/ 13 July 2012

Big money sways Lady Justice

To present the hard facts to its tribunal
To present the hard facts to its tribunal

Lloyd Gedye’s report on the recent Constitutional Court judgments (Mail & Guardian, Business, July 6 to 12) suggests a face-off between the Competition Commission and the legal fraternity over the commission’s interpretation of the scope of its powers. Legal commentators argue that due process is important to prevent agencies such as the competition authorities from abusing their powers.

Although it is a valid concern, it reflects the rather one-sided perspective of the legal fraternity, and its implications on access to justice must be considered. The target of a commission investigation is most likely to be a private company suspected of abusing a dominant position and/or participating in a cartel. The victims in such cases are usually at a considerably greater disadvantage than the perpetrators of anticompetitive conduct.

In South Africa, the inequalities are pernicious. The prospect of victims receiving compensation resulting from civil damages claims is slim. Consider the victims of the bread cartel, or any small business that has been excluded by a dominant firm and suffered. Also, in contentious competition law cases, the typical respondent has all the advantages that come with deep pockets. Not so for the typical complainant.

Without a strong investigative agency, most victims of anti­competitive conduct are denied justice. The detection and prosecution of such conduct is the only way that we can begin to address the imbalances in economic power in South Africa’s economy.

But the detection of anticompetitive conduct is an enormous challenge for any agency, particularly when the imbalances in economic power go together with significant information asymmetries.

Information asymmetries
Consider a hypothetical example. A consumer has to pay what he or she regards as an excessive increase in the price of an essential item and files a complaint with the commission against one of the large ­suppliers. At this stage neither the commission nor the complainant has much information about what is happening in this market. Recall the earlier point about information asymmetries – the complainant has little or no prospect of finding out what is happening, which leaves the commission with its investigative powers to take the matter forward.

Now imagine that if what is actually happening is not excessive pricing by one company but, in fact, a cartel of firms colluding to increase prices. It is the role of the commission to investigate the market to uncover the truth about what is really happening.

But there is a problem. The complainant misunderstood the situation (not having sufficient information to make a correct diagnosis) and accused only one of the companies of excessive pricing and not of being part of a cartel.

What right does the commission have to investigate the companies not cited by the complainant? Will lawyers representing those companies insist on due process and resist subpoenas for information on the basis that a complaint has not been made against them? Is it unfair that the commission should seek to use its powers to determine what is happening in this market?

To add insult to injury, lawyers representing the company that is cited in the complaint can insist that due process means that the commission is allowed to ask questions only about excessive pricing but not about a cartel.

Operating a cartel
The retort will be that the commission should initiate its own investigation, citing all the companies as respondents and clearly articulating an allegation of operating a cartel. But do we really believe that lawyers, acting in the best interests of their clients, will not question the basis on which the commission has initiated its own investigation?

All the commission has is the ­information of one unhappy consumer. Does it have the grounds to investigate all the companies for participating in a cartel? This places the commission in an invidious position. The truth is out there, but due process is obscuring it. It seems cynical, to say the least, for lawyers then to claim that the commission should “do better investigations”.

The commission is only an investigative body. The Competition Tribunal must adjudicate and it can do so only on with hard evidence. Indeed, if there is evidence of anticompetitive conduct, it is surely in the interests of justice that the commission be given sufficient latitude to obtain it? Furthermore, if evidence is obtained, it is surely also in the interests of justice that the commission be given sufficient latitude to argue its case before the tribunal?

The answers to these questions will ultimately depend on the pre-cedents set by the higher courts, although the existing precedents give lawyers defending respondents a lot of ammunition to raise procedural issues when the commission investigates. But as long as cases are thwarted on procedural grounds rather than on the merits, the promise of access to justice for victims of anticompetitive conduct will remain unfulfilled.

Fortunately, the Constitutional Court did not close the door completely. By insisting on due process, the court affirmed that the commission is not above the law, but now that the point has been made, one can only hope that the commission will proceed with its appeals and that the higher courts, when called on to do so, will provide guidance that will balance the possibility of an abuse of power with the agency’s mandate to ensure effective access to justice.

Kasturi Moodaliyar is senior lecturer in competition law at the University of the Witwatersrand and one of the Mail & Guardian’s Top 200 Young South Africans 2012