Reinforcing Mesh Solutions (Pty) Ltd v Competition Commission

• Jurisdiction: South Africa
• Judge: Ndita AJA and Davis JP and Dambuza JA
• Judgment Date: 05 December 2013
• Docket Number: 119/120/CAC/May2012)
• Court: Competition Appeal Court
• Hearing Date: 15 November 2013
• Citation: 2014 JDR 1706 (CAC)

ORDER

On appeal from: Competition Tribunal

1.

The first appellant's appeal is dismissed with costs.

2.

The second appellant's appeal is dismissed with costs.

3.

The cross- appeal is dismissed with costs.

Judgment:

Ndita, AJA

Introduction

[1]

This judgment concerns two appeals and a cross-appeal against orders of the Competition Tribunal for the contravention of s 4(1)(b)(i) and 4(1)(b)(ii) of the Competition Act No.89 of 1998 ("the Act"). On 01 May 2012, the Competition Tribunal found the first and second appellant guilty of involvement in a cartel of wire mesh producers during a period which lasted from 2001 to 2008. It imposed an administrative penalty in the amount of R5,600 000.00

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on the first appellant and R21,600 000,00 on the second appellant. The basis on which the penalty amounts were calculated is the subject of the present appeal and will be dealt with later in this judgment. In the cross-appeal, the Competition Commission appeals against the administrative penalties imposed against the appellants as well as the first and fourth respondents in the cross-appeal.

[2]

The first appellant Vulcania Reinforcing (Pty) Ltd ("Vulcania") is a private company duly incorporated in accordance with the company laws of the Republic of South Africa and has its principal place of business at 19 Molecule Road, Vulcania Extension 2, Brakpan. Vulcania is the manufacturer of brick mesh and reinforcing mesh, galvanised wire, hard drawn wire, nails and wall tiles. The second appellant, Reinforcing Mesh Solutions ("RMS") is also a company with its place of business at 30 North Reef Road, Elandsfontein, Germiston. RMS was established in 2002 as a division of Capital Steele (Pty) Ltd. RMS manufactures reinforcing mesh and the cutting, bending and installation of reinforcing bars. The appellants are the second and fourth respondents, respectively, in the cross-appeal by the Competition Commission.

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[3]

The first respondent in the cross-appeal is Aveng (Africa) Ltd t/a Steeledale. Steeledale comprises of six business units namely, Steeledale Mesh, Steeledale Reinforcing Gauteng, Steeledale Reinforcing KZN, Steeledale Reinforcing Freestate, Steeledale Reinforcing Cape Town and Imsteel. The first respondent is for the purpose of this judgment referred to as Steeledale. Steeledale is part of Aveng Group which consists of a number of operating divisions, including inter alia, Lennings Rail Services, Infraset, Duraset and Grinaker LTA, a construction and engineering business that is regarded as an in-house customer of Steeledale's construction products. The fourth respondent in the cross-appeal, BRC Mesh Reinforcing (Pty) Ltd ("BRC") is a subsidiary of Murray and Roberts Steele Group. It manufactures and sells reinforcing mesh to the construction industry in South Africa. The Murray and Roberts construction group's other subsidiaries and associated companies are Cape Town Iron and Steele Works ("CISCO"), Concor, Freyssinet, Posten and Toll Road Concessionaries ("TOLCON").

[4]

The appellants and the respondents in the cross-appeal manufacture and supply reinforcing mesh products, including welded mesh to the construction industry.

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[5]

It must be emphasised from the outset that Steeledale admitted being involved in anti-competitive behaviour of wire mesh products and rebar (reinforcing bar). Pursuant to the admission, a penalty (in terms of a settlement agreement with the commission) in the amount of R128 904 640, representing 8% of Steeledale's (Aveng was trading as Steeledale) turnover for the 2008 financial year was imposed. BRC was granted conditional leniency by the Commission in terms of its corporate leniency policy ("CLP") published in Government Gazette no. 31064 of 23 May 2008.

Factual Background

[6]

The Competition Commission, after investigating the prohibited anti-competitive behaviour against the appellants and the respondents in the cross-appeal, referred to the Tribunal on 2 December 2009, a complaint against the latter. According to the Commission, the respondent's conduct constituted a contravention of sections 4(1)(b)(i) and 4(1)(b)(ii) of the Act. The sections provide as follows:

"Restrictive horizontal practices prohibited

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4 (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 ---

(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 type of goods or services."

The Commission alleged that the respondents entered into agreements with other firms in a bid to prohibit competition in the reinforced mesh products, on the following terms:

1.

price setting for reinforcing mesh products;

2.

the allocation of the market for mesh reinforcing products by agreeing not to compete for and to share only certain customers according to a list circulated to sales and marketing staff. In terms of this agreement the appellants also designated in-house customers;

3.

the level of discounts to be offered to a certain category of customers.

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[7]

The reinforcing wire mesh is a product manufactured from steel, placed in sheet formations and is mostly used to reinforce concrete slabs. Rebar (reinforcing bar) is described as a steel product manufactured in bars and is used for cement reinforcement. The production of the reinforcing mesh commences with the purchasing of coils of steel from suppliers. The coils are drawn into wire, welded at specific intervals and the end product distributed to the construction or building industry for use in the construction of residential and commercial buildings. It follows that customers were mainly construction companies as well those selling building and related products. As earlier stated, RMS and VULCANIA are manufacturers and distributors of the aforementioned products. It appears from the record that Steeledale enjoyed a presence all over the country, whilst the RMS custom was largely in the East London area. BRC operated on a national basis and Vulcania, although based in Cape Town, had influence over the Gauteng market. According to the evidence of Mr Griffin, the main role players in the production and supply of mesh were all the respondents in the cross-appeal.

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The Cartel

[8]

The record does not reveal any factual disputes with regard to the existence of a cartel in the wire mesh industry involving both appellants. RMS readily admitted its involvement in the cartel and the Tribunal therefore only had to consider the appropriate administrative penalty to impose on it. In so far as Vulcania is concerned, its role in the cartel was placed in dispute before the Tribunal. In the light of the dispute, evidence from members of the cartel was led.

[9]

Mr Michael Hartnady ("Hartnady"), the marketing manager of Steeledale Mesh, testified that the main players in the mesh market in 2000 were BRC,Allen Meshco, Hendoc Meshrite, and Vulcania. He had been involved in the South African Fabric Reinforcing Association (SAFRA) activities since joining the industry in 1975 and was elected to serve on its committee. At that time SAFRA was canvassing the mesh producers to join the association but its chairman or director had to approach and recruit new members. SAFRA held meetings which were attended by its members. During those meetings the wire mesh manufacturers would discuss and agree on a recommended price list for their products. CIFSA or SAFRA supplied its members with indices and

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calculated price increases or decreases, as the case may be. The manufacturers applied the increases suggested by the association. The price list would be distributed to members, who in turn, after effecting minor changes or adjustments, duplicated it onto their own letterheads and implemented the agreed price.

[10]

During 2005, SAFRA stopped supplying the members with a list. Regarding discount levels, Hartnady confirmed that discussions were held as to what sort of levels they should be applied to, and it would be agreed that they be adjusted in line with the market change. The members specifically agreed to apply the discount structures to their in-house companies, other construction companies and low cost housing. When SAFRA stopped supplying its members with a price list, the members called to one of its meetings Mr Costa Casa ("Costa"), who at that time was the managing director of Steeledale. Costa supplied them with a formula which enabled the competing firms to uniformly pass on input costs increases by providing a common mechanism for determining the final price. The cartel meetings according to Hartnady stopped some time in 2008 because the members, pursuant to advice from Steeledale, were afraid that the Competition Commission might uncover the collusion and or anti-

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competitive agreements. Vulcania, although not a major player, participated in some of these meetings and it is to its involvement that I now turn.

Vulcania's liability

[11]

The involvement of Vulcania in the cartel, according to a statement deposed to by its managing director, Mr Sean Greve ("Greve"), commenced in February 2006, after he was co-opted by Mr Adrian Mountford to join SAFRA. He attended the first SAFRA meeting on 7 February 2006 and thereafter several informal meetings. The thrust of the discussions at the informal meetings related to pricing levels that should be allowed to various customers as well as the fact that SAFRA members should not supply...