CONSTITUTIONAL COURT: NO DEFENCE OF PRESCRIPTION IN COMPETITION LAW

By Xolani Nyali Thursday, June 25, 2020
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The Constitutional Court delivered a judgement on 24 June 2020 that changes the competition law landscape in South Africa in probably the most profound manner since the Competition Act, 89 of 1998 (Act) was enacted 22 years ago.

In the case of Competition Commission of South Africa v Pickfords Removals SA (Pty) Ltd, the Constitutional Court was asked to adjudicate on two issues which are at the heart of the powers of the Competition Commission (Commission) to investigate and prosecute prohibited conduct:

  • the proper interpretation of section 67(1) of the Act; and
  • whether the Commission, having initiated a complaint in terms of section 49B(1) of the Act, can amend that initiation and, if so, what the practical effect of that amendment is. At issue would be whether an amendment, if permissible, would have retrospective effect. 

Facts

The case concerned the initiation and subsequent amendment of a complaint by the Competition Commissioner against various players in the furniture removal industry for alleged contraventions of section 4 of the Act, in particular the prohibition against bid-rigging.

On 3 November 2010, the Commission initiated a complaint against several furniture removal firms, but not Pickfords. In its initiation statement, the Commission indicated that the named firms did not comprise a closed list as it was still to conduct its investigation (2010 initiation).

On 1 June 2011, in a further initiation statement, Pickfords (and other furniture removal firms) were specifically named (2011 initiation). On 13 June 2013, the 2011 initiation was amended, alleging inter alia a total of 37 instances of bid-rigging by Pickfords. On 11 September 2015, the Commission finally referred the matter to the Competition Tribunal (Tribunal) for hearing. In its referral, the Commission described the 2011 initiation as an amendment to the 2010 initiation. 

Pickfords excepted to the complaint referral. It alleged that 20 of the 37 counts against it should be dismissed as 14 of them were time-barred in terms of
section 67(1) of the Act (and the remaining six were not sufficiently pleaded).

On the 14 time-barred counts, Pickfords alleged that the 2011 initiation, rather than the 2010 initiation, was the ‘trigger event’ for the running of the three-year period referred to in section 67(1) of the Act.

The Commission’s case was the converse. It contended that the 2011 initiation was merely an amendment of the 2010 initiation and that the 2010 initiation was in fact the ‘trigger event’.

Interpretation of section 67(1) of the Act

Section 67(1) of the Act, as it then was, provided that, ‘A complaint in respect of a prohibited practice may not be initiated more than three years after the practice has ceased’. This provision has, effective 12 July 2019, been amended to read, ‘A complaint in respect of a prohibited practice that ceased more than three years before the complaint was initiated may not be referred to the Competition Tribunal’. The change is subtle, but sought to clarify that while the Commission may investigate a matter, it may not refer it to the Tribunal if the matter has prescribed.

For the reasons discussed below, this amendment to the Act does not appear to have impacted the decision of the Constitutional Court.

At issue was whether section 67(1) of the Act is an absolute prescription provision or, properly understood, constitutes no more than a procedural time-bar provision which in the event of non-compliance, can be condoned by the Tribunal in terms of section 58(1)(c)(ii) of the Act. 

The Court accepted the Commission’s argument that section 67(1) is open to two possible interpretations:

  • a substantive time-bar, meaning a prescription provision proper, 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
  • merely a procedural time-bar, which can be condoned by the Tribunal in terms of its general powers of condonation set out in section 58(1)(c)(ii) of the Act, provided that good cause is shown.

In a unanimous judgement of the Court, it was noted that:

  • both interpretations limit the right of access to courts (as enshrined in section 34 of the Constitution), and that one must determine which of the two possible interpretations is the least limiting of the right of access to courts; 
  • in light of the purpose of the Act, access to the Tribunal is a crucial component of the Commission’s work – interpreting section 67(1) ‘as imposing an absolute time-bar in the form of a prescription provision proper would clearly subvert access to the Tribunal’. In particular, the Court noted that, ‘It bears emphasis that prescription is aimed at penalising negligent inaction, not the inability to act. In the case of prohibited practices under section 4(b) [of the Act], it is trite that cartels are, by their very nature, secretive. It would be inequitable to penalise the Commission, which would invariably have no knowledge of, for instance, surreptitious price fixing by cartels, 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’ and ‘The interpretation of
    section 67(1) of the Competition Act as an absolute time-bar would thus not only limit the Commission’s access to the Tribunal, but also access to a civil court for potential claimants seeking damages arising from a prohibited practice’.

A purposive, constitutionally compliant interpretation was thus required and, in this regard, the Court held that there are compelling grounds to favour an interpretation that section 67(1) is a procedural time-bar as it ‘strikes the right balance between, on the one hand, the need for general certainty in commercial affairs and the public’s interest in having the Commission’s vast investigatory resources spent only on combatting recent prohibited practices and, on the other hand, the objective of the Act to deter prohibited practices including, where justified, older practices. This renders the provisions more constitutionally compliant and meets the purposes of the Competition Act. An interpretation that
section 67(1) of the Competition Act is an absolute substantive time-bar would not only lead to the opposite result, but would also encourage cartel cohorts to remain silent about their prohibited activities for a period of three years from cessation of those activities, in exchange for absolute immunity for their egregious activities. That would completely defeat the aims of the Act.’

However, the Court also delivered a warning to the Commission that condonation is not a mere formality - good cause must be shown. Referring to a long line of jurisprudence in South Africa on the meaning of ‘good cause’, the Court noted that the overriding consideration is the interests of justice, which must be considered on the facts of each case.

Amendment and initiation of a complaint

Having decided that section 67(1) of the Act was only a procedural time-bar and not a prescription provision, the Court then had to decide which of the 2010 initiation or the 2011 initiation was the correct ‘trigger event’.

If it was the 2011 initiation, then the Commission had to apply for condonation (if it still sought to pursue the prosecution of Pickfords on the alleged 14 time-barred counts) but if not, the case could be remitted to the Tribunal for hearing as per the referral of the Commission.

The Court agreed with the Competition Appeal Court (CAC) that the 2011 initiation was an amendment of the 2010 initiation, as the 2011 amendment emanated from further investigations which the Commission had carried out in terms of the 2010 initiation, and as the Commission is rightly entitled to do on the authority of the Supreme Court of Appeal’s decision in Woodlands.

Moreover, the Court was persuaded that the 2010 initiation had used language which alluded to further information becoming available and further firms being implicated.

However, the Court disagreed with the CAC that the ‘trigger event’ was the 2011 initiation (i.e. because Pickfords was only named in the 2011 initiation, the alleged prohibited practices did not involve it).

The Court quoted the Tribunal in Power Construction, noting that a requirement that the Commission must ‘know the identities of all the parties involved in prohibited conduct at the commencement of its investigation…would render the investigative powers of the Commission redundant and defeat the objectives of the Act – why should the Legislature require the Commission to embark in an investigation if it is expected to know from the commencement of its investigation the identities of the prospective respondents’.

According to the Court, having decided that the 2011 initiation was an amendment of the 2010 initiation, then the ‘trigger event’ was the 2010 initiation. To do otherwise would be to misconceive ‘... 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 Court did not, however, address the scenario where the Commission initiates a complaint regarding one specific section of the Act and discovers information suggesting a contravention of a different section entirely, nor if the Commission discovers potential contraventions of the Act in circumstances beyond the ambit of its initial investigation.

These were not points which the Court was called to adjudicate upon and as such, we anticipate that further guidance will be sought from the Tribunal and the courts on the precise scope of a complaint initiation. 

Conclusion

The judgment of the Court is a timely reminder of the need for companies to remain alert to competition law compliance and take a proactive approach to risk management in this area. A very high standard has been set by the Court for respondents to challenge the initiation of a complaint three years after the conduct has ceased and to argue that to allow the complaint to be prosecuted would be contrary to the interests of justice.