The recent decision of the Constitutional Court in Competition Commission of South Africa v Pickford Removals SA (Pty) Limited may have a material effect on the future prosecution of prohibited practices - including cartel behavior and abuses of dominance.
The Pickford decision relates to the interpretation of section 67(1) of the South African Competition Act as it stood before it was amended by the Competition Amendment Act, 2018. The section said:
"...a complaint in respect of a prohibited practice may not be initiated more than three years after the practice has ceased"
The main finding of the Constitutional Court was that section 67(1) of the Competition Act does not constitute a prescription provision, but a procedural time-bar provision, which in the event of non-compliance can be condoned. The effect is essentially that a prohibited practice complaint does not necessarily lapse three years after a prohibited practice has ceased.
In its finding, the Constitutional Court set aside an order of the Competition Appeal Court (CAC) and the matter was remitted to the Competition Tribunal (Tribunal) for further hearing.
A further consequence of the Constitutional Court's finding is that the Competition Commission (Commission) will be entitled to add additional parties to its investigation of a prohibited practice once more information becomes available, even if those additional parties are added outside of the three-year period from initiation of the complaint.
We will discuss the facts of the matter before the Constitutional Court, the main findings and some key take aways of the decision.
The proceedings arose following a complaint referral by the Commission to the Tribunal against a number of furniture removal firms for alleged collusive tendering in the form of cover pricing or cover quoting.
This practice entails a scenario where the customer requests quotations from firms and one of those firms then solicits from one or more of its competitors a fictitious bid, higher than its own quote, in order to win the contract. This conduct may be a contravention of sections 4(1)(b)(i) and (iii) of the Competition Act.
The Commission had initiated two complaints, the first one on 3 November 2010 (the 2010 initiation) and the second one on 1 June 2011 (the 2011 initiation). Pickfords (the respondent in the Constitutional Court decision) was not identified in the 2010 initiation, but was only identified in the 2011 initiation, in which it was accused of engaging in 37 separate instances of prohibited practices.
Pickfords contended that 14 of these alleged incidents occurred more than three years prior to the 2011 initiation, and that six were insufficiently pleaded. In this regard, Pickfords relied on section 67(1) of the Competition Act and alleged that it was the 2011 initiation, rather than the 2010 initiation, that was the "trigger event" for the commencement of the three-year period referred to in section 67(1).
The Tribunal found that the 2011 initiation was not an amendment of the 2010 initiation, but was a self-standing initiation. In other words, the 2011 initiation was the trigger event. It further dismissed the argument advanced by the Commission that a "knowledge requirement" similar to that found in section 12(3) of the Prescription Act should be read into section 67(1) of the Competition Act.
The Tribunal further held that it could not invoke its powers of condonation under section 58(1)(c)(ii) of the Competition Act as this power does not apply to section 67(1) of the Competition Act.
The CAC overruled the finding of the Tribunal regarding the correct date of the "trigger event". It held, based on the facts and the language employed in the 2010 and 2011 initiation statements, read with the provisions of the Competition Act, that the 2011 initiation was merely an amendment of the 2010 initiation. Nonetheless, despite this finding, the CAC held that Pickfords only became a named party when the second complaint initiation occurred.
In regard to section 67(1) of the Competition Act, the CAC held that the section's purpose is to bar investigations into prohibited practices that have ceased an appreciable time ago "and thus no longer endanger the public weal". In conclusion, the CAC held that the language employed in section 67(1) of the Competition Act does not lend itself to condonation and that the time-bar in that section is absolute.
The Commission appealed the finding to the Constitutional Court.
Constitutional Court finding
The Constitutional Court held that the 2010 initiation was the correct trigger date and that the 2011 initiation was merely an amendment of the 2010 initiation. It also held that, having proper regard to the provisions of the Competition Act and the language of all the initiation statements as well as the facts underlying the matter, it was evident that the date from which the three-year period for purposes of section 67(1) must be calculated is the date of first initiation - the 2010 initiation.
The Court further held that, if section 67(1) is interpreted as an absolute time-bar in the form of a prescription provision, this would clearly subvert access to the Tribunal, the CAC and other courts and undermine the purpose of the Competition Act. The preferred interpretation was that section 67(1) was a procedural time-bar, which is more constitutionally compliant, purposive and meets the rationality test.
Finally, the Court concluded that the Tribunal enjoyed the power in terms of section 58(1)(c)(ii) of the Competition Act to condone non-compliance with section 67(1).
The finding of the Constitutional Court is welcome news for the South African competition authorities. However, an important question that remains is whether the Constitutional Court's decision will apply to the amended section 67(1).
Whilst the old section 67(1) reads "a complaint in respect of a prohibited practice may not be initiated more than three years after the practice has ceased", the amended section 67(1) leans much closer to an absolute time bar - it reads "[a] complaint in respect of a prohibited practice that ceased more than three years before the complaint was initiated may not be referred to the Competition Tribunal".
However, when considering the Constitutional Court's reasons for finding that section 67(1) constitutes a procedural time bar worthy of condonation, it is clear that the Constitutional Court had little regard to the wording of section 67(1). Its reasons extended rather to the purpose and objective of the Competition Act, and an interpretation that better promotes the spirit, purport and objects of the Bill of Rights. In light of this, the Constitutional Court's decision will likely apply to the amended section 67(1), and would have done so regardless of how section 67(1) was amended. However, if required, the amended section 67(1) could always be challenged.
Therefore, following the Pickford decision, there is at least some additional deterrent to firms participating in prohibited practices, knowing that there may be no time limitation on the Commission to initiate a complaint against such conduct, particularly in the case of secretive cartel conduct.
Originally published July 14, 2020.
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