Casting bread upon the water – how to deter delinquent corporate conduct

by | May 10, 2013 | Bread Cartel Case, Public Interest Litigation Cases | 0 comments

The recent hearing of the application for permission to appeal in the matter between Cape Flats bread distributor, Imraahn Mukkadam, and the big bread manufacturing cartel formed by Premier, Tiger and Pioneer, ended a long struggle going back many years. At issue, for the first time in the Constitutional Court, are the thorny questions around the previously unknown and untried means of getting a mass of claims dealt with economically, effectively and efficiently – the class action – and the extent to which it ought to be embraced in the new South Africa. The notion of class actions is certainly a good means of deterring corporate delinquency, but it is also open to abuse by those lawyers who are unkindly nick-named “ambulance chasers”.
The history of the “bread case” really begins with the adoption of the final Constitution in 1996. It envisages class actions for those whose human rights, as guaranteed in the Bill of Rights, are infringed or threatened. The right to a class action is novel in Roman Dutch law as received in South Africa. The mechanisms for mounting a class action are not spelt out in the Constitution and were the subject of a report of the Law Commission in 1998. It suggested that both opt out and opt in class actions should be regulated by a statute which it proposed. Opting in requires members of a class to actively join in the case, opting out establishes a class from which members must dissociate themselves actively if they do not wish to participate. The government has never acted on the recommendations of the Law Commission, nor has it actively encouraged class actions.

Very few litigants have been so bold as to try to fashion a class remedy for themselves without the intervention of the legislature and an available set of criteria according to which class actions can be initiated. Usually, it is sufficient to run a test case or a matter that is pursued in the public interest to establish a principle rather than become embroiled in the niceties of a set of criteria about which little was known locally as the decisions as to which criteria apply had not been taken.

All this was changed in November 2010 when an unfortunate acting judge in Cape Town found himself confronted with two urgent applications for the certification of class actions, one brought by consumers of bread and the other by bread distributors. Their gripe was that they had all suffered loss or damage because the three bread manufacturers had engaged in a collusive and prohibited cartel arrangement in terms of which bread prices were raised (to the detriment of consumers) and the discounts negotiated by distributors were unilaterally reduced to their commercial disadvantage. The matters were mistakenly regarded as urgent because it was wrongly thought that the claims were about to lapse. In fact the delivery of the applications interrupted the running of prescription of the claims.

Both applications were dismissed in the Western Cape High Court and both were taken on appeal to the Supreme Court of Appeal in Bloemfontein. There, the law underwent a dramatic change that will impact on the lives of many people who have previously not seen the inside of a civil court in SA. The court not only created the criteria for certification of claims for human rights infringements, it went further and extended the class action mechanism to all sorts of claims that can be fitted into the criteria so set, whether or not they relate to human rights abuses.

The criteria for starting a class action, as laid down in the SCA are:

  • The existence of a class, identifiable by objective means
  • A cause of action raising a triable issue
  • A commonality of issues of law and/or fact
  • Relief sought or damages claimed flow from the cause of action and are ascertainable and capable of determination
  • In damages cases an appropriate means of allocating them exists
  • A suitable representative for the class
  • A class action is the most appropriate means of determining the claims envisaged.

The bread consumers were sent back to the Cape court to try to reformulate their claims according to these criteria. They have succeeded in doing this to such an extent that Pioneer now pleads “no contest” to the certification. It is likely that Pioneer will later argue that it has already compensated the consumer class by an enforced reduction of its bread price which it negotiated with the Competition Commission. Paradoxically, that reduction gifted Pioneer a larger market share and greater profitability – hardly a deterrent form of punishment.

The bread distributors were not so lucky in the Supreme Court of Appeal (SCA). They failed to satisfy two of the criteria. Firstly, the court found that no viable cause of action is revealed on the papers presented by the distributors. Secondly, a joining together of the 100 odd distributors in a single old-fashioned action rather than a class action was regarded as a more appropriate form of proceeding, despite its inefficiencies and expense. Indeed, the SCA went further to say that an opt-in class action should only be considered in unspecified and undefined “exceptional circumstances”. This is a criterion unknown elsewhere in the world. It is an obstacle to access to justice as can been seen from the confusion which reigns in relation to the new class action that has recently commenced for impoverished railways pensioners.

The distributors did not attempt a common law or statutory or even hybrid remedy in the lower courts. They relied on a claim for constitutional damages based on the alleged infringement of their constitutionally guaranteed right to choose their trade, caused by the illegal reduction of their discounts which in turn caused the costs in their businesses to sky-rocket. In the Constitutional Court, and because the law had been radically changed in the consumers case, the distributors spread their net wider and argued in addition for common law damages, statutory damages under the Competition Act and even a hybrid claim for the loss that they suffered.

The Constitutional Court is very mindful of the need for access to justice. While it sits, the feet of pedestrians passing in the street outside are visible through its windows, a constant reminder that the Constitution is for the people. A central issue in the case is whether the “exceptional circumstances” approach of the SCA is a reasonable and justifiable limitation on the rights of all to access to justice. The onus on this issue is on the bread cartel members. They suggest that there is nothing wrong with making opt-in class actions available only in the “exceptional circumstances” to which the SCA alludes in its judgment. They also contend that the right to choose one’s trade and to practice it is not a right that can be claimed against them via the horizontal operation of the Bill of Rights.

Whether or not the bread distributors succeed, or are at least offered a second chance such as that given to the consumers, it is a certainty that the law will not be the same after the Constitutional Court has completed its deliberations on the complex issues of fact, law and policy with which it is confronted in a case that has been a long time in coming to it. At least in future those contemplating a class action, whether of the opt-out or opt-in variety, will not be “in large measure operating in the dark” as Justice Wallis put it in the judgment in the consumers case. For this they will have to thank a brave Cape Flats activist, Imraahn Mukkadam.

Paul Hoffman SC
10 May 2013.

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