Imerys South Africa (Pty) Ltd and Another v Competition Commission (147/CAC/Oct16, IM013May15) [2017] ZACAC 1 (2 March 2017)

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Imerys South Africa (Pty) Ltd and Another v Competition Commission (147/CAC/Oct16, IM013May15) [2017] ZACAC 1; [2017] 1 CPLR 33 (CAC) (2 March 2017)

IN
THE COMPETITION APPEAL COURT
CAC
Case No:
147/CAC/Oct16
CT
Case No: IM013May15
In
the matter between
IMERYS
SOUTH AFRICA (PTY) LTD
FIRST
APPELLANT
ANDALUSITE
RESOURCES (PTY) LTD
SECOND
RESPONDENT
and
THE
COMPETITION COMMISSION
RESPONDENT
Coram
:
DAVIS JP AND ROGERS & BOQWANA JJA
Heard:
15 DECEMBER 2016
Delivered:
2 MARCH 2017
JUDGMENT
ROGERS
JA (DAVIS JP and BOQWANA JA concurring):
[This is a redacted
version of the judgment from which confidential information has been
deleted.]
Introduction
[1]
In January 2015 the appellants (‘ISA’ and
‘AR’) notified the Competition Commission (‘the
Commission’)
of an intermediate merger in terms whereof ISA was
to acquire all the shares in AR. In April 2015 the Commission
prohibited the
merger. The appellants referred the merger to the
Competition Tribunal (‘the Tribunal’) for consideration.
On 21 September
2016, and following a lengthy hearing, the Tribunal
confirmed the prohibition. The appellants appeal to this Court,
contending
that the merger should have been permitted subject to
tendered conditions.
[2]
Mr Unterhalter SC leading Mr Moultrie appeared for the
appellants and Mr Wilson SC leading Mr Marolen for the Commission.
[3]
On 29 December 2016, ie about two weeks after the
hearing of the appeal, the Department of Mineral Resources (‘DMR’)

addressed a letter to the registrar and to the parties, intimating a
wish to be admitted as an amicus curiae. In a letter dated
5 January
2017 the appellants’ attorneys said that their clients had no
objection. By letter dated 9 January 2017 the Commission
objected to
the DMR’s admission as an amicus, setting out various grounds
for the objection.
[4]
We decided summarily to reject the DMR’s request.
In terms of rule 28 of this Court’s rules read with rule 16 of
the
rules of the Supreme Court of Appeal, the application for
admission should have been made not later than one month after the
appeal
record was lodged with the registrar. This was not done.
Needless to say, an application for admission brought after an appeal
has been argued is highly disruptive and would cause delay and
additional expense for the litigants.
[5]
Even if an application for admission had been timeously
made, it would almost certainly have failed. In terms of SCA rule
16(8),
an amicus is limited to the record on appeal, ie may not
adduce fresh evidence. Yet it appears from the DMR’s letter
that
the DMR wants to intervene precisely for the purpose of placing
further facts before the court. The DMR’s letter does not

explain what those facts are or how they might affect the outcome of
the appeal. The DMR has also not explained why it did not
intervene
in the proceedings before the Tribunal. According to the Commission,
it engaged with the DMR prior to recommending the
prohibition of the
merger and also in the course of preparing for the Tribunal hearing.
Information supplied by the DMR was placed
before the Tribunal and
forms part of the appeal record.
Background
[6]
The appellants mine andalusite, a mineral from which
refractories are made. Refractories are used to line furnaces, kilns
and other
containers exposed to high temperatures, abrasion and
chemical attack in the course of manufacturing iron, steel, cement,
ceramics
and other products. Refractories may be shaped (bricks and
blocks) or unshaped (also known as ‘monolithics’ –

dry bagged material which the user can mix with water and apply to
the surface in question).
[7]
Vertically, the three levels of market activity most
directly implicated in refractory minerals are (i) the mining of the
minerals;
(ii) the making of refractories; (iii) the making of
goods whose processes require refractories. ISA conducts the first
and
second of these activities and is thus vertically integrated to
that extent. AR conducts only the first activity. Demand for
refractory
minerals is determined by demand for refractories which is
in turn driven by the demand for the goods manufactured by processes

requiring refractories. Iron and steel typically constitute the major
demand at the third level (about 60% in South Africa). Demand
for the
manufactured goods is, of course, driven by demand in a diffuse range
of markets further downstream.
[8]
Refractories can be made from various substances.
Andalusite forms part of a group of refractory substances, known as
alumina-silicates,
in which alumina (aluminium oxide) is the common
dominator. The naturally occurring minerals in this group include, in
order of
increasing alumina content, various clays (45% or less),
andalusite, silianite, kyanite (60%) and bauxite (90%). Alumina is a
‘neutral’
refractory oxide because it is resistant to
chemical attack. Refractory oxides such as calcium oxide (lime) and
magnesium oxide
(magnesia) are ‘basic’ refractory oxides
because they may react chemically with acids at high temperature.
Depending
on the application, a neutral or basic refractory might be
required.
[9]
South Africa is the world’s largest producer of
andalusite. ISA and AR are the only producers in this country. The
Imerys
group, of which ISA is part, has an andalusite mine in France.
The only other significant producer is Andalucita in Peru. Within

South Africa, the merger is two-to-one and would thus give rise to a
monopoly.
[10]
China is the world’s largest bauxite producer
though bauxite is also mined in Brazil and Guyana. Most of China’s
bauxite
is used to make aluminium. Only high-alumina bauxite is used
for refractories. To be used as a refractory, bauxite must be
calcined
(the removal of moisture at high temperature). Andalusite
does not require calcination.
[11]
The refractory substance derived from flint clay is
called chamotte. This is produced by firing and sintering the clay.
Because
of its relatively low alumina content (around 40%), chamotte
is not normally used on surfaces which have direct contact with
liquid
slag and metal.
[12]
The refractory substance derived from bauxitic or
kaolinitic clays is known as mulcoa. Its alumina content is increased
to about
60% by combining it with calcined bauxite.
[13]
At high temperature, andalusite converts to mullite and
silica while bauxite converts to mullite and alumina. This process of
mullitisation
is an important feature of the refractoriness of the
minerals. Mullite does not occur naturally in exploitable quantities
but can
be synthesised from raw materials. Synthetic mullite has an
alumina content of around 75%.
[14]
Brown fused alumina, white fused alumina and tabular
alumina (95% - 100% alumina) are refractory substances made by
subjecting bauxite
to further beneficiation.
[15]
Apart from their varying alumina contents, the
performance of these substances may be affected, prejudicially or
beneficially, by
the presence of impurities.
[16]
The andalusite used in refractories consists of coarse,
medium and fine granules. Coarse granules can be made smaller but not
vice
versa. ISA is able to produce all three sizes. Because of the
nature of its ore, AR can only produce medium and fine granules. A

refractory substance contains large granules (aggregate particles)
and smaller granules (matrix particles). The smaller granules
fill up
the space between the large ones, reducing the substance’s
porosity.
[17]
AR entered the market in 2002. For several decades
before that, ISA was the sole producer of andalusite in South Africa.
Domestic
refractory manufacturers cannot consume all the andalusite
which ISA and AR are able to produce. A substantial part of South
Africa’s
andalusite output has always been exported, mainly to
Europe, some to China. Prior to 2012 there was, in general, parity
between
the ex-works prices paid by domestic and foreign buyers
though obviously the gross price paid by foreign buyers, inclusive of
delivery,
was considerably more. Because of rand depreciation, export
sales have since 2012 become more profitable. A gap has thus emerged

between the ex-works prices paid by foreign buyers and those paid by
domestic buyers, ranging from 9% to 46%. The export parity
price
(‘EPP’) is the price which domestic buyers would have to
pay if ISA and AR charged them the same prices as their
foreign
customers.
Substitutability
[18]
There was a good deal of written and oral evidence about
the extent to which andalusite could, from a functional perspective,
be
substituted by other refractory substances. The merging parties
contended that andalusite could be substituted in all applications
or
at least most of them. The Commission contended otherwise. There was
no shortage of expert opinion to support both views. The
answer may
not be purely scientific. There are issues of perception. The
Commission adduced evidence that manufacturers who use
refractories
perceive andalusite to have unique qualities and would be resistant
to change.
[19]
Furthermore, and notwithstanding the technical evidence
of substitutability presented by the merging parties, they market
andalusite
inter alia on the basis of its particular qualities. As
Imerys’ Mr Parte said, one tries to ‘educate the customer
why
andalusite is better’. […]
[20]
[…]
[21]
There was also evidence about the extent to which other
substances (assuming them to be functional substitutes) were economic
substitutes
for domestic consumers, ie whether it would be
cost-effective for South African refractory manufacturers to switch.
Bauxite and
mullite, the most likely contenders, would have to be
imported. The merging parties identified what they regarded as
functional
substitutes for ISA’s top 12 andalusite-containing
refractories. Their economist, Mr Murgatroyd of RBB Economics, did a
cost
analysis with a view to comparing the cost of the substitutes
with the EPP of the andalusite-containing products. The comparison

was based on the (higher) EPP rather than the actual (lower) domestic
price because of the merging parties’ fundamental thesis
that
within the next couple of years they will become capacity-constrained
so that domestic prices will – with or without
a merger –
rise to EPP. In other words, in the scenario envisaged, neither of
them would have any incentive to sell andalusite
to domestic buyers
at less than EPP if they could sell all their output to foreign
buyers at EPP.
[22]
Mr Murgatroyd’s conclusion was that although some
substitutes would cost significantly more than the andalusite-based
products,
others were close to EPP. If the merging parties were to
increase the prices of the latter andalusite-based products by more
than
5% of EPP, buyers would switch to substitutes. The lost profits
on these sales would outweigh the enhanced profits which the merging

parties could make by increasing the prices of those products for
which no affordable substitutes existed.
The economists’
agreement
[23]
In the end, the issue of functional substitutability and
the costing of potential substitutes receded into the background as a
result
of an agreement reached between the economic experts (Mr
Murgatroyd for the merging parties and Dr Mncube from the
Commission).
This occurred midway through the hearing. They agreed
(i) that for as long as one or both of ISA and AR had surplus
production
capacity, unilateral effects in the domestic market were
likely (the power and incentive to increase prices above the level
that
would prevail but for the merger); (ii) that once both ISA and
AR became capacity-constrained, the merger was unlikely to cause

anti-competitive effects; (iii) that if both parties became
capacity-constrained within five years (as the merging parties
contended),
the conditions of approval they proposed (as to which,
see below) would adequately address the temporary unilateral effects
of
the merger; and (iv) that if the parties did not become
capacity-constrained within five years, the proposed conditions would
not
adequately address the unilateral effects of the merger.
[24]
In the light of this agreement, the economists opined
that ‘the competition issues of the matter’ could be
resolved
‘by a determination of the relevant counterfactual’.
The competing counterfactuals were those identified in (iii) and
(iv)
above. In argument, however, the merging parties indicated that the
duration of the supply agreement could be extended if
it were found
that they would only become capacity-constrained after (say) six or
seven years.
[25]
Once this agreement was reached, the main focus of
the case in the Tribunal became whether, and if so when, both ISA and
AR would
become capacity-constrained. This involved an investigation
of two main issues, namely (i) the production capacities of ISA

and AR; (ii) future demand for andalusite. These were the issues
which remained in the forefront in the appeal.
[26]
The proposed conditions of approval consisted of two
parts. Part 1 comprised five-year supply agreements between the
merged entity
and domestic customers at current prices and annual
increases not exceeding increases in the Producer Price Index
(‘PPI’).
Part 2 was to become operative after the expiry
of the five-year supply agreements. At that point, and in perpetuity,
the merged
entity was not to charge domestic customers more than the
weighted average export price for the product in question calculated
on an ex-works basis. In other words, EPP would be the domestic price
cap. There was also a volume guarantee for domestic consumers.
[27]
The economists’ agreement gave recognition to
insights derived from the economic theory of Bertrand competition in
duopoly
as adapted for cases where one or both firms are
capacity-constrained. The Bertrand model assumes that two firms
supply undifferentiated
products, that their marginal unit costs are
identical, that customers will always choose to buy at the lowest
price, that each
firm can supply the entire demand, and that there
can be no cooperation between the firms. The Bertrand model predicts
that the
equilibrium price in such a scenario equals marginal cost
(neither firm makes a profit). If, on the other hand, both firms are
capacity-constrained and between them cannot supply more than the
total demand, one would expect the price to rise to the monopoly

price. Given the capacity constraints of both firms, neither can
produce further output to meet any increased demand caused by
a price
reduction. Neither firm has an incentive to charge less than the
monopoly price because the firm cannot win further sales
by this
strategy. And by charging more, the firm would lose sales because of
reduced demand. If one but not both of the firms are

capacity-constrained, prices will be higher than when neither firm is
capacity-constrained but not as high as the monopoly price.
[28]
Although the economists’ assumption seems to have
been that the domestic price would rise to EPP once both ISA and AR
became
capacity-constrained, that is not necessarily so. The capacity
constraints were investigated with reference to the total predicted

output and demand, foreign and domestic. One would not expect uniform
EPP pricing until foreign demand exceeded the parties’
total
sustainable capacities. Only at that stage would the firms be able to
sell their entire output to foreign customers if domestic
customers
declined to pay EPP.
[29]
However, it seems to me that the exact level of the
domestic price is less important than the question whether the firms
would have
an incentive to compete on the domestic price. Once they
both become capacity-constrained in the sense envisaged in the
economists’
agreement, domestic demand would exceed the firms’
output available to meet that demand (unless the firms diverted
exports
to the domestic market, something they would only do if they
were paid EPP). At this point each firm could charge the domestic
monopoly price without losing sales to the other. The domestic
monopoly price might be less or more than EPP but domestic price

competition would cease.
The legal approach
[30]
The parties advanced competing contentions regarding the
burden of proof and the approach to be adopted where the future state
of
the market is uncertain.
Incidence of onus
[31]
Necessarily implicit in the economists’ agreement
was an acceptance by the merging parties that, because they are not
both
currently capacity-constrained, the merger is likely to give
rise to a lessening of domestic competition. Based on their view of

plausible ranges for ISA and AR’s capacity and for demand
growth, the merging parties estimated that they would both become

capacity-constrained within a period ranging from 2,1 to 6,2 years
though their case was that the period would be at the lower
end of
this range and definitely less than five years.
[32]
The economists’ agreement reflected an acceptance
that the likely lessening of competition in this period would be a
substantial
lessening of competition (‘SLC’) for purposes
of s 12A(1) of the Act; hence the tendered five-year supply
agreements
and the economists’ agreement that, if one or both
of the firms retained surplus capacity beyond the five-year period,
the
tendered supply agreements would be ‘insufficient to
address the anti-competitive effects of the merger’. At the
beginning
of Mr Murgatroyd’s cross examination the following
exchange occurred:
‘
ADV
WILSON: Given the existing supply condition of five years, if it were
the case that the merging parties only hit capacity and
reach EPP
pricing after the red line is hit, that is where the SLC would come
in, which is why it is so important for this part
of the analysis to
determine when those two triggers would be hit?
MR
MURGATROYD: That’s correct.’
And
at the beginning of his evidence in chief, the Commission’s
economist, Dr Mncube, said that, in the light of the agreement

between the economists, he would not address those slides in his
presentation which dealt with SLC. He was not cross-examined on
these
matters.
[33]
I should add that the parties’ internal documents
[…]. The Tribunal gave examples in paras 91-127 of its
reasons. It
is not necessary to repeat them here. The competitive
dynamic influenced ISA’s prices (even though the latter
generally were
higher than AR’s prices) and spurred innovation.
ISA’s documents focus on andalusite competition from AR, not
competition
for supposed substitutes such as bauxite. […] The
same is true of AR’s strategic plans. […] Be that as it
may,
though, the precise extent of existing price competition was
understood to have fallen away as a factual issue in the light of the

economists’ agreement.
[34]
The merging parties’ contention was that they
would become capacity-constrained within the period of the tendered
supply agreements,
at which point – as agreed by the economists
– a merger would no longer have unilateral effects. Although in
the merging
parties’ view the evidence showed, on a balance of
probability, that the constraints would be reached within the said
period,
they argued that it was in any event for the Commission to
show the converse on a balance of probability. If the probabilities
were equipoised, or if it was not possible to say which outcome was
more likely, the Commission would not have shown that there
was a
likely SLC extending beyond the period of the tendered supply
agreements and the Tribunal would thus have been bound to permit
the
merger subject to the tendered conditions.
[35]
The Commission argued, on the other hand, that where a
merger will, as here, give rise to an SLC having regard to the
current state
of the market, the onus rests on the merging parties to
persuade the Tribunal that the merger should be conditionally
permitted
because market circumstances will change within a specified
period.
[36]
Section 12A(1) identifies the matters which the Tribunal
must ‘determine’ when considering a merger:
(a)
Firstly, the Tribunal must determine whether or
not the merger is likely to substantially prevent or lessen
competition, a determination
which must be made by assessing the
factors specified in s 12A(2).
(b)
If the determination in (a) is ‘yes’,
the Tribunal must determine (i) whether or not the merger is
likely to result
in any technological, efficiency or other
pro-competitive gain which will be greater than, and offset, the
effects of any likely
prevention or lessening of competition; and
(ii) whether the merger can or cannot be justified on
substantial public interest
grounds by assessing the factors set out
in s 12A(3).
(c)
If the determination in (a) is ‘no’,
the Tribunal must determine whether the merger can or cannot be
justified on substantial
public interest grounds by assessing the
factors set out in s 12A(3).
[37]
The Tribunal’s powers, once it has determined
these matters, are contained in 16(2), which states that the Tribunal
must approve
the merger or approve it subject to any conditions or
prohibit implementation of the merger. The Act does not expressly
link these
outcomes to particular determinations under s 12A but
it can be accepted that, if the Tribunal determines that the merger
is not likely to give rise to an SLC and that there are no
substantial public interest grounds justifying a prohibition, the
Tribunal
is obliged in terms of s 16(2) to approve the merger.
No other exercise of its powers would be rational. This Court said in
Schumann Sasol (SA) (Pty) Ltd v Price’s
Daelite (Pty) Ltd
[2001-2002] CPLR 84
that
likely SLC is a ‘threshold test’ in the sense that if the
test is not met the merger cannot be prohibited (subject,
obviously,
to the public interest override).
[38]
Given the Tribunal’s inquisitorial powers, it may
not strictly be accurate to say that the Commission bears the burden
of
proving likely SLC. It is nevertheless so that, if on all the
evidence before the Tribunal, a likely SLC cannot be found, the
Tribunal
must approve the merger unless the public interest override
is operative. And in that respect I do not think it matters whether

the Tribunal is dealing with an intermediate or large merger (a
question left open in
Oceana Group Ltd &
Another v Competition Commission
[2014] 2
CPLR 372
(CAC) paras 48-51).
[39]
The position is less clear-cut where the Tribunal
determines that the merger is likely to cause an SLC, that there are
no likely
pro-competitive gains outweighing the likely SLC and that
there are no overriding public interest grounds justifying the
merger.
In this situation there are two potential outcomes,
prohibition and conditional approval. To the extent that an onus
rests on the
Commission to establish a likely SLC, the Commission
would in such a case have discharged the onus. The Tribunal’s
determinations
pursuant to s 12A would give it the jurisdiction
to exercise its powers of prohibition and of conditional approval.
[40]
Where, in the situation just mentioned, the Tribunal is
asked to approve the merger with conditions rather than prohibit it,
the
choice of remedies is in the nature of a discretion. I reject the
proposition that the Commission bears the burden of proving that
the
proposed conditions will not adequately address the likely SLC. The
Tribunal has the power to prohibit the merger if it is
not satisfied
that the conditions will adequately remedy the likely SLC. And
regardless of where the onus lies in respect of proposed
conditions
(if it is accurate to speak of onus at all), I do not think that the
Tribunal is obliged to approve a merger just because
it finds it more
probable than not that the conditions will neutralise the likely SLC.
One should bear in mind, in this regard,
the real problem in such
cases will not necessarily be competing views as to the probable
future state of the market but an inability
to make reliable
predictions at all. I think it is permissible for the Tribunal to
reason thus: ‘The merger will likely give
rise to an SLC.
Although the proposed conditions are more likely than not to remedy
the likely SLC, there is a reasonable possibility
that they will fail
to do so. Therefore we prohibit the merger.’
[41]
Particularly where the uncertainty about the adequacy of
the conditions concerns the likely duration of the SLC rather than
the
nature and content of the SLC, prohibition has this advantage
over conditional approval: it does not necessarily represent the
final word. If the merger is conditionally approved and the
conditions turn out to be inadequate to neutralise the SLC, the harm

cannot be reversed. If, on the other hand, the merger is prohibited
and with the passing of time it becomes clear that the merger
will no
longer give rise to SLC, the transaction can be renewed.
[42]
I do not say that the Tribunal would be obliged to
reject conditional approval just because there was a reasonable
possibility (falling
short of a preponderance of probability) that
the conditions would fail to remedy the likely SLC. The Tribunal
might properly exercise
its discretion in such a case to give
conditional approval. In exercising its discretion, the Tribunal
could be expected to take
into account, on the one hand, the precise
likelihood and extent of the SLC; and, on the other, the precise
extent of the risk
that the conditions will fail to remedy the likely
SLC. The public interest may also enter into the balancing exercise,
particularly
the public importance of the markets which would be
directly or indirectly prejudiced if the conditions failed to remedy
the likely
SLC.
Appellate assessment
of choice of remedy
[43]
This characterisation of the nature of the Tribunal’s
function when choosing between prohibition and conditional approval
has implications for appellate assessment of the Tribunal’s
decisions in such cases. Where a determination of the Tribunal
on a
matter identified in s 12A(1) is brought on appeal, this Court
will, apart from the well-known restrictions on appellate

interference in factual findings, show a measure of deference to the
Tribunal. The matter was put thus in the
Schumann
Sasol
case:
‘
The
approach which this Court adopts to an appeal against the decision of
the Tribunal in respect of a merger should take
cognizance of the
composition and role of the Tribunal as a specialist body which
consists not only of lawyers but also of members
possessed of
the  necessary financial and economic knowledge and thorough
grasp of the relevant policy issues required
in these kind of
deliberations. Section 12A requires that the Tribunal make a
determination after a holistic inquiry into whether
the proposed
merger is likely to substantially prevent or lessen competition. In
assessing such a decision, this Court should
take account of the
composition and expertise of the Tribunal as well as the nature of
the enquiry which entails an element of
probabilistic investigation
into the effect of the  proposed merger… In its decision
as to whether to set aside, amend
or confirm the decision of the
Tribunal, this Court must be cautious before imposing its own
conception of the policy considerations
upon the decision adopted by
the Tribunal. The Court  should seek rather to examine and test
rigorously the justifications
offered by the Tribunal for the
decision to which it has arrived before it invokes its power in terms
of  s17.’
[44]
When, however, it comes to the Tribunal’s power to
choose between prohibition and conditional approval, one is no longer
dealing
with a factual determination but with a choice between
outcomes. The test for appellate interference depends on whether this
power
is regarded as a discretion in the narrow or loose sense (for
the distinction, see inter alia
Media Workers
Association of South Africa & Others v Press Corporation of South
Africa Ltd
[1992] ZASCA 149
;
1992 (4) SA 791
(A) at 800C-J;
Trencon Construction (Pty) Ltd v Industrial
Development Corporation of South Africa Ltd & Another
2015
(5) SA 245
(CC) paras 83-89). If the power of selection is a
discretion in the true (or narrow) sense, ie a power to choose
between two permissible
outcomes, this Court could only interfere if
satisfied that the Tribunal exercised its discretion on a wrong
principle or as a
result of a misdirection on the facts or because
its decision was one that could not reasonably have been reached.
[45]
A discretion in the loose sense, by contrast, does not
involve a choice between permissible alternatives; once all the
evidence
is considered, there is only one right answer, even if the
decision-maker is entitled to have regard to a number of disparate
and
incommensurable features in coming to a decision. Even in this
case, an appellate court’s power to interfere may be curtailed

by broader policy considerations arising from the nature of the
decision or the composition of the tribunal.
[46]
I think there is much to be said for the view that a
true discretion is involved in deciding whether to prohibit or
conditionally
approve a merger. One is not dealing with a single
determination (for example, in
Media Workers
Association
, whether conduct was or was not
an unfair labour practice) but with a choice between two remedies
arising from determinations made
under s 12A. In many cases
there will be no obviously right or wrong answer to the question
whether a merger should be prohibited
or permitted subject to
conditions. For policy reasons, merger proceedings, including merger
appeals, should be decided expeditiously.
This might be hampered if
this Court were required to determine afresh, with reference to what
might be a voluminous record, whether
prohibition or conditional
approval is to be preferred.
[47]
However, It is unnecessary in this case to reach a
definite conclusion on the nature of the discretion. Even if the
power of selection
were a discretion in the loose sense, the nature
of the decision and the composition of the Tribunal justify caution
and restraint
by this Court on appeal.
The meaning of
‘likely’
[48]
It is also appropriate to say something about the word
‘likely’ in the phrase ‘likely to substantially
prevent
or lessen competition’ in s 12A(1). The appellants
submitted that this calls for proof that SLC is more likely than not

to occur, ie that proof is required on a balance of probability. They
also referred to s 68 which provides that the standard
of proof
in proceedings in terms of the Act is (save in respects not here
relevant) proof on a balance of probability.
[49]
Depending on its statutory context, the word ‘likely’
may mean ‘more likely than not’ or ‘reasonably

possible’ or ‘reasonably probable’. For example, in
trade mark legislation the phrase ‘likely to deceive’
has
been held to connote a reasonable possibility of deception rather
than a probability (
Bristol Laboratories Inc v
Ciba Ltd
1960 (1) SA 864
(A) at 870 E-G); and
in safety legislation the phrase ‘likely to cause danger of
fire’ has been held to connote an
appreciable or reasonable
risk rather than that that which is likely to occur on a balance of
probability (
S v Protea Medical Supplies (Pvt)
Ltd & Another
1972 (2) SA 386
(RAD) at
390B-D; and see also
S v Madlavu & Others
1978 (4) SA 218
(E) at 221A-222G). In
England, the phrase ‘likelihood of harm’ in relation to
orders for the protection of children
has been held to mean a real or
substantial risk of harm, not that harm is more probable than not (
Re
H & Others (Minors)
[1996] 1 All ER 1
(HL) paras 18-25 and 64-69;
Re J (Children)
[2013] 3 All ER 1
(SC) paras 15-21).
[50]
The fact that the burden of proof in proceedings is
proof on a balance of probability is not inconsistent with
interpreting the
word ‘likely’ as meaning something less
than a balance of probability. That is to confuse the burden of proof
with
that which must be proved, a point trenchantly made in the
English decisions previously mentioned (
Re H
paras 85-96;
Re J
paras 48-49). The facts from which the
conclusion is drawn that there is a reasonable possibility of a
future risk eventuating must
be established on a balance of
probability. In personal injury cases, for example, a victim who has
suffered injury X may claim
(say) 20% of the future cost of treating
condition Y on the basis that because he has suffered injury X he has
a 20% risk of developing
condition Y. What he has to prove is the 20%
risk. How he proves it is by establishing on a balance of probability
that the defendant
negligently caused injury X and that persons with
injury X have a 20% risk of developing condition Y. In business
rescue proceedings
the applicant must prove that there is a
reasonable prospect of the company being restored to financial
health. This assessment
must be made with reference to facts duly
established. If those facts are disputed, the
Plascon-Evans
rule applies (
FirstRand
Bank Ltd v Normandie Restaurants Investments & Another
[2016]
ZASCA 178
para 16), implicit in which is that if the factual disputes
are referred to oral evidence they must be decided on a balance of
probability.
[51]
There is a
considerable body of case law in Australia dealing with the
interpretation of the word ‘likely’ in the Australian

Competition and Consumer Act, including a likely lessening of
competition. In
Tillmanns
Butcheries Pty Ltd v Australasian Meat Industry Employees’
Union
[1997]
FCA 85
, Deane J interpreted ‘likely’ as meaning ‘a
real chance’ (paras 10-13), a view followed in in a number of

later competition cases.
[1]
The
issue was discussed at some length by Yates J in
ACCC
v Metcash Trading Ltd
[2011]
FCAFC 151.
He considered that the standard was proof on a balance of
probability. The other two judges said that it was unnecessary to
decide
the question. In my respectful view, Yates J’s
discussion appears not to appreciate the distinction I have
highlighted between
the burden of proof and that which must be
proved. The same criticism can be made of the decision of the
Canadian Supreme Court
in
Tevita
Corporation v Canada (Commissioner of Competition)
2015
SCC 3
(CanLII) para 66.
[52]
In the Australian cases the interpretation of ‘likely’
as meaning a ‘real chance’ is strengthened by the
fact
that in the Australian legislation the phrase is ‘has the
effect or is likely to have the effect’. If ‘likely’

were interpreted to mean more likely than not, the preceding words
(‘has the effect’) might be rendered nugatory. Although

this distinction is not present within s 12A itself, it is not
without significance that whereas s 12A uses the phrase
‘likely
to substantially prevent or lessen competition’, the
prohibitions in ss 4 and 5 refer to conduct which
‘has the
effect of substantially preventing or lessening competition’.
This is the same difference in phraseology emphasised
in the
Australian cases. On a parity of reasoning, it would suggest that for
purposes of the prohibitions in ss 4 and 5 a
substantial
preventing or lessening of competition must be proved on a balance of
probability whereas the test is less exacting
in s 12A. This
would not be an irrational distinction.
[53]
There is thus much to be said for the view that ‘likely’
in s 12A(1) means reasonably probable rather than more
probable
than not. One is concerned with a predictive exercise where future
outcomes cannot be measured with fine callipers. At
the level of
policy, I see no objection to prohibiting a merger where there is a
reasonable probability that it will give rise
to SLC and where there
are no countervailing pro-competitive gains or public policy
considerations. Of course, the stronger the
probability of SLC, the
more weighty the pro-competitive gains or public policy
considerations would have to be in order for the
merger to be
approved and vice versa.
[54]
However, in the absence of full argument I am reluctant
to express a final view, given the importance of the point. In the
present
case it is unnecessary to reach a definite conclusion. The
case proceeded on the basis that the merger would bring about a
likely
SLC, even if the SLC were relatively short-lived. The real
question is whether the Commission bore the onus of proving the
likely
duration of the SLC and thus whether the proposed five-year
supply agreements were or were not adequate to address the likely
SLC.
For reasons I have explained, I do not think the Commission bore
such an onus. If the Tribunal was satisfied that there was a likely

SLC for at least some future period and if the Tribunal had grounds
for regarding it as reasonably possible that the SLC would
persist
beyond the period of the proposed supply agreements (or any modest
extension thereof), a prohibition of the merger was
a permissible
outcome, even if it was not the only permissible outcome. (I leave
aside, for present purposes, questions of public
policy and
countervailing pro-competitive gains.)
Projected demand for
andalusite
Introduction
[55]
The merging parties contended that global demand for
andalusite would enjoy compound annual growth rate (‘CAGR’)
of
between 2,5% and 4,5%. Based on their view as to their sustainable
capacities, they predicted that they would both become
capacity-constrained
by 2018 at the earliest or 2022 at the latest.
[56]
Mr Parte testified that growth was expected to come from
increased demand for refractories and increased penetration of
andalusite
in the alumina-silicate mix of refractory raw materials
(ie in substitution for mullite, bauxite etc).
Historic demand for
andalusite
[57]
Mr Parte presented
a graph of andalusite sales from 2005-2014 showing that, following a
period of instability between 2009-2011,
the CAGR from 2012-2014 was
4,7%.
[2]
The CAGR is affected by
the period over which it is measured. Over the period 2005-2008 the
CAGR was 7,6%. There was a slump in
2009 following the global
financial crisis of late 2008. Global sales in 2014 had not yet
recovered to the levels of 2007 and 2008
(298 KT as against 307 KT
and 318 KT), so that if one had done the measurement from 2007 or
2008 to 2014 the CAGR would have been
negative. If one measured
2011-2014 the CAGR was 0,9%. Over the full period (2005-2014) the
CAGR was 1,7%. Apart from the significant
differences arising from
the selected period, Mr Murgatroyd testified that historical figures
were a very poor predictor of future
performance, inter alia because
historically demand for andalusite and for steel had been volatile.
[58]
It is impossible to say whether, within the period
2018-2022 or within a few years thereafter, there will be another
event similar
to the global financial crisis of 2008. If such an
event were to occur, resulting in a significant drop in demand for
andalusite
(the drop from 2008 to 2009 was 36%), it might take some
years for demand to recover. The reaching of the parties’
capacity
constraints would be deferred or capacity constraints
already reached would be released, leaving the parties with excess
supply
capacity.
[59]
It is noteworthy that as recently as 2012 and 2013
Imerys was perturbed by estimated global surplus andalusite capacity
of 35%.
In strategic documents from that period Imerys […]. As
Mr Parte frankly said, the way to address overcapacity is to
‘consolidate
the industry’. Barely three years later the
merging parties were asking the Tribunal to approve the merger on the
basis of
a completely different vision for the andalusite market.
Internal Imerys
forecasts
[60]
In an internal strategic review of January 2013, Imerys
forecast CAGR of 1% for alumina-silicates over the period 2015-2016.
Mr
Parte dismissed this as an unfinished working document. The CAGR
of 1% p/a was, however, repeated in Imerys’ Project Dias
report
of December 2013 which evaluated the proposed AR acquisition. Mr
Parte said that this was Imerys’ ‘best guess
at the
time’. In Imerys’ five-year plan of April 2014 the
projected CAGR for alumina-silicates in the 55-70% alumina
range over
the period 2014-2018 was 2,4%. The Tribunal was unimpressed by the
latter projection because it did not relate specifically
to
andalusite and because it did not take into account the post-April
2014 softening in steel demand. While there is merit to these

criticisms, perhaps the more important point is that the documents
show that projections can change significantly within the space
of a
couple of years. In the present case the conditional approval of a
merger to monopoly rests on a projection of CAGR made in
2016 for a
period of five years or more.
The Roskill report
[61]
A similar observation can be made about the Roskill
report published in December 2012 in which steel production was
forecast to
grow at a CAGR of 3,1% until 2017. As the Tribunal
observed, this forecast turned out to be very inaccurate. This does
not mean
that the Roskill report was a bad one (it is a voluminous
analysis running to 446 pages) but it does suggest that long-term
projecting
is a mug’s game.
The GIA report
[62]
The merging parties placed considerable reliance on a
refractories report issued by Global Industry Analysts Inc (‘GIA’)

in May 2014. The report projected that global market for refractories
would grow at a CAGR of 4,6% over the period 2013-2020. Mr
Parte
adopted this figure in his witness statement (as a ‘high level
assumption’) because, in his view, it was the
most recent
independent market report available. The projection did not relate
specifically to refractories using andalusite or
even
alumina-silicates; it related to refractory demand as a whole. Mr
Murgatroyd conceded that the 4,6% projection was ‘a
very
general number’ and could ‘dramatically underestimate or
dramatically overestimate growth’. In fairness,
I should
observe that if one focused on non-clay refractories (of which
andalusite is part), global demand growth was projected
at 5,2%.
Nevertheless, non-clay refractories in the GIA report cover a wide
variety of refractory materials including magnesia,
chrome, zirconia,
alumina-silicates, extra high alumina and graphite.
[63]
Most of the parties’ exports go to Europe. GIA
projected European demand growth for all refractories at 3,4% and for
non-clay
refractories at 4%. The projected non-clay refractory demand
in the parties’ main European export destinations (Germany,
Spain and Poland) ranged from 3,3% to 3,7%. The other main export
destination is China, where GIA projected non-clay refractory
demand
of 5,7%.
[64]
When Mr Parte was asked why he adopted GIA’s
figure of 4,6% when his own earlier forecast had been 2,4%, he
replied that his
earlier figure assumed that andalusite would only
enjoy its pro rata share of refractory growth and did not allow for
penetration
(ie persuading non-andalusite customers to switch to
andalusite). To this I would observe that GIA’s figure of 4,6%
was a
high-level projection for refractory demand as a whole,
unrelated to andalusite penetration. Any correspondence between GIA’s

figure of 4,6% and Mr Parte’s earlier projection of 2,4% as
adjusted for andalusite penetration would be entirely fortuitous.
As
the Tribunal observed, Mr Parte’s answer implied that
penetration would almost double the pro rata projected growth.
[65]
Even if one or other of the GIA projections were
accepted as a reasonable proxy for andalusite growth (despite the
fact that about
a year previously Imerys had projected 2,4% for a
more focused group of products), they remain projections at a point
in time.
I think it can be taken as certain that GIA’s
projections did not allow for the possibility of a global financial
crisis
within the projection period. The report was introduced with
the caveats one might expect: GIA did not accept responsibility for

the information in the report, observing that it was constrained by
the credibility of the primary and secondary research sources;

several analytics and presentations in the analysis were said to be
of a speculative nature and had to be used with careful consideration

of the limitations.
[66]
To these caveats I may add that GIA did not say, and I
am sure did not intend to convey, that, on a balance of probability,
demand
for refractories would grow at the rates specified in the
report. GIA was providing its best estimate. The authors observed,
for
example, that the industries which used refractories were rapidly
transforming and that refractory technologies were undergoing

significant improvement. There was increasing demand for advanced and
long-lasting refractory products, factors which were expected
to
curtail the use of refractories.
[67]
The unreliability of even the best-informed projections
is illustrated by the global GDP estimates for 2014 and 2015. In a
section
headed ‘Improving Global GDP to Drive Global
Refractories Market’, GIA said that the ‘recovering
global GDP’
was forecast to provide ‘a fertile
environment for demand growth in the coming years’. Global GDP
growth, recorded
at 3% in 2013, was forecast to continue to improve
to 3,7% and 3,9% respectively in 2014 and 2015. A country breakdown
of the projection
was given.
[68]
These GDP estimates have turned out to be significantly
higher than actual GDP growth. According to the World Economic
Outlook reports
published by the International Monetary Fund in the
latter part of 2015 and 2016, global GDP growth in 2014 and 2015 was
3,4% and
3,2% respectively. The world’s largest economy, the
USA, had actual growth in 2014 and 2015 of 2,4% and 2,6% as against
GIA’s
projections of 2,8% and 3%. Other discrepancies for 2014
and 2015 include the UK (2,8% and 2,2% as against the projected 2,8%
and
3%), Japan (-0.1 percent and 0,5% as against the projected 1,7%
and 1%), China (7,3% and 6,9% as against the projected 7,5% and
7,3%)
and Mexico (2,1% and 2,5% as against the projected 3% and 3,5%). In
the case of Russia and Brazil, GDP growth was actually
negative (in
the case of Russia, 0,6% and -3,7% as against the projected 2% and
2,5%; in the case of Brazil, 0,1% and -3,8% as
against the projected
2,3% and 2,8%). The projections for the European Union were
relatively close to the mark (actual growth of
0,9% and 2% as against
the projected 1,4% and 1,7%). Only India significantly outperformed
the projections (7,3% and 7,6% as against
the projected 5,4% and
6,4%).
[69]
There is a further reason, not mentioned by the
Tribunal, for being cautious about the GIA projection. South Africa
represents a
negligible part of global demand for refractories but is
a significant part of domestic demand for the merging parties’
andalusite
(about […%] for ISA and […%] for AR). In the
GIA report South Africa is part of the region Middle East &
Africa
(which includes Iran, Iraq, Israel, Kuwait, Saudi Arabia,
Syria, the UAE ‘and Africa’), which in total is only
3,64%
of global demand for all refractories and 4,17% of global
demand for non-clay refractories. South Africa is in turn only a
fraction
of the Middle East & Africa region. Demand for non-clay
refractories in this region is projected by GIA to grow by a CAGR of

5% over the period 2013-2020 but it is not possible to discern what
growth GIA has attributed to South Africa. The report does
not
explain how the authors arrived at 5%.
[70]
The only country-specific information for the Middle
East & Africa region concerns historic crude steel production
which, according
to GIA data, makes up about 75% of the demand for
the region’s refractories. GIA gives historic data for Egypt,
South Africa,
Saudi Arabia and the UAE. Although South Africa as at
2013 was still the largest steel producer of these four countries
(just above
Egypt), its production declined by more than 20% from
2007 (9,098 million tons) to 2013 (7,22 million tons). Egypt and
Saudi Arabia
enjoyed modest growth (CAGR of 1,4% and 2,4%
respectively) while UAE seems to have entered the market in 2007,
increasing from
90 000 tonnes in that year to 2,878 million tons
in 2013.
[71]
If industrial growth in South Africa is positive over
the next few years, it may well be below global and regional demand.
According
to the IMF reports previously mentioned, South Africa’s
GDP growth in 2014 and 2015 was 1,5% and 1,3%. The IMF estimates
growth of 0,1% and 0,8% in 2016 and 2017. It might not be
unreasonable to assume growth of 1% or less over the next five years
for the South African component of the parties’ andalusite
demand.
[72]
The Tribunal was dubious about the value of the GIA
projections, given that they did not relate specifically to
andalusite and were
not separated by country of sale. The merging
parties’ thesis was that, in the absence of a detailed
independent report relating
specifically to andalusite, growth
projections for refractories in general, and for non-clay
refractories in particular, was the
best proxy for andalusite demand
growth, the assumption being that andalusite would enjoy its pro rata
share of demand growth.
[73]
The potential frailties of the assumption include those
arising from the controversial questions of functional
substitutability.
If, as the Commission contended, customers do not
regard andalusite as functionally substitutable in certain
applications, projections
for andalusite would need to take into
account demand for refractories in those particular applications. If,
as the merging parties
contended, andalusite is functionally
substitutable across the board, andalusite would be at risk of losing
out to mullite, bauxite
and other raw materials. Whether that would
happen might depend on how aggressively the suppliers of other
refractory materials
price their products. That would depend, in
turn, on the existence and extent of surplus production capacity for
these other materials.
If foreign customers sense that andalusite
production will become constrained, they might prefer to commit to
other materials for
which supply is expected to remain plentiful.
Concluding
observations on growth projections
[74]
It is easy to snipe at GIA’s report, yet in the
absence of anything more specific it might, despite its frailties, be
the
best independent guide to andalusite demand growth. Where a court
has to make an economic projection (eg in assessing a damages
claim
for loss of future profits), it must do the best it can on the
available evidence. The Tribunal was not placed in that position.
It
did not have to make a projection. The Tribunal needed to decide
whether to prohibit the merger or allow it conditionally. If
the
Tribunal considered, on all the evidence, that there was a reasonable
possibility that matters would so turn out that the proposed

conditions did not neutralise the SLC, it was entitled to prohibit
the merger.
[75]
The Commission’s economist, Dr Mncube, considered
that, on the limited evidence available, an appropriate global growth
forecast
for andalusite was between 1% and 2,4% (though his view was
that even these figures could not be used beyond 2018 – the
more
distant future in his opinion was simply not foreseeable or
predictable). This is the range provided by the two internal Imerys

documents mentioned earlier. Although, like the Tribunal, I would not
regard either of those documents as cogent evidence of future
demand
growth, the GIA report, for the various reasons I have given, is also
not a secure foundation for concluding that domestic
andalusite
competition would face no real risk if the proposed conditions were
assessed on the basis of an annual CAGR ranging
from 2,5% to 4,5%. A
conservative though plausible scenario would be a domestic CGAR of 1%
and an international CGAR (excluding
China) of 2%. (China is a
special case which I deal with separately below.) A global shock
(whether caused by economic or political
developments or natural
disaster) might throw even this conservative scenario into disarray.
[76]
If one of AR or ISA were to become capacity-constrained
at a significantly earlier stage than the other, one would need to
take
into account, as Mr Murgatroyd observed, that the share of
demand growth which would otherwise have been attributed to the
capacity-constrained
firm would shift to the unconstrained firm, thus
absorbing the latter’s surplus capacity sooner than would
otherwise have
been the case. Put differently, the CGAR attributable
to the unconstrained firm would, as from the date on which the other
firm
became capacity-constrained, be significantly higher than the
estimated global CGAR (eg it might rise from 2% to 3,5%). The same

principle would apply if, for example, Imerys’ French mine or
Andalucita became capacity-constrained earlier than the South
African
firms. (The information regarding Andalucita’s output and
sustainable production capacity is unclear. Mr Parte, who
believed
Andalucita had been capacity-constrained since 2013, estimated
Andalucita’s 2014 output at 40 KT. Mr de Hemptine
of Vesuvius
put its output at 35 KT. In reply to questions from the Commission,
Andalucita stated that its production capacity
was […])
Growth from
penetration - China
[77]
Mr Parte testified that, apart from ordinary projected
growth, ISA and AR could expect further growth by penetrating foreign
markets,
particularly China. (The European andalusite market is more
mature and stable.) Although andalusite makes up only 0,5% of the
Chinese
market, the market is very large. The andalusite consumed in
China probably exceeds the whole of the South African andalusite
market.
So even modest penetration could be significant for
andalusite producers. Andalusite consumption in China increased from
15 KT
in 2004 to 31 KT in 2014 (a CAGR of 13,3%).
[78]
The evidence as to how likely this growth is to continue
was equivocal. Steel production in China is no longer growing. Mr
Murgatroyd
referred to World Steel Association figures indicating
that Chinese steel production in 2015 decreased by 2,3% and
projecting negative
Chinese steel demand growth for 2016 of -2%. He
conceded that there did not seem to be a reasonable foundation for
believing that
demand for andalusite in China would grow as a
consequence of increased steel production. According to Mr de
Hemptinne, Vesuvius
did not observe an evolution in China towards
andalusite. Chinese refractory customers generally produce lower
grades of steel
where the performance offered by andalusite-based
refractories is not highly valued. His view was that andalusite was
not price-competitive,
particularly in relation to Chinese bauxite.
Even if Chinese steel producers began to place greater emphasis on
quality, the critical
refractory component relevant to steel quality
was in the continuous casting process, a process in which
andalusite-based refractories
are not used.
[79]
The position might be different if andalusite were a
superior raw material for which bauxite was not a functional
substitute. Functional
substitutability is not an issue we have been
asked to decide so I merely observe that the appellants’ case
was one of general
substitutability and that bauxite constrained
andalusite prices.
[80]
A point made by the Tribunal is that in September 2015
Imerys mothballed its Yilong andalusite mine in China, having already
cut
back on production in early 2014. If Imerys believed that China
was ripe for further penetration, one might have expected Imerys
to
keep the Yilong mine going since andalusite imported into China from
South Africa would cost Chinese customers more than andalusite

produced at Yilong. […].
[81]
As a fact, ISA and AR have historically exported
andalusite to China and the volume of these exports has grown.
According to data
contained in RBB’s first report, ISA and AR’s
Chinese exports in 2014 were […] KT and […] KT
respectively,
making up 13% and 10% respectively of their total
sales. This indicates that the negative factors mentioned by Mr de
Hemptinne
are not a complete bar to Chinese penetration. It is not
plausible that, following nine years of penetration at a CAGR of
13,3%,
there would be no further penetration after 2014. Mr Bain
testified that there were Chinese andalusite mines on the Mongolian
border
which could only operate for eight months in the year and
which produced poor quality material. He thought that AR could take
volumes
from them.
[82]
Quite how hard ISA and AR will work to achieve increased
sales in China may depend, inter alia, on the value of the South
African
currency relative to the euro and the dollar. AR uses a
financial metric called ‘on-mine contribution’ (‘OMC’)

to assess the profitability and relative merits of sales to different
regions. Mr Bain was cross-examined on AR’s OMC figures
for
China. […].
[83]
Nevertheless, and in the light of the history of sales
to China, It might not be unreasonable to assume that the parties’
Chinese exports will grow at a CAGR of, say, 8% (this would be a
blend of overall refractory demand growth and penetration).
Sustainable capacity
ISA’s
sustainable capacity
[84]
The parties are agreed that ISA’s sustainable
capacity is […] KT. Its 2015 sales were […] T, giving
it surplus
capacity of […] T. I should, however, observe that
the figure of […] KT is the midpoint of an agreed sustainable
range of […] KT – […] KT. If one were obliged to
choose a specific number, eg for purposes of assessing a claim
for
damages, one would probably choose the midpoint. Merger assessment is
different. For purposes of determining whether the proposed

conditions are adequate, the Tribunal was entitled to consider
whether the conditions would prevent a SLC in all reasonably possible

future scenarios. There would thus be a case for testing the adequacy
of the conditions with reference to the upper limit of the

sustainable range, namely […] KT.
[85]
The merging parties argued that for purposes of
determining ISA’s surplus capacity one should add to ISA’s
2015 sales
a portion of the sales previously made by the closed
Yilong mine. Yilong’s 2015 sales amounted to […] T. The
merging
parties contended that these sales would be retained within
the Imerys group, half being supplied by ISA, the other half by
Imerys’
French mine.
[86]
The Tribunal rejected the proposed adjustment, noting
that because Yilong was closed in September 2015, ISA should have
been able
to produce evidence that it was now supplying Chinese
customers previously supplied from Yilong. No such evidence was
adduced.
(Imerys’ strategic document of July 2015 for the
closure of the Yilong mine envisaged […].) The Tribunal
observed
that other suppliers, such as Andalucita in Peru and some
smaller Chinese mines, could plausibly win a significant part of the
business.  The loss of business to other suppliers was a risk
identified by Imerys when closing Yilong. Furthermore Imerys
has
contemplated the sale of the Yilong mine, which would place its
andalusite production in the hands of a potential competitor.
To this
may be added the possibility that, on the merging parties’ view
of functional substitutability, some of the Chinese
customers might
switch to bauxite.
[87]
I do not think there is a basis for differing from the
Tribunal on the Yilong adjustment. It is reasonably possible that ISA
will
pick up some of the Yilong sales but the converse is also
reasonably possible. The possibility of such additional volumes is
sufficiently
accommodated by the 8% CAGR which I have suggested for
the parties’ Chinese volumes.
AR’s sustainable
capacity
[88]
The merging parties contended that AR’s
sustainable capacity is between […] KT and […] KT
p/a ([…]
T and […] T p/m). The Commission’s
position was that AR’s sustainable capacity is in the range of
[…] KT
– […] KT p/a ([…] T –
[…] T p/m) and that certain efficiencies might increase the
upper limit
to […] KT p/a […] T p/m).
[89]
The actual production achieved by AR over the three
years from August 2012 – July 2015 was […] T, ie […]
T p/a
or […] T p/m. The best 12-month period was the most
recent (August 2014 to July 2015) – […] T p/a or […]

T p/m. The table setting out these figures shows that there is no
necessary correlation between the volume achieved in a particular

month and the extraction yield (ie the percentage of andalusite
extracted from the mined ore). For example, in December 2013 there

was a low volume of […] T yet the yield of […]% was the
best achieved over the three years. The highest monthly volume
was
[…] T in July 2014 where the yield was only […]%.
[90]
Mr Bain, testified that AR currently faced two
operational constraints in achieving higher production, namely […].
Having
regard to those constraints, he considered AR’s
sustainable capacity to be […] KT – […] KT
p/a. Although AR had not yet reached that level, this was its
expectation (as reflected inter alia in internal documents) and AR

priced its andalusite accordingly. Mr Bain said that although AR had
not achieved all of its targets, this did not mean that it
was not
‘forward-looking’ or was not trying to achieve those
levels of production: ‘We’ve set ourselves
up and spent
the capital to try and achieve those levels of output.’. […] KT
p/a was the budgeted level which
AR furnished to Imerys in the course
of the merger negotiations.
[91]
In assessing the evidence, I think it proper to bear in
mind that, by the time of the Tribunal’s hearing, AR’s
shareholders
wanted the transaction to proceed. Mr Bain and Pete
Kolbe, AR’s financial director and CEO respectively and also
shareholders,
were reaching retirement age. The merger provided an
elegant exit opportunity for them. The other corporate shareholders
were keen
to realise a profit from their investment. Mr Bain was
aware of the important issues on which merger approval would depend.
He
may thus have been predisposed (without any intention to mislead)
to view AR’s production capacity more conservatively than
was
previously the case.
[92]
Another observation is that Imerys’ contention in
the merger proceedings that AR was for all practical purposes already
at
its sustainable capacity is difficult to square with one of
Imerys’ professed reasons for the transaction, namely to
capture
a greater share of export demand. If AR were already
capacity-constrained, its acquisition could not enhance the merged
entity’s
ability to increase export volumes. When asked about
this, Mr Parte said that in his view the primary rationale for the
transaction
lay in the synergies which could be achieved, ie enhanced
profitability for the merged entity (lower cost base), but he
immediately
added that this would enable the merged entity to be more
competitive in foreign markets. His evidence on the subject was not
altogether
coherent
[93]
In the merger discussions which took place in the latter
part of 2013, AR told Imerys that its projected production for 2014
was
[…] KT. Mr Parte understood that the achievement of this
figure did not require capital investment. AR’s strategic
plan
for 2014/2015 noted that […], with annual production at […]
KT. The 2015 year was […], hence budgeted
sales of […]
– […] KT. Mr Bain testified that at the time they
thought this was sustainable. The same strategic
plan recorded that
the company’s objective was […]. The forecast for the
next five years was for production of […]
KT in 2016/2017 and
[…] in 2018/2019.
[94]
AR’s 2015-2016 strategic plan, prepared in June
2015 (by which time the shareholders had approved the merger), is
somewhat
more muted. Nevertheless AR recorded the total capacity of
its mine at […] KT p/a. The document stated that […].

This was the capacity which Imerys used in its assessment of the
acquisition. In the executive overviews prepared by AR during
2015,
management said that the company was aiming to achieve […]
T p/m or […] KT p/a.
[95]
Annual production of […] KT would equate to
[…] T p/m. Over the three-year period August 2012 to July
2015, AR
only achieved or exceeded that monthly level on […].
Mr Bain thought that currently AR could in theory achieve […]

KT but that, taking into account Christmas and Easter shut-down, […]
KT – […] KT was more realistic. In re-examination
he
said that currently management’s forecast of what AR could
achieve on a sustainable basis was between […] KT and
[…]
KT.
[96]
AR did, however, have plans to address the […]
issues. […].
[97]
Although there is
no necessary correlation between yield rates and production volumes
in any given month, one would nevertheless
expect – all else
being equal – that improved yields would be accompanied by
improved production volumes. In other
words, if one mines a certain
quantity of ore, a yield rate of […]% will result in more
andalusite than a yield rate of
[…]%. If the yield in a
particular month were high but the andalusite production low, it must
mean that other operational
problems prevented the company from
mining the targeted amount of ore. Bain thought that a […]%
yield was feasible for AR,
even though its annual average yields over
the last three years was somewhat below this (in the range […]%
- […]%).
AR has exhibited a pattern of improved annual
yields.
[3]
[98]
Although […] KT p/a may represent the upper
limit of what is sustainable, and although that production level has
not
yet been reached, it is reasonably possible that, but for the
merger, and even without further expansionary capital (but after
taking the steps identified by Bain to address the […]
issues), AR could achieve […] KT p/a. (This is still
below levels which management have in the recent past projected with
apparent confidence.) The point must again be made that if
one had to
select a specific figure, one might select the midpoint of a
reasonable range. In assessing a merger, however, one is
entitled to
take into account all reasonable possibilities. These include the
upper limits of reasonable ranges. (If one took the
reasonable range
to be […] KT – […] KT, the midpoint
would be […] KT.)
Further investment in
capacity
[99]
If one assumes no further capital investment by ISA or
AR to expand capacity, the limits of […] and […] KT
would be
the reasonably possible sustainable capacities most
favourable to the Commission.
[100]
However, the ordinary reaction of market participants to
demand in excess of supply is to invest in additional supply
capacity.
In regard to Imerys, Mr Parte said that there would need to
be a very substantial increase in demand to justify further
investment.
Without much amplification, he put the threshold at an
additional 40 KT of demand (ie above current capacity).
[101]
Accepting Mr Parte’s threshold of 40 KT, this
additional demand would obviously not have to arise over only one or
two years.
What one would expect in the mining industry is that
investment in capacity expansion would be based on projected demand
over a
reasonably lengthy future period. Upon completion of the
capacity expansion, there would initially be surplus capacity which
would
diminish over time. It would be impossible, after reaching full
production capacity, to wait for andalusite demand to grow by another

40 KT before expanding capacity. In the absence of additional
capacity, demand for andalusite would not grow at all –
potential
andalusite customers would look elsewhere for refractory
products.
[102]
If ISA invested in
additional sustainable capacity of 40 KT, how long would it take for
demand to reach the new sustainable capacity
of […] KT ([…]
KT + 40 KT)? On the basis that one should have regard to all
reasonably possible scenarios, one would
make the merging parties’
Yilong adjustment, thus giving ISA a current output of […]
([…] T + […] T),
[4]
to which one would apply the upper limit of what the parties regard
as a reasonable range for CAGR, namely 4,5%. On that basis,
ISA would
reach its current sustainable capacity of […] KT in 2018. If
by then it had undertaken the capacity expansion,
it would reach the
new sustainable capacity of […] KT by 2024 (ie within six
further years). This would seem to be an attractive
investment
opportunity, given the premium ISA enjoys on its exports and the
likely continued depreciation of the rand in the longer
term. (If one
assumed a more modest CAGR of 3,5%, it would take until 2028 to reach
the new sustainable capacity.)
[103]
If, as the merging parties contend, the likely future
scenario is towards the upper limit of their demand growth estimates,
I am
deeply sceptical of the assertion that the growth in demand
would not attract investment in capacity expansion from one or both

of ISA and AR. If there were no increase in their capacity, customers
who currently use andalusite, and who have quite possibly
been
persuaded by the firms about the advantages of andalusite, would be
unable to source the increasing quantities of andalusite
which (on
the parties’ growth projections) the customers will need.
[104]
AR has already expanded its capacity on one occasion.
Bain testified that when AR entered the market in 2002 its objective
was to
reach […] KT p/a, which was only achieved in 2008. In
2009 the shareholders decided to expand capacity to […] KT and

to address the quality issues which had dogged AR’s early
years. Most of this expansionary capital was spent in 2010 and
2011.
There have also been operational improvements directed at enabling AR
to reach production of […] KT.
[105]
AR’s internal documents show that further capacity
expansion has been envisaged. In their due diligence performed on
behalf
of Imerys, Deloitte & Touche noted AR’s management
forecast capacity of […] KT in 2015, rising to […] KT

by 2017, attributable to R[…] of expansionary capital
expenditure in 2014 and assuming a […]% yield (which
management
believed could be improved to […]%). […]
[106]
AR’s financial statements for the 2011, 2012 and
2013 financial years stated that […].
[107]
AR’s current strategic shareholders self-evidently
would prefer […].
[108]
In their merger filing the parties stated that the
rationale for the transaction was to enhance the competitiveness of
South African
andalusite in international markets, particularly
Europe and Asia, something they expected to achieve by sharing
know-how and expertise,
sharing fixed costs and operational
efficiencies and optimisation. The merger would enable them to secure
a greater proportion
of projected demand growth for andalusite. If
the merged entity were to become capacity-constrained within two or
three years (as
the parties contended), the fruits of the merger
would be quite modest, since any demand thereafter would be diverted
to other
suppliers of andalusite or substitutable refractory raw
materials. I would be surprised if the merging parties did not have
expansion
in mind.
[109]
If, absent the merger, one or both of the parties were
to invest in capacity expansion, there would be a period of some
years (perhaps
an additional six to eight years) during which there
would be surplus capacity and thus a likelihood of pricing
competition in
the domestic market. If the merged entity undertook
the same capacity expansion, there would during this period be a
likelihood
of unilateral pricing effects. Depending on andalusite
demand in the long-term, there might be further cycles of investment.
[110]
I should add that while capacity expansion is plausible
for one or both of the merging parties, barriers to new entry are
extremely
high. The Tribunal’s analysis of these barriers was
not questioned on appeal. The merged entity would thus be most
unlikely
to face competition from a new entrant.
[111]
Surprisingly the question of capacity expansion was not
explored by the Commission’s counsel in cross-examination. The
Tribunal,
however, raised the question with Mr Murgatroyd:
‘
CHAIRPERSON:
Can I just ask another, what might be a very obvious question to
everybody else, a non-economist asking the economist,
your theory
about capacity constraints is based on an assumption that no new
investments will be made by either merger party?
MR
MURGATROYD: Yes, no exactly. So if there was a reason…
CHAIRPERSON:
So it’s static?
MR
MURGATROYD: Well the capacity position is static, yes. In other
words, there is no regional [?] basis of expanding that capacity.
CHAIRPERSON:
And not even at existing mines?
MR
MURGATROYD: Yes, no, exactly, that’s right.
MR
WESSELS: And why should we accept that assumption that there is not
the ability to add capacity and that investments would not
be made,
for example, by AR when it becomes capacity constrained and as you
pointed out, according to you, there is room of growth
especially in
the export market? Why would it not invest extra money and add
capacity?
MR
MURGATROYD: That’s certainly not my factual submission on that.
I’m only basis that [?] on the fact that I’ve
not heard
any factual evidence that such investments are possible or likely,
but I agree that’s a factual determination for
the Tribunal.’
[112]
The fundamental point which I make was highlighted, in a
different context, during Mr Unterhalter’s cross-examination of
Dr
Mncube. The latter had cited declining steel capacity utilisation
ratios as evidence pointing against significant growth in demand
for
refractories. Mr Unterhalter put to him that a decline in utilisation
ratios could be explained by capacity expansion rather
than declining
production. Mr Unterhalter developed this point further as follows:
‘
So
the important point about this is that what’s driving capacity
utilisation ratios is because those in the industry are
actually
putting more capacity into the market, not less, and more capacity in
the market is generally a driver towards a view
that you will make
those investments because you think there’s going to be growth.
That’s why you put capacity into
the market… It’s
not based on the fact that steel, the people who are involved in the
steel industry, are pessimistic
about the future, they are putting in
more capacity because they think there are good prospects for growth.
Why else do you invest
in capacity?’
The
factual accuracy of what was put to Dr Mncube in relation to steel
production is not for present purposes germane but the logic
of the
underlying principle is indisputable.
Conclusion
on counterfactual
[113]
I can now draw the
threads together. Of the reasonably plausible scenarios, the one
which tests the adequacy of the proposed conditions
most severely is
the lowest reasonably plausible estimate of demand growth and the
highest reasonably plausible estimate of current
sustainable
capacity. I take the former to be 1% for South African demand, 8% for
Chinese demand and 2% for the rest of foreign
demand. I take the
latter to be […] KT for ISA and […] KT for AR. The
total sales made by ISA and AR in 2015
were […] T and […]
T respectively. I disregard the Yilong adjustment. Based on data
contained in RBB’s first
report,
[5]
I assume the following split for the parties’ respective sales:
ISA – […]% domestic, […]% Chinese and
[…]%
remaining foreign sales; AR – […]% domestic, […]%
Chinese and […]% remaining foreign sales.
[114]
On these assumptions, ISA would become
capacity-constrained in 2022 while AR would become capacity
constrained in 2023. If one assumed
total sustainable capacity of […]
KT for ISA and […] KT for AR, they would both become
capacity-constrained in 2021.
This does not allow for the possibility
that Imerys’ French mine and/or Andalucita might become
capacity-constrained at an
earlier time, thus resulting in an
increase in the global demand for the andalusite produced by ISA and
AR.
[115]
In the foregoing scenario, and assuming everything else
in the parties’ favour, an eight-year supply agreement
(reckoned from
the beginning of 2016) would, on the logic of the
economists’ agreement, neutralise the merger’s unilateral
pricing
effects. We do not know for certain that the appellants would
implement the merger if an eight-year supply agreement were
stipulated
as a condition but they might well do so.
[116]
I should add that the discussion up to now assumes that
– absent the merger – domestic EPP pricing would occur
simultaneously
with the reaching of capacity constraints. The
assumption is not strictly accurate. For reputational and other
reasons, the individual
firms would need to implement domestic price
increases in reasonable increments. This would be particularly so in
the case of AR’s
largest customer, Vesuvius. Mr Murgatroyd
acknowledged that the achieving of EPP pricing might lag behind the
reaching of capacity
constraints but said that it was extremely
difficult to quantify the lag. Dr Mncube shared this view. It was put
to Dr Mncube that
even if there was this lag, it had nothing to do
with competition, since rivalry would cease once both firms became
capacity-constrained.
Again that may not strictly be accurate. A
substantial increase in domestic prices might, at least in the short
term, cause a decrease
in domestic demand, thus freeing up some
capacity which would otherwise be fully used. This dynamic might thus
generate at least
some price competition until both firms were
satisfied that their domestic customers would accept EPP prices.
[117]
There are two further possibilities which need to be
taken into account when deciding whether an eight-year supply
agreement would
suffice. The first is the possibility of a global
shock of similar magnitude to the 2008 financial crisis. Such an
event would
cause a significant step-down in demand. If such an event
were to occur within the eight-year period of the supply agreement or

reasonably shortly thereafter (say within three years), surplus
capacity could again be a reality. Naturally nobody can predict

whether such an event will occur but it must be accepted as a
reasonable possibility within the 20-year period following the 2008

crisis.
[118]
The other possibility is that, absent the merger, one or
both of the parties might undertake capacity expansion. For reasons I
have
explained, I regard that as a reasonable possibility,
particularly if over the next two or three years demand for
andalusite grows
at the levels the parties themselves predict. If
capacity expansion were to occur, there are likely to be a number of
years of
surplus capacity during which domestic price competition
could take place.
[119]
The draft order put up by the merging parties in the
Tribunal, and repeated in this Court, contained a clause that either
the merged
entity or the Commission could, at any time after the
merger, approach the Tribunal for a reconsideration of the conditions
and
that, in such an event, the Tribunal could on good cause shown
lift, revise or amend any of the conditions. Mr Murgatroyd, who
agreed that the reaching of capacity constraints was not a ‘once-off
and irreversible event’, pointed to this clause
when asked what
would happen if, after the expiry of the supply agreements,
circumstances arose which would, but for the merger,
have caused
domestic prices to fall below EPP. He said that an ‘unforeseen
market event’ (some ‘huge hit to export
demand’)
was exactly the kind of situation that would trigger the
reconsideration clause.
[120]
There would, however, be considerable practical
difficulty in applying the reconsideration clause if there were a
global shock in,
say, nine or ten years’ time. There would
probably be considerable contestation on what impact the event in
question would
have had on the firms’ prices had the merger not
occurred. It might be very difficult to reach a definite conclusion
as to
how the firms’ prices would have evolved but for the
merger. There might have to be a lengthy trial, with factual and
expert
evidence, just to decide whether the conditions need to be
varied. In the meanwhile the merged entity would be entitled to
continue
pricing domestically free from the competitive constraint
which the separate firms would have placed on each other.
[121]
Even if the reconsideration clause were able adequately
to address the effects of a global shock, it would not address the
concerns
arising from the possibility that, absent the merger, one or
both of the firms might undertake capacity expansion. The Commission

would not be entitled to a reconsideration merely because the merged
entity were to undertake capacity expansion. The Commission
would
need to prove that, but for the merger, one or both of the firms
individually would have undertaken a similar capacity expansion,

something that might be very hard to prove.
[122]
There is another observation I wish to make regarding
the Part 1 remedy. It will be recalled that during the period of the
Part
1 remedy (whether it be five or eight years), domestic
customers’ current prices will not be increased by more than
PPI per
annum. This was the remedy which the economists agreed would
be sufficient during that period. If, during the period of the
proposed
supply agreements, there were no significant freeing up of
production capacity (such as might be caused by a global shock or
capacity
expansion), it is probably fair to say, given current
production levels and anticipated demand growth, that domestic
customers
would not, absent the merger, be likely to enjoy prices
from ISA and AR which are lower than their current prices plus PPI.
(It
was put to Dr Mncube that increases in administered prices such
as water and electricity and increases in mining wages have
historically
been well above PPI.) If, however, there were a
significant freeing up of production capacity during the period of
the proposed
supply agreements, competition between ISA and AR
coupled with a decrease in EPP might – absent the merger –
result
in lower annual increases than PPI or even a reduction in
prices. The proposed remedy would deprive domestic customers of this
beneficial outcome.
[123]
In summary, the Tribunal was asked to approve a merger
which would irreversibly change the structure of the domestic market
(from
duopoly to monopoly), on the basis of conditions which would
(subject to the caveat mentioned in the previous paragraph) protect

the domestic market for five years (perhaps extended to eight years)
but deprive it of the price competition which would occur
in the
event of plausible future events such as a global shock and capacity
expansion. In the absence of countervailing pro-competition
gains or
public interest considerations, prohibition rather than conditional
approval is in the circumstances a legitimate choice
of remedy.
Public interest
considerations against the merger
[124]
The main public interest consideration against the
merger arises from its alleged rationale, namely to enhance the
merged entity’s
ability to capture anticipated demand growth
for andalusite, particularly export demand. This means that in due
course all the
parties’ production would be diverted to the
export market unless domestic customers were willing to pay EPP. This
might
eventually happen even without the merger but the merger will
enable the parties (on their view of its benefits) to reach this
point sooner, to the detriment of refractory manufacturers and
downstream consumers. Witnesses from these manufacturers and
consumers,
such as Vesuvius, ArcelorMittal, Scaw and Magdol, gave
evidence of the prejudice they would suffer if andalusite ceased to
be available
to them or was only available at significantly higher
prices.
[125]
The proposed conditions do not entirely address this
concern. If there were no reasonable possibility of its taking longer
than
eight years for both parties to become capacity-constrained, an
eight-year supply agreement would neutralise the unilateral price

effects of the merger because, absent the merger, the duopoly’s
domestic prices would rise to the domestic monopoly price
once they
were both capacity-constrained.
[126]
If the domestic monopoly price were higher than EPP, the
merged entity would be able to charge the higher price as soon as the
eight-year
supply agreement ended. Absent the merger, the firms would
be incentivised to compete on domestic pricing because they could
divert
export volumes to the more profitable domestic market. Given
the large quantity of export volumes that would be available for this

purpose, competition of this kind would continue for many years and
would prevent the domestic price from rising significantly
above EPP.
This eventuality (a domestic monopoly price which is higher than EPP)
is addressed by the Part 2 condition (the EPP
price cap). What is
unattractive about the solution is that whereas the Part 1 condition
is time-bound (say eight years at the
most), the Part 2 condition has
to operate in perpetuity. The condition has to be monitored by
customers and the Commission.
[127]
What if the
domestic monopoly price were lower than EPP in five or eight years’
time? In that event the individual firms would
have a strong
incentive to divert volumes to the export market
[6]
but it would take much longer than eight years for both of them to
reach the stage where they could sell their entire output to
the
export market. If one were to apply an 8% CAGR to Chinese exports and
2% CAGR to other exports, ISA could only achieve export
sales equal
to its midpoint sustainable capacity ([…] KT) and highest
sustainable capacity ([…] KT) in 2026. AR would
only reach its
midpoint and highest sustainable capacity ([…] KT and […] KT)
in 2030 or 2031. Given the rationale
for the merger, the merged
entity expects to reach that point sooner than the individual firms
could do. Accordingly, if the domestic
monopoly price were lower than
EPP, domestic customers and downstream consumers would be prejudiced
by the merger because domestic
volumes would be lost to export
markets sooner than would be the case absent a merger. (The domestic
volume guarantee requires
domestic customers to pay EPP which, on
this scenario, is higher than the domestic  monopoly price. So
the volume guarantee
would not prevent a diversion of domestic
volumes to the export market.)
[128]
It is not possible to say whether, after the expiry of
the eight-year period, the domestic monopoly price will be lower or
higher
than EPP. It would be purely coincidental if the domestic
monopoly price equalled EPP. Mr Parte thought that in the current
state
of the market the domestic monopoly price would not be higher
than EPP. Mr Bain said that although AR’s aim was to increase

domestic prices to the EPP level, it would take more than five years
to do so at annual increases of […]% p/a. I think one
has to
allow as a reasonable possibility that the domestic monopoly price
could be lower than EPP, particularly if there were a
significant
depreciation in the rand’s value against the euro and dollar.
In that event, as I have explained, domestic customers
and consumers
would be prejudiced by the merger if it achieves the parties’
objective of enabling them to increase their
export sales more
rapidly.
[129]
Of further relevance to the public interest is that the
merged entity will have as its object not only to increase its export
sales
but to maximise its sales to those markets paying the highest
export premium. If the merged entity achieves this objective, EPP
–
which in terms of Part 2 of the conditions will be the price cap
after the lapsing of the supply agreements – will
be higher
than would have been the case without the merger.
[130]
These concerns in the public interest are substantial.
For present purposes, however, the question is not whether those
concerns
are sufficiently substantial to constitute an independent
basis for prohibiting the merger. Given the likely SLC in the short
to
medium term, the public interest considerations can legitimately
be taken into account in deciding whether prohibition or conditional

approval is the appropriate outcome.
Countervailing
considerations in favour of the merger
[131]
The merging parties do not seem to have argued that
there were pro-competitive gains or public interest considerations
which justified
the merger if it should otherwise be found that there
were grounds to prohibit the merger. The Tribunal did not deal with
this
in its reasons nor was it covered in the parties’ heads of
argument before us.
Conclusion
[132]
In my opinion, the Tribunal could legitimately conclude
that the proposed conditions did not address all the SLC to which the
merger
could reasonably possibly give rise. There is also a
reasonable possibility that the public interest would be
substantially prejudiced
in the period following the lapsing of the
proposed supply agreements.
[133]
In my opinion, therefore, the appeal should be
dismissed.
[134]
One concluding observation: The issues regarding demand
growth and the parties’ sustainable production capacities were
not
matters concerning which either of the economists had expertise
yet both were questioned extensively thereon. They were asked to

express views about the import and weight of evidence given by others
on these issues. Much of this evidence was unhelpful. Care
should be
taken to confine expert testimony to the scope of the witness’
expertise.
[135]
The following order is made: The appeal is dismissed
with costs including those attendant on the employment of two
counsel.
__________________
ROGERS
JA
APPEARANCES
For
Appellants
Mr
D Unterhalter SC & Mr R Moultrie
Instructed
by
ENSafrica
150
West Street
Sandown,
Johannesburg
For
Respondent
Mr
J Wilson SC & Mr TL Marolen
Instructed
by
The
Competition Commission
DTI
Campus, Mulayo (Block C)
77
Meintjies Street
Sunnyside,
Pretoria
[1]
News Ltd v Australian Rugby
Football League Ltd & Others
[1996]
FCA 1256
paras 565-571;
Monroe
Topple & Associates Pty Ltd v Institute of Chartered Accountants
in Australia
[2002] FCAFC 197
;
(2002) 122
FCR 110
para 111;
Australia
Gas Light Company v ACCC
[2003]
FCA 1525
paras 341-356;
Universal
Music Australia Pty Ltd v ACCC
[2003]
FCAFC 193
para 247;
Seven
Network Ltd v News Ltd
[2009]
FCAFC 166
paras 749-750.
[2]
In respect of the period 2010 to 2014 the figures were subsequently
adjusted in the light of AR's actual sales as against those
which
Parte had previously estimated. These adjustments do not materially
affect the picture.
[3]
See 10/4729. The yields were […]% in 2007, […]% in
2008 and […]% in February 2009. There was a setback in

February 2010, probably associated with an expansion of capacity,
with yields again improving to […]% in February 2014,
[…]%
in February 2015 and […]% in August 2015.
[4]
Mr
Murgatroyd's annual
volume calculations are not in the record but both sides appear to
have accepted that on the latest available
data ISA's 2015
production was […] T, the starting volume used by Dr Mncube
in his calculations. Although Dr Mncube provided
volume calculations
with and without the Yilong adjustment, I have difficulty in
following his method since he seems to account
for the additional
Yilong volumes only in the final year of any particular set of
calculations. The Yilong adjustment should
be added to ISA's volumes
in the first year of the calculations.
[5]
Table 2 at 2/465.
[6]
As Mr Murgatroyd said, 'you could in principle have a situation
where a move of domestic prices to export parity levels could
result
in no domestic sales, but that would only be the case if domestic
customers were unwilling to pay those export parity
prices".