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May 08, 2012

RMS, Vulcania fined in mesh wire cartel case

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The Competition Tribunal has ordered Reinforcing Mesh Solutions (RMS) and Vulcania Reinforcing to pay penalties of R21.6-million and R5.6-million respectively for price-fixing and customer allocation.

The Competition Commission said on Tuesday it initiated an investigation in 2008, when BRC Mesh Reinforcing, through its parent company Murray & Roberts Steel, admitted its involvement in the cartel, which also included RMS, Vulcania and Aveng Africa (trading as Steeldale Mesch). Murray & Roberts was granted conditional immunity from prosecution, provided it cooperated with the commission during its investigation.

In the tribunal’s hearing, it emerged that, after the cartel discussed and agreed on prices derived from a set formula at industry meetings, industry association the South African Fabric Association circulated recommended price lists for adoption by members. This allowed the companies to simultaneously pass on input cost increases to their customers by providing a common mechanism for deriving the final price.

Vulcania, which denied that its attendance at the meetings amounted to an agreement to join the cartel, was found to have participated in the cartel from January 2006 until January 2008.

Vulcania stated that it only attended meetings to ensure continued supply from its competitors by way of making them believe the firm was part of the cartel. However, the tribunal found that whether Vulcania’s participation was ‘real or a sham’, Vulcania benefited from the cartel as it amounted to protection from potential competition.

The commission said RMS, which was found to be involved in the cartel from January 2004 until January 2008, admitted liability, but argued the extent of its involvement in the cartel and also whether a penalty could be competently imposed upon it and if it could, what an appropriate penalty was.

RMS, further, denied the commissions claim that the company undertook organisational restructuring before the cartel was exposed to avoid penalties, adding that the change was for commercial reasons and, at the time, it was not aware of any legal action against it.

RMS argued that it had no turnover in the relevant financial year and therefore, no penalty could be levied on it. The Tribunal, however, determined the appropriate penalty based on the “earliest preceding year of normal turnover”.

The tribunal, for the first time, based its determination of the penalties on a new six-step approach under the European Union 2006 penalty guidelines, as with an earlier Competition Appeal Court finding in a Southern Pipeline Contractors case in 2011.

Aveng settled the case with the commission in April 2011 and paid an administrative penalty.

Edited by: Mariaan Webb
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