Mittal Steel South Africa Limited and Others v Harmony Gold Mining Company Limited and Another (70/CAC/Apr07) [2009] ZACAC 1 (29 May 2009)

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[2009] ZACAC 1
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Mittal Steel South Africa Limited and Others v Harmony Gold Mining Company Limited and Another (70/CAC/Apr07) [2009] ZACAC 1 (29 May 2009)

IN THE COMPETITION
APPEAL COURT
OF SOUTH AFRICA
In
the matter between:
Case
No:
70/CAC/Apr07
Mittal
Steel South Africa Limited
1
st
Appellant
Macsteel
International BV
2
nd
Appellant
Macsteel
Holdings (Pty) Limited
3
rd
Appellant
and
Harmony
Gold Mining Company Limited
1
st
Respondent
Durban
Roodepoort Deep Limited
2
nd
Respondent
Judgment:
29 May 2009
________________________________________________________________
Davis JP, Malan JA and Tshiqi
JA
:
[1] Introduction
The first and second complainants
filed a complaint with the Competition Commission against the first
appellant (‘Mittal’) of
a contravention of
ss 8(a)
and
8
(d)(i) of
the
Competition Act 89 of 1998
in terms of
s 49B.
The Commission
issued a notice of non-referral in terms of
s 50(2)(b)
and the
complainants thereafter referred the complaints to the Competition
Tribunal in terms of
s 51(1).
The Tribunal found on 27 March 2007
that Mittal had contravened
s 8(a)
and dismissed the complaint under
s 8(d)
(the ‘Merits Decision’). The issue of the remedies to be
ordered was postponed. The Tribunal then handed down its judgment

on the remedies on 6 September 2007 (the ‘Remedies Decision’).
[2]
The
Competition Appeal Court ordered that any appeals by Mittal and the
second appellant would be consolidated and heard as a single
appeal.
This appeal concerns both the merits and the remedies decisions. All
the appellants appealed against the orders given pursuant
to both
decisions. In addition, and in the alternative, the second and third
appellants renewed the application for leave to introduce
further
evidence and other related relief. The third appellant lodged a
notice of appeal on the basis that it was a person affected
by the
decision of the Tribunal as contemplated by
s 61(1).
This is clearly
the position.
[3]
The
process before the Tribunal was initiated by a complaint referral by
the complainants alleging contraventions by Mittal of
s 8(a)
and of
s
8(d)(i).
The latter complaint was dismissed, and there is no
cross-appeal against the order dismissing this complaint. Hence only
the
complaint under
s 8(a)
is relevant to this appeal. No question
arises of whether the conduct in issue could have fallen under any
of the prohibitions
in other sections of the Act (eg
ss 8(c)
,
8
(d)(iii) or
9
). The embodiment of these other sections in the Act,
however, have a bearing on the interpretation of
s 8(a)
, and on the
remedies for contravention of
s 8(a).
[4]
Section 8
deals with the ‘abuse of dominance’ and provides:
‘
It is prohibited for a
dominant firm to –
charge an excessive
price to the detriment of consumers;
refuse to give a
competitor access to an essential facility when it is economically
feasible to do so;
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;
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:
requiring or inducing a
supplier or customer to not deal with a competitor;
refusing to supply
scarce goods to a competitor when supplying those goods is
economically feasible;
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;
selling goods or
services below their marginal or average variable cost; or
buying-up a scarce
supply of intermediate goods or resource required by a competitor.
[5]
Section
1(1)(ix) defines ‘excessive price’ as:
1
‘
a price for a good or
service which
bears no reasonable
relation to the economic value of that good or service; and
is higher than the value
referred to in subparagraph (aa).’
[6]
The
complaint referred to the Tribunal sought an order declaring that the
practice of Mittal of employing import parity pricing
(‘IPP’) in
the South African flat steel market constituted an abuse of dominance
in terms of
s 8(a)
, ie constituted the charging of an excessive
price, and for consequential relief based on that declaration. In
amended form, the
consequential relief claimed included orders
prohibiting the imposition of use or resale conditions on customers,
requiring Mittal
to waive any existing conditions of that kind, the
publishing of Mittal’s list prices, and an administrative penalty.
The Tribunal
declined to grant an order declaring that Mittal’s
practice of employing IPP in the domestic flat steel market
constituted an
abuse of dominance. The Tribunal instead made an
order (paragraph 1 of the Remedies Decision) declaring that Mittal’s
practice
of reducing the supply of flat steel products available for
sale on the domestic market through the imposition of conditions of

resale on the steel merchants and those of its customers who receive
a rebate off the Mittal SA domestic list price is an abuse
of
dominance in terms of
s 8(a).
[7]
On
the strength of that declaration, the Tribunal granted the
consequential relief claimed by the complainants (see orders 2 to
5
of the Remedies Decision) and costs. The full text of the order
granted by the Tribunal in the Remedies Decision reads as follows:
Mittal SA’s practice
of reducing the supply of flat steel products available for sale on
the domestic market through the imposition
of conditions of resale
on the steel merchants and those of its customers who receive a
rebate off the Mittal SA domestic list
price, is an abuse of
dominance in terms of
Section 8(a)
of the
Competition Act.
Mittal
SA may not:
Impose upon any customer
of its flat steel products any conditions in respect of the
customers use or resale of those products;
or
Reach agreement on a
condition with a customer of its flat steel products, or enter into
any arrangement or understanding with
such a customer, in respect of
the customers’ use or resale of those products.
Mittal SA is ordered to
waive in writing any condition in any agreement concerning the use
or resale of flat steel products by
a customer.
Mittal SA is ordered to
make known in the public domain, at all times, its list prices,
rebates, discounts and other standard
items of sale for flat steel
products.
Mittal SA is ordered to
pay an administrative penalty of R691 800 000.00 (six hundred and
ninety one million and eight hundred
thousand) to the Commission
within 20 Business days of this decision.
Mittal SA is ordered to
pay the costs of the complainants including the cost of two counsel
and the qualifying costs of two expert
witnesses.
[8]
Since
the only conduct proscribed by
s 8(a)
is the charging of an excessive
price, the Tribunal’s declaratory order can be characterised as a
declaration that Mittal’s
practice of reducing the supply of flat
steel in South Africa through the imposition of resale conditions
constitutes the charging
of an excessive price. The remaining orders
made by the Tribunal were consequential upon its declaratory order.
The Tribunal would
have had no jurisdiction to grant the
consequential relief in the absence of a finding that Mittal had
charged an excessive price
in violation of
s 8(a).
2
[9] The
Mittal/Macsteel relationship: Role of the Joint Venture
Although the Tribunal’s declaratory
order refers to the imposition of resale conditions on ‘the steel
merchants’, the Tribunal
appears to have had only one arrangement
in mind, namely the condition in the agreement between Mittal and the
Macsteel joint venture
company (the second appellant) in terms
whereof the latter handles Mittal’s exports on the basis that the
steel in question must
be exported and cannot be resold by the second
appellant into the domestic market. Mittal exports steel exclusively
through the
joint venture company. Sales from Mittal to the second
respondent and by the latter to the end-customer are back-to-back
contracts.
The reference to customers who receive rebates is a
reference to customers to whom such rebates are offered because they
either
intend to use the steel in the manufacture of steel products
for export or because they are competing domestically with cheap
imports
of fabricated steel products. The price at which Mittal
exports steel through the second appellant has historically been
lower
than the domestic price. In respect of the period covered by
the evidence, Mittal’s domestic price was determined with reference

to IPP, though various customers were offered discounts and rebates.
[10]
The
Tribunal ruled that
s 8(a)
did not require an analysis of price
levels. Nevertheless, it appears to have been of the view that the
domestic price was higher
than it would have been if resale
conditions had not been imposed on the second respondent and on
rebate customers.
3
The Tribunal’s thinking was that if customers who received reduced
prices were free simply to resell the steel into the domestic
market,
such steel would become available domestically at lower prices than
IPP, thus causing the domestic price to drop from IPP
and tend
towards the export price. The Tribunal described the imposition of
the resale conditions as a segmentation of the market
which led to a
reduction in the volume of steel available domestically.
4
[11]
It
is common cause that Mittal manufactures more steel than is required
by the domestic market. Mittal supplies part of its production
to
the international steel market. Mittal found it more efficient to use
the services of the second appellant as its vehicle for
marketing
steel in the international steel market. The second appellant is a
Netherlands company, jointly owned by subsidiaries
of Mittal and the
third appellant, established pursuant to a joint venture agreement in
1995 (‘the JV Agreement’).
5
At the time the JV Agreement was concluded, the Macsteel group was a
well-established steel trader in the international steel market.

When the second appellant was established, a significant part of its
business comprised sales in the export market of Mittal’s
products,
but it also conducted other business in the international steel
market.
6
The second appellant traded and trades only in the international
steel market; it has not, and does not, trade in the domestic
market
in South Africa.
7
[12]
The
JV Agreement relates to ‘specified ISCOR products’, which are the
products ‘which are exported’ and itemised in clause
1.2.15, and
include flat steel and other steel products. These are the products
which the second appellant is, to the extent that
Mittal is able and
willing to supply them to the second appellant, obliged to purchase
from Mittal,
8
and which Mittal is obliged to market in the international market
only through the second appellant.
9
The allocation between products for the domestic market and products
for the international market, lies entirely with Mittal.
This is
further recognised by clause 21.4, which reads: ‘It is specifically
recorded that ISCOR will service its local clients
on a first
priority basis.’ The mechanism of this allocation arises from the
nature of the ordering and production function.
Given the differences
in specification between products produced by Mittal, the orders
(both domestic and international) are placed
early which enables
Mittal to estimate and meet the local demand and still produce for
orders generated internationally.
10
[13]
The
relevant provisions of the JV Agreement are:
‘
MACSTEEL Group has a
well established capability and organisation for the international
marketing of steel products’ (Clause 2.12)
‘
ISCOR will in all
likelihood always produce a certain quality and quantity of steel
products which will be available for export’
(Clause 2.2)
‘
the parties … have
agreed to an arrangement for the marketing of steel products in the
international territory’ (Clause 2.3)
[14]
Clause
5.3 provides for Mittal to ‘give notice of termination to all its
existing steel export agents’. The second appellant
would fulfil
the role which Mittal’s export agents had previously fulfilled.
11
Clause 21.1.2 provides that Mittal ‘shall be entitled to require
that its products are sold pursuant to long term contracts’
and
that Mittal would bear any additional commercial risk arising from
this requirement. Such risks would include fluctuations
in
international steel prices and currency exchange rates that would
emerge from a fixed price long-term contract but not form
part of the
usual transactions concluded by the second respondent. Clause 21.2
provides that ‘the day to day trading management
of JV CO will
remain in contact with ISCOR’s mill operations’, and that ‘ISCOR
will be entitled to constant communication
regarding the trading
activities of JV CO’; and that ‘ISCOR will be entitled at any
time to have full access to the end user
after notifying JV CO’.
Clause 29.2 provides ‘To the extent that ISCOR is able and willing
to supply the specified ISCOR products
to JV CO’ the second
appellant was obliged to purchase them. In terms of clause 32.6.1
Mittal undertakes that, if the tonnage
of specified products fell
below 1 million tons per annum (and the shortfall cannot be made up
in the ensuing 6 months), it would
pay an amount equal to 75 % of the
commission income which the second appellant would have earned on
such shortfall. Clause 34.2
obliges the second appellant to
‘endeavour to obtain the highest prevailing prices in the markets
in which it operates, having
regard for ISCOR’s ability to deliver
on time and in accordance with the conditions set out in this
agreement’. Clause 37 obliges
the second appellant to ‘promote
the sales of the specified ISCOR products produced by ISCOR’; to
‘obtain the highest prices
for such products’; to ‘promote the
best interests of ISCOR’; to ‘provide ISCOR with market
intelligence in respect of
all products traded’; and that the
second appellant ‘will owe a duty of the utmost good faith to
ISCOR’. In terms of clause
34, the second appellant earned only a
margin on sales: ‘JV CO shall be entitled to deduct a percentage
commission from ISCOR
as remuneration for its marketing services.’
[15]
In
summary, the JV Agreement provides that the second appellant is
obliged to seek offers from purchasers only in the international

steel market, at the best available prices, for only the steel
products which Mittal is willing and able to supply for the export

market. The second appellant will present Mittal with such offers.
Mittal does not offer steel to the second appellant at any
particular
price; the price setting operates the other way round, in that the
second appellant solicits offers from customers on
the international
steel market, and Mittal then decides to supply or decline to supply
the second appellant, pursuant to that offer,
taking into account
transport and other costs associated with delivery to the ultimate
buyer with whom volumes, price and the
delivery destination have been
pre-arranged. Mittal will supply steel pursuant to such offers only
to the extent that it is able
and willing to do so. The second
appellant earns only a fixed margin on sales effected by the
aforesaid process.
[16] Merits
Decision
In its decision on the merits, the
Tribunal asked itself how a competition authority should approach the
question of excessive pricing.
It gave the following answer:
12
‘
[W]e must
first
ask ourselves whether the structure of the market in question enables
those who participate in it to charge excessive prices [the

‘structural test’]. As we will indicate, we believe this to be a
significantly higher hurdle than those that must be cleared
to
establish “mere” dominance. It requires “super-dominance”, a
structural condition the characteristics of which are elaborated

below. If that higher hurdle is cleared, we must
then
ask ourselves whether Mittal SA has engaged in conduct designed to
take advantage of – to “abuse” – those structural
opportunities
by imposing excessive prices on its customers [the
‘conduct test’]. If the
second
question is also answered in the affirmative, the excessive pricing
must be proscribed by imposing a remedy which addresses the

underlying structural basis for the offending conduct arising from
the structural advantage that enables the firm in question to
charge
a price in excess of that which would have prevailed in the absence
of the anti-competitive structure and/or ancillary conduct.
As will
be elaborated at length, in this case Mittal SA does rely on its
super-dominant structural position as well as on ancillary
conduct in
setting the price that it charges. Only if both forms of these
remedies are impossible to devise should an actual price
level be
specified. In short, we treat excessive pricing as a phenomenon that
may arise from a particular structure and that itself
may be the
basis for ancillary conduct that is utilized in order to sustain
supra-competitive prices, to sustain, as per the definition
of the
Act …’ (own italics).
[17]
The Tribunal opined that,
given that Mittal’s pricing power extended beyond that enjoyed by
a mere dominant firm and its price
not being subject to regulation,
it could conclude without further analysis that
13
‘
as a matter of profit
maximising rationality, be reasonably construed as excessive
because, in the oft quoted words of the
United
Brands
judgement, it does not derive from
structures compatible with any notion of “normal and effective
competition.”’
The Tribunal was, however, still
obliged to consider whether, as a fact, the firm was charging the
maximum monopoly price or not:
14
‘
In short, while our
examination of the relevant market and market shares and entry
barriers is a sufficient basis for our conclusion
that Mittal SA is
one of those rare firms endowed with sufficient market power to
charge excessive prices, it may be an insufficient
basis for finding
that it has actually deployed that power in contravention of
Section
8
(a).’
[18]
The Tribunal accepted
that Mittal produces more steel than the domestic market requires
and, consequently exports the excess production.
The second
appellant is the ‘export arm’ of Mittal and Mittal offers the
excess production to the second appellant at a discount
or rebate on
the price it charges domestic steel merchants. In return, the second
appellant undertakes not to sell the excess
in the domestic market.
Therefore, the Tribunal opined that Mittal shorts the domestic
market by ensuring that the excess production
is not available in
South Africa at a lower price than its own domestic price. In this
way, the Tribunal found, Mittal maintains
its domestic price at a
higher level than would have been the case if the excess were also
made available to merchants at a lower
price in the domestic market.
This analysis led the Tribunal to the conclusion that, if the price
is determined by ‘cognisable
competition considerations, then that
price will bear a reasonable relationship to the economic value of
the good in question.
15
The Tribunal found that the arrangement with the second appellant
pursuant to the JV Agreement was the essential ancillary conduct
16
‘
whereby Mittal SA
abuses its structural advantage to maintain its pre-selected price
level. It is, of course, conduct that is
only available to an
uncontested firm in an incontestable market. If this were not the
case, Mittal SA’s traders would be
able to turn to alternative
suppliers of flat steel products in order to meet demand that is
unrealised at Mittal SA’s pre-selected
domestic price level.
Mittal SA of course wishes to create the impression that there is no
unrealised demand. It wishes to
create the impression that it
satisfies all domestic demand and that its export activities are
simply a vent – an unprofitable
vent, it moreover alleges - for a
surplus that it would much rather sell into the more lucrative
domestic market. However this
is, at best, only a half-truth and
one that, when fully considered, does considerable violence to the
whole truth – certainly,
Mittal SA meets all domestic demand, but,
and here is the crucial caveat,
at its
unilaterally targeted price level.
If a
would-be purchaser of steel for use in South Africa were to approach
Macsteel International with an offer to purchase at
a price
below
the prevailing domestic price but
above
that which Macsteel International could realise on the international
market, the trader would, as a matter of profit maximising

rationality, accept such an offer. However, it is by agreement with
Mittal SA, prohibited from accepting the offer because to
do so
would, as Mr. Dednam candidly concedes, be to reduce the price of
steel across the whole range of Mittal SA’s domestic
sales. Its
willingness to enter into such an agreement is, of course,
predicated on Mittal SA’s super dominance – to express
it
crudely, a firm that wishes to trade in South African steel is
obliged to accept Mittal SA’s trading conditions. The economics
is
disarmingly elementary – indeed it is the first principle of
monopolistic conduct.
[19]
As regards the market
structure, the ‘structural test’,
17
the Tribunal held that, in order for a firm to charge an excessive
price, the market share of that firm should ‘approximate
100% and
there should be no realistic prospect of entry – in other words
the market should be uncontested and incontestable’.
18
The key to the Tribunal’s approach is found in the following
passage:
‘
[96] In summary then
our approach is to follow the schema of the Act and the standard
approach to allegations of abuse of dominance
which, as we have seen,
derives dominance from specified
market
shares
and the possession of
market
power.
Following this approach, it reasonably holds that the power to price
‘excessively’ is the preserve of firms of overwhelming
size
relative to the market in which they are located and which are, in
addition, markets characterised by unusually high entry
barriers.
That is, the market share enjoyed by the firm in question should
approximate 100% and there should be no realistic prospect
of entry –
in
other words the market should be both uncontested and incontestable
.
The concept of ‘super dominance’ and the special responsibilities
that attach to this privileged status is well recognised
in scholarly
work …
[106] We should of course
add that the question of excessive pricing – or, at least, the
possibility of challenging pricing conduct
– is unlikely to arise
in the case of a legal monopoly precisely because, in the current
economic policy environment, such an
institution will, invariably, be
subject to regulation.
As
already noted, it is our view that
Section 8(a)
is precisely intended
to apply to those rare markets that are
uncontested
(monopolised or ‘super-dominated’),
incontestable
(subject to insurmountable entry barriers) and
unregulated
(not subject to price regulation).
The South African market for flat steel products is, the evidence
shows, just such a market, and this is why the proposal of Evans
and
Padilla and other writers that the powers of competition authorities
to intervene in pricing conduct be reserved for the most
exceptional
circumstances is, in our view, strictly adhered to in this decision
even though we do not require it to be restricted
to a case of a
legal monopoly.
[107] In the present
case, dominance of the relevant market is indeed absolute, that is,
there are, within the boundaries of the
relevant market, no
meaningful constraints on the first respondent’s ability to
unilaterally determine price – its market share
is persistently
vast and there is no prospect of new entry at all, and certainly not
within any time-frame that anti-trust jurisprudence
and enforcement
practice would regard as constituting an effective competitive
constraint. Moreover, the firm in question was
owned by the state,
for much of its life its prices were regulated by the state, and
certain of its current advantages derive from
advantages accrued from
the period of state ownership as well as subsequent subsidisation.
[108] In short, the first
respondent, Mittal SA, is no mere ‘dominant firm’ – it is
‘super dominant’, a ‘monopoly’
in the parlance of US
anti-trust law.
It
is, to all intents and purposes, an uncontested firm in an
incontestable market
.
This is a market structure that is rarely encountered in competition
analysis, possibly as rare as its opposite number, a market
that
meets the conditions of perfect competition. As already noted, while
even a super-dominant firm, a monopolist pure and simple,
remains
constrained by the existence of a ceiling in the price that it may
charge, this limitation is not imposed by, indeed is
in no way
influenced by, the pricing practices of competitors, actual or
potential, in the relevant market, or, even as a last
resort, by the
ability of the customers, to forego use of the product in question.
[121]
In
summary then, Mittal SA is, for the purposes of the Act, clearly
dominant in the relevant market, the South African market for
flat
steel products. However, as already elaborated, in order to
establish the structural basis for charging excess prices, something

more than mere dominance is required. In our view
Section 8(a)
demands a showing of extraordinary or ‘excessive’ market power,
the power to price at a level beyond that available to a mere

dominant firm. The extent of Mittal SA’s market share taken
together with the height of entry barriers and its recent history
of
state support easily establishes its status as a super-dominant firm
within the relevant market. It has been proved that it
is indeed an
uncontested firm within an incontestable market.
It is in such a market that a firm
approximates a true monopoly and can charge monopoly prices.
19
In holding that a firm is super-dominant when its market share
‘approximates 100%’, the Tribunal was indicating that a firm
is
super-dominant when it is able to exercise market power as if it had
100% of the market ie that it is able to exercise market
power as if
it were a monopolist.
[20]
As regards the second
question, the ‘conduct test’, the Tribunal explained that it was
required to consider whether the firm
‘has engaged in conduct
designed to abuse its “super dominant” position by charging an
excessive price’.
20
The Tribunal said:
‘
[134] Hence, in
addition to examining the structural features of the market in
question, we must examine evidence which suggests
that Mittal SA has
engaged in conduct designed to abuse its ‘super dominant’
position by charging an excessive price. This
is an enquiry mandated
by the principles and practice of competition law and economics. We
emphasise that we will not approach
this enquiry by considering that
evidence relating to actual price levels which effectively requires
us, first, to identify a
particular
level
as unlawful (‘excessive) and then to impose a
level
of price that would be lawful (‘non-excessive’). This, we
stress, is an approach consistent with the practice of price
regulation – it is not commonly found in the principles and
practice of competition law and economics.’
[21]
In assessing that price,
the Tribunal held that it must assess whether the price is the
result of ‘cognisable competition considerations’
or not.
21
A price determined in the former method reflects the economic value
of the product.
22
Where, however, ‘the price appears to have no explanation other
than the pure exercise of monopoly power, then the price is
not
reasonable in relation to economic value’.
23
This is a criterion to determine whether the pricing behaviour of a
firm is at a competitive level or not:
‘
[146]
We
should at once dispel the notion that the term ‘economic value’
in our Act is intended to impute a cost-based theory of value,
much
less one that is rooted in any particular version of cost because if
the legislature intended economic value to mean marginal
cost or
average variable cost it would have said so since it uses these terms
explicitly in 8d(iv). That is to say, in assessing
predatory pricing
the legislature intends us to use a cost-based test and so
Section
8(d)(iv)
explicitly guides us in the cost measurement that is central
to an evaluation of an allegation of price predation. However
Section
8(a)
and its accompanying definition make no reference at all to the
relationship between an excessive price and cost. The reference
is
rather to the relationship between price and
economic
value
.
[147]
The concept of economic value consistent with the principles and
practice of competition law and economics is, in the words
of Evans
and Padilla,
‘the
equilibrium price that would result from the free interaction of
demand and supply in a competitive market’
or the ‘
competitive
market price’.
As we have already suggested then, our judgement of the relationship
between price and economic value rests on our evaluation
of the
market conditions that underpin the price. If the examination of the
structure of the market and any relevant ancillary
conduct reveals
that price is indeed determined by, what we have termed above,
cognisable
competition considerations
,
then that price will bear a reasonable relationship to the economic
value of the good in question. However, if the price is the
product
of a market structure and of ancillary conduct that reflects
precisely the
absence
of
cognisable
competition considerations
then that price will be excessive in relation to the economic value
because it will not have been determined by ‘
the
free interaction of demand and supply in a competitive market’.
As
we are careful to explicate below,
‘cognisable
competition considerations’
or
a
‘competitive
market’
do
not necessarily equate to conditions of perfect competition.
[148]
Having
rejected the view that the concept of economic value suggested by the
Act is cost-based, we note the obvious point that this
does not mean
that cost does not play a major role in determining the
absolute
level
of the
competitive
price
or, what is the same thing, the economic value of a good or service.
Even if the market for high performance cars is vigorously

competitive and that for bicycles is monopolised, a high performance
sports car will always have a higher price or economic value
than a
bicycle, and this for the simple reason that the underlying costs of
producing a high performance sport car would not allow
a manufacturer
of these products to stay in business if he sold his product at the
same price as a bicycle. But to extend this
analogy, it may well be
that price and economic value are satisfactorily aligned in the
pricing of high performance sports cars
(that is, there is no
excessive pricing)
if
their prices are the product of competitive market conditions, while
the price of bicycles may be found to be excessive in relation
to
their economic value
if
they are priced under conditions of pure monopoly.
[22]
The
Tribunal examined the actual prices charged by Mittal and concluded
that Mittal charged its domestic customers an import parity
price for
flat steel products, in other words, a price set by calculating the
notional cost of importing those products.
24
It expressly rejected Mittal’s suggestion that it no longer
employed the import parity pricing methodology.
25
The Tribunal set out in some detail the methodology employed by
Mittal to arrive at its import parity prices, and also noted that

Mittal contractually prevents customers who receive prices lower than
import parity from ‘redirecting’ this discounted product
into the
general domestic market.
26
The Tribunal held that Mittal targeted the import parity price
because of its ‘close approximation to the monopolist’s profit

maximising price’.
27
The Tribunal held further that to achieve this price Mittal was
obliged to engage in further acts that amounted to an abuse of
its
dominance, namely withholding its full supply from the domestic
market. Absent this further conduct, particularly the JV, Mittal

would not be able to charge the maximum monopoly price because, for
example, Macsteel would then accept an offer to sell to a domestic

purchaser at a price below Mittal’s domestic price but above the
price Macsteel could realise on the international market.
28
The JV, as employed by Mittal, thus prevented this supply at such
a price from becoming available to the domestic market, although
the
measures Mittal adopted to prevent other flat steel products it sold
at prices lower than IPP becoming available in the domestic
market
were also fundamental to the abuse, since such sales also had the
potential to exert downward pressure on the domestic price.
29
This conduct confirmed that Mittal was abusing its position of super
dominance and charging a price in the domestic market that
is not the
product of cognisable competition:
30
‘
[152] In this case
our finding is that the price of flat steel products in the South
African market is
only
explicable by reference to Mittal SA’s unusually high level of
structural dominance which, in turn, supports ancillary
conduct that maintains the price targeted
by the monopoly steel producer. The ancillary
conduct – which as we shall elaborate
below is the enforced segmentation of separately priced markets –
is a critical element
of this decision because it demonstrates, as
we shall elaborate, that even Mittal SA’s structural
super-dominance was not on
its own sufficient to guarantee that it
actually achieved its unilaterally selected target price. Instead
it was obliged to
engage, in a clearly pre-meditated fashion, in
ancillary conduct, conduct that is only available to a
super-dominant firm, to
achieve its desired price level in the
domestic market. In other words, our finding of excessive pricing
does not derive from
an examination of the market structure alone;
it also rests on the ancillary conduct upon which Mittal SA relied,
ancillary conduct
that itself depends upon the existence of
structural super-dominance, in order to achieve its pricing
ambitions. It is the cumulative
impact of this structure and the
ancillary conduct that puts Mittal SA’s contravention of
Section
8(a)
beyond doubt.’
[23]
This analysis of the
reasoning employed by the Tribunal assists in elucidating the core
basis of the dispute in this case: the
definition of excessive
pricing appears to mandate an examination as to whether there is a
reasonable relationship between the
price charged and the economic
value of the good or service. Volumes of expert evidence were
generated to give content to this
relationship. However, the
Tribunal held that it was not necessary in this case to determine
the reasonableness of the relationship
between the maximum monopoly
price charged by Mittal and the economic value of flat steel
products on the basis of an empirical
quantitative comparative study
of prices in various markets. In its view, the price charged by
Mittal could never bear a reasonable
relationship to the economic
value because it was the maximum monopoly price achieved through the
exertion of market power to
reduce supply in the domestic market and
was therefore, by definition, not determined under conditions of
competition (which
would always have invariably produced a lower
price). The Tribunal held that, in the light of this evidence, it
was not necessary
for it to consider the expert evidence to
establish that fact:
‘
[153] In summary then,
our examination as to the source of the pricing power is thus an
examination into its reasonableness. Reasonableness
in the context of
a competition statute must mean ‘economically reasonable’.
Economically reasonable in the context of a competition
statute must
mean having regard to the pro and anti –competitive considerations
that we normally apply. As we go on to argue
in this decision, the
occasions where one can find no reasonable relationship between a
price and the economic value underpinning
it are few indeed. The
circumstances giving rise to Mittal SA’s pricing power in respect
of some of its domestic consumers depends
on the existence of a range
of factual issues that we do not encounter in the market place
everyday, even in those markets habituated
by long extant dominant
firms.
[154] Nor is there any
need to dwell on dictionary definitions of what
excessive
means.
The term is a defined one and hence it is the statutory, rather than
the dictionary, definition of the word that we apply.
The statutory
definition as opposed to the ordinary word ‘excess’ does not
require one to conclude when a particular level
of differentiation is
sufficiently large to constitute excess. Rather it requires one to
find a relationship between a price and
economic value that admits of
no
reasonable
explanation, that is, of an explanation that does not rely upon the
exercise of the degree of market power that arises from
super-dominance.
The finding of an excessive price is then determined
not by some arbitrary measure of difference but is rather an enquiry
into
the rationality of pricing. It thus condemns pricing for which
unchallenged and incontestable monopoly is the only explanation as

opposed to a price that may simply be high but for which innovation
or even branding – that is, pro-competitive measures - provide
the
underlying rationale.
[155] For this reason we
find that a reading of the Act that requires us to find precise
levels for the economic value and then
the actual prevailing price
and then to correlate them to some notional competitive price to be
overly mechanistic and contextually
unsupported. This reading might
have some validity if we were meant to act as price regulators and to
order the price back down
to the non-excessive level. We have already
firmly rejected the implicit contention that the sparse wording of
Section 8(a)
is intended to convert us from an agency that promotes
and protects competitive market conditions to an agency that
determines
price through the simulation of competitive market
conditions.’
[24]
The Tribunal did not,
however, discount fixing price levels in the future, should it be so
required. The Tribunal expressly held
only that it should sidestep
methodologies of price regulation ‘if it is possible – and we
believe in this instance it is’.
31
The Tribunal held further that ‘if a competition authority is not
able to carry out its excessive pricing mandate [by isolating
and
addressing underlying structural conditions and ancillary behaviour
that enables the setting of an excessive price] then
it may have to
resort to the fixing of a price but, we stress, in our view this
should be done as a final resort.’
32
In summary, the Tribunal appeared to
take the view that a literal interpretation of
s 8(a)
read with
s
1(i)
(ix) of the Act could require an investigation into actual
price levels and hence the determination of particular price abuse
which pricing would contravene the Act. That enquiry would convert
the Tribunal into a price regulator and thus take it outside
of its
mandated scope as a competition authority.
[25] Foreign law
This is the first case dealing with
the meaning and scope of
s 8(a).
The influence of foreign law on the
meaning and purpose of this section may be clear but the proper
application thereof mandates
caution.
[26]
Section
8(a)
has its origin in the jurisprudence of European competition law.
As important a consideration as that may be the Supreme Court of

Appeal has cautioned that our Act must be interpreted primarily with
reference to its own language.
33
Thus, while
s 1(3)
of the Act provides that when interpreting and
applying the statute, appropriate foreign and international law may
be considered,
it is nonetheless ‘necessary to view the competition
laws of other countries in their proper historical, social and
institutional
contexts’.
34
[2
7]
The
Tribunal noted that the definition of ‘excessive price’ was
borrowed from
United Brands
35
but observed that this
borrowing ‘in no way requires us to adopt uncritically all elements
of a European approach to excessive
pricing.’
36
The Tribunal was well aware of the differences between
s 8
of the Act
and Article 82 and correctly noted that our legislation contained a
definition of an ‘excessive price’.
37
The Tribunal’s cautious approach to foreign law is correct. This
approach has been emphasised by both this court and the Supreme
Court
of Appeal.
38
Unfortunately, the Tribunal did not follow this cautious approach
but, instead, applied its a priori view on the role of a competition

authority, that is its ‘conceptual approach’, to almost the
complete extension of an engagement with the legislative texts.
This
very point was made by this Court in
Goldfields
Ltd v Harmony Gold Mining Company Ltd and Another
in criticising the approach the Tribunal had adopted in that case:
39
‘
In
any event great care should be taken to ensure that a purposive
approach to the interpretation of the Act engages with the wording
of
the Act and its overall architecture, rather than seeking to ignore
the latter in order to promote a particular policy objective
which is
both contested and controversial.
[28]
The
Tribunal is bound to apply the Act. If the proper interpretation of
s 8(a)
requires the Tribunal to engage with price levels, it must do
so. Even less justifiable is the taking of liberties with the
language
of the Act so as to make
s 8(a)
serve the Tribunal’s
preference to deal with market structure rather than price level.
That is to turn the exercise of establishing
the intention of
Parliament on its head. Instead of starting with the words the
legislature chose to use, the Tribunal started
with the
interpretation it preferred and then ignored the language of the
section.
T
he
words chosen by the legislature when enacting
s 8(a)
(and the
definition of ‘excessive price’) clearly and unambiguously
40
indicate that what is prohibited is the ‘charging’ of an
excessive ‘price’, not so-called ‘ancillary abusive conduct’

designed to take advantage of a particular market structure.
We
do not wish to be misunderstood. Legislative interpretation does
not reduce to a simple recourse to a dictionary. For a start,
the
inherent plasticity of language and the manner in which precedent and
legal culture influence the process of statutory interpretation

dictate otherwise. But, a court is required to engage with the text
and the language employed therein; it must produce an interpretation

which it can justify after this engagement with the legislation. It
may not eschew the text to promote its own theory, however
attractive
the latter may appear to be. In the event that the language of the
text is unable plausibly to support the advocated
theory, then it is
for Parliament, if it so wishes, to reconsider the text.
[29]
This
approach to interpretation should not be construed as an indication
that this Court is oblivious to the problems posed by
this case. To
the contrary . Mittal (in its previous guises) was owned and
controlled by the State since its establishment in
1928 until its
privatisation in 1989. As Dr Zaveren Rustomjee, a previous
Director-general of the Department of Trade and Industry,
testified
before the Tribunal, government incentives and support for Mittal
continued for a number of years after privatisation.
We emphasise
that the preamble to the Act includes a manifest concern with
previous excessive concentrations of ownership
and control within the
national economy. Further, a purpose of competition law,
particularly South African competition law as
is made clear in
s 2
,
dictates that a history of such state largesse cannot be permitted to
subvert competition nor should the market power inherited
from the
erstwhile status as a state enterprise be exerted with continued
impunity. Further, as the available literature compellingly

illustrates,
‘
[t]he
assessment of excessive pricing is subject to substantial conceptual
and practical difficulties, and any policy that seeks
to detect and
prohibit excessive prices is likely to yield incorrect predictions in
numerous instances.’
41
But
none of these difficulties permits a disregard of the provisions of
the Act. With these observations, we now turn to a more
precise
analysis of the Tribunal’s determination.
[
30] Analysis
of the Judgment
Part
B of Chapter 2 of the Act is headed ‘Abuse of a Dominant Position’
and
s 8
‘Abuse of
dominance
prohibited’.
The
prohibitions in
section 8
are preceded by the words ‘It is
prohibited for a dominant firm to —’. The test for dominance is
expressly laid down in
s 7
and a firm is ‘dominant’ in a market
if ‘(a) it has at least 45 % of that market’.
42
Other categories are referred to in paragraphs (b) and (c). The same
test is applicable to all firms to which Part B of Chapter
2 applies,
namely those meeting the threshold requirement determined under
s 6.
There is no reference in
s 8
to the concept of a ‘super-dominant
firm’ used by the Tribunal.
Section 8
applies to all dominant firms
whether they are monopolies or ‘super-dominant firms’ provided
only the requirements of
ss 6
and
7
are met. To introduce the concept
of ‘super-dominance’ ignores principles of statutory
interpretation: it was, moreover, emphasised
in
S
v Dodo
43
that
‘[i]t is pre-eminently the function of the legislature to determine
what conduct should be criminalised and punished.’
[31]
The
methodology employed by the Tribunal to determine whether a price is
‘excessive’ for purposes of
s 8(a)
depends on its criterion of
‘super-dominance’.
44
It said
45
that, as a competition
authority, it had to first ask whether the market structure enabled
those participating in it to charge
excessive prices (the
‘structural test’). The market share of the firm concerned
should be approaching 100 per cent and the
market ‘uncontested’
and ‘incontestable’.
46
This ‘hurdle’ the Tribunal considered was a significant one,
requiring not mere dominance but ‘super-dominance’. Once
that
has been established, it must further be determined whether the firm
concerned has engaged in conduct abusing the structural

opportunities by imposing excessive prices (the ‘conduct test’).
[32]
The
Tribunal’s idea that a market must be ‘uncontested’ and
‘incontestable’ and the firm ‘super-dominant’ otherwise
the
price charged cannot be excessive finds no support in the Act.
47
The wording of
s 8(a)
, read with the definition of ‘excessive
price’ in
s 1
, calls for the making of certain distinct enquiries.
First, the determination of the actual price of the good or service
in question
and which is alleged to be excessive. Secondly, the
determination of the ‘economic value’ of the good or service
expressed
in monetary terms, as an amount of money.
48
Thirdly, if the actual price is higher than the economic value of
the good or service, is the difference unreasonable or, to
put it in
another way, is there ‘no reasonable relation’ between the
actual price and the economic value of the good or service?

Fourthly, is the charging of the excessive price to the detriment of
the consumers?
The
first two enquiries call for factual determinations of the actual
price and the economic value and the third for a value judgment.
The
fourth enquiry also involves, as we will show, a value judgment.
[33]
As
already noted, the Tribunal did not proceed along these lines. Its
approach was that, if a ‘super-dominant’ firm exercises
to the
full its market power in setting a price, then its price is
ipso
facto
excessive as
contemplated by
s 8(a).
49
anc" HREF="#sdfootnote49sym">
49
It found in so many words that Mittal had contravened
s 8:
it had,
by
virtue of its super-dominance, the structural market power to select
a target price for its domestic market (the IPP) and supported
this
price by withholding supply from the domestic market. This, the
Tribunal said was ‘the most elementary and offensive of

monopolistic conduct’.
50
The cumulative impact of its super-dominance and its resultant
conduct led to the withholding of supply from the domestic market

resulting in a price that is unconstrained by any competitive
considerations and hence ‘excessive’. There is no support for

this approach in the Act.
51
[34]
The
expression ‘economic value’ is not defined but must be
interpreted to give it a definite meaning corresponding to the
intention of the legislature – a meaning capable, moreover, of
practical application. As we have already observed, if it is
impossible
to do so, the conclusion would follow that the legislative
provision does not pass constitutional muster; but that is a
conclusion
which ought to be avoided.
52
Because
s 8(a)
contemplates a relation between a
price
and the
economic value
,
it follows that the latter expression must, as is ordinarily the case
with price, refer to an amount of money. In contrast with
Article
82(a) (formerly article 86(a)) of the Treaty of Rome, our legislation
does not refer to a price that is ‘unfair’.
53
.
Article 86 (now Article 82) read as follows:
54
‘
Any abuse by one or
more undertakings of a dominant position within the common market or
in a substantial part of it shall be prohibited
as incompatible with
the common market insofar as it may affect trade between Member
States. Such abuse may, in particular, consist
in:
(a) directly or
indirectly imposing unfair purchase or selling prices or unfair
trading conditions;
(b) limiting production
markets or technical development to the prejudice of consumers;
(c) applying dissimilar
conditions to equivalent transactions with other trading parties,
thereby placing them at a competitive
disadvantage;
(d) making the conclusion
of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature
or according to
commercial usage, have no connection with the subject of such
contracts.’
The governing criterion used in
Article 86 was widely formulated: ‘any abuse … of a dominant
position … shall be prohibited…’.
The four instances set out
in sub-articles (a) to (d) of Article 86 were cases of conduct which
‘may’ constitute ‘such abuse’;
the words ‘may in
particular’ make it clear that there is no legislative
numerus
clausus
. There are
however significant textual pointers in the direction of the mandated
enquiry: First, Article 86 deals with an ‘unfair
price’ not an
‘excessive price’. Secondly, Article 86 contains the integer of
an ‘abuse … of a dominant position’.
If no finding of such
‘abuse’ is made, there can be no contravention of Article 86.
Thirdly, the imposing of ‘unfair …
prices or other unfair trading
conditions’ may but do not necessarily constitute such ‘abuse’.
Fourthly, the determination
of an ‘unfair price’ requires an
empirical analysis. Finally, in addition, an assessment that the
price in issue constitutes
an ‘abuse of dominant power’ must be
made.
[35]
In
United Brands
55
the
Commission decided that United Brands had contravened Article 86 in
that it had abused its dominant position as seller of bananas
in the
relevant market comprising the Belgo-Luxembourg Economic Union,
Denmark, Germany, Ireland and the Netherlands. The complaint,
under
the wide provisions of Article 86, was in respect of four categories
of transgression: First, the use of a clause prohibiting
the resale
of bananas while still green; secondly, the refusal to supply a
particular reseller (Oleson); thirdly, discriminatory
pricing; and,
fourthly, unfair pricing. The Commission decided that United Brands
had transgressed Article 86 on all four grounds.
On appeal the ECJ
upheld the decision in regard to the first three categories, but set
aside the decision of the Commission in
respect of the fourth
category, unfair pricing.
56
[36]
The
essence of the Commission’s contentions was that ‘the policy of
partitioning the relevant market has enabled UBC to charge
prices …
which … often amount to wide differences which cannot be justified
objectively.’
57
The ECJ pointed out that ‘it appeared to the Commission to be
justifiable without analysing the UBC’s costs structure, to
treat
prices charged to Irish customers as representative and that
differences between the prices cif Dublin delivered Rotterdam
and the
other prices charged by UBC for its sales for Rotterdam or
Bremerhaven show profits of the same order of magnitude as these

differences.’
58
The prices charged in Germany, Denmark and Belgo-Luxembourg area
were sometimes 100 per cent higher than the prices charged in

Ireland. United Brand countered the contentions of the Commission by
alleging that it suffered a loss on its sales in Ireland.
59
[37]
The
crucial passages in
United
Brands
which influenced the
Tribunal in this dispute are the following:
‘
[248] The imposition
by an undertaking in a dominant position directly or indirectly of
unfair purchase or selling prices is an
abuse to which exception can
be taken under Article 86 of the Treaty.
[249] It is advisable
therefore to ascertain whether the dominant undertaking has made use
of the opportunities arising out of its
dominant position in such a
way as to reap trading benefits which it would not have reaped if
there had been normal and sufficiently
effective competition..
[250] In this case
charging a price which is excessive because it has no reasonable
relation to the economic value of the product
supplied, is such an
abuse’
[251] This excess could
inter alia be determined objectively if it were possible for it to be
calculated by making a comparison
between the selling price of the
product in question and its cost of production, which would disclose
the amount of the profit
margin; however the Commission has not done
this since it has not analysed UBC’s costs structure.
[252] The question
therefore to be determined is whether the difference between the
costs actually incurred and the price actually
charged is excessive
and, if the answer to this question is in the affirmative, to
consider whether a price has been imposed which
is either unfair in
itself or when compared to competing products’.
[253] Other ways may be
devised – and economic theorists have not failed to think up
several – of selecting rules for determining
whether the price of a
product is unfair.
[254] While appreciating
the considerable and at times great difficulties in working out
production costs which may sometimes include
a discretionary
apportionment of indirect costs and general expenditure and which may
vary significantly according to the size
of the undertaking, its
object, the complex nature of its set up, its territorial area of
operations, whether it manufactures one
or several products, the
number of its subsidiaries and their relationship with each other,
the production costs of the banana
do not seem to present any
insuperable problems.
[258] The Commission
bases its view that prices are excessive on an analysis of the
differences – in its view excessive – between
the prices charged
in the different member-States and on the policy of discriminatory
prices which has been considered above.
[259] The foundation of
its argument has been … [that] the margin allowed by the sale of
bananas to Irish ripeners was much smaller
than in some other
member-States and it concluded from this that the amount by which the
actual prices f.o.r Bremerhaven and Rotterdam
exceed the delivered
Rotterdam prices for bananas to be sold to Irish customers c.i.f
Dublin must represent a profit of the same
order of magnitude.
[260] Having found that
the prices charged to ripeners of the other member-States were
considerably higher sometimes by as much
as 50 per cent, than the
prices charged to customers in Ireland it concluded that UBC was
making a very substantial profit.’
[38]
The
ECJ considered an empirical enquiry into the costs actually incurred
by the seller and into the prices actually charged by
the seller to
be necessary. This exercise was however not done by the Commission,
because it had made no empiric enquiry into
United Brand’s costs.
The remarks in paragraph 252 are not a finding on the facts of
United
Brands
; that is obvious
from what followed in paragraph 251 – 268, where it was found that
the evidence had not established that an
unfair price had been
imposed. The dictum was a general statement to the effect that
charging a price which is found to be excessive,
would (more
accurately ‘may’) constitute an abuse; and that a price which
‘has no reasonable relation to the economic value
of the product
supplied’ would be ‘a price which is excessive’.
[39]
This
paragraph did not deal with the question of how it can or should be
objectively determined whether or not a particular price
‘has no
reasonable relation to the economic value of the product supplied’
and hence be regarded as ‘excessive’. An answer
to this question
appears from the following paragraphs. What the Commission argued was
that, in order to assess whether a price
is ‘excessive’, there
was no need to engage in an empirical enquiry into the costs actually
incurred, (and hence the comparison
between those costs and the
actual selling prices, and the assessment whether the difference is
excessive); and that the final
assessment whether a price is unfair
in itself, or when compared to competing products, could be made
without an empirical enquiry
into costs actually incurred. Put
positively, the Commission contended that the assessment that a price
actually charged is excessive
and hence unfair, could be made purely
by comparing that price with other prices. This contention of the
Commission was rejected
by the ECJ: the absence of an enquiry
resulted in the Commission having failed to prove, by the required
evidence, that the price
actually charged in the member-States other
than Ireland was ‘excessive’.
60
In this regard – although this was not necessary in view of the
failure of the Commission to make the necessary empirical enquiry
–
evidence of UBC that it had sold bananas at a loss in Ireland cast
further doubt on the Commission’s contention.
61
In short, the ECJ ruled that a mere comparison of prices at which
the seller actually sold a product to different buyers in the
same
market was an insufficient basis to conclude that the higher price
was ‘excessive’ – even where they are 50 per cent
higher than
the lower price.
[40]
Mr
Petersen, who appeared together with Mr Maenentje and Ms le Roux as
amici curiae (and to whom this court is indebted for their

thoughtful and diligent contribution), submitted that the
legislature must have intended, by using the expression ‘economic

value’, an amount of money which would notionally be the price or
value of the good or service if market conditions other than
those
actually prevailing were to prevail.
62
What the legislature must be taken to have intended by ‘economic
value’ is the notional price of the good or service under
assumed
conditions of
long-run
competitive equilibrium
.
This requires the assumption that, in the long run,
63
firms could enter the industry in the event of a higher than normal
rate of return on capital, or could leave the industry to
avoid a
lower than normal rate of return. It does not imply perfect
competition in the short-run, but rather competition that
would be
effective enough in the long run to eliminate what economists refer
to as ‘pure profit’ – that is a reward of
any factor of
production in excess of the long-run competitive norm which is
relevant to that industry or branch of production.
64
[41]
The
European Court of Justice in
United
Brands
considered that the lack of a reasonable relation between price and
economic value could be revealed, inter alia, by establishing
the
firm’s profit margin.
65
It is apparent that the court considered that a price corresponding
to economic value is one which would allow a firm to reap
only those
trading benefits which it would reap under conditions of ‘normal
and sufficiently effective competition’.
66
A higher price deriving simply from the use made of a dominant
position would be one bearing no reasonable relation to economic

value.
67
Section 8(a)
, read with the definition of ‘excessive price’ in
s
1
, seems clearly to have had its inspiration in these ideas.
68
[42]
In
General
Motors Continental NV v Commission of the European Communities
,
69
the ECJ considered that an abuse of dominance might lie, inter alia,
in the imposition of a price which is excessive in relation
to the
economic value of the good or service. In paragraph 22 the court
observed that ‘[t]he absence of any abuse is also shown
by the
fact that very soon afterwards the applicant brought its rates into
line with the real economic costs of the operation
...’ It is
apparent that the court considered ‘the real economic cost of the
operation’ to be indicative of its economic
value.
70
[43]
It
seems to follow that, in determining the economic value of a good or
service, the cost savings to the firm resulting from
the subsidised
loan or the lower than market rental – or indeed any other special
advantage, current or historical, that serves
to reduce the
particular firm’s costs below the notional competitive norm ought
to be disregarded. Thus economic value’ is
a notional objective
competitive-market standard, and not one derived from circumstances
peculiar to the particular firm. If
the firm’s price is no higher
than economic value, no contravention of
s 8(a)
can arise. If,
however, the firm’s price is in fact higher than economic value so
determined, the test of reasonableness in
respect of the difference
remains to be applied.
The
expression ‘reasonable profit’
71
when dealing with economic value should be avoided. The test of
reasonableness applies to the excess of price over economic value,

and thus only to the element of ‘pure profit’ (over and above
‘normal profit’) implicit in that price.
It
is at this stage of the enquiry that circumstances peculiar to the
particular dominant firm would rationally come into the
reckoning.
It would seem sound, when considering whether the higher price bears
a reasonable relation to economic value or not,
to take into account
the benefits flowing to the firm from the subsidised loan, long-term
low rental, or other special advantage
which may serve to reduce its
own long-run average costs below the notional norm. Having regard to
all the particular circumstances,
it might then be concluded that no
addition of ‘pure’ or ‘economic’ profit by means of a price
higher than economic value
could reasonably be justified, or that
the extent of the excess which might otherwise be justified would
fall to be reduced.
By parity of reasoning, accounting costs may
reflect an uncompetitive inefficiency. The criterion of economic
value, on the other
hand, recognises only the costs that would be
recovered in long-run competitive equilibrium. Accordingly, it is
possible that
a dominant firm’s price may be substantially and
also unreasonably higher than economic value even when the
accounting profit
of the firm reveals no such picture.
72
[44] Import
parity pricing
The
Tribunal found that the geographic market in which the complainant
and Mittal engaged in ‘is indeed the national South African
market
for flat steel products, the market in which a great many of its
customers meet Mittal SA and in which its pricing power
is
effectively unconstrained by any competing suppliers, either in
another country or from a product that could be substituted
for
steel.’
73
In this market, it found that the import parity (‘IPP’) price
was excessive. But, under the Act, an IPP cannot
per
se
be
excessive. This is so because the Act requires that it be
established that the actual price is higher than the economic value.

Only when there is no reasonable relation between the price and the
value can the price be regarded as being excessive. Whether
the
actual price is described or formulated on the basis of an IPP
cannot, for the purposes of this determination, be definitive.
It
may, depending on the facts of the dispute, for reasons set out
presently, have some evidential relevance as to how the
dispute must
ultimately be determined. For a domestic producer whose only pricing
constraint is the fact that the customer may
resort to imports, the
IPP is the upper price limit. From this fact, however, it cannot be
inferred, without more, that it is
a price higher than the economic
value of the good or service and hence justify a conclusive finding
in terms of
s 8(a)
of the Act. Nor does it follow that any excess
over the economic value is not reasonable.
[45]
The
Tribunal noted
74
that the ‘insistence that steel imports restrain Mittal SA’s
pricing is only at the point where Mittal SA’s domestic price

exceeds the landed price of imported steel in South Africa.’ If
Mittal SA’s domestic price was, for a
sustained
period, to exceed, by a
significant
margin, the landed cost of imported steel products plus ‘add ons’
like the 5 % ‘hassle’ factor, then, and only then,
would the
incentive to import become a realistic one for domestic consumers of
these products.‘ The price constraint imposed
by the potential
for imports, which is recognised by the Tribunal, is no different in
principle from the price constraint that
any firm, having the
advantage of an exclusive location near to its customers, faces in
the form of the potential for those customers
to decide rather to
incur the cost of fetching alternative products from a more distant
supplier or having them transported from
afar. The local firm may
well have appreciable market power by virtue of the
degree
of its independence from its customers and competitors; and its
exploitation of that power might result in a price judged to
be
‘excessive’ But the mere fact that it prices up to the
constraining limit, to the point at which the boundaries to its

geographical market dissolve and an alternative source of supply
becomes realistic for its customers, provides no basis for
determining whether its price at that limit is higher than and bears
a reasonable relation to economic value or not. The question
is
simply whether the actual price level at which imports constrain the
price of domestic supplies is excessive or not when charged
by the
domestic supplier. Abuse arises where a domestic monopoly (or indeed
an oligopoly in which firms have market power) employs
the shelter
of distance, for example to extract an unjustifiable amount of ‘pure
profit’ by way of a price unreasonably higher
than the economic
value of the good or service concerned. Whether, in fact, it is
doing this or not has to be proved.
[46]
If
prices charged by foreign suppliers in competitive markets provide a
sound comparative basis for assessing the economic value
of similar
products produced here, then the extent of the transport and related
costs needed to bring the foreign supplies to
our market will
obviously provide a measure of the price premium which a local
dominant supplier could extract, over and above
economic value.
Knowing the extent of the transport and related costs may thus
provide a basis for a finding of market power
– but the premise
remains that a notional competitive price (or economic value) shall
first have been established. Once economic
value has been
established, it is the actual amount of the excess in the price
charged by the local firm that has to be measured
and evaluated for
the purposes of
s 8(a).
All that import parity pricing will indicate
is that the firm is pricing fully to the constraining limit. A
dominant supplier
which is able, and does, simply set its price at
import parity without careful reference to costs would do so at its
peril, for,
if the import parity price is higher than the economic
value of the supply, the supplier could well have difficulty
defending
the excess as having any reasonable relation to economic
value. However, if in fact the supplier references its price to
prices
prevailing in other comparable but competitive markets, then
its price would be likely to approximate to economic value.
[47] Price regulation
As noted previously, the spectre of
price regulation was of great concern to the Tribunal. The Tribunal
emphasised:
75
‘[W]e eschew the role of price regulator, and so the vast quantum
of the evidence and much of the argument submitted to us is
simply
irrelevant’ and added:
76
‘
The standard
approaches and instruments of competition enforcement comprise
interventions in the structure of the affected markets
and in the
conduct of its participants so as to produce outcomes that are, as
far as possible, unsullied by the possession or,
rather, the abuse,
of market power. As already noted, there are compelling conceptual
and practical reasons why a competition authority
should eschew a
price regulation role and if it is possible ... to prove and remedy
excessive pricing without resort to the methodologies
of price
regulation, then this is the approach that must be favoured.’
The powers and duties of the
competition authorities, and their limitations, are contained in the
Act. The authorities are not called
upon to set a price for a good or
service. It is incumbent on the Tribunal, if necessary to determine
whether a specific price
is ‘excessive’ in contravention of
s
8(a).
There is no suggestion in the Act that the competition
authorities should regulate and set prices. To the extent that the
enquiry
requires the examination of a possible excess of the charged
price over economic value, as defined, that enquiry is required by

virtue of the express formulation employed by the Act.
[48] Determining
an ‘excessive’ price
It
was remarked in
Napp
:
77
‘
Measuring whether a
price is above the level that would exist in a competitive market is
rarely an easy task. The fact that the
exercise may be difficult is
not, however, a reason for not attempting it. In the present case,
the methods used by the Director
are various comparisons of (i)
Napp’s prices with Napp’s costs, (ii) Napp’s prices with the
costs of its next most profitable
competitor, (iii) Napp’s prices
with those of its competitors and (iv) Napp’s prices with prices
charged by Napp in other
markets. Those methods seem to us to be
among the approaches that may reasonably be used to establish
excessive prices, although
there are, no doubt, other methods.’
Evans
and Padilla,
78
in their discussion of various policies towards the prohibition of
excessive pricing by dominant firms, emphasise the ‘conceptual
as
well as practical difficulties’ of determining what constitutes an
‘unfair’ price for purposes of Article 82 of the
EC Treaty.
79
Due to the complexity of the exercise more than one method is
employed under Article 82.
80
Primarily, a comparison between the actual price and the costs of
production is made but, where this is not possible, the price
can be
compared to prices in comparable markets.
81
In comparing prices the European Court makes use of different
comparator prices.
82
[49]
Section
8(a)
is differently constructed but, similarly, different methods
may be employed to ascertain the ‘economic value’ of the good
or
service concerned.
Section 8(a)
does not contain the same
prohibition as does Article 82. The latter proscribes the abuse of a
dominant position. This is not
against which
s 8(a)
is directed.
Section 8(a)
prohibits the charging of an excessive price but
Article 82 refers to an ‘unfair price’. The effect of
United
Brands
is that an ‘abuse’ can be found in the charging of an ‘unfair
price’ and that the latter may be a price which has ‘no

reasonable relation to the economic value of the product’. The
court did not define what was meant by this term nor did it
explain
how the absence of a reasonable relationship had to be assessed. Our
legislation proceeds from a different premise. It
borrowed from
United
Brands
the idea of a price which ‘bears no reasonable relation to the
economic value of that good or service’. What this expression

means and how it should be determined must be ascertained by the
empirical enquiry referred to.
83
The Tribunal, however, did not approach the matter in this way but,
regarded the price charged by Mittal as one having no reasonable

relation to the economic value of the good or service simply because
of the absence of normal and effective competition. Courts
often
have to quantify things in money where only a rough estimate is
possible on the basis of evidence reasonably available
to the party
bearing the onus of proof. The quantification of patrimonial
damages,
84
and of compensation necessary to avoid unjustified enrichment are
not dissimilar examples.
85
A ‘fairly robust approach’ may thus have to be adopted
particularly when account is taken that ‘long run normal’ profit

and the conceptual basis upon which this term is predicated are
notional.
86
Within the context of adjudication, which deals with
probabilities, these concepts cannot be employed with scientific
precision.
For example, where the actual price is shown, as in the
British
Leyland
case,
87
to exceed the normal price for roughly similar products to a degree
which is, on the face of it, utterly exorbitant, then the
need to
quantify economic value more precisely before concluding that the
actual price bears no reasonable relation to it may
fall away.
[50]
In
this way a
prima
facie
case would have been made out, leaving it to a firm in appellant’s
position to adduce evidence to the contrary, if it is to
avoid the
case against it becoming conclusive.
88
Likewise, where the dominant firm raises the normal price for its
product substantially without any corresponding rise in costs,
this
may indicate
prima
facie
that the new price is higher than economic value without the need to
quantify the latter more precisely.
89
Where input costs vary considerably in cycles, the dominant firm’s
actual costs may fall sharply without it carrying out a

corresponding reduction in its price. Likewise, if the firm usually
prices to import parity, it may neglect for a time to bring
its
price into correspondence with that (ultimately constraining)
maximum, relying in the short-term on customer ignorance or
inertia
in order to charge more. In consequence, the firm’s own accounting
profits may show a considerable increase during
a certain period or
periods, over and above the levels which it usually achieves. If
there is no reason to suppose that the firm’s
own usual levels of
accounting profit would have resulted in a return on capital that is
less than the notional competitive norm
(ie enough to sustain it in
business in the long run), then it would appear
prima
facie
that the firm must have earned ‘pure’ profit as a result of its
pricing during the period or periods when the spike occurred.
Thus
an adverse finding on a narrower basis than that originally alleged
may potentially be secured, without any concession that
the firm’s
prices ordinarily charged when input costs etc were higher were
themselves legitimate.
[51]
Prices
ordinarily charged locally in other markets by the same firm or by
other firms with broadly comparable cost structures
at comparable
levels of output, may obviously serve as a measure of the ‘economic
value’ of the same good or service in our
market – if the other
markets are shown to be, or can be assumed to be, characterised by
effective competition in the long
run.
90
An assumption of effective competition could usually be made in such
a case, without any unfairness to the firm accused, if the

comparative price ordinarily charged in the other markets is shown
to be lower than the actual price, after all appropriate adjustments

have been made.
91
In this way, the difficulty of directly measuring profitability
92
may be overcome.
[52]
However,
there may be no alternative to a detailed exercise in comparative
costing. If expert evidence has been given concerning
costing data,
the necessary adjustments to be made for comparative purposes, the
appropriate methodology needed to establish
the opportunity cost of
capital and allow for depreciation and replenishment of plant etc,
then findings based on an evaluation
of that evidence will have to
be made. When a lower price (eg, a rebated local price or an
ex-works export price) is said to
be sufficient to ‘cover costs’,
it is important to establish that the price concerned covers not
merely the accounting costs
but also the relevant opportunity costs
of capital.
93
Where a dominant domestic producer maintains price differentiation
between export and domestic customers, and embarks on an
expansion
of its production capacity wholly or mainly in order to increase its
export sales, then it would be difficult to avoid
the conclusion
that its export price would be at or above economic value – at the
expanded level of output intended. In any
event, the business
calculations involved in the expansion could be expected to provide
important evidence regarding both the
current and future positions.
[53]
The
experts who gave evidence at the hearing before the Tribunal all
recognised the difficulties with the necessary exercise, and
the fact
that competition authorities worldwide have struggled with excessive
price cases. None of them, however, considered it
possible to make a
finding of excessive price without doing the exercise. Professor
Roberts stated:
94
‘
Well, I have termed
broadly the conceptual issues. I mean, we are not arguing the import
parity pricing per se (inaudible) is [equivalent]
to excessive
prices. So we do agree that it is an empirical question, because we
agree you have got to analyse what the competitive
price would be and
how large the import parity based prices or how much higher the
import parity based prices are above that competitive
prices and
empirical exercise. However, it’s also important – where we’re
looking at the pricing system – to show that
it is something, which
flows from the exercise of market power. So Dr Walker says, well you
know the system really appears to
have … it is not about the
pricing system. What it is it’s about the pricing levels. Well,
we say that it must be about both.
I mean, you must analyse the
levels, but you must also analyse the way in which those prices are
attained and enforced.’
[54]
The
essence of Prof Roberts’ analysis is the recognition of the need
for an empirical exercise to be conducted in analysing whether
a
price is excessive. He concentrates, however, on his concern to show
that the reason for the price level is that the dominant
party has
abused its market power. The empirical exercise is accepted as a
necessity and therefore not elaborated on.
95
‘
Adv Loxton: So what
is the determinant that you now say that is the economic value
against which you must measure prices?
Prof Roberts: We measure
it in terms of what prices will be in a competitive market, subject
to those prices covering costs.’
Prof Roberts was asked, in
cross-examination, in regard to ‘the difficulty of establishing an
excessive price’.
96
‘
Roberts: ‘The
proposition being that it is difficult to assess?
Adv Loxton: It’s
difficult to assess and difficult to implement.
Prof Roberts: It’s
certainly true that the US adopted a different approach because of
the difficulties. However, it is certainly
an empirical exercise,
which requires one to gather a lot of factual evidence together.
However, I think you mentioned it in your
proposition that this is a
similar experience that has been found in the EU and that I would say
there that while there is a lot
of debate around the EU’s
application, that it is very notable, but one still finds this being
debated and one finds, for example,
the UK’s office of Fair Trading
setting up standards for assessing excessive pricing.
So, I certainly don’t
disagree that it’s an empirical exercise and there are challenges
certainly to be overcome, but it is
not an exercise, which the US has
not undertaken or jurisdiction within the EU have not set out
methodologies for address.’
The erroneous approach of the
Competition Tribunal also explains why Mittal ends up in the
anomalous and wholly impractical position
of having been found guilty
of and heavily fined for excessive pricing, without any finding of
which prices for which of the variety
of products were excessive, nor
of the period in which the excessive prices were charged, nor of what
a non-excessive price would
have been, nor of the amount of the
excess which it was found to have charged, nor any indication of how
– in changing market
conditions, eg where production costs may have
risen, or supply and/or demand may have changed – an ‘excessive
price’ would
in the future be determined.
[55] Detriment to consumers
As
far as detriment to consumers is concerned the Tribunal remarked:
‘
[71] An overly
fastidious defence counsel may wish to make something of the
subordinate phrase ‘
to
the detriment of consumers
’
though none have attempted to do so here. What, after all, could
more clearly inure to the detriment of consumers than an “excessive

price”? We will, without further consideration, as, implicitly,
have the defence counsel, treat this phrase as simply a superfluous

description of an excessive price rather than a qualifier of its
likely effects.’
Section
8(a)
requires that the excessive price be charged ‘to the
detriment of consumers’. This requires a value judgment. However,
it
does not appear to be in dispute that, if the prices complained
of are held to be excessive, detriment to consumers will have
resulted. However, a few words are necessary. The customers to whom
the excessive price is charged may be consumers (users) of
the good
or service concerned, but not necessarily so. Although they may
overlap, ‘customers’ and ‘consumers’ appear
to be distinct
concepts in the Act.
97
There
is, generally speaking, a presumption or reasonable supposition that
the same words or expressions in the same Act are intended
to bear
the same meaning where no indication to the contrary is given.
98
Conversely, where the Legislature uses a different expression, it is
presumed to have intended a different meaning.
99
Moreover, an excessive price may be charged to a single customer; in
the expression ‘to the detriment of consumers’ the Legislature

uses the plural. S
utherland
and Kemp
100
suggest that downstream consumers of the product in question or of
products derived from it are the only relevant category of

consumers. However, where customers of the dominant firm themselves
consume the product – whether productively or as final
consumers –
it would seem artificial to exclude them from the ambit of the term.
[56] Application to Lead Further
Evidence
From the foregoing it is clear that
the Tribunal misconstrued its powers and came to a decision that
cannot be justified by the
words on the Act. Its judgment and order
must therefore be set aside. This court is in terms of
s 37(2)
entitled to
‘
give any judgment or
make any order, including an order to –
confirm, amend or set
aside a decision or order of the Competition Tribunal; or
to remit a matter to the
Competition Tribunal for a further hearing on any appropriate
terms.’
[57]
The
second and third appellants have requested this court to allow
further evidence to be lead either by hearing the evidence itself
or
by setting aside the decision of the Tribunal with directions to
receive further evidence and to reconsider its decision and
orders in
the light of all the evidence including the further evidence to be
lead.
101
An application to hear further evidence will be granted only in
exceptional circumstances. In
S
v De Jager
102
it was said:
‘
(a) There should be
some reasonably sufficient explanation, based on allegations which
may be true, why the evidence which is sought
to be lead was not lead
at the trial.
(b) There should be a
prima
facie
likelihood of the truth of the evidence.
(c) The evidence should
be materially relevant to the outcome of the trial.’
In
addition, the evidence sought to be introduced must not be of such
nature as to prejudice the other party to the dispute. This

consideration, however, is not necessarily determinative.
103
[58]
The
second appellant seeks to introduce the evidence of Mr Leon William
Price, the chief executive officer of the third appellant.
104
Briefly, the evidence relates to the operation of the international
steel market,
105
the role of the second appellant rendering services to Mittal and the
effect of the JV agreement on the domestic steel price. Price
refers
in his affidavit to the earlier affidavit of Mr Peter Charles Howard
Jones
106
which was used in opposing the amendment sought by the respondents.
The evidence will establish that the second appellant is an

established trader in the international steel market and in 2007 31
per cent of its business was sourced from Mittal. In 2007 Mittal

exported 26.27 percent of its production. The second appellant
operates in the international steel market which excludes South

Africa. Price remarks:
107
‘The suggestion that export sales to MIHBV are domestic because a
ship is loaded in a South African dock is completely erroneous.’
In
the international market the second appellant is a small player
having less than 2,5 per cent of it. The second appellant does
not
offer prices to Mittal but gathers price information from the market
and solicits offers from customers which it submits to
Mittal. Mittal
may accept or decline these offers. The second appellant undertook to
purchase the entire export capacity of Mittal.
Sales are made by
Mittal to the second appellant on a FOB stowed basis in US dollars.
Payment is made to Mittal on average 13 days
after invoice whether or
not payment has been received by the second appellant. Only Mittal’s
excess production is exported in
this way. Price states: ‘The
export allocations vary according to domestic requirements,
production capacity of the mills, and
maintenance programmes.
Domestic market requirements always take precedence over exports.’
108
It follows that the second appellant has no control over Mittal’s
allocation of products for export, its costs or domestic pricing

policy or international steel prices. It follows that export prices
will be lower than domestic prices since the ‘price paid
to the
producer at the point of shipment from the producer’s country must
be reduced by all the costs of transporting the material
to the
overseas market concerned ...’.
109
[59]
The
relief sought in the original complaint referral of was as follows:
For an order declaring
that Iscor’s practice of employing import parity pricing (as set
out in paragraph 11.1.5 above) in the
South African flat steel
market amounts to an abuse of dominance in terms of
section 8(a)
of
the Act;
For an order directing
Iscor to refrain from charging excessive prices in the South African
flat steel market;
For an order directing
Iscor to levy factory gate prices in the South African flat steel
market, irrespective of whether the product
is intended for export
or not;
For an administrative
penalty to be levied on Iscor of 10% of its annual turnover for the
financial year ended 30 June 2003 in
the South African flat steel
market;
For those respondents
that oppose the complaint to pay the costs incurred by the
complainants in prosecuting the complaint.
[60]
That
relief was aimed at Mittal’s setting its domestic prices in the
South African flat steel market at import parity. The second

appellant had no control over the setting of Mittal’s domestic
prices, and since the JV Agreement dealt only with the second

appellant obtaining offers for Mittal from foreign buyers at the best
available international prices for the production capacity
in excess
of domestic demand, none of the relief originally sought could affect
the second appellant’s rights under the JV Agreement.
Even the
original prayer C, it was submitted, was irrelevant to the second
appellant, since under the JV Agreement no question
of Mittal
offering any prices, let alone factory gate prices, arose. In these
circumstances the second appellant, against whom
no relief was
sought,
110
and whose role as the ‘export channel’ of Mittal was – in the
opening address of the Complainant’s counsel – said to
‘find no
echo’ in the remedies sought by the Complainants, had no reason to,
and did not, participate in the hearing of evidence
which commenced
on 15 March 2006 and concluded on 25 April 2006. Counsel for the
respondents expressed himself in argument as follows:
111
‘
Adv Unterhalter:
Sorry, I perhaps should have made it clear. The Mac Steel arrangement
is simply the export channel, which ensures
that effectively
arbitrage doesn’t take place. So, what happens is that under the
Mac Steel joint venture arrangement all exports
are done through that
singular channel and consequently it is impacted only because it is
an arrangement, which ensures that effectively
arbitrage can’t take
place.
So, it’s really one of
the mechanisms that’s used to ensure market segmentation and the
continuance of excessive pricing.
Chairperson: But then
this allegation finds no echo in the remedies that you seek.
Adv Unterhalter: No, it
doesn’t, and it’s for that treason that we have not ... I mean we
cited Mac Steel, but they have simply
indicated that they will abide
the decision. So, we simply use it for evidence. We don’t seek
specific remedies to undo that
arrangement.’
[61]
After
the evidence was completed and on 26 April 2006, the complainants
sought an amendment to the relief sought in the prayers.
They did so
by adding, as an alternative to prayer C, a new prayer C (bis).
112
The terms of the amendment sought are as follows:
‘…
the complainants
intend to apply to the above honourable Tribunal to amend their
referral of complaint, form CT1, by substituting
the relief sought in
the referral in respect of the claim of excessive pricing with the
following:
‘
A For an order
declaring that the first respondent’s practice of employing import
parity pricing (as set out in paragraph 11.1.5
of the founding
affidavit) in the South African flat steel market amounts to an abuse
of dominance in terms of
section 8(a)
of the Act;
B For an order directing
the first respondent to refrain from charging excessive prices in the
South African flat steel market;
C For an order directing
the first respondent to levy factory gate prices in the South African
flat steel market, irrespective of
whether the product is intended
for export or not;
C
bis
In
the alternative to prayer C above
,
for an order directing that:
The first respondent
may not itself, or with any natural or juristic person, or through
any entity, vehicle, trust or other juristic
person in which it has
an interest, export flat steel products from South Africa;
The first respondent
divest its interest in the second respondent to an independent third
party or parties approved by the Tribunal
within such period and on
such conditions as the Tribunal considers appropriate;
The first respondent
may not:
impose upon any
customer of its flat steel products any condition in respect of the
customer’s use or resale of those products;
or
reach agreement on a
condition with a customer of its flat steel products, or enter into
any arrangement or understanding with
such a customer, in respect of
the customer’s use or resale of those products;
The first respondent
waive in writing any condition in any agreement concerning the use
or resale of flat steel products by a
customer;
The first respondent
make known in the public domain, at all times, its list prices,
rebates, discounts and other standard terms
of sale for flat steel
products;
D For an administrative
penalty to be levied on the first respondent of 10% of its annual
turnover for the financial year ended
30 June 2003 in the South
African flat steel market;
E For those respondents
that oppose the complaint to pay the costs incurred by the
complainants in prosecuting the complaint;
F For
an order granting further and/or alternative relief.’
[62]
The
essential amendments are contained in prayer C (bis) directed at
preventing Mittal from exporting at all. These prayers C (bis)
1 and
C (bis) 2 would, if granted, directly affect the second appellant’s
rights and interests under the JV Agreement. The second
appellant
therefore, and for the first time, participated in the proceedings,
at this stage after completion of the evidence, to
oppose the
granting of the proposed amendment introducing prayers C (bis) 1 and
C (bis) 2. The Tribunal refused the amendments
contained in the
proposed prayers C (bis) 1 and 2. In the reasons and order made by
Manoim TM
113
he said:
‘
[42] ... If the
amendment is granted Mittal argues the respondents would not have
been given proper notice of the new consequences
for them and they
would not have been given a proper opportunity to be heard. Of course
fairness and
audi
alteram partem
may
still be restored by allowing respondents an adequate opportunity
procedurally to redress their prejudice. In this case however,
proper
concern for the orderly expedition of our procedures cannot allow us
to tolerate at this late hour, an amendment whose prejudice
would
occasion such extensive remedial redress.
[43] Where an amendment
is brought as late in proceedings as this one it must, as a matter of
fairness to the opposing parties,
be accompanied by a reasonable
explanation. We have found that Harmony’s amendment does occasion
serious legal consequences for
the respondents that are not
consistent with the case originally pleaded. For this reason we are
not dealing with trivial tightening
up of relief that should always
have been contemplated. Rather the complainants in this case have,
through every outward expression
on this matter, signalled that the
joint venture was not imperilled...
[44] The complainants did
not merely remain, to borrow their own language, “supine” on
whether relief sought against the joint
venture would be sought at a
later stage – they actively sought to disabuse both respondents
from this notion. Granted, the complainants
are correct that relief
in competition cases is complex, and that sometimes a remedy that may
seem obvious in the dying moments
of a case, may not have been
obvious at its birth; but in this case the complainants have not
convinced us that it took subsequent
reflection at the end of the
litigious jousting, for an epiphany to come to them for the first
time that the joint venture needed
to face remedial action. Rather it
is more probable that the complainants had considered this throughout
– indeed the express
disavowal in the pleadings coupled with the
late reassurance by counsel seems to reinforce this; that tactically
it would be better
not to attack the joint venture as this would
leave them with one opponent rather than two. This calculation is
precisely how matter
turned out. Having made this calculation by way
of assurances given, it would be manifestly unfair to the respondents
to allow
them to change their stance now.’
[63]
The
amendments to the prayers sought to be introduced by the proposed new
prayers C (bis) (3) (i) and (ii), (4) and (5) were not
opposed by the
second appellant, and were granted. Manoim TM in allowing these
amendments said:
‘
[46] In relation to
prayers C
bis
3, 4 and 5 we have no difficulty granting the amendments. Macsteel
have raised no objection to them nor in their heads of argument
do
Mittal. These amendments are in their nature aligned to the economic
theory foreshadowed in prayer C, and unlike C
bis
(1) and (2), were not the subject of any prior legal representation.
Again, unlike C
bis
(1) and (2, they do not threaten the legal edifice of the Macsteel
joint venture arrangement.’
[64]
Having
succeeded in its opposition to the introduction of the proposed new
prayers C (bis) 1 and 2 – which would have affected
the second
appellant’s rights and interests under the JV Agreement - the
second appellant was assured that its rights and interests
under the
JV Agreement would remain unaffected by prayers C (bis) 3, 4 and 5 by
other remarks of Manoim TM refusing the amendments
proposed by
prayers C (bis) 1 and 2 and granting the amendments proposed by
prayers C (bis) 3 (i) and (ii), 4 and 5.
114
[65]
Mr
Cilliers, who appeared together with Mr Cockrell and Mr Turner on
behalf of the second appellant, submitted that, for these
reasons,
the second appellant participated during the closing argument only to
a limited extent.
115
In his oral presentation Mr Cilliers submitted that, in these
circumstances, any relief which may be granted could not affect the

second appellant’s rights or interests under the JV Agreement, and
that this could not be subverted in any way, including dressing
up a
remedy as having only ‘economic consequences’ while in substance
affecting the second appellant’s rights under the JV
Agreement.
Furthermore, he submitted that prayer C (that Mittal ‘levy factory
gate prices in the South African flat steel market,
irrespective of
whether the product is intended for export or not’) could not
extend to the second appellant which obtained prices
in the
international steel market. The second appellant did not consider
itself as a ‘customer’ of Mittal as contemplated by
prayers C
(bis) 3(i) and (ii) or C (bis) 4. Counsel’s response to the
Tribunal was that the second respondent did not understand
it to be
affected by these prayers in particular prayer C (bis) 3 (i) and (ii)
and C (bis) 4.
116
[66]
In
his opposing affidavit Mr Jones stated that the market in which the
second appellant operates is ‘an international one, and
excludes
the South African domestic market’.
117
The second appellant purchases and exports only Mittal’s excess
production not required for the domestic market.
118
It has no control over Mittal’s pricing policy or production
costs.
119
It solicits offers from overseas purchasers and conveys these offers
to Mittal.
120
There is no link between the prices which the second appellant
obtains in the international market and the domestic prices.
121
Jones made it clear that he understood the reference to the ‘South
African steel market’ in the original prayer C to limit
the relief
sought to ‘local merchants or end-users (not MIHBV)’. The second
appellant ‘does not operate “in the South African
flat steel
market.”’
122
Prayers C (bis) 3 and 4 were both intended to bring about an end to
the exclusivity arrangement between Mittal the second appellant,
ie
introducing a new form of relief.
123
It was submitted that there was no indication that prayers C (bis) 3
and 4 would include under ‘customer’ the second appellant
or that
those prayers would affect the second appellant’s operations
outside the domestic steel market or under the JV agreement.
[67]
In
view of this chronology and the manner in which the forms of relief
were couched, it seems that the second appellant is justified
in its
contention and belief that on a proper construction of the amended
prayers for relief, as formulated, none of them could,
even if
granted, affect the second appellant’s rights and interests under
the JV Agreement. The declaratory order sought in
prayer A would
determine the ambit of any conduct which may be found to be
prohibited conduct; all the other orders sought would
only constitute
mandatory or prohibitory interdicts to give effect to such
declaratory order. The declaratory order sought in
prayer A,
however, was limited to the pricing practice of Mittal ‘in the
South African flat steel market’. The JV Agreement,
however, show
that the second appellant did not trade in, or have anything to do
with Mittal’s pricing policies, or any pricing
of flat steel, or
any steel, in the South African market. Under the JV Agreement the
second appellant brought to Mittal offers,
which Mittal could, if it
so chose, accept in order to dispose of its export volumes. Hence,
prayer C (bis), like prayer A (and
prayers B and D) was not construed
as applying to the trading activities of the second appellant
pursuant to the JV Agreement.
More specifically, the ‘customer’
referred to in prayers C (bis) 3(i) and C (bis) 3(ii) and C (bis) 4,
was not seen as applying
to the second appellant, who, acting for a
fixed margin as export arm of Mittal, arranged sales of Mittal’s
export volumes in
the international steel market with ultimate
purchasers with whom volumes, prices and destinations had been
agreed. On the contrary,
the word ‘customer’ in prayers C (bis)
3(i) and (ii), and C (bis) 4, it was submitted, could only be
reasonably construed as
applying to a ‘customer’ who may wish to
resell the Mittal products in the domestic market – a possibility
for which the
very nature and scope of the JV Agreement left no room.
Moreover, since the Competition Tribunal had refused the application
to
introduce prayers C (bis) 1 and 2, it would reasonably follow that
the second appellant remained unconstrained to continue its exports

under the JV Agreement, the essence whereof was for the second
appellant to obtain the best international prices for Mittal’s

surplus production, and bring them to Mittal for acceptance or
rejection. These prayers were reproduced in orders 2(i), 2(ii)
and 3
of the Tribunal’s final order:
‘
Mittal SA may not:
(2) (i) Impose upon any
customer of its flat steel products any conditions in respect of the
customers use or resale of those products;
or (ii) Reach agreement on
a condition with a customer of its flat steel products, or enter into
any arrangement or understanding
with such a customer, in respect of
the customers’ use or resale of those products.
(3) Mittal SA is ordered
to waive in writing any condition in any agreement concerning the use
or resale of flat steel products
by a customer.’
[68]
The Tribunal appears to
have intended that orders 2(i), 2(ii) and 3 should carry such a wide
meaning, ie that the second appellant
is included under the
‘customer’ referred to in those orders. This impression can be
gained from paragraph 29 of the Tribunal’s
reasons given in its
Remedies Decision where it said:
124
‘
[A]t the hearing of
final argument Mr Gauntlett, for Macsteel International, appeared
suddenly to oppose the application to his
client of the remedy
contained in C (bis) 1 and 2 [this is a reference to the original
prayers
C (bis) 3(i) and (ii) and C (bis) (4) –
see Record 1:114-5] We cannot understand Macsteel International’s
belated opposition.
This is a remedy imposed on Mittal SA and, given
that it goes directly to its pricing methodology, will, we believe,
impact upon
all domestic purchasers of Mittal SA’s flat steel
products. All that distinguished Macsteel International was that, by
being
cited as second respondent, it was given an unusual opportunity
to participate at any stage of the hearing. It chose not to do
so
and its sudden flurry of opposition during the hearing of oral
argument is eccentric to say the least.’
[69]
It is difficult to
understand how the Tribunal, (having stated in relation to the
introduction of the prayers now embodied in orders
2(i), 2(ii) and 3,
that ‘it was reasonable for the respondents to rely and … assume
that the legal edifice of the joint venture
… was not going to be
subject to a proposed remedy’, and refusing C (bis) 1 and 2 on the
basis inter alia that ‘both respondents
will be prejudiced by the
amendments insofar as they implicate the legal edifice of the joint
venture’, and stating that ‘the
prayers C (bis) 3, 4 and 5 do not
threaten the legal edifice of the Macsteel joint venture
arrangement)’, could have intended
that orders 2(i), 2(ii) and 3
should have the very opposite effect of applying to the second
appellant as a ‘customer’ of Mittal
by striking at a material
term of the JV Agreement (clause 29.1). If orders 2 and 3 were
intended to apply to the second appellant
and the JV Agreement, the
most glaring instance of a flat contradiction of the Tribunal’s
earlier statements would be order 3
that enjoins the second
respondent to waive a material term of the ‘legal edifice’ of the
JV Agreement, namely clause 29.1,
and therefore directly ‘implicates’
the ‘legal edifice” of the JV Agreement and ‘renders it subject
to a proposed [and
actually ordered] remedy.’
[70]
If the Tribunal intended
these orders to have a literal effect, they materially differ from
the terms of the amended relief sought
by the complainants. The
consequence of this is either that there was no notification to the
second appellant of the opportunity
to file additional documents, and
no compliance with
Rule 18(2)
; or that the second appellant was taken
by surprise and that the hearing was not in accordance with the
principles of natural justice
as required by
s 52(2)(a)
of the Act.
125
Very much the same considerations apply to order 4.
[71]
The
prayer for a declaratory order, which would define the scope and
limits of the prohibited conduct, was originally that Mittal’s

practice of employing import parity pricing in the South African flat
steel market, be declared an abuse of dominance. The complainants

sought to amend the nature and scope of the prohibited conduct by
seeking, in the alternative, an order prohibiting Mittal, directly
or
through an entity in which it has an interest (ie the second
appellant) from exporting flat steel products from South Africa
at
all. The application for this amendment was refused. The declaratory
order as originally prayed for, remained unchanged. The
Tribunal
declined to declare that Mittal’s ‘practice of employing import
parity pricing … in the South African flat steel
market’ amounts
to an abuse of dominance.
126
Instead in the decision the Tribunal invoked a novel ‘theory of
harm’ and ‘characterisation of the prohibited conduct’,
and
proceeded to make a declaratory order (Order 1), defining the
prohibited conduct, which had not been sought by the complainants

and, importantly, an order of which the second and third appellants
had no forewarning. Order 1 involved ‘steel merchants and
those of
its customers who receive a rebate off the Mittal SA price list’,
and the conditions of sale to them, in the definition
of the conduct
constituting an abuse of dominance. In paragraph 17 of the Remedies
Decision this is explained:
‘
It
would be unfair to deny the complainant any form of declaratory
relief because we have formulated the theory of harm in a different

form. Declaratory relief is a necessary prerequisite for a
complainant to commence a civil claim for damages in terms of the Act

as it is the manner in which the Tribunal characterises the conduct
found to be an abuse.
127
As this case illustrates, even though the Tribunal may find in favour
of a complainant, the characterisation of the prohibited
conduct may
be different. Accordingly, we will not declare a particular price
level to be excessive but we have reformulated Prayer
A in a manner
that is consistent with the conduct that we have found to be an abuse
in this case. It now reads as follows:
Mittal SA’s practice
of reducing the supply of flat steel products available for sale on
the domestic market, through the imposition
of conditions of resale
on the steel merchants and those of its customers who receive a
rebate off the Mittal SA list price, is
an abuse of dominance in
terms of
Section 8(a)
of the Competition Act.’
[72]
Order
1 differs from the declarator sought by the complainants ( an order
that the practice of employing import parity pricing
in the South
African flat steel market a prohibited practice). Despite the limits
inherent in order 1, orders 2(i), 2(ii) and 3
are formulated so as to
apply to any ‘customer’ of Mittal for flat steel products,
regardless of whether it is a customer supplied
with products
‘available for sale in the domestic market’; and even where there
is no ‘imposition’ of conditions of resale
on the customer (see
order 2(ii)); and regardless of whether the customer receives ‘a
rebate off the Mittal SA domestic list
price’. If orders 1, 2 and 3
are to be read literally they could well be applicable to the second
appellant. The second appellant
submitted that had they had notice or
forewarning of the substance and formulation of order 1, it would
have presented evidence
and argument to show that order 1, and the
consequential orders 2, 3 and 4, should not be made in terms which
affected the rights
and interests of the second appellant under the
JV Agreement. So, for instance, the second appellant would have
presented its
own evidence to show that it does not deal in products
‘available for sale on the domestic market’; nor does it ‘receive
a rebate off the Mittal SA domestic list price’; nor are conditions
of resale ‘imposed’ on it; nor does the JV Agreement have

anything to do with preserving the possibilities of arbitrage. Hence,
also in respect of order 1, there was no compliance with
Rule 18(2)
and in any event the second appellant was taken by surprise by order
1 (which is the foundation for the other orders), and consequently

the hearing was not conducted in accordance with the principles of
natural justice as required by
s 52(2)(a)
of the Act.
[73]
We
have considered the objections to the application but it seems that a
proper case for the leading of further evidence has been
made out.
This evidence seems to be material and would, but for the
misunderstanding, have been led by the second appellant. The
evidence
to be lead has been identified. It was submitted that evidence
tendered will show that the JV agreement does not affect
the domestic
market or domestic prices and does not lead to excessive prices as
the Tribunal accepted
128
.
The Tribunal in its reasons for allowing the amendment distinguished
between reading the amended prayers qua lawyer and qua businessman

and said that the amended prayers would not threaten the ‘legal
edifice’ of the JV Agreement. But they indeed seem to affect
a
material term of the JV Agreement.
[74] Referral back to the Tribunal
The Competition Tribunal is a
specialist administrative tribunal created by
s 26(1)
of the Act. Its
functions are listed and may only be exercised in accordance with the
Act.
129
It must adjudicate on any matter referred to it under the Act, and
each matter will be referred to a panel of three. Members need
not be
lawyers: they may have qualifications and experience in economics,
law, commerce, industry or public affairs.
130
However, the chairperson must when assigning a matter to the
Tribunal, ensure that at least one member of the panel, consisting
of
three, is a person who has legal training and experience. The
Chairperson designates one of the three members of a panel to
preside
over each proceeding.
131
The Tribunal does not function as an ordinary court. Competition
proceedings involve the public interest, and under the Act, the

Tribunal has an active role to play in protecting that interest.
132
‘As a result, the Tribunal conducts its proceedings in an
inquisitorial manner, potentially calling its own witnesses,
accepting
evidence not normally admissible in a court of law,
allowing a broad range of participants, and adjusting its procedures
as it
sees fit.’
133
[75]
As
has been demonstrated in this judgment, the approach of the Tribunal,
to the question of an excessive price, the care and considerable

thought taken in its formulation notwithstanding, is fundamentally
flawed. Both the decision on the merits and the orders made
pursuant
thereto in the remedies decision should be set aside. This court
was urged in argument that, were it arrive at this
conclusion, it
should decide the matter, given that it had the benefit of all the
necessary evidence. The nature of this decision
is not a technical
legal one. It entails an evaluation of detailed economic and
financial evidence. As a specialised administrative
body possessed
of economic expertise, it follows that the Tribunal’s views on what
would be ‘excessive’ in the circumstances
of this case and within
the parameters of the law as set out in this judgment, are essential
for the proper adjudication of the
matter, particularly in a case of
such importance. The matter should therefore be referred back to the
Tribunal.
[76]
Mr
Unterhalter, who appeared with Mr Wesley on behalf of the
respondents, correctly cautioned against any cause of action that

would prolong this dispute unnecessary. For this reason, other than
the limited scope of evidence relating to matters raised
in Mr
Price’s affidavit, on which adjudication is clearly limited, there
is danger that a referral to the Tribunal on the merits
could prolong
proceedings unnecessarily.
[77]
It
is thus helpful to the expedition of further proceedings which must
be conducted within the parameters of this judgment to provide

further guidance to the Tribunal upon the referral back to it. As
we have earlier in this judgment noted,
134
where the price appears from the evidence and more particularly the
manner in which the case is pleaded and argued, to bear no
reasonable
relation to economic value, then it is upon the firm accused of a
breach of
s 8(a)
to adduce contrary evidence. In the present case,
the evidence of Mittal’s overwhelming dominance was rarely
contested. Appellants
sought to contest the finding that, with a
share of 82 % of the domestic market, Mittal was not ‘super –
dominant’ but they
produced little evidence other than arithmetic
hermeneutics to gainsay clear evidence of overwhelming dominance in
the domestic
market. The difficulties of proving excessive pricing
notwithstanding, it is precisely in the case of so dominant a firm,
that
commentators have advocated the application of an excessive
pricing provision by the relevant competition authority.
135
In this case Mittal imposes a system of IPP. It accepts that this
results in higher prices for the domestic market price over
the
export market price. Its explanation, briefly summarized, was set
out in Mittal’s written argument thus:
‘
On Mittal’s version
(which the Tribunal did not grapple with nor reject), its business in
the export market would not on its own
be sustainable, nor would its
business in both markets be sustainable at the export price. The
net realised export price is a
low price which Mittal is forced to
accept in the export market because of its locational disadvantage.
If one thinks away for
the moment the existence of MJV as the intermediary in export sales
and postulates the ultimate export customer
as purchasing directly
from Mittal FOB in South Africa, an export customer is in essence one
who represents the Mittal that he
will buy a particular volume of
steel from Mittal but is prepared to pay no more than (say) $470 pt
FOB in Durban, because if the
price were higher he could get the
product cheaper domestically or from an exporter is (say) Brazil or
China. Mittal justifiably
regards the price as very low, and
unsustainable if applied to its business as a whole. However,
because the price will cover
variable cost and make some contribution
to fixed cost, it makes business sense to do the deal. Given the
basis of the transaction,
it is perfectly legitimate for Mittal to
hold the customer to its representation by way of a condition against
domestic resale.
Such a condition merely prevents the customer from
representing that he is a customer in the export market when in truth
he is
a customer in the domestic market. MJV as an intermediary
simply takes place of this national export customer, and is thus
subject
to the condition.’
[78]
Mr
Rogers, who appeared with Mr Loxton and Mr Gotz on behalf of first
appellant, in reply rather tellingly conceded, in effect,
that the
IPP system of pricing in the domestic market ‘subsidised’
Mittal’s export business. In short, Mittal’s case
was about its
justification for its pricing policy and that was based upon the
argument that IPP was required for Mittal’s overall
business,
domestic and export. Respondent’s case was also different from
the approach adopted by the Tribunal. Dr Roberts,
its economic
expert, provided the following clear conclusion on its case about
excessive pricing.
‘
To assess the
excessiveness of prices of local steel set on an import parity basis,
we follow the practice of assessing the prices
against various
comparitors. We then assesses the comparitors in terms of whether
these prices can be taken as based on commercial
decisions, yielding
a reasonable return , on the basis of efficient operations. In
summary, we find that import-parity prices
are excessive relative to
indictors of a competitive price, which include Iscor’s net export
prices, prices for firms producing
products for the secondary
exports, prices for firms competing with substitutes downstream and
prices for multi-national corporations
that can locate production
elsewhere. The magnitude of the mark-up of local prices over these
competitive price benchmarks ranges
from approximately twenty per
cent to approximately fifty per cent.’
136
Further,
in dealing with the export price comparative, Mr Unterhalter
submitted that for basic products (hot rolled coil, cold rolled
coil
and galvanized steel), over the five year period for which the
respondents were provided with data, Mittal’s local IPP
prices were
more than 50% above its average export prices for much of the period.
Over the same cycle, Mittal’s IPP-based prices
for hot rolled coil
were 61% above its export prices. In Mr Unterhalter’s view, export
prices are a reliable indicator of the
sort of prices that would be
achieved by Mittal for flat steel products in conditions of
competition in the domestic market, and
therefore the economic value
of flat steel. Having regard to the massive differences between
those export prices and the domestic
prices charged by Mittal, the
respondents contended that Mittal’s domestic IPP-based prices bore
no reasonable relation to the
economic value of flat steel and were
therefore excessive.
[80]
To
an extent, there is a parallel to be drawn between Mittal’s pricing
and that of the concept of phantom freight as set out in
the brief in
Weyerhaeuser
v Lyman Lamb
:
137
‘
Industry-wide
adherence to a single basing-point price system also may result in
some firms acting in a manner that would be contrary
to their
individual interests if they acted without collusion. Some sellers
are located closer than others to particular customers.
When
transportation cost is substantial relative to product cost, this
location advantage is a significant competitive benefit
that firms,
acting unilaterally and in their own self interest, would seek to
exploit. Employment of a uniform basing-point system
requires
sellers to sacrifice that locational advantage by charging “phantom
freight.” On the basis of the expert testimony
before it, the
jury could infer that such behavior would not persist in the plywood
market absent collusion – i.e., that under
competitive conditions,
southern plywood sellers seeking to expand their sales would have
reduced freight charges to nearby purchasers
until the “phantom”
cost was eliminated. Based on respondents’ evidence, the jury
could have concluded that adherence to
an artificial basing-point
system by all sellers would only be rational if those sellers who
sacrificed locational advantages were
assured by agreement of some
recompense in the form of enchanced general price.’
The
use of phantom freight appears to approximate the IPP system adopted
by MIttal in the present case. It thus further illustrates
the
need for a proper evaluation of Mittal’s explanation of its IPP
policy within the context of the wording of
s 8(a)
read together with
s 1(i)
(ix).
[81]
In
summary, the dominance of Mittal read together with its case in
answer to respondent’s case, as pleaded, raised a
prima
facie
presumption of a contravention of
s 8
(a). The Tribunal was
therefore required to analyse the evidence to determine whether
Mittal’s justification rebutted this
presumption sufficiently for
it to conclude, on the probabilities, that no breach of
s 8(a)
, as
alleged, had been committed. That analysis does not require further
evidence but rather an examination of the evidence in
terms of the
statutory framework as set out in this judgment.
138
[82]
In
Anglo South Africa Capital
(Pty) Ltd v Industrial Development Corporation of South Africa Ltd
(Intervening)
139
this court set out its
approach to referrals as follows::
‘
The ordinary course in
such a dispute is to refer a matter such as this back to third
respondent because a Court is slow to assume
a discretion which has
been granted by the Act to a tribunal (see
Johannesburg
City Council v Administrator, Transvaal & Another
1969 (2) SA 72
(T) at 76). Case law supports the conclusion, however,
that a reviewing court will itself correct a decision of a tribunal,
notwithstanding
the general approach where the result is a foregone
conclusion, where further delay may cause undue prejudice, or where
the Tribunal
or functionary has exhibited bias or incompetence which
would render it unfair to expose a party to the very same
jurisdiction.
This approach has been confirmed in
Erf
167 Orchards CC v The Greater Johannesburg Metropolitan Council
1999(1) SA 104 (SCA) where Ngoepe, AJA held at 109C-F:
“
In approving the
plan in question, the first respondent was discharging its
administrative functions. When setting aside such a
decision, a court
of law will be governed by certain principles in deciding whether to
refer the matter back or substitute its
own decision for that of the
administrative organ. The principles governing such a decision have
been set out as follows:
‘
From a survey… of
the decisions it seems to me possible to state the basic principle as
follows; namely, that the Court has a
discretion to exercise
judicially upon a consideration of facts of each case and that
although the matter will be sent back if
there is no reason for not
doing so, in essence it is a question of fairness to both sides.’
(Livestock & Meat Industries
Control Board v Garda 1961(1) SA 342
(A) at 349G…
The general principle
is, therefore, that the matter will be sent back unless there are
special circumstances giving reason for
not doing so. Thus, for
example a matter would not be referred back where the tribunal or
functionary has exhibited bias or gross
incompetence, or when the
outcome appears to be foregone.”
I propose to deal with
the three exceptions to the general rule as set out in the
Erf
167 Orchards CC
case. In my view, the result in this dispute is not a foregone
conclusion. Questions arise as to the power of third respondent,

acting in terms of
section 53
, to admit a party to merger proceedings
of this kind. In particular, reference can be made to the various
objectives of the Act
in terms of
section 2
, including that small and
medium size enterprises have an equitable opportunity to participate
in the economy (52(e)); the promotion
of a greater spread of
ownership, in particular to increase the ownership stakes of
historically disadvantaged persons (52(f)).
The decision as to who
should be appropriately admitted as a participant must be made with
reference to the Act as a whole, including
its purposes, two of which
I have outlined. In the circumstances of this dispute it cannot be
said that it is a foregone conclusion
that either first respondent
should be refused rights of intervention, or admitted as a
participant.’
[83]
Given
the conclusion at which this court has arrived, an adverse costs
order in respect of the merits hearing against either of
the parties
would not be appropriate. Hence there will be no order as to costs.
[84]
The
following order is made:
(1) The decision and the order of the
Tribunal dated 27 March 2007 and 6 September 2007 respectively are
set aside;
(2) The matter is remitted to the
Tribunal for
(a) the hearing of viva voce evidence
by the parties in relation to the matters canvassed in the affidavit
of Leon William Price
in the application dated 20 February 2008; and
(b) the determination, by way of an
assessment of the evidence which has already been heard by the
Tribunal, whether Mittal contravened
section 8(a)
of the
Competition
Act 89 of 1998
in respect of the prices it charged for flat steel
products and any consequent relief.
(3) The respondents jointly and
severally are ordered to pay the costs of the application to adduce
further evidence.
Davis JP
Malan JA
Tshiqi JA
Counsel
for first appellant: CDA Loxton SC; Owen Rogers SC; and AG Gotz
Attorneys
for first appellant: Bell Dewar and Hall
Counsel
for second and third appellants: SA Cilliers SC, A Cockrell and DA
Turner
Attorneys
for second and third appellants: Edward Nathan Sonnenbergs
Counsel
for first and second respondents: D Unterhalter SC and MA Wesley
Attorneys
for first and second respondents: Cliffe Dekker Hofmeyr Inc
Amici
curiae: Robert Petersen SC; Hamilton Maenetje and Michelle le Roux
Date
of hearing: 23 & 24 October 2008
Date
of judgment: 29 May 2009
1
The late classical doctrine of
laesio
enormis
in terms of which ‘een
verkoop tegen een prijs lager dan de helft van de waarde der zaak
kon worden aangetast’ (JC van Oven
Leerboek
van Romeinsch Privaatrecht
(1948) 3ed
para 139 at 247) has become abrogated by disuse or was never part of
South African law. In
Tjollo Ateljees
(Eins) Bpk v Small
1949 (1) SA 856
(A)
Van den Heever JA said at 871 that ‘the doctrine that persons of
full legal capacity can resile from contracts into which
they have
solemnly entered in the absence of fraud, duress or excusable
mistake, was never part of the law of South Africa and
in the few
cases in which it was applied, it was done so by mistake.’ By some
turn of history the doctrine, albeit that South
African law does not
require a price to be ‘fair’, has been ‘revived’ by
s 8(a)
as a prohibition of an ‘excessive’ price.
2
Section 58.
3
">
3
Merits Decision paras 47, 164 ff, 189.
4
Merits Decision para 187:
‘
Moreover,
it is clear from the evidence that the complainant and the other
witnesses who are steel users believe that their commercial

activities are disadvantaged in their respective market places
because of the price charged for a ‘must have’ input, steel.

This is what has caused them to invoke
Section 8(a)
of the Act -
they are aggrieved by the absolute price charged for steel. Hence
what we have been asked to pronounce upon is
the inability of
domestic producers to bargain over the price of Mittal SA’s excess
supply of flat steel products. What clearly
emerges is
dissatisfaction – and a degree of puzzlement – at the notion
that domestic steel prices are based on market conditions
in distant
markets rather than on supply and demand conditions in the South
African market and that notional transport charges
are levied on a
product that is not, in physical reality, transported over the vast
and costly distances that nevertheless constitute
an important
element of the domestic price. The complainants clearly believe ...
that the price of steel should be determined
by local demand and
supply conditions which, in their estimation – and they are
correct – would, if free of abusive conduct,
produce a lower steel
price. Hence the allegation has been one of excessive pricing.’
5
The JV Agreement can be found at Record 2:372ff.
6
Dednam Record 47:10808; Jones Amendment Application Record 3:680.
7
Jones Amendment Application Record 3:679.
8
Clause 29.2.1 at Record 2:417.
9
Clause 30.1 at Record 2:417.
10
Tomlinson 46: 10429; Dednam 47: 10636-7.
11
Dednam Record 47:10808 ff.
12
Paras 83-4.
13
Merits Decision para 129.
14
Merits Decision para 2. In para 133 the Tribunal noted that the
second enquiry was mandated because
s 8(a)
is ultimately directed at
conduct and so: ‘were we to derive our conclusions regarding the
alleged existence of excessive pricing
solely by reference to
structure, we would effectively be concluding that certain
structures – uncontested firms in incontestable
and unregulated
markets – were prohibited per se. We do not believe that this
accords with the character of
section 8.
It is conduct that abuses a
structural advantage – dominance or, in
section 8(a)’s
case,
‘super-dominance’ – that is prohibited. It is not the
underlying structure that is prohibited.’
15
Merits Decision para 147.
16
Merits Decision para 168.
17
See Sutherland and Kemp
Competition
Law of South Africa
(Service Issue 11
October 2008) para 7.9.2.
18
Merits Decision paras 96 and 106.
19
Merits Decision paras 108 and 125–127.
20
Merits Decision para 134.
21
Merits Decision para 147.
22
Merits Decision para 147.
23
Merits decision para 151.
24
Merits Decision paras 38–47.
25
Merits Decision paras 44–46.
26
Merits Decision para 43.
27
Merits Decision paras 43 nn 35 and 21; paras 61, 163.
28
Merits Decision para 168.
29
Merits Decision paras 168–169 and 177.
30
See also para
151 of the
Merits Decision: ‘By contrast, we emphasise again,
where
the price appears to have no explanation other than the pure
exercise of monopoly power
,
then the price is not reasonable in relation to economic value. In
other words what is relevant in our enquiry is not the arithmetic

relationship between the price and some or other conception of cost.
What is relevant are the underlying considerations that
underpin
the price level. Are these considerations founded in competition in
its many degrees and guises or are they founded
in pure monopoly?’
31
Merits Decision para 81.
32
Merits Decision para 81 n 67. See also para 89 where the Tribunal
again stresses that it will follow the approach set out in
its
decision ‘where possible’.
33
Cf
Standard Bank
Investment Corporation Ltd v Competition Commission and Others;
Liberty Life Association of Africa Ltd v Competition
Commission and
Others
[2000] ZASCA 20
;
2000 (2) SA 797
(SCA) at
814F–815A.
34
Reyburn
Competition Law of South Africa
(Issue 5)
page 2–4. See
Mondi
Ltd
and
Kohler
Cores
and Tubes (a division of Kohler
Packaging Ltd) v Competition
Commission
[2003] 1 CPLR 25
(CAC)
35-36;
Federal-Mogul Aftermarket
Southern Africa (Pty) Limited v The
Competition Commission
[2005] 1 CPLR
50 (CAC) 53.
35
United Brands Company and United Brands Continental BV v The
Commission of the European Communities
[1978] EUECJ C-27/76
;
[1978] 1 CMLR 429.
36
Merits Decision para 137.
37
Merits Decision paras 138-9.
38
See
Mondi Ltd and Kohler Cores and Tubes (a division of Kohler
Packaging Ltd) v Competition Tribunal
[2003] 1 CPLR 25
(CAC) at
35J-36B;
Federal-Mogul Aftermarket Southern Africa (Pty) Limited
v The Competition Commission and another
[2005] 1 CPLR 50
(CAC)
at 53A-E;
Standard Bank Investment Corporation Ltd v Competition
Commission and Others
;
Liberty Life Association of Africa Ltd
v Competition Commission and Others
[2000] ZASCA 20
;
2000 (2) SA 797
(SCA) at
814F-815A.
39
43/CAC/Nov04.
40
When interpreting a statute, the objective is to ascertain what the
legislature intended by using the words chosen. It must
always be
assumed without counter pointers that statutory language, as it
stands, is a reliable expression of legislative intent.
Accordingly,
the starting point in any interpretative inquiry is to establish the
ordinary grammatical, dictionary or literal
meaning of the words
themselves (
S v Zuma & Others
[1995] ZACC 1
;
1995 (2) SA 642
(CC) paras 17–18 at 652H–653A).
Courts
(and tribunals) are thus required to look first at the language of
the statutory instrument and when the words are ‘clear
and
unambiguous, to place upon them their grammatical construction, and
to give them their ordinary effect’
(
Venter v R
1907
TS 910
913;
Bhyat v Commissioner for Immigration
1932
AD 125
129. See also
Abrahamse v East London Municipality and
Another; East London Municipality v Abrahamse
1997 (4) SA 613
(SCA) 632G–H).
41
See for example, Evans and Padilla at 98-99
42
These provisions were probably also influenced by
United
Brands
. In para 65, for example, the
court defined dominance ‘as
a position of economic strength
enjoyed by an undertaking which enables it to prevent effective
competition being maintained on
the relevant market by giving it the
power to behave to an appreciable extent independently of its
competitors, customers and
ultimately of its consumers’. That
seems to have influenced the definition of ‘market power’ in the
Act. Notable, too,
is the fact that the ECJ found that UBC's
share
of the relevant market was ‘always more than 40% and nearly 45%’,
but held in para 109 that ‘this percentage does
not however permit
the conclusion that UBC automatically controls the market’,
considerations which may have informed the approach
to dominance in
s 7
of our Act, in terms of which a firm with a market share above
45% is deemed to be dominant.
43
[2001] ZACC 16
;
2001 (3 SA 382
(CC) para 22. In
Veldman v Director of Public
Prosecutions, Witwatersrand Local Division
2007 (3) SA 210
(CC)
para 26: ‘Also central to the rule of law is the principle of
legality which requires that law must be certain, clear
and stable.
Legislative enactments are intended to “give fair warning of their
effect and permit individuals to rely on their
meaning until
explicitly changed”' (Mokgoro J). Ngcobo J para 70 said: ‘The
rule of law embraces, among other things, the
requirement that laws
be “ascertainable in advance so as to be predictable and not
retrospective in its operation.”’
44
See Merits Decision paras 72, 84, 96, 106, 121 and 186.
45
See para 84 cited above para 16 and also para 96: ‘In summary then
our approach is to follow the schema of the Act and the
standard
approach to allegations of abuse of dominance which, as we have
seen, derives dominance from specified
market shares
and the
possession of
market power.
Following this approach, it
reasonably holds that the power to price ‘excessively’ is the
preserve of firms of overwhelming
size relative to the market in
which they are located and which are, in addition, markets
characterised by unusually high entry
barriers. That is, the market
share enjoyed by the firm in question should approximate 100% and
there should be no realistic
prospect of entry –
in other
words the market should be both uncontested and incontestable
.
The concept of ‘super dominance’ and the special
responsibilities that attach to this privileged status is well
recognised
...’ See para 106: ‘[I]t is our view that
Section
8(a)
is precisely intended to apply to those rare markets that are
uncontested
(monopolised or “super-dominated”),
incontestable
(subject to insurmountable entry barriers) and
unregulated
(not subject to price regulation).’
The
Tribunal’s approach is defended by David Lewis ‘Exploitive
Abuses – A Note on the Harmony Gold v Mittal Steel Excessive

Pricing Case’ paper presented at the
35
th
Annual International Antitrust Law and Policy Conference
25-6
September 2008 hosted by the Fordham Competition Law Institute, New
York. The Tribunal’s approach limiting the operation
of
s 8(a)
to
actual or virtual monopolies could well lead to the exclusion of
oligopolies from its ambit. Cf para 150 and
Mondi Ltd and Kohler
Cores and Tubes (a division of Kohler Packaging Ltd) v Competition
Tribunal
[2003] 1 CPLR 25
para 41.
46
Merits Decision paras 96, 162.
47
Moreover, the idea that the market must be ‘incontestable’ does
not convince. For example, in an oligopoly the oligopolists
would be
able to exercise an effective competitive constraint on each other
but, as a matter of business calculation, separately
choose not to
do so. The market would be contestable, although not in fact
contested, while excessive prices may be charged.
Moreover, even in
the case of a monopolist, the Tribunal’s idea cannot be sustained.
The market may be incontestable at the
high price which the monopoly
actually charges, but become contestable at a still higher price (by
potentially drawing in competitors).
The current price may thus be
judged excessive but (on the Tribunal’s reasoning) the still
higher price could not be judged
excessive.
48
The
Shorter Oxford English Dictionary
defines ‘value’ as:
‘1. That amount of some commodity medium of exchange, etc., which
is considered to be an equivalent
for something else; a fair or
adequate equivalent or return. 2. The material or monetary worth of
a thing; the amount at which
it may be estimated in terms of some
medium of exchange or other standard of a like nature. ME. The
equivalent (in material
worth) of a specified sum or amount. Late ME
…’
49
See Merits Decision para 164. See also para
189:
‘ ... We have ... asked whether the structure of the market
admits of the possibility of excessive pricing. This, as
we have
elaborated, requires a showing of exceptional or super-dominance.
We have then examined the relationship between this
super-dominance,
on the one hand, and Mittal SA’s ability to price up to its
pre-selected price target, particularly given
the existence of
excess supply at that target price. What we have found is that
Mittal SA employs its super-dominance to achieve
its target price by
ensuring that the excess supply that exists at that price is removed
from the domestic market and that it
does not re-enter the domestic
market again. And because Mittal SA has no domestic competition to
speak of it does not have to
fear new supply from a domestic source.
This reduction of supply is the essence of its agreement with
Macsteel International
and it is further built into the manner in
which it grants rebates off its list price to selected domestic
customers. The result
is a price in excess of that which would
prevail in the absence of Mittal SA’s super-dominance and the
ancillary conduct that
it enables.’
50
Para 164.
51
Cf Sutherland and Kemp 7 - 40(1).
52
LAWSA
, First Reissue, vol 25
Part 1
,
sv
‘Statute Law
and Interpretation’ by Du Plessis, para 330;
Minister of Labour
and Others v Port Elizabeth Municipality
1952 (2) SA 522 (A)
533-4.
53
See above paras 4.
54
Hirsch/Montag/Säcker
Münchener Kommentar zum
Europäischen und Deutschen Wettbewerbsrecht (Kartellrecht) Band
1 Europäisches Wettbewerbsrecht
(2007) 1148 justify the
enactment of Article 82 (now 86): ‘Insbesondere die Erzwingung
unangemessener Preise stellt den geradezu
prototypischen und wohl am
stärksten mit Marktmacht in Verbindung gebrachten Missbrauch
dar. Die Fähigkeitbeherrschenden
Unternehmen, bei Abnehmern
überhöhte Preise durchzusetzen, liefert auch das stärkste
Argument dafür, das
Entstehen marktbeherrschender Stellungen im
Wege der Zusammenschlusskontrolle zu verhindern. Die Kontrolle des
Preisgebarens
marktmächtiger Unternehmen ist daher jedenfalls
im Himblick auf das mit dieser Vorschrift bezweckte Ziel des
Verbraucherschutzes
grundsätzlich eine nahe liegende Aufgabe im
Rahmen der Missbrauchkontrolle. Die Verhinderung von Überpreisen
könnte
aber auch mit volkswirtschaftlichen Erwägungen, dh.
unter dem Gesichtspunkt der Consumer Welfare im Sinne der
gesamtgesellschaftlichen
Wohlfahrt, gerechtfertigt werden.’ Cf
Motta and De Streel ‘Exploitative and Exclusionary Excessive
Prices in EU Law’ paper
presented at
8
th
Annual European Union Competition Workshop, Florence (June 2003)
at p 3.
55
United Brands Company and United Brands Continental BV v The
Commission of the European Communities
[1978] EUECJ C-27/76
;
[1978] 1 CMLR 429.
56
The latter part of the decision appears at paras 235 – 261 of the
report.
57
Para 236.
58
Para 238.
59
Paras 242-7.
60
Cf Motta and De Streel 4 ff.
61
Paras 261-8.
62
Cf
Attheraces Ltd v The British Horseracing Board Ltd
[2007]
EWCA Civ 38
(CA), paras 210 ff and
United Brands
para 249.
This the Tribunal also realised. In para 142 it said: ‘[O]ne can
safely assume that a price that is the subject of
functioning market
forces will not be deemed excessive or unrelated to the economic
value of the good in question. After all
the critical premise of
competition law is that functioning markets determine what prices
are reasonable.’ It does not follow,
however, that this
observation means that the Tribunal must determine, not price
levels, but the market conditions that generated
the price.
63
Lipsey, Courant and Ragan
Economics
12ed (1999) 173-4 define
the ‘short run’ as the length of time over which the firm has
some fixed factors of production;
the ‘long run’ as the length
of time over which all of the firm’s factors of production are
variable, but its technology
is fixed; and the
‘
very long
run’ as the length of time over which all of the firm’s factors
of production and its technology are variable. Samuelson
and
Nordhaus
Economics
13ed (1989) 976, define the ‘long run’
as a ‘term used to denote a period over which full adjustment to
changes can take
place. In microeconomics it denotes the time over
which firms can enter or leave an industry and the capital stock can
be changed.
In macroeconomics, it is often used to mean the period
over which all prices, wage contracts, tax rates and expectations
can
fully adjust.’ The ‘short run’ in contrast is a period ‘in
which all factors cannot adjust fully’ (982). In
Ahmed Saeed
Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur
Bekämpfung unlauteren Wettbewerbs eV
[1990] 4 CMLR 102
para
43 where unfair conditions in airline tariffs were considered the
ECJ said: ‘Certain interpretive criteria for assessing
whether the
rate employed is excessive may be inferred from Directive 87/601,
which lays down the criteria to be followed by
the aeronautical
authorities for approving tariffs. It appears in particular ... that
tariffs must be reasonable related to the
long-term fully allocated
costs of the air carrier ...’ See also Motta and De Streel 5-6.
64
Lipsey
et
al
172: ‘’Economists often use the term ‘normal profits’ to
refer to the opportunity costs of capital and risk taking.
When
this definition is used, we would say that the firm must earn
normal profits if it is to be willing to stay in the industry
…
It is important to be clear about the various meanings of the term
profit
...’. Alfred Marshall wrote in
Principles
of Economics
8ed
(1920) 1930 Reprint 617-9: Ԥ 4. [T]here is in each trade
and in every branch of each trade, a more or less definite
rate of
profits on turnover which is regarded as a ‘fair’ or normal
rate. Of course these rates are always changing in
consequence of
changes in methods of trade; which are generally begun by
individuals who desire to do a larger trade at a lower
rate of
profit on turnover than has been customary, but at a larger rate of
profit per annum on their capital. If however there
happens to be
no great change of this kind going on, the traditions of the trade
that a certain rate of profit on turnover
should be charged for a
particular class of work are of great practical service to those in
the trade. Such traditions are
the outcome of much experience
tending to show that, if that rate is charged, a proper allowance
will be made for all the costs
(supplementary [fixed] as well as
prime [variable]) incurred for that particular purpose, and in
addition the normal rate of
profit per annum in that class of
business will be afforded. … This is the ‘fair’ rate of
profit on the turnover which
an honest man is expected to charge
for making goods to order, when no price has been agreed on
beforehand; and it is the rate
which a court of law will allow, in
case a dispute should arise between buyer and seller. § 5.
During all this inquiry
we have had in view chiefly the ultimate,
or long-period or true normal results of economic forces; we have
considered the
way in which the supply of business ability in
command of capital tends in the long run to adjust itself to the
demand; we
have seen how it seeks constantly every business and
every method of conducting every business in which it can render
services
that are so highly valued by persons who are able to pay
good prices for the satisfaction of their wants, that those
services
will in the long run earn a high reward. The motive force
is the competition of undertakers: each one tries every opening,

forecasting probable future events, reducing them to their true
relative proportions, and considering what surplus is likely to
be
afforded by the receipts of any undertaking over the outlay
required for it. All his prospective gains enter into the profits

which draw him towards the undertaking; all the investments of his
capital and energies in making the appliances for future

production, and in building up the ‘immaterial’ capital of a
business connection, have to show themselves to him as likely
to be
profitable, before he will enter on them: the whole of the profits
which he expects from them enter into the reward,
which he expects
in the long run for his venture. And if he is a man of normal
ability (normal that is for that class of work),
and is on the
margin of doubt whether to make the venture or not, they may be
taken as true representatives of the (marginal)
normal expenses of
production of the services in question. Thus the whole of the
normal profits enter into true or long-period
supply price. … A
long period of time is however needed in order to get the full
operation of all these causes, so that exceptional
success may be
balanced against exceptional failure.’ Mark Blaug
Economic
theory in retrospect
,
5th edition, Cambridge University Press 1997 439 writes: ‘In
long-run competitive equilibrium the reward of each factor,

including the hiring factor, equals its marginal value product;
there is no residual for the entrepreneur and profits are zero.’

He makes it clear that by ‘profits’ here he means ‘pure
profit’ (ie ‘economic profit’ as distinct from ‘normal

profit’). He goes on to define ‘pure profit’ as — ‘a
residual left over after all contractual costs have been met,

including the transfer costs of management, insurable risks,
depreciation and payments to shareholders sufficient to maintain

investment at current levels’ (at 440).
65
See para 253 of
United Brands
: ‘Other ways may be devised –
and economic theorists have not failed to think up several – of
selecting the rules for determining
whether the price of a product
is unfair.’
66
In Cf
Napp Pharmaceutical Holdings Limited v Director General of
Fair Trading
[2002] ECC 13 (CA) the Court of Appeal rejected the
argument that ‘normal conduct’ could be assessed in terms of the
market,
where the party, whose conduct was the subject of the
complaint, was dominant. Summarising the ECJ jurisprudence the
court
said: ‘The whole premise of the Court of Justice’s
analysis is that it looks at the conduct in question on the basis
that
it takes place in a market in which competition has already
been distorted by the presence of the dominant firm. The latter’s

conduct then has to be looked at objectively, that is to say,
according to practices in a normal and not an abnormal market.’

Langen/Bunte
Kommentar zum Deutschen und Europaischen
Kartellrecht
Vol 2 (2006) 10ed at 501 referring to the
relationship between the actual price and the costs write: ‘Bei
einem krassen Preis-Kosten-Missverhältnis
erzielt nämlich
das beherrschende Unternehmen Gewinne, die es bei einem
funktionierenden Markt-Preis-Mechanismus mit Mitteln
des normalen
Leistungswettbewerbs nicht erzielt hätte.’ See
Hirsch/Montag/Säcker
Münchener Kommentar zum
Europäischen und Deutschen Wettbewerbsrecht (Kartellrecht) Band
1 Europäisches Wettbewerbsrecht
(2007) 1149 and Motta and
De Streel at 3.
67
It is evident from
United Brands
that not every price charged
by a dominant firm that is higher than the ‘economic value’
could have been considered an abuse,
or else there would have been
no need to formulate the criterion of ‘no reasonable relation’.
In the case of our
s 8(a)
the legislature has made it clear that not
every excess of a dominant firm’s price over economic value will
be ‘excessive’
as defined.
68
See para 27 above.
69
[1976] 4 CMLR 95
; Record 10:2223-6.
70
See Brassey
et
al
Competition
Law
(by David Unterhalter) 202. It is correct that the inquiry into
economic value does not involve a view as to what value ‘should’

be. Nevertheless, a market has to be hypothesised by postulating a
long-run competitive equilibrium and the cost conditions
(including
normal profit) that would then prevail. While the dominant firm’s
own incurred or likely costs will no doubt form
an important
evidential ingredient in such an inquiry, they will not in and of
themselves provide a measure for arriving at
economic value unless
they can be shown to correspond to the competitive norm.
71
Cf Motta and De Streel 6 and 18.
72
Cf Merits Decision para 36: ‘[A]n inefficient firm may charge
excessive prices and still not show exceptional profits.’ Cf
also
Lucazeau and others v SACEM and Others
ECR 1989 at 02811
(Cour d’Appel de Poitiers) para 29;
Ministere Public v Tournier
and Verney
[1991] 4 CMLR 248
para 42.
73
Para 63. See also
Sasol Ltd and others / Engen Ltd and Others
[2006] 1 CPLR 189
(CT) para 142 and
Tongaat Hulett Group /
Transvaal Suiker Bpk
[1999–2000] CPLR 127 (CT) para 54.
74
Para 68.
75
Para 89. See also paras 37, 74, 77, 87.
76
Para 81.
77
Napp Pharmaceutical Holdings Ltd & Others v General General
of Fair Trading
[2002] CAT 1
para 392.
78
.David
S Evans and A Jorge Padilla ‘Excessive prices: Using Economics to
Define Administrative Legal Rules’ 1(1)
Journal of Competition
Law and Economics
97
79
Record 17/3736.
80
Langen/Bunte
Kommentar zum Deutschen und Europäischen
Kartellrecht Band 2
10ed (2006) 500 ff at 501-2 refer to the
difficulties in employing the cost:profit approach and state: ‘Eine
Kosten- und Gewinnbetrachtung
zur Ermittlung der Angemessenheit von
Preisen ist insb. bei ihrer Anwendung auf Mehrproduktunternehmen mit
großen Schwierigkeiten
verbunden, weil die mittelbaren Kosten
und die allg. Betriebskosten willkürlich aufgeteilt sein können
... Ähnlich
schwierig ist die Beurteilung bei multinationalen
Konzernen, wo die angewandten konzerninternen Transferpreise nicht
immer die
entstandenen Kosten wiederspiegeln ... Schließlich
können sich Schwierigkeiten bei Preisen und Gebüren, die
von
Monopolunternehmen gefordert werden, ergeben. Die
kartellbehördliche Praxis stellt daher in Fällen, wo eine
Kosten-
und Gewinnanalyse keinen Aufschluss über die Anwendung
unangemessener Preise gibt, eine Preisvergleich auf Grund des sog.

Vergleichmarkskonzepts an. Hiernach wird der vom Marktbeherrscher
tatsächlich verlangte Preis zu einem fiktiven Preis in

Beziehung gesetz, der sich bei wirksamen Wettbewerb gebildet hätte.’
See also Evans and Padilla 102; Hirsch/Montag/Säcker
Münchener
Kommentar zum Europäischen und Deutschen Wettbewerbsrecht
(Kartellrecht) Band 1 Europäisches Wettbewerbsrecht
(2007)
1151 ff. Motta and De Streel ‘Exploitative and Exclusionary Prices
in EU Law’ paper presented to the
8
th
Annual European Competition Workshop
, Florence (June 2003) at 3
ff refer to a ‘veritable cocktail of approaches’ and state at 5
‘Indeed the authority should
try to get cost data and compare them
with the excessive price. It is only when it is too difficult to get
these data, or in
order to complement a cost analysis, that the
authority may decide to compare competitors’ prices, and more
generally, compare
the investigated prices with some benchmark
prices.’ See
Attheraces Ltd v The British Horseracing Board Ltd
[2007] EWCA Civ 38
(CA) para 213.
81
See
The British Post Office v Deutsche Post AG (Re Interception
of Cross-Border Mail)
[2002] 4 CMLR 17
paras 159 ff. In para 159
it was said: ‘’[T]he fairness of a certain price may be tested
by comparing this price and the
economic value of the good or
service provided. A price which is set at a level which bears no
reasonable relation to the economic
value of the service provided
must be regarded as excessive in itself, since it has the effect of
unfairly exploiting customers.
In a market which is open to
competition the normal test to be applied would be to compare the
price of the dominant operator
with the prices charged by
competitors. Due to the existence of DPAG’s wide-ranging
monopoly, such a price comparison is not
possible in the present
case. Furthermore, DPAG has only recently introduced a transparent,
internal cost accounting system and
no reliable data exist for the
period of time relevant to this case. ... An alternative benchmark
must therefore be used.’
See also
Scandlines Sverige AB v port
of Helsingborg
Comp/A.36568/D3 (23 July 2004) paras 230 ff.
82
Eg prices and costs for
other products and markets where the costs can be compared and the
margin between the prices and costs
used to determine a reasonable
profit (
United
Brands Company v EC Commission
[1978] EUECJ C-27/76
;
[1978] 1 CMLR 429
;
Lucazeau
v SACEM
[1991] 4 CMLR 248
at 292;
Ahmed
Saeed Flugreisen and Another v Zentrale zur Bekampfung Unlauteren
Wettbewerbs eV
[1990] 4 CMLR 102).
The prices charged to different customers in the
same geographic market by the firm for other products with similar
or identical
costs (
General
Motors Continental NV v EC Commission
[1976] 1 CMLR 95
;
British
Leyland plc v EC Commission
[1987] 1 CMLR 185
).
The prices charged to customers in different geographic markets for
the same or similar product (after correcting for transport
and
related costs:
United
Brands Company v EC Commission
[1978] EUECJ C-27/76
;
[1978] 1 CMLR 429
;
Deutsche
Grammophon Gesellschaft mbH v Metro-SB-Grossmarkte GmbH & Co KG
[1971] CMLR 631
;
Sirena
srl v Eda srl
[1971]
CMLR 260
;
Ministere
Public v Tournier
[1991] 4 CMLR 248
;
Lucazeau
v SACEM
[1991] 4 CMLR 248
;
Napp
Pharmaceuticals
at
paras
392
-
6
)
and the prices of similar products in a competitive market (
Bodson
v Pompes Funebres des Regions Liberees SA
[1989] 4 CMLR 984
;
Scandlines
Sverige AG v Helsingborg
,
unreported decision of the European Commission, Case
COMP/A.36.568/D3 at paras 171-3).
83
See para 28 above.
84
LAWSA
2ed Vol 7 para 113.
85
Thompson v Scholtz
[1998] ZASCA 87
;
1999 (1) SA 232
(SCA) at 248I-249D.
86
Cf
AA Alloy Foundry (Pty) Ltd v Titaco Projects (Pty) Ltd
2000 (1) SA 639
(SCA) 646J-647A. For a similar approach see
Attheraces LTD v The British Horseracing Board Ltd
[2007]
ECWA CIV 38
87
Leyland plc v EC Commission
[1987] 1 CMLR 185
paras 25-30;
General Motors Continental NV v EC Commission British
[1976]4
CMLR 95 para 12. In
United Brands
para 266 the court
considered the price charged with the price of bananas of a similar
quality of a competitor. The difference
was 7 % which was not
‘automatically’ regarded as excessive and consequently unfair.
See Motta and De Streel 9 ff.
88
Cf
Lucazeau and Others v SACEM and Others
ECR 1989 page 02811
para 25.
89
Cf
British Leyland plc, supra
.
90
Cf Motta and De Streel 5.
91
Cf
Ministere Public v Tournier and Verney
[1991] 4 CMLR 248
paras 4, 7, and 25-31 where in para 38 the court stated: ‘When an
undertaking holding a dominant position imposes scales of
fees for
its services which are appreciably higher than those charged in
other Member-States and where a comparison of the fee
levels has
been made on a consistent basis, that difference must be regarded as
indicative of an abuse of a dominant position.
In such a case it is
for the undertaking in question to justify the difference by
reference to objective dissimilarities between
the situation in the
Member State concerned and the situation prevailing in all the other
Member States.’
92
In
United Brands supra
, the Court observed (para 254): ‘While
appreciating the considerable and at times very great difficulties
in working out production
costs which may sometimes include a
discretionary apportionment of indirect costs and general
expenditure and which may vary
significantly according to the size
of the undertaking, its object, the complex nature of its set up,
its territorial area of
operations, whether it manufactures one or
several products, the number of its subsidiaries and their
relationship with each
other, the production costs of the banana do
not seem to present any insuperable problems.’ As to the problem
of appropriately
allocating overhead costs in cases where the same
firm produces several different products using the same
infrastructure, many
firms nowadays in practice make detailed
costing allocations themselves in order to keep a check on the
profitability of different
lines of business.
93
Evans and Padilla at 103 observe: ‘Measurement issues are the
least of the concerns with using profit benchmarks, though.
Accounting procedures do not provide for capitalization of R&D
and advertising, do not address inflation, and do not properly

adjust rates of return for risk. Thus accounting profits do not
reflect economic profits except under the most unrealistic

assumptions. The relationship between accounting and economic rates
of return hinges on the time shape of net revenues, something
that
varies across industries, across firms within an industry, and even
across time for a given firm.’
94
44: 10010-1.
95
44:10220.
96
45: 10241-2.
97
The word ‘consumers’ is used three times: in the preamble; in
s
2(b)
where it is said that one of the purposes of the Act is ‘to
provide consumers with competitive prices…’; and in
s 8(a).
The
Act also uses the word ‘customers’ or ‘customer’ where it is
dealing with the supplier-customer connection or relationship.
See
the definitions of ‘essential facility’, ‘market power’ and
‘vertical relationship’ in s 1; s 4(b)(ii); s 8(d)(i).
98
Minister of the Interior v Machadodorp Investments and Another
1957 (2) SA 395
(A) 404D;
More v Minister of Cooperation and
Development
1986 (1) SA 102
(A) 115C.
99
R v Sisilane
1959 (2) SA 448
(A) 453F-G;
Consolidated
Textile Mills Ltd v President of the Industrial Court and Others
1989 (1) SA 302
(A) 307A-308C.
100
At 7 – 40(1) to 7 – 40(2). See also 7 – 40(6).
101
Eg
S v Njaba
1966 (3) SA 140
(A) 145;
S v Nkala
1964
(1) SA 493
(A) 498) and cf
National Association of Pharmaceutical
Wholesalers and Others v Glaxo Wellcome (Pty) Ltd
2003 BLRCL
402 (CAC) paras 18-9;
Farmer’s Co-op Ltd v Borden
1961 (1)
SA 441
(FC) 444F-445B..
102
1965 (2) SA 612
(A) 613CD and see
Stoffberg v All Stones BK
[2002] 2 All SA 8 (SCA) 16 HJ.
103
Staatspresident v Lefuo
1990 (1) SA 679
(A) 692 AD;
Mkwanazi
v Van der Merwe
1970 (1) SA 609
(A) 616G-617D.
104
Application Further Evidence at 23 ff
105
The Tribunal found the relevant market to be the South African steel
market and the evidence led discounted the existence of
an
‘international’ or ‘global’ steel market. Dednam 47: 10726
believes there is a global steel market but defers to
Tomlinson and
Fish. The latter two leave one in little doubt. Fish said at 42 9470
‘No, there isn’t a global steel market
and my chart here shows
clearly that there isn’t a global market.’ At 43: 9794 he was
questioned: ‘Adv Loxton: What I put
to you there is that there are
regional markets, which affect each other. So what happens in one
market will affect other markets
around the world and to that extent
there is a global market in the sense that they are all related. All
off the events, which
affect price in one area of the world, tend to
affect prices in another area of the world. Mr Fish: The answer to
the question,
I think at the time is I held up my chart 12, which
shows clearly that different parts of the world, the peak of the
cycle can
be 12 months different in different part of the world.
Between the United States and Asia the peak of the cycle can be 12
months
apart. Now you could say that that relationship, but if you
are providing something like a global price, then clearly when one

market is at its peak, as you can see there in 2005, that’s the
Asian market, then the North American has almost got to the
bottom
of its cycle. So if you ask me whether a global price in itself is
something you can work with, then clearly that can’t
be the case,
if you are comparing one part of the world where the price has hit
its peak and another part of the world, which
has almost reached its
bottom point. So the reason why I said you don’t have a global
market, which came out of the fact that
we have a global price, that
is the answer to the question; that you are comparing things, which
are just not comparable at that
moment in time. And that’s why I
said that there isn’t a global price.’ Tomlinson said at 46:
10514-5: ‘I am not claiming
that there are not regional
differences between markets. What I’m saying is that one market is
not likely to remain massively
out of line with behaviour in other
markets for very long.’
106
Application Further Evidence at 36 ff.the affidavit of Jones forms
part of the evidence before the Tribunal. Cf s 55(3)(a) and
was
referred to in the Merits Decision para 28 n31.
107
Para 10.1 at 30.
108
Para 7.10 at 28.
109
Para 10.4 at 31.
110
Complaint Referral Record 2:349 para 8.
111
Record 39:8964, lines 4 – 19.
112
Record 3:614 – 614.
113
19 June 2006. See the Record of the application to lead further
evidence 205 ff.
114
Paras [34] (‘As a result it was reasonable for the respondents to
rely, and in their approach to the case to assume, that the
legal
edifice of the joint venture was not at the complainants behest,
going to be subject to a proposed remedy.’; [35] (‘We
are
satisfied that both respondents will be prejudiced by the amendments
insofar as they implicate the legal edifice of the joint
venture.’);
[43] (‘We have found that Harmony’s amendment does occasion
serious legal consequences for the respondents
that are not
consistent with the case originally pleaded’). Despite these
remarks the Tribunal also said para 30: ‘However
to suggest that
prayer C had no implications for the business of the joint venture
would be to adopt a completely blinkered approach
to its impact on
the market which the joint venture seeks to segment, albeit not on
the contractual and ownership rights created
by the joint venture.
That would be to make the error of solely reading it
qua
lawyer,
and not
qua
businessperson
or economist.’
115
Record 51:11657 – 11676.
116
Record 51:11667, 11669, 11670 and 11671.
117
Record 3:679 para 18.2.
118
Record 3:680 para 26.
119
Record 3:681 para 29.
120
Record 3:684 para 35.
121
Record 3:687-9 paras 45-8.
122
Record 3:690-1 para 53.
123
Record 4:721-2 paras 16-9.
124
Para 29 Remedies Decision.
125
Glaxo-Wellcome (Pty) Limited v Terblanche NO
[2001-2002) CPLR
48 (CAC) at 60.
126
Remedies Decision
para
16: ‘We have emphasised that our approach to the allegation of
excessive pricing has not been to determine a ‘right’
or ‘wrong’
price level. We accordingly cannot find that the import parity
price level is an abuse of dominance, the ‘wrong’
or ‘excessive’
price level, anymore than we would declare the export parity price
to be the ‘right’ price level. Mittal
SA’s offence resides in
the fact that it has administratively selected a price and it has
adjusted the amount that it, the
super dominant player, supplies to
the domestic market so as to ensure that it achieves the
pre-selected price. It matters not
whether this price is the import
parity price or, as Mittal SA would have it, a price based upon a
random basket of prices that
prevail in other national markets.
What matters is that by manipulating the supply of flat steel
products available on the domestic
market it ensures that the price
is not determined by cognisable competition considerations.’
127
Section 65(6)(b) states that when a person who has suffered a loss
or damage as a result of a prohibited practice wishes to
institute
a civil claim they must, inter alia, file a notice from the Tribunal
certifying that the conduct forming the basis
for the civil action
has been found to be a prohibited practice in terms of the Act.
Section 58(1)(v) of the Act requires that
the Tribunal may make as
one of its orders an order ‘declaring conduct a prohibited
practice in terms of this Act, for the
purpose of section 65.’
128
Paras 163-4 of the Merits Decision.
129
Sections 26(1)(d); 27.
130
Section 28(2)(b).
131
Section 31.
132
See ss 54-5.
133
Sutherland and Kemp 11-24, para 11.4.6.1.
134
Para 38.
135
Eg
Motta and de Streel at 15-16
136
Record: 5:984.
137
(Cert dismissed)
655 F 2d 627.
138
As an indication of the type of considerations
which the Tribunal may take into account in its analysis of the
available evidence,
see the list (which are guides and certainly not
a
numerus clausus
)
provided by Sutherland and Kemp at 7 – 40 (2) ff:
Production
costs. Certainly in
British Leyland
,
supra production costs were considered as a route of enquiry as the
court accepted the possibility of comparing the sales
price of the
product to costs of production to determine whether the difference
was excessive
Profitability. For example does the firm’s profit exceed its
costs of capital for that particular kind of business. If
the
excessive price has taken place over a short period as opposed to
the life of the business, a return on sales, gross margins,

truncated internal rate of return or market valuation can be
employed
Price of comparable products in competitive markets
Reward for risk or innovation
Inherent characteristics of the market. For example with cyclical
demand, price may increase pursuant to higher demand.
139
24/CAC/Oct02 15-6.