Omnico (Pty) Limited and Another v Competition Commission and Others 142/CAC/JUNE16 (19 December 2016)

On 19 December 2016, the Competition Appeal Court (“CAC”) handed down its decision in the bicycle cartel case, Omnico (Pty) Limited and Another v Competition Commission and Others.  The CAC was asked to consider whether the silent participation by firms at a meeting where cartel activity was discussed amounts to a price-fixing cartel, in contravention of section 4(1)(b)(i) of the Competition Act, 89 of 1998.  At the core of this issue is whether a firm’s silence constitutes “agreement” for purposes of section 4(1)(b), and if it does, what a firm is required to do in order to disassociate from the cartel in order to avoid liability.

The appellants, Omnico (Pty) Ltd and Coolheat Cycle Agencies (Pty) Ltd are wholesalers that supply bicycles and bicycle accessories to the retail trade.[1]  The retailers then sell these products to their customers.  It is the wholesalers, who are the importers of the products, who advertise the retail price to the end consumer, in the form of a recommended retail price (“RRP”).  Following the economic downturn in 2008, the retailers sought an increase in the RRP.

Various meetings were held and emails were sent regarding increasing the RRP, which culminated in a meeting on 10 September 2008 which was attended by various wholesalers (who are in a horizontal relationship) and retailers (who are in a vertical relationship to the wholesalers).  Both the Competition Tribunal and the CAC found that at that meeting, the wholesalers had reached agreement to increase the RRP on bicycles from 35% to 50% and on accessories from 50% to 75%.  This would be implemented simultaneously by all the wholesalers on 1 October 2008.

The CAC did not consider the question whether section 4(1)(b) applies to wholesalers in circumstances where the RRP is a retail, and not a wholesale, price.  The Tribunal, however, considered this issue and found that the wholesalers competed with each other, horizontally, at both the upstream and downstream levels.[2]  The Tribunal held that “the fact that the RRP resided at the retail level does not help the respondents escape the section 4(1)(b)(i) net simply because the RRP was their own price and a basis of competition between them.  Retailers were constrained in their ability to increase prices above the RRP.  The extent to which retailers could discount off the RRP was also limited by the mark-ups extended to them by the wholesalers.”[3]

The question then was whether, on the facts of the case, Omnico’s and Coolheat’s silence at that September 2008 meeting and thereafter was sufficient to constitute “agreement” to fix prices.  In finding that Omnico and Coolheat had reached agreement to simultaneously increase the RRP with other wholesalers, the CAC rejects a strict application of a pre-defined burden of proof, and the decision sets out (i) what is required of the Commission to establish that firms have reached agreement; and (ii) what is required of a firm to distance itself from such agreement.

What is required of the Commission to prove that firms have reached “agreement”?

The CAC’s decision sets out the standard of proof required to establish that a firm’s silent participation in a meeting where cartel activity is discussed constitutes “agreement”.  The CAC states that:

The undisputed evidence of [the two firms’] failure to overtly disagree or distance themselves from the contents of the final September meeting meets the necessary standard of proof as being consistent, clear and convincing in determining participation in a cartel”.[4] (underlining added)

Applying this standard of proof, the CAC finds that “the evidence by the Commission is sufficient to show that agreement was reached amongst wholesalers that there would be an increase in mark-up in agreed percentages. . . . . This is an indiciae which taken together with all the other facts constitute clear evidence of an infringement of the competition (sic).  The evidence is also conclusive that 1 October would be the implementation date.  The relevant background evidence, context and meetings of 7 May and 11 June 2008 and the emails provide sufficient and consistent proof of agreement among the cartel participants…”.[5]

Thus, the Commission is only required to put forward a prima facie case to establish that there was agreement.

What is required of a firm to distance itself from such an “agreement”?

A firm seeking to distance itself from an agreement to engage in price fixing, market division or collusive tendering, bears an evidentiary burden:

“Once there is sufficient evidence put up by the Commission that there is cartel conduct it is incumbent on the firm to put forward rebuttal evidence to establish that its participation was without any anti-competitive intention.”[6]

This sentence affirms that in order to constitute “agreement”, there is an intention requirement, which a firm may rebut.  It indicates that where a firm participates silently in a meeting where prohibited conduct is discussed, it may adduce rebuttal evidence to establish that it had no anti-competitive intention, and consequently that no agreement was reached.  The need to adduce rebuttal evidence arises from the “duty to speak or to report to authorities or publically distance oneself from any uncompetitive behaviour”.[7]

Precisely what rebuttal evidence will suffice is unclear.  In assessing the evidence put forward by the appellants, the CAC found that “neither Omnico nor Coolheat distanced themselves at the meeting after consensus had been reached.  They gave no indication thereafter that they disagreed and they placed no evidence before the Tribunal that the increased RRP following the September meeting was as a result of an independent decision without anti-competitive effect”.

This appears to be a softening of the CAC’s decision in MacNeil,[8] (Competition Commission of SA v. DPI Plastics (Pty) Ltd & 9 Others) a decision handed down in November 2013, where the CAC held that:

“in general the representative [of a firm attending a meeting where collusive activity is discussed or proposed] would be under a duty to distance himself from the proposals under discussion, either by leaving or by stating that he wants no part of them; in other words a ‘firm repudiation’.”

The CAC’s decision in Omnia appears to give firms who have not left a meeting or stated that they want no part in the discussion, an opportunity to adduce rebuttal evidence that its participation in those meetings “was without anti-competitive intention”, and consequently that no agreement was reached.

Comment

This decision makes it clear that when determining whether a firm’s silent participation in a meeting constitutes agreement to engage in section 4(1)(b) conduct, the competition authorities will not rigidly apply a pre-defined burden of proof, but it seems, will rather weigh the evidence of the Commission and that of the firms to assess the “cumulative effect of conduct whether active or passive when assessed within a particular context”.[9]  Accordingly, the Tribunal and CAC will consider whether the Commission’s evidence is sufficiently consistent, clear and convincing.  Where it is, firms will bear an evidentiary burden to show either a firm repudiation of the conduct or some other evidence to indicate that there was no anti-competitive intention to reach agreement.

[1] Omnico (Pty) Limited and Another v The Competition Commission and Others 142/CAC/JUNE16 (19 December 2016) (“Omnico decision), para 2.

[2] The Competition Commission v Fritz Pienaar Cycles (Pty) Ltd CR049Jul12 (30 May 2016), para 101.

[3] Fritz Pienaar decision para 103.

[4] Omnico decision, para 58.

[5] Omnico decision, para 67.

[6] Omnico decision, para 55.

[7] Omnico decision, para 61.

[8] MacNeil, at para 64.

[9] Omnico decision, para 60.