In a dramatic decision handed down on 13 September 2010 in the
case of Woodlands (Pty) Ltd and Milkwood Dairy (Pty) Ltd v The
Competition Commission, the Supreme Court of Appeal (SCA)
upheld an appeal against an order of the Competition Appeal Court
(CAC) and found that the complaints initiated by the Commission
against the appellants were set aside. The court further directed
the Commission to return all documents and copies in its possession
belonging to the appellants.
The Commission alleged that the appellants were involved in fixing prices of raw milk. A complaint had been lodged against certain firms and as consequence the Commission initiated a full investigation into the milk industry, without qualification or specific complaints against them.
The essential issue before the Court was whether the complaint was valid in light of the requirements set out in section 49B of the Competition Act. If the Commission had referred an invalid complaint to the Tribunal, then the Commission acted beyond its power and the subsequent referral could be set aside.
In setting out the requirements of a valid complaint initiation, investigation and referral, the SCA's approach may be summarised as follows:
- The Commissioner must at the very least have been in possession of information 'concerning an alleged practice' which, objectively speaking, could give rise to a reasonable suspicion of the existence of a prohibited practice.
- The Commissioner must direct an inspector to investigate the complaint after it has been initiated.
- The complaint must be initiated against 'an alleged prohibited practice'. It may not be initiated against an industry. According to the SCA, "a suspicion against some cannot be used as a springboard to investigate all and sundry".
- The initiation and subsequent investigation must relate to the information available or the complaint filed by a complainant.
- The Act presupposes that the complaint (subject to possible amendment and fleshing out) as initiated will be referred to the tribunal.
Only once a complaint has been initiatedmay the commissioner
summon persons for purposes of interrogation and production of
In the present case the commissioner initiated the complaint against the entire industry "oblivious to the fact that he was supposed to initiate a complaint against an alleged prohibited practice and that this should have led to a direction to an inspector to investigate".
The SCA held that the 2006 complaints were the direct consequence of an invalid initiation procedure and without the invalid complaint initiation and subsequent investigation these complaints against the appellants would not have seen the light of day.
This decision bucks a recent trend where the competition authorities have tended to favour substantive concerns over procedural fairness in relation particularly to alleged cartel activity. In an interesting observation the court stated that:
"The so-called 'administrative penalties' (more appropriately referred to as 'fines' in s 59(2)) bear a close resemblance to criminal penalties. This means that its procedural powers must be interpreted in a manner that least impinges on these values and rights."
The SCA disagreed with the CAC that:
"...because it is difficult to establish the existence of prohibited practices a generous interpretation of the commission's procedural rights would be justified. This approach would imply that the more difficult it is to prove a crime, such as corruption, the fewer procedural rights an accused would have."
The Court held:
"I do not accept the submission on behalf of the commission that these far-reaching invasive powers may be used by the commissioner for purposes of a fishing expedition without first having initiated a valid complaint based on a reasonable suspicion. It would otherwise mean that the exercise of this power would be unrestricted because there is no prior judicial scrutiny as is the case with a search warrant under s 46."
This judgment will be of interest in a number of ongoing investigations and prosecutions currently pending before the competition authorities. While seemingly limited in its scope, it may signal a turning of the jurisprudential tide in relation to procedural matters brought before the Tribunal and the relevant Courts.
The case affirms that respondents in prohibited proceedings under the Act are entitled to enforce their rights to due process. This is appropriate given the potentially severe consequences of an adverse finding in such matters.
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