Power Construction (West Cape) (Pty) Ltd v The Competition Commission of South Africa
| Jurisdiction | South Africa |
| Judge | Davis JP and Vally AJA and Makgoba AJA |
| Judgment Date | 02 May 2017 |
| Docket Number | 145/CAC/Sep16 |
| Court | Competition Appeal Court |
| Hearing Date | 02 May 2017 |
| Citation | 2017 JDR 0833 (CAC) |
Davis JP:
Introduction
This is an appeal against an order of the Competition Tribunal ("Tribunal") of 25 August 2016 in which the Tribunal dismissed a series of in limine objections raised by the appellants. The background to this appeal requires an examination of the material facts which underpin the substantive issues between the parties.
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The factual matrix
During April 2006 SANRAL called for bids in an open tender for the periodic maintenance of National Route N1 Section 4 from Touws River to Laingsburg.
Following a site inspection, Mr Kevin Konkol of Haw and Inglis (Pty) Ltd ("H & I") considered H & I, Group Five Limited and first appellant to be the only possible bidders as these firms met the required grading in terms of the Construction Industry Development Board Register. While preparing the bid, Konkol was informed by suppliers of certain input materials that they had not been approached by any other firms for quotations relating to the N1 contract. He was concerned that H & I would be the only viable bidder for the N1 contract and SANRAL would then cancel the tender.
He contacted Mr John Beddingham, who at the time was employed as a Chief Estimator with the first appellant, to request that it submit a cover price for the N1 contract. Beddingham agreed to this arrangement and Konkol indicated that the cover price should be priced at above R 99 000 000,00. He also provided a Bill of Quantities document to assist Beddingham in compiling a bid.
On 5 May 2006 first appellant bid a price of R 99 980 000,00 for the contract while H & I bid R 98 500 000,00. Group Five also submitted a bid of which the first appellant and H & I were not aware. On 28 July 2006 H & I was awarded the contract. It completed the project on 23 January 2008 and the final payment to it was made on 17 February 2009.
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On 30 June 2007 the first appellant sold its business to Power Construction (Pty) Ltd, the second appellant, as a going concern, the sale of which formed part of an internal corporate restructuring.
On 1 September 2009 the respondent, initiated a complaint against several identified firms in the construction industry as well as "other firms, including joint ventures in the construction industry" for allegedly engaging in prohibited practices, including collusive tendering in the form of cover pricing. Neither of the appellants was identified in the complaint.
Following upon this complaint, the respondent conducted an investigation, in the course of which it received information of widespread, pervasive anti-competitive conduct in the industry. The conduct consisted of "entrenched and ubiquitous co-operation" resulting in "bid rigging" or "collusive tendering", which mostly took the form of cover pricing. The firms that engaged in this conduct tendered for bids but colluded with each other to ensure that the successful bidder paid a price which was unaffected by competition .. Essentially, two or more firms would collude by ensuring that only one of them would be the true bidder. The true bidder would make a comprehensive and detailed bid. To ensure that this bid was successful one or more of the other firms who were not really interested in being successful would place (a) bid(s) that would be priced much higher than the one placed by the true bidder. This would assist that the true bidder to be successful in securing the contract at the price stated in its bid. The true bidder would reveal the price, also referred to as
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Davis JP
the "cover price", and other confidential information about its bid to the other firm(s). The other firm(s) would then place its/their bid(s) at a price which was much higher than the cover price. Manifestly this practice was in contravention, of s 4 of the Competition Act 89 of 1998 ('the Act').
On 1 February 2011 respondent published an Invitation to Firms in the Construction Industry to Engage in Settlement of Contraventions of the . The second appellant, acting through its chairman Mr Graham Power, responded to this initiative by way of a letter addressed to the respondent. The response was meant, and understood, to be from both appellants. This is understandable, as by this stage, the first appellant had become a wholly-owned subsidiary of the second appellant. In fact, in all dealings between the appellants and the respondent the parties approached the matter in a way that accepted that the second appellant spoke for and on behalf of the first appellant. For this reason, this judgment will refer to both appellants when considering or dealing with correspondence sent or received by the second appellant to the respondent.
In his letter Mr Power said the following:
Our experience of the industry
It has been our experience that the construction industry is certainly not a "clean" industry and that anti-competitive behaviour does occur. Anti-competitive behaviour takes many forms and we have come across the following in our years in the industry:
2.1.1
bid-rigging (which took various forms, but usually entailed an agreement between two or more firms as to which one should win the tender):
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2.1.2
collusive tendering (mostly in the form of the provision of a cover price/cover bid by one firm in agreement with another)."
The letter listed five contracts in which the first appellant was involved where it engaged in anti-competitive conduct. All five contracts were completed between the period 2002 and 2004 and therefore fell outside the scope of the complaint and the investigation. Mr Power concluded the letter with the following statement:
"In conclusion, we wish to state that we are pleased that the Competition Commission is focusing on the construction industry and providing the opportunity for the serious matter of anti-competitive behaviour in our industry to be brought in the light. Whilst it is indeed a sad day for the construction industry, we believe that it is a very necessary process, given the need for our country to rule (sic) out corruption in all spheres. It is our hope that our industry will serve as an example of clean and ethical practices in South Africa in future.
Please be assured of our full co-operation and support for the tremendous work being done by the Competition Commission. Should you require any further information, please do not hesitate to contact us."
Notwithstanding these two paragraphs, the appellants informed the respondent that the information supplied was not an application for settlement, as they viewed the matter as having been prescribed. Appellants adopted the attitude that, out of courtesy they were merely informing the respondent of the transgressions.
On 15 April 2011 the appellants provided information with regard to the N1 contract. The information was furnished in a letter to which the FTP1 form, which spelt out the details of the N1 contract, was annexed. A relevant part of the letter reads:
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"We have found one contract which we are not certain whether we should have submitted with our submission (i.e. of 31 March 2011), as a competitive tender was submitted and no benefit discussed or received."
It is clear from the contents of this letter that the appellants pleaded ignorance as to whether the conduct of the first appellant was unlawful.
On 23 November 2011 the respondent wrote to the appellants informing them that its (the respondent's) investigation revealed details of unlawful conduct regarding the N1 contract for which they were to be held accountable. The contents and import of this letter is dealt with later in the judgment. For the moment it bears recording that the letter invited the appellants to engage in...
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