South Africa: A Setback For The Competition Commission?

Last Updated: 8 October 2012
Article by Christopher Kok

Previously published in Without Prejudice Vol. 12 No. 7, August 2012.

The legal fraternity, and particularly the competition law sphere, has been eagerly awaiting the Constitutional Court's ruling in the cases of Competition Commission and Yara South Africa (Pty) Ltd, Omnia Fertilizer Ltd and Sasol Chemical Industries Ltd - CCT81/11 [2012] ZACC 14 (Yara) and Competition Commission and Loungefoam (Pty) Ltd, Gommagomma (Pty) Ltd, Vitafoam (Pty) Ltd, Steinhoff Africa Holdings (Pty) Ltd, Steinhoff International Holdings (Pty) Ltd, Feltex Holdings (Pty) Ltd and KAP International Holdings (Pty) Ltd - CCT 90/11 [2012] ZACC 15 (Loungefoam).

Both these cases have practical implications on how the Competition Commission (Commission) initiates and refers complaints to the Competition Tribunal and will have an impact on a number of pending referrals in which similar objections have been raised.

The matters are also symptomatic of the on-going debate regarding whether or not statutory bodies like the Commission should be allowed the freedom to conduct their mandated duties. On the one hand, competition authorities may argue that it is being hamstrung by respondents raising "overly technical" points and by courts that do not necessarily possess the necessary understanding of economic principles central to competition law. On the other hand, legal practitioners may argue that competition law is still developing and legal challenges are natural and necessary in order to establish competition jurisprudence within South Africa.

The judgments

On 26 June 2012 the Constitutional Court ended immense speculation and legal debate when it handed down judgment in the Yara and Loungefoam matters. It dismissed both of the Commission's applications for leave to appeal earlier decisions of the Competition Appeal Court (CAC) with costs.

The CAC previously ruled that the Commission could not amend its complaint referrals to introduce new evidence and/or allegations, or to join new respondents. Not only do both decisions highlight the importance of due process in a regulatory environment, but following these decisions, the Commission will now have to follow the normal appeal procedure in both matters.

In the ordinary course, the Commission (or any would-be appellant for that matter) seeking to appeal a decision of the CAC would be required to either seek leave from the CAC to appeal the matter to the Supreme Court of Appeal (SCA), or, if the matter concerns a constitutional issue, seek leave from the CAC or the SCA to appeal to the Constitutional Court. In specific instances, when it is in the interests of justice to do so, leave from the Constitutional Court may be sought directly. In both the Yara and Loungefoam matters, the Commission (despite applying to the SCA for leave to appeal), elected to seek direct access to the Constitutional Court, effectively bypassing both the CAC and SCA.

Although the Commission's actions resulted in many people accusing it of "forum shopping", the Commission explained that not only was it entitled to seek direct access in terms of legislation, but that the urgency and importance of settling the disputed legal principles raised constitutional matters and justified appealing directly to the Constitutional Court. The Constitutional Court has only been requested to rule on competition law issues on exception, as competition law is highly specialised and has its own specialised court to hear appeals, the CAC.

Background

The background to each matter is briefly as follows: in the Yara matter the Commission appealed a decision of the CAC, which found that the Commission was not entitled to amend a complaint so as to introduce a new complaint or new respondent unless a fresh complaint alleging this has been properly initiated. The Constitutional Court considered the Commission's condonation argument, whether or not it was in the interests of justice to grant leave to appeal and focussed on section 63(2) of the Competition Act read with section 167(6) of the Constitution. In essence, the majority judgment of the Constitutional Court held that the Commission's delay in lodging this application was excessive and that "the explanation that the Commission attempts to advance is so manifestly unsatisfactory that it can almost be rejected as no explanation at all" (para 34 of the judgment).

The Constitutional Court held that the Commission had failed to apply to the CAC in accordance with section 63(2) of the Competition Act and that, for these reasons, the Commission's applications stood to be dismissed. The court further held that even if the condonation application was allowed, it was not in the interests of justice to grant the Commission leave to appeal directly to the Constitutional Court.

In the Loungefoam matter the Commission appealed the entire judgment of the CAC. The CAC judgment found that, amongst other things, any amendment including a new complaint should be initiated before it could be referred. The majority decision of the Constitutional Court considered similar factors to those in the Yara judgment and found that, irrespective of one's interpretation of section 63(2) of the Competition Act, the Commission failed to seek leave from the CAC before approaching the Constitutional Court and showed no compelling circumstances that could justify a direct appeal.

Ultimately, the Commission failed to show that the SCA would not deal with the matter expeditiously or bring finality to some or even all of the issues between the parties. The Constitutional Court held that the matter should to be dismissed on this basis alone and thus found it unnecessary to decide condonation of the Commission's seemingly excessive delay.

Both of the Constitutional Court's decisions accept that issues concerning the powers of and function of any organ of state raise crucial constitutional law questions. The Constitutional Court however held that due process must be adhered to and that these issues should first be considered by the specialist competition court (the CAC), and then, if required, also the SCA.

Implications

This development is arguably a substantial setback for the Commission in what has been an extremely long and arduous journey following the matter of Woodlands Diary (Pty) Ltd and Another v Competition Commission 2010 (6) SA 109 (SCA) (Woodlands). The merits of neither of the matters were considered by the Constitutional Court and the applications were dealt with on procedural grounds. The judgments were firmly based on interpretations of the relevant statutes and rules of court with a strong emphasis on the importance of due process. These matters are the last in a chain of cases regarding technical challenges questioning the Commissions' powers of investigation, initiation and the referral of matters to the Competition Tribunal.

All is however not lost for the Commission, as it still has pending applications in both matters for leave to appeal before the CAC and potentially the SCA. The minority judgments in both matters in fact hinted that there may indeed be merit to the Commission's cases. Whether or not these courts will entertain the applications and/or whether or not the Commission will proceed with these applications is uncertain, as pursuing the cases will undoubtedly result in further delays.

Whatever the Commission chooses to do, both majority judgments of the Constitutional Court stress the importance of due process and procedure, and emphasises the fact that failure to adhere to the legislative framework will not be tolerated. This is not only a crucial lesson for the Commission, but must be borne in mind by all within the legal field.

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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