The Supreme Court of Appeal (“SCA”) recently handed down its judgement relating to the action for damages instituted by a number of parties who regard themselves as having been injured by the cartel activity of Premier Foods (Pty) Ltd (“Premier”), Tiger Food Brands (Pty) Ltd (“Tiger”), Foodcorp (Pty) Ltd (“Foodcorp”) and Pioneer Foods (Pty) Ltd (“Pioneer”), in the so-called “bread cartel”.

INTRODUCTION

The specific appeal to the SCA concerned an order granted by the Competition Tribunal (“Tribunal”) declaring the conduct of Premier to be a prohibited practice under the Competition Act. Premier argued that the Tribunal did not have the power to make such a declaration, because Premier was never included in the complaint referred to the Tribunal by the Competition Commission (“Commission”). The SCA agreed with Premier. This has caused quite a furore in competition circles, and with good reason.

THE SCA JUDGMENT

As a result of the SCA’s judgement, Premier, who had confessed to being a member of the bread cartel and who had testified as much during the hearing of the case before the Tribunal, walks away scot-free. Firstly, because it had been granted immunity from prosecution and an administrative penalty under the Commission’s corporate leniency policy (“CLP”) , and secondly, because, following the SCA’s judgement, damages cannot be claimed against it by persons who had suffered losses due to its collusive conduct.

Both the Competition Act and the CLP provide that damages may be claimed from the culprits, self-confessed or not. This is in line with the purpose of the Competition Act, which includes, amongst others, that damages caused by collusive activity must be made good by all the perpetrators.

In practice, to date several Certificates of Decision (or “damages certificates”), which enable claimants to institute damages claims against cartelists, have been issued by the Tribunal in respect of admitted collusive conduct, rather than litigated cases –  notably in the well-publicised construction cartel that was recently mostly finalised pursuant to settlements.

The SCA judgement may, however, result in those certificates now being nullified. This is perhaps the most disconcerting implication of the SCA’s judgement for damages claimants against cartelists, as this judgement is perhaps an effective defence for firms who settled with the Commission.

Such damages certificates are now potentially at risk due to a missing jurisdictional step.  Any colluders sued on the basis of these damages certificates may simply put forward the reasoning of the SCA – “the Tribunal is only empowered to make a declaration on matters falling within terms of a referral”, since a settlement (even if confirmed by the Tribunal) is not a complaint referral. For example, the City of Cape Town’s claim for damages following the admitted collusion in respect of the building of the Cape Town stadium could simply founder on this fundamental point.

According to the SCA, what lead to Premier’s windfall, was that it was never cited as a respondent in the prosecution of its fellow cartelists, and that a declaration that its conduct was a prohibited practice under the Competition Act for purposes of a damages claim was never sought nor obtained.  The SCA said-

“Section 65(9)(a) provides that a ‘person’s right to bring a claim for damages arising out of a prohibited practice comes into existence’ on the date that the Tribunal or CAC makes a declaration. Without a declaration, no right to claim damages comes into existence. Once a declaration has been made, a s 65(6)(b) notice can be obtained by a person wishing to claim damages. Such a notice ‘is conclusive proof of its contents, and is binding on a civil court.’ Without that notice, therefore, a claim for damages cannot be prosecuted. “

In these circumstances, the SCA says it is beyond the powers of the Tribunal to issue a damages certificate.  It follows then that a person who has suffered a loss may only apply for the damages certificate in respect of the firms in relation to whom such a declaration was made or is capable of being made by the Tribunal. This would be, for example, if a case is litigated conclusively before the Tribunal, or on application following an admission to collusion as recorded in a consent agreement.

As mentioned, in practice, damages certficates have mainly been granted in respect of admitted colluders in the so-called consent agreements entered into with the Commission and which are then confirmed by order of the Tribunal.  Many of these consent agreements have neither provided for, nor involved a declaration by the Tribunal of a prohibited practice as meant by the SCA – although, as a rule, it contains an admission by the perpetrator to the prohibited conduct.  This may appear to be a minor technical difference, but may very well prove to be a substantive jurisdictional issue.

A further point that was not a topic before the SCA is that section 49D of the Competition Act (dealing with consent orders) provides that a damages declaration following a consent agreement may be sought by a complainant (i.e. the person who first complained to the Commission regarding the collusion).  The Competition Act is silent about the rights of all other persons who may be in a position to pursue damages claims against colluders who settled by way of a consent order.

Again using the construction cartel as an illustrative example, the cartel reportedly was disclosed to the Commission pursuant to the CLP process. This implies that its investigation was not initiated following a complaint made and it follows that there is no complainant (as defined in the Competition Act). The Commission’s prosecution of the members of the construction cartel is drawing close to finalization – mostly cases were settled by way of consent orders, with a few outstanding litigated referrals.  In these circumstances, persons who suffered losses may have limited damages claims only against the handful of construction firms who did not obtain leniency or settle with the Commission and who may still be successfully prosecuted.

CONCLUSION

The wording of the Competition Act is clearly at odds with its purpose and how it has been applied in practice. It would make sense, for example, if consent order agreements would also call for a declaration by the Tribunal that the conduct admitted to is a prohibited practice under the Competition Act as meant under section 58.  This would then form an undeniable legal substratum for the issuing of a damages certificate.  The same should be required of corporate leniency recipients as part of their final immunity.  It would also make sense if the Competition Act unequivocally provided or is purposefully interpreted that all persons, not only “complainants”, are entitled to claim damages from colluders who settled instead of litigated their transgression – whether by way of consent agreement, or a corporate leniency agreement.

Written by Irma-Dalene Gouws, Director; Petra Krusche, Director, Werksmans Attorneys