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Tribunal Dismisses Cartel Case Against I&J Due to Lack of Evidence

The Competition Tribunal (the Tribunal) has dismissed a case of alleged cartel conduct against processed frozen foods company, Irvin & Johnson (I&J) due to a lack of evidence.

The Competition Commission (the Commission) had accused I&J and beef processing company, Karan Beef, of allegedly dividing markets in the supply of processed beef products such as beef burger patties, steak sizzlers, crumbed beef steaklets, viennas and boerewors.

I&J was charged along with Karan Beef following a 2017 Commission investigation which emanated from another separate investigation into Karan Beef and several other feedlots. Karan Beef settled with the Commission in September 2018 and agreed to pay an administrative penalty (a fine) of R2 700 000.00 (two million seven hundred thousand rand).

I&J denied the Commission’s allegations and opted to litigate the matter at the Tribunal. Evidence was heard from witnesses during the proceedings.

A full copy of the Tribunal’s order and reasons for its decision will be made available on the Tribunal’s website in due course.

Below are several excerpts from the order and reasons:

Tribunal findings

The Commission alleged that I&J and Karan Beef participated in a cartel to divide markets, by entering into a manufacturing agreement in 2000 and a subsequent amending agreement in 2002, in contravention of section 4(1)(b)(ii) of the Competition Act.

In its order and reasons the Tribunal notes, among others: “No evidence was put up by the Commission that the agreements impacted adversely on competition in any segment of the market, such as increased prices to customers or improved volumes for I&J owned brands…

The conduct of the two respondents also did not accord with that usually associated with cartelists such as secretive arrangements or meetings. On the contrary, at some point of the first two years the products were jointly branded, with the Karan logo depicted on the I&J product.  Hence, customers and the public alike were aware of this…”

In regard to the manufacturing agreement the Tribunal has found the following: “In this case, having regard to all the evidence in its totality we conclude that the conduct of the parties in the first two years of the Manufacturing Agreement is not the type of conduct contemplated in section 4(1)(b)(ii) and that the Commission has failed to bring it within the ambit of section 4(1)(b)(ii).”

The Tribunal has further found that: “the Manufacturing Agreement, read together with the Amending Agreement, assessed in its context and purpose, does not contravene section 4(1)(b)(ii). The fact that this arrangement between the respondents might have contravened another section of the Act such as section 4(1)(a) or 5(1) is not something for us to consider because, as we indicated early in these reasons, the Commission did not mount an alternative case.”

Seriousness of cartel conduct

In reaching its decision in this matter, the Tribunal has emphasised that “cartel conduct is considered to be the most egregious and harmful to competition and consumers alike and must be treated with the appropriate attention and sanction by competition agencies.”

The Tribunal says further that: “… the priority given to the combatting of this conduct must be balanced against the edicts of procedural fairness norms and the Constitution…

…Given the serious implications of a finding of a section 4(1)(b) contravention for a respondent, when assessing the probabilities, this Tribunal will have to consider that the more serious the allegation, the more cogent will be the evidence that is required.

Conclusion

The Tribunal has concluded that the Commission bears the burden to prove, on a balance of probabilities, that a contravention of section 4(1)(b) has occurred. In the Tribunal’s view, the Commission has failed to discharge its burden of proving that the Manufacturing Agreement and the subsequent Amending Agreement resulted in the division of markets between two competitors as contemplated in section 4(1)(b)(ii).

Accordingly, the Tribunal has dismissed the Commission’s complaint referral against I&J.

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