Introduction

On 18 December 2013 the Constitutional Court (“CC”) handed down its decision in Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50, which dealt with the scope and proper exercise of the Competition Appeal Court (“CAC”) and Competition Tribunal’s (“Tribunal”) powers to award costs against the Competition Commission (“Commission”) when it litigates in terms of its mandate under the Competition Act 89 of 1998 (“Act”).  The CC held that in respect of Tribunal proceedings, neither the CAC nor the Tribunal is empowered to award costs against the Commission.  In respect of appeal proceedings before the CAC, the CC held that the CAC is empowered to order costs against the Commission, however the ordinary course where costs follow the result is not applicable.  Instead, the CAC should be guided in its exercise of discretion to award costs by the principle that “when the Commission is litigating in the course of fulfilling its statutory duties, it is undesirable for it to be inhibited by the bona fide fulfillment of its mandate by the threat of an adverse costs award.”1  Depending on the facts of the case, where the Commission acts unreasonably, frivolously or vexatiously in pursuit of a particular stance, the CAC may exercise its discretion to award costs against the Commission.

Case background

The Commission investigated and subsequently prohibited a proposed intermediate merger between Pioneer Hi-Bred International Inc2 and Pannar Seed (Pty) Ltd (the “merging parties”).  The Tribunal, having been requested by the merging parties to reconsider the Commission’s decision, reached the same conclusion.  The merging parties appealed to the CAC which upheld the appeal and ordered the Commission to pay the costs of the merging parties in both the CAC proceedings as well as the Tribunal proceedings.  The Commission was denied leave to appeal the entire judgment and order to the Supreme Court of Appeal, but was granted leave to appeal to the CC against the costs order only.3

The CC limits the scope of the CAC’s power to award costs against the Commission

Section 57(1) of the Act creates a general “own costs” rule for Tribunal proceedings, requiring each party to bear its own costs.  This rule is subject to an exception set out in section 57(2), which the CC interpreted as contemplating costs in proceedings in which the Commission is not involved.  Rule 58 of the Tribunal’s Rules of Procedure, which frames the possibility of a costs award rather broadly, does not expand the Tribunal’s powers, the CC held, as it must be read in light of and limited to the scope of the Tribunal’s powers set out under the Act.  Accordingly the Tribunal is not empowered to award costs against the Commission, and the “own costs” rule applies.

Consequently, although section 61(2) of the Act empowers the CAC to award costs, it would, amongst other things, “defeat the purpose of the limitation on the Tribunal’s powers to award costs to read section 61(2) as empowering the CAC to do what the Tribunal may not do”.4  The power to award costs under section 61(2) of the Act is therefore limited to the appeal proceedings in the CAC only.  Accordingly, the CAC’s cost award in respect of the Tribunal proceedings was set aside.

The CC considered the CAC’s power to award costs in its own proceedings, and held that the CAC’s power is qualified by “the requirements of the law and fairness.”5  Having regard to the context of the Act and the specific functions of the competition authorities, the ordinary course where ‘costs follow the result’ should not apply.  Instead, the CC held that the “principle that should inform the CAC’s exercise of discretion is that, when the Commission is litigating in the course of fulfilling its statutory duties, it is undesirable for it to be inhibited in the bona fide fulfillment of its mandate by the threat of an adverse costs award.”6  In reaching this finding, the CC considered that the Commission is not an ordinary civil litigant – the Commission’s participation in CAC proceedings, which is not obligatory when a private party initiates the appeal, is (i) important to the defence of the public-interest aims under the Act; and (ii) assists the CAC by allowing it to gain a balanced perspective.

Where the Commission acts unreasonably, frivolously or vexatiously in pursuit of a particular stance, however, the facts of that particular case may justify the CAC exercising its discretion to order costs against the Commission.7  However, the Commission’s vigorous defence of its position does not constitute a ground for a costs order against it, as it is desirable for the Commission to pursue its mandate under the Act with vigour.

In the present case the CAC gave no reasons for the costs order against the Commission and so the CC concluded that “[n]othing in the judgment indicates mala fides, irregularity or unreasonable conduct by the Commission.  In this light . . . the inference is inescapable that there was no judicial exercise of the CAC’s discretion.”8  The CC accordingly upheld the Commission’s appeal and set aside the cost award in respect of the CAC proceedings.

Comment

Clarifying the CAC’s power to award costs against the Commission, this judgment affirms that the ordinary course of costs following the result is not applicable in respect of the Commission, and that costs should not lightly be awarded against the Commission.  In Tribunal proceedings, to which the Commission is a party, parties must bear their own costs and the judgment leaves no room to argue otherwise.  In appeal proceedings before the CAC, costs can be awarded against the Commission,  however one would need to show that the Commission acted unreasonably, frivolously or vexatiously in order to succeed.  Thus parties seeking to have a merger approved, conditions to a merger amended, or who are litigating in defence of a prohibited practice, cannot recover costs from the Commission in the Tribunal, and are similarly unlikely to recover costs in the event of a successful appeal to the CAC.

Written by Jean Meijer, Claire Avidon and Alex Thomson, Bowman Gilfillan

Notes:

1 Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50 (18 December 2013) at para 28.
2 Bowman Gilfillan acted for Pioneer Hi-Bred International Inc.
3 The CAC granted the Commission leave to appeal to the CC in Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACAC 1.  The merging parties filed notices to abide the CC’s decision.
4 Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50 (18 December 2013) at para 43.
5 Section 61(2) of the Act.
6 Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50 (18 December 2013) at para 24.
7 Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50 (18 December 2013) at para 28.
8 Competition Commission v Pioneer Hi-Bred International Inc and Others [2013] ZACC 50 (18 December 2013) at para 46.