Commission procedure withstands challenge
Competition Commission finally scores one on competence challenge to complaint referral
PARAMOUNT Mills (Paramount), one of the respondents in the alleged milled white maize cartel, applied to the Competition Tribunal to have the Competition Commission’s complaint referral against it dismissed. Paramount’s legal representatives argued that the referral was incompetent, as no proper case against Paramount had been made in the referral. The application followed on the heels of the tribunal’s dismissal of the complaint referral against SAB on jurisdictional grounds (following a line of Competition Appeal Court and Supreme Court of Appeal decisions against the commission for noncompliance with correct procedure in complaint initiations and referrals).
The basis for the claim that the referral was incompetent was that it did not meet the test of legality and intelligibility required by the recent appeal court decision in the Woodlands case and the subsequent requirement in the Loungefoam decision that the papers before the tribunal must meet the standard of an application in motion proceedings (the “legality test”). Paramount also claimed that the complaint had prescribed (the “prescription point”).
In arguing the legality test, Paramount relied on the appeal court’s statement in the Woodlands case that “the commission must at the very least have been in possession of the information concerning an alleged practice which objectively speaking could give rise to a reasonable suspicion of the existence of a prohibited practice”. Paramount argued that the commission’s referral did not satisfy this requirement.
Further, on the basis of the Loungefoam decision, Paramount argued that the commission is required to refer a prima facie case on the papers to the tribunal. Paramount’s legal representatives argued that a referral on affidavit by the commission was equivalent to application proceedings and the tribunal should conduct itself as a court in motion proceedings. Thus, if no prima facie case was made out in the commission’s referral, then the matter ought to be dismissed.
The tribunal rejected these arguments, noting that the court in Loungefoam was not concerned with the nature of the tribunal’s proceedings, but with the proper procedure to follow when seeking to adduce additional facts on affidavit.
Further, the tribunal dismissed Paramount’s interpretation of the Woodlands decision, holding that Woodlands was irrelevant in this case, on the basis that Woodlands was not at all concerned with the contents of the commission’s referral, but rather with the validity of the summons and initiation statement.
Paramount had also referred to the Netstar case and argued that, on the basis of this case, the initiation of a complaint was likened to a summons and must contain sufficient particularity and clarity to survive the test of legality and intelligibility.
Yet again, the tribunal dismissed this on the basis that Woodlands was not concerned with the contents of the referral. Nevertheless, the court in Netstar made it clear that the test of legality and intelligibility does not require “a level of precision that is demanded in pleadings but does mean that the party against whom that allegation is made must be able to know what the charge is and be able to prepare to meet and rebut it”.
The tribunal found Paramount had already demonstrated that it understood the charges against it and was able to plead thereto.
The tribunal concluded on the legality point that there was sufficient information in the commission’s affidavit to enable Paramount to understand the case against it and to answer it. The tribunal stated further that, if a party finds the commission’s referral to be inadequate, the proper remedy is to object thereto and to provide the commission with an opportunity to rectify it. Paramount’s arguments required a standard of pleading from the commission that would effectively create a standard of legality for the commission higher than that enjoyed by parties in criminal proceedings. The standard is not so high in a complaint referral that, if not met, it must be dismissed.
Despite not being properly pleaded by the applicant, the tribunal allowed Paramount to argue its prescription point. Section 67(1) of the Competition Act provides that a complaint in respect of a prohibited practice cannot be initiated more than three years after that practice has ceased. This limits expenditure of resources into investigations of conduct that have long ceased.
The tribunal reiterated that whether or not an initiation is time barred cannot be decided on the basis of legal argument alone. A party wishing to rely on section 67(1) has to show facts, which would ordinarily be within its own knowledge, to show that such conduct had in fact ceased. As such, the onus is on Paramount and not the commission in this instance.
According to the tribunal, even if it had accepted that section 67(1) creates no evidential burden on the party seeking to rely on it, the enquiry remains one of fact. Self evidently, in order to determine whether conduct which constitutes a prohibited practice has actually ceased, the conduct must in the first instance be fully described. However, Paramount denied that such a practice occurred at all and relied on the commission’s pleadings to argue the point. In this regard, the commission’s affidavit refers to cartel activities “during the period 1999 up to at least January 2007” and alleges price fixing agreements involving future conduct. Consequently, the prescription challenge can only be determined after evidence has been led and the facts are fully ventilated.
For this reason, the application based on section 67(1) failed, but the prescription point will still be open to Paramount to raise at the end of the hearing, after all the evidence has been led and tested.
After a long line of cases against the commission on procedural issues, the commission has triumphed. However, this application did not deal with major issues such as those raised in Woodlands and Loungefoam. A true indication of the validity of the commission’s procedure will be seen at Senwes’s appeal hearing before the Constitutional Court next month. The appeal traces back to a finding of the tribunal that Senwes contravened section 8(c) of the Competition Act by engaging in conduct constituting a margin squeeze. However, such conduct was not included in the commission’s referral to the tribunal and, therefore Senwes argued that the referral was incompetent.
Justin Balkin is a director and Sarah Manley is an associate in the competition law department at ENS.