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[2012] ZACAC 9
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Phutuma Networks (Pty) Ltd v Telkom SA (Pty) Ltd (108/CAC/MAR11) [2012] ZACAC 9; [2013] 2 CPLR 445 (CAC) (20 November 2012)
IN THE COMPETITION APPEAL COURT
OF SOUTH AFRICA
Appeal Case No.:108/CAC/MAR11
In the appeal between:
PHUTUMA NETWORKS (PTY) LTD
............................................................
Applicant
and
TELKOMSA LTD
.....................................................................................
Respondent
JUDGEMENT:
20 November 2012
______________________________________________________________
MOLEMELA AJA
[1] This is an appeal against an order
made by the Competition Tribunal (‘the tribunal’). On the
21
st
January 2010 the appellant lodged a complaint against
the respondent with the Competition Commission (‘the
Commission’)
in terms of section 8(c) of the Competition Act 89
of 1998 (“the
Competition Act&rdquo
;), alleging that the
respondent was abusing its dominant position by engaging in
anti-competitive conduct in telegraphic/telegram
services as well as
telex maritime services by arbitrarily awarding business to another
company that was not compliant with Black
Economic Empowerment (BEE)
principles without giving the appellant an opportunity of
participating in the tendering process. It
thus alleged that
respondent had engaged in an exclusionary act that impedes or
prevents, inter alia, the appellant from entering
into that market,
in contravention of
section 8(c)
of the
Competition Act.
[2
] The Commission, having found that
the appellant’s allegations failed to sustain a contravention
of the
Competition Act, issued
a certificate of non-referral as
contemplated in section 50(2)(b) of the Act. The appellant then
referred a complaint to Competition
Tribunal as contemplated in
section 51(1)(b)
of the
Competition Act,, seeking
an order that the
respondent “be found guilty of the offence of abusing their
market dominance and fined in accordance as
a repeat offender with a
penalty of 10% of annual turnover...”. It needs to be mentioned
that no facts were put forward by
the appellant to support its
allegation that respondent was a “repeat offender”.
[3] The respondent raised objections
to the appellant’s complaint by way of exceptions, firstly on
the ground that the appellant’s
affidavit was vague and
embarrassing in that in that it did not list the allegedly material
grounds, which would support a complaint
of a contravention of
section 8(c) of the Act. Secondly it contended that the appellant’s
founding affidavit did not establish
a cause of action in terms of
section 8(c) of the Act or otherwise in that it did not (i) delineate
a relevant market as contemplated
in section 7 of the Act or (ii)
establish that the respondent was a dominant firm in such a related
market or (iii) establish that
the respondent’s conduct
constituted an exclusionary act.
[4] The Tribunal upheld the
respondent’s exception that the appellant’s affidavit did
not disclose a cause of action
and dismissed the appellant’s
complaint with costs. The appellant now appeals against the order
made by the Competition Tribunal
as contemplated in section 37(1)(b)
of the Act.
[5] Although the appellant raised 32
grounds of appeal, the main thrust of those grounds can be summarised
as follows: the Tribunal
erred in not interpreting the appellant’s
founding affidavit to the effect that the appellant “abused
regulations and
obligations at the time of a near monopoly regulated
licence as affording the respondent a dominant exclusivity in the
telecommunications
marketplace”; that the Tribunal erred “in
its assumption regarding delineation of the relevant market as the
respondent
is the de jure holder of certain regulated
telecommunications fixed line infra structure as was previously
recognised by the Tribunal
in a previous decision where the Tribunal
held [the respondent] to be a dominant firm”; that the Tribunal
failed to take
into account that the appellant’s complaint was
formulated by laymen and business people and not by lawyers and thus
failed
to appreciate that the matter was one of imprecise formulation
and not of substance; that the Tribunal ought to have held that the
appellant’s complaint concerned the transgression of the
Competition Act and
not the failure to award any tender; that the
Tribunal erred in concluding that a cause of action under
section
8(c)
of the
Competition Act had
not been made out and that no
amendment could rectify the matter; that the Tribunal ought to have
granted the appellant the opportunity
of suitably amending its
complaint; that the Tribunal ought to have taken judicial notice of
the dominant position of the respondent
in the telecommunications and
telex markets. Thus the issue is whether the Tribunal correctly
upheld the second exception.
The relevant provisions of the
Act
[6] The interpretation of
Section 8(c)
of the
Competition Act is
integral to the decision of this appeal.
This section provides as follows:
8. “It is
prohibited for a dominant
firm
to
–
...
...
engage in an
exclusionary act
, other than an act listed in paragraph (d),
if the anti-competitive effect of that act outweighs its
technological, efficiency
or other pro-competitive gain.”
[7] The term “exclusionary act”
is defined in
section 1
of the
Competition Act as
“an act that
impedes or prevents a firm entering into, or expanding within, a
market.”
[8]
Rule 15(2)
of the Rules for the
Conduct of proceedings in the Tribunal (“the Competition
Tribunal Rules”) requires that a Complaint
Referral must be
supported by an affidavit setting out both “a concise statement
on the grounds of the complaint” and
“the material facts
or the points of law relevant to the complaint and relied upon by the
complainant”.
[9] It is the respondent’s case
that such material facts were lacking, consequently resulting in the
Appellant’s complaint
failing to disclose a cause of action.
[10] In the case of
Mc Kenzie v
Farmers’ Co-operative Meat Industries Ltd
1922 AD 16
at 22,
the phrase cause of action” was defined as follows: “…
every
fact which it would be necessary for the plaintiff to prove, if
traversed, in order to support his right to judgment of the
court. It
does not comprise every piece of evidence which is necessary to prove
each fact, but every fact which is necessary to
be proved.”
[11] Considering the appellant’s
reliance on
section 8(c)
of the
Competition Act, it
stands to reason
that the appellant thus had to show that (a) the respondent is a
dominant firm, (b) that it is engaged in an act
that impeded or
prevents a firm from entering into or expanding within a market, (c)
that this had an anti-competitive effect and
(d) that it outweighed
its technological efficiency or other pro-competitive gain.
Contending that the appellant had failed to
comply with these
requirements, the respondent, in its answering affidavit, raised a
point
in limine
, excepting to the allegations contained in the
founding affidavit on two grounds: firstly, that the founding
affidavit is vague
and embarrassing and secondly, that the founding
affidavit does not establish a cause of action in terms of
section
8(c)
of the
Competition Act or
otherwise insofar as it failed (i) to
delineate a relevant market; (ii) to establish that the respondent
constitutes a dominant
market for the purposes of
section 7
of the
Competition Act; (iii
) that the alleged impugned act constituted an
exclusionary act in that it had the effect of impeding or preventing
the appellant
from entering into or expanding within the delineated
relevant market. As noted, the second ground was upheld by the
Competition
Tribunal.
The appellant’s case
[12] It is appropriate, at this stage,
to consider the averments made by the appellant in support of its
complaint. The appellant’s
founding affidavit, deposed by Dr
Edward George Scott (“Scott”), consisted of only five
paragraphs in which the respondent’s
alleged contravention of
section 8(c)
of the
Competition Act was
couched as follows:
“
Telkom
SA abused the regulations and obligations at the time of a near
monopoly regulated license which afforded them a dominant
exclusivity
in the communications industry marketplace by engaging in an
exclusionary act, and appointing Network Telex during
2007 without
any formal procurement procedure as prescribed [by section 217 of the
Constitution of South Africa, 1996, [which provides
that “when
an organ of state identified in national legislation as nominated
under Section 239 of the Constitution of South
Africa, 1996,
contracts for goods or services, it must do so in accordance with a
system that is fair, equitable, transparent,
competitive and
cost-effective.
Oral and written evidence
has been given to me that Telkom SA appointed and or sub-contracted
Network Telex for the Maritime ship
to shore Inmarsat telegraphic
services also comprising of the “SOLAS’ services which is
an International agreement
governed by the International Maritime
Organization under the auspices of the United Nations in conflict
with the prescripts of
[section 231] the Constitution of South
Africa, 1996 regarding International agreements.
This appointment of
Network Telex is a breach of the Competitions Act [sic] Section 8(c),
breach of section 10 of BBBEE Act and
the framework as set out in the
PPPFA Act No 5 of 2000 by excluding previously disadvantaged citizens
and without following procurement
procedures awarding work to a non
BE compliant British Company.
In deviating from the
official advertised procurement policy … and not following the
correct sourcing process and internal
procurement policy as well the
BEE commitment undertaken by Telkom SA.”
[13] The respondent argues that the
appellant’s founding affidavit does not pass muster against the
provisions of Rule 15(2)
of the Competition Tribunal Rules, hence the
respondent’s filing of an exception. The respondent further
argues that the
Tribunal followed a lenient approach as it also
considered the replying and supplementary affidavit with a view to
determining
whether a cause of action under
section 8(c)
of the
Competition Act had
been made, notwithstanding that the appellant was
required to make out its case in its founding papers.
[14] Regard was also paid by the
Tribunal to a letter addressed by the Appellant to the Commission on
27 June 2010 in which it purported
to clarify the complaint that it
lodged with the Commission as follows:
“
Telkom
SA appointed Network Telex during 2007 without any procurement nor
prescribed tender process being published or followed.”
The
appellant also recorded in the same letter that it had approached
various bodies to pursue its complaints against the respondent,
“
namely
NPA, ICASA, JSE, SAICA, IRBA and Parliament”
in addition to instituting civil proceedings against the Respondent.
[15] It was argued on behalf of the
respondent that not only did the appellant fail to adduce any facts
to substantiate the necessary
contentions to sustain a
section 8(c)
contravention of the
Competition Act, but
even bald allegations in
relation to the pre-requisites of such a claim were conspicuously
absent, .For example, even a bare allegation
that the respondent’s
alleged exclusionary act had an anti-competitive effect that
“outweighs its technological, efficiency
or other
pro-competitive gain” was not made.
[16] It is trite that in considering
whether an exception should be upheld, a court approaches the
impugned pleading or affidavit
with generosity. Thus, it has been
said that the excipient bears “the duty” of persuading
the Court that “upon
every interpretation which the particulars
of claim [or founding affidavit] ... can reasonably bear, no cause of
action is disclosed.”
See
Lewis v Oneanate (Pty) Ltd
1992(4) SA 811 (A) at 817F-G.
[17] An analysis of the appellant’s
founding affidavit demonstrates that the appellant concerned itself
with breaches of acts
(agreements and policies) other than those
contained in
Competition Act. Specifically
, it alleges contraventions
of the BBBEE Act, 53 of 2003; “the framework” of the
PPPFA Act No 5 of 2000, a deviation
from Telkom’s alleged
“official advertised procurement policy ... [its] sourcing
process and internal procurement policy]
... [and Telkom’s] BEE
commitment...”; the formal procurement procedure prescribed by
section 217 of the Constitution
of South Africa, 1996 (which states:
‘When an organ of state in the national, provincial or local
sphere of government, or
any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a system
which is fair, equitable, transparent ,
competitive and cost effective’); as well as the prescripts of
section 213 of the
Constitution of South Africa, 1996, regarding
International Agreements, particularly SOLAS services, “an
International agreement
governed by the International Maritime
Organization under the auspices of the United Nations...”
Manifestly, these allegations
do not fall within the Tribunal’s
sphere of authority. It is not clear how the mere appointment of
Network Telex on a month
to month basis without any formal
procurement procedure can be considered to be an act that impedes or
prevents the appellant from
entering into or expanding within a
market.
[18] The respondent correctly captured
a “generous reading” of the appellant’s case as
being that “(i) the
respondent “appointed and or
sub-contracted Network Telex for the Maritime ship to shore Inmarsat
telegraphic services also
comprising of the “SOLAS’
services”; and (ii) that such appointment [or subcontracting]
constitutes an abuse
by respondent of its dominance “in the
communications industry marketplace by engaging in an exclusionary
act”. There
are no material facts substantiating the
appellant’s dominance in the telegraphic services and as such
this reading clearly
does not disclose a cause of action.
Evaluation
[19] Given the evidence, placed
between the Tribunal and this Court, the crucial question becomes:
what is the appellant’s
competition-related complaint? It is
unreasonable to expect this court to take judicial notice of a
‘non-existent fact’
as the appellant failed to delineate
a specific market. For example, the respondent may be dominant in the
fixed-line services
market but not dominant at all in the
cellular-phone market. Absent the relevant material facts, it would
be unreasonable, without
more, to assume that the respondent’s
dominance in a specific sector translates into its general dominance
in the “
communications industry market-place”
.
Indeed, even if the appellant’s mere say-so, absent any
material facts, were to be accepted, no case has been made out that
appointing/subcontracting Network Telex for the ship to shore
telegraphic services: (i) impeded or prevented the appellant or any
firm from entering into or expanding within any market (be it the
“communications industry marketplace” or any other
market”); and (ii) had an anticompetitive effect; and (iii)
that the said anticompetitive effect outweighs its technological
efficiency or other pro-competitive gain. It is impossible to
ascertain from the founding affidavit in what way Telkom’s
appointment of Network Telex constitutes a contravention
section 8(c)
of the
Competition Act.
[20
] It is not even clear from the
replying affidavit as to the defined market into which entry is
alleged to have been impeded or
prevented nor what the alleged
anti-competitive effect (as compared with any gain) in the relevant
(but undefined) market is. Scott’s
replying affidavit failed to
provide a direct response to the respondent’s assertion that
for the purposes of the complaint
before the Tribunal, which was
supposed to be concerned with the particular circumstances of
proceedings under
section 8(c)
of the
Competition Act, there
was no
delineation of the relevant market.
[21] For the purposes of contesting
the exception, the appellant was required to show that it disclosed
the relevant market and
the factual basis for the allegation that the
respondent is dominant in that market. This it did not do. (See
Sappi
Fine Papers (Pty) Ltd v Competition Commission
[2001-2002] CPLR
486
(CT). Instead, Scott set out a history of the respondent’s
former statutory monopoly in certain sections of the
telecommunications
industry including dominance in the fixed-line
sector, and a series of accusations that this market power has been
abused. Importantly,
the four requirements mentioned in paragraph 6
above have not been satisfied. This court is therefore satisfied that
the respondent
has discharged the “duty” of showing that
the appellant’s complaint disclosed no cause of action. It
follows
that the Tribunal thus correctly upheld the second leg of the
respondent’s exception.
An opportunity to amend
[22] In so far as it has been argued
that the Tribunal ought to have granted the appellant an opportunity
of amending its papers,
it is necessary to establish whether any
purpose would be served by granting the appellant such an
opportunity. In deciding this
aspect, it is necessary to consider the
following: Even accepting (as the Tribunal did), the appellant’s
contention that
the respondent is dominant in such a market, the fact
of the matter is that no sustainable contravention of
section 8(c)
is
made out.
[23] In this connection the
appellant’s replying affidavit and the exchange between the
appellant’s counsel and the
Tribunal are quite illuminating. In
its replying affidavit, the Appellant stated that “
...
the
crux of this matter is the anti competitive way [Telkom] appointed
Network Telex
by an exclusionary act
without
allowing any other institution to bid for the service
is
a violation and contravention of the
Competition Act
... The purpose
of the Act is to promote and maintain competition in the Republic in
order (c) to promote employment and advance
the social and economic
welfare of South Africans (f) to promote a greater spread of
ownership, in particular to increase the ownership
stakes of
previously disadvantage persons therefore the relevance of both the
BBBEE and PPPFA Acts and the contravention of [Telkom]
to both these
Acts as well as the Abuse of a dominant position which the Respondent
had enjoyed the fruits of benefits of its monopolistic
position and
market dominance within the ITC sector….“[Telkom] admits
only submitting a formal request for quotation
to Network Telex
thereby performing an
exclusionary act to the detriment of the prescripts of the
Competitions Act ...The appointment of Network
Telex
without
the correct procedures
displays the anti
competitive behaviour of the Respondents...”
[24] In its heads of argument before
the Tribunal, the appellant’s complaint was summarized as
follows:
“
The
Complainant’s complaint is that the Respondent is abusing its
dominant position by engaging in anti-competitive conduct
in
telegraphic/telegram services as well as telex maritime services by
arbitrarily
awarding the business to Networks Telex, a non BEE company
...
The complainant alleges that the Respondent accordingly contravened
sections 8(c) of the Act.”
[25] In oral argument before the
Tribunal, the appellant’s counsel stated as follows:
“
CHAIRPERSON:
So your complaint is that once a dominant firm chooses to
sub-contract that service, it must have a competitive tender?
ADV GEACH: Well we say
that’s the purpose of this Act, is to promote competition and
that excludes competition.
CHAIRPERSON:
So
it’s not excluded ... it’s not a contravention if it does
it itself, as soon as it decides to get somebody else involved,
then
it must have a tender and then it must ... it’s got to be a
competitive tender
.
ADV GEACH:
And
Telkom appreciated that, because it put out a tender. And the bigger
picture here is the complainant responded to the tender
and
introduced Network Telex to Telkom as a foreign subcontracting firm
as part of our bid. And Telkom then went and cut us out
and dealt
directly on an arbitrary basis with Network Telex. That’s the
background to this complaint.
CHAIRPERSON: What I’m
trying to explore is the obligation to have a competitive tender,
something that arises from Competition
Law or from Administrative
Law, be it whatever source ... where do we find authority that has a
Competition Law obligation on a
dominant firm?
ADV GEACH: Well we say,
once you’re a dominant firm in a market and you want to
contract with somebody to do the work on your
behalf, then your
obligation is to do it in a competitive way. You can’t act in a
way that excludes us from participating,
entering into the market on
an arbitrary fashion, which is what they’ve done here.
MS CARRIM:
So
assuming that Telkom had gone out on a competitive tender process and
had awarded the work to somebody else, another third party,
would you
still have a complaint?
ADV GEACH:
No.
If it had done it in a competitive basis, in an open, transparent
way, we could not have had a complaint, no.
MS CARRIM: Yes, it gave
the work to Network Telex in an arbitrary fashion and excluded us in
a non-competitive way.
CHAIRPERSON: And what’s
the anti-competitive effect as a result of that?
ADV GEACH: Well, we are
blocked from the market.
The market is now
closed to us
...”. (my underlining for
emphasis).
[26] The crucial assertion of the
appellant as expressed by Mr Geach, who again appeared on behalf of
appellant, in exchanges with
the Tribunal at the hearing, and
re-iterated during the appeal hearing, is that the respondent, once
it is established that it
has dominance in a market must of necessity
when appointing suppliers or sub-contractors proceed by way of a
competitive tender
and furthermore must follow tender procedures
which comply with statutory obligations applicable to public
entities. Thus it must
comply with public procurement legislation and
must give preference to tenderers with appropriate black economic
empowerment credentials.
According to Mr Geach these requirements
stem from the respondent’s status as a licensed
telecommunications operator with
market power or an exclusive
contractor to the Department of Transport, as well as from the
Constitution and the fairness requirement
in the preamble to the
Competition Act. The
implication is that if such a competitive
process is not followed by the respondent which is operating in a
regulated industry,
then an ‘exclusionary act’ as
contemplated in
section 8(c)
of the
Competition Act has
necessarily
been committed.
[27] This approach is untenable, as it
renders superfluous the weighing-up enjoined in that sub-section
between the anti-competitive
effect of the impugned act and any gains
may bring by way of technological, efficiency or other
pro-competitive gains. Mr Geach
could not furnish this court with any
authority that supports this proposition. That is unsurprising. This
proposition is clearly
untenable in that the alleged breach of
section 8(c)
of the
Competition Act only
comes into play only when
the respondent awards the rendering of a specific service to a
sub-contractor, not when the respondent
renders it.
[28] It is clear from the extracts of
the exchange at the Tribunal that, regardless of what the relevant
market is accepted to be,
the appellant’s case is simply
untenable when assessed in terms of the
Competition Act.
Significantly
, of the 23 grounds of complaint articulated by the
Appellant in its Notice of Appeal, not a single ground challenges the
finding
by the Tribunal that, as a matter of law, appellant’s
complaint in terms of
section 8(c)
of the
Competition Act is
fundamentally and irretrievably flawed.
[29]
Section 3
of the
Competition Act,
headed
‘Application of the Act,’ states that the Act
applies to all economic activity within, or having an effect within,
the Republic.” Respondent is correct in its contention that the
Competition Act is
so constructed that public entities enjoy neither
preference nor prejudice by virtue of their official status when
their actions
are considered in terms of the Act. A firm in the
private sector operating with no public license and no privileged
position in
terms of any legislation or international conventions
will be judged by the same criteria as an organ of state. None of the
provisions
of the
Competition Act make
any distinction between these
entities. For the purposes of this case it is irrelevant whether the
respondent is a public entity
in terms of the criteria applicable
under legislation other than the
Competition Act. What
is crucial is
that its conduct must, for the purposes of this case, be judged
purely in terms of the
Competition Act.
[30] Given the appellant’s
submissions, it deserves mention that the Tribunal is a creature of
statute and, unlike the High
Court, has no inherent powers of status.
Its functions and powers are to be sought only in the founding
statute, the
Competition Act. While
the appellant’s correctly
pointed out that the respondent is bound by the provisions of section
217 of the Constitution of
South Africa, 1996, to which reference has
already been made, the Tribunal has no power to consider or rule upon
the constitutionality
of the respondent’s conduct or the
validity in terms of administrative law of contracts into which it
enters beyond the powers
granted to it under the
Competition Act.
Thus
, if an act which is subject of the complaint does not fall
within the provisions of the Act, the complaint is fatally defective.
[31] For all these reasons, the
appellant’s pursuit of a complaint against the Respondent in
terms of the
Competition Act was
misplaced. No further amendment of
the appellant’s papers could turn what may be an administrative
law case into a competition
law case. Consequently, it serves no
purpose to allow for the appellant’s papers to be amended. The
Tribunal correctly dismissed
the appellant’s case.
[32] The respondent argued that costs
be ordered on a punitive scale as the appeal was frivolous and
vexatious. Notwithstanding
the shortcomings of the appellant’s
case, this court is not persuaded that the pursuit of the appeal was
frivolous and vexatious.
Although the costs must follow the result, a
punitive cost-order is unwarranted. In the circumstances, the
following order is made:
[33] Order:
The appeal is dismissed with costs.
_________________
M.B. MOLEMELA, AJA
I agree.
___________________
D DAVIS, JP
I agree.
___________________
SWAIN, AJA