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JJP Bezuidenhout Patensie and Sitrus Beherend Limited (66/IR/May00) [2000] ZACT 32 (19 July 2000)
.RTF of original document
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no. 66/IR/May00
In the matter between
JJP Bezuidenhout
Claimant
and
Patensie Sitrus Beherend Limited
Respondent
__________________________________________________________________________________________
DECISION ON APPLICATION FOR INTERIM RELIEF IN TERMS OF SECTION 59 OF THE COMPETITION ACT, 89 OF 1998
__________________________________________________________________________________________
Introduction
1.
This is an application for interim relief brought by an eastern Cape citrus farmer, Mr JJP Bezuidenhout, against local Gamtoos River
Valley citrus packing and distribution company, Patensie Sitrus Beherend Limited (“Patensie Sitrus”). Mr Bezuidenhout
alleges that certain provisions of Patensie Sitrus’s articles of association contravene the Competition Act in that they lock
farmers, who are shareholders in the company, into an exclusive supply arrangement with Patensie Sitrus, thus excluding potential
competitors from the market for the packing and distribution of citrus fruit in the Gamtoos River Valley.
2.
Until July 1998 Patensie Sitrus had conducted its packing and distribution operations as a co-operative under the Co-operative Society’s
Act before being converted to a company following the repeal of the Marketing Act 59 of 1968, in 1996. The Marketing Act, which was
the key statute underpinning single-channel marketing in South Africa’s agricultural sector, was repealed by the Marketing
of Agricultural Products Act 47 of 1996 in an attempt to promote competition in the marketing of agricultural products. This objective
is unequivocally confirmed by a reading of the Hansard record of the parliamentary debate at the time of the repeal of the old act
and the introduction of the new bill. The then Minister of Agriculture made it clear that the anti-competitive practices with which
he was principally concerned derived from the actions of monopsonistic processors; that is dominant purchasers of agricultural produce
for the purpose of further processing and marketing. Declaring that ‘the days of single channel marketing, fixed prices and
control board domination are over’, the Minister went on to state that ‘I look forward to taking initiatives, through
the legislation at my disposal and in co-operation with the Minister of Trade and Industry, to ensure that there are no unreasonable
concentrations of power in the marketing chain between the producer and the consumer’(Hansard, 13 September 1996, 4358). This
concern was shared by other speakers in the parliamentary debate. We note this in order to provide the context for subsequent developments
in the agricultural sector. It appears that certain of the processors responded to the legislature’s intervention by establishing
companies whose articles of association enshrined precisely the practices complained of in the legislature. In the short lifespan
of the Competition Tribunal, we have already encountered this with respect to two important segments of the agricultural sector,
namely, in an earlier matter involving the raisin industry, part of the larger dried fruit industry, and now in part of the citrus
industry.
3.
This application for interim relief follows an earlier High Court application by Patensie Sitrus in which it sought an urgent interdict
compelling Mr Bezuidenhout and another citrus farmer, Mr JD du Preez, to comply with their contractual supply obligations in terms
of the company’s articles of association. The two farmers wanted to sell their fruit to an alternative packer, which, they
maintained, had offered them a better price than the price they would receive from Patensie Sitrus. They therefore attempted to terminate
their relationship with Patensie Sitrus, arguing that the purported limitations contained in the articles of association did not
restrict their right to sell their shares and thus win their freedom to supply their produce to whomever they chose. In addition,
they contended that the particular provisions of the articles were anti-competitive in terms of the Competition Act, 89 of 1998.
The court found in favour of Patensie Sitrus but, as it recognised the possibility that the relevant provisions in the company’s
articles may be anti-competitive, the court limited its order to preserving the status quo between the parties in the interim pending a referral of the matter to the Competition Tribunal for adjudication of the competition
aspects which the farmers had raised, in terms of Section 65(2)(b) of the Competition Act.
4.
Mr Bezuidenhout and Mr Du Preez filed a joint Complaint Referral with the Competition Tribunal on 26 May 2000, pursuant to the High
Court’s order. Having previously lodged a complaint with the Competition Commission in terms of Section 44, they filed an application
for interim relief in terms of Section 59 simultaneously with their Complaint Referral. It is this application for interim relief
that we must rule on in these proceedings; the Complaint Referral is not yet ripe for hearing.
5.
Mr Du Preez subsequently reached a settlement with Patensie Sitrus, leaving Mr Bezuidenhout as the sole claimant before the Tribunal.
According to the draft order annexed to the claimant’s Notice of Motion, he is asking us for an interim order declaring the
alleged anti-competitive provisions of the articles of association null and void, pending the conclusion of a full investigation
into these allegations by the Competition Commission.
Finding and order
6.
The respondent raised a number of points in limine at the hearing of this matter. We dismissed each of these points for the reasons that follow below.
7.
We also found that there is sufficient evidence that –
(a)
certain provisions of the respondent’s articles of association have the effect of substantially
preventing or lessening competition in the relevant market and therefore constitute a prohibited practice in terms of Section 5(1);
and
(b)
the respondent is abusing its dominance by engaging in the exclusionary act of requiring or inducing a supplier to not deal with a
competitor, as contemplated in Section 8(d)(i).
8.
In addition, we found that the other requirements for granting interim relief specified in Section 59(1) have been met.
9.
We accordingly allowed the application for interim relief and made the following order:
The claimant’s application for interim relief in terms of Section 59 of the Competition Act 89 of 1998 is granted in respect
of the respondent’s alleged contravention of Sections 5(1) and 8(d)(i) of the said Act.
The Competition Tribunal orders that –
1.
the respondent is interdicted and restrained from enforcing its option to purchase the claimant’s citrus crop in accordance
with Article 112 of the respondent’s Articles of Association, and from fining the claimant in terms of Article 112.6.3, or
imposing any other remedy against the claimant, for not complying with Article 112;
2.
this order remains in force until the earlier of -
(a)
the conclusion of the hearing into the prohibited practices alleged by the claimants to have been committed by the respondents; or
(b)
the date that is six months after the date of the issue of this order;
3.
the respondent is ordered to pay the claimant’s costs in the application on the scale
as between party and party, including the costs of one counsel and one attorney.
10.
Our reasons for finding in favour of the claimant and for making the above order follow below.
Reasons
Points in limine
Final adjudication by the Competition Tribunal
11.
The respondent’s first argument in limine was that the claimant could not at this stage approach the Tribunal for interim relief only, because the High Court had referred
the matter to the Tribunal for final determination of the dispute between the parties in terms of section 65(2) of the Act.
12.
It is true that a referral to the Tribunal in terms of Section 65, read with the relevant rules in Part 4 (Division A) of the Tribunal
Rules, contemplates a final determination by the Tribunal. But this does not mean that a party that obtains a Section 65 referral
from the High Court cannot also approach the Tribunal for interim relief in terms of Section 59. Provided the claimant has lodged
a complaint with the Competition Commission it is entitled at any time to bring an interim relief application in terms of Section
59. As the claimant correctly pointed out at the hearing, this can give rise to two parallel proceedings being brought before the
Tribunal, as in the present case – the one being a referral in terms of a Section 65, and the other being an interim relief
application in terms of Section 59.
13.
What was brought before us at the hearing on 28 June 2000 was an application for interim relief. If we are satisfied that the claimant
has succeeded in establishing the requirements laid down in Section 59 we are competent to grant interim relief. We need not concern
ourselves in these proceedings with the status of the referral from the High Court. Neither do we have to consider the status of
our interim order in relation to the High Court’s order. The claimant has asked us for an interim relief order and that is
what we have granted. Having done so, our function is complete.
Conflicting orders
14.
The second point in limine submitted by the respondent was that the Tribunal has no power to grant the relief sought in terms of this application because such
relief would be in direct conflict with the High Court’s order, which upheld the enforceability of the respondent’s articles
of association. According to the respondent, the Tribunal has no power to set aside an order of the High Court because the Tribunal
is a creature of statute – the Competition Act – and the Act confers no such power on it.
15.
On this point the claimant persuasively argued that an order of the Tribunal in terms of Section 59 would not conflict with the High
Court’s order. The High Court decided the matter on the contractual relationship between the parties as contained in the respondent’s
articles of association. It did not consider whether the contractual rights and obligations contained in the articles of association
contravened the Competition Act. For this enquiry, the judge referred the matter to the Competition Tribunal, which, along with the
Competition Appeal Court, has exclusive jurisdiction in terms of Section 65(3) to assess whether the relevant provisions in the respondent’s
articles of association constitute prohibited practices in terms of Chapter 2 of the Act, and whether the circumstances of the case
justify an order for interim relief in terms of Section 59 (Chapter 6). In other words, the criteria we must use to evaluate the
merits of the claimant’s application are different to the criteria that the High Court used in its evaluation. Consequently,
the order we have made on competition grounds does not contradict the existing High Court order.
Declaration as Interim Relief
16.
The third in limine objection raised by the respondent was that the claimant is seeking a declaratory order as interim relief. A declaratory order which
strikes down the relevant provisions in the articles of association, would, in the respondent’s submission, constitute a legal
and logical anomaly as it was impossible for the articles to be void in the interim only.
17.
The claimant in turn insisted that the draft order it had submitted was not in effect a final declaratory order camouflaged as an
interim order. Counsel for the claimant explained that the claimant did not require the relevant portions of the articles of association
to be struck down. Instead the claimant sought an order declaring those provisions inoperative for a limited period only pending
finalisation of the hearing into the complaint currently being investigated by the Competition Commission.
18.
The order we have made in this case does not strike down the relevant provisions – it is couched as an interim interdict, and
therefore in our opinion does not fall foul of the respondent’s objection.
Non-joinder of certain interested parties
19.
As a fourth point in limine, the respondent claimed that the matter could not proceed on the day of the hearing as the other shareholders in Patensie Sitrus
would be directly affected by the requested order and should therefore be joined in the application. Counsel for the respondent contended
that if the relevant articles were declared void they would cease to govern the relationship between the company and other shareholders
as well, with the effect that the company would not be bound by them even in cases where these other shareholders wished to hold
the company to them, which would lead to possible prejudice to these other shareholders. The respondent accordingly asked us to stay
the proceedings until the other shareholders had been afforded an opportunity to make representations to the Tribunal.
20.
The issue of non-joinder was considered at some length by a panel of this Tribunal in Cancun Trading No. 24 CC and others v Seven-Eleven Corporation SA (Pty) Ltd (Case no. 18/IR/Dec99) in circumstances very similar to these. We concur with the finding of that panel that “(t)he Tribunal
… has no power or jurisdiction to dismiss the case … on the basis of non-joinder because its rules do not provide for
it to do so”. The panel based this conclusion on the following reasoning: “The Tribunal Rules are silent on the issue of dismissal of matters
for non-joinder and regard to the High Court Rules is similarly unhelpful as these rules also do not cover the issue. The Tribunal
cannot refer to any other statute or jurisprudence regarding this matter since Rule 54 only gives the Tribunal powers to consider
High Court Rules in instances where the Tribunal Rules do not provide answers.” This reasoning would apply equally in the present
request for postponement pending joinder of the other shareholders.
21.
The respondent criticised this approach and argued that the common law principle of joinder applies to the Tribunal as well, irrespective
of its status as a creature of statute. In support of its argument, the respondent pointed out that the common law principle of joinder
applies to Magistrates’ Courts, who are also creatures of statute, despite the fact that their empowering statute and rules
do not explicitly provide for it.
22.
We need not, however, go into the merits of this argument, as we are convinced that even in terms of the common law joinder is unnecessary
in this case. As pointed out in the Cancun Trading case, the common law right of a defendant to raise non-joinder is limited. The courts have restricted this right to persons who have a direct and substantial legal interest in the subject-matter of the litigation,
as opposed to a mere commercial or financial interest.
23.
We do not think that the other shareholders in Patensie Sitrus have such a legal interest in this matter, as we have couched our order
in such a way as to restrict its effects, as far as possible, to the claimant. The restraint we have placed on the respondent only
extends to its relationship with the claimant. As such, the only impact that the order may have on the other shareholders is indirect,
via its possible effect on the financial position of the company, and even that impact should be small. It is noteworthy that the
respondent failed to bring to our attention any authority for the proposition that a shareholder instituting legal action against
the company concerned must join all the other shareholders.
24.
In the alternative, the respondent contended that joinder of the other shareholder in this case rested on the constitutional principle
of just administration, which encompasses, among others, the principle of audi alteram partem. It argued that the Tribunal, by virtue of its status as an administrative tribunal in the mould of the former Industrial Court,
was constitutionally enjoined to apply the rules of natural justice.
25.
The panel of the Tribunal in the Cancun Trading case accepted that the Tribunal must comply with the rules of natural justice, but pointed out, in our view correctly, that “it
requires a logical leap of faith to infer a common law rule on joinder from the principles of natural justice” for which the
respondent in that case had provided no authority. The panel proceeded to point out that natural justice and the doctrine of joinder
deal with two distinct situations. Natural justice is about fairness to the parties who are already participating in the proceedings,
while the High Court doctrine of joinder is about who should be joined.
26.
Moreover, the authorities cited by the respondent in support of its contention that joinder of the other shareholders is required
by virtue of the principle of audi alteram partem do not assist its argument. They do no more than confirm the approach of the panel in the Cancun Trading case.
27.
We have accordingly concluded that this in limine objection is without merit.
Section (3)(1)(d)
28.
The respondent’s final point in limine relied on the recent judgment of Ngoepe JP in SAD Holdings Ltd and Another v South African Raisins (Pty) Ltd [2000] 2 ALL SA 326 (T) in the Transvaal Provincial Division of the High Court. The court in that case set aside the Tribunal’s
interim relief order in South African Raisins (Pty) Ltd v SAD Holdings Ltd 04/IR/Oct00 (unreported) on the basis that Section 3(1)(d) of the Competition Act had excluded the subject matter of the claimant’s
interim relief application from the jurisdiction of the Tribunal. Section 3(1)(d) excludes from the ambit of the Competition Act
all “acts subject to or authorized by public regulation”. The court found that the Marketing of Agricultural Products
Act 47 of 1996 created a separate regulatory regime for certain agricultural products, including grapes and raisins, which, in terms
of section 3(1)(d), placed the activities of SAD beyond the jurisdiction of the Competition Act.
29.
The respondent argued that the High Court’s judgment in the South African Raisins case applied directly to the facts in this case. It argued that the ‘acts’ complained of in the present application related
to citrus products, which form part of the category of products that fall within the regulatory scope of the Marketing of Agricultural
Products Act, and are therefore not actionable before us under the Competition Act.
30.
The claimant presented us with a convincing counter argument on this point. His counsel argued that Ngoepe JP’s decision in
the South African Raisins case does not establish a precedent which binds us in this case. We agree with this argument. Ngoepe JP’s decision does not represent the current law on this point in the eastern Cape where the parties to this dispute and the subject matter of
this dispute are located. This is because the local division of the High Court in that area (South-Eastern Cape Local Division) has
ruled on this issue subsequent to judgment in the South African Raisins case and has not followed the judgment in that case. In Patensie
Sitrus’s application in the High Court to enforce its articles of association against the present claimant, Mr Bezuidenhout
(Case no. 682/2000 – unreported), the court considered Ngoepe JP’s decision in the South African Raisins case, but nevertheless decided to refer the matter to the Competition Tribunal, thus indicating that the Competition Act was indeed
relevant to the dispute between the parties. The law on this point in the eastern Cape is thus at variance with that in Gauteng.
31.
At any rate, we do not agree with the argument that Section 3(1)(d) excludes our jurisdiction in this case. The ‘act’
that we have found to be a prohibited practice in this case is Patensie Sitrus’s enforcement of those provisions of its articles
of association that compel the claimant to deliver his citrus produce to the company in perpetuity unless the directors of the company
permit him to sell his shares in the company, a decision in respect of which they have an unfettered discretion. The regulatory regime
established by the Marketing of Agricultural Products Act does not regulate this ‘act’. It is consequently not an “act
subject to or authorized by public regulation” as contemplated in Section 3(1)(d) of the Act.
Interim Relief
32.
Having dismissed the respondent’s points in limine for the reasons set out above, we will now deal with the merits of the application for interim relief.
33.
The Tribunal may grant an interim relief order after considering the parties’ representations if it is satisfied that the following
three requirements have been met: that a restrictive practice exists; that, if the order is not granted, the claimant will incur
irreparable harm or the purposes of the Act will be frustrated; and that the balance of convenience favours the granting of the order.
34.
For ease of exposition, we first deal with the second and third requirements before proceeding with the assessment of whether a restrictive
practice exists in this case.
The order is reasonably necessary to prevent serious irreparable damage:
35.
The claimant asserted that he would suffer irreparable damage if we did not grant the order. He claimed that the damage he would suffer
as a result would arise from his having to breach existing contracts for the supply of citrus that he had entered into and from the
lower prices he would realise if he were compelled to deliver to the respondent.
36.
We are satisfied that the order we have made is necessary to prevent the claimant from suffering irreparable damage. As in the South African Raisins case referred to above, we do not base this conclusion on only the direct financial losses that the claimant stands to incur as a
result of breaching his forward contracts or the lower prices that he will realise from the respondent, as these losses can, in our
assessment, be recovered without too much difficulty in a subsequent action for damages. Rather, the irreparable damages we envisage
the claimant will suffer relate to the harm that the breach of his forward contracts will cause to his reputation.
Alternatively, the order is reasonably necessary to prevent the purposes of the Act being frustrated:
37.
Perhaps more importantly in this case, we are of the view that the claimant’s failure to successfully challenge the dominant
pack house will discourage other farmers in the community from taking a stand against the respondent. These farmers/shareholders
are vulnerable to severe penalties if they fail to meet their commitments in terms of Patensie Sitrus’s articles of association
and the claimant’s failure, even if only at interim, would have them scuttling back into line thus reducing the possibility
of these practices ever being subjected to full scrutiny by the competition authorities. We accordingly conclude that the order we
have made in this application is reasonably necessary to prevent the purposes of the Act being frustrated.
The balance of convenience favours the granting of the order:
38.
