CC v Greater Johannesburg Metropolitan Council (Johannesburg Administration) and Another [1998] ZASCA 91; 1999 (1) SA 104 (SCA).

Theron en Andere v Ring van Wellington van die NG Sendingkerk in Suid-Afrika en Andere 1976 (2) SA 1 (A).

President of the Republic of South Africa and Others v South African Rugby Football Union and Others [1999] ZACC 9; 1999 (4) SA 147 (CC).

Legislation Cited

Competition Act 89 of 1998, including section 4, section 10, section 3(1)(c) (as it then stood), and Schedule 1 Part A (items 1 and 2).

Constitution of the Republic of South Africa, 1996, including section 39(2) and (by reference in the Minister’s comments) section 22.

Competition Amendment Act 39 of 2000 (by reference to deletion of section 3(1)(c)).

Promotion of Administrative Justice Act 3 of 2000 (referred to as not applicable at the relevant time and in any event not taking the matter further).

Rules of Court Cited

No specific Uniform Rule of Court was cited in the judgment.

Held

The court held that the Competition Commission’s exemption decision had to be set aside because the respondents were not given an opportunity to respond to the Minister’s adverse comments, rendering the decision procedurally unfair.

The court held that, as a general remedial matter, substitution of a court’s decision for that of an administrative body is exceptional and depends on a fairness-based discretion. Although the Commission’s failure to understand and apply the correct statutory test under Schedule 1 item 1(b) weighed against a simple remittal, the court was not satisfied that it could decide, on the papers, whether all the contested rules met the “reasonably required” threshold, because that enquiry entails balancing benefits against anti-competitive effects and may require economic and social evaluation.

The court held that the referral rule (restricting advocates, subject to exceptions, to taking briefs from attorneys) had to be exempted, because South African law recognises the divided profession and referral system and the Commission was not entitled to refuse exemption in a way that purported to “bend” the common law; such an approach would be ultra vires.

The court held that the High Court erred in exempting two additional rules beyond the referral rule, and the respondents failed to show that the High Court erred in refusing exemption for the other disputed rules. The balance of the exemption application was accordingly remitted to the Commission for reconsideration.

LEGAL PRINCIPLES

A reviewing court’s remedial discretion after setting aside administrative action includes deciding whether to remit the matter to the administrator or to substitute its own decision. Although courts are generally reluctant to usurp a discretion statutorily entrusted to an administrative authority, the decisive consideration is fairness to both parties, assessed on the facts of each case.

A failure to comply with audi alteram partem constitutes a serious procedural defect, but such failure does not, without more, justify an inference of bias on the part of an administrative decision-maker. Administrative incompetence or oversight may explain non-compliance, and bias requires a separate evaluative basis.

Under Schedule 1 of the Competition Act (as it then stood), exemption of professional association rules required a structured enquiry. Where a rule substantially restricts competition, the decision-maker must determine whether, having regard to internationally applied norms, the restriction is reasonably required to maintain professional standards or the ordinary function of the profession. This enquiry entails an evaluative balancing of the benefits of the restriction against its anti-competitive effect and may involve economic and social considerations.

Administrative bodies must act within their powers and cannot effectively seek to develop or alter the common law through administrative decision-making. Where the common law recognises a particular institutional arrangement (here, a divided profession with a referral system), the administrator is not entitled to refuse relief in a manner that attempts to “bend” that law; development of the common law is a judicial function, and absent a properly made case for constitutional development, the law must be applied as it stands.

Commissioner of the Competition Commission v General Council of the Bar South Africa and Others (350/2001) [2002] ZASCA 101; [2001-2002] CPLR 1 (SCA) ; [2002] 4 All SA 145 (SCA) (6 September 2002)