A'Africa Pest Prevention CC v The Competition Commission of South Africa

• Jurisdiction: South Africa
• Judge: NP Boqwana JA (Victor JA and Van Der Linde AJA concurring)
• Judgment Date: 02 July 2019
• Docket Number: 168/CAC/Oct18
• Hearing Date: 02 July 2019
• Court: Competition Appeal Court

Boqwana JA (Victor JA and Van Der Linde AJA concurring):

Introduction

[1]

Section 4 (1) (b) of the Competition Act 89 of 1998 ("the Act"), prohibits restrictive horizontal practices between firms by stating that:

"(1) An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if -

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(a)

…

(b)

it involves any of the following restrictive horizontal practices:

(i)

directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii)

dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii)

collusive tendering."

[2]

The fundamental concern is that these practices may deprive "the marketplace of the independent centers of decisionmaking that competition assumes and demands" [1] , in that "two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit. This not only reduces the diverse directions in which economic power is aimed, but suddenly increases the economic power moving in one particular direction." [2]

[3]

These contraventions are commonly referred to as per se prohibitions, as the efficiency defence expressed in section 4 (1) (a) cannot be raised, due to their being inimical to economic competition.

[4] In terms of section 4 (5), however, section 4 (1) prohibitions do not apply to:

"…

(a)

a company, its wholly owned subsidiary as contemplated in section 1 (5) of the Companies Act, 1973, a wholly owned subsidiary of that subsidiary or any combination of them; or

(b)

the constituent firms within a single economic entity similar in structure to those referred to in paragraph (a)." (underlined for emphasis)

[5]

The appeal before us concerns the interpretation of this section. Pursuant to a complaint of price fixing and collusive tendering, referred by the Competition Commission ("the Commission") to the Competition Tribunal ("the Tribunal"), against the appellants (i.e. A'Africa and Mosebetsi), the Tribunal found that the

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appellants had contravened sections 4 (1) (b) (i) and (iii) of the Act. This arose from the appellants having submitted identical quotations for fumigation services at Hertzogville Magistrates Office to the Department of Public Works ("the Department"). The appellants had both quoted an amount of R 2640.00 (excluding VAT in the case of the Mosebetsi) to render the requested services.

Factual background

[6]

The appellants are close corporations conducting business in the pest control industry. A'Africa was established by Aletta Labuschagne ("Labuschagne") in October 2004, as a sole member, to provide pest prevention and control services to customers in Bloemfontein and surrounding areas. In April 2006 she sold 49% of her member's interest to Albertus Smith ("Smith"), which was initially registered in both his and his wife's names ("Mrs Smith"). This arrangement was later changed with Labuschagne acquiring a further 3% of the member's interest in the business. Labuschagne testified that by October 2015 she held 59% of the member's interest in A'Africa, whilst Mr Smith held the remainder. From its inception Labuschagne had managed the day to day activities of A'Africa and its administration.

[7]

In 2008 Labuschagne and Smith incorporated another close corporation, Mosebetsi, with the view to providing outsourced cleaning services; however, nothing came of this business objective, and as a result Mosebetsi lay dormant for many years. They decided not to deregister it in case it became a necessary venture for future business activities.

[8]

Meanwhile an important figure in this matter, Modise Maleho ("Maleho"), had joined A'Africa in 2007 as a trainee pest control operator, later becoming a fully-fledged one. Maleho proved to be a valuable employee. In order not to lose him, and to fulfil a growing demand for Black Economic Empowerment ("BEE") compliance so as to obtain business, Labuschagne and Smith decided that Maleho be offered 52 % interest in Mosebetsi, whilst Smith and Labuschagne would hold

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the remaining 48% in equal proportions. This was also because Maleho would not have been able to buy into A'Africa.

[9]

Maleho started working as an employee of Mosebetsi in March 2014. It was agreed that initially A'Africa would cover all the costs of establishing Mosebetsi, and thereafter it should become self-sufficient. Maleho operated out of A'Africa's offices. A'Africa provided all the tools, equipment, the material that Maleho required, and administrative services needed to operate the business, including its administrative assistant, Marlene Kruger ("Kruger"), when required. It also funded Maleho's salary, by loaning Mosebetsi such and all cash that it needed to operate.

[10]

Informal members' meetings were held monthly, which concerned mostly discussions on problems. According to Labuschagne, this was where she and Smith would give Maleho directions and in essence they "exercised strategic and management control", in that their view on an issue would be determinative. According to Maleho, decisions were by discussion and persuasion, but he always looked to Labuschagne and Smith for guidance as they were more experienced in the industry.

[11]

It is alleged that Maleho struggled to get the business off the ground, and that as a result A'Africa, and sometimes Labuschagne, and/or Smith and/or A'Africa Trust (which owned A'Africa's intellectual property), often had to advance funds to Mosebetsi, allegedly "on A'Africa's behalf", which funds "would be accounted for in Mosebetsi's books as a group loans payable." When Maleho did not have sufficient duties in Mosebetsi, he would often do work for A'Africa. This became more frequent the longer Mosebetsi struggled.

[12]

For all intents and purposes, Mosebetsi was commercially wholly parasitic on A'Africa. It had neither vehicle, premises, pesticides, telephone line, nor staff other than Maleho.

[13]

On or about 12 October 2015 Maleho broached the news of his resignation to Labuschagne, to take up a position in Rentokil (a bigger competitor). On 16 October 2015 he left Mosebetsi, offering nothing in writing. According to

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Labuschagne, she had informed him that he had to give them a written letter of resignation, for the purposes of registering Mosebetsi's change of membership with the Companies and Intellectual Property Commission ("CIPC"). This was not done. Maleho testified, however, that he did not know that he had to give anything in writing, but nevertheless viewed himself as having resigned as both an employee and a "shareholder", as he put it. He only learnt later that he was "still" a member of Mosebetsi, in that his name was still registered with the CIPC.

[14]

It is alleged by both Labuschagne and Maleho, that since his resignation on 12 October 2015, Maleho had not been involved in the affairs of Mosebetsi in any capacity whatsoever. At the time of Maleho's departure, Mosebetsi was indebted to the A'Africa Trust in the amount of R32 780, and to A'Africa in the amount of R116 992. Since it had no contacts, customers, employees or assets, it is alleged that Mosebetsi did not have any foreseeable opportunity to trade out of these difficulties.

[15]

Labuschagne alleges that on 19 November 2015 she received two sets of tender forms, addressed to A'Africa and Mosebetsi individually, from Kruger, in relation to an invitation by the Department to submit a bid for the removal of bees at Hertzogville DOJ & CD, under reference number BFN/1015/102304 ("the tender"). Kruger apparently completed the forms in respect of both, leaving the pricing of the quotes and signatures blank. Labuschagne then calculated the price using A'Africa's hourly rates, taking into account distance and travelling times. She further asserted that "[g]iven that the same pest control operator would be providing the service, the price was the same for A'Africa and Mosebetsi." The only difference between the quotes was VAT, which was not included in Mosebetsi's pricing, as it was not a registered VAT vendor. Labuschagne returned the completed and signed documents to Kruger, who arranged for them to be delivered to the Department.

[16]

During the screening of the bids, the Department noticed that the forms submitted by A'Africa and Mosebetsi were identical, or contained similarities in

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many respects, ranging from the handwriting, address, signatures and an indication that Smith and Labuschagne appeared on the CIPC documents of both firms, showing that they were members of both firms. There was also no disclosure on the quotations submitted that the firms were related. The appellants, in fact, answered this question in the negative. Labuschagne's explanation for this, was that she had always answered "no" to this question, well before Mosebetsi came into existence. Kruger, who took over the completion of forms and who completed the current ones, simply copied what Labuschagne had previously done. Without question when receiving the forms from Kruger she, Labuschagne, did not pay that much attention to that question; she simply filled in the missing information and signed. Kruger was not called as a witness to verify this. Maleho's explanation as to why he completed the forms in the manner he did when still with Mosebetsi, was that he had thought that the question was directed at him as a person.

[17]

Pursuant to...