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CONSTITUTIONAL COURT OF SOUTH AFRICA

Case CCT 90/11

[2012] ZACC 15

In the matter between:

COMPETITION COMMISSION ….....................................................................Applicant

and

LOUNGEFOAM (PTY) LTD …...............................................................First Respondent

GOMMAGOMMA (PTY) LTD ….......................................................Second Respondent

VITAFOAM (PTY) LTD …....................................................................Third Respondent

STEINHOFF AFRICA HOLDINGS (PTY) LTD ….............................Fourth Respondent

STEINHOFF INTERNATIONAL HOLDINGS (PTY) LTD …..............Fifth Respondent

FELTEX HOLDINGS (PTY) LTD ….....................................................Sixth Respondent

KAP INTERNATIONAL HOLDINGS (PTY) LTD …......................Seventh Respondent

Heard on : 7 February 2012

Decided on : 26 June 2012

JUDGMENT

MAYA AJ (Mogoeng CJ, Froneman J, Jafta J, Khampepe J, Nkabinde J, Skweyiya J, van der Westhuizen J and Zondo AJ concurring):

1. This is an application for leave to appeal directly to this Court against a judgment of the Competition Appeal Court (CAC). The CAC overturned a decision of the Competition Tribunal (Tribunal) granting the application of the Competition Commission (Commission) to amend its complaint referral against the respondents and to join the fourth respondent (Steinhoff Africa) to the complaint as a consequence of one of the amendments. The Commission also requests condonation for its delay in launching this application.

Background

2. The Commission is an independent regulatory authority established in terms of the Competition Act 89 of 1998 (Act).¹ It is vested with wide-ranging powers aimed at furthering the Act’s objective of promoting and maintaining competition within the economic realm.² Its various functions include the implementation of measures to increase market transparency and develop public awareness of the provisions of the Act, the investigation and evaluation of practices prohibited by the Act³ and the referral of matters for adjudication to and appearance before the Tribunal,⁴ as required by the Act.⁵

3. The first respondent (Loungefoam), the second and third respondents (Gommagomma and its wholly owned subsidiary, Vitafoam) and the sixth respondent (Feltex) are manufacturers and suppliers of flexible polyurethane or block foam. Loungefoam and Vitafoam currently manufacture the foam for use in the furniture and bedding industry. Feltex, a wholly owned subsidiary of the seventh respondent (Kap), previously conducted the same business through one of its divisions until it sold the division to Loungefoam in 1999. It now manufactures the foam mainly for use in the automotive industry. Steinhoff Africa is a wholly owned subsidiary of the fifth respondent (Steinhoff) which, in turn, also holds a controlling interest in Loungefoam and, by virtue of its shareholding in Gommagomma, in Vitafoam as well.

4. On 25 May 2007, the Commission received a letter from a former employee of Loungefoam, Mr Troy Carelse, who had commenced a foam manufacturing company in competition with Loungefoam and Vitafoam. Mr Carelse complained of anti-competitive conduct by his “opposition” (subsequently identified as Loungefoam and Vitafoam) within the foam manufacturing industry in relation to the supply of the imported chemicals used to produce the foam. This letter prompted the Commission, on 3 September 2007, to commence a formal complaint initiation process under the Act⁶ against Loungefoam and Vitafoam for –

“[p]rice fixing and dividing markets by allocating customers in contravention of sections 4(1)(b)(i) and 4(1)(b)(ii) [of the Act and] [e]xclusionary acts, inducement, predatory pricing and buying up scarce resources in contravention of sections 8(c), 8(d)(i), 8(d)(iv) and 8(d)(v) [of the Act]”.⁷

5. On 27 November 2007, the Commission initiated its own complaint alleging the same conduct against four additional parties, which included Feltex, albeit inaccurately described. (But nothing turns on this inaccuracy.) The purpose of this step was to expand the scope of the complaint process initiated in September 2007. According to the initiating statement, the parties sought to be added were implicated in conduct that is prohibited by the Act in the documents obtained from Loungefoam and Vitafoam during the investigation process. The Commissioner alleged that Feltex and Loungefoam had concluded a sale of business agreement which contained a reciprocal restraint of trade clause barring them from competing against each other which remained extant between them despite its expiry in 2004. According to the Commissioner, this resulted in Feltex, Loungefoam and Vitafoam dividing the market in contravention of section 4(1)(b)(ii) of the Act. The other entities, Unimattress (Pty) Ltd, Strandfoam (Pty) Ltd and Feel-o-Foam (Pty) Ltd, were allegedly added to the complaint on the basis of evidence which suggested that they might have colluded with Loungefoam and Vitafoam in illegal market division and price fixing.

6. Another complaint initiation followed on 26 May 2008. It expanded the investigation against Loungefoam, Vitafoam and Feltex to include Steinhoff and Kap consequent to the Commission’s suspicion that the alleged collusion between the original respondents might be a product of collusion between Steinhoff and Kap. In September 2008, the Commission referred a complaint to the Tribunal⁸ against Loungefoam, Vitafoam, Feltex, Steinhoff and Kap alleging that—

(a) Loungefoam and Vitafoam had agreed to fix the purchase price of the chemicals necessary for the manufacture of the foam and the selling price of the foam that they produced and sold to furniture manufacturers in breach of section 4(1)(b)(i) of the Act;

(b) Loungefoam and Vitafoam had engaged in customer allocation by agreeing not to compete for certain customers in contravention of section 4(1)(b)(ii) of the Act by means of the “Foam Forum” that they had established at which they discussed pricing and customer allocation; and

(c) Loungefoam and Feltex had engaged in market division through the reciprocal restraint of trade covenant in their sale of business agreement, in contravention of section 4(1)(b)(ii) of the Act.

7. All three firms opposed the referral. Loungefoam and Vitafoam admitted their participation in the “Foam Forum” and that they had agreed to the guidelines in relation to purchase prices to be paid for chemicals and selling prices offered to customers. However, they contended that such conduct was lawful as they were constituent entities within a single economic entity, Steinhoff, as envisaged in section 4(5) of the Act. They denied any wrongdoing. On 16 February 2010, the Commission applied to the Tribunal, in terms of Tribunal Rule 18(1),⁹ to amend its complaint referral in various respects which included: (a) a new allegation that Feltex was involved in price fixing with Loungefoam and Vitafoam with whom it jointly purchased chemicals in contravention of section 4(1)(b)(i) of the Act (the Feltex amendment); (b) a refutation of the claim that Loungefoam and Vitafoam were part of a single economic entity, alternatively an argument that if they were, that was a result of collusion between Steinhoff and Kap (the collusion amendment); and (c) a prayer that if it was proved that Loungefoam and Vitafoam were constituent firms of Steinhoff and had colluded with Feltex and consequently had administrative penalties imposed on them for the collusion, then Steinhoff, Gommagomma and Steinhoff Africa should similarly be held liable (the penalty amendment). Steinhoff Africa was sought to be joined to the referral contingent upon the success of the latter amendment.¹⁰

Tribunal proceedings

8. The respondent firms objected to the amendments which they contended were legally incompetent and would render the referral excipiable. The main challenge against both the Feltex and collusion amendments was that the Commission had failed to initiate a complaint alleging a contravention of section 4(1)(b)(i) as required by section 49B(1) resulting in the absence of the jurisdictional fact of initiation for a referral. The joinder application was opposed on the same basis. The penalty amendment was contested on the reasoning that the plain wording of the Act does not allow the imposition of a fine on any entity other than the one found to have transgressed the provisions of the Act.

9. The Tribunal granted all the amendments and the joinder application in a judgment delivered on 8 June 2010. Regarding the Feltex amendment, it acknowledged that the Commission had not initiated a complaint against Feltex but reasoned that the September 2007 complaint initiation about a chemical purchasing cartel was sufficient to found the jurisdictional requirement for a referral against Feltex. This was so, it said, because the Commission merely has to “provide a rational link between the conduct complained of and a relevant section of the Act”¹¹ to establish the jurisdictional requirement for a referral, since “[t]o require the Commission to go back and initiate a fresh complaint every time it uncovered a new, potential respondent . . . would render the schema unworkable and would undermine the very purpose of th[e] Act”.¹² The Tribunal applied the same reasoning to the collusion amendment. It found a rational link between the Commission’s initiation statement of May 2008 that “the relationship between the parties and Steinhoff appears to have orchestrated the collusive conduct complained of” and section 4(b)(1)(i) and (ii).¹³ The Tribunal concluded that “there was no need for the Commission at that stage to identify exactly which, how many or even which subsidiaries or divisions of the respondents were involved in collusive activities.”¹⁴ It provided no reason for granting the penalty amendment.

The CAC appeal

10. Feltex and the other respondents (the Steinhoff respondents) appealed to the CAC against the whole judgment of the Tribunal and further applied to have the decision reviewed and set aside. The CAC (Wallis JA; Davis JP and Ndita AJA concurring) upheld the appeal in a decision delivered on 6 May 2011. Regarding the Feltex amendment, the nub of the CAC’s reasoning was that a complaint must be initiated before it can be referred. In its view, this was chiefly because, first, section 49B(3) of the Act, which requires the Commission to direct an investigator to investigate a complaint, allows the firm targeted by the investigation to engage with the Commission and demonstrate its innocence before the matter proceeds to the referral stage, thus avoiding the potential reputational damage attendant on a public charge of being involved in anti-competitive conduct.

11. Furthermore, section 67(1) of the Act, which bars the initiation of a complaint more than three years after the prohibited practice has ceased, renders the date of initiation of a complaint crucial for its application. This is because the date for determining the three-year period is the complaint initiation date. Relying on a judgment of the Supreme Court of Appeal and a later judgment of the CAC applying it,¹⁵ the CAC held that the Commission’s investigative powers arose from the initiation of a complaint which must be founded on information upon which a reasonable suspicion can be based. It concluded that the complaint initiation did not implicate Feltex in the chemical cartel and that there was, therefore, no jurisdictional basis for the referral against it.

12. The CAC found that the Commission had in fact sought the collusion amendment on the ground that it wanted to implicate Steinhoff in the collusive conduct, and not to counter the Steinhoff respondents’ defence that they were part of a single economic entity. The CAC reasoned that it had to consider the amendment as it was before the Tribunal and that the Commission had tried impermissibly to change the amendment’s meaning, basis and content. The CAC further found that the penalty amendment in terms of section 4(5)(b),¹⁶ and the joinder of Steinhoff Africa, should have been refused.

13. On 3 June 2011 the Commission applied to the CAC for leave to appeal to the Supreme Court of Appeal only against the orders made in respect of the collusion and penalty amendments. That application was set down for hearing on 9 December 2011. However, on 27 September 2011, the Commission, without withdrawing the CAC application, changed tack and launched the present proceedings in which, as indicated, it seeks leave to appeal directly to this Court against the whole judgment of the CAC.

The application for leave to appeal

14. The Commission has three main contentions. First, it argued that the application raises critical constitutional issues which are fundamental to the manner in which it discharges its function of evaluating alleged prohibited practices and referring them to the Tribunal for adjudication. Second, it submitted that the CAC’s finding, that there must be symmetry between the initiating document and the referral, is unduly restrictive and undermines the public’s right to have anti-competitive conduct properly determined. Last, it contended that since delivery of the CAC’s judgment, it has been inundated with objections to matters that it has referred to the Tribunal. And because it is unable to determine (i) the standard it is required to apply in formulating complaint initiations and (ii) its power to amend a referral as a result of divergent interpretations employed in the judgment in this matter, in Woodlands and in Yara,¹⁷ it continued, it is unable to investigate and refer pending matters until the issues raised in this application, which have good prospects of success and require expeditious resolution, have been attended by this Court. The Commission is also not keen to have the matter adjudicated by the Supreme Court of Appeal. This is based on an alleged apprehension that the latter court will follow its previous reasoning in Woodlands and on the contention that the view of the Supreme Court of Appeal is not, in any event, necessary as the matter does not involve the development of the common law.

15. The respondents oppose the application on the grounds that the Commission’s explanation for the delay in launching its application is unsatisfactory and that the Commission was obliged to first seek the CAC’s leave to appeal against its decision in terms of section 63(2) of the Act. Regarding the merits, the Steinhoff respondents conceded that the appeal relating to the Feltex amendment raises a constitutional issue. But they contend that the Commission is perempted from pursuing it in this Court as it deliberately chose not to challenge it before the Supreme Court of Appeal. Moreover, they refute that the appeal, in relation to the question whether the Tribunal may hold an entity liable for prohibited practices committed by a subsidiary or associate company under its control, has any prospects of success.

16. The threshold requirements for leave to appeal in this Court are firmly established. The issues to be determined in the appeal must be constitutional matters or issues connected with decisions on constitutional matters.¹⁸ The fact that a matter raises a constitutional issue is, however, not decisive and leave may still be refused if it is not in the interests of justice to hear the appeal.¹⁹ As to whether this application meets the first requirement presents no controversy. Issues concerning the powers and functions of an organ of state, such as the question of the scope and proper exercise of the statutory power of complaint initiation, investigation and referral vested in the Commission raised here, are indisputably constitutional matters.²⁰ The question, however, remains whether it is in the interests of justice to grant leave to appeal.

17. In addressing this question, it is necessary to deal first with the preliminary issues raised by the respondents. Foremost is their contention that the provisions of section 63(2) of the Act constitute a bar to the grant of the application as they relate to this Court’s jurisdiction to entertain the matter. Section 63 deals with a litigant’s right to appeal against a decision of the CAC. It reads, in relevant part:

“(1) The right to an appeal in terms of section 62(4)—

1. is subject to any law that—

(i) specifically limits the right of appeal set out in that section; or

(ii) specifically grants, limits or excludes any right of appeal;

. . .

(2) An appeal in terms of section 62(4) may be brought to the Supreme Court of Appeal or, if it concerns a constitutional matter, to the Constitutional Court, only—

(a) with leave of the Competition Appeal Court; or

(b) if the Competition Appeal Court refuses leave, with leave of the Supreme Court of Appeal or the Constitutional Court, as the case may be.”

18. Section 62 of the Act bears relevance too as it governs the appellate jurisdiction of the Tribunal and, more pertinently, the CAC and its place within the appellate hierarchy vis-à-vis the Supreme Court of Appeal and this Court. The relevant provisions of the section read:

“(1) The Competition Tribunal and Competition Appeal Court share exclusive jurisdiction in respect of the following matters:

(a) Interpretation and application of Chapters 2, 3 and 5, other than—

(i) a question or matter referred to in subsection (2); or

. . .

(2) In addition to any other jurisdiction granted in this Act to the Competition Appeal Court, the Court has jurisdiction over—

. . .

2. any constitutional matter arising in terms of this Act; and

. . .

(3) The jurisdiction of the Competition Appeal Court—

(a) is final over a matter within its exclusive jurisdiction in terms of subsection (1); and

(b) is neither exclusive nor final in respect of a matter within its jurisdiction in terms of subsection (2).

(4) An appeal from a decision of the Competition Appeal Court in respect of a

matter within its jurisdiction in terms of subsection (2) lies to the Supreme Court of Appeal or Constitutional Court, subject to section 63 and their respective rules.”

19. The Legislature’s object in conferring appellate jurisdiction on both the Supreme Court of Appeal and this Court from the CAC in respect of constitutional and other matters listed in section 62(2) of the Act is evident from the plain wording of sections 62 and 63. Section 63(2) appears to provide that appeals from the CAC in respect of those matters lie to this Court subject to leave being obtained from the CAC in terms of section 63, obviously in recognition of its specialist status in respect of matters falling within the purview of the Act. Section 63(2)(a) reinforces the CAC’s role in respect of the matters over which it enjoys concurrent jurisdiction by expressly permitting an appeal to this Court and the Supreme Court of Appeal “only” with the leave of the CAC and allowing an approach for leave from this Court and the SCA “only” if the CAC refuses it.

20. Section 167(6) of the Constitution, on the other hand, obliges—

“national legislation or the rules of the Constitutional Court [to] allow a person, when it is in the interests of justice and with leave of the Constitutional Court (a) to bring a matter directly to the Constitutional Court; or (b) to appeal directly to the Constitutional Court from any other court.”

Furthermore, section 16 of the Constitutional Court Complementary Act Amendment Act²¹ grants the Chief Justice, acting in consultation with the President of the Supreme Court of Appeal, the power to make rules relating to the manner in which this Court may be engaged in any matter in respect of which it has jurisdiction. These Rules allow a person, when it is in the interests of justice and with leave of the Court, to bring a matter directly to it or to appeal directly to it from any other court. Rule 19 of the Constitutional Court Rules²² gives effect to these provisions.

21. The question is what meaning to ascribe to section 63(2) of the Act in light of section 167(6) of the Constitution. Central to this enquiry is the fact that the provisions of the Constitution cannot be subordinate to statutory enactments. In addition, section 1(2)(a) of the Act itself requires that its provisions must be interpreted in a manner that is consistent with the Constitution.²³ But the wording of section 63(2) may be read to suggest more than one constitutionally compliant construction, because section 63(1)(a)(ii) appears to subordinate the right of appeal couched in section 62(4) to “any law that specifically grants” any right of appeal.

22. One interpretation of section 63 is that it creates a bar, as the respondents contended. The words “any law” in section 63(1)(a), on this approach, refer only to national legislation as contemplated in section 167(6) and exclude the Constitution itself. This is inferred from the fact that the Act defines it and makes specific reference to “the Constitution” in some of its provisions. Furthermore, section 167(6) of the Constitution does not grant, limit or exclude a right of appeal as envisaged in section 62(4). The use of the word “only” before the two pre-conditions for an application for leave to appeal to the Supreme Court of Appeal and this Court, as set out in section 63(2), indicates a bar as it plainly means that an appeal to either the Supreme Court of Appeal or this Court lies solely when the CAC has granted or refused leave. Therefore, a litigant may not, under any circumstances, approach either court directly without first applying to the CAC for leave.

23. An alternative interpretation of section 63(2) is that the Constitution, being law and indeed the supreme law, comfortably fits under the class of “any law” envisaged in section 63(1)(a), as there is no specific contrary indication either in the provisions of the Constitution or those of the Act. When interpreted in the light of the Constitution, as it must be,²⁴ and “as adjunct to, and not exclusionary of, the Constitution’s appellate structures”,²⁵ the provisions of section 63(2) dovetail seamlessly with section 167(6). The resultant meaning which strains neither of the provisions is simple: A litigant who wishes to appeal to this Court against a decision of the CAC must first seek the CAC’s leave unless the interests of justice permit a direct approach to this Court. In other words, the views of the CAC and the Supreme Court of Appeal remain obligatory except where the interests of justice under section 167(6) of the Constitution require that direct access be granted without the CAC’s leave. This construction accords with the non-exclusive nature of appellate jurisdiction that the CAC enjoys. It permits the conclusion that section 63(2), therefore, creates no absolute bar to seeking leave for direct access to this Court.

24. The conflicting constructions cannot both be correct. But that is not a problem that need be resolved in these proceedings for the compelling reason that the facts on record do not show compliance with either of the interpretations. The applicant has bypassed the CAC and seeks to make a direct appeal to this Court. Therefore, the requirement of the “bar” interpretation to seek the CAC’s leave to appeal first before approaching the Supreme Court of Appeal or this Court has not been met. And, on the alternative interpretation, I am not persuaded that the interests of justice permit the Commission to avoid the requirements of section 63(2) in the manner contemplated in section 167(6) of the Constitution, for the reasons that follow.

25. The mainstay of the Commission’s argument, as mentioned earlier, was that the matter is urgent and that it will be protracted unduly if required first to pass through the Supreme Court of Appeal whose view is irrelevant in any event, because the matter will ultimately end up in this Court. Accepting that the matter raises issues of public importance and assuming that there may well be good prospects of success in the appeal, these factors are nonetheless not decisive.

26. Other factors must still be considered, particularly that the Commission has failed to show that the Supreme Court of Appeal will not deal with the matter expeditiously, or indeed give finality to some or even all of the issues between the parties. In the absence of a challenge to its constitutionality in either these proceedings or before the CAC, section 63(2) remains valid law in the absence of a declaration of invalidity. On this interpretation, it serves the critical purpose of ensuring that the decision-making of the higher appellate courts is informed by the expert views of the specialist CAC. Further, until the Legislature decides otherwise, the Supreme Court of Appeal also serves as a further filter in the appellate hierarchy, even in matters that do not explicitly involve the development of the common law.

27. To that end, the Commission’s steadfast assumption that it will not succeed before the Supreme Court of Appeal, based on the perceived difference between that Court’s decision in Woodlands and the CAC’s judgment in this matter, deserves no credence.

Conclusion

28. To summarise, the two possible approaches to section 63(2) yield the following result: (i) the Commission does not meet the “bar” test because of its failure first to seek leave from the CAC before approaching this Court; and (ii) the Commission has not shown any compelling circumstances that would justify a direct appeal, in the interests of justice, to avoid substantial injustice as envisaged in section 167(6). The matter falls to be dismissed on this basis alone and this finding renders it unnecessary to decide condonation of the Commission’s seemingly excessive delay and further issues.

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