Tribunal concludes construction/engineering cartel case: Esorfranki found guilty of collusion, R15.7m penalty imposed, case against Diabor dismissed
In a cartel case involving construction and engineering companies, the Competition Tribunal (“the Tribunal”) has found that Esor Ltd, Esor Africa (Pty) Ltd and Esor Construction (Pty) Ltd (collectively referred to as “Esorfranki”) colluded with competitors to fix prices and allocate customers and that they engaged in bid rigging through cover pricing. .
The Tribunal has ordered the three firms to jointly and severally pay an administrative penalty of R15 700 000 (fifteen million seven hundred thousand Rand). Meanwhile, the case against another accused firm in the matter, Diabor (Pty) Ltd (“Diabor”), has been dismissed by the Tribunal.
The matter relates to construction projects in the markets for geotechnical services including piling, lateral support, grouting and geotechnical drilling investigation services.
The public version of the Tribunal’s order and reasons will be available on www.comptrib.co.za in due course. Below is a brief summary and excerpts:
THE COMMISSION’S CASE
The Competition Commission (“the Commission”) alleged that from the 1970s to at least 2015 the eight respondents colluded on various tenders.
The Commission alleged that the companies colluded through “formal arrangements” until 2005 after which they engaged in “ad hoc arrangements”.
ESORFRANKI
In its pleadings Esorfranki admitted to participating in the formal arrangements but said it stopped in 2005, more than three years before the Commission's investigation started in 2009. It argued that the Commission, therefore, could not bring the case against it in terms of section 67(1) of the Competition Act (“the Act”) which, before the 2018 amendments, provided: “A complaint in respect of a prohibited practice may not be initiated more than three years after the practice has ceased”.
However, the Tribunal has dismissed Esorfranki’s argument on the following basis: “… the conduct pertaining to the projects allocated prior to 24 September 2005 continued at least until after June 2008. On this basis, the claim by Esorfranki that the Commission's 2009 initiation was not valid under section 67(1) because the conduct had ceased in 2005 (three years before the initiation) falls to be dismissed.”
Regarding ad hoc arrangements, Esorfranki admitted to participation in collusive conduct in respect of the one Sappi/Saiccor project. The Commission accused Esorfranki of involvement in several ad hoc arrangements. However, the Tribunal notes that the case against Esorfranki revolves on the degree of its culpability and not whether it was culpable at all. The Tribunal says the ad hoc collusion was part and parcel of the overall agreement and not something new that started after 2005:
“Esorfranki's defence, namely that its withdrawal from the formal arrangements on 24 September 2005 constituted a cessation of the collusive conduct, falls to be dismissed. It might have withdrawn from the formal arrangements, but its collusive conduct that was the subject of the overall agreement under the formal arrangements continued at least until June 2008. Its conduct after 2005 could be characterised as a continuation of the overall agreement albeit in a different form. But even if the ad hoc arrangements are not characterised as such, we find that Esorfranki's collusive conduct in the Sappi/Saiccor project had not ceased three years prior to the Commission's initiation in April 2009.”
After considering the totality of the evidence, the Tribunal has found that the Esorfranki group companies have contravened section 4(1)(b)(i), (ii) and (iii) of the Act in that they colluded with their competitors to fix prices, allocate customers and engage in bid rigging through cover pricing from at least 1999 to 2008.
DIABOR
The Commission alleged that Diabor was involved in at least three ad hoc arrangements. Diabor denied participating in the collusive conduct and said the Commission’s case against it should be dismissed. After considering all of the evidence, the Tribunal notes the following in relation to Diabor:
“In this case we are dealing with hearsay upon hearsay evidence, with the Commission's chief and only witness conceding that all of his evidence regarding Diabor's involvement in the collusion was based either on what he was told by others or what he had assumed… All of the evidence put up by the Commission in relation to Diabor was not only of a hearsay nature but was based on hearsay upon hearsay and remained untested. Thus we would exercise caution in relying upon such evidence. More so in the context of the direct evidence presented to us…”
The Tribunal has found that the Commission has not, on a balance of probabilities, discharged its onus to show that Diabor was involved in any collusive arrangements: “Hence, we find on a balance of probabilities that the Commission has not discharged its onus in respect of Diabor's involvement in the alleged collusion. Accordingly, the complaint referral against Diabor is dismissed.”
Issued by:
Gillian de Gouveia, Communications Officer
On behalf of the Competition Tribunal of South Africa
Cell: +27 (0) 82 410 1195
E-Mail: GillianD@comptrib.co.za
Twitter: @comptrib
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