On 29 June 2016, the Competition Tribunal confirmed a consent order agreed by the Competition Commission with Murray & Roberts and Freyssinet Posten ("Freyssinet"). Murray & Roberts and Freyssinet admitted price-fixing, market division and collusive tendering on over 60 projects and between them agreed to pay a fine of just over R4.7 million.
And why is that newsworthy? Stories of the construction industry's various anticompetitive shenanigans are old hat. This consent order is only really interesting because it deals with indirect price-fixing and provides some insight into what the Competition Commission considers to be indirect price-fixing.
The Competition Act prohibits both direct and indirect price-fixing. Neither concept is defined by the Act. The Supreme Court of Appeal examined the difference between direct and indirect price-fixing in the American National Soda Ash Corporation decision in 2005 saying "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) constitutes direct price-fixing as contemplated by the statute… 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…". The court went on to highlight the difference between a genuine joint venture between competitors which sets prices for the goods it supplies to market and a joint venture which "is merely a sham" disguising collusive price-fixing between competitors.
Freyssinet was a joint venture between Murray & Roberts and Soletanche Freyssinet Group of France. Murray & Roberts exited the joint venture in 2011. The Commission's investigation found that Freyssinet had reached and implemented "overarching agreements" with competitors Amsteele, Steelforce and Tsala-RMS in the post-tensioning steel market between 2006 and 2008 through an industry association, the South African Post Tensioning Association. SAPTA's members had various meetings and discussions and agreed between them industry trading terms and conditions in respect of price adjustment formulae. The formula agreed through SAPTA "proportion the mix of labour and materials applicable to the post tensioning industry and applied specific indices available from Statistics South Africa". While the consent order does not provide much detail about the offending agreements, it is clear that they were concluded through an industry association of competitors and amounted to the fixing of industry trading terms and conditions governing price adjustments. This consent order provides a useful glimpse of the Competition Commission's approach in practice to the prohibition against indirect price-fixing.
The fact that competitors should be extremely wary of collectively negotiating any key input cost or price or any trading term affecting quality, quantity, prices or costs is reinforced by the exemption granted by the Competition to the Western Cape Citrus Producers Forum ("the Forum") on 1 July 2016. The Forum coordinates logistical, marketing and sales support for exporters of citrus fruits to the United States. The exemption was granted for 3 months until 16 September 2016. The key part of the exemption notice is the statement that "In granting the exemption, the Commission has concluded that the export activities of the WCCPF constitute a prohibited practice, in contravention of sections 4(1)(b)(i) [price-fixing] and 4(1)(b)(ii) [market division] of the Act". The Commission goes on to say that it is granting the exemption because the Forum's conduct contributes to the maintenance or promotion of exports and meets an objective for which exemptions may be granted in terms of section 10 of the Act. The Commission justified the exemption because export costs to the United States are higher than to other destinations and it is essential to achieve economies of scale for exports to be profitable. There are also delays in offloading containers in some ports in the United States which make the export of citrus fruit using a reefer vessel far more efficient because the whole load is treated as a single container. The Commission was at pains to point out that the exemption does not apply to local sales of citrus fruit or exports to any other markets. It expressly prohibited the exchange of competitively sensitive information such as pricing and volumes except to the extent necessary for the exempted purposes. Joint negotiation of tariffs by the Forum in respect of reefer vessels was extended to include containers on condition the containerized citrus fruit is being exported to "new destination ports in the USA".
It is increasingly apparent that the Competition Commission views with suspicion any communication between competitors. Industry associations are a especially convenient starting point for cartel investigations. Membership lists often read like a "Who's Who" for the industry concerned. The Freyssinet consent order and the Forum exemption are a graphic illustration of this point. That these matters may well not be the last we hear of investigations of price formulae concluded through industry associations is evident from the suggestion made by the Tribunal's chairman, Norman Manoim during the Freyssinet hearing that the “Commission embark on advocacy work to determine the legality of the formula for contract price escalations created by some industry associations”.