Introduction

In the complex realm of international finance and competition law, a recent case in the South African Competition Appeal Court has shed light on allegations of collusion and manipulation within the foreign exchange (forex) market. This article delves into the intricacies of the court's investigation, focusing on the questions of law, the reasoning employed by the court, and the evidence presented and evaluated during the proceedings.

On Monday, 08 January 2024, the Competition Appeal Court (CAC) handed down a landmark judgement after appeals, reviews, and dismissal applications lodged by 23 respondent banks challenging the decision of the Competition Tribunal ("the Tribunal") dated 30 March 2023.

Following its adjudication, the CAC directed four of the twenty-three respondent banks to expeditiously submit their answering affidavits, addressing allegations of price fixing and market division, which are deemed to be in contravention of section 4(1)(b) of the Competition Act. The directive stipulated a filing deadline of 40 days from the date of the order. Concurrently, the CAC upheld the appeals lodged by 19 respondent banks.

Brief Overview prior to Appeal

It is imperative to understand the tortuous litigation history surrounding the complaint filed by the Commission. On 15 February 2017, the Commission referred its complaint against some nineteen respondents for alleged price fixing and market division to the Tribunal. The referral led to the Tribunal being inundated with exceptions raised by respondent banks.

The Tribunal's decision on exceptions was issued on 12 June 2019, leading to appeals and a Court decision on 28 February 2020.

On 28 February 2020, the court ordered the Commission a ‘final opportunity’ to file a new referral affidavit to substitute and replace the referral affidavit which had been placed before the Tribunal in 2017. On 1 June 2020, the Commission filed a new referral affidavit. The matter was heard by the Tribunal between 29 November and 6 December 2021, and an order was issued on 30 March 2023. The respondent banks have appealed this order to the Court, presenting complex points related to competition law. The case involves navigating the fine line between addressing cartel behavior and avoiding potential regulatory overreach.

Key Points Prior Litigation

The earlier litigation and the Court's previous order have been subject to intense scrutiny by the parties involved. In 2019, the Competition Tribunal faced a jurisdictional challenge. The banks argued they were not domiciled or conducting business in South Africa, presenting themselves as "peregrini." The Tribunal differentiated between "pure" peregrini and "local" peregrini, acknowledging the latter's presence in South Africa. It also noted the lack of evidence linking traders' conduct to an effect in South Africa for subject matter jurisdiction. The Tribunal ruled it had jurisdiction over local peregrini but could only issue a declaratory order against pure peregrini.

In 2020, the Court ordered the Commission to file a coherent complaint against both local and pure peregrini, emphasizing the need for connecting factors between foreign peregrini conduct and the suit, addressing personal and subject matter jurisdiction. The Court set aside the Tribunal's order, instructing the Commission to file a new referral affidavit within 40 days. Respondents were to answer within 20 days, and the new affidavit needed to establish foreseeability, confine the case to a single conspiracy, and provide details on participation, cessation, and relationships.

Two consequences were highlighted: the order anticipated a revised case against existing parties, and the single conspiracy requirement aimed to establish jurisdiction over all named respondent banks, and the Commission's attempt to add more parties post-order contradicted its terms and purpose, seeking a final opportunity for a legally sound case due to serious cartel allegations. The Court allowed joining one respondent and deferred others' joinder pending compliance.

Filed on June 1, 2020, the 106-page referral affidavit outlines key aspects of the case, alleging a single overarching conspiracy among banks from September 2007 to at least September 2013. The conspiracy aimed at manipulating conditions in trading the USD/ZAR currency pair through tactics like direct and indirect price fixing and market division.

The affidavit emphasizes frequent communication among traders of competing banks during USD/ZAR trading, without specifying when the conspiracy ceased. Key supporting facts include extensive communication between traders, market anomalies in 2007 and 2013, and the utilization of Bloomberg chatrooms. The mode of communication is detailed, asserting that respondents made the Bloomberg instant messaging platform available to their employees. Definitions distinguish between chatroom members and participants based on their activity.

The Commission alleges that chatroom participants were aware of planned conduct by others and intentionally acted to implement conspiracy objectives. It argues that the conspiracy had a direct and substantial effect in the Republic, impacting buyers of ZAR and resulting in artificially inflated prices.

Jurisdictional bases were asserted, with the Commission contending that both personal and subject matter jurisdiction are satisfied as all respondent banks were participants in the conspiracy. The case heavily relied on the concept of a single overarching conspiracy (SOC), deeming it crucial for establishing personal and subject matter jurisdiction.

Drawing on European jurisprudence, particularly referencing cases like Commission v Anic Partecipazioni and Team Relocations v Commission, the Commission cited elements such as a common anti-competitive objective, participation, and knowledge to establish an infringement based on a SOC. The application of European jurisprudence, specifically the judgment in Team Relocations, emphasized the notion of a continuous infringement with a common objective and limiting a participant's responsibility to actions during their period of participation.

The Tribunal examined correspondence between respondent banks, particularly in digital chatrooms like the Old Gits and ZAR chatrooms. The focus is on determining whether there was a Single Overarching Conspiracy (SOC) between foreign and local banks or if there were unlinked mini-SOCs. The Tribunal rejected the idea of independent mini-SOCs, emphasizing the implausibility of traders globally conspiring without common objectives or participants.

The Tribunal acknowledged evidence from Mr Duncan Howes of Absa Bank (sixteenth respondent) a corporate leniency applicant, concluding that the Commission's referral established a prima facie case of an SOC between foreign and local banks. The Tribunal addressed subject matter jurisdiction, foreseeability of customer impact, and dismissed objections related to non-compliance with a court order. It also asserted the Commission's right to refer details or amendments and concluded that the referral affidavit provides adequate details to support the claim of an SOC between foreign and local banks in manipulating the USD/ZAR currency pair.

The Appeal: Questions of Law

Appealability of the Tribunal's Decision

The first question raised in the appeal concerned the appealability of the Tribunal's findings. The Commission argued that the dismissals were based on ordinary principles applicable to the dismissal of an exception. The court had to consider whether the Tribunal's decisions were definitive of the rights between the parties, a crucial factor in determining appealability.

• The court explored the relevant legal principles, referring to recent decisions, such as TWK Agriculture Holdings (Pty) Ltd v Hoogveld Boerdery Belleggings (Pty) Ltd, and considered the applicability of Section 37(1) of the Act.


• Emphasis was placed on whether the decisions of the Tribunal constituted "final decisions" as outlined in Section 37(1), and whether the interests of justice should be taken into account.


• The court ultimately rejected the Commission's argument, asserting that the appealability of the decisions must be considered in light of both legal principles and the interests of justice, in that the question of jurisdiction signaled application of the interest of justice and further, that the court was entitled to examine the nature and compliance of its 2020 order.

Subject Matter and Personal Jurisdiction

The court revisited the earlier question of subject matter and personal jurisdiction, evaluating whether the alleged conduct had a direct and foreseeable substantial effect in the Republic, and if personal jurisdiction over foreign banks was established.

• Section 3(1) of the Act and the court's previous ruling in American Soda Ash Corporation CHC Global (Pty) v Competition Commission of South Africa were referenced to define subject matter jurisdiction.


• Personal jurisdiction was explored in the context of the overarching conspiracy, with the court highlighting the need for clear evidence of linkages between the foreign and local banks.

Reasoning Used by the Court

The court's reasoning was grounded in a meticulous analysis of legal principles, relevant statutes, and the evidence presented during the proceedings. The following key points were considered:

Holding Company Joinder

The court rejected the joinder of holding companies based on ill-considered justifications and the retrospective application of s 59 (3)(A) of the Act. It emphasized the distinction between holding companies and subsidiaries, noting that ownership of shares does not automatically implicate a holding company in alleged misconduct.

Compliance with 2020 Court Order

The court scrutinized the Commission's compliance with the 2020 order, finding that the addition of further parties after the referral was impermissible. The Commission relied on the Constitutional Court's judgment in Pickfords, specifically at paragraph 21, arguing that it did not support the addition of parties after a referral to the Tribunal. It emphasized that a complaint targets a practice, not specific parties, allowing post-initial complaint additions. However, it contended that this doesn't contradict the 2020 judgment, which sets a 'cut-off' point for adding parties after the referral.

Allegations of the Single Overarching Conspiracy

The court examined the evidence presented by the Commission to establish the existence of a single overarching conspiracy. This included an in-depth analysis of communication and conduct in chatrooms, behavior in the forex market, and the overall impact on currency prices.

The court assessed whether the Commission provided sufficient evidence for each respondent bank's intentional contribution to the alleged conspiracy. The Commission's referral affidavit made reference to the fact that there was a substantial connection between traders employed by the respondent banks through chatrooms, providing ample evidence for each bank's conduct falling within the scope of a single overarching conspiracy.

Evidence Presented and Not Proved

Chatroom Communication

The court closely examined communication within the Old Gits and ZAR chatrooms, evaluating the links between traders employed by different banks. The evidence aimed to show coordination of trading activities, exchange of information, and collusion in bid-offer spreads. The court found that although the commission referred to occasional participation in chatrooms, the commission was unable to submit evidence linking any South African Bank to such chatrooms.

Market Behaviour

The court considered evidence related to unusual market behaviour during 2007 to 2013, including consistent prices, use of round figures for quotes, and the spread charged by South African banks. The Commission argued that these patterns were indicative of collusion.

Subject Matter and Personal Jurisdiction

The court assessed the Commission's evidence to establish subject matter and personal jurisdiction. It scrutinized whether the alleged conduct had a direct and foreseeable substantial effect in the Republic, emphasizing the need for clear connections between foreign banks and South African jurisdiction. The Commission failed to illustrate the requisite personal jurisdiction regarding the 5th, 9th, 12th, 13th, and 19th respondents.

How did the court come to the decision:

Errors in Linking Traders and Holding Companies:

The court highlighted several errors made by the commission, including incorrectly linking currency traders to banks they did not work for. Notably, the commission insisted that certain traders worked for specific banks, despite corrections from the companies themselves. The court's ruling underscored the importance of accurate identification of individuals and entities involved in alleged misconduct.

In addition, the commission's decision to implicate holding or parent companies of commercial banks was deemed incorrect by the court. The ruling emphasized that a holding company, not registered as a bank and without authorization to trade in foreign currency, could not be included in the referral affidavit based solely on the trading activities of its subsidiaries.

Jurisdictional Challenges and Limited Prosecution:

The court raised questions about the commission's ability to demonstrate that foreign banks conspired with South African-based banks to manipulate the rand, thereby questioning its jurisdiction to bring charges against these foreign entities. As a result, the number of banks that the commission can now prosecute in the case has been significantly reduced.

Conclusion

Only five commercial banks, mostly foreign, will proceed in the commission's case and potentially face prosecution through a trial. These banks include JPMorgan Chase, HSBC, BNP Paribas, Credit Suisse, and Investec. The latter did not join other banks in requesting the commission to provide evidence regarding their alleged participation in the "single overarching conspiracy."

The court's decision highlights the importance of robust evidence and clear legal arguments in complex competition cases. The commission's failure to meet these standards has not only resulted in the dismissal of charges against numerous banks but has also raised concerns about the overall viability of its case. As the remaining banks prepare for potential prosecution, the commission may need to reassess its approach and address the deficiencies identified by the court to strengthen its case.

By: Mishaan Veerasamy
(LLB from the University of Pretoria)

Resources:

• Competition Appeal Court Media Statement
• Competition Commission of South Africa v Bank of America Merrill Lynch International and Others (215/CAC/APR23) [2024] ZACAC 1
• American Soda Ash Corporation CHC Global (Pty) v Competition Commission of South Africa
• TWK Agriculture Holdings (Pty) Ltd v Hoogveld Boerdery Belleggings (Pty) Ltd