Netstar (Pty) Limited and Others v Competition Commission South Africa and Another

The appellants (Netstar, Matrix and Tracker) were leading providers of stolen vehicle recovery (SVR) systems in South Africa from the 1990s. Tracetec complained to the Competition Commission that the appellants, as members of the Vehicle Security Association of South Africa (VESA) SVR Committee, agreed on accreditation criteria that prevented new entrants from entering the market for tracking and recovery of motor vehicles. Between 1996-1999, performance standards for SVR systems were developed through workshops attended by tracking companies, VESA and the South African Insurance Association (SAIA). The standards required a minimum client base of 3000, at least one year of operation, at least 100 recoveries and a specific recovery rate. Provisional approval was initially available but was discontinued in April 2000 at SAIA's request. Most SAIA member insurers required VESA accreditation for premium discounts. In 2003, a financial guarantee option was introduced as an alternative to performance criteria. The appellants withdrew from VESA in May 2004. The Competition Tribunal found that the appellants contravened s 4(1)(a) of the Competition Act 89 of 1998 by concluding an agreement and/or engaging in a concerted practice that substantially prevented or lessened competition.

• Whether the appellants concluded an agreement or engaged in a concerted practice as contemplated in s 4(1)(a) of the Competition Act 89 of 1998
• Whether there was a substantial prevention or lessening of competition in the market for SVR systems
• Whether any prevention or lessening of competition was an effect of the alleged agreement or concerted practice (causation)
• The distinction between an 'agreement' and a 'concerted practice' in competition law
• The procedural requirements for complaints and referrals under the Competition Act
• The proper approach to evaluating standards set by industry bodies in competition law

Appeals upheld. Tribunal's orders set aside and replaced with dismissal of the Commission's and Tracetec's complaints against the appellants. Cross-appeal by Tracetec dismissed. Tracetec ordered to pay the appellants' costs of the appeal and cross-appeal, including costs of two counsel where employed.

For a contravention of s 4(1)(a) of the Competition Act to be established: (1) There must be proof of an agreement (as defined in s 1(1)(ii)) or a concerted practice (as defined in s 1(1)(vi)) - these are distinct concepts requiring different analyses; (2) There must be proof of substantial (neither speculative nor trivial) prevention or lessening of competition in the identified market; (3) The agreement or concerted practice must be the dominant or substantial cause of the prevention or lessening of competition. Where the conduct of third parties not in a horizontal relationship with the alleged contravenors is the primary driver of any market effect, the causal link required by s 4(1)(a) is not established. The Competition Tribunal must determine the specific complaint referred to it based on the evidence, not substitute a theoretical or hypothetical case.

The Court made several important obiter observations: (1) Whether an agreement involving parties both in and not in a horizontal relationship can fall within s 4(1)(a) is a difficult question not definitively resolved (para [41]). (2) The terms "prevention" and "lessening" of competition may have some overlap and consideration of EU jurisprudence may be necessary in future cases (para [29]). (3) Courts should be cautious about uncritical adoption of American "rule of reason" terminology, as the South African statute is more precise than the Sherman Act (para [29] footnote). (4) The Court strongly criticized poor preparation of appeal records and excessive heads of argument, warning that future non-compliance may result in adverse costs orders (paras [73]-[76]). (5) Competition issues may be broader than conventional civil cases, but this does not excuse vague or unspecific complaints (para [27]).

This case is significant for establishing key principles in South African competition law: (1) The distinction between an "agreement" and a "concerted practice" under s 4(1)(a) of the Competition Act must be carefully observed, as they involve different evidentiary inquiries. (2) To establish a contravention of s 4(1)(a), there must be proof of: (a) an agreement or concerted practice as defined; (b) substantial prevention or lessening of competition in the identified market; and (c) a causal link showing the agreement/practice had that effect. (3) The Competition Tribunal must adjudicate the specific complaint referred to it based on evidence, not engage in theoretical or hypothetical analysis. (4) On causation, where multiple factors are necessary causes of a market effect, the dominant or substantial cause must be identified - concurrent causes involving parties not in horizontal relationships may break the causal chain required by s 4(1)(a). (5) Industry standards driven by customers/users are less likely to be anti-competitive. (6) The case also established important procedural standards regarding preparation of appeal records and heads of argument in competition appeals, emphasizing the need for compliance with court rules.