Paramount Mills (Pty) Limited v The Competition Commission

• Jurisdiction: South Africa
• Judge: Davis JP, Dambuza JA and Zondi JA
• Judgment Date: 27 July 2012
• Docket Number: 15/CR/MAR10
• Court: Competition Appeal Court
• Hearing Date: 09 March 2012
• Citation: 2012 JDR 1329 (CAC)

Zondi, JA:

INTRODUCTION

[1]

The appellant ("Paramount") brought an application before the Competition Tribunal ("the Tribunal") seeking the dismissal of the referral of a complaint by the Competition Commission ("the Commission") against it. In the complaint referral, in which Paramount is the fourteenth respondent, the Commission alleged that the respondents violated section 4 (1) (b) (i) [1] of the Competition Act 89 of 1998 ("the Act").

2012 JDR 1329 p2

Zondi, JA

[2]

Paramount sought the dismissal of the complaint referral on two separate and independent grounds, namely that the claims are time-barred and that they are not legally competent and thus do not reveal a case for Paramount to answer before the Tribunal. The Tribunal dismissed the application. The appeal is against the Tribunal's orders.

Factual Background

[3]

It is common cause that, during December 2006, the Commission received information of a possible bread cartel operating in the Western Cape. Acting on the basis of the information that the Commission received and following a preliminary investigation, the Competition Commissioner on 14 March 2007, proceeded in terms of section 49 B (1) of the Act and initiated a complaint against Premier Foods, Tiger Foods and Pioneer Foods, all of whom had been allegedly involved in the said bread cartel. A formal complaint was also lodged by one of the bread distributors in the Western Cape against all three firms and the Commission thereafter embarked on its investigation.

[4]

During the early stages of the Commission's investigation, Premier Foods approached the Commission and indicated that it was willing to co-operate with the Commission and to confess its role in the bread cartel, in return for immunity from prosecution. Premier Foods fully co-operated with the Commission, as a result of which, it was granted conditional immunity from prosecution on 14 February 2007, in respect of its participation in the bread cartel in the Western Cape. On 16 March 2007, it was also granted conditional immunity from prosecution for its participation in the national bread cartel, the wheat and maize milling cartels.

2012 JDR 1329 p3

Zondi, JA

[5]

Acting on the basis of the co-operation given to the Commission by Premier Foods, and following its own investigation, the Commission on 14 February 2007, proceeded to refer the complaint against the alleged remaining members of the bread cartel, namely Tiger Brands and Pioneer Foods, to the Tribunal.

[6]

Tiger Brands and Pioneer Foods filed their answering affidavits to the complaint referral on 14 March 2007. Pioneer Foods denied that it operated a bread cartel and indicated that it would oppose the matter before the Tribunal.

[7]

Tiger Brands on the other hand, indicated, in its answering affidavit, that it was willing to co-operate with the Commission and offered to disclose the extent of its involvement and participation in the alleged cartel activities.

[8]

Tiger Brands' co-operation with the Commission culminated in the conclusion of the consent agreement between the Commission and Tiger Brands on 9 November 2007. Insofar as the operation of the cartel in the maize milling sector was concerned, Tiger Brands also applied for, and was granted conditional immunity from prosecution in terms of the Commission's Corporate Leniency Policy.

[9]

As regards the price implementation process, the Commission's investigation revealed that securing price increases through unilateral conduct is fraught with uncertainty and risk. To be a first mover in increasing prices allows rivals to maintain price differentials and thereby gain market share at the expense of the first mover.

[10]

The Commission's investigation also revealed that, since the industry had a long history of co-operation, a salient answer to the problem of market attrition was

2012 JDR 1329 p4

Zondi, JA

an agreement between competitors as to price increases and their timing. The Commission's investigation further revealed, that there was a well understood relationship that existed between the respondent firms, manifested in periods of co-operation that occasionally break down and usher in periods of price competition which then give rise to renewed agreements to avoid the commercial attrition of unbridled rivalry.

[11]

In setting out the scene in which the cartel's modus operandi operated, the Commission points out that the South African milled white maize market may be divided into regions by reason of the manner in which firms operating in this market organise their business activities. Amongst these regions are the KwaZulu-Natal, Western Cape, Eastern Cape, Northern Gauteng (comprising the North of Johannesburg and Pretoria), Gauteng Region (comprising Johannesburg and surroundings), Mpumalanga, Limpopo, Free State and Northern Cape.

[12]

According to the Commission, meetings took place at a national and regional level. For various reasons, the agreements which were concluded at these meetings operated at a national level. First, all the meetings, whether held at a national level or regional level, occurred in a national market and hence the agreements concluded are agreements within this market. Second, the agreements concluded at these meetings were used to secure co-ordination at both a regional and national level. Third, meetings took place at a national as well as at a regional level, and these were mutually reinforcing. The agreements that were concluded at a national level were then conveyed through to a regional level, particularly through those firms that had a national presence and this informed the regional agreements. This was also reinforced through the designated chairpersons of each of the regions, some of

2012 JDR 1329 p5

Zondi, JA

which chairpersonships were fixed and others rotated.

[13]

The Commission points out that, even though these agreements were struck over a period of time (1999 to at least January 2007) and took place in different regions, they all formed part of a continuing course of conduct. In other words, they were simply part of a set of arrangements and understandings by the respondents, who chose to determine key aspects of their conduct by reference to agreement rather than competition. Put differently, the regional agreements were not discrete agreements with different adherents but were part of the execution of a national, continuing agreement with the same participants, the same procedures and the same common object, namely to establish a mechanism for fixing prices and other trading conditions over a period of several years.

[14]

The Commission says the respondents were able to meet from time to time in respect of price, not on the basis that each regional agreement was entirely independently from every other regional agreement, but rather that the respondents were in a relationship with one another in terms of which they agreed that they could, from time to time, in their respective regions, enter into agreements governing price. At these meetings, Pioneer Foods, Premier Foods and Tiger Brands were represented by their respective employees.

[15]

According to the Commission, the cartel arrangements endured until at least January 2007, although the Commission's investigation revealed that it may have continued after that date, given the pervasive nature of the conduct and the extended period of time over which it took place. The Commission points out that the respondents also communicated by telephone to discuss price fixing and other

2012 JDR 1329 p6

Zondi, JA

trading conditions.

[16]

The Commission alleges that the sole purpose of these meetings was to reach agreements in terms of which Premier Foods, Tiger Brands, Pioneer Foods, Foodcrop and Pride Milling represented as aforesaid, would eliminate competition between themselves by fixing their selling prices and other trading conditions. It contends that these agreements contravened section 4 (1) (b) (i) of the Act and had the effect of substantially preventing or lessening competition in the market.

[17]

On 2 October 2009 the Commission expanded its investigation so as to include inter alia Paramount, as its investigation relating to the first complaint revealed that Paramount and other named firms "were also players in the industry who were party to the collusion in that they attended the meetings and discussions where these agreements were reached'.

[18]

It is significant to note that the Commission alleges in the second initiation statement that Paramount and other respondents were engaged in the following conduct:

•

Fixing of prices of wheat and maize products;

•

Creating uniform prices lists for wholesalers, retail and general trade customers;

•

Agreeing not to use exact pricing in an effort to "fool customers", and

•

Agreeing the timing of price increases and implementation dates.

[19]

In the amended initiation statement filed by the Commission on 24 March 2010, the Commission alleges inter alia that Paramount together with other firms had

2012 JDR 1329 p7

Zondi, JA

during the period 1997 to 2007 held meetings and/or discussions, to discuss, inter alia the conduct referred to in the second initiation statement.

Complaint Referral

[20]

On 31 March 2010, the Commission referred a complaint to the Tribunal against the seventeenth respondents, including Paramount, alleging that the respondents operated a cartel in milled white maize meal in contravention of section 4 (1) (b) of the Act.

[21]

The gist of the Commission's complaint is that, during the period 1999, until at least January 2007, the respondents, acting through their respective representatives and/or employees, engaged in cartel activities in milled white maize in that they telephonically and in meetings, directly fixed the selling price of milled white maize products to their customers...