By Sarah McGibbon and Duncan Wild on 21 December 2013

In November the Constitutional Court will hear an application for leave to appeal against a costs order of the Competition Appeal Court (“CAC“) brought by the Competition Commission (“Commission“).

The Constitutional Court, in a unanimous decision written by Acting Deputy Chief Justice, Skweyiya, found that it was generally undesirable to hinder the good faith performance by the Commission of its functions with the threat of a costs order, and in the absence of reasons for the costs order imposed in this case, the costs order should be set aside.  Pioneer Hi-bred International Inc and Pannar Seed Proprietary Limited (collectively, the “merger parties“) submitted a merger notification to the Commission as required in terms of the Competition Act 89 of 1998.  In terms of the prescribed financial thresholds, the transaction was an intermediate merger and, as such, required the approval of the Commission before its implementation.  The Commission investigated the proposed transaction and prohibited the merger on the ground that it would substantially prevent or lessen competition.  In light of this, the merger parties applied to the Competition Tribunal (“Tribunal“) for approval of the merger.  However, the Tribunal also prohibited the merger.

The merger parties then appealed the decision of the Tribunal to prohibit the merger to the CAC.  Throughout the proceedings, the merger parties and the Commission went to great lengths to argue for, and present evidence in favour of, their respective cases.

The CAC overturned the decision of the Tribunal and approved the merger subject to certain conditions.  The CAC also made the following costs order:

“The first respondent (i.e. the Commission) is ordered to pay the appellants’ costs in this appeal and in the Tribunal proceedings, including the costs of two Counsel and the qualifying fees of the appellants’ experts.“

The merits of the CAC’s decision were not challenged before the Constitutional Court, however, the Commission appealed the costs order against it.  The Constitutional Court had to answer the following questions:

1)    does the CAC have the power to grant an adverse costs order against the Commission for the costs incurred before the Tribunal in circumstances where the Commission has recommended a particular course of action in merger proceedings, which was overturned or confirmed by the Tribunal and is then appealed to, and overturned by, the CAC; and

2)    does the CAC have the power to grant an adverse costs order against the Commission for costs incurred in appeal proceedings before itself?

The Constitutional Court requested the CAC to present its views on these questions before it made a decision on whether to allow the appeal.  In an order granting leave to appeal dated 12 April 2013, the CAC indicated that it finds it difficult to accept the Commission’s argument that the role of the Commission during merger approval proceedings is akin to that of an amicus (in which case the CAC would not be permitted to make a costs order against the Commission).  The CAC acknowledged that although these proceedings should take the form of an inquiry, the procedure before the Tribunal has, in practice, developed to be more similar to a trial.  The CAC also noted that the Commission had vigorously opposed the approval of the merger at every stage and has not conducted itself as an amicus would have done.

The Constitutional Court unanimously found, in a decision authored by Acting Deputy Chief Justice Skweyiya, and concurred in by Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Froneman J, Madlanga J, Mhlantla AJ, Nkabinde J, Van der Westhuizen J and Zondo J, that the appeal should be upheld and the costs order set aside.

The Constitutional Court emphasised that the Commission must have sufficient autonomy to defend its positions under the Act, and should not be hindered by the threat of adverse costs orders. The CAC does, however, have the power to make a costs order against any party before it, but this power must be exercised in accordance with the law and fairness. In these circumstances the Commission is not an ordinary civil litigant and should not, in the ordinary course, be burdened with costs where it is unsuccessful in its litigation. Rather a costs order should only be made where special circumstances existed that required such an order, for example where the Commission has been unreasonably, vexatious or frivolous in pursuit of a particular stance.

In the present case, the Commission had not given reasons for its order of costs and there was no suggestion of bad faith or irregular action on behalf of the Commission that would justify a costs order. The appeal was therefore upheld and the costs order set aside.

Download the judgment here.