Admissibility of evidence about the nature and effect of the agreement The greatest part of the parties’ dispute, and of the argument before this and the other forums, related to the ruling concerning the admissibility of evidence. What complicates the matter is the lack of consensus about the effect of the Tribunal’s ruling.
It is clear from its juxtaposition with s 4(1)(a) that s 4(1)(b) is aimed at imposing a ‘per se’ prohibition: one, in other words, in which the efficiency defence expressly contemplated by sub-para (a) cannot be raised. The reason for the blunt terms of sub-para (b) is plain. Price-fixing is inimical to economic competition, and has no place in a sound economy. Adopting the language of United States anti-trust law, price-fixing is anti-competitive per se. All countries with laws protecting economic competition prohibit the practice without more. The fact that price-fixing has occurred is by itself sufficient to brand it incapable of redemption. The Tribunal has found that once the conduct complained of is found to fall within the scope of the prohibition, that is the end of the enquiry. There is no potential for a further enquiry as to whether the conduct is justified (an enquiry of the kind that is envisaged by s 4(1)(a)), and evidence to that end is not relevant and thus inadmissible. It is this finding that the Competition Appeal Court upheld; and it is clearly correct. Indeed, none of the parties to the appeal suggests otherwise.
Yet there is no consensus between the parties as to whether the Tribunal’s ruling was limited to that. While the respondents contend that the Tribunal’s ruling upheld by the CAC only excludes evidence that is tendered to establish an ‘efficiency defence’ of the nature contemplated by s 4(1)(a) (an outcome not controversial before us), Ansac submits that the ruling goes much further. It contends that the Tribunal has also precluded evidence that is relevant to ‘characterising’ its conduct and thus to determining whether or not it falls within the scope of the legislative prohibition in sub-para (b) at all.
That lack of consensus is not altogether surprising because Ansac’s argument before the Tribunal, as recorded in its heads of argument (and repeated before us) was not directed to the question whether conduct prohibited by s 4(1)(b) could be justified by evidence. It was directed rather to the question whether evidence was admissible to determine whether Ansac’s conduct is prohibited at all: in other words, whether the Ansac agreement constitutes price-fixing as prohibited by the Act. Only in the alternative did Ansac submit that, if its conduct did not fall foul of s 4(1)(b), but was sought to be brought within the separate prohibition in s 4(1)(a) (which the Commission has not yet tried to do), evidence would be admissible to justify its conduct as envisaged by that sub-paragraph.
The Tribunal appears to us to have elided these two separate submissions and thereby misdirected its enquiry. It seems to have been of the view that Ansac sought to advance the evidence in order to establish that its conduct, though falling within s 4(1)(b), is nevertheless justifiable by criteria of the kind contemplated by s 4(1)(a) when that was not Ansac’s contention. That the Tribunal’s ruling posits that no evidence except the terms of the agreement in question is relevant (and thus admissible) to the question whether s 4(1)(b) has been contravened is evident from the following passage from its reasons:
‘[T]hose who set themselves the task of impugning agreements thus described in Section 4(1)(b) do not have to establish any deleterious impact on competition. All that has to be established is the existence of an agreement embodying the features detailed in Section 4(1)(b)(i)-(iii).’ (Emphasis added.)
Moreover, the terms of its ruling are sufficiently expansive to exclude all evidence relating to the purpose and effect of the agreement. Its ruling (which we repeat for convenience) was that:
‘On the argument we requested on section 4(1)(b) we find that evidence concerning any technological, efficiency, or other pro-competitive gain that might be admissible in terms of section 4(1)(a) is inadmissible in terms of section 4(1)(b).
In the reasons it gave for its later ruling of 30 November 2001, the Tribunal explained its earlier ruling as follows:
‘The panel held that Section 4(1)(b) required no showing of anti-competitive effect and that it permitted of no efficiency defence [the defence allowed for by s 4(1)(a) – the mere fact of the agreement was sufficient to condemn it.’
This lends support to Ansac’s contention that the ruling was intended to exclude all evidence except the terms of the agreement.
The Tribunal’s ruling, particularly in the context of the reasons it gave, is open to the construction that (perhaps inadvertently) it has precluded evidence even if the object of advancing it is to demonstrate that Ansac’s conduct does not fall within the prohibition in s 4(1)(b) at all. To that extent its ruling was in our view premature and therefore incorrect. This ruling the CAC endorsed. In this in our view it fell into the same error.
But even if the ruling is no more than ambiguous, and was not intended to have that effect, it is clearly desirable that there should be clarity on the issue, bearing in mind the uncertainty that clearly exists, and the enormous expense this uncertainty has already entailed.
We pointed out earlier that an agreement that involves, amongst other things, price-fixing, is prohibited by s 4(1)(b), and nothing can be advanced to justify it. But when has prohibited price-fixing occurred? This is not always simple to determine. In the United States the condemnation of price-fixing arises from judicial interpretation of s 1 of the Sherman Act.24 In the European Union, in Australia, and in this country it is decreed by legislation.
In the United States the enquiry is approached by ‘characterising’ the conduct complained of to determine whether it constitutes that form of conduct that the courts have through case precedents labelled ‘price-fixing’ but have not comprehensively defined. In this country, where the prohibition is decreed by legislation rather than by judicial intervention, the prohibited form of conduct must be established by construing s 4(1)(b).
Once the ambit of sub-para (b)’s prohibition has been established the enquiry can move to whether or not the conduct in issue falls within the terms of the prohibition. That is a factual question that must be answered by recourse to relevant evidence.
There is in principle no reason why the enquiry should not be conducted in reverse. The enquirer might choose first to identify the true character of the conduct that is the subject of the complaint, and only then turn to whether the conduct (so characterised) constitutes price-fixing as contemplated by s 4(1)(b). (This is how the enquiry is conducted in the United States, though there the two elements tend to be elided, because the scope of the prohibition is itself a matter of judicial rather than legislative determination.)
Whichever approach is adopted, the essential enquiry remains the same. It is to establish whether the character of the conduct complained of coincides with the character of the prohibited conduct: and this process necessarily embodies two elements. One is the scope of the prohibition: a matter of statutory construction. The other is the nature of the conduct complained of: this is a factual enquiry. In ordinary language this can be termed ‘characterising’ the conduct – the term used in the United States, which Ansac has adopted.
Price-fixing necessarily contemplates collusion in some form between competitors for the supply into the market of their respective goods with the design of eliminating competition in regard to price. That is achieved by the competitors collusively ‘fixing’ their respective prices in some form. (By setting uniform prices, or by establishing formulae or ratios for the calculation of prices, or by other means designed to avoid the effect of market competition on their prices.)
But while price fixing inevitably involves collusive or consensual price determination by competitors, it does not follow that price fixing has necessarily occurred whenever there is an arrangement between competitors that results in their goods reaching the market at a uniform price. The concept of ‘price fixing’, both in lay language and in the language that the Act uses, may, for example, be limited to collusive conduct by competitors that is designed to avoid competition, as opposed to conduct that merely has that incidental effect.
As the majority of the United States Supreme Court pointed out in Broadcast Music, Inc v Columbia Broadcasting System, Inc 441 US 1 (1978) at 9:
‘Literalness [when interpreting the phrase ‘price-fixing’] is overly simplistic and often overbroad. When two partners set the price of their goods or services they are literally “price fixing,” but they are not per se in violation of the Sherman Act…Thus, it is necessary to characterise the challenged conduct as falling within or without that category of behaviour to which we apply the label “per se price fixing.” That will often, but not always, be a simple matter.’
What is important for the present proceedings is that the nature of the prohibiting source in this country – a legislative injunction against a certain form of conduct – makes it impossible to conclude the enquiry into whether particular conduct is prohibited without at some stage determining the scope of the legislative prohibition. And unless that determination is made, it is not possible to predict what evidence will be relevant or irrelevant to the factual part of the enquiry.
There can be little doubt that an agreement by competitors that has as its specific design the elimination of price competition (the essential characteristic of a cartel)25 constitutes direct price-fixing as contemplated by the statute. Where competitors have reached an agreement to set uniform prices, without more, all that might be required in order to establish a transgression of s 4(1)(b) is to produce their agreement, because its very terms may admit of no conclusion but that it was designed to eliminate price-competition.
But indirect price-fixing presents greater complexity. It is not difficult to envisage conduct by competitors that is designed to eliminate price-competition indirectly, by shifting the supply of competitors’ goods to a separate entity that is under their control, and which purports to set the price for the goods. If that separate entity is no more than the alter ego of the individual competitors in association, who are in truth consensually fixing their prices through the medium of that alter ego, then no doubt the façade behind which they are acting can be stripped away to reveal the reality of the arrangement (collusion by two or more competitors designed to ensure that their respective goods reach the market at non-competing prices).
But not every arrangement between competitors entailing the ultimate supply of goods necessarily falls into that category. It is, for instance, not difficult to envisage a bona fide joint venture that is embarked upon by competitors for a legitimate purpose, through the vehicle of a separate entity, which must necessarily set a price for goods that it supplies (emanating from the competitors) merely as an incident to the pursuit of the joint venture.
There is in our view no a priori reason to assume that such an arrangement constitutes prohibited price-fixing as contemplated by s 4(1)(b) of the statute. (We emphasise that we make no finding as to whether or not it is.) If, on a proper construction of s 4(1)(b), such an arrangement does not constitute prohibited price-fixing, then it might well be necessary to enquire beyond the mere terms of the competitors’ agreement in order to establish whether it is or is not merely a sham: to establish, in other words, whether the vehicle for the joint venture is in truth a single entity supplying its own goods to the market (albeit that the source of the goods is the competitors) for which a price must necessarily be set by the joint venture vehicle; or whether the vehicle for the joint venture is merely a cloak for what is in truth collusive action designed to ensure that the goods of competitors are supplied to the market at non-competitive prices.
What is critical to the present application is that the determination of what evidence is admissible depends on the scope of the legislative prohibition. Until there is clarity on what the legislation prohibits (and on what is not prohibited) it is premature to rule on what evidence might or might not be relevant and admissible to determine whether the prohibited conduct has occurred.
The parties are agreed that the Tribunal has yet to determine that issue. The Tribunal has not yet in express terms construed s 4(1)(b) and established its scope (nor what falls outside its scope). Nor is the scope of the prohibition in our view self-evident. The Competition Commission, in its submissions before us, has recognised some of the absurdities that would follow from a construction of s 4(1)(b) that prohibits all consensual conduct by competitors that ultimately produces a uniform price for goods emanating from them. The Commission has for this reason been constrained to read words into the statute to avoid the absurdities.
If the statute prohibits all consensual conduct amongst competitors that has the effect of creating uniform prices for their goods in the market, then the only evidence relevant to the enquiry is no doubt evidence that establishes the existence of a consensus having that effect. But if the prohibition is more restricted, then plainly the terms of the agreement alone might not be decisive.
We are not called upon in this application to give meaning to the prohibition and indeed it is not permissible for us to do so. The jurisdiction of this court, as we have pointed out, is confined to considering appeals, which contemplates the existence of an order or ruling by another court on the issue under appeal.
We do not suggest that the evidence Ansac seeks to lead is necessarily admissible. We hold only that it is premature at this stage to make a finding as to what evidence is or is not admissible, so long as the characteristics of the prohibited conduct have not been established by construing the statute. It is for the Tribunal to consider, in the manner and in accordance with such procedure as it may decide, to what extent evidence may be admissible to establish whether the Ansac agreement falls within the prohibition contained in s 4(1)(b).
To the extent that the Tribunal’s ruling is confined to precluding evidence purporting to justify conduct prohibited by s 4(1)(b) its finding is correct, and the CAC correctly dismissed the appeal against it. But to the extent that its ruling precludes evidence to ‘characterise’ the conduct in issue in order to determine whether or not the s 4(1)(b) prohibition covers that conduct at all, its ruling was premature and thus incorrect and is liable to be set aside.
Our findings that the CAC’s conclusions relating to jurisdiction and standing are unassailable clearly constitute a sufficient basis on which to refuse leave to appeal on those issues. Our finding relating to the remaining issue (the ruling on the admissibility of evidence), however, is of sufficient importance, both for the proper determination of the present dispute and for the future application of s 4(1)(b), to justify our intervention to correct the Tribunal’s findings insofar as it is necessary to do so.
As for the costs of the application, Ansac has failed in its contentions regarding the territorial application of the Act, and Botash’s legal standing. But it has had some success regarding what may be seen as the parties’ principal dispute – the admissibility of evidence to characterise the Ansac agreement and Ansac’s projected activities within South Africa. The parties are therefore invited to submit written argument as to what costs order would be most appropriate in this court and in the forums below.
There is a remaining observation. The present proceedings underline the need for care to be taken when isolating issues and dealing with them separately from the remaining issues. We repeat what was said by this court in Denel (Pty) Ltd v Vorster26in a related context:
‘[I]t is appropriate to make a few remarks about separating issues. Rule 33(4) of the Uniform Rules – which entitles a court to try issues separately in appropriate circumstances – is aimed at facilitating the convenient and expeditious disposal of litigation. It should not be assumed that that result is always achieved by separating the issues. In many cases, once properly considered, the issues will be found to be inextricably linked even though at first sight they might appear to be discrete. And even where the issues are discrete the expeditious disposal of the litigation is often best served by ventilating all the issues at one hearing, particularly where there is more than one issue that might be readily dispositive of the matter. It is only after careful thought has been given to the anticipated course of the litigation as a whole that it will be possible properly to determine whether it is convenient to try an issue separately. But where the trial court is satisfied that it is proper to make such an order – and in all cases it must be so satisfied before it does so – it is the duty of that court to ensure that the issues to be tried are clearly circumscribed in its order so as to avoid confusion… [A]nd when issuing its orders a trial court should ensure that the issues are circumscribed with clarity and precision.’
We make the following order:
The application for special leave to appeal against the order of the Competition Appeal Court insofar as it dismissed the appeal against the findings of the Tribunal relating to jurisdiction and standing is refused.
The application for special leave to appeal against the order of the Competition Appeal Court insofar as it dismissed the appeal against the ruling of the Tribunal relating to the admissibility of evidence is granted.
The appeal succeeds to that extent and the order of the Competition Appeal Court is set aside. In its place there is substituted:
‘(a) The Tribunal’s ruling that evidence is not admissible to justify conduct falling within the prohibition contained in s 4(1)(b) stands.
(b) The Tribunal’s ruling, to the extent that it excludes all evidence relating to the nature, purpose, and effect of the Ansac agreement, is set aside.’
The parties are invited to submit written argument as to the appropriate costs order, in this court and in the courts below.