During the COVID-19 pandemic, the South African Police Services (SAPS) issued requests for quotations (RFQ) for the supply of 3-ply surgical face masks to be provided to its employees. Tsutsumani Business Enterprises CC (the applicant) responded and supplied 500,000 surgical face masks to SAPS at a unit price of R32.50, generating income of R16,250,000. The applicant had procured the masks from various entities at an average cost of R17.50 per mask, resulting in a mark-up of 87% and a margin of 47% per mask, making a profit of R6,586,311. The Competition Commission investigated and referred a complaint of excessive pricing to the Competition Tribunal. The applicant denied the allegations, stating it was not a dominant firm, the transaction was a once-off, and SAPS was a willing buyer. The applicant's primary business was waste disposal, transportation services, and plant hire, not the supply of PPE. The Tribunal found in favour of the Commission, holding that the applicant contravened section 8(1)(a) of the Competition Act read with Regulation 4 of the Consumer and Customer Protection and National Disaster Management Regulations. The Tribunal imposed an administrative penalty of R3,441,689.10 (representing 10% of the applicant's annual turnover). The applicant launched a review application 2 months late (launched on 21 July 2022 when the Tribunal's order was handed down on 28 April 2022), requiring condonation.
The review application was dismissed with costs. The condonation application for late filing was refused. The Tribunal's decision finding that the applicant contravened section 8(1)(a) of the Competition Act was upheld. The administrative penalty of R3,441,689.10 (10% of annual turnover) imposed by the Tribunal was confirmed.
The binding legal principles established are: (1) Section 6 of the Competition Act refers to general annual turnover or assets, not turnover in the specific affected product market, and serves as a screening mechanism to exclude economically trivial firms from dominance provisions; (2) During crisis situations such as the COVID-19 pandemic, a different conceptual framework applies to excessive pricing analysis than would ordinarily be employed; (3) Multiple firms can simultaneously be dominant in a market during a crisis when customers are completely dependent on suppliers for scarce essential products and have no choice but to accept prices offered; (4) Market power under section 7(c) can be established where a firm can act independently of competitors and customers in crisis conditions affecting supply and demand; (5) The test for excessive pricing under section 8(3) requires determining (a) whether the price is higher than a competitive price, and (b) whether that difference is unreasonable, taking into account relevant factors including regulations made by the Minister; (6) Regulation 4.2 of the Consumer Protection Regulations provides that during a national disaster, a material price increase that increases the net margin or mark-up above the average for the three-month period prior to 1 March 2020 is a relevant and critical factor indicating prima facie that the price is excessive or unfair; (7) In excessive pricing determinations, profit before tax (not after-tax profit) is the relevant measure when comparing prices to appropriate benchmarks; (8) Detriment to consumers in crisis excessive pricing cases can extend beyond the immediate customer to society as a whole where the products are essential goods used to combat a public health emergency; (9) The Tribunal's discretion in imposing administrative penalties under section 59 should not be interfered with absent misdirection or fundamental methodological error; the level of profit derived from the contravention is a relevant factor, and the maximum penalty may be justified even if it does not fully disgorge excess profits.
The Court made several non-binding observations: (1) It noted that most of the issues raised by the applicant seemed to attack the correctness of the Tribunal's decision and would more appropriately be the subject of an appeal rather than a review, though it proceeded to determine the matter as a review; (2) The Court observed that the Rules are intended to be time-neutral as to the choice between appeal and review procedures, providing the same 15-day time period for both; (3) It noted that an applicant in a review cannot use the fact of waiting for the record as justification for delay, as the Rules specifically provide the right to supplement; (4) The Court commented that the applicant's failure to adhere to timelines set by the Tribunal caused the Commission's initially urgent application to lose its urgency; (5) It observed that tax is not an expense to be included when assessing excessive pricing by comparing the price charged to appropriate benchmarks; (6) The Court noted that the Tribunal considered certain costs in favour of the applicant even though they were not substantiated, demonstrating a generous approach to the applicant's case.
This case is significant for South African competition law in several respects: (1) It clarifies that the turnover threshold in section 6 of the Competition Act refers to general turnover, not market-specific turnover, and serves as a simple screening mechanism; (2) It confirms and applies the principle from Babelegi Workwear that during crisis situations (such as the COVID-19 pandemic), multiple firms can simultaneously be found dominant where customers are completely dependent on them for scarce essential products; (3) It establishes that a different conceptual framework applies to excessive pricing cases during national crises, as provided for in the Consumer Protection Regulations made under the Disaster Management Act; (4) It demonstrates the application of Regulation 4 of the Consumer Protection Regulations during the COVID-19 pandemic, particularly regarding margins and mark-ups on essential goods; (5) It confirms that detriment in excessive pricing cases during a health crisis can extend beyond the immediate customer to society as a whole; (6) It reaffirms the narrow scope for appellate interference with penalties imposed by the Tribunal absent misdirection or fundamental methodological error; (7) It reinforces strict compliance with the 15 business day time limit for reviews under Rule 23(2)(b) and the need for full explanation of delay when seeking condonation. The case provides important guidance on competition law enforcement during states of emergency and national disasters.
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