Tourvest Holdings (Pty) Ltd v Competition Comission and Another

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Denise Fisher AJA and M Victor AJP and L Nuku AJ
• Judgment Date: 30 June 2022
• Docket Number: 195/CAC/Oct21
• Hearing Date: 29 April 2022
• Court: Competition Appeal Court
• Citation: 2022 JDR 1872 (CAC)

Fisher AJA:

Introduction:

[1]

This matter involves a referral by the Commission of a complaint by Airports Company of South Africa (SOC) Ltd ("ACSA'') alleging collusion between a supplier of curio crafts, the second respondent (''the Trust'') and the appellant, (''Tourvest'') a specialist retailor in the sale of such craft products, in a tendering for a retail opportunity at Oliver Tambo International Airport (''ORTIA'').

[2]

The appeal relates to the proper application of economic theory and competition law in the characterisation exercise to be undertaken under section 4(1)(b) of the Competition Act 89 of 1998 ('the Act''). It relates, specifically, to the situation where parties who were not previously in a horizontal relationship bid for the same tender.

Factual background:

[3]

Tourvest's destination retail business (which is also known as Tiger's Eye) focusses on the sale of destination-themed souvenir products to foreign visitors. Its stores are located in areas which have a large exposure to foreign tourists and mainly at the international departures airside areas in international airports.

[4]

Mr Eric de Jager, the Chief Operations Officer of Tourvest explained in his evidence before the Tribunal that the ability to tender competitively for such retail concessions requires considerable resources as well as specialist skills and experience. Access is difficult and logistics are challenging. In order to ensure consistent stock replenishment, it is necessary to have strong logistical infrastructures, good computer systems and the operational capability to trade 365 days per year and up to 17 hours per day.

2022 JDR 1872 p3

Fisher AJA

[5]

The Trust was founded in 1987 with the purpose of providing assistance to women in rural areas through upliftment and training projects. Ms Jane Zimmermann, its Executive Director, stated that its principal objective is to facilitate the economic viability of rural communities by promoting sustainable enterprise development support to rural crafters. This has placed the Trust in the position of ''middleman'' in the supply of crafts generated by these communities to retailers.

[6]

On 17 February 2013 ACSA published a request for bids (''RFB'') for the leasing of retail space described as Opportunities 1, 2 and 3. Opportunity 3 (which is the relevant tender in this case) concerned three stores, in which Tourvest was then the incumbent, conducted African arts, crafts and curio retail businesses under the names Out of Africa Impulse, Indaba Origins and Out of Africa Kiosk.

[7]

The RFB provided that bidders had to bid for each of these opportunities separately and that no single bidder could be awarded more than two of the three opportunities. This was a change in policy from previous tenders and was apparently driven by the need for enterprise development of smaller craft retailers.

[8]

However, ACSA, at the same time, stipulated onerous minimum financial requirements for all the opportunities including Opportunity 3. For example, ACSA required a minimum guaranteed rental of R450 000 per month and a bank guarantee of three months' rental. Furthermore, in order to ensure that bidders had the minimum level of experience and qualifications required to operate the various opportunities, no bid would be considered unless it met certain specified mandatory administrative requirements.

[9]

One such requirement was that the bidder have "sufficient experience and/or qualifications to effectively exploit the Retail Opportunity to the mutual advantage of the Bidder and ACSA in a manner consistent with the standards set by ACSA". 'Sufficient experience' was defined as ' the successful management of at least one

2022 JDR 1872 p4

Fisher AJA

retail store with minimum monthly sales of R500 000.00 or R6 million per annum in any two of the last three years.''

[10]

In addition, bids would be disqualified from consideration if they failed to meet two antecedent requirements, viz. that the bidder (i) purchased the relevant bid document from ACSA and (ii) attended a bid presentation by ACSA.

[11]

The Trust neither bought the bid documents nor attended the bid presentation. Tourvest did both.

[12]

At the bid presentation, Tourvest asked ACSA whether it would be permissible for a bidder to be part of more than one consortium. In ACSA's minute of the presentation the answer to this question was recorded as follows:

'Yes, you are allowed as long as you will declare this involvement to ACSA as required in the RFB form (VI)(12).'

[13]

David Brenner, the CEO of Tiger's Eye at the time and Mr de Jager thus gave consideration to a structure in terms of which the Trust could participate as a bidder for Opportunity 3 based on the support and experience of Tourvest. It was reasoned that this would give Tourvest a stake in the enterprise development aspect of the Tender and that the Trust would benefit from the acquisition of retail skills over time.

[14]

The Trust and Tourvest, to this end, entered into an agreement in terms of which they would collaborate on the bid for Opportunity 3. In terms of this agreement, Tourvest would provide the necessary experience, management infrastructure, technology and training required to enable the Trust to bid for the opportunity.

[15]

Tourvest decided that it would be prudent to submit an alternative bid to that of the Trust in its own name. Mr De Jager explained that Tourvest was concerned that ACSA might decide that the Trust's bid did not meet the mandatory criteria and if the Trust were disqualified, Tourvest wanted to still be in the running in its own right.

2022 JDR 1872 p5

Fisher AJA

[16]

Mr de Jager and Ms Zimmerman testified that the object of providing bids by Tourvest and the Trust was to offer ACSA a choice. It could either award the bid to a rural craft enterprise development initiative in the form of the Trust (with initial management, support, qualifications and experience to be provided to the Trust by Tourvest) or to a well-established retailer with a proven track record at ORTIA, being Tourvest.

[17]

The Trust was assisted by Tourvest in the compiling of its bid and specifically the calculation of the rental proposed.

[18]

A Memorandum of Understanding ("MoU") which detailed how the collaboration would be orchestrated was concluded. The MoU was submitted as part of the bid documents. In terms of this agreement, all aspects of managing the Opportunity 3 stores would, initially, be conducted by Tourvest. However, Tourvest would provide skills transfer and capacity to the Trust and, once the Trust had developed the necessary expertise to operate the stores on its own, the managerial responsibility would be assumed by the Trust. It was expected that this hand-over would take place in the third year of the business. Tourvest would receive a management fee equivalent to 7.5% of the turnover of the Opportunity 3 business for all aspects of managing the business, including product range planning, pricing strategy, retail operations and warehousing and distribution.

[19]

Clause 16 of MOU reads as follows:

'16. The parties hereby note that they are aware of and agreed to the following aspects of the proposed tender for opportunity 3:

16.1 Tourvest is tendering for the same opportunity in its own right as the 100% shareholder.

16.2 The rental proposal for the tender proposed in this agreement shall be the same as that offered by the Tourvest tender referred to in 16.1 above."

2022 JDR 1872 p6

Fisher AJA

[20]

Thus, it was stated in the MOU in clear terms that Tourvest would be submitting a separate bid for Opportunity 3 in its own name and that the rental proposed in the Trust's bid would be the same as that in Tourvest's bid.

[21]

Mr de Jager explained that the rental offering was the same in both bids because Opportunity 3 would, in both instances, be managed by Tourvest for the first approximately three years of the tender. Tourvest therefore assumed, for purposes of determining the rental, that the performance of the businesses would be the same, irrespective of whether it or the Trust won the tender.

[22]

Furthermore, the Trust did not have the capacity to calculate the rental figures for its bid. Ms Zimmermann stated:

"We have never run a shop, let alone a store the magnitude of any of Tiger's Eye shops at OR Tambo or any other destination. We have no skills within our staff to even contemplate what putting the finances together for such a bid would comprise. We simply did not have the wherewithal to either question it or put it together."

[23]

As it turned out, at the opening of the bids and before any evaluation of the merits thereof, the Trust's bid was eliminated by the Bid Evaluation Committee (BEC) on the grounds the Trust had not, itself, purchased the requisite bid documents or attended the compulsory briefing session.

[24]

As a result, the BEC did not proceed even to consider whether the Trust's bid had complied with any of the mandatory administrative criteria for qualification let alone evaluate the Trust's bid for functionality or price.

[25]

ACSA's Bid Evaluation Report reveals, however, that, notwithstanding the upfront elimination of the Trust's bid, the BEC proceeded to compare the contents of the Trust and Tourvest's bids and noted that there were similarities between the bids in most, if not all, material respects.

2022 JDR 1872 p7

Fisher AJA

[26]

After further inquiry, ACSA decided to disqualify all of Tourvest's bids on the grounds that Tourvest had allegedly colluded with the Trust in respect of Opportunity 3 .

[27]

This was notwithstanding the clear disclosure by the Trust and Tourvest in their tender documents that they were collaborating on the Trust's Bid and the details of their collaboration.

[28]

Significantly, it was later acknowledged in...