In a judgement released on 4 August, the Competition Appeal Court set aside the Competition Tribunal's penalties imposed on Southern Pipeline Contractors and Contrite Walls and substituted those for substantially lesser fines of R8,7 million and R2 million on Southern Pipeline and Conrite respectively.

According to Chris Charter, Director in the Competition Practice at Cliffe Dekker Hofmeyr, "The Appeal Court substituting its own penalty for those of the Tribunal (rather than referring the matter back to the Tribunal for redetermination) was somewhat unprecedented.

"The Tribunal fined Southern Pipeline Contractors over R16 million rand (10% of its total annual turnover) for price fixing, market division and bid rigging in the concrete pipe and culvert market; and Conrite Walls, which was fined over R6 million (8% of total annual turnover) for its part in a cartel involving the supply of concrete manhole rims. As a percentage of total annual turnover, these fines were among the largest levied by the Tribunal, with Pipeline Contractors in particular the first firm to face the statutory maximum penalty of 10% of total turnover."

Charter says although both firms admitted their part in the cartels, they contested the level of penalty sought by the Commission and following the Tribunal's decisions, appealed to the Competition Appeal Court.

"At first glance, this seems to be a blow to the Commission and a victory for the appellants, and certainly the reduction in fines seems to confirm this. However, closer scrutiny of the Appeal Court's decision reveals that the Court has in fact not altogether watered down the Tribunal's capacity to impose fines, but may have increased its scope in certain cases. However, the decision still leaves a lot to be desired insofar as giving clear guidance as to how to calculate a penalty," explains Charter.

"At the risk of oversimplifying a complex decision based on a number of specific facts, the Appeal Court effectively established two important principles: The first is that in coming to a decision on the level of a fine, the Tribunal must take into account a number of factors expressly laid out in the Competition Act. These factors include complex economic inquiries into the level of profits derived from the conduct and the loss to consumers - the presence of which are typically assumed but very difficult to quantify.

"In the cases in question, the Tribunal did not make the necessary enquiries and therefore came to a conclusion that was not justified and failed to take into account mitigating factors on the one hand, and assumed the presence of aggravating factors on the other. This implies that not all cartels are created equal - and those that can be shown to have given little benefit to cartel members may be subject to lesser penalties at the end of the day," he notes.

Charter explains that the second principle laid down by the Court was that the listed factors should be applied to a base-line turnover determined with reference to the turnover derived from sales affected by the cartel conduct - referred to as "affected turnover". "This serves to partly resolve the ongoing debate at the Tribunal as to whether it should look to total turnover or only affected turnover when
calculating the penalty. Based on the approach in the European Union, the Appeal Court suggested that affected turnover should be determined with reference to the last full financial year in which the conduct was ongoing.  "However, Charter points out that this baseline figure "could be increased to take into account the duration of the cartel and that a percentage could be applied to calculate a fine well in excess of 10% of affected turnover, provided only that the final figure was not more than 10% of total annual turnover."

He adds, "Those same lawyers and the Tribunal will also be left to ponder how best to get to the bottom of how to calculate the level of profits derived, and harm suffered by consumers. This will involve complex economic analysis and add to the length and expense of hearings."

For more information

Chris Charter
T +27 (0)11 562 1053 (direct)

T +27 (0)11 562 1000 (switchboard)

F +27 (0)11 562 1653M +27 (0)83 789 2215

E chris.charter@dlacdh.com

Cliffe Dekker Hofmeyr is a member of DLA Piper Group, An alliance of legal practices