An absolute or flexible restriction: Can prohibited practices be prosecuted three years after the practice ceased?

February 1st, 2021
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Competition Commission of South Africa v Pickfords Removals SA (Pty) Limited 2020 (10) BCLR 1204 (CC)

On 24 June 2020 the Constitutional Court (CC) handed down a landmark judgment in the matter between the Competition Commission of South Africa (the Commission) and Pickfords Removals SA (Pty) Ltd (Pickfords). The matter concerned a complaint referral by the Commission against various furniture removal companies including, Pickfords accused of engaging in 37 instances of collusive tendering for furniture removal services in contravention of the Competition Act 89 of 1998 (the Act). The judgment has a significant impact on the interpretation of the prescription provisions of the Act. Therefore, it is expected to have substantial implications in the investigation and prosecution of prohibited practice matters in light of the fact that the Commission will, from now on, be in a position to seek condonation from the Competition Tribunal (Tribunal), where the conduct in question would have ordinarily prescribed under s 67(1) of the Act.

Facts

In this case, various furniture removal companies were accused of tendering collusively by providing ‘cover pricing’ to customers in respect of tenders for furniture removal services, in contravention of s 4(1)(b)(i), (ii) and (iii) of the Act. The Commission had initiated two complaints – the first one on 3 November 2010 (2010 initiation) but did not specifically cite Pickfords as a respondent to the investigation. The second one on 1 June 2011 (2011 initiation), which included Pickfords and other furniture removal firms. Pickfords was not identified in the 2010 initiation, but was only identified in the 2011 initiation. The 2011 initiation was in turn amended in June 2013, alleging the total of 37 instances of collusive tendering by Pickfords. 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 September 2015, the Commission referred a prohibited practice complaint to the Tribunal, alluding to both the 2010 initiation and 2011 initiation.

Pickfords argued, inter alia, that 14 of the 37 counts of the alleged collusive conduct were time-barred in terms of s 67(1) of the Act. In addition, Pickfords contended that they had prescribed since these incidents stopped three years before the investigation started. Further, the complaint was only initiated in 2011 (not 2010, as contended by the Commission), since it was not identified as a party in the 2010 initiation. Pickfords argued that it was the 2011 initiation, rather than the 2010 initiation, that was the ‘trigger event’ for the commencement of the running of prescription period.

As a counter argument, the Commission contended that the three-year period only started to run once the Commission acquired knowledge of the prohibited practice in line with the Prescription Act 68 of 1969 (Prescription Act). The Commission further argued that it would be incorrect to apply the 2011 initiation date for s 67’s time-barring purposes, as it was a mere amendment (ie, a continuation) of the 2010 initiation. The Commission argued that the 2011 initiation was merely an amendment of the 2010 initiation and that the latter was thus the ‘trigger event’.

The Tribunal ruled in Pickford’s favour that the Commission could not investigate and prosecute the 14 cartel instances, as these stopped three years before the Commission started its investigation. Dissatisfied with the Tribunal decision, the Commission appealed the Tribunal decision to the Competition Appeal Court (CAC), which was dismissed on the basis of the same reasoning that
s 67(1) prevents the commission from investigating and prosecuting cartels that stopped three years before the investigation started.

Trigger event

The CC had to consider whether s 67(1) of the Act constitutes a substantive time-bar, which places an absolute prohibition on the initiation of a complaint in respect of a prohibited practice more than three years after the cessation of that practice or is merely a procedural time-bar provision, in which instance the event of non-compliance may be condoned in terms of s 58(1)(c)(ii) of the Act. Accordingly, the CC had to consider whether the 2010 complaint, alternatively the 2011 complaint, constituted the ‘trigger event’ for purposes of s 67(1). A determination of the correct ‘trigger event’ for the commencement of the running of the three-year period is crucial. On the facts, several counts of the alleged collusive conduct would only be timely if the 2010 initiation, as opposed to the 2011 initiation, was used as the trigger event.

In this regard, the Tribunal as the court of first instance, had found that the 2011 initiation was not an amendment of the 2010 initiation, but was a self-standing initiation. The CAC overruled the Tribunal, finding the converse. The CC noted that the 2010 initiation pertinently stated that the collusion was ‘ongoing’, foreshadowing the possible addition of further firms and, in the CC’s view, the 2011 initiation made it clear that it was intended to be an extension of the 2010 initiation. The Tribunal and CAC agreed with Pickfords and held that s 67(1) of the Act prevents the Commission from investigating and prosecuting cartels that stopped three years before the investigation started. However, the Tribunal and CAC had differing opinions on whether the 2011 initiation constituted an amendment of the 2010 initiation, or if it constituted a separate self-standing initiation. The CAC nonetheless held that Pickfords only became a named party when the 2011 initiation occurred, ‘before that, the alleged prohibited practice did not involve it’ such that, on the CAC’s analysis, the trigger event would have still been in 2011. It is in this regard that the CC departed from the CAC.

In disagreeing with the CAC that the trigger event was the 2011 initiation, the court held that: ‘That approach misconceives the purpose and objects of the Competition Act, particularly the provisions relating to the initiation of a complaint. As stated, the emphasis in those provisions is on the prohibited practice concerned, not the names of firms or parties implicated in it.’ The trigger event from which the three-year period for purposes of s 67(1) of the Act was to be calculated was with reference to the 2010 initiation.

Does s 67(1) constitute an absolute time-bar?

Section 67(1) of the Act, as it was then read that: ‘A complaint in respect of a prohibited practice may not be initiated more than three years after the practice has ceased’. This so-called ‘prescription’ provision was previously widely interpreted as a substantive time bar that extinguished the Commission’s statutory power to initiate a complaint more than three years after the practice has ceased to have an effect.

The Tribunal held that it could not condone non-compliance with s 67(1). The CAC agreed with this finding, having viewed the prescription provision as serving a legitimate purpose of barring investigations into cartel behaviour that ceased an appreciable time ago, and no longer endangered the public. In overruling the CAC, and finding in favour of the procedural time-bar interpretation of s 67(1), the CC noted that a rigid interpretation could potentially subvert the Commission’s work as a public body by hindering its access to the Tribunal and could also possibly limit access to a civil court for potential claimants seeking damages arising from a prohibited practice. The CC emphasised that due to the secretive nature of cartels it would be inequitable to penalise the Commission, which would invariably have no knowledge of said conduct (price fixing), for its failure to act within the three-year period. That would be tantamount to rewarding cartels for their covert unlawful conduct and would not be in the interests of justice.

The CC held that interpreting s 67(1) of the Act as imposing an absolute substantive time-bar in the form of a prescription provision would clearly subvert access to the Tribunal, the CAC and other courts. The CC stated that it will hypothetically encourage cartels to remain silent for a period of three years, in order to gain immunity for known prohibited activities. Thus, the CC concluded by finding that s 67(1) of the Act is a procedural time-bar, capable of condonation.

In a unanimous judgment, the CC held that the 2010 initiation is the correct trigger date and that the 2011 initiation was merely an amendment of the 2010 initiation. The purpose of the initiation of a complaint is to commence an investigation. This purpose would be defeated if the Commission was expected to know the identities of all the parties involved before an initiation was properly made. The CC found that the Commission need only have in mind some of the firms potentially involved in a prohibited practice to initiate a valid complaint, and the names of all the firms need not be included when the complaint is first initiated.

On the condonation argument, the CC concluded that s 58(1)(c) of the Act grants the Tribunal the power to condone, on good cause shown, any non-compliance of, inter alia, a time limit set out in the Act. Overruling the CAC, the CC found that this ‘expressly provides a general power of condonation, save for the exclusions mentioned’, and that condonation of non-compliance with the procedural time-bar of s 67(1) of the Act are within the Tribunal’s powers, when good cause is shown. The CC, however, cautioned that condonation for non-compliance with s 67(1) does not provide a blank cheque for slothful litigation, as ‘good cause’ must still be shown, which depends on the facts of each case, with the overriding consideration being the interests of justice. To this end, relevant factors that may be considered include –

  • the extent and cause of the delay;
  • the effect of the delay on the administration of justice and other litigants;
  • the reasonableness of the explanation for the delay;
  • the issues to be raised in the matter; and
  • the prospects of success.

According to Majiedt J, secretive cartel conduct will flourish if the Commission is precluded from accessing the Tribunal in justified cases, more than three years after cessation. The CC concluded that an interpretation of s 67 as a procedural time-bar is preferred and absent a knowledge requirement or the possibility of condonation, which would ameliorate the effect of s 67(1) of the Act, the purpose of the Act would be undermined. Accordingly, the CC held that the Tribunal enjoyed the power, in terms of s 58(1)(c)(ii) of the Act, to condone non-compliance with s 67(1) on ‘good cause’ shown. As a result, the appeal was upheld with costs.

Conclusion

As a consequence of this judgment, s 67(1) of the Act can be interpreted as a procedural time-bar capable of condonation if good cause is shown, rather than a substantive time-bar, which places an absolute prohibition on the initiation of a complaint in respect of a prohibited practice, more than three years after the cessation of that practice. The CC upheld the Commission’s appeal that s 67(1) of the Act does not prevent the Commission from investigating and prosecuting cartel conduct, which stopped three years before the investigation started. Section 58(1)(c)(ii) of the Act expressly grants the Tribunal the power to condone non-compliance with s 67(1) of the Act, so long as good cause is demonstrated. The CAC judgment was set aside.

Meshack Fhatuwani Netshithuthuni LLB (Unisa) LLM (Commercial law) (UJ) Cert in Climate Change and Energy law Cert in Prospecting and Mining law Cert in Water law (Wits) Cert in Environmental law (UP) Cert in Pension Funds law (Unisa) is a legal practitioner at the Competition Commission of South Africa in Pretoria.

This article was first published in De Rebus in 2021 (Jan/Feb) DR 37.

De Rebus