South Africa and Federal Mogul Aftermarket Southern Africa (Pty) Ltd 1st Respondent
Federal Mogul Friction Products (Pty) Ltd 2nd Respondent
T & N Holdings Ltd 3rd Respondent
T & N Friction products (Pty) Ltd 4th Respondent
Administrative Penalty and Reasons for the Competition Tribunal’s Decision (non-confidential version)
In our earlier decision on the merits of this matterwe found that the first respondent had contravened section 5(2) of the Act.1
We postponed the issue of remedies for further evidence and argument. The only further evidence that we received was an affidavit filed by the first respondent from its managing director Mr. Frederick Nel.
The Commission has asked us to impose an administrative penalty upon the first respondent of eight million five hundred thousand Rand (R 8 500 000.00)The Commission had also sought a permanent interdict against the first respondent, but it later abandoned this prayer, so we need only consider the appropriateness of the administrative penalty remedy.
The Tribunal’s power to impose an administrative penalty arises from section 59(1) and (2) of the Act which states as follows:
(1)The Competition Tribunal may impose an administrative penalty only –
for a prohibited practice in terms of section 4(1)(b), 5(2) or 8(a), (b) or (d);
for a prohibited practice in terms of section 4(1) (a), 5(1), 8(c) or 9(1), if the conduct is substantially a repeat by the same firm of conduct previously found by the Competition Tribunal to be a prohibited practice;
for contravention of, or failure to comply with, an interim or final order of the Competition Tribunal or Competition Appeal Court; or
if the parties to a merger have –
failed to give notice of the merger as required by Chapter 3;
proceeded to implement the merger in contravention of a decision by the Competition Commission or Competition Tribunal to prohibit that merger;
proceeded to implement the merger in a manner contrary to a condition for the approval of that merger imposed by the Competition Commission in terms of section 13 or 14, or the Competition Tribunal in terms of section 16;or
proceeded to implement the merger without the approval of the Competition Commission or Competition Tribunal, as required by this Act.
(2) An administrative penalty imposed in terms of subsection (1) may not exceed 10% of the firm’s annual turnover in the Republic and its exports from the Republic during the firm’s preceding financial year.
At the outset the first respondent has taken a series of constitutional points concerning the competence of this type of remedy and it is these issues, which we first consider.
SECTION A -Constitutional point
The first respondent argues that section 59 of the Competition Act is unconstitutional in three respects.
Firstly, section 59 of the Competition Act authorises the Tribunal, in the circumstances set out in the section, to impose administrative penalties on firms found to have contravened the Act. These penalties, argues the first respondent, are civil in ‘name’ only, but are criminal in ‘kind’ as they are punitive in nature. For that reason a respondent, in prohibited practice proceedings where a penalty remedy is sought, should have the same rights as an accused person has in criminal proceedings, rights that are guaranteed by section 35(3) of the Constitution. The first respondent argues that on a proper examination these protections are absent from the Act in several material respects. We deal with these in more detail later.
Secondly, and we understand this as an alternative to the first point, that even if section 35(3) does not apply to a respondent in prohibited practice proceedings, then section 34 of the Constitution, which provides for the rights of persons to have access to courts, does. Yet again there is, in the view of the first respondent, a want of constitutional compliance, as the Tribunal is not an “independent and impartial tribunal or forum” as required by that section.
The third submission is that section 59 is substantially irrational and accordingly unconstitutional to the extent that it provides that a firm’s turnover should be used as a basis for determining a maximum penalty in terms of that section.
The Commission and the amici 2 submitted that all three constitutional points were without merit and that we should reject them. The Commission, however, argued that we have no jurisdiction to determine the constitutionality of our own statute, as we are not a court with the status of a High Court.3 The first respondent argued that all it sought was for us not to exercise our powers in terms of section 59. The tribunal is permitted, argues the first respondent, to decide whether section 59 is unconstitutional. If we decide it is not, we must not implement it. The amici in this respect took the side of the first respondent and, whilst conceding that there was no direct authority on this point, argued that some other decided cases might be persuasive, including a decision of the Canadian Supreme Court in Douglas /Kwantlen Faculty Association v Douglas College where the court held that:
“A Tribunal must respect the Constitution so that if it finds invalid a law it is called upon to apply, it is bound to treat it as having no force and effect.”4
As we have decided that the section is not unconstitutional we do not need to decide this jurisdictional point, and we have proceeded on the assumption that the first respondent and the amici are correct in this respect. In any event, we believe that should this matter be taken to another forum, that forum may find it’s useful to have the perspective of the body responsible for adjudicating competition matters.
Prior to the Competition Act coming into force in 1999, its predecessor, the Maintenance and Promotion of Competition Act (Act No. 96 of 1979) had a bifurcated approach to what the present Act defines as prohibitive practices. Under the old Act, some restrictive practices were susceptible to civil remedies, which did not include penalties, whilst others, including resale price maintenance, were made offences and could only be enforced by criminal law.
There were few if any criminal prosecutions under the repealed 1979 Act. It is not hard to understand why. Competition cases are difficult to conduct not only because they are fact intensive, but also because they involve the application of both law and economics. Neither the Department of Justice nor the SA Police Service have people with any special skills in this area - nor would it have been worth their while securing them, since under the old Act the number of cases requiring prosecutions was too insignificant to warrant the investment. This led to the demise of enforcement and, not surprisingly, when the new Act was proposed, Parliament, in the explanatory memorandum, stated that decriminalizing restrictive practices was a deliberate policy choice to improve enforcement. The administrative penalty became a feature of the new Act. What the Act sought to achieve was to improve enforcement by making a specialist agency and adjudicative tribunal solely responsible.
At the same time the legislature intended to decriminalize anticompetitive actions, believing that in modern law administrative penalties sufficed. 5
“Infringement of competition legislation will not be subject to criminal sanction, the only exceptions being in respect of breaches of confidence, hindering the administration of the Act and failures to attend when summoned and to answer truthfully to the Commission.”6
This is the background to the present section 59, which provides an administrative penalty as a possible remedy to the Tribunal in the event of a finding that a respondent firm has contravened certain provisions of the Act. 7
The Respondent’s Argument in Terms of Section 35 of the Constitution
Section 35 (3) of the Constitution states:
Every accused person has the right to a fair trial, which includes the right-
to be informed of the charge with sufficient detail to answer it;
to have adequate time and facilities to prepare a defence;
to a public trial before an ordinary court;
to have their trial begin and conclude without unreasonable delay;
to have a legal practitioner assigned to the accused person by the state and at the state expense, if substantial injustice would otherwise result, and to be informed of this right promptly;
to be presumed innocent, to remain silent, and not to testify during the proceedings;
to adduce and challenge evidence;
not to be compelled to give self-incriminating evidence;
to be tried in a language that the accused person understands or, if that is not practicable, to have the proceedings interpreted in that language;
not to be convicted for an act or omission that was not an offence under either national or international law at the time it was committed or omitted;
not to be tried for an offence in respect of an act or omission for which that person has previously been either acquitted or convicted;
to the benefit of the least severe of the prescribed punishments if the prescribed punishment for the offence has been changed between the time that the offence was committed and the time of sentencing ; and
of appeal to, or review by, a higher court.
Measured against section 35(3) of the Constitution, the first respondent submits that the Competition Act fails to comply with that constitutional standard in three respects:
The Tribunal is not a ‘court’;
A respondent is not afforded the benefit of the more exacting standard of proof in criminal proceedings, viz. proof beyond a reasonable doubt. Although section 35(3) is silent on the burden of proof, the first respondent argues that this right has been read into the section by the Constitutional Court interpreting sections 35(3)(h), (i) and (j) 8; and
A respondent is deprived of its right to silence.
Since all parties before us are agreed that we are not a court, at least in the conventional sense implied by section 35, and that proof in our proceedings is based on a balance of probabilities9, the first respondent is correct that, at least in these two respects, the Tribunals procedures fall short of section 35’s strictures. It is less clear whether the Act can be read as to deprive a respondent of a right to remain silent although the first respondent concedes that this was not an issue in the instant case. 10
Nothing turns on determining this latter aspect, because if the first respondent is correct about the first two aspects, its argument must succeed.
In order to determine this we have to decide –
whether section 35 of the Constitution is intended to apply to Tribunal hearings for which an administrative penalty may be imposed ?
if not, why not; and then further;
if not, whether our proceedings meet the standard set out in section 34 of the Constitution.
The success of the first respondent’s section 35(3) argument is dependent on the notion that the effect of section 59 is punitive in the criminal law sense – hence a contravention of the Act that leads to the order of such a remedy is the analogue of a criminal court imposing its stricture on a miscreant, at least in substance if not form, and that accordingly, if the demands of the Constitution are not to be frustrated the legislation must provide the contravening party no less rights than would their criminal law counterpart.
There is no authority presently in our law to support such a view and hence the first respondent’s case is so heavily reliant on European case law for its conclusions.
On the other hand, as the amici point out, what South African case law there is, albeit not directly in point, tends to indicate our courts’ reluctance to expand the notion of who is an accused person beyond its conventional notions in criminal law.
The leading case is Nel v Le Roux NO and others11, where the Constitutional Court had to decide whether the provision in the Criminal Procedure Act, which allows a judicial officer to imprison a recalcitrant witness, was unconstitutional because it did not meet the requirements afforded to an accused person in terms of the Interim Constitution. Amongst the grounds on which that section was attacked was the fact that the provision was incompatible with an accused person’s right to be presumed innocent and remain silent (section 25(3)(c)), and the privilege against self-incrimination (section 25(3)(d)).
Whilst the Court held that such a person was entitled to procedural fairness, the examinee was not entitled to section 25(3) rights,
“….for the simple reason that such examinee is not an accused facing criminal prosecution. The section 189(1) proceedings are not regarded as criminal proceedings, do not result in the examinee being convicted of any offence and the imprisonment of an examinee is not regarded as a criminal sentence or treated as such.” 12
This is where the first respondent ingeniously endeavours to use a case ostensibly against it to bolster its own argument. The first respondent argues that the lesson from Nel’s case is not that the Court is not prepared to extend the rights of an accused person to a non-criminal trial context. Rather the test resides in understanding the objective of the sanction. Reliance for this is placed on a remark by the Court later in the same passage where it states:
“If, after being imprisoned, an examinee becomes willing to testify this would entitle the examinee to immediate release; in American parlance such examinees ‘carry the keys of their own imprisonment in their own pockets’. The imprisonment provisions in section 189 constitute nothing more than process in aid of the essential objective of compelling witnesses who have a legal duty to testify to do so; it does not constitute a criminal trial nor make an accused of the examinee.”
Thus, the first respondent argues, Nel turns on the fact that the object of imprisonment of recalcitrant witnesses is coercive, not punitive. This case it argues, is therefore authority for the proposition that it is the ‘object’ of the sanction that is determinative and if the object is to punish as opposed to coerce, section 35(3) rights are still of application.
This is an interesting gloss on the Nel case but the first respondent cannot get round the clear language of the Court that the rights were not triggered for:
“the simple reason that an examinee is not an accused facing criminal prosecution.” 13
The first respondent also seeks to rely on the Baloyi14 case to reinforce this gloss. The question there was whether the alleged violator of an interdict in terms of the Domestic Violence Act (no 116 of 1998), who faced conviction and imprisonment (and a fine), was an accused person as contemplated in terms of section 35(h) of the Constitution. The Court held that such person was. The Court distinguished Nel’s case on the basis that the objective was:
“..not to coerce the will to desist from on-going defiance, but to punish the body for completed violation; and the convicted person carries no keys in his pocket – indeed there is nothing in the Act to suggest that he can be released early if either the complainant wishes or the judicial officer so decides.”15
However it is quite clear that Baloyi was not concerned with an administrative penalty whose objective is punitive. It was rather concerned with a statutory offence for which conviction and imprisonment were consequences for the transgressor. This is illustrated by the following passage from the decision:
“The language of the Act is clear. Section 6 is headed Offences and Penalties and says that a person who contravenes an interdict “shall be guilty of an offence and liable on conviction” to a fine or imprisonment for a period not exceeding twelve months. Section 3(4) states that the judicial officer shall enquire into the alleged breach and “(b) convict the respondent of the offence contemplated in section 6.”16
The European Convention cases
Devoid of any local authority that supports its proposition, the first respondent has turned to European case law for assistance. In terms of Article 6 of the European Convention a person charged with a criminal offence is afforded certain minimal rights. 17
It appears that in an evolving jurisprudence over some years, that the majority of the decisions handed down by the European Court of Human Rights, have been at pains to ensure that Article 6 is not too easily evaded, leaving member states with no fairness standard to adhere to in proceedings that may be seriously invasive of citizens’ rights. For this reason they have been at pains to find proceedings, despite their outward administrative law trappings, as criminal in nature and hence subject to the purview of Article 6.
As stated for instance in the Engel case, which dealt with disciplinary proceedings against military conscripts in the Netherlands armed forces, member states are free to classify anything as ‘criminal’ subject to the rights that the Convention protects. The converse, that is, classifying something as disciplinary instead of criminal is not subject to the same latitude.
“The converse choice, for its part, is subject to stricter rules. If the Contracting states were able at their discretion to classify an offence as disciplinary instead of criminal, or to prosecute the author of a mixed offence on disciplinary rather than on the criminal plan, the operation of the fundamental clauses of Article 6 and 7 would be subordinated to their sovereign will. A latitude extending thus far might lead to results incompatible with the purpose and object of the Convention. “18
The Engel case illustrates this distinction. The violation of Article 6 in this case was limited to the fact that the military discipline proceedings had taken place ‘in camera’ and hence did not constitute the public hearing that the Article requires.19
Our Constitution on the other hand, by virtue of section 34, ensures that fairness is not jettisoned from dispute resolution simply because a procedure is not characterized as criminal. In our law ‘non-criminal’ disputes must still comply with section 34. The right to a public trial, the issue in the Engel case, is, in terms of our Constitution, guaranteed not only in criminal proceedings (section 35(3)(c)) but also by section 34.20
The court in Engel developed three criteria for determining whether a person facing a proceeding was the subject of a ‘criminal charge’.
Whether the provision defining the offence belongs to the criminal system of the respondent State.
The nature of the offence.
The degree of severity of the penalty that the person concerned risked incurring.21
Noteworthy, in relation to the latter criteria, the court said the following:
“In a society subscribing to the rule of law, there belongs to the ‘criminal’ sphere deprivations of liberty liable to be imposed as a punishment, except those which by their nature, duration or manner of execution cannot be appreciably detrimental. The seriousness of what is at stake, the traditions of the Contracting states and the importance attached by the Convention to respect for the physical liberty of the person all require that this should be so.”22
It was argued for the government in a later United Kingdom case that this aspect of Engel, namely, the absence of any threat of imprisonment, is a powerful indicator that proceedings in which only a penalty may be imposed do not give rise to a ‘criminal charge’.23
However the Strasbourg Court has gone considerably further down the road on these matters and subsequent cases indicate that the court would find a ‘criminal charge’ in cases where penalties are sufficiently burdensome even though they may not entail the loss of liberty.
This expanded notion of “criminal” has not been uncontroversial, involving, in certain of the cases, spirited dissents. In dissenting the judges examined the fact that in certain countries a policy of decriminalisation had taken place for sound reasons. Among the reasons proffered are the removal of a moral judgment about the affected person’s behaviour and enhancing the efficiency of the legal system by removing minor offences from the criminal justice system and thereby reducing backlogs. Thus, decriminalisation, far from being a retrogressive policy that requires the redress of the Convention to correct, is a trend in modern societies faced with complex regulatory regimes.
A good example of this approach is found in the dissenting opinion of Judge Bernhardt in Ozturk v Germany24:
“ Thus the real problem in my opinion is whether the decriminalisation here under consideration is a legitimate exercise of national determination and whether it is in conformity with the object and purpose of Article 6. My answer is in the affirmative. The reasons for removing some minor offences from the field of criminal law, and for providing special sanctions and procedures for them, can hardly be considered unfounded or disguised.”
Another of the dissenting judges, Judge Matscher had this to say in the same case:
“I shall merely point out that decriminalisation is something very different from a mere switch of labels. Social changes and new attitudes, as well as technical and economic circumstances, are leading states to reassess the elements which go to make up criminal offences; thus certain comparatively minor offences, which nowadays are very common, have been removed from the criminal sphere and classified as regulatory offences. This has important consequences, which obliges us, in my view, to conclude that the nature of the offence itself has changed. The moral verdict is no longer the same, in other words, a regulatory offence no longer carries the blame which attaches to a crime; the court’s decision is not entered into the criminal record; nor do regulatory offences carry a more severe penalty in the event of recidivism, this being another feature of criminal law; investigatory measures are also limited - there may, for example, be none of those restrictions on the person’s liberty which apply in criminal proceedings (neither police custody, nor detention on remand, nor the interception of communication may be ordered).The sanctions, too, are fundamentally different. There is no imprisonment.” 25
Notwithstanding this dissenting opinion, the Strasbourg jurisprudence was further developed. In the case of AP, MP and TP v Switzerland26 the court developed its notion of the nature of the offence in an important way. The first respondent has latched on to this decision and it is fundamental to its argument.
The majority of the court said the following:
“ As regards the nature of the offence, it is noted that tax legislation lays down certain requirements to which it attaches penalties in the event of non-compliance. The penalties, which in the present case take the form of fines, are not intended as pecuniary compensation for damages but are essentially punitive and deterrent in nature.27
Note that the argument of the first respondent in this case has been that the punitive and deterrent character of the administrative penalty under the Competition Act is what imbues it with its ‘criminal ‘ character. Yet in the same case, again a dissenting opinion by Judge Baka, who is joined by Judge Bernhardt, adopts an entirely different stance on this point:
“ I consider that the fine imposed by the authorities on the heirs in the instant case was fiscal in nature and not criminal. Such types of fine are designed to prevent tax evasion. In so doing their main purpose is to protect the financial interests of the state and in a broader sense those of the community. Their undeniably severe punitive character is not just to punish for the tax, which was withheld, but also to deter the offender, through the imposition of a financial penalty, from committing further offences and to deter other taxpayers from possible tax evasion in the future… It is more justified, however, to point to the fact that while the incorrectly declared income was significant and the imposed fine ‘not inconsiderable’ no entry was made in the criminal record of P’s heirs, thus excluding the assumption that the fine was criminal in character.”28
Thus, unlike the majority who bundle the deterrent and punitive aspects of the penalty, Judge Baka separates them and finds only the latter indicative of the existence of criminal character. He goes further to discern the dominant purpose for the fine and, finding it not to be punitive even though it has some aspects of punishment, concludes that it is not criminal.
The critique of the majority approach in Strasbourg has not been confined to some eloquent dissents. In the UK in the Han case the majority of the Court, albeit following Strasbourg, did so with the greatest reluctance as appears from their decision. 29The court found that although their system of administrative penalties for certain tax contraventions was not consistent with the Convention in terms of the European case law, it was not an unfair system. Unlike the UK court we are not obliged to follow the dominant European approach if we feel that the dissenting arguments are more forceful and in accordance with our own system.
The impact of the Strasbourg jurisprudence and the Han case impacted directly on competition jurisprudence in the NAPP 30 case recently heard by the United Kingdom’s Competition Commission Appeal Tribunal (CCAT).
The issue arose as to whether the burden of proof should be criminal or the civil standard in a case for which a fine was being sought. The CCAT held that, although it was, in following Han, bound to find that its proceedings were subject to Article 6, and were, in this sense, ‘criminal’, it did not follow that:
“…these proceedings must be subject to the rules that apply to the investigation and trial of offences that are classified as criminal law offences for the purposes of domestic law.”31
The decision goes on to state:
“In our view it follows that neither Article 6 nor, the Human Rights Act 1998, in themselves oblige us to apply the criminal standard of proof as established in domestic law in cases where the Director seeks to impose a financial penalty in respect of alleged infringements of the Chapter I or Chapter II prohibitions under the Act.”32
From the cases that we have considered we would make the following observations:
The Strasbourg Court, faced with the Hobson’s choice of, on the one hand, applying Article 6 of the European Convention according to a very broad sweep set of criteria with the unintended consequences potentially flowing from this, or, on the other hand, having no procedural protections at all for many administrative proceedings, has opted in favour of an extended application.
These concerns, as the amici point out, are less pressing in our constitutional dispensation because the procedural protections of sections 33 and 34 remain applicable to non-criminal proceedings. Accordingly, the concern in Europe to develop an extensive notion of what is criminal in order to ensure that citizens have some measure of procedural protection is more compelling in Europe than it is in our circumstances.
Yet, even within the European jurisprudence there is a history of strong dissents that suggest that the expansive notion of what is criminal is problematic for nation states.
Note moreover that Article 6 of the Convention is less demanding than our section 35(3) - section 59 would certainly withstand scrutiny under Article 6. Noteworthy is the fact that in the Napp case, despite the CCAT finding that the Article 6 applied, it did not consider itself bound to adopt the criminal law burden of proof. As that Tribunal observed:
“Neither the ECHR itself nor the European Court of Human Rights has laid down a particular standard of proof that must be applied in proceedings to which Articles 6(2) or(3) apply, and still less that the standard should be that of proof “beyond a reasonable doubt” which is not a concept to be found in the domestic systems of many of the signatory states.”33
The minority decisions, in particular the Azturk and AP, MP and TP cases, distinguish between the deterrent and retributive purpose of penalties, holding that only the latter gives the penalty a criminal character. This distinction is relevant as it emerges again in other decisions and literature that we consider below.