Competition Commission v Primedia (Pty) Ltd t/a Ster Kinekor Theatres and Another (161/CAC/Feb18) [2019] ZACAC 3 (2 July 2019)

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Competition Commission v Primedia (Pty) Ltd t/a Ster Kinekor Theatres and Another (161/CAC/Feb18) [2019] ZACAC 3 (2 July 2019)

REPUBLIC
OF SOUTH AFRICA
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CAC
CASE NO: 161/CAC/Feb18
In
the matter between:
THE
COMPETITION
COMMISSION

APPELLANT
and
PRIMEDIA
(PTY) LTD T/A STER-KINEKOR THEATRES

FIRST RESPONDENT
AVUSA
LIMITED T/A NU METRO CINEMAS

SECOND RESPONDENT
JUDGMENT
Mnguni
JA (Davis JP and Unterhalter AJA concurring)
[1]
This appeal is a sequel to an application for immunity from
prosecution and fine by Avusa ltd trading as Nu Metro Cinemas (Nu

Metro) in terms of the Competition Commission's (the Commission)
Corporate Leniency Policy (the CLP) brought about in January 2009.
In
its application, Nu Metro purported to furnish the Commission with
evidence pointing to the existence of collusion in the cinema

exhibition market involving itself and Primedia (Pty) ltd trading as
Ster-Kinekor Theatres (Ster-Kinekor) at the Victoria &
Alfred
Waterfront (Pty) Ltd (the shopping complex) in Cape Town. Nu Metro
offered to disclose the extent of its involvement and
participation
in the alleged cartel activities in return for immunity from
prosecution. On 8 May 2009 the Commission granted Nu
Metro
conditional immunity. On 22 May 2009 the Commission initiated a
complaint against Ster­Kinekor and Nu Metro (collectively

referred to as the two entities) for alleged market allocation
between them in the market for film exhibition. On finalisation
of
its investigation, the Commission concluded that the evidence in its
possession established that the two entities, being firms
in a
horizontal relationship in the market for films exhibition, had
engaged in a market allocation agreement limiting the genre
of films
each firm was entitled to exhibit in the shopping complex, so as to
avoid competing with each other in contravention of
s 4(1)(b)(ii)
[1]
of the Competition Act 89 of 1998 (the
Competition Act).
[2
]
On 14 March 2012 the Commission amended its complaint by including an
allegation that the conduct forming the subject matter of
complaint
was still continuing at the time of the referral. On 29 March 2012
the Commission referred the complaint to the Competition
Tribunal
(the Tribunal) in terms of
s 50(1)
of the
Competition Act read
with
rule 14(1)(a)
of the Rules for conduct of the proceedings in the
Competition Tribunal. The Commission cited Primedia and Nu Metro
respectively
as the first and second respondents.
[3]
At this stage a little more needs to be said about the structural
changes each of the respondents has undergone culminating
in the
present entities. Ster-Kinekor is the film and digital division of
Primedia, which is the successor-in-title of Ster-Kinekor
(Pty) Ltd
(new Ster-Kinekor) and Ster-Kinekor Films (Pty) ltd (old
Ster-Kinekor.) Primedia is currently a leading South African
media
group with interests in amongst other things broadcasting,
advertising, marketing and promotions. Old Ster-Kinekor was a
party
to the settlement agreement and the tenant under the resultant lease
with the landlord.
[4]
On 29 September 2007 the film exhibition business of Ster-Kinekor was
sold to the first respondent (Primedia). In 2007 Primedia
purchased
the businesses of all the companies in the Primedia Group including
the businesses of old Ster-Kinekor. New Ster-Kinekor
is the division
within new Primedia that carries on the business acquired from old
Ster-Kinekor. Although Ster-Kinekor carries
on business as Ster­
Kinekor Theatres, it is in fact not a separate corporate entity.
[5]
Avusa Ltd is a public company duly incorporated in terms of the laws
of the Republic of South Africa. Avusa Ltd was the then
holding
company of Nu Metro Theatres (Pty) Ltd, which has since been
deregistered and made a division of Avusa Ltd known as Nu
Metro
Cinemas. Nu Metro now forms part of the Avusa retail division.
[6]
The two entities are the major competitors in the film exhibition
market in South Africa. Nu Metro showcases all the existing
new
cinematic products on the big screen and operates about 24 cinema
multiplexes across South Africa with approximately 196 screens.

Ster-Kinekor is the largest cinema exhibitor with approximately 33
Junction value cinemas and 15 Classic cinemas nationwide and
a total
of over 400 screens and 60 000 seats.
[7]
The issues arising in this appeal will be better understood against
the background that follows. On 30 April 1992 the shopping
complex
and Nu Metro concluded a lease relating to Nu Metro's occupation of
11 motion picture theatres in the shopping comp·lex.
The lease
was to endure for an initial period of 15 years with an option to
renew the lease for two further periods of five years
each. At the
time Nu Metro was the only operator of cinemas in the shopping
complex. In 1994 Transnet Limited sold the V&A
Waterfront to
Transnet Pension Fund. With effect from 1 April 1994, V&A
Waterfront ceded to Transnet Pension Fund all its rights,
title and
interest under the existing Nu Metro lease. Since then multiple
entities have succeeded one another as landlord (the
landlord).
[8]
In the mid-1990s Ster-Kinekor approached the landlord with the view
of establishing an art cinema in the shopping complex. Nu
Metro
became aware of the negotiations and on 30 July 1997 it addressed a
letter to the landlord objecting to the proposed introduction
of the
Ster-Kinekor art cinema. Nu Metro claimed that it had an enforceable
oral right of first refusal in its favour with the
landlord over any
additional theatres which might be developed in the shopping complex.
Nu Metro also threatened to take legal
action against the landlord to
protect and enforce its alleged right should the landlord proceed and
conclude a lease with Ster-Kinekor.
[9]
The landlord and Ster-Kinekor did not heed Nu Metro's threats of
litigation and the negotiations continued unabated. That decision

provoked Nu Metro to institute action against both the landlord and
Ster-Kinekor in the then Cape of Good Hope Provincial Division
(high
court) predicating its cause of action on an alleged enforceable oral
right of first refusal foreshadowed in its letter of
objection of 30
July 1997. In that action Nu Metro sought an order interdicting and
restraining the landlord from concluding or
giving effect to any
lease of the new cinema in the shopping complex to any person other
than itself. Nu Metro joined Ster-Kinekor
in the action because of an
interest it had in the relief that Nu Metro sought against the
landlord. Consequently, Nu Metro's action
became an obstacle that
prevented the proposed introduction of Ster-Kinekor's art cinema.
[10]
Subsequently the parties entered into tripartite negotiations to
unlock the deadlock caused by Nu Metro's court action. The

negotiations culminated in the parties concluding a settlement
agreement on 11 May 1998. In its relevant parts the settlement
agreement provided:
'2 A1.
Ster-Kinekor shall not show any films identified in the industry as
commercial films. Without limiting the definition of
what constitutes
a non-commercial film, the parties agree that for the purposes of
this agreement inter-alia the following categories
of film shall be
agreed not to be commercial films:
A1.1
sub-titled foreign language films (other than English and Afrikaans);
A1.2 English or
Afrikaans language films scheduled for "limited release"
(as generally accepted in the film industry from
time to
time-currently 7 prints) on the South African exhibition circuit;
A1.3
Any film that is classified by Movieline Magazine as an ''art film".
A2. Should a
particular film be shown at either (or both) the Rosebank Mall and/or
Cavendish Square Cinema Nouveau complexes, then,
provided that it is
not a commercial film, Ster-Kinekor shall be entitled to show this
film at the V & A Cinema Nouveau;
A3. In the event
that a commercial film is show at either (or both) the Rosebank Mall
and/or Cavendlsh Square Cinema Nouveau complexes,
then
notwithstanding this fact, Ster­Kinekor shall not be entitled to
show this film at the V & A Cinema Nouveau complex
and this
commercial film will be shown by Nu Metro in one or more of its
theatres at the V & A Waterfront.
A4. Nu Metro
undertakes not to show, in its V&A Waterfront cinemas, any films
of the genre reserved to Ster Kinekor as described
under 2 above,
unless Ster Kinekor has elected not to show it at its Cinema Nouveau
complex in the V&A Waterfront'
[11]
On 29 September 1998 the settlement agreement was made an order of
the court. As agreed, the two entities incorporated the
settlement
agreement and the restraints in their respective leases with the
landlord, all of which occurred before the
Competition Act came
into
operation on 1 September 1999. These restraints were destined to take
centre stage in the dispute that subsequently arose
between the
Commission and Primedia.
[12]
I return to the chronological sequence of the complaint. In its
answer to the complaint, Ster-Kinekor denied the allegations
levelled
against it and raised three defences. The first defence was that on a
proper characterisation of the settlement agreement,
it was not an
agreement between the two entities in a horizontal relationship.
Ster-Kinekor contended that it was an agreement
between the parties
to an action which adjusted the landlord's vertical relationships
with Nu Metro on the one hand and Ster-Kinekor
on the other. This is
because the settlement agreement culminated in an amendment to the
leases between the landlord and Ster-Kinekor
and the landlord and Nu
Metro regarding the nature of the films that each cinema house could
exhibit. It contended that it was
the leases that imposed the
restraints, and therefore, the agreements that divided markets were
the vertical leases with the landlord.
The settlement agreement
merely aligned the landlord's two agreements with Nu Metro and
Ster-Kinekor respectively, to ensure that
the landlord's lease with
Ster-Kinekor did not breach the landlord's obligations to Nu Metro.
Ster-Kinekor did not willingly agree
to any division of markets
between the two entities. Ster-Kinekor asserted that it entered into
competition with Nu Metro at the
shopping complex on the only basis
available to it. It's only alternative was not to compete with Nu
Metro at the shopping complex
at all.
[13]
The second defence was that it was not competent for the Tribunal to
grant relief against new Primedia because even if its
predecessor had
contravened
s 4(1)
(b)(ii) of the
Competition Act, new
Primedia had
not done so. Ster-Kinekor contended that new Primedia purchased the
business of Ster-Kinekor in 2007 and it only succeeded
Ster-Kinekor
as tenant in 2012, which was long after the two entities had
abandoned the settlement agreement.
[14]
The third defence was that Ster-Kinekor and Primedia were at all
times bound by and obliged to obey the court order which incorporated

the settlement agreement.As a result Ster-Kinekor contended that the
conduct of the two entities in doing so was lawful and not
in breach
of
s 4
of the
Competition Act. Ster-Kinekor
also pointed out that it
never implemented the settlement agreement after the
Competition Act
came
into force and that its responsible officials were initially
ignorant of the agreement altogether.
[15]
None of these defences found favour with the Commission and it
refused to withdraw the complaint. The Commission referred its

finding to the Tribunal for adjudication in terms of
s 50(1)
of the
Competition Act read
with
rule 14(1)(a)
of the Rules for the conduct
of proceedings in the Competition Tribunal. In the complaint referral
the Commission sought, inter
alia, an order declaring that the
respondents committed prohibited practices in contravention of
s
4(1)(b)(ii)
of the
Competition Act; directing
the respondents to
refrain from engaging in the aforesaid restrictive horizontal
practice to the extent that the conduct continues,
and imposing an
administrative penalty against Primedia in an amount equal to 10 per
cent of its annual turnover in the country
during the preceding
financial year.
[16]
During the hearing the Commission adduced evidence of two witnesses
namely, Glen Edwin Clack (Mr Clack) and Mark Harris (Mr
Harris) in
support of its case whilst Ster-Kinekor adduced evidence of three
witnesses namely, Isabel Rao (Ms Rao), Fiaz Mohamed
(Mr Mohamed) and
Nicolette Scheepers (Ms Scheepers) in its defence. Mr Clack was
employed by Nu Metro during the period 1993 to
2001, first as
Operations Director and from 1996 as Managing Director. Mr Harris was
employed by Nu Metro as Product Manager from
July 2002 and as its
Content and Marketing Executive from 2008. Ms Rao has been with
Ster-Kinekor Distribution since 1988 and has
been its Chief Executive
Officer since 2000. Mr Mohamed was the Chief Executive Officer of
Ster-Kinekor Theatres. He worked as
its Chief Operating Officer from
2006. Ms Scheepers was employed by Ster-Kinekor Distribution from
1997 to 2016 and was under the
direct supervision of Ms Rao.
[17]
After analysing the evidence in relation to the provisions of
s
4(1)(b)(ii)
, the Tribunal dismissed the complaint on 5 February 2018.
In the course of dismissing the complaint the Tribunal reasoned as
follows:
'The settlement
agreement was concluded before the
Competition Act came
into
operation. Therefore, there can only be a contravention of
section
4(1)(b)(ii)
if there were actions or discussions between the parties
directed at implementing the agreement after the
Competition Act came
into force. . . .'
[2]
Alive
to the Commission's contention that 'although the settlement
agreement was concluded before the commencement of the
Competition
Act, there
was continuing conduct regarding the implementation of the
agreement after the
Competition Act came
into force', the Tribunal
found that the Commission's allegation was not borne out by the
facts. The Tribunal then concluded that
Ster-Kinekor did not
contravene
s 4(1)(b)(ii).
[18]
Aggrieved by this outcome the Commission launched this appeal
contending that the Tribunal either erred or misdirected itself
in
its finding on the following five grounds:
(a) in its
interpretation and application of
s 4(1
)(b)
of the Act that
there can only be a contravention of
s 4(1)(b)(ii)
of the
Competition
Act if
there were actions or discussions between the two entities
directed at implementing the settlement agreement after the
Competition Act came
into force;
(b) in not
making any determination regarding the existence of the agreement
after the
Competition Act came
into operation;
(c) in not
making any determination whether the settlement agreement constituted
division of markets within the contemplation of
s 4(1)(b)(ii)
of the
Competition Act;
(d
) in its
finding that Ster-Kinekor's exhibition of art films at the shopping
complex could plausibly be as a result of implementation
of
Ster-Kinekor's business strategy and model and not the settlement
agreement; and
(e) in not
making any determination regarding Primedia's liability for purposes
of the
Competition Act.
>
[19]
I shall deal with these grounds shortly but first, at the hearing of
this appeal on 12 December 2018, this court mero motu
raised the
question whether the parties had considered the implications of GN
801 published in GG 10211 of 2 May 1986 on the lawfulness
of the
restraints contained in the settlement agreement promulgated under
the Maintenance and Promotion of Competition Act 96 of
1979 (the 1979
Act) before the Competition Act was enacted. Both counsel were not
adequately prepared to deal with this question
and were afforded time
to file additional heads dealing with this question. The additional
heads have since been filed and the
court is grateful to counsel for
their input. Counsel hold divergent views on this question. The
Commission's counsel contended
for an answer in the affirmative
whereas Primedia's counsel contended otherwise.
[20]
In its relevant parts regulation 2(d) of GN 801 provides:
'Subject to the
provisions of paragraphs 8 and 9 no person shall enter into, be a
party to or continue to be party or continue to
be a party to any
agreement, arrangement, understanding, business practice or method of
trading which in terms of this notice constitutes
-
(d) horizontal
collusion on market sharing.. .'
Regulation
6 of GN 801 defines "horizontal collusion on market sharing"
as follows:
"'Horizontal
collusion on market sharing" referred to in paragraph 2 (d) -
(a)
means any agreement, arrangement or understanding between or
among two or more suppliers of any commodity, or of substantially
similar
commodities, having the effect of dividing wholly or
partially the market for such commodity or commodities between or
among them-
(i)
territorially;
(ii) in respect
of customers or classes of customers;
(iii)
quantitatively, by reference to the quantities or share to be
produced or supplied by each such supplier or by reference to
any
limitation of production facilities; or
(iv) in respect
of technical factors relating to the commodities concerned; and
(b)
includes the use of an association or of a company, close
corporation or other juristic person in which such suppliers have an
interest,
to effect horizontal collusion on market sharing in any
way.'
[21]
The Commission and Primedia are not in agreement on a proper
characterisation of the settlement agreement and the restraints

contained therein. In
American
Natural Soda Ash Corporation v Competition Commission
(
Ansac
)
[3]
the Supreme Court of Appeal said that where the prohibition is
decreed by legislation rather than by judicial intervention, the

prohibited form of conduct must be established between the parties to
two vertical relationship by construing s 4(1
)(b).
Accordingly,
the first step to that enquiry must involve the determination of
whether the relationship between the two entities
in relation to the
settlement agreement and restraints was a horizontal or vertical one.
[22]
An appropriate starting point in assessing the competing arguments of
the parties is the definition of "horizontal relationship"

in s 1 of the Competition Act. Section 1 of the Competition Act
defines "horizontal relationship" to mean 'a relationship

between competitors'. The determination whether a restraint is a
horizontal or a vertical one involves a legal and factual
consideration.
In
Competition
Commission v South African Breweries Limited
&
others
(SAB)
this
court said:
[4]
'[36] Our
legislature, when it passed the Act, did not favour a judicially
constructed rule. By contrast, it provided expressly,
in terms of s
4(1)(b), that any direct or indirect fixing of a purchase or selling
price or the dividing of markets by allocating
customer, suppliers,
territories or specific types of goods or services or collusive
tendering constituted an agreement which was
prohibited.
[37] Thus, the
"characterisation" that is required under our legislation
is to determine (i) whether the parties are in
horizontal
relationship, and if so (ii) whether the case involves direct or
indirect fixing of a purchase or selling price, the
division of
markets or collusive tendering within the meaning of s 4(i)(b).
However, since characterisation in this sense involves
statutory
interpretation, the bodies entrusted with interpreting and applying
the Act (principally the Tribunal and this court)
must inevitably
shape the scope of the prohibition, drawing on their legal and
economic expertise and on the experience and wisdom
of other legal
systems which have grappled with similar issues for longer than we
have.'
[23]
In
SAB
this court concluded that '[t]he true economic nature
of the relationship, which the characterisation principle seeks to
unlock,
was, in this case, a vertical relationship between a producer
and distributors of the farmer's product'. (para 43)
[24]
In
Dawn
Consolidated Holdings (Pty) Ltd
&
others
v Competition Commission
[5]
this
court, after considering the approach articulated in the European
Commission's General Guidelines relating to the concept of
ancillary
restraints,
neatly
summed up the position on the issue as follows:
‘
The
requirement that the restraint should be objectively "necessary"
may, however, be too strict. The appropriate test,
in my view is the
following:
(a)
Is the main agreement (ie disregarding the impugned restraint)
unobjectionable from a competition law perspective?
(b)
If so, is a restraint of the kind in question reasonably
required for the conclusion and implementation of the main agreement?
(c)
If so, is the particular restraint reasonably proportionate to
the requirement served?'
This
court stressed that this test is an objective one, and that the fact
that the parties subjectively believed that a restraint
was
reasonably required does not suffice.
[6]
[25]
The first respondent contended, that while Nu Metro and Ster Kinekor
were competitors in a horizontal relationship, each was
also in a
vertical relationship with the landlord. It contended further that
the settlement only made adjustments to the two vertical

relationships to allow the landlord to establish a second vertical
relationship with Ster Kinekor alongside its existing vertical

relationship with Nu Metro
[26]
Notwithstanding this submission I am prepared to assume in favour of
the Commission that when these restraints are objectively
assessed
they are arrangements which are independent of the leases and reflect
the consensus of two entities in a horizontal relationship
to divide
film exhibition in the shopping complex.
[27]
Having assumed in favour of the Commission that the settlement
agreement was an agreement between the two entities in a horizontal

relationship, I turn to deal with the question which this court
raised as foreshadowed in para 19 above. The Commission's counsel

contended that the settlement agreement and the restraints fall
within the scope of the prohibition of horizontal collusion on
market
sharing contained in regulation 2(d) of GN 801 and were unlawful
prior to the promulgation of the Competition Act. He submitted
that
the settlement agreement and the restraints constitute 'an agreement,
arrangement, or understanding, business practice or
method of
trading' as contemplated in regulation 2(d). Allied to this
submission he pointed out the definitions of the words "commodity"

and "supplier(s)" in regulation 10(b)
[7]
and (f)
[8]
are sufficiently broad to include a provider or the provision of any
service including the exhibition of films. He submitted that
the
restraints have the effect of dividing the market for the exhibition
of film in the shopping complex as contemplated in regulation
6.
Further, the restraints were not excluded from the application of the
prohibition in regulation 2(d) by virtue of the provisions
of
regulation 8,
[9]
and have not been excluded by the Minister in terms of regulation 9
read with s 14(5)(b) of the 1979 Act.
[28]
By contrast Primedia's counsel advanced two reasons why he submitted
that the settlement agreement and the restraints did not
contravene
GN 801. The first reason was that on its proper characterisation the
settlement agreement was an agreement governing
two vertical
relationships. He contended that it was merely the settlement of a
dispute between the parties to two vertical relationships.
He
submitted that the restraints imposed on the two entities were
imposed on them by the terms of their leases in their respective

vertical relationships with the landlord.
[29]
The second reason was that the relevant provisions of GN 801 require
the prosecuting authority to prove
mens rea
on the part of
Ster-Kinekor beyond reasonable doubt, before Ster-Kinekor could be
found to have contravened the regulations in question.
[30]
He pointed out that the Commission did not adduce evidence on a
proper characterisation of the settlement agreement for the
purposes
of the contravention created by GN 801. Whilst accepting that the two
entities were competitors in a horizontal relationship,
he submitted
that each of the two entities was also in a vertical relationship
with the landlord. He elaborated on this by submitting
that the
settlement agreement merely made adjustments to the two vertical
relationships to allow the landlord to establish a second
vertical
relationship with Ster-Kinekor alongside its existing vertical
relationship with Nu Metro.
[31]
He argued that the settlement agreement was an incidental by-product
of the fact that Nu Metro had contended that it was a
term of Nu
Metro's vertical relationship with the landlord that the latter could
not enter into a vertical relationship with Ster-Kinekor
because of
Nu Metro's alleged enforceable right of first refusal. He pointed out
that the same outcome would have been achieved
without any horizontal
agreement, even if the landlord had negotiated separate settlements
with each entity. He submitted that
the economic substance of the
relationship between the parties was that the two entities had
separate vertical relationships with
the landlord.
[32]
Primedia's counsel made two important submissions, the first being
that the only conduct by which Primedia was said to have
contravened
s 4(1)(b)(ii) was its alleged implementation of the settlement
agreement. The nub of the submission was that once Primedia
had been
shown to be innocent of the charges actually made against it, it was
not open to the Commission to enquire into the possibility
of a
contravention on some other basis including contravention of GN 801.
[33]
The second was that, even if this court were to find that the
settlement agreement constituted a restricted practice under
GN 801,
the settlement agreement was lawful because it was sanctioned by an
order of the high court. As authority for this submission
he relied
on the judgment of Froneman J (as he then was) in
Bezuidenhout
v Patensie Sitrus Beherend BPK
[10]
where
the learned judge said:
'An order of a
court of law stands until set aside by a court of competent
jurisdiction. Until that is done the court order must
be obeyed even
if it may be wrong (
Cu/verwell v Beira
1992 (4) SA 490
(W) at
494A - C)'.
Primedia's
counsel correctly observed that regulation 8 exempted any agreement,
arrangement or understanding 'authorised by the
provisions of any
law'. I agree with counsel that such exemption should include an
agreement authorised by order of high court
otherwise any other
interpretation would lead to unpalatable consequences.
[34]
Primedia's counsel further contended that it would be unfair to
adjudicate the appeal on the basis of contravening GN 801 because,
at
this stage, it is no longer open to Ster-Kinekor to recast its
defence in order to effectively deal with this accusation. In
my
view, the proper course to follow would be to adjudicate the appeal
under s 4(1)(b)(ii) of the Competition Act.
[35]
There was a suggestion advanced on behalf of the Commission that
Ster­ Kinekor had contractually adopted the restraints
in the
lease shortly before the Competition Act came into operation, when
Ster-Kinekor and the landlord entered into a lease for
the new cinema
complex in the shopping complex which restricted Ster-Kinekor's use
of the cinema complex in accordance with the
court order and the
settlement agreement. The basis of this contention was said to be the
following: The lease restraints were
incorporated in clause 5 of the
lease between Ster-Kinekor and the landlord. The first act of
contractual adoption of the restraints
by Ster-Kinekor perpetuated
the unlawful restraints contractually for a period of at least 10
years from 1999 which straddles the
period shortly before the Act
came into operation and a considerable period after the Act came into
force. The restraints were
not varied or changed in the first
addendum and remained in force and effect as contemplated in clause 3
of the first addendum.
Ster-Kinekor's exercise of the first option to
renew the lease agreement and the first addendum constitutes
Ster-Kinekor's second
act of contractual adoption of the restraints
which preserved the restraints for a further period of five years.
The sale of business
agreement between new Primedia and new
Ster-Kinekor also contains an express contractual acknowledgement and
acceptance that the
transfer of the business and assets of
Ster-Kinekor to Primedia on 28 September 2007 was an intra-group
transaction. The sale of
business agreement makes it clear that the
transfer of business of Ster-Kinekor to Primedia was an internal
re-organisation as
the seller and the purchaser acknowledged and
accepted that they form part of the same group of companies for
purposes of s 45(1)(a)
of the Income Tax Act.
[36]
As correctly submitted by Primedia's counsel the issues which the
Commission is now raising under this heading were never pleaded
by it
or canvassed at the hearing in the Tribunal. Critically, no
invitation was extended or leave granted to the parties by this
court
to address these issues after the hearing. Oddly enough, the
Commission did not put clause 16 of the sale of business agreement
to
Ster-Kinekor's witnesses.
[37]
For reasons that I shall now develop, there is no need to decide
these questions. This then is thus the convenient stage to
deal with
what, in my view, is the critical argument upon which the Commission
bases its challenge on the findings of the Tribunal,
particularly in
the light of my assumption that Primedia and Ster Kinekor were in a
horizontal relationship.
Interpretation
and application of s 4(1
)(b)
of the Competition Act
[38]
The Commission's primary contention was that the jurisprudence of
this court does not require an act of implementation in order
to
establish the existence of an "agreement" as defined in the
Competition Act. Section 1 of the Competition Act defines

'"agreement", when used in relation to a
prohibited
practice,
includes
a contract or understanding, whether or not legally enforceable'. The
case for an agreement focuses on whether consensus
sufficient to
constitute a 'contract, arrangement or understanding' has been proved
on a balance of probability. In
Nestar
(Pty) Ltd
&
others
v Competition Commission
of
South
Africa
&
another
[11]
this
court distinguished the definition of "an agreement" and a
"concerted practice". In relation to the definition
of "an
agreement" it held:
'By
contrast, an agreement arises from the actions and discussions among
the parties directed at arriving at an arrangement that
will bind
them either contractually or by virtue of moral suasion or commercial
interest. It may be a contract, which is legally
binding, or an
arrangement or understanding that is not, but which the parties
regard as binding upon them. Its essence is that
the parties have
reached some kind of consensus. No doubt, in many cases the same
evidence may be relied upon as pointing towards
either an agreement
or a concerted practice. However, sight should not be lost of the
fact that they are different. The definition
of an agreement extends
the concept beyond a contractual arrangement. However, what it
requires is still a form of arrangement
that the parties regard as
binding upon both themselves and the other parties to the agreement.
Absent such an arrangement, there
is no agreement, even in the more
extended sense embodied in the definition.'
[12]
(Footnote omitted)
[39]
As concisely held in
Nestar,
this
court held that the basis for an agreement in competition law is
consensus. This simply requires 'a form of arrangement that
the
parties regard as binding upon both themselves and the other parties
to the agreement'.
[13]
In
MacNeil
Agencies (Pty) Ltd v Competition Commission
[14]
this
court held that '[c]onsensus sufficient to constitute a "contract,
arrangement or understanding" must be proved on
a balance of
probability (see s 68) before a finding can be made in terms of s
4(1) that the firms have committed a prohibited
practice in the form
of an "agreement'". In
Reinforcing
Mesh Solutions (Pty) Ltd
&
another
v Competition Commission
&
others
[15]
this
court endorsed the European Commissions' position that implementation
is not a requirement to found a contravention of s 4(1
)(b)
of
the Competition Act. As aptly observed in
MacNeil
the
definition of an agreement extends to the concept beyond a
contractual agreement.
[40]
On the strength of these authorities, the Commission's counsel
submitted that the settlement agreement was preceded by negotiations

that took place early in 1998 between the two entities, which
involved discussions on avoidance of competition between their
respective
cinemas in the shopping complex. He submitted that the
settlement agreement reflected the consensus of the two entities in
terms
of which Ster-Kinekor would only screen art films and Nu Metro
would only screen commercial films.
[41]
The Commission contended that the Tribunal misdirected itself in its
approach which requires actions or discussions between
the parties
directed at implementing the agreement after the Competition Act came
into force in order to found a contravention
of s 4(1
)(b).
The
Commission's counsel submitted that this approach was inconsistent
with this court's jurisprudence for two reasons. The first
reason was
that the Tribunal's approach conflates an inquiry into the duration
of an agreement (ie whether the agreement remained
in force after the
Competition Act came into operation) with an inquiry into the
implementation of an agreement. He submitted that
while an inquiry
into the implementation of an agreement may, in appropriate cases,
assist in determining the duration of an agreement,
where duration of
an agreement is in dispute, these remain distinct and separate
inquiries.
[42]
The second reason was that the Tribunal's approach conflates the
requirements for establishing a concerted practice with the

requirements for establishing an agreement by focusing solely and
exclusively on the conduct of the parties in establishing an

agreement, which is an exercise that is essential in the
establishment of a concerted practice. He submitted that the
Commission's
case was based on an agreement not a concerted practice.
He submitted that consistent with this court's jurisprudence on the
interpretation
of an agreement as contemplated in s 4(1
)(b),
the
proper approach the Tribunal ought to have followed was to determine
whether, after the Competition Act came into operation,
the
settlement agreement and the respective leases of the two entities
incorporating the restraints in the settlement agreements
remained in
force.
[43]
Obviously, the existence of the settlement agreement is not at issue
in this appeal. As I see it, the proof of the existence
of the
settlement agreement per se does not assist the Commission in the
circumstances of this case. I say this because the case
which the
Commission advanced in its complaint referral was that the conduct
which was the subject of the complaint referral continued
at the time
of the referral. The success of this submission depends on the
evidence presented regarding the conduct of the respondents
Nature
of the market division and conduct of the parties
[44]
The Commission contended that settlement agreement was principally
aimed at defining and demarcating the respective roles of
the two
entities in respect of the exhibition of films of "commercial"
and "art" films in the shopping complex.
It was aligned
with and protected the business models of the two from competition
with each other. Ster-Kinekor was only interested
in establishing a
cinema nouveau and not a commercial cinema complex. The art film
concept was not Nu Metro's business model. Ster-Kinekor
had developed
the "cinema nouveau" concept at Rosebank Mall and later
expanded the concept to Cavendish Square. Ster-Kinekor
developed the
definition of "non-commercial film" genre which was
subsequently incorporated into the settlement agreement.
[45]
The Commission's counsel submitted that, after the settlement
agreement was concluded, Nu Metro believed that the two entities

complied with its terms and that there was no need for further
discussion in relation to its implementation. He submitted that
even
after the Competition Act came into operation, Nu Metro still
considered the two parties to be bound by its terms. He submitted

that when Mr Harris was appointed as Product Manager at Nu Metro in
July 2002, his predecessor made him aware of the settlement

agreement, provided him with its copy as well as a copy of the letter
dated 26 November 2001 from Nu Metro's attorneys, Thomson
Wilks,
addressed to Frisky Domingues of Ster-Kinekor relating to
Ster-Kinekor's non­ compliance with the terms of the settlement

agreement. He expressed a view that the letter clearly evidences the
fact that Nu Metro still considered the two entities to be
bound by
the terms of the settlement agreement even after the Competition Act
came into operation.
[46]
The sufficiency or otherwise of the meagre and imprecise evidence
adduced on behalf of the Commission with regard to this critical

issue in the case was the matter chiefly debated during argument in
this court. To resolve that question it is necessary to look
more
closely at this evidence.
[47]
Mr Clack testified that until his departure from Nu Metro in 2001,
Ster-Kinekor fully complied with the settlement agreement.
However,
in cross-examination he readily conceded that he did not personally
monitor Ster-Kinekor's compliance with the settlement
agreement. He
also readily conceded that one could not infer that Ster-Kinekor
adhered to the settlement agreement merely because
it screened art
films, because from the outset and before the settlement agreement
was concluded, Ster-Kinekor's strategy, which
was based on its art
nouveau business model, was to screen only art films in the shopping
complex.
[48]
Mr Harris testified that he was responsible for monitoring the
implementation of the settlement agreement from the time he
became
the Project Manager until 2009. When he took over the position as
Project Manager, his predecessor handed him a copy of
the settlement
agreement and took him through its terms. He testified that if he
discovered that Ster-Kinekor was in breach of
the settlement
agreement he would bring that to the attention of the relevant
personnel at Ster-Kinekor's Distribution. He testified
that he
successfully invoked and enforced the settlement agreement against
Ster-Kinekor on multiple occasions. Oddly enough in
cross­
examination, he readily conceded that he only ever made one
unsuccessful attempt at enforcing the settlement agreement
in
December 2008.
[49]
As stated, Ster-Kinekor adduced evidence of three witnesses during
the hearing. Ms Rao's evidence was that they never implemented
the
settlement agreement in their distribution of Ster-Kinekor's films.
She was not even aware of its existence until Mr Harris
drew her
attention to it in December 2008. Ms Scheepers corroborated Ms Rae's
evidence in this regard in all material respect.
She confirms that
they did not know of the settlement agreement's existence. The
evidence of Ms Rao and Ms Scheepers was borne
out by their email
correspondence with Nu Metro's Mr Harris in December 2008. When he
invoked the settlement agreement, they told
him that they knew
nothing about it and asked him for a copy of the agreement. Mr
Mahomed testified that they never implemented
the settlement
agreement. He was not aware of its existence until the Commission
referred to it in 2009. His evidence was that
Ster-Kinekor regularly
screened films in breach of the settlement agreement and Nu Metro
rarely did anything to enforce it. His
evidence was that on the odd
occasion when Nu Metro attempted to enforce it, its attempts failed.
He testified that Ster-Kinekor
consistently defied the settlement
agreement.
[50]
With regard to Mr Harris' evidence that the two entities only
abandoned the settlement agreement in January 2009, Primedia's

counsel pointed out that all three witnesses who testified on behalf
of Ster-Kinekor were clear that Ster-Kinekor had never implemented

the settlement agreement or the restraint in its lease at all and
there was nothing to abandon. He submitted that Ster-Kinekor
had
screened art movies in conformity with their art nouveau business
model and that that did not suggest that it implemented or
adhered to
the settlement agreement.
[51]
Before the Tribunal, Ms Rao produced a list of all the films
distributed by Ster­ Kinekor Distribution and screened by
the two
entities at the shopping complex from 1998 to 2013 which highlighted
all the films screened at both entities in breach
of the settlement
agreement. From the analysis of the list, it is clear that
Ster-Kinekor frequently acted in breach of the settlement
agreement.
[52]
The available evidence reveals that Nu-Metro did little to enforce
the agreement. To the extent that the Commission sought
to rely upon
the letter dated 26 November 2001 mentioned in para 45 above, it
remains to observe the following:
(a)
it was an incomplete letter of demand from Nu Metro's erstwhile
attorneys, Thomson Wilks, addressed to Ster-Kinekor demanding

Ster-Kinekor to immediately cease its screening of two movies (Moulin
Rogue and Captain Corelli's Mandolin) in the shopping complex;
(b)
no evidence was led that this letter was ever received by
Ster-Kinekor; and
(c)
in any event, the letter gives credence to Ster-Kinekor's version
that it never implemented the settlement agreement.
Economic
successor liability
[53]
New Primedia only purchased the business of old Ster Kinekor in 2007.
The Commission's contention on this ground was that new
Primedia
should be held liable for old Primedia's misconduct as it is the
economic successor to old Primedia. The Commission contended
that the
transfer of the business of old Ster-Kinekor to new Primedia was a
transfer of a business between entities with substantially
the same
control structure.
[54]
Primedia's counsel submitted that new Primedia only purchased the
business of old Ster-Kinekor in 2007. It did not immediately
succeed
to the rights and obligations of old Ster-Kinekor under its lease
with the landlord. Old Ster-Kinekor could not transfer
those rights
and obligations without the landlord's consent. In any event, the
agreement by which old Ster-Kinekor transferred
its rights and
obligations under its lease to new Primedia was only concluded on 3
February 2012. He submitted that, even if its
predecessors had
contravened s 4(1)(b){ii), new Primedia never did so. He pointed out
that new Primedia is not the company that
concluded or implemented
the settlement agreement. He also pointed out that the Commission
relies on a schematic presentation of
the structure of Primedia
pre-2007 and post- 2007 which it took from the evidence in another
case and that evidence was never adduced
before the Tribunal at the
hearing.
[55]
It is common cause that the Commission neither pleaded nor adduced
evidence to support an argument for the economic continuity
between
old and new Primedia or for the structural link between new Primedia
and old Ster-Kinekor. It did not adduce evidence that
justifies the
contention that new Primedia should be held liable to the extent of
any wrongful conduct which was shown to occur
before it new Primedia
entered on the scene. In the circumstances, neither the Tribunal nor
this court has the necessary evidence
before it to make such a
finding.
[56]
In summary, even on the basis of an assumption in favour of the
Commission that Primedia and Ster Kinekor were in a horizontal

relationship which fell within the scope of s 4(1) (b) of the
Competition Act, the Commission failed to make the required showing

that the settlement agreement was implemented. The evidence presented
by the Commission manifestly failed to negotiate the requisite

threshold to show, on the probabilities that the settlement agreement
was implemented which action, may have triggered the application
of s
4(1) (b) of the Competition Act.
[57]
hence the appeal cannot succeed. What remains to be considered is the
question of costs. The general rule is that in the ordinary
course
costs follow the result. I am unable to find any circumstances which
persuade me to depart from this rule.
Order
[55]
In the result the following order is made
(a)
The appeal is dismissed with costs such costs to include costs of two
counsel.
__________________
Mnguni
JA
Davis
JP and Unterhalter AJA concurs
Appearances
Heard:
12 December 2018
Delivered:
02 July 2019
For
the Appellant: Mr B Majenge
Assisted
by: Ms M Swart, Ms N Pakade, Ms L Phaladi and Ms N Mthethwa
INSTRUCTED
BY: Competition Commission
REF.:
B Majenge/M Swart/N Phakade
TEL.:
012-394 34 05
For
the 1st Respondent: Mr W Trengove SC
Assisted
by: Ms C. Steinberg
INSTRUCTED
BY: Bowman Gilfillan
REF:
R Legh/C Reidy
TEL:
011-669 90 00
For
the 2nd Respondent: Details missing
Assisted
by:
INSTRUCTED
BY: Nortons Inc.
REF:
J Oxenham
TEL:
[1]
'4. Restrictive horizontal practices prohibited. -(1) An agreement
between, or concerted practice by,
firms,
or a decision by an association of firms, is prohibited if...
(b)
it involves any of the following restrictive horizontal practices:
(i) . . .
(ii) dividing
markets by allocating customers, suppliers, territories, or specific
types of goods or services. . . .'
[2]
Para 41 of the Decision and Order of the Tribunal, vol. 9 of the
Record at 832.
[3]
American Natural Soda Ash Corporation & another v Competition
Commission & others
2005 (6) SA 158
(SCA) para 44.
[4]
Competition Commission v South African Breweries Limited &
others 2015 (3) SA 329 (CAC).
[5]
Dawn Consolidated Holdings (Pty) Ltd & others v Competition
Commission (155/CACOct 2017)
[2018] ZACAC 2
(4 May 2018) para 32.
[6]
Dawn para 33.
[7]
Regulation 10(b) defines a "commodity" as follows:
"'commodity"
includes any make or brand of any commodity, any book, periodical,
newspaper or other publication, any
building or structure and any
service, whether personal, professional or otherwise, including
storage, transportation, insurance
or banking service;'.
[8]
Regulation 10(f) defines a "supplier'' as follows:
'"supplier"
includes, unless the context indicates, the manufacturer, producer,
seller, and reseller of goods, any supplier
of goods by way of lease
or hire or otherwise and the provider of any professional, financial
or other service.'
[9]
Regulation 8 excludes certain specific transactions from the
application of the prohibition in regulation 2. Regulation 8
provides:
'The provisions
of this notice shall not be so construed as to apply in respect of
any agreement, arrangement, understanding,
business practice or
method of trading between or among -
(a) a holding
company and its wholly-owned subsidiary or between companies which
are the wholly­ owned subsidiaries of the
same holding company;
(b) close
corporations which have only the same person or persons as members;
(c) companies
of which all the shares are held by the same person or close
corporation, or between such close corporation and
such companies;
or
(d) persons in
relation to-
(i) goods which
are to be exported to any county other than Botswana, Lesotho,
Swaziland, a state the territory of which formerly
formed part of
the Republic of South Africa and any territory within the Republic
of South Africa in respect of which a Legislative
Assembly has been
established in terms of the National States Constitution Act, 1971
(Act 21 of 1971); or
(ii) any
service to be rendered in any country other than the Republic of
South Africa or those countries, states or territories
referred to
in (i) above,
or in respect
of any agreement, arrangement, understanding, business practice or
method of trading authorised by the provisions
of any law.'
[10]
Bezuidenhout v Patensie Sitrus Beherend BPK
2001 (2) SA 224
(E) at
2298-C.
[11]
Nestar (Pty) Ltd & others v Competition Commission of South
Africa & another
2011 (3) SA 171
(CAC) para 25.
[12]
Nestar para 25.
[13]
Nestar para 25.
[14]
MacNeil Agencies (Pty) Ltd v Competition Commission (121/CAC/Jul 12)
[2013) ZACAC 3 (18 November 2013) para 56.
[15]
Reinforcing Mesh Solutions (Pty) Ltd & another v Competition
Commission & others (84/CR/DEC09)[2013) CAC Case No.
119/120/CAC/May
2013 para 31.