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[2012] ZACAC 8
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Competition Commission of South Africa v South African Breweries Ltd and Others (114/CAC/Nov11) [2012] ZACAC 8; [2013] 2 CPLR 391 (CAC) (14 November 2012)

REPUBLIC
OF SOUTH AFRICA
IN THE COMPETITION
APPEAL COURT OF SOUTH AFRICA
HELD IN CAPE TOWN
CASE NO:
114/CAC/Nov11
In the matter
between:-
THE COMPETITION
COMMISSION
Appellant
and
SOUTH AFRICAN
BREWERIES LIMITED
First Respondent
AFRICA’S BEER
WHOLESALERS (PTY) LTD
Second Respondent
BOLAND BEER
DISTRIBUTORS (PTY) LTD
Third Respondent
ERMELO BEER
WHOLESALERS (PTY) LTD
Fourth Respondent
GREYTOWN BEER
DISTRIBUTORS (PTY) LTD
Fifth Respondent
MAKHADO BEER
WHOLESALERS (PTY( LTD
Sixth Respondent
MIDLANDS BEER
DISTRIBUTORS (PTY) LTD
Seventh Respondent
MKUZE BEER
WHOLESALERS (PTY) LTD
Eight Respondent
SOUTHERN CAPE BEER
DISTRIBUTORS (PTY) LTD
Ninth Respondent
STEFQUO (PTY) LTD
Tenth Respondent
VRYHEID BEER
DISTRIBUTORS PTY (LTD)
Eleventh Respondent
MADADENI BEER
WHOLESALERS (PTY) LTD
Twelfth Respondent
WESTONARIA BEER
DISTRIBUTORS (PTY) LTD
Thirteenth Respondent
THOHOYANDOU BEER
DISTRIBUTORS (PTY) LTD
Fourteenth Respondent
JUDGMENT:
14 November 2012
DAVIS JP
Introduction
[1] This appeal concerns
a decision of the Competition Tribunal (‘the Tribunal’)
in which it set aside a complaint
referral by appellant against first
respondent as well as against second to fourteenth respondents which
was based upon ss 4 (1)(b)
(ii), 5 (1), 5 (2) and 9 (1) of the
Competition Act 89 of 1998 (‘the Act’).
[2] In essence, first
respondent submitted that the referred complaint did not form part of
a complaint initiated against it on
25 November 2008. Second to
fourteenth respondents contended that they were not named in the CC 1
Form and that there was no
mention made of them in documents attached
thereto. Accordingly, they could not competently be cited as
respondents in the complaint
referred to the Tribunal in terms of s 4
(1) (b) (ii), alternatively s 5 (1), 5 (2) and 9 (1) of the Act.
[3] As is apparent from
the determination of the Tribunal, it considered itself bound by the
judgment of this Court in
Yara South Africa (Pty) Ltd v The
Competition Commission and others
[2011] 1 CPLR 78
(CAC).
Accordingly, it made the following order:
“
After having
heard the parties in relation to the application by the first
respondent, the following is ordered: The purported
referral [of]
the complaint against the first respondent by the Competition
Commission to the Competition Tribunal on or about
the 20
th
of December 2007 under
Sections 4
(1) (b) (ii),
5
(1),
5
(2) and
9
(1) of the
Competition Act 89 of 1998
, which complaints collectively
make up the first separated complaint as referred to in the order of
the Competition Tribunal date
the 13
th
May
2010, is set aside on the grounds that the Tribunal has no
jurisdiction. There is no order as to costs.
The second order is in
relation to the application brought by the second to the fourteenth
respondents in this matter, also known
as the appointed distributors.
After having heard the parties in relation to the application by the
second to the fourteenth respondents,
the following is ordered: …
the purported referral of the complaints against the second to
fourteenth respondents on or
about the 20
th
of December 2007 under
Sections 4
(1) (b) (ii) and
5
(1) of the
Competition Act 89 of 1998
, is set aside on the grounds that the
Tribunal has no jurisdiction. There is no order as to costs.
”
On the basis of this
order, the complaint referral proceedings in terms of ss 4 (1) (b)
(ii), 5 (1), 5 (2) and 9 (1) of the Act,
were brought to an end. It
is against this decision that the appellant has approached this Court
on appeal.
The factual background
[4] On 25 November 2004,
a group of companies comprising both retail and wholesale liquor
operations located primarily in the Eastern
Cape submitted a
complaint in terms of s 49 B(2)(b) of the Act to the appellant.
Following thereon, appellant conducted an investigation
and referred
the complaint to the Tribunal on 20 December 2007. The trial before
the Tribunal commenced in 2010, after which fifteen
days of evidence
was led before the Tribunal.
[5] On 24 March 2011,
first respondent filed its application to set aside the referral of
the complaints under ss 4 (1) (b) (ii),
5 (1), 5 (2) and 9 (1) of the
Act. Second to fourteenth respondents’ application to set
aside the referral was filed on
28 March 2011.
[6] Before proceeding to
deal with the details of the complaints as they were submitted to the
appellant, it is necessary to refer
to the reasoning that was adopted
by the Tribunal in its decision and particularly its reading of the
Yara
decision
supra
.
[7] Briefly, in
Yara
a company called Nutri-Flo submitted a complaint to the Competition
Commission against Sasol Chemical Industries (Pty) Ltd. The
two
appellants, were companies which were similarly involved in the
production and supply of fertilizer. When Nutri-Flo formulated
its
complaint against Sasol, it referred specifically and exclusively to
contraventions by Sasol of ss 8 (c), 8 (a) and 9 (1) of
the Act. The
complaint contained three paragraphs within the overall framework of
an affidavit that ran to more than a hundred
pages in which mention
was made of the possibility of a cartel between Sasol and the two
appellants which might constitute a contravention
of s 4 (1) (b).
Before the Tribunal, an application was brought to amend the
referral, such amendment being designed to incorporate
the complaint
details referring to the contravention of s 4 (1)(b) by Sasol and the
two appellants. The question arose as to whether
the Commission had
sought to introduce a new matter, which had not been covered in the
Nutri-Flo complaint, and, in terms of which,
the only case made out
in Nutri-Flo’s papers turned upon a contravention by Sasol of
abuse of dominance provisions.
[8] This Court referred
to the description of the complaint by Nutri-Flo in the CC 1 Form and
the amplification thereof in an affidavit
which served to extend the
complaint. Reading these documents together justified the conclusion
that the complaint focussed clearly
on three prohibited practices,
namely exclusionary pricing practices, excessive pricing practices
and discriminatory pricing practices.
This Court found, to the
extent that any cartel activity had been mentioned, that this
allegation fell to be classified as ‘information
submitted’
in terms of s 49 B (2) (a) of the Act. After a careful examination
of the complaint, which was unusual both in
its length and detail of
its exposition, it concluded that there was a clear absence of any
intention on the part of Nutri-Flo
to be a complainant in respect of
a price fixing contravention by all three parties. See paragraph 35.
It then went on to say
at para 38:
“
In competition
cases, the parties look to the CC1 Form for details of the
complaint(s) against them. Therefore, if it appears
in the CC1 Form
together with accompanying statements, where relevant, that no
complaint lies against a particular party, such
a party may assume
that it is not a true party to the proceedings. It is therefore
improper to bring such a party within the ambit
of the complaint by
way of either a referral or an amendment thereto
.”
[9] In the present case,
the Tribunal interpreted this approach, which it regarded to be
binding on it, as follows at para 62 of
its determination:
“
The Commission
may only refer that part of the submission from the complainant that
it intended to complain about and not those
that constitute mere
information, and secondly, it offers a further rationale for the
strict approach; because the initiating document
is what respondents
look to for details of the complaint against them, it is improper to
bring a party before the Tribunal by way
of a referral if the details
of the complaint in the referral are not found in the initiating
document
.”
[10] Applying this test
rigidly to the facts of the present case, the Tribunal held that the
complaint made against first respondent
in the initiating document
had not been the one which was referred by appellant to the Tribunal.
Furthermore, the initiating document
did not contemplate any firm
other than first respondent and accordingly no case had been made out
against any of the other respondents,
namely second to fourteenth
respondents.
[11] This appeal
therefore raises two fundamental questions which are critical for the
disposition of this dispute, namely;
1. What precisely were
the complaints lodged against the respondents; and
2. On the basis of this
determination, does the judgment in
Yara
,
supra
justify
the approach which was adopted by the Tribunal.
In order to so determine,
it is necessary to engage in some detail in the complaints which were
submitted to the appellant by the
complainants.
Complaints submitted
to the Commission
[12] On 25 November 2004
a CC 1 Form was completed and signed by one Nicolas Peter Pitsiladi,
the head of the Big Daddy’s
group of liquor wholesalers and
retailers, who was duly authorised to lodge the complaint.
[13] Annexure A to the
complaint set out the list of complaints. More significantly
annexure B headed ‘Description of the
Complaint’ reads as
follows:
“1. The
entities (collectively herein referred to as “the Complainants)
are all holders of various liquor licences issued
pursuant to the
provisions of the old Liquor Act, the Liquor Act 27 of 1989.
2. The
Liquor Act, 59
of 2003
repealed the old Act and came into effect on 13
th
August 2004.
3. In addition
various Provinces promulgated their own Acts, as for instance the
Eastern Cape
Liquor Act, 10 of 2003
.
4. The Complainants
either conduct business as retailers or have been issued with
wholesale licences or have applied before the
promulgation of, for
instance, the provincial Act in the Eastern Cape (successfully so)
for conditional approvals for wholesale
licences.
5. In terms of the
old Act, the wholesale liquor license was a license which entitled
the holder to sell liquor to another license
holder.
6. Effectively in
terms of the new Act, one is either a manufacturer, a distributor
(the old wholesale seller) or a retailer,
7. In the past South
Africa Breweries (“SAB”) sold their beer products (SAB is
a dominant firm in that it has in excess
of 80% of the beer selling
market in South Africa) to liquor outlets which conducted the
business of licensed outlets.
8. Recently (during
the course of this year), SAB has changed their operations and as a
result of the fact that they are now registered
as a manufacturer and
a distributor, they are selling as distributors, beer products to
retail outlets at the same price that they
are selling beer products
to wholesale outlets which has the effect that all wholesale outlets
within the Republic of South Africa
cannot compete with SAB as no
retailer would purchase a beer product from a wholesaler if
effectively it is able to purchase the
product directly from the
dominant wholesaler (SAB) as a cheaper price.
9. The price change
by SAB (the wholesale component) to other wholesalers is the same
price as charged to retailers. For a wholesaler
to on-sell to a
retailer, which is its only market and, bearing in mind that a
wholesaler can only sell to another registered license
holder such as
a retailer, it becomes abundantly clear that SAB has embarked upon an
active campaign to do away with all other
wholesalers in the Republic
of South Africa and eventually control themselves the entire
wholesale division of selling beer within
South Africa.
10. This of course is
made possible by the fact that SAB as manufacturer of beer is passing
on by means of a sale of beer to SAB
the wholesaler at a lower costs
or no costs at all in order that SAB the wholesaler may sell
retailers and other wholesalers at
the same price. Other
wholesalers are prevented from purchasing directly from SAB the
Manufacturer beer at the same price (or
at all) that SAB the
Manufacturer passes on to SAB the wholesaler.
11. Despite a request
to desist in this anti-competitive action, SAB have declined. In
this regard, annexed hereto are examples
of a letter, dated 21
st
September 2004, addressed to SAB and a letter dated October 2004,
sent by SAB to Mr Pitsiladi.
12. Accordingly the
complaint is that there is an abuse of a dominant position as
contemplated in Section 8 of the Act.
13. Alternatively and
in any event it is submitted that the conduct of SAB is prohibited
practice either in terms of Section 4
or Section 5 or Section 9 of
the Act.
14. The Complainants
require the matter to be dealt with in terms of the provisions of the
Act, together with the regulations formulated
thereunder.”
[14] In addition, two
undated letters were generated, subsequent to the completion of
Annexure B. The first was written on the
letterhead of SAFWASM, one
of the complainants, and was addressed to first respondent. It reads
as follows:
“
I am surprised
that you now refer to SAB reviewing its “distribution
arrangements” in the light of the new legislation
and because
of this you could not supply the price lists. At no time during our
discussion was there ever any suggestion that
you would be reviewing
price lists. To the contrary, your attitude was that SAB as a
distributor (wholesaler) would be selling
its products to other
wholesalers and retailers at the same price.
Prior to the 13
th
August 2004, being the date upon which the
Liquor Act No. 59 of 2003
came into effect SAB had been actively involved in negotiations with
DTI, had commented on the Bill and had been fully aware of
the
pending legislation. In addition, your representatives have been
sitting with representatives of the Liquor Board throughout
the
country, I understood, at public meetings, explaining the import
effect of the new legislation. We thus find it extremely
strange
that you have not formulated a policy regarding distributors and
retailers, a distinction, which is one of the fundamentals
of the new
legislation.
Apart from the fact
that SAB must have a distributor price list for its existing
independent distributors (e.g. Southern Cape Beer
Distributors (Pty)
Ltd), we find it inconceivable that SAB is being involved in (at the
very least) assisting third parties in
establishing distribution
businesses without having a policy in place.
Since our discussion,
I have sought legal advice and it is our company’s contention
that SAB is not entitled to dominate the
market to the extent of
supplying its product to its own distribution division/wholesalers
with its concomitant special benefits
and then on-selling to other
distributors/wholesalers at the same price that the SAB
distributor/wholesaler is selling to retailers.
We also contend that
SAB is not entitled to favour certain distributors/wholesalers with
special prices to enable them to supply
at the SAB retail price list
but to refuse those same prices to other independent
distributors/wholesalers.
The above certainly
would amount to unlawful acts in terms of the
Competition Act.
Accordingly
we require your undertaking, within 10 (Ten) days of
today’s date, that any benefit (whether by journal entry or
otherwise),
including any discount passed on by SAB, the
manufacturer/supplier to its wholesale division or third party
distributors/wholesalers
must similarly be passed on to ourselves as
distributors/wholesalers so that we can compete on an even footing
with SAB distributors/wholesalers.
If this were not the case, our
company would not be able to sell to retailers, as retailers would
hardly purchase from a distribution
/ wholesale division at a price
which would have to be more than the price between SAB’s
distributors/wholesalers and retailers.
Unless a satisfactory
response is received within the time period referred to above (which
we trust will be forthcoming), we will
have no option but to protect
our interest and to institute proceedings pursuant to the provisions
of the
Competition Act.”
[15
] A response was
received to this letter which was generated by first respondent. It
reads thus:
“
Thank you for
your letter of 11 October 2004. We do not intend to deal with every
allegation which you make in your letter, and
our failure to do so at
this stage should not be construed as an admission thereof.
We too have sought
legal advice in relation to your claims. We certainly deny that SAB
engages in any form of price discrimination
in contravention of the
Competition Act.
SAB
supplies your
business at the same price as it suppliers and other customers and
thus your businesses are not discriminated against.
At present SAB does
not have different prices for wholesalers or distributors. It does
not have a separate price list for its existing
independent
distributors. SAB primarily distributes its beer through its own
depots. These are all part of the same company
and there is no
sale between brewery and depot. A small amount of production is
distributed through independent distributors,
who have been
specifically appointed to provide distribution service for SAB.
These distributors make no margin in respect of
products sold through
them – they are paid a warehousing and distribution fee for
their services. This is a cost picked
up by SAB ad SAB customers
pay the same price for beer, whether purchased through a depot or an
independent distributor.
SAB has been advised
that these arrangements are entirely lawful under the
Competition
Act.
Any
proceedings
instituted pursuant to the
Competition Act will
be defended
.”
[16] It appears to be
uncontested that annexure B and the two undated letters set out above
constitute the components of the complaint
which was lodged by the
complainants. That much is made clear from paragraph 11 of annexure
B where it is stated expressly:
“
Despite a
request to desist in this anti-competitive action, SAB have declined.
In this regard annexed hereto are examples of a
letter dated 21
September 2004 to SAB and a letter dated October 2004 sent by SAB to
Mr Pitsiladi
.”
As this paragraph refers
to the two undated letters which had been reproduced in this
judgment, the appeal must proceed on the basis
that all these
documents, read together, constituted the complaint as initiated by
the complainant.
Subsequent
correspondence
[17] Subsequent to the
generation of the CC 1 Form, Annexure B and the two undated letters,
further correspondence was produced.
Given the submissions of the
appellant, regarding the amplification of the complaint as lodged, it
is necessary to examine briefly
the nature thereof.
[18] The relevant
correspondence was generated between attorneys acting for the
complainants and appellant. Complainants’
attorneys,
responding to a meeting that had been held between the appellant’s
representatives and those of the complainants,
between the date of
the filing of the complaint on 25 November 2004 and 16 February 2005,
wrote as follows:
“
We confirm our
oral advices that
as a result of our client not receiving a
discount or distribution fee from SAB
our clients are
forced to on- and off- consumption outlets at a higher price they
would pay if they purchased from SAB. Obviously
this increased
price would be passed on to the consumer.
We also enclose a copy
of a tax invoice from Southern Cape Beer Distributor (Pty) Ltd which
is one of the SAB Franchise distributors
(in fact as far as we
understand the only distributor for SAB in the George area). The
prices contained in the tax invoice from
Southern Cape are the same
prices as SAB Breweries sell direct in that particular area.
This reinforces our
client’s contention that SAB are selling to their distributors
at a fixed price with the agreement that
such distributor on-sell at
the same fixed-price without any mark-up
.
As disclosed to you
during our meeting, this effectively prevents any wholesale
distributor from competing independently.
” (emphasis added)
On the same day a
response was received from appellant which contained the following:
“
We notice that
the invoice indicates that various forms of discounts have been given
to your clients. Please explain the exact
nature of each discount
given in terms of the invoice, as well as the “allowance”
mentioned. Further, please compare
these discounts and allowances
to the discounts obtained by the franchise form SAB, explain the
difference (if any), and supply
documentary proof if possible. The
impression created is that your clients do not receive any form of
discounts from SAB or its
franchises. What makes this more
difficult to comprehend
is that the allegation made by your
clients is that SAB fixes the price at which the franchises sell.
This automatically means
that the franchises are restricted as
regards the issue of setting beer prices (including the giving of
discounts)
, which appears to be contrary to what the
invoice appears to be suggesting.
” (emphasis added)
[19] A further letter was
then generated by complainants on 7 March 2005 which contained a
series of annexures. In that letter,
the complainants described the
key issues contained in their complaint as follows:
“
As explained,
the discounts indicated on the invoices are not volume based
discounts but early payment discounts. The account
discount, for
instance, is 2.5% discount for customers who pay COD. The payment
is a fixed discount of 0.5% for those customers
who pay by means of
electronic banking, whilst the ullage allowance is a percentage based
discount for broken stock. These discounts
are universal and apply
to everyone.
The real issue,
however, is the question as to the price of beer, particularly 750
ml. The so-called independent distributors
of SA Breweries such as
Southern Cape Beer Distributors (Pty) Ltd operate in specific and
non-variable areas. The only price difference
in the delivered price
of beer to retailers by either SAB or its independent distributors is
influenced by distance from the SAB
depot.
Another factor which
is important is that the distributors (so-called “independent”)
such as South Cape Beer Distributors
(Pty) Ltd, do not have
independent reps who sell their products. It is in fact the sales
rep of SAB who calls on retailers direct
and furnishes then with a
SAB price list and the product is then delivered by the distributor.
Attached as Annexure 1 and 2 are
SAB price lists and SAB independent
distributors price list. All are on SAB letterheads.
An incomplete list of
SAB independent distributors with addresses and telephone numbers is
attached. (Annexure 3)
The major problem is
that the SAB independent distributors and SAB itself both sell beer
to our group distributor outlets at the
same prices as they sell beer
to any other retailers. This, as you know, is admitted by SAB to
their undated letter which was
received somewhere in October 2004, a
copy of which we once again enclose for your information. (Annexure
4)
SAB are currently
running a 750 ml beer promotion at tavern/shebeen level and in order
to participate in the promotion the tavern/shebeener
is forced to
sell beer at a fixed prices as stipulated by SAB.
SAB has also fixed the
price of Carling Black Label 450 ml cans and Castle Milk Stout 450 ml
cans. The respective prices of R
4.50 and R 4.80 are printed on the
cans and SAB are currently running and advertising campaign on
television in which they advertise
the selling price. Attached as
Annexure 5 is an email from SAB instructing retailers to sell these
products at the stipulated
prices.”
In an annexure to this
letter, a list of the appointed distributors, which were known to the
complainants was set out. Read as
a whole, this documentation
identified the second to fourteenth respondents as the firms which
constituted the subject of their
complaint. These appointed
distributors were known as ‘SAB independent depots’.
[20] This subsequent
correspondence, unlike the undated letters, were the subject of
contestation between the parties. While the
appellants submitted
that there could be no doubt that the complainants intended this
correspondence to clarify, amplify and supplement
the initial
complaint, the Tribunal upheld the contentions of first respondent
that the subsequent correspondence did not form
part of the complaint
which could be referred by appellant.
The complaint as
referred to the Tribunal
[21] To recapitulate, the
complaint which was referred to the Tribunal was based upon ss 4 (1)
(b) (ii), 5 (1), 5 (2) and 9 (1)
of the Act.
[22] The referred
complaint can be summarised as follows: Appellant alleged that first
respondent and second to fourteenth respondents
are in a horizontal
relationship with each other which falls within the scope of s 4 (1)
(b) (ii). The allegation is that, in
terms of the wholesaler and
franchise agreements, first respondent has appointed distributors who
are not permitted to compete
with each other in territories allocated
to them. As an illustration, clause 41 of the wholesaler agreement
provides:
“
4.1
In return
for the appointment set out under clause 2, and subject to the
provisions of this Agreement, the Wholesaler agrees to
use its best
endeavours to maximise distribution and sale of the products within
the Territory, which shall be achieved as follows:
4.1.1 The sale and
distribution of the products shall be confined to the Territory;
4.1.2 SAB shall not
appoint the services of any other Wholesaler within the Territory nor
will it solicit any orders for the products
nor sell any of the
products to customers within the Territory, provided that in the
event of:
4.1.2.1 the
Wholesaler failing to meet the Financial reporting requirements
and/or operating performance standards; or
4.1.2.2 in the sole
and absolute opinion, (which will be exercised reasonably) of SAB,
the Wholesaler through its own cause and
for reasons not
attributable to SAB, not being able to supply or meet any demand for
the products within the Territory; or
4.1.2.3 SAB’s
competitive position not being adequately served by the Wholesaler
within the Territory at any time;
then, in any of the
aforementioned event SAB shall without prejudice to any other rights
and/or remedies which may be available
to SAB in terms of this
Agreement or at law, alternatively be entitled to permit other SAB
appointed Wholesalers or its nominated
representatives, to distribute
and sell products in the Territory.”
Clause 4.3 reads:
“
Subject to the
provisions of clause 5, the Wholesaler shall not solicit any orders
for the products from customers situated outside
the Territory nor
deliver or knowingly sell the products directly or indirectly to
customers located outside the Territory, (For
the purposes of this
clause – indirectly shall mean deliberate or wilful
cross-border trading with third parties). Subject
to the provisions
in clause 4.1.2, SAB shall similarly endeavour not to engage in
cross-border trading nor make its pricing outside
the Territory so
attractive that it encourages the Wholesaler’s customers to
purchase the products from SAB
.”
[23] It was further
alleged that first respondent will not make its prices outside of the
allocated territories so attractive that
it might induce the
distributor’s customers to buy directly from first respondent.
[24] Appellant thus
brought a case on the basis of geographical exclusivity contained in
the wholesaler and franchise agreements
which, it alleged, was an
impermissible division of markets and allocation of territories
and/or customers. In the alternative,
appellant relied on s 5 (1)
of the Act. Here, as follows from clause 4.1 it is alleged that the
arrangement of territorial exclusivity
between first respondent and
the further respondents constituted an agreement between parties in
the vertical relationship with
each other which, in turn, leads to a
substantial prevention or lessening of intra brand competition in the
downstream market.
[25] The complaint was
extended to s 5 (2) of the Act. In this connection the allegation
was made that first respondent was engaged
in minimum retail
maintenance in contravention of s 5 (2) of the Act, a contravention
which had occurred both at the wholesale
and retail levels. In
support of this allegation, appellant relied on clauses 10.2 and 18.2
of the Wholesale and Franchise agreements
which provide that the
appointed distributor should not sell above the recommended selling
price of first respondent. A further
allegation was made that the
appointed distributors were not permitted to make ‘a margin on
the sale of products’.
The second to thirteenth respondents,
it was alleged, relied exclusively for their compensation on
discounts and delivery fees.
[26] On 9 September, the
Tribunal upheld appellant’s application to join fourteenth
respondent. According to the affidavit
deposed to by Mr Majenge, on
behalf of appellant, the fourteenth respondent, which had not been
cited as a respondent in the referred
complaint was one of first
respondent’s appointed distributors. Accordingly, fourteenth
respondent is treated in this judgment
as part of the class of
respondents, hitherto described as second to thirteenth respondents.
[27] Appellant also
alleged, in terms of s 9 (1) of the Act, that first respondent
granted wholesale discounts and delivery compensation
to second to
eleventh respondents while denying these benefits to other
distributors such as the complainants, which practice,
it was
alleged, was in breach of s 9 (1) of the Act. In other words, the
prices at which entities, such as the complainants,
can sell are
alleged to be higher than those of first respondent’s appointed
distributors. In short, retailers can therefore
purchase product
from appointed distributors at the same price at which wholesalers,
such as the complainants, purchase from the
appointed distributors.
As a result, independent wholesalers have lost contracts to appointed
distributors which led to a substantial
lessening of intra brand
competition.
The key issue
[28] The crisp question
for determination is whether, based on the complaint as formulated in
the relevant CC 1 Form together with
annexure B and the undated
letters, the complaint, as referred by appellant to the Tribunal, is
the complaint which was contained
in the documentation formulated by
the complainants.
[29] In order to answer
this question, it is necessary, albeit briefly, to examine first
respondent’s distribution system
which formed the basis of the
referred complaint. Much of this description is sourced in the
answering affidavit deposed to by
Ms Sandra Vandewalle on behalf of
first respondent. It appears that, with the introduction of the
Liquor Act 59 of 2003
, the position of traditional wholesalers
changed, as manufacturers were able to obtain distribution as well as
manufacturing licences.
First respondent began to distribute its
beer through its own depots, which were ex brewery warehouses, and
through appointed
distributors. The appointed distributors concluded
wholesale and franchise agreements with first respondent, in terms of
which
they were allocated exclusive geographical territories in which
they were permitted to sell beer but with no product exclusivity;

that is they could sell anyone else’s product. They assumed
the logistical functions of warehousing and delivery and were
not
permitted to sell product above the prices recommended to them by
first respondent. In connection with this case, Ms Vandewalle

avers:
“
First
respondent has concluded wholesaler or franchise agreements with the
second to thirteenth respondents as well as with Thohoyandou.
The
second to eleventh respondents hold wholesaler agreements. The
twelfth and thirteenth respondents and Thohoyandou hold franchise

agreements.”
These distributors could
buy and sell at the same price and they were paid a handling and
delivery fee by first respondent.
[30] It appears that
first respondent ceased to offer a discount to independent
wholesalers and sold products to them at the same
price as it sold to
the retail segment. Since the retailers were the wholesaler’s
customer base, they could hardly sell
to them at higher price than
that which they could obtain, if they bought directly from first
respondent.
[31] Second to fourteenth
respondents performed a distribution function. Unlike other
wholesalers, they operate in terms of business
model based upon the
receipt of a fee for distribution services. They are restricted to
certain territories in which they are
obliged to operate and to serve
any customer who places an order with them. They are restricted to
distributing products of first
respondent and are subject to certain
performance standards. According to Ms Vandewalle:
“
Under their
contracts, appointed distributors are constrained from charging
prices above those recommended by SAB. This is to avoid
appointed
distributors’ taking advantage of the special position that
they enjoy on account of their exclusive territory
and raising prices
to the detriment of consumers
.”
[32] This brief
background permits a return to the complaint as it was formulated in
the CC 1 the annexure and the two undated letters.
In turn, this
court is then required to examine the referred complaint against that
formulated by complaints.
Evaluation of the
complaint
[33] After setting out
much of this background, Mr Pitsiladi, in annexure B to the CC 1
Form, contends that the price charged by
first respondent to other
wholesalers is the same price as charged to retailers. He complains
that, as first respondent distributes
beer products to retail outlets
at the same price that they sell these products to wholesale outlets,
and further, that the wholesaler
can only sell to a retailer which is
its only target market, independent wholesalers will be driven from
the market because there
would be no reason for the retailer to
purchase product from these independent wholesalers. Mr Pitsiladi
then states in paragraph
10 to annexure B that this development is
made possible;
“
[b]y the fact
that SAB as manufacturer of beer is passing on by means of a sale of
beer to SAB the wholesaler at a lower costs or
no costs at all in
order that SAB the wholesaler may sell retailers and other
wholesalers at the same price. (sic) Other wholesalers
are
prevented from purchasing directly from SAB the manufacturer beer at
the same price (or at all) that SAB the manufacturer passes
on to SAB
the wholesaler
.”
[34] To return to the
first undated letter, generated by the complainants and directed to
first respondent, the following passage
becomes important:
“
Since our
discussion, I have sought legal advice and it is our company’s
contention that SAB is not entitled to dominate the
market to the
extent that the supplying of the product to its own distribution
division/wholesalers with its concomitant special
benefits and then
on-selling to other distributors/ wholesalers at the same price that
the SAB distributor/wholesaler is selling
to retailers. We also
contend that SAB is not entitled to favour certain
distributors/wholesalers with special prices to enable
them to supply
at the SAB retail prices but to refuse those same prices to other
independent distributors/wholesalers.
”
[35] The key question
therefore is whether these specific averments, as set out in the
complaint as I have outlined it, bear the
weight of the complaints as
they were referred to the Tribunal.
[36] To recapitulate: the
referred complaint, in terms of
s 4
(1) (b) (ii) to the Act, stated
that first respondent has concluded wholesale distribution agreements
with a number of appointed
distributors, that is second to eleventh
respondents. It also concluded franchise agreements with twelve and
thirteenth respondents.
Appellant averred in its referral that both
the franchisees and wholesalers perform the same economic function
and are remunerated
by first respondent in the same way. Second to
thirteenth respondents together with fourteenth respondent are not
agents of the
first respondent but are independent parties who buy
products from first respondent and on-sell them in their own right.
They
take ownership of the product from first respondent and the risk
of ownership passes to these respondents once products are delivered

by first respondent. They are appointed as the exclusive distributor
of the products by first respondent within a defined territory
and
first respondent grants to this kind of wholesaler the right to
warehouse stock, distribute, sell and market the products within
the
defined territory. The wholesaler is prevented from soliciting any
orders for these products from customers situated outside
the defined
territory nor may it deliver or knowingly sell the products directly
or indirectly to customers located outside the
territory.
[37] On the basis of
these averments, appellant contended that first respondent, was a
competitor to the second to fourteenth respondents
in the market for
the distribution of liquor and further, second to fourteenth
respondents were competitors or potential competitors
of one another.
The agreements between first respondent and second to fourteenth
respondents therefore, in the view of appellant,
constituted an
agreement between firms in a horizontal relationship. Each of the
agreements involved a division of the South
African market for the
distribution of liquor by allocating territories to each of the
second to thirteenth respondents which prohibited
the competitors
from trading outside their defined territories. On this basis, it
was contended that each of the agreements fell
to be prohibited in
terms of s 4 (1) (b) (ii) of the Act.
[38] Do the key complaint
documents, being Annexure B and the two undated letters, sustain this
complaint? The Tribunal answered
in the negative. In upholding
the application brought by the respondents, the Tribunal, after
examining the initiating documents,
concluded thus at para 72:
“
The initiating
document neither expressly not implicitly refers to the contracts SAB
has with appointed distributors, not to their
exclusive nature, which
is the nub of the section 4(1) and 5(1) cases in the referral. Put
another way, although the initiating
document could be read to
describe a vertical foreclosure case, it is not the one the
Commission advances. Pitsiladi is concerned
that the elimination of
the wholesale discount will destroy the viability of the wholesale
business and arguably, although he does
not say this expressly, lead
to a reduction of intra-brand competition in the sale of SAB
products. The Commission does not focus
on the elimination of the
discount for its vertical case; it is concerned with the nature of
the vertical effects of territorial
exclusivity, although it does
regard the elimination of the discount as a factor aggravating the
weakness of intra-brand competition,
but this concern is incidental
and not fundamental to its case.
Nor are the appointed
distributors mentioned on the CC1 as parties against whom the
complaint has been laid, which as we have seen
from the case
discussion above is a requirement. Although the theory of harm that
the Commission wishes to advance in respect
of these two claims
emerges tangentially from the factual milieu provided in the
complaint, it is not founded in the complaint
if we apply a
facta
probanda
approach nor if we apply an intentional
approach.
”
[39] If recourse is had
only to annexure B, this conclusion could arguably be justified. For
example, in paragraph 10 to annexure
B, the complaint focuses on the
fact that first respondent, as manufacturer of beer ,is ‘passing
on’ by means of a
sale of beer to first respondent as the
wholesaler at a cost which allows the retailer to purchase at the
same price as other wholesalers
would purchase the beer. However, in
the first undated letter the following is clearly stated:
“
[i]t is our
company’s contention that SAB is not entitled to dominate the
market to the extent of supplying its product to
its own distribution
divisions/wholesalers with it concomitant special benefits and then
on-selling to other distributors/wholesalers
at the same price that
the SAB distributor/wholesaler is selling to retailers
.”
Mr Pitsiladi is expressly
concerned in this letter with the elimination of the wholesale
discount which, in his view, will lead
to a reduction of intra brand
competition and the sale of the products of first respondent. Hence,
there is no mention of territorial
exclusivity in the initial
complaint, although in the first of the undated letters it is clear
that the words ‘own distribution
division/wholesalers’
could reasonably be read to encompass both the appointed distributors
and first respondents own distribution
depots.
[40] However, reading the
complaint as a whole, it becomes clear that Mr Pitsiladi has
complained about a change in the pattern
of distribution of first
respondent’s beer products and, further, that first respondent
had entered into new arrangements,
whereby its distributors were
being treated differently from independent wholesalers. It was
against this policy, as implemented
by first respondent’s, that
Mr Pitsiladi complained. It follows that the complaint focussed
upon the conduct of first respondent,
which in turn, required
appellant to initiate an investigation. By contrast, the Tribunal
considered that a case could not be
brought by appellant in terms of
s 4 (1) and 5 (1) of the Act because, whereas Mr Pitsiladi was
concerned with the elimination
of the wholesale discount, appellant
had focussed on the nature of the vertical effects of territorial
exclusivity.
[41] That then reduces
the inquiry into the following consideration: When the
complainants, particularly in the first undated
letter, refer to the
supplying of products and concomitant special benefits, was this
complaint against these arrangements sufficient
to justify appellant,
after its investigation, to formulate the complaint as it so did,
being a breach of s 4 (1) (b)?
[42] This question
necessitates a return to the decision of this Court in
Yara
,
supra,
but now viewed within the prism of the broader
jurisprudence of this Court. As indicated earlier in this judgment,
the
Yara
case requires a careful and specific examination in
terms of its specific facts. As observed in
Yara,
a complaint
of some 113 pages was generated. Only three paragraphs were devoted
to a possible cartel arrangement. However, these
paragraphs clearly
did not encompass the complaint as it was carefully and painstakingly
set out by the complainant. The complaint
said so in clear terms.
Thus, the latter made it clear that the complaint that was lodged was
exclusively based upon certain prohibited
practices, being
exclusionary pricing practices, excessive pricing practices and
discriminatory pricing practices.
[43] Nothing in the
judgment suggests that this Court overruled its earlier decision in
Glaxo Welcome (Pty) Ltd and
other v National Associated of
Pharmaceutical Wholesalers
(Case No: 50/CAC/Feb02) in which, at
paragraph 16, the following was stated:
“
Clearly it is
intended that once the complaint is initiated the Commission will
investigate the matter and it is the Commission
which is enjoined to
find that the conduct complained of amounts to prohibited conduct in
terms of one or more sections of the
Act. While the complaint need
not be drafted with precision or even a reference to the Act, the
allegations or the conduct in
the complaint must be cognisably linked
to particular prohibited conduct or practices.
There must
be a rational or recognisable link between the conduct referred to in
a complaint and the prohibitions in the Act,
otherwise it
will not be possible to say what the complaint is about and what
should be investigated. Note that section 49 B provides
that, once a
complaint is initiated, the Commission must investigate the
complaint
.” (my emphasis)
The key principle in this
dictum
is that there must be a rational or recognisable link
between the conduct referred to in a complaint and the prohibitions
set out
in the Act, ‘otherwise it will not be possible to say
what the complaint is about and what should be investigated’.

That important principle was not overturned in the judgment of this
Court in
Yara,
supra
.
[44] Unfortunately, it
appears that the Tribunal read the judgment in
Yara
in
isolation and therefore, with respect, dealt with this judgment as
constituting a rupture from this Court’s earlier jurisprudence.

This resulted in the Tribunal formulating its view of binding
precedent in the worst possible light; that is as a mechanistic
test
embracing the most egregious excesses of a type of legal formalism of
a bygone era. Whereas the jurisprudence of this Court
has sought to
balance the legitimate interests of those against whom a complaint
has been lodged with the public mandate of the
appellant to
investigate anti-competitive activity, the Tribunal represented its
jurisprudence in a fashion which would make it
almost impossible for
the appellant to prosecute complaints lodged by third parties,
particularly those not well versed in the
intricacies of competition
law. That the balancing exercise might give rise to different
approaches is one issue; an interpretation
that requires a precise
description of every detail of the complaint is an entirely different
and far more problematic issue.
[45] It must be
emphasised that the Tribunal’s approach to
Yara
is not
the manner in which the applicable precedent of this Court should
have been read. See, for example, R Cross and JW Harris
Precedent
in English Law
(4ed) at 72 ff To repeat, with particular
reference to this case, the applicable test from the Court’s
jurisprudence is
the following: is there a rational or recognisable
link between the conduct which was referred to in the complaint and
the prohibitions
in the Act? To again cite
Glaxo
:
“
While the
complaint need not be drafted with precision or even a reference to
the Act, the allegations of the conduct in the complaint
must be
cognisably linked to particular prohibited conduct or practices
.”
See also Mailula JA in
Sappi-Fine Paper (Pty) Ltd v The
Competition Commission and another
(Case No 23/CAC/Sep02 at para
42).
[46] The test was
formulated in the light of a system of an initiation of complaints in
terms of s 49 B of the Act, where any person
(other than the
Commissioner who himself may initiate a complaint) may submit a
complaint against an alleged prohibited practice
to the Competition
Commission in the prescribed form. This provision envisages that lay
people have a right to lodge a complaint
which will trigger off a
process of investigation and possibly referral. To demand that a
lay person is required to draft the
complaint with the precision of
pleadings and with accurate references to the Act is to subvert the
very purpose of s 49 B, in
its ambition to accord the citizenry of
this country the right to complain against an anti-competitive
practice or conduct. Lack
of precision is thus no bar if the
complaint meets the test as set out above. The implications of
precision in the form of a
clearly circumscribed complaint, as was
the case in
Yara,
is an entirely different matter which is not
relevant to this particular complaint.
[47] Viewed within this
reading of the Act, in paragraph 10 of annexure B, read with the
first undated letter, the complaint was
directed against an
agreement, arrangement or a practice in which prices were being
fixed. In turn, this meant that the complaint
had a cognisable link
to a prohibited section, meaning s 4 (1) (b). When this complaint
was investigated by appellant, it was
clear that, in addition to the
specific manifestation highlighted by the complaint, the appellant
found that the impugned arrangements
also involved territorial
exclusivity which fell within the very same provisions of the Act.
[48] Significantly,
within this context, this Court in
Loungefoam (Pty) Ltd and others
v Competition Commission and others; In Re: Feltex Holdings (Pty) Ltd
v Competition Commission and
others
[2011] 1 CPLR 19
(CAC)
interrogated a
dictum
in the judgment in
Woodlands Diary v
Competition Commission
2010 (6) SA 108
(SCA) at para 35, namely
that a complaint could be subject to ‘possible amendment or
fleshing out after its initiation.
On behalf of this Court, Wallis
AJA (as he then was) said at para 55:
“
In referring to
the possibility of both an amendment and an initiation of another
complaint, the learned judge contemplated two
possibilities. The
first is that the information obtained in the course of investigation
may relate to and fortify the existing
complaint and justify an
amendment to the particulars of that complaint as initiated without
altering its fundamental nature.
The second is where the information
discloses a quite different transgression or participation by a party
not hitherto the subject
of a complaint. In those circumstances
either the original initiation must be amended to encompass the
additional complaint or
party or a fresh initiation of a complaint is
required.
”
In the present case,
after the initial complaint had been lodged, the complainants
provided further information, which amplified
or ‘fleshed out’
the complaint lodged in terms of s 4 (1) (b). This is shown in the
following passage from a letter
cited above:
“
The real issue
however is the question as to the price of beer particularly 750 ml.
The so-called independent distributors of SA
Breweries such as
Southern Cape Beer Distributors (Pty) Ltd operate in specific and
non-variable areas
.”
Furthermore it was
alleged that “
SAB are selling to their distributors at a
fixed price with the agreement that such distributors sell at the
same fixed price
.” This correspondence should have been
taken into account because it sought to clarify and amplify the
complaint which
had been initiated on 25 November 2004 and which had
been supplemented by the two undated letters.
[49] To the extent that
the complaint lodged did not fall to be heard in terms of s 4 (1) (b)
(ii) because the parties were not
in a horizontal relationship, the
same complaint, as set out and amplified in the subsequent
correspondence, to which I have made
reference, clearly fell within
the scope of a restricted vertical practice in terms of s 5 (1) and s
5 (2) of the Act. After
the
Loungefoam
decision, there could
be no justification for the Tribunal to have rejected, without
explanation, all or any recourse to the subsequent
correspondence in
determining whether this correspondence amplified or clarified the
complaint as initiated.
[50] To the extent that
there was any difficulty in negotiating the jurisprudence of this
Court and, in particular the
Yara
decision with regard to the
complaints lodged in terms of s 4 and s 5 of the Act, there was even
less justification for the finding
that there had been no complaint
lodged in terms of s 9. Here the formulation of the complaint was
clear. In the first undated
letter the following appears:
“
We also contend
that SAB is not entitled to favour certain distributors/wholesalers
with special prices to enable them to supply
the SAB retail price
list but to refuse those same prices to other independent
distributors/wholesalers.”
There could, possibly,
still have been some residual doubt that the complaint in this regard
was based on s 9, given the absence
of an express reference to the
section in the first undated letter. That doubt was completely
removed in the second undated letter
when first respondent replied
thus:
“
We too have
sought legal advice in relation to your complaints. We certainly
denied that SAB engages in a form of price discrimination
in
contravention of the
Competition Act
>.”
The point is not whether
first respondent denied breaching s 9 of the Act. The merits of the
complaints are not in issue at this
stage of proceedings. The key
question was whether the complaint was lodged in a form which gave
rise to recognisable link between
the conduct and a particular
prohibited practice, in this case s 9 of the Act. Once it was
accepted that the undated letters formed
part of the complaint, there
was no basis by which the Tribunal could arrive at its decision to
conclude that there had not been
a complaint initiated in terms of s
9 of the Act.
Conclusion
[51] Much was made in
this case about whether the judgment in
Yara
introduced an
‘intention test’ into the determination of the ambit of a
complaint. To emphasise, in the
Glaxo
judgment at para 69
this Court said:
“
The proper
approach is to determine first what conduct is alleged between the
complaint and what prohibited practices such conduct
may be said to
invoke or be rationally connected to. Then consideration is given
to the referral to see whether the conduct they
alleged to
substantially the same.
”
In
Yara
a careful
reading of the specific complaint in that case lead to the conclusion
that the conduct alleged turned on a series of
prohibited practices
carefully described in that complaint. Cartel activity was not the
subject of that complaint and that was
made clear by the complainant
when it generated the complaint. To the extent that the complaint in
Yara
contained three paragraphs which referred to the
appellants, Dambuza JA found that this constituted the submission of
information
to the Commission. That much is clear from the following
passage of her judgment:
“
There is no
statement of conduct by Yara or Omnia in the CC1 Form that can be
linked to a section 4 (1) (b) (i) prohibited practice.
There is no
such statement of conduct in the Form even as against Sasol. I can
find no complaint therefore on the CC1 Form relating
to collusion by
the same respondents over the prices of fertilizers as set out in
paragraph 8 of the referral. The non appearance
of the names of Yara
and Omnia from the CC 1 Form is, in my view, indicative of
Nutri-Flo’s intention not to submit a complaint
against them.
The complaint is set out in the CC1 Form as “concerning Sas
ol.”
para 25
[52] By contrast, in the
present dispute, the complaint focussed clearly on certain agreements
or arrangements between first respondent
and the balance of
respondents. The complainant was concerned with a practice which
gave rise to certain arrangements with respect
to pricing between
specified parties as well as price discrimination. That was the
ambit of the complaint. There was no room
in this particular case
to conclude that there was no intention to lodge a complaint against
different forms of conduct and different
parties as had been the case
in
Yara
,
supra
.
[53] In this case, the
complainant complained about certain forms of conduct. Agreed the
complaint, as drafted, did not accurately
refer to all of the
relevant sections of the Act which were later invoked by appellant,
but the conduct, against which the complaint
was lodged, gave rise to
an investigation. During that process, the complaint was amplified
and/or “fleshed out”.
The upshot was that the conduct
against which the complainant brought its complaint gave rise to a
series of allegations of breaches
of the Act which were cognisably
linked to the conduct against which the complainant had initially
complained; that is the complainants
had targeted a process of
disintermediation of wholesaling of beer, by first respondent and a
consequent change in the distribution
system of first respondents
manufactured product which directly involved second to fourteenth
respondents. Read as a whole, that
averment was the foundational
basis of the complainant’s initiation of a complaint.
[54] Unfortunately, the
uncritical invocation of the
Yara
judgment was the root of the
problem which then gave rise to an incorrect decision. As is
apparent from this judgment, the present
dispute can and should have
been resolved by an examination and analysis of the specific facts.
It is not dependent on a reconstruction
of any of the existing legal
principles, notwithstanding the nuanced arguments based upon various
cases cited by counsel. However,
it is important to mention the
approach adopted by the Constitutional Court in
Competition
Commission of South Africa v Senwes Ltd
2012 (7) BCLR 667 (CC) in
which the Court warned against an interpretation of the procedural
provisions of the Act which would
limit the Tribunal’s
jurisdiction to consider prohibited practices that were brought
before it. It also eschewed the uncritical
use of formalism in
proceedings before the Tribunal which had given rise to that appeal
to the Court in favour of an approach which
asked the question as to
whether the defendant was aware of the complaint against it (see para
51). That principle is also applicable
to the present dispute.
[55] For these reasons
therefore, the appeal is upheld. The order of the Tribunal is set
aside and replaced with an order dismissing
the applications brought
by first respondent and second to fourteenth respondents. Although
appellant asked for the costs of three
counsel, there was no
justification placed before the Court for such an award. The
respondents are thus ordered jointly and severally
to pay the costs
of the appellant in this Court, which includes the costs of two
counsel.
_________________
DAVIS
JP
Mailula and Zondi JJA
concurred.
order as to so determine
it is necessary to enagae ppraoch sposition of this dispute namely;
hed bee made out against anay o