By Duncan Wild on 29 June 2013.

The issue is whether the applicants can receive certification from the court in order to bring a class action against the respondents.  The case is brought by Mr. Imraan Ismail Mukaddam, W E M Distributors CC and Mr. Abdul Kariem Ebrahim (“the applicants”).  The applicants are bread distributors in the Western Cape who purchase bread from one or other of the respondents, all major South African bread producers, and distribute it mainly to informal traders who in turn sell it to consumers.

The Constitutional Court set aside the prior decisions of the High Court and SCA, finding that the incorrect standard had been applied, and that the test had been incorrectly applied, and allowed the applicants to file further papers with the High Court which would then have to reconsider the certification.

It was not disputed that the respondents had engaged in anti-competitive conduct in the Western Cape, including price fixing and the fixing of discounts in violation of the Competition Act 89 of 1998 (“the Competition Act“) over a significant period of time.  The applicants claimed that they and about 100 other distributors in the Western Cape had suffered financial harm as the result of this conduct.  The applicants therefore brought an application before the Western Cape High Court requesting that the court certify the institution of a class action to be brought on behalf of the applicants as well as other affected distributors for recovery of their losses.

The Constitutional Court, in a majority judgment authored by Jafta J and in which Deputy Chief Justice Moseneke, Justices Khampepe J, Nkabinde J and Zondo J, and Acting Justice Bosielo concurred, found that the High Court has applied an incorrect standard to the certification of a class action. It was important to the Constitutional Court that at the time the High Court considered the application for certification there was no no provision in the rules of Court or elsewhere that dealt with the standard for certification. The High Court was thus “asked to negotiate unchartered waters”. In addition, The High Court had focused on whether the case brought raised triable issues, and whether there were common issues of law or fact raised in the proposed class action. In both cases it found that the tests were not met. However, the Constitutional Court found that the requirements should not be treated strictly, and the over-arching test was whether it would “be in the interests of justice” to certify a class.  

The SCA referred to its previous decision of Trustees for the time being of Children’s Resource Centre Trust and others v Tiger Consumer Brands Ltd and others [2012] ZASCA 182 (“Children’s Resource Centre“) in stating that a class action is an acceptable procedure in South African law.  The Children’s Resource Centre case dealt with an application for certification by bread consumers as a result of the same conduct dealt with this case.  In that case the SCA referred the case back to the High Court for reconsideration in accordance with the standards of certification set down by the SCA, refusing to consider the application of the specific factors itself.

The SCA in the Mukaddam case however looked at two of the requirements for a class action to be certified.  These were that where a novel cause of action is sought to be established, the applicant must satisfy the court that the cause of action is legally tenable; and that a class action would be the most appropriate procedure to pursue the claims.

The SCA found that the claims were not “potentially plausible”.  The applicants sought to base their cause of action on section 22 of the Constitution that guarantees all citizens the right to freely choose his or her trade, profession or occupation, read with the Competition Act.  The SCA dealt with this cause of action briefly, finding that although there is a right to choose a trade, profession or occupation, there is no basis to find that section 22 “guarantees the outcome of having done so“. Reading section 22 with the Competition Act did not assist the applicants. The SCA found that Competition Act is meant to protect consumers from excessive prices (in the context of this case), and the applicants’ claim amounts to “asserting a right to transfer to themselves the profits the producers made, which in my view is simply untenable“.  The SCA also briefly considered a possible claim in delict for pure economic loss (i.e. in the absence of any physical injury) and found that there was no policy reason to think such a claim, essentially to maximise profits from the sale of bread, should succeed.

On the second ground, that is whether without the procedural mechanism of a class action the claimants would be denied access to the courts.  The form of class action was important to this determination.  The two basic forms of a class action are an “opt-in” class action and an “opt-out” class action.  In an opt-out class action, claimants that satisfy the criteria to be a member of the class are automatically a member, unless they provide a notice that they do not wish to be a member.  So, for example in this case, all bread distributors in the Western Cape who obtained bread during the relevant period from the defendants would be a member of the class.  Usually all potential members will be notified of the class action, and given a period to provide their notice.

The other form of class action, the opt-in class action, requires potential members of the class to provide notice that they wish to be a member.  This case involved an opt-in class action requiring notice from prospective members to the applicants’ attorney.  The SCA, however, found that there was no reason, based on this type of class action, why the prospective claimants could not join in one action in their own names as contemplated by Rule 10 of the Uniform Rules of Court.  In other words, there was another procedure available to the claimants.

The applicants argued that the benefit of a class action over the Rule 10 procedure was that, in a class action, the individual members of the class would not be personally liable for the costs of the case.  The SCA, however, found that the potential for an adverse finding of costs served a useful purpose in deterring frivolous claims that could cause prejudice to defendants.  The SCA did note that it was not ruling out all “opt-in” class actions under South African law, but said in order for such a class action to be permitted the circumstances would need to be exceptional, which was not so in the present case.

Firstly, the Constitutional Court found that there was no compelling reason for the different approach taken by the SCA in the two cases, and that the SCA should have referred the matter back to the High Court for consideration based on the new standards it had set down.

Secondly, the the Constitutional Court found that the  SCA erred in finding the applicants’ was not potentially plausible, particularly in light of section 65 of the Competition Act that permits a claim for damages arising from anti-competitive conduct, after the competition authorities have certified that a prohibited practice had taken place.

Thirdly, the Constitutional Court held the SCA erred in finding that an “opt-in” class action would only be permitted in exceptional circumstances.

The Court therefore ordered that the SCA and High Court decisions be set aside, and that if the applicants wished they could file further papers for the matter to be reconsidered.

Acting-Justice Mhlantla concurred with Justice Jafta’s order, but disagreed with one portion of his reasoning.  Jafta J was careful to exclude class actions brought against the State from the application of the judgment and the standards for prior certification it laid down.  He stated that section 38 of the Constitution already deals with class actions in in respect of people defined in that section, and that generally when enforcing rights in the Bill of Rights class actions may be brought in the wider public interest without certification. He also excluded class actions seeking to enforce a constitutional right against a private citizen.  Mhlantla AJ, however, disagreed stating that the certification procedure has benefits for any type of class action (for example notification to members) and that although in actions involving the State or the enforcement of Constitutional rights those are factors to consider in certifying the class, the certification procedure should apply.

Justice Froneman also wrote a concurring opinion, with which Justice Skweyiya agreed. Froneman agreed that the SCA applied the standard for certification it had developed in Childrens’ Resource Centre too strictly.  He also agreed that the Constitutional Court should not deal with class actions brought in terms of section 38 of the Constitution in this case, as this case did not involve such a class action.  He did, expand on the fact that the SCA should not have rejected the claim as untenable at this stage.  He found that the such a determination should be made only after further evidence and argument on the point had been made, and therefore dismissing the chance of such a claim at this certification stage was premature.

Download the judgment here.