The Black Business Council (BBC) is mulling class action against construction companies who admitted to the Competition Commission that they rigged tenders between 2006 and 2010.
The BBC talk adds to a class action season that seems to be setting in across South Africa and directed at the private sector. If this class action movement takes root, many firms will be hauled to court given South Africa’s tricky political past.
Following preliminary investigation by the commission, 15 construction firms admitted guilt and were collectively fined about R1.5bn. Giants in the industry like Murray & Roberts, Aveng, WBHO and Stefanutti Stocks were slapped with the heaviest of the fines topping R300m.
The BBC has joined other observers who take a view that the commission allowed construction firms to escape with a slap in the wrist. In an interview hosted on e tv, on the Justice Factor, BBC general secretary Sandile Zungu said the organisation was considering class action on behalf of its members who were “duped” into consortiums that submitted bids for the affected tenders. The work affected is estimated to be cooectively valued at more than R47bn and involved public sector contracts doled out when South Africa was preparing for the 2010 World Cup.
When bidding for public sector work, mainstream contractors are required to team up with emerging black contractors to fulfill black economic empowerment (BEE) demands.
Zungu said black contractors were invited to participate in bidding consortia and were misled to believe that there was going to be real bidding only to find out that some of these companies had colluded to throw away certain bids. He said black companies took risk and resources to participate in staged bidding processes. “They were duped,” said Zungu. He also said the fines meted out by the commission was too small.
The talk of legal action by the BBC comes amid signs that South Africa was entering class action season. A group of Transnet pensioners who claim to have been robbed by the state owned enterprise have made an application to pursue class action. Black Sash is leading a course towards class action against a cartel busted by the commission in the bread baking industry.
Something has changed in the South African legal landscape to encourage this class action movement.
According to Lerato Zikalala, Associate Attorney law firm Bowman Gilfillan, South Africa is likely to see an increase in such action. In a statement released about two weeks ago and unrelated to cases under review here, companies should prepare for an increase in class action legal procedures for present and possibly also historical transgressions.
Zikalala said while the class action procedure remains under-developed in South African law, recent high-profile court cases like the silicosis cases instituted on behalf of miners who contracted the disease while working in South African gold mines have highlighted the procedure.
“While the Constitution makes provision for class actions, and laws like the new Companies Act and the Consumer Protection Act specifically provide for them, the lack of procedural rules and law to regulate class actions has meant that their likelihood was remote”.
The Bowman Gilfillan statement highlighted the Pioneer Foods case. In November last year, the Supreme Court of Appeal (SCA) in Children’s Resource Trust v Pioneer Foods took the significant step of ensuring that the probability of bringing a class action in South African law was less remote.
“Following the conclusion of the Competition Commission’s investigation, a number of NGOs together with COSATU sought to bring a class action against the producers on behalf of consumers. After it suffered a set-back in the High Court, the Supreme Court of Appeal breathed new life into the litigation by allowing the class action to proceed, while simultaneously laying down much needed procedural rules”.
Zikalala said “This is a development to which companies should pay close attention. Previously companies were relatively immune from litigation in which many people had claims, especially small individual claims, because the risk of incurring individual legal costs for potential litigants often outweighed the potential benefit of a judgment that could be obtained.
“In essence, claims that would have never been brought because litigating them was too costly for the ordinary person can now be brought on behalf a class of affected people, thus increasing the likelihood of litigation and the potential legal risk faced by companies. As illustrated in Pioneer Foods, small individual claims when amalgamated into a class action escalate into big-time litigation for possibly millions of rands.”
The Bowman Gilfillan statement said the SCA’s development of the class action framework increases the possibility of using it as a means of enforcing consumer rights.
Zikalala cautioned that “While class actions present a real opportunity to increase access to courts because one person can act in a representative capacity on behalf of a whole class, the lesson learnt from America, the home of the class action procedure, is that, without adequate safeguards, it could be subject to abuse.
“Even though the SCA was mindful of this fact and sought to introduce checks and balances to safeguard against this risk, it remains to be seen whether the checks and balances introduced by the SCA adequately mitigate against the abuses seen in America.”