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[2010] ZACAC 1
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Trudon (Pty) Ltd v Directory Solutions CC and Another (96/CAC/Apr10) [2010] ZACAC 1; [2010] 2 CPLR 202 (CAC) (1 September 2010)
IN THE COMPETITION
APPEAL COURT OF SOUTH AFRICA
Case
No.: 96/CAC/Apr10
Date delivered:
In the matter between:
TRUDON (PTY)
LIMITED
Appellant
and
DIRECTORY SOLUTIONS CC
First
Respondent
TELKOM SA
LIMITED
Second Respondent
J U D G M E N T
DAMBUZA, AJA
:
Comprehensive Reasons
[1] These reasons
amplify the Order and reasons already handed down in this appeal.
The background to this matter is that the
appellant,
TRUDON
(PTY) LTD
("Trudon"),
a company whose majority shareholder is the second respondent,
TELKOM
SA LIMITED
("Telkom"),
conducts the business of publishing regional telephonic directories
in South Africa. Telkom has contracted
to the appellant the function
of publishing annual directories in each defined geographic area of
subscribers to the Telkom telephone
line. Telkom operates a fixed
line telephone communications network under a licence issued to it,
formerly under the Telecommunications
Act, Act 103 of
1996 and currently, in
terms of section 93 of the Electronic Communications Act, Act 36 of
2005. The licence enjoins Telkom to
publish annual telephone
directories in each geographic area of subscribers to its telephone
lines, listing, in light print,
minimum information, being the
names, addresses and telephone numbers of subscribers.
[2] In terms of the
licence no charge may be levied to subscribers for publishing the
minimum information set out above in light
print; however,
subscribers may be charged for "enhanced" directory
listings or advertising entries in which is included
information
additional to the minimum information; e.g. fax numbers, email and
web addresses. Enhanced listings are usually in
bold type and are
presented in typographical block, which makes them more prominent to
readers of telephone directories. The
appellant charges its
customers approximately R300.00 per annum per enhanced listing
entry.
[3] The first
respondent,
DIRECTORY
SOLUTIONS,
is
a Close Corporation which operates from Port Elizabeth. Its business
is to assemble information for insertion in Telkom telephone
directories published by the appellant. In the course of its
business the first respondent amends company details by including
new details in the entries already existing in a particular
telephone directory and/or changes the type of print of an entry
from bold to light and/or vice versa, and submits to the appellant
for placing as a free light type white pages or yellow pages
entry.
As already stated in the judgment of Davis JP, the first respondent
charges its own fee (approximately R1,650.00)
over and above
the R300.00 payable to the appellant for placement in the telephone
directory.
[4] For marketing its
enhanced and advertising listing services, the appellant employs
internal sales workers to contact existing
Telkom subscribers to
ascertain whether they wish to purchase enhanced directory listings
in the forthcoming editions of the
telephone directories in which
they are listed. The first respondent then enters into agreements
with those customers who wish
to do so and the amount payable in
respect of each enhanced entry is billed, as periodical payments, in
the subscriber's Telkom
accounts.
[5] The appellant
publishes the Telkom telephone directories annually. Enhanced
listing instructions are obtained for each edition
(on a cyclical
basis). A deadline is published in each edition of the directories,
informing customers of the date by when they
must submit new or
amended entries for inclusion in the next edition of the particular
directory. New and/or amended entries
can only be accepted up to a
particular time (usually up to three months prior to publication),
to afford the appellant sufficient
time to process instructions and
compile and publish the next edition of the relevant telephone
directory.
[6] In 2005, the
appellant imposed, as a condition in respect of placements by the
first respondent in the Telkom telephone directories,
that the first
respondent or the relevant subscribers who engage the services of
the firstrespondent, make an upfront payment
to the appellant, of
the applicable subscription fee for their enhanced entries to be
published in the telephone directories
and also to lodge with their
entries, a power of attorney authorising the first respondent to act
on behalf of the subscribers
in procuring insertion of their entries
for publication. It is the upfront payment condition, albeit four
years after its imposition,
that caused the first respondent to
approach the Competition Commission and the Tribunal. On 25 March
2009 the first respondent
lodged a complaint with the Competition
Commission alleging that the refusal by the appellant to publish
entries of its (the
first respondent's) customers/clients (without
the upfront payment) was discriminatory, unlawful and in breach of
competition
laws (Annexure to the complaint form CC1). Thereafter,
in November 2009, the first respondent launched an application,
seeking
interim relief under section 49 C of the Competition Act,
Act No. 89 of 1998 ("the Act") in terms of which the
appellant
would be ordered to publish all entries submitted by the
first respondent in the relevant (2010/2011) telephone directories
without
the upfront payment.
[7] The order granted by
the Tribunal is set out in the judgment by Davis JP.
1
In essence, the appellant (and Telkom) were ordered to accept from
the first respondent, without the requirement of upfront payment
of
its charges, all subscriber entries provided by the first respondent
in respect of the (then) forthcoming Telkom directories
for certain
specified geographical areas (South Cape and Karoo, Boland and West
Coast, Johannesburg and the East Rand).
[8] At the appeal
hearing the appellant and the first respondent were the only parties
before us, Telkom having noted no opposition
to the appeal.
[9] As set out in the
judgment by Davis JP,
2
on appeal we had to consider the appealability of the order of the
Tribunal, in view of it having been an interim order. If the
order
was appealable we would then consider the merits of the appeal.
Appealability of the
Order
[10] Section
37(1)(b)(ii) of the Act provides that this Court may consider an
appeal arising from the Competition Tribunal in
respect of:
(i)
any
of its final decisions other than a consent order made in terms
of
Section 63; or
(ii)
any
of its interim interlocutory decisions that may, in terms of
this
Act, be taken on appeal.
3
[11 ] Further, section
49C(8) of the Act provides that:
"The respondent may
appeal to the Competition Appeal Court in terms of this section
against any order of the Competition
Tribunal that
has
a final or irreversible effect
."
(My
emphasis)
[12] As to whether the
interim order of the Tribunal was final or irreversible in effect,
4
the contention by the appellant was that, insofar as it related to
the telephone directories due to be published during 2010,
the order
was final in effect.
Mr
Wilson,
who
appeared on behalf of the appellant submitted that as the
contractual relationship between the appellant and the subscribers
(relating to publication of enhanced entries) consists of annual
agreements in respect of each telephone directory publication,
and
there being only one publication of telephone directories in each
year, the order of the Tribunal was final in effect, as
it related
to a particular publication, the 2010 publication. On the other
hand, the submission by
Mr
Beyleveld
who
appeared on behalf of the first respondent, that the interim order
was not final in effect, was based on the seemingly limited
duration
of six months, for which the order would be operative and the fact
that the order was an
interim
order. His submission was essentially that it is in the nature of
interim relief to be final for the period during which it is
valid.
However this did not mean, so the argument went, that the order in
question was final in effect as it was susceptible
to alteration by
the Tribunal upon the hearing of the main complaint.
5
Mr
Beyleveld
referred,
by way of analogy, to interim orders relating to lease agreements,
submitting that such order often suspend obligations
of parties in
respect ofsuch agreements and such suspension is final for the
period during which the interim order would be valid.
[13] We found
Mr
Beyleveld's
submission
unpersuasive. It has been held that
6
a convenient test in considering whether a judgment or order is
appealable is to enquire whether the final word on the matter
has
been spoken; in other words, whether the order made is reparable at
the final stage by the Court
a
quo
7
One of
the attributes of a "judgment or order" is that it should
have the effect of disposing of at least a substantial
portion of
the relief claimed in the main proceedings. Not all applications for
interim interdict are mere procedural steps in
the main proceedings
(in this case the main complaint lodged with the Competition
Commission).
8
[14] Further to the
views expressed in the judgment by Davis JP
9
the answer to the question whether the interim order in question is
final and irreversible in effect also lies in the wording
of the
order itself. The order directs the appellant and Telkom to accept
from the respondent, without the requirement of an
upfront payment
"all
subscriber entries provided by Directory Solutions (first
respondent) for the
NEXT
Telkom telephone directories to be published for the regions...".
(My
emphasis). On its own wording the order is limited to a specific set
of publications which will not bepublished in the future.
Although
there was no express concession in this regard from
Mr
Beyleveld,
I
did not get the impression that the submission relating to once off
publication of each set of telephone directories was disputed.
Whilst this is, by no means, a pronouncement on the merits of the
pending complaint (lodged with the Competition Commission),
any
order made in respect thereof will not be determinative of the
issues raised in the application for interim relief in respect
of
the 2010/2011 publication of the telephone directories. It is in
this regard that the interim order under consideration differs
from
those that relate to lease agreements.
[15] When the
application was launched (before the Tribunal), the closing dates
for submission of entries in respect of all but
six of the
directories (as per region) had already passed. Closing dates in
respect of the six remaining regions were in January
and March 2010
and the directories would be published from July to October 2010.
The application and the order of the Tribunal
dated 8 April 2010 was
clearly directed at these publications. (In the founding affidavit
it is stated that it might still be
possible to submit entries with
regards to these (six) remaining directories where, although the
closing date had passed, the
directories had not yet been printed or
where printing had not yet commenced.)
[16] By the expiry of
the six month period during which the order would be operative,
10
the closing dates for submission of entries for the publications to
which the interim order related would have passed and the
telephonedirectories would have been published.
11
Once the Tribunal made the order in respect of the 2010/11
publication, the issues (relating to upfront payment) became
res
judicata;
the
rights of the parties relating to the upfront payment in respect
thereof were finally determined and the Tribunal could not
at a
later stage consider and pronounce thereon, so as to reverse the
effect of its order.
[17] It was these
considerations that persuaded us to conclude that the interim order
was final in effect and therefore appealable.
The merits
[18] As stated in the
judgment by Davis JP, the founding papers fall far short of making
out a
prima
facie
case
for the relief sought. Section 49(C)(1) of the Act provides that:
"(1) At any time,
whether or not a hearing has commenced into an alleged
prohibited
practice
,
the complainant may apply to the Competition Tribunal for
an
interim order in respect of the alleged practice
.
(2) The Competition
Tribunal-
must
give the respondent a reasonable opportunity to be heard, having
regard to the urgency of the proceedings; and
may
grant an interim order if it is reasonable and just to do so,
having regard to the following factors:
(i) The evidence
relating to the alleged prohibited practice;
(ii)
the
need to prevent serious or irreparable damage to
the applicant;
and
(iii)
the
balance of convenience." (emphasis supplied)
[19] It is clear from
the wording of Section 49(C) (1) ("an
interim
order in respect of the alleged practices")
that
for an interim order to be granted conduct constituting a prohibited
practice has to be proved. The appellant's case on appeal
was that
the first respondent's had not made out any case for the relief it
sought before the Tribunal. We were of the same view.
[20] Nowhere in the
founding affidavit that served before the Tribunal does Roberta
Seymour set out details of the conduct on
the part of the appellant
constituting a prohibited practice. The most that appears in the
founding papers are allegations in
Annexure "A" to the
complaint which is annexed to the founding affidavit, in which
Seymour alleges that:
"29. Telkom is a
dominant firm as defined in terms of
Section 7
of the
Competition
Act, 89 of 1998
.
30. TDS is partly
owned by Telkom and is accordingly classified as a dominant firm.
31. The refusal to
allow the Complainant to publish lawful entries of customers in the
telephone directory, which is a facility
open to everyone in the
Republic of South Africa is an abuse of a dominant position and
prohibited in terms of Section 8 of the
Act. Such conduct is also
exclusionary and for that reason is unlawful and should be stopped.
[21] But in essence, and
as the appellant contended before the Tribunal the only basis for
the relief sought by the first respondent
is the averment, in the
notice of motion, that the appellant had contravened section 8 of
the Act.
[22] Section 8 of the
Act provides that:
"It is prohibited
for a dominant
firm
to -
(a) charge an
excessive
price
to the detriment of consumers;
(b) refuse to give a
competitor access to an
essential
facility
when
it is economically feasible to do so;
(c) 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; or
(d) engage in any of the
following
exclusionary
acts,
unless
the
firm
concerned
can show technological, efficiency or other pro-competitive gains
which outweigh the anti-competitive effect of its
act -
(i)
requiring
or inducing a supplier or customer to not deal with a competitor;
(ii)
refusing
to supply scarce goods to a competitor when supplying those goods is
economically feasible;
(iii)
selling
goods
or services
on
condition that the buyer purchases separate
goods
or services
unrelated
to the object of a contract, or forcing a buyer to accept a
condition unrelated to the object of a contract;
(iv)
selling
goods
or services
below
their marginal or average variable cost; or
(v)
buying-up
a scarce supply of intermediate goods or resources required by a
competitor."
[23] The Tribunal found
that the appellant's conduct constituted a prohibited practice in
contravention of section 8 of the Act
and that considerations of
irreparable harm and the balance of convenience favoured the
granting of the interim order sought.
[24] It further found
that ,although no reference is made in the first respondent's papers
as to the specific sub-sections of
Section 8 of the Act on which the
first respondent relied,
"an
attentive reader of DS' (the first respondent's) papers will
reasonably and with no appreciable difficulty conclude that
the
relevant subsections of section 8 relevant to the nature of the
alleged conduct include 8(c) and 8(d) (i) and 8(d) (ii)".
The
Tribunal held further that whilst it would have been proper for the
first respondent to identify the particular subsection
in section 8
of the Act on which it relied, the omission was
"relatively
unimportant in the context",
and,
to the extent necessary, the Tribunal condoned the omission.
[25] My view is that the
Tribunal misdirected itself in simply brushing aside the first
respondent's failure to set out a coherent
case of abuse of
dominance in its founding papers, as an unimportant omission. The
appellant and Telkom had to answer to the
case made out by the first
respondent in its founding papers and the first and crucial aspect
of the enquiry into whether it
was reasonable to grant the order
sought was whether, on the prescribed test, a case of a prohibited
conduct had been established.
[26] The High Court
standard of proof stipulated in Section 49C (3) of the Act for
interim relief requires that an applicant in
motion proceedings must
set out, in the founding affidavit, the necessary allegations on
which he or sherelies as he or she will
not generally be allowed to
supplement the affidavit by adducing supporting facts in a replying
affidavit.
12
This is particularly so where, as in this case, the allegations made
by the applicant in the replying affidavit were known to
him or her
when the founding affidavit was made. In the replying papers it is
stated that the first respondent relied on sections
8(b), (c), (d)
(i) and (d) (ii) of the Act. The appellant contends, correctly in my
view, that the absence in the first respondent's
founding affidavit,
of specific averments under section 8, particularly subsection 8(b)
and 8(d)(i) or (ii) deprived it of opportunity
to address those
requirements in the answering affidavit.
[27] To make out a case
of conduct prohibited under Section 8(b) of the Act, the first
respondent had to demonstrate that the
applicant was a
dominant
firm
which had refused to give a
competitor
access
to an
essential
facility when it was economically feasible to do so.
A
definition of a dominant firm appears in Section 7 of the Act. The
inquiry into whether an entity is a dominant firm includes
identification of the relevant market in which it is involved; its
market share within that market and whether it possesses the
relevant market power.
13
The manner in which dominance must be proved under section 7 depends
on the market share enjoyed by the firm alleged to be dominant.
[28] None of the
necessary averments and factual allegations under Section 8(b) of
the Act are made in the first respondent's
papers which served
before the Tribunal. Similarly none of the essential averments and
facts relating thereto under subsections
8(d) (i) and 8(d) (ii) of
the Act are made in the application. There is no evidence from which
one can conclude that the appellant
had
induced
customers not to deal with the first respondent.
In
fact there is no evidence that customers stopped dealing with the
first respondent as a result of the demand for upfront payment.
There is no evidence that the appellant was refusing to supply
scarce goods to the first respondent
although
supplying such goods was economically feasible.
The
respondent also had to place before the Tribunal evidence that the
appellant, being its (the first respondent's) competitor
in the
relevant market was engaged in conduct constituting
an
exclusionary act
as
defined in section 1 of the Act.
[29]
To
establish a contravention of section 8(c) of the Act, once again the
first respondent had to demonstrate that the appellant
is a dominant
firm whose conduct constituted an
exclusionary
act
as
defined in section 1 of the Act, and that such conduct had
an
anti-competitive effect
which
outweighed
the appellant's technological efficiency or other pro-competitive
gain.
[30] In the founding
affidavit, Seymour merely refers to the complaint lodged by the
first respondent with the Competition Commission,
the request by the
Competition Commission subsequent to the filing of the complaint,
that she provides proof that the appellant
had caused harm to
consumers, a letter written to the Commission by her attorneys in
which it is mentioned that acertain Mrs
Lezelle Paterson who had
conducted a business similar to the first respondent's had to close
her business as a result of refusal
by the appellant to publish
entries of subscribers submitted by Mrs Paterson.
14
She also refers to a High Court order, per Jansen J, in a related
matter between the parties in which is expressed the view that
the
conduct of the appellant was grossly unfair, and the publication
dates of the 2010/2011 telephone directories and the urgency
emanating therefrom.
[31] The Tribunal set
out correctly, the following as the approach it would follow in
considering the application:
15
"[W]e must first
establish if there is evidence of a prohibited practice, which is
the Act's analogue of a
prima
facie
right.
We do this by taking the facts alleged by the applicant, together
with the facts alleged by the respondent that the applicant
cannot
dispute, and consider whether having regard to the inherent
probabilities, the applicant should on those facts establish
the
existence of a prohibited practice at the hearing of the complaint
referral.
If the applicant has
succeeded in doing so we then consider the 'doubt' leg of the
enquiry. Do the facts set out by the respondent
in contradiction of
the applicant's case raise serious doubt or do they constitute mere
contradiction or an unconvincing explanation.
If they do raise
serious doubt the applicant cannot succeed."
[32] On this approach
the Tribunal had to consider the evidence in the papers before it,
rather than requiring (as it did) the
appellant to produce further
evidence. And I agree with the submission in the appellant's Heads
of Argument that, even on the
additional evidence (and the first
respondents replying affidavit), no case was made before the
Tribunal for the order granted.
[33] As to whether the
first respondent made out a case under section 8(c) of the Act, the
finding by the Tribunal that the relevant
markets in which the
appellant operated are: (i) the market for publication of
official
telephone directories; and (ii) the market for solicitation of
entries for publication in the telephone directories and associated
services; is not supported by any evidence in the first respondent's
founding papers. Only in the reply does the first respondent's
attempt to re-enforce its case by, amongst others, stating that the
relevant market in which the appellant is dominant is that
of
securing advertisements for placement in the official telephone
directories. The finding by the Tribunal is based on its view
that,
unlike the appellant, other directory publishers are not required to
give customers free entries in their directories and
free copies of
such directories and cannot use Telkom as their (revenue) collecting
agent. Apart from the fact that it was improper
for the first
respondent to try and make out its case only in the replying papers,
there is no allegation in the first respondent's
papers that other
telephone directories do not offer free listings. The first
respondent only alleges that the appellant is the
only publisher of
an "
official
"
telephone directory in the country. Assubmitted on behalf of the
appellant, such an allegation is not a feature that defines
a
market.
[34] The finding of a
second relevant market (for solicitation of entries for publication
in the "official" telephone
directories and associated
services) seems to be based on the word "official" or the
fact that the appellant, through
Telkom is the only agent operating
under the licence referred to in paragraph 1 of this judgment. I
agree with the submission
on behalf of the appellant that this is a
"misconceived" market.
[35] As the appellant
contends, the sales and marketing function is simply one of the many
activities that are part of its advertising
services and that it
competes, in respect of such services, in the broader advertising
services market wherein each competitor
is entitled to structure its
internal functions as it sees fit. In this regard
Mr
Wilson
referred
to the following finding by the Tribunal in
National
Association of Pharmaceutical Wholesalers v Glaxo Wellcome (Pty) Ltd
and others:
16
"Even if the
manufacturers had elected to perform all the distribution functions
in-house, that is, through a fully vertically
integrated
distribution division, this would not make them competitors in the
distribution market any more than performing security
functions
in-house would make them participants in the security services
market. There is no iron law that says that the manufacturing
process begins and ends at pre-ordained points, much less that it is
illegitimate from a competition perspective for the manufacturer
to
engage in any activity beyond those points. The products belong to
the manufacturers and our starting point is that they are
entitled
to distribute it totheir various customers as they see fit, just as
they are entitled to secure their premises as they
see fit."
[36] There is no
evidence in the first respondent's papers that the marketing aspect
of the wider advertising services in which
the appellant is
involved, constitutes a distinct market in which the appellant and
the first respondent compete. There is also
no evidence to justify a
conclusion that the appellant's telephone directories are so
specialized and unique to constitute a
distinct advertising media,
separate from others.
[37] Even if the first
respondent had proved a relevant market, there is no evidence in the
first respondent's papers on which
justifying a conclusion that the
demand by the appellant for an upfront payment has an uncompetitive
effect or extends or entrenches
the appellant's position in that
market. It is trite that, by its nature, all competition is
exclusionary. The important question
is to distinguish between well
functioning competition and malfunctioning competition. It is in
this regard that the Act requires
a weighing of the anti-competitive
effect of an act against its technological, efficiency and other
competitive gains.
"Rivals frequently
lose custom or profits, and even go out of business, as a result of
another firms actions in the cut and
thrust of a healthy
competition: such losses often result in the elimination of
competitive deadwood and do not generally warrant
state
intervention."
17
[38] It is generally
threatened harm to consumer's welfare that warrants intervention.
The first respondent's application makes
out no case of such threat
to consumer welfare.
[39] The abovementioned
may not be exhaustive of the aspects in which the first respondent's
case fell short of the requirements
for an interim order under
Section 49(C) of the Act. But we were satisfied that for these
reasons alone the Tribunal erred in
granting the interim order. I
therefore consider it unnecessary to deal with the requirements of
serious or irreparable harm
and balance of inconvenience.
DAVIS JP and
MAILULA JA AGREED
DAMBUZA AJA
1
See judgment by Davis JP at 5.
2
See
judgment by Davis JP at 7.
3
Section
61(1) of the Act provides that:
"A
person affected by a decision of the Competition Tribunal may appeal
against, or apply to the Competition Appeal Court
to review, that
decision in accordance with the Rules of the Competition Appeal
Court if, in terms of section 37, the Court has
jurisdiction to
consider that appeal or review that matter."
4
See judgment by Davis JP at 7.
5
See
also judgment by Davis JP at 8.
6
SA
Motor Industry Employers Association v SA Bank of Athens
1980
(3) SA 91A
at 96.
7
LAWSA
at 359;
Blaaubosch
Diamonds Ltd v Union Government (Minister of Finance)
1915
AD 599
at 601.
8
Knox
D'Arcy Ltd and Others v Jamieson and Others
[1996] ZASCA 58
;
1996
(4) SA 348
(A).
9
See
pp 9 - 10 of the judgment by Davis JP.
10
See
terms of the order at p 5 of the judgment by Davis JP
11
Section
49(C)(4)(b) of the Act.
12
Erasmus; Superior Court Practice; at B1-39.
13
Sutherland & Kemp;
supra;
at
7-15. The presumptions contained in section 7 of the Act are
critical to this determination.
14
(She
states, however, that she was informed by the Commission that Mrs
Paterson had advised the Commission that she had closed
her business
for personal reasons.)
15
This
is the approach followed by the Tribunal in
York
Timbers Ltd v SA Forestry
Company
Ltd
(1)
[2001-2002] CPLR 408
(CT); see also Section 49(C)3 of the Act
(supra).
16
[2003]
1 CPLR 93
(CT) at para 53.
17
Sutherland
and Kemp
at
7-48.