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I&J wants cartel case thrown out

Jan 20 2020 21:22
Londiwe Buthelezi

Irvin & Johnson wants a case which could cost it close to R150m thrown out by the Competition Tribunal, saying the case has expired and it never engaged in uncompetitive practices in the first place.

The frozen foods producer, which stands accused of uncompetitive behaviour for preventing Karan Beef from manufacturing burgers for other retailers, pleaded innocence at the Competition Tribunal court on Monday.

While the Competition Commission, the body that referred I&J and Karan Beef to the Tribunal, accused the two of participating in a cartel, I&J said all it did was save a business that was in trouble because at the time that it entered into the alleged "cartel" agreement, Karan Beef was struggling to market its products.

Workings of the agreement

Karan Beef owns an abattoir and meat processing plant that produced burgers for I&J between 2002 and 2015. I&J contracted Karan Beef after selling its veggies and beef processing facility to McCain in June 2002. But when it did, Karan Beef stopped manufacturing its own branded beef burger patties, eliminating competition for I&J in the retail sector. The Commission argued that Karan Beef was forced into this by I&J’s agreement.

Karan Beef has already admitted guilt and settled with the commission, paying a R2.7m fine in August 2018, while I&J is pleading innocence. The Commission has proposed a R143.4m penalty if I&J is found guilty.

Dividing markets?

The Commission argued that while I&J had exclusive rights to sell Karan Beef’s patties to the retail market, the abattoir owner only served the food services sector such as restaurants. This effectively divided the two markets between these companies, said the Competition Commission’s lawyer, Mfundo Ngobese.

“Karan Beef didn't independently make the decision to exit the market,” said Ngobese.

I&J told the Tribunal that Karan Beef was facing difficulties with marketing its products at the time of the agreement, but Ngobese argued that the beef manufacturer was working towards finding solutions.

However, the contract “ensured” that it stayed away from the retail market.

He said clauses in the two companies’ agreement could be interpreted as I&J telling Karan Beef that “I'm still restricting you from competing with me but I'm allowing you [to service] this market because I'm not interested in it”.

'Nothing untoward'

I&J lawyer, Senior Council Wim Trengove, said there was never any division of the market between the two companies. He said when I&J contracted Karan Beef, the latter was already contemplating to stop marketing of its products to the retail market because “it had tried and failed”.  

“It was happy to produce, but it could no longer market its products. In fact, [Karan Beef] suggested to us that if they didn’t get our manufacturing agreement, they could go under,” said Trengove.

He said the manufacturing agreement only prohibited Karan Beef from manufacturing its branded products that were “the same or similar to the contract products.” It allowed Karan Beef to manufacture house brands for retailers, one of them being Pick 'n Pay.

However, Karan Beef’s freedom to produce house brand was also under dispute on Monday, with the Commission saying I&J controlled production for that market too. Ngobese said the evidence gathered by the Commission showed that even for house brands, Karan Beef produced the products for I&J. I&J then sold them to Pick 'n Pay and Karan Beef was paid in accordance with the manufacturing contract.

Fine and timing under scrutiny

I&J also argued that the matter could no longer be prosecuted, because too much time has passed since the alleged uncompetitive behavior practices took place. The Competition Act stipulated that complaints about prohibited practices may not be initiated more than three years after such behavior stopped.  

It further argued that the fine that the Commission wants I&J to pay was exorbitant and that the competition watchdog had failed to show how it was appropriate, given that there was no evidence that consumers suffered any financial loss. It said its penalty would be 53 times more than what Karan Beef’s fine.

“It can never be rational to impose a penalty that is 53 times greater simply because a firm exercises its right to insist that the commission to prove its allegations,” said Advocate Greta Engelbretch, also representing I&J.

The Tribunal reserved its judgement.

karan beef  |  competition tribunal
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