Aranda Textile Mills (Pty) Ltd and Another v Competition Commission

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Mnguni AJP, Victor JA and Kathree-Setiloane AJA
• Judgment Date: 17 December 2021
• Citation: 2023 (2) SA 182 (CAC)
• Docket Number: 190/CAC/DEC20
• Counsel: MJ Engelbrecht SC for the first appellant. A Mohamed for the second appellant. H Drake for the respondent.
• Hearing Date: 17 December 2021
• Court: Competition Appeal Court

Victor JA (Mnguni AJP and Kathree-Setiloane AJA concurring):

Introduction

[1] This appeal concerns a finding by the Competition Tribunal (Tribunal) of a contravention of s 4(1)(b)(i) and (iii) of the Competition Act 89 of 1998 (the Act) based on inferential reasoning in the absence of direct evidence of an agreement or collusive tendering and with no characterisation analysis.

[2] The appeal also raises the question whether communication between manufacturer and retail distributor automatically casts it in a horizontal net. In a commercial society such as ours, discussions between manufacturer and retail distributor on price are routine when giving or obtaining prices between them. Is there room in modern commerce to force a manufacturer to give a uniform price to its different customers?

The parties

[3] The first appellant is Aranda Textile Mills (Pty) Ltd (Aranda), a manufacturer of, inter alia, blankets. The second appellant is Mzansi Blanket Supplies (Pty) Ltd (Mzansi), which trades as a supplier of blankets and sources these from Aranda.

Victor JA (Mnguni AJP and Kathree-Setiloane AJA concurring)

[4] The respondent is the Competition Commission (the Commission), a statutory body established in terms of s 19(1) of the Act.

The referral

[5] On 10 April 2019 the Commission referred a complaint to the Tribunal alleging that, 'in response to this tender, the [appellants] agreed to coordinate their pricing for the tender'. Under the heading 'Conduct in Contravention of Section 4(1)(b)(i) and (ii) of the Act' the Commission alleged that —

'on or about March 2015, the Respondents discussed and agreed how to bid for tender number RT26 – 2015T. In terms of the agreement, Aranda would provide Mzansi with its tender documents including pricing schedule which Mzansi will use to prepare its own tender including pricing.'

[6] The Commission also alleged that 'the agreement further provided that Mzansi will add 7,25% from Aranda's prices to its prices of the blankets to be submitted to National Treasury when bidding for this tender'.

[7] The Commission presented a table in which different columns reflected the blanket item number, Aranda's price and then Mzansi's, and a further column reflected the percentage price difference between the two tenders. This column reflected the consistent 7,25% mark-up. The complaint referral concluded that the collusive agreement entered into by Aranda and Mzansi was egregious and a serious contravention of the Act, and that it 'would destroy the basis of competitive bidding and is particularly harmful to the public because it often distorts the market for procurement'. The Commission argued that the above conduct by the respondents constitutes price-fixing and collusive tendering in contravention of s 4(1)(b)(i) and (iii) of the Competition Act.

Issues

[8] The central issue in the appeal is whether the Commission has proved the s 4(1)(b)(i) and (iii) contravention of the Act on a balance of probabilities. This inquiry requires a consideration of the role of inferential reasoning in competition law to prove a per se prohibition.

[9] Further, in the absence of a characterisation evaluation, can a proper finding of horizontality in terms of s 4(1)(b) of the Act be made where Aranda and Mzansi stood in a supplier – customer relationship prior to them submitting bids in response to the same tender? In the absence of direct evidence on how Aranda and Mzansi had agreed and coordinated their bids, did the Commission discharge its onus of proof?

[10] A further issue is whether the Tribunal had failed to consider the communications between Aranda and Mzansi and their economic relationship in its appropriate context as between manufacturer and distributor.

[11] To what extent can the Tribunal depart from the case made out by the Competition Commission to make up for the deficiencies in evidence

Victor JA (Mnguni AJP and Kathree-Setiloane AJA concurring)

and, in particular, where the Commission had not pleaded a collusive scheme and there was no witness testimony of such a scheme?

Relevant background facts

[12] On 6 February 2015 the Treasury invited prospective bidders to participate in the tender for supply of blankets, household textiles, tablecloths, sheets and face towels to the state under Tender RT26 – 2015 for the period 1 April 2015 to 31 March 2016 The tender comprised some 20 contracts but at issue here are the six blanket contracts (the blanket tender). The Treasury received eight different tenders in response to the blanket tender. Aranda and Mzansi scored first and second out of the six tenderers for the blanket contracts. Although the Aranda tender was lower in price, Mzansi was awarded the tender on the basis of its BBBEE credentials.

[13] The bid requirements included that a participant disclose from whom they sourced their products and the details of their sources, and make various declarations and sign the Certificate of Independent Bid Determination Form (the SBD9 form). [1] Aranda was the only manufacture that could supply the blankets in accordance with the tender specifications. The supporting documents also required moth-proof tests which had to be in accordance with the South African Bureau of Standards.

[14] Among those tendering was Aranda represented by Mr Magni, Ms Paruk of Mzansi and Mr Mandla Vilikazi of Vilankosi Marketing Enterprises CC. As the only manufacturer and supplier of blankets, Aranda imposed the following credit terms on tenderers (other than Mzansi) who sought the supply of blankets from it (a) the provision of an irrevocable letter of credit; (b) payment of 50% deposit prior to the commencement of production; and (c) for the full duration of the tender, Aranda be a joint signatory on the tenderer's bank account into which payment was to be made by Treasury for the blankets. In relation to Mzansi the terms of supply were different. Aranda confirmed in the tender letter that a 'firm supply arrangement' was in place. Aranda and Mzansi had done business over a number of years and there was an established business relationship in place. In fact, the sole shareholder of Mzansi, Ms Paruk, was the daughter-in-law of Mr Paruk who owned Africhoice, a company which had also done business with Aranda over many years.

[15] Sometime after the award of the blanket tender, Mr Vilikazi, a member of Vilankosi Marketing Enterprises CC (Vilankosi), found out that the prices Mzansi received from Aranda were below those that he had received from Aranda. He became suspicious and reported this to Ms Yvette van Niekerk, the deputy director of procurement at Treasury. She invited Mr Vilikazi to lodge a complaint with Treasury, which he

Victor JA (Mnguni AJP and Kathree-Setiloane AJA concurring)

did. She then on-referred the complaint for investigation into possible collusion in respect of the blanket tender by Aranda and Mzansi to an internal specialised audit services committee (SAS).

[16] SAS issued a report suggesting that there could be collusive bidding based on the letter between Aranda and Mzansi dated 2 March 2015. This letter, according to the report, was in conflict with the declarations and the SBD9 form.

[17] The tenderer was required to declare that there was no consultation, communication, agreement or arrangement with any competitor regarding prices or formulas to calculate prices with the aim of winning or not winning the bid.

[18] SAS found that Aranda tendered with the intention not to win the bid in conflict with the form SBD9. It suggested that the Aranda prices were marginally below those of Mzansi and way above those quoted to Vilankosi. It found that there were potential contraventions of s 4(1)(b)(i) and (iii) and/or s 9(1)(c) of the Act, and the matter was referred to the Commission. [2]

[19] The tender was ultimately awarded to Mzansi and implemented.

Aranda's case on appeal

[20] Aranda's case on appeal is broadly that the Tribunal erred in concluding that there was cooperation between Mzansi and itself. It failed to take into account that the relationship was one between supplier and distributor, that did not involve any engagement on their respective tender prices. The Tribunal hypothesised about the alleged collusive scheme in circumstances where the Commission had not pleaded such a scheme, and presented no viva voce evidence at the Tribunal proceedings about such a scheme. The Tribunal made these findings notwithstanding the direct evidence of Mr Magni of Aranda and Ms Paruk of Mzansi that there was no agreement or collusion or pricing information exchanged. The Tribunal gave no reasons for rejecting the evidence of Mr Magni and Ms Paruk and failed to characterise the alleged contravening conduct.

Victor JA (Mnguni AJP and Kathree-Setiloane AJA concurring)

Mzansi's case on appeal

[21] Mzansi also highlighted several aspects on which it contended the Tribunal erred. In particular, it argued that there was no evidence of an agreement or concerted practice relating to pricing. The communication between Aranda and Mzansi on the courtesy check list as to what documentation had to accompany the tender was neutral, as Aranda had also advised other tenderers of this. The analysis of the SBD9 form and the 'let's get it done' email was not proof of collusion as it was properly explained. Mzansi also asserted that there was neither the theory of harm applied, nor horizontality and verticality characterisation applied. There was also no rationale for the impugned conduct. Mzansi also made common cause with Aranda on the appeal issues.

The Commission's case

[22] The Commission relied for its case on the bid prices because Mzansi added a consistent 7,25% price mark-up on the price that Aranda gave it. It also relied on Aranda's close historical relationship with Mzansi and Africhoice, the latter company belonging to Ms Paruk's father-in-law. Aranda had a previous...