South Africa: Constitutional Court Denies The Competition Commission Direct Access

Last Updated: 5 July 2012
Most Read Contributor in South Africa, September 2018

Article by Lee Mendelsohn , Derushka Chetty and Sarah Pearson (Candidate Attorney)

South Africa's Constitutional Court (the "ConCourt") has handed down its judgments in both the (i) Yara South Africa (Proprietary) Limited ("Yara") and Omnia Fertilizer Limited ("Omnia") case (the "Yara/Omnia case") and (ii) the Loungefoam (Proprietary) Limited ("Loungefoam") and Vitafoam (Proprietary) Limited ("Vitafoam") case (the "Loungefoam case"). The judgments, which were handed down yesterday, effectively deny the Competition Commission (the "Commission") leave to appeal the decisions of the Competition Appeal Court (the "CAC") in these matters directly to the ConCourt.

In an attempt to seek clarity on the scope and proper exercise of its statutory powers of complaint initiation, investigation and referral, the Commission sought to overturn the CAC's decisions in each of the Yara/Omnia case and the Loungefoam case.  In these cases, the CAC has ruled that the Commission could not amend its complaint referrals to introduce new evidence, allegations or join new respondents.

In the ordinary course, the avenues available to a would-be appellant seeking to appeal a CAC decision would be to:

  • seek leave from the CAC to appeal the matter to the Supreme Court of Appeal (the "SCA");  or
  • if the matter concerns a constitutional issue, seek leave from the CAC or the SCA (as the case may be) to appeal to the ConCourt. Leave from the ConCourt may be sought directly if the CAC or the SCA refuses leave or whether there is a necessity to seek leave directly, in the interests of justice.

The Commission chose to apply directly to the ConCourt for leave to appeal both these matters and in this way bypassed the CAC and the SCA.

The background of the Yara/Omnia case is as follows:

  • In December 2003 the Commission received a complaint from Nutri-Flo CC and Nutri-Fertiliser CC (the "Nutri-Flo complainants").  The Nutri-Flo complainants were producers and suppliers of blended fertilisers out of the raw material either manufactured or imported by Yara, Omnia, and Sasol Chemical Industries Proprietary ("Sasol").
  • Pursuant to the complaint, the Commission conducted an investigation and referred the complaint to the Competition Tribunal (the "Tribunal") for adjudication in terms of the Competition Act, No. 89 of 1998, as amended (the "Competition Act") citing Yara, Omnia and Sasol as the respondents.
  • After lengthy negotiations and a settlement agreement concluded between Sasol and the Commission, the Commission made it known, ahead of the hearing of the matter at the Tribunal, that it would use information received from Sasol to prove its complaint.
  • The Commission applied to the Tribunal to amend the complaint referral alleging collusive behaviour on the part of Yara and Omnia, which Yara and Omnia opposed on the basis that the proposed amendment fell outside the scope of the Nutri-Flo complaint.
  • Omnia brought a counter-application to have the referral of the complaint set aside on the basis that the Nutri-Flo complainants had not submitted any complaint concerning collusive behaviour by itself and Yara.
  • The Tribunal decision - On 24 February 2010, the Tribunal granted the Commission's application for leave to amend the referral to include allegations regarding collusive behaviour by Yara and Omnia and dismissed Omnia's counter-application.
  • The CAC decision - The matter was then appealed to the CAC and the appeal was upheld setting aside the Tribunal's aforementioned decisions.  The complaint referral against Yara and Omnia was thus set aside.
  • The Commission then applied for leave to appeal the CAC's decision directly to the ConCourt. In addition, the Commission applied to the CAC for leave to appeal against its decision to the SCA, but indicated that it would not pursue this application if leave to appeal to the ConCourt was granted.

The background of the Loungefoam case is as follows:

  • On 25 May 2007 the Commission received a letter from Mr. Troy Carelse, the owner of a foam manufacturing company in competition with Loungefoam and Vitafoam (manufacturers and suppliers of flexible polyurethane or block foam), alleging that Loungefoam and Vitafoam engaged in anti-competitive behaviour. The Commission subsequently commenced a formal complaint investigation on 3 September 2007 against Loungefoam and Vitafoam for price fixing, market allocation, exclusionary acts, inducement, predatory pricing and buying up scarce resources.
  • On 27 November 2007 the Commission initiated its own complaint alleging the same anti-competitive conduct against four additional parties, including Feltex Holdings (Proprietary) Limited ("Feltex") in order to expand the scope of the complaint process previously initiated.  The purpose of this step was, according to the initiating statement, to add the additional parties to the referral as they were implicated in conduct prohibited by the Competition Act based on documents obtained from Loungefoam and Vitafoam during the investigation process.
  • On 26 May 2008, a further complaint initiation followed, expanding the investigation to include Steinhoff International Holdings (Proprietary) Limited ("Steinhoff") and Kap International Holdings (Proprietary) Limited ("Kap").  This was consequent to the Commission's suspicion that the alleged collusion between the original respondents might be a product of collusion between Steinhoff and Kap.
  • In September 2008, the Commission referred a complaint to the Tribunal against Loungefoam, Vitafoam, Feltex, Steinhoff and Kap alleging that (i) Loungefoam and Vitafoam had agreed to fix purchase prices and selling prices in contravention of section 4(1)(b)(i) of the Competition Act; (ii) Loungefoam and Vitafoam had engaged in customer allocation by agreeing not to compete for customers in contravention of section 4(1)(b)(ii) of the Competition Act; and (iii) Loungefoam and Feltex had engaged in market division through the reciprocal restraint of trade covenant in their sale of business agreement in contravention of section 4(1)(b)(ii) of the Competition Act.
  • On 16 February 2010, the Commission applied to the Tribunal to amend its complaint referral in respect of various aspects which included new allegations that Feltex was involved in price fixing with Loungefoam and Vitafoam with whom it jointly purchased chemicals in contravention of section 4(1)(b)(i) of the Competition Act; a refutation of the claim that Loungefoam and Vitafoam were part of a single economic entity, alternatively an argument that if they were, that was as a result of collusion between Loungefoam and Vitafoam; and a prayer that the parent companies and constituent firms should all face administrative penalties.
  • The Tribunal decision - The Tribunal permitted all of the aforementioned amendments.
  • The CAC appeal - Feltex and the other respondents appealed to the CAC against the whole judgment of the Tribunal and further applied to have the decision reviewed and set aside. The CAC upheld the appeal and set aside the amendments allowed by the Tribunal.
  • On 3 June 2011, the Commission applied to the CAC for leave to appeal to the SCA only against the orders made in respect of the collusion and penalty amendments. That application was set down for hearing on 9 December 2011. On 27 December 2011 the Commission launched proceedings seeking leave to appeal directly to the ConCourt against the whole judgment of the CAC.

When determining its jurisdiction in both the Yara/Omnia case and the Loungefoam case, the ConCourt reasoned that if the Commission were to be granted leave to appeal, the issues to be decided upon relate to the extent of the Tribunal's power and its ability to permit the amendment of complaint referrals. In Competition Commission of South Africa v Senwes Limited  (the "Senwes case"), the ConCourt held that issues concerning the extent of the Tribunal's powers were, in fact, constitutional issues, giving the ConCourt jurisdiction to hear such appeals.

In both cases, when deciding whether to grant leave to appeal, the Court looked at section 63(2) of the Competition Act which states that an appeal to the ConCourt may only be brought with leave from the CAC, or if the CAC refuses to grant such leave, with leave from the SCA or the ConCourt (where the SCA or the CAC refuses).

The ConCourt did not consider it necessary to consider whether non-compliance with section 63(2) of the Competition Act constituted a bar to seeking leave to appeal to the ConCourt or whether such non-compliance must, merely, be taken into account as one of the factors relevant to determining whether or not it is in the interests of justice to grant the litigant leave to appeal to the ConCourt (as per section 167(6) of the Constitution, which does not lay down a requirement for obtaining leave to appeal from the court, the decision of which one is appealing).

The Court considered the extent of the Commission's delay in bringing its application in the Yara/Omnia case (some four and a half months from the date of the CAC's judgement) and, having regard to the 15 court days permitted therefor in terms of the Rules, considered such delay to be excessive.  The ConCourt stated further that the SCA should first be afforded the opportunity to hear and pronounce on the merits of the matter and held that it would not be in the interests of justice for it to hear the matter.

In the Loungefoam case, the Commission argued that –

  • the application raises critical constitutional issues fundamental to the manner in which it discharges its functions;
  • the finding that there must be symmetry between the initiating document and the referral is unduly restrictive and undermines the public's right to have anti-competitive conduct properly determined; and
  • it is unable to investigate and refer pending matters until the issues raised in the application have been attended to by the ConCourt.

As with the Yara/Omnia case, the Court considered the Commission's compliance in terms of section 63(2) of the Competition Act and section 167(6) of the Constitution. The Court held that neither of the aforementioned provisions had been complied with by the Commission and that the matter fell to be dismissed on this basis alone.

Accordingly, in both the Yara/Omnia case and the Loungefoam case, the Court held that, while it did have jurisdiction to hear the Commission's appeals, the Commission did not seek the requisite leave from the CAC before approaching the Court, nor did it show any compelling circumstances in the interests of justice that would justify a direct appeal to the ConCourt. The Commission's application for leave to appeal to the ConCourt was thus dismissed in both cases.

The decisions are no doubt a blow for the Commission.  Not only have these judgments not provided the Commission with the clarity it sought regarding its powers, they also awarded costs against the Commission.

But all is not lost for the Commission.  The judgements contain references to potentially strong merits in both cases and this may well sow the seed for successful appeals of the matters to the SCA.  Until then, respondents (both actual and potential) can take comfort that complaint referrals must be drafted at the outset with specificity as same cannot later be amended to introduce new complaints, causes of action, or joinder of further respondents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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