THE RAMIFICATIONS OF THE RECENT CONSTITUTIONAL REVIEW OF COMPETITION DECISIONS
The courts in recent cases have adopted the view that the Commission’s investigatory powers should be restricted.
In February 2010, in Woodlands Dairy and Another v Competition Commission (“Woodlands”), the Supreme Court of Appeal (“SCA”) upheld an appeal which found that the Commission had “acted beyond its power” when obtaining and using evidence in a cartel investigation.
Subsequently in Loungefoam & Others v the Competition Commission 2012 (“Loungefoam”), three foam manufacturers were accused of price fixing and market allocation in the manufacture of polyurethane foam.The Competition Appeal Court (“CAC”) ruled that the Commission could not amend its original compliant referral to include an additional party as a new defendant.
Similarly, in Competition Commission v Yara SA and Omnia Fertilizer (“Yara”), the CAC ruled that the Commission could not alter its case against an alleged cartel in the fertiliser sector to include new evidence gathered from a third party’s settlement agreement.
Continuing this judicial trend of reasoning in April 2011, the Competition Tribunal of South Africa (“the Tribunal”), refused to hear the Commission’s case against the South African Breweries Limited, stating that the Commission had altered the original case too extensively.
In terms of sections 62(4) and 63(2) of the Competition Act 89 of 1998 (“the Act”), an appeal against a decision of the CAC may be made to the SCA. If the appeal concerns a constitutional matter, it can be directed to the Constitutional Court. These appeals will only be heard once leave to appeal is granted by the CAC; or if the CAC refuses to grant leave to appeal, with permission directly from the SCA or the Constitutional Court, as the case may be.
The aforementioned decisions provoked the Commission to seek leave to appeal against the rulings of the CAC and SCA to the Constitutional Court. In a chain of applications for leave to appeal to the Constitutional Court, the Commission sought clarity regarding the technical challenges raised against its powers to investigate, initiate and refer matters to the Tribunal.
The Commission achieved an early victory in Competition Commission of South Africa v Senwes Limited. This was the first ruling by the Constitutional Court on a competition law matter. A complaint of anti-competitive conduct in practices relating to grain storage tariffs, which was lodged by the Commission against grain storage giant Senwes Limited (“Senwes”), resulted in a long and arduous process involving the Tribunal, the CAC, the SCA and eventually the Constitutional Court.
The Commission alleged that by charging farmers less than traders for storing their grain, Senwes had engaged in an “exclusionary practice” in terms of the Act, since traders could not afford to compete with Senwes. This contravention was considered by the Tribunal as a “margin squeeze” in terms of section 8(c) of the Act. Senwes objected that the complaint of “margin squeeze” against it was not part of the original referral document. Consequently, the issue that arose in the Senwes case was whether the Tribunal was entitled, by the Act, to look beyond the limits of the referral document.
At the outset, the Constitutional Court held that a dispute as to whether the Tribunal exceeded its powers raises a constitutional issue, as it pertains to the control of public power in our constitutional order. The court held that section 52(1) of the Act authorises the Tribunal to adopt an inquisitorial approach to a hearing and that confining a hearing to only those matters that were raised in the original complaint referral document would undermine such an enquiry. The Constitutional Court concluded that, based on the evidence, Senwes had contravened section 8(c) of the Act, regardless of the label attached to the contravention. The court held that Senwes suffered no procedural unfairness, as it was at all times aware of the contraventions brought against it and had been afforded adequate opportunity to raise its desired defence.
It is clear that the Senwes case revived the Commission’s confidence. Although the Senwes case seems to have shed some necessary light on the ambit of the Commission’s powers, the competition law community as a whole was left reeling from the possible controversial consequences of this decision.
The decision allows the Commission greater flexibility in formulating complaint referral documents. Furthermore, if the Commission discovers instances of anti- competitive conduct during an investigationof a particular complaint, the ruling enables the Commission to include that conduct, at the hearing stage, without a formal amendment. Evidently, parties may only discover the case they have to meet during the Tribunal hearing. In addition, given the considerable leeway the decision affords the competition authorities, the line between the inquisitorial powers of the Tribunal and investigatory powers of the Commission might become blurred, resulting in prejudice to the party against whom a complaint is brought.
Subsequent to Senwes, the Constitutional Court denied the Commission leave to appeal directly to the Constitutional Court in Yara and Loungefoam. In both cases, the Commission concurrently applied for leave to appeal to the SCA andConstitutional Court, in a fervent attempt to overturn the CAC rulings that refused to allow the Commission to amend complaint referrals to include new defendants or evidence. The court dismissed the cases purely on procedural issues, without addressing the merits.
In the ordinary course, an appeal from the CAC must be made to the SCA and thereafter to the Constitutional Court. In certain cases one can bypass the SCA and appeal directly to the Constitutional Court, but this must be done with the leave of the CAC unless it is in the interests of justice to do so.
In both Yara and Loungefoam, the Constitutional Court found that, while the issues at stake were “indisputably constitutional”, the Commission had not shown any compelling circumstances that would justify a direct appeal in the interests of justice and had acted unconstitutionally in failing to secure leave from the CAC before approaching the Constitutional Court.
It is important that while the Commission is criticised for failing to follow the correct procedure, in both cases the judges regard the determination of the issues at hand in the proper forum as paramount. There appears to have been much debate, as reflected in the varying views of the judges in the majority and minority judgments, as to whether the Commission had a prospect of success on the merits. In fact, there are a number of obiter statements which seem to suggest that the prospects of success may have been good, had the Commission followed the proper procedure.
So where does this leave us? The Commission’s application to the CAC for leave to appeal the decision in Loungefoam to the SCA has been granted. The application in Yara is still pending. As it stands, Senwes remains law. It would be foolish to think that the SCA, despite its stance in Woodlands, will not have due regard to Senwes when making any further determinations on the ambit of the Commission’s powers.
What is evident is that the recent Constitutional Court decisions leave the doors open for a successful appeal process. However, the Commission must follow the rules of procedural fairness and fix its mistakes, if it is to walk through these doors with the law on its side.