Patensie Sitrus Beherend v Competition Commission and Others (16/CAC/Apr02) [2003] ZACAC 4; [2003] 2 CPLR 247 (CAC) (7 July 2003)

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Patensie Sitrus Beherend v Competition Commission and Others (16/CAC/Apr02) [2003] ZACAC 4; [2003] 2 CPLR 247 (CAC); 2003 (6) SA 474 (CAC) (7 July 2003)

pro rata
share of
the capital obligation incurred by the company in investing in
infrastructure and equipment. The capital levy (member’s
pro
rata
share of the debt) is directly proportional to the current
shareholding of that member. Thus, if a member holds one
per cent
of the issued shares in Appellant, such member is liable for one
per
cent
of the gross debt of the company.
The
packing cost payable by each farmer using Appellant’s facilities is
calculated by reference to the quantity and the quality
of fruit
delivered by that particular member.
Otherwise, members’ rights remained the same as they
had been under both the former co-operative and under PSB.
In
Appellant’s answering affidavit, its secretary Mr Jacobus Stephan
Du Toit states:
“
I
have already mentioned hereinbefore that the Respondent’s Articles
of Association are the standard ones found in Schedule 1, Table
A of
the Companies Act 61 of 1973, with certain additions thereto in a
document termed
‘Toevoeging
tot Statuut van Patensie Sitrus Beherend Beperk om Voorsiening te
Maak vir Speciale Kontraktuele Voorwaardes Tussen
Lede en die
Maatskappy’
to cater for the
sui generis
nature of the Respondent and the purposes for which it was
established.”
It is the addendum, which forms
part of the Articles which contains the provisions that were the
subject of the enquiry undertaken
by the Tribunal and are - save in
respect of Article 110 which the Tribunal declined to strike down -
the provisions relevant in
this
appeal.
A
rticle
112
of the Articles of Association
provides in its introduction that Appellant has a ‘first right and
option’ to acquire the whole
of the citrus crop of each member or
such portion of the crop as Appellant decides upon. The actual text
which is in Afrikaans reads:
“
112.
Eerste reg en opsie op sitrusoes ten gunste van Maatskappy
Vanaf datum van verkryging van lidmaatskap, verleen elke lid
afsonderlik, ‘n eerste reg en opsie aan die Maatskappy om jaarliks
‘n lid se gehele sitrusoes of sodanige gedeelte daarvan as wat die
Maatskappy mag besluit, te koop teen ‘n prysbepaling soos
in
Artikel 114 uiteengesit en onderneem die lid on sodanige oes of
sodanige gedeelte ten opsigte waarvan die Maatskappy die opsie
uitoefen, te lewer onderhewig aan die volgende voorwaardes”
The words “
koop
”
and also “
koopprys
”
appear in the Articles in the provisions which regulate the
relationship between Appellant and its member/producers. This led
to debate and some confusion before both the Tribunal when
considering interim relief and thereafter before the Commission.
The
Commission ultimately concluded that the literal meaning “
koop
”
(‘purchase’) and “
koopprys
”
(‘purchase price’) were inappropriate and that on a proper
construction of the
modus operandi
and the relationship there was no sale of fruit to Appellant. The
fruit is handed over to Appellant which then pack and marketed
it.
Thereafter the proceeds of the sale of the fruit on the market are
divided between the member/producers in accordance with
a formula
which allowes for the deduction of Appellant’s expenses including
the cost of servicing its debt.
Sub
- Articles 112.1 to 112.6 provide:
for an individual member to submit details of the size
and quality of the crop he anticipates that will be delivered to
Appellant.
In certain instances the management can intervene to
establish the facts. (112.1);
for the members to make application for exemption from
the requirement to deliver all of their crop and the procedure
therefor
(112.2);
for Appellant to refuse to exercise its option (112.3
-112.4);
for compliance with a harvesting and delivery schedule
specified by the Appellant (112.6.1 - 112.6.2);
and for the levying of fines in the event of a
member’s non-compliance (112.6.3).
Sub-article 109.2 provides that, in the event of a
member no longer complying with his obligations to deliver his crop,
such member
may be required by Appellant to sell his shares failing
which Appellant may itself make arrangements for the sale of the
dissident
member’s shares.
Article
110 - which, as noted, was not struck down by the Tribunal -
specifies the limitations imposed on the transfer of shares
in
Appellant. Shares may be transferred to an heir of a deceased member
(110.1) and to the purchaser of a member citrus farm (110.2);
However, transfer to any other person is governed by Article 110.3
which provides that:
“
enige ander persoon of regspersoon wat met die toestemming van
die Raad van Direkteure kwalifiseer vir lidmaatskap kragtens die

vereistes gestel deur die Raad van Direkteure van tyd to tyd.”
Article 114.3 of Appellant’s Articles of
Association provides for remedies which are available to Appellant
in the event that
any member fails to meet his obligations to
Appellant.
Inter alia
Article 114.3.1 entitles the respondent to apply for an urgent
interdict to prevent a member from selling or delivering his citrus
crop to anyone other than Appellant. Article 114.3.2 entitles
Appellant to issue summons for specific
performance and/or to recover the fines provided for in
the Articles for in the Articles of Association.
In
terms of section 65(2) of the Companies Act (Act No. 61 of 1973) the
Articles of Association bind the company and the members,
as if the
Articles had been signed by every member. One effect is that the
Articles of Association have contractual force both
between the
company and all its members.
It was common cause before the Tribunal that the
Articles alleged by the Commission to be in contravention of the
Competition Act
are to be found in the ‘
Toevoeging
tot Statuut van Patensie Sitrus Beherend Beperk om Voorsiening te
Maak vir Speciale Kontraktuele Voorwaardes Tussen Lede
en die
Maatskappy’
. Furthermore, that
Article 112 - which contains the obligation imposed on the members
to deliver their citrus crop to Appellant’s
pack house - is at
the centre of the dispute. The other Articles in contention are
those which are allegedly ancillary to Article
112 in that they are
designed to give effect to the obligation contained in the Article.
After considering the record, hearing
viva
voce
evidence and argument, the
Tribunal concluded that Appellant’s Articles of Association
contained provisions which contravened
section 8(d)(i) of the Act.
It found further, that no defence by way of technological,
efficiency or other pro-competitive gains
which outweigh the
anti-competitive consequences of the offending Articles had been
demonstrated. The Tribunal, acting in terms
of section 58(1)(a)(v)
of the Act declared Articles 112, 109.2, 114.3.1 and 114.3.2 to be
practices prohibited in terms of section
8(d)(i) of the Act and
accordingly void. No order was made in respect of costs.
Grounds of Appeal
Appellant’s
grounds of appeal are that the Tribunal erred:
By finding that the relevant product market as the
market for the provision of packing and marketing services to
citrus farmers;
By finding that Appellant is a seller and its members
purchaser of packing and marketing services;
By finding that the relevant geographic market as the
market for the packing and marketing of citrus fruit in the Gamtoos
River
Valley;
By finding that Appellant is dominant in the relevant
market;
By finding that Appellant’s members are its
customers;
By finding that aspects of Appellant’s Articles of
Association constitute “exclusionary acts” as defined in
section 1 of
the Act;
By finding that Appellant did not show technological,
efficiency or other competitive gains which outweigh any alleged
anti-competitive
effects of its acts;
By declaring Article 122 of Appellant Articles of
Association void in its entirety;
By not striking out certain portions of and annexures
to the affidavits filed on behalf of the Commission, alternatively
by attaching
too much weight to them;
By not awarding costs to Appellant.
The Process: From Citrus Farm to Consumer
It
is useful to consider the processes followed from the point where
the citrus fruit is produced on the producers farm until it
reaches
the shelves of retail outlets. The explanation will also note
Appellant’s practices.
Production Stage:
The
farmers grow the fruit on their farms utilising various resources
including the land, labour, equipment, water, fertilisers
and
pesticides. When harvested the fruit has to go through further
preparatory and handling processes before it is marketable
for
consumption.
Market Preparation:
The
citrus fruit is washed, disinfected and sometimes waxed. It is
graded for quality and size before being packed in suitable
containers. These containers are palletised and the fruit is
inspected to ensure compliance with official regulations. These
functions are normally performed in a specially equipped packhouse.
Farmers who do not have their own packhouses will normally
deliver
the fruit to a packhouse for processing as aforesaid.
In Appellant’s case it has a modern packhouse. Its
facilities were updated and improved some four years ago at a cost
of R21 million.
There are in excess of two hundred packhouses in
South Africa and Appellant packs and arranges to market
approximately five per
cent of the country’s total citrus
production. Appellant packs and arranges to market approximately
seventy per cent of the
citrus fruit produced in the Gamtoos River
Valley.
Farmers
do not sell their fruit to Appellant - neither money nor risk passes
when the fruit is delivered to Appellant’s packhouse.
Transportation to point of intake
:
After preparation and packaging, the fruit is
transported to the next “
station
”.
Where the fruit is not destined for export, the “
station
”
could be a municipal market, a local wholesaler or retailer or a
processing facility which might process extract the juice or
manufacture a citrus preserve or similar product.
Some sixty five per cent of the citrus fruit
produced in South Africa is marketed overseas. Where the fruit is
exported, the next
“
station
”
is a seaport or an airport. The fruit which travels by road or rail
is received at the port by a marketing agent. Appellant
appoints a
number of marketing agents on a per season basis to attend to the
citrus fruit which it markets on behalf of its members.
The
fruit is not sold to the marketing agent and the producer continues
to carry the risk.
Port Handling:
The
citrus fruit is inspected and then placed into cold storage to bring
the temperature down to required standards for shipment.
The fruit
is then loaded into a ship or aeroplane.
Shipping:
The
fruit is shipped - less frequently, flown - to its overseas
destination.
Overseas Port of Entry;
On
arrival at the destination port the fruit is cleared for entry,
stored and then forwarded by clearing agents to the wholesale
markets, interim service providers or customers who can be fruit
importers or retail suppliers.
It
is only at this point that the citrus fruit is sold and where the
price which the producer will receive is determined. Until
this
point of sale the producer continues to carry the risk. Even at
this point of sale the risk includes a need to destroy fruit
that
has deteriorated or fails to comply with local regulations.
End consumer:
The
fruit is thereafter sold to the retailer and, in turn to the
consumer.
Price received by the producers
South
African citrus fruit farmers have no influence upon the market and
the price received for their fruit. They are “price
takers” on
the international market.
Because
of the fact that the overwhelming majority of the citrus fruit
handled by Appellant in the Gamtoos River Valley is destined
for
export and because that market accounts for approximately ninety
three per cent of the income of Appellant’s members, the
parties
before the Tribunal focussed almost exclusively on the export
market. Nothing turns on the ommission to analyse the local
citrus
market. The determinations made in respect of the export market
apply with equal force to the local marketing of citrus
fruit.
Certain costs are deducted from the market price
received before the producer receives payment for his citrus crop.
Those include
the following costs directly related to the packing
and marketing process.
Production costs:
These
are the costs of preparing the fruit for the market.
DIP costs:
These
include transport costs and statutory levies which are incurred when
the fruit reaches the point of intake.
FOB costs
:
The
costs of shipping, handling, storage, loading and insurance from the
point of intake until the fruit is loaded into the ship
or
aeroplane.
Sea or air freight
:
These
costs are significant as they are US dollar related and a
fluctuating exchange rate can have an effect.
Import duty:
Also
a significant cost, it can vary from market to market and over time.
Overseas costs:
The
cost of clearing, storage in cooling facilities and transport to the
point of sale.
Appellant’s
heads of argument filed before this court, it is stated that:
“
The essence of the
Appellant’s case is that, with reference to its co-operative
origins and background; its peculiar relationship
with its members,
who are all citrus producers, and the exigencies and demands of the
highly competitive citrus market in which
it operates, the Articles
of Association had been formulated and agreed to in precisely the
disputed form in order to enable its
members to compete effectively
in that market, to the benefit of all its members, the end-consumer
and the national economy. It
was argued that, in the light of the
proven facts, the Articles of Association of the Appellant
constitute no more and no less
than an ordinary contractual
arrangement which does not fall foul of the Act and which should not
have enjoyed the attention of
the Commission in the first place.”
It
is also submitted that:
“
Since
1928 to the present day, and even after the former co-op had changed
into a company, the relationship between the entity itself
(currently the Appellant) and its members has not changed: for
pro-competitive, sound economic, cost-effective and efficiency

reasons, a number of farmers have come together to pool their
resources for the purposes of packing and marketing, thereby
ultimately
ensuring a higher net return to themselves”
and
further that:
“
The
whole purpose of the joint packing and marketing arrangement is to
manage the packing and marketing facilities on a more economical
basis.
The second paragraph of the
pre-amble to the Additions to the Appellant's Articles of
Association makes special reference to the
pro-competitive gains
expected to flow from the said arrangement.”
A
considerable amount of evidence was advanced to establish that the
joint packing and marketing of citrus fruit by a number of
farmers
was beneficial. That it benefits the producers who utilise the
services would appear to be clear. What is in issue, however,
is
whether the means chosen by Appellant and its members to achieve
their stated goals contravenes the Act. More particularly,
whether
the “arrangement” between Appellant and its members who are the
producers amounts, in the circumstances, to an unjustified
abuse of
dominance as is prohibited by section 8 of the Act.
It
is useful at this stage to set out out a number of matters which
bear upon the decision in this matter.
Firstly, Appellant is no longer a co-operative. Since
March 1999 Appellant is a public company. It remains, however,
possible
to view the company as the vehicle through which its
shareholders jointly undertake the packing and marketing of their
citrus produce.
So viewed, Appellant is a public company which
exhibits many of the characteristics of an agricultural
co-operative.
Secondly, a co-operative is an enterprise linking
assets, business activities, financial obligations and people in a
distinctive
way. Care must constantly be taken to recognise and in
some cases to distinguish the dual status of people who are both its
customers
and the owners of the co-operative,
in
casu
, the members to whom earnings
will be distributed according to customer patronage.
Thirdly,
large agricultural co-operatives are very different from what they
were a century, or even half a century ago. South African
citrus
farmers have seen major changes in the citrus industry and, in
particular, in the packing, processing and marketing of citrus
fruit. The industry has undergone important institutional changes
over the past eight decades. As noted the legal form of the
entity
undertaking the packing and marketing of citrus fruit in the Gamtoos
River Valley has changed from that of a co-operative
(of which the
farmers were members) to that of a limited liability company of
which the farmers are now shareholders. A further
important change
concerns the marketing of the crop. The international marketing of
agricultural produce was, until recently, the
exclusive preserve of
a number of statutory ‘control boards’ established in terms of
The Marketing Act No. 59 of 1968. This
statute was repealed by the
Marketing of Agricultural Products Act, No. 47 of 1996
. The upshot
is that the packing companies and others who desire to offer fruit
on the international market will market the fruit
through the agency
of one of the many market agents who undertake the marketing
function.
The advantages gained by farmers and producers of
food forming co-operatives has long been recognised in foreign
jurisdictions.
The special treatment usually affords limited
exemption from the reach of competition law. Wherever such special
treatment has
been given it is to be found in statutory enactments.
In the United States since 1914, section 6 of the
Clayton
Act
(36 Stat. 730 [1914]) partially
exempted agricultural organisations from the competition laws. The
Capper-Volstead Act
(42
Stat. 388 [1922]) extended the exemption to capital stock
agricultural co-operatives.
Articles 32 to 38 of the
European
Community Treaty
establish a special
regime for agriculture and allow the Council to limit the
application of the rules of competition law in regards
to the
production and trade in agricultural products.
Indeed,
the fact that the Act does not exempt agricultural activities from
its reach ought to sound a note of caution in the approach
to the
issues raised in this matter. It should be noted that the Act does
allow for agreements and practices to be granted exemption
from the
provisions of Chapter 2 which deals with prohibited practices
including abuse of dominance. (Section 10).
In seeking to determine the relevant market, the
analysis advanced by Warren CJ in the United States Supreme Court in
Brown Shoe v United States
,
[1962] USSC 112
;
370 U.S.
294
(1962) at 325 provides a useful analysis and insight into the
appropriate methodology.
“
The outer boundaries of a product market are determined by the
reasonable interchangeability of use or the cross-elasticity of
demand
between the product itself and substitutes for it. However,
within this broad market, well-defined submarkets may exist which,

in themselves, constitute product markets for antitrust purposes.
The boundaries of such a submarket may be determined by examining
such practical indicia as industry or public recognition of the
submarket as a separate economic entity, the product's peculiar
characteristics and uses, unique production facilities, distinct
customers, distinct prices, sensitivity to price changes, and
specialized vendors.”
And,
at 336-337:
"The criteria to be used in determining the appropriate
geographic market are essentially similar to those used to determine
the relevant product market. . . .
Moreover,
just as a product submarket may have significance as the proper
"line of commerce," so may a geographic submarket
be
considered the appropriate "section of the country." . .
. . Congress prescribed a pragmatic, factual approach
to the
definition of the relevant market and not a formal, legalistic one.
The geographic market selected must, therefore, both
"correspond
to the commercial realities" of the industry and be
economically
[1962] USSC 112
;
[370 US 294
, 337] significant. Thus, although the
geographic market in some instances may encompass the entire Nation,
under other circumstances
it may be as small as a single
metropolitan area.”
The
United Kingdom
Office of Fair Trading Market Definition Guideline
also provides useful guidance in the approach to be taken when
defining the relevant product market from the demand side which
is
appropriate here.
“
3.1 The process usually
starts by looking at a relatively narrow potential definition. This
would normally be the products which
the parties to an agreement
both produce or the products which are the subject of a complaint.
Common sense will normally indicate
the narrowest potential market
definition. The Director General then considers how customers would
react if prices were raised
a small but significant amount above
competitive levels.
3.2 Common practice in both Europe and the US is to consider a
price 5-10 per cent above competitive levels. This will normally be
the Director General’s approach, although, in practice, it is
often difficult to quantify a potential price rise. The 5-10 per
cent test is a rough guide rather than a rule.”
The
European
Commission
notice on
The
Definition of the Relevant Market for the Purposes of Community
Competition Law
(Published in the
Official Journal: OJ C 372 on 9/12/1997) after describing market
definition as a tool to identify and define
the boundaries of
competition between firms goes on to record that:
“
The objective of defining a market in both its product and
geographic dimension is to identify those actual competitors of the
undertakings
involved that are capable of constraining their
behaviour and of preventing them from behaving independently of an
effective competitive
pressure. It is from this perspective, that
the market definition makes it possible, inter alia, to calculate
market shares that
would convey meaningful information regarding
market power for the purposes of assessing dominance or for the
purposes of applying
Article 85.
It follows from the above, that the concept of relevant market is
different from other concepts of market often used in other
contexts.
For instance, companies often use the term market to refer
to the area where it sells its products or to refer broadly to the
industry
or sector where it belongs.”
This
last observation finds resonance - albeit by way of a failure to
recognise the distinction - in Appellant’s submissions as
to the
appropriate product market definition.
In their text
Economics
Of E.C. Competition Law Concepts, Application And Measurement
(1999) at p.49), S Bishop and W Walker state that:
“
The relevant market contains
all those substitute products and regions which provide a
significant competitive constraint on the
products and regions of
interest . The relevant market can be defined as a collection of
products such that a (hypothetical) single
supplier of that
collection would be able to increase price profitably. Defining the
relevant market in this way ensures that all
products which pose a
significant competitive constraint on the parties under
investigation are taken into consideration. In this
section, the
application of these principles in practice is discussed and the
following guiding principle proposed: a relevant
market is something
worth monopolising. A market is worth monopolising if monopolisation
permits prices to be profitably increased.
This will be the case if
the collection of products contained in this "market" are
not subject to significant competitive
constraints by products
outside the market.”
For the assessment of demand substitution the
so-called "5% test" or "SSNIP test" (SSNIP is
the popular acronym
for "
small but
significant non-transitory increase in price
")
is useful. This test which was first used by the
United
States Federal Trade Commission
and is
now the test proposed in paragraph 14 of the
European
Commission
Notice referred to above.
The SSNIP test is increasingly being made use of by competition
authorities throughout the world.
Application Of the legal and economic principles to
the facts
It
is, in my view, apparent from the evidence that the undertaking of
packing and arranging for the marketing of citrus fruit is
a service
offered and rendered by Appellant to citrus producers. It is trite
that a product market can include goods or services
of this kind.
Although notionally the market for the sale of
citrus on international markets can be described as a “
market
”
it is not the market that is at all relevant for purposes of the
present enquiry. Common sense dictates that the “
narrowest
potential market definition”
in this
instance is not the sale of citrus on some distant international
market but the rendering of the services in question within
the GRV.
It is in this market that the services which are the “
subject
of the complaint”
are rendered. The
evidence is that there are other parties engaged in offering the
relevant services in the GRV.
The
fact that Appellant would have itself viewed for present purposes as
the sum of its members and that it does not perceive itself
as
competing with like services offered and undertaken by other fruit
packers in the region is not a determinative factor for purposes
of
defining the parameters of the relevant market.
In defining the relevant market Appellant and its
expert witnesses have failed to have regard to the
hypothetical
monopolist
undertaking the relevant
services. They advance a business model that is constrained by and
reliant upon the characteristics peculiar
to Appellant, including
the anti-competitive structures and practices that are the very
subject matter of the complaint.
In its grounds of appeal, Appellant asserts, in
relation to the Tribunal’s finding that the relevant product
market is the market
for packing and marketing service in the GRV,
that: “
On all the evidence the
Tribunal should have found that, by their own volition and choice,
the members/shareholders of the Appellant
are not competing in the
notional "packing and marketing services market", whether
in the Gamtoos River Valley or anywhere
else”
.
As
noted, it is not competition engaged in by Appellant’s members
that is in issue. In issue, is competition by Appellant itself
in
the market in which it is engaged.
In any event, a voluntary withdrawal from
competition whether contractually confirmed or not is not a decisive
factor in defining
the relevant market.
Per
contra
, it is irrelevant.
Significantly, the ground of appeal acknowledges a “notional”
packing and marketing services market in
which Appellant submits
that its members do not compete.
Appellant
also emphasised that it did not seek to profit from its services to
its members and that the amount deducted by Appellant
from the
selling price of the fruit was limited to Appellant’s costs
including the cost of servicing its capital loan debts.
Be that as it may, the producers are required to
compensate Appellant for the services they utilise. The fact that
the amount is
limited to Appellant’s costs does not make it any
less a
quid pro quo
.
In fact, Appellant’s costs as deducted may exceed the charges -
including a profit margin - at other packhouses which offer
equivalent services.
A region the size of the GRV can comprise a relevant
market. The valley is approximately some one hundred kilometres
long and there
are approximately one hundred and ten citrus farmers
in the GRV.
In regard to the actual current position,
Appellant’s affidavits demonstrate that the establishment of
pack-houses is extremely
capital intensive and beyond the reach of
most citrus producers in the GRV. Appellant spent R21 million on
its packhouse some
four years ago. Furthermore, although there are
other packing facilities in the GRV and the neighbouring Sundays
River Valley
“
there is no, or very
little flow of packing services between these areas
”.
This factor is of marginal significance when the producers of in
excess of 70 per cent of the citrus fruit produced in the
GRV are
bound to deliver their crop to Appellant.
The real issue is whether a hypothetical
monopolist engaged in the business of rendering packing and
marketing services in the GRV
would be in a position to raise the
price associated with the rendering of those services “
a
small but significant amount above competitive levels”
(the SSNIP test).
Based
on quotations obtained by Appellant the additional transport cost to
transport citrus from the GRV to the Sundays River Valley
packhouses
will be R1.90 per carton. This sum represents a percentage increase
of 12.67 per cent to the cost of packaging based
on the amount
charged by Appellant for the services rendered to its members in the
GRV.
I
do not agree with the Appellant which seeks to compare the
additional transport costs as a percentage of the total price of the
citrus products received on the international market and then argues
that transport costs comprise a relatively insignificant part
of
those costs so that in given circumstances a citrus producer would
convey his products past the nearest packing facility to
one located
further a field. That argument is premised upon the relevant
product market being the sale of citrus fruit on the
international
market rather than the market for the provision of packing and
arranging marketing services.
It is clear that a
hypothetical monopolist who renders the services that are provided
by Appellant would be in a position to raise
the price of those
services appreciably - certainly above the five or even ten per cent
commonly used by the SSNIP and other tests
- without losing a
significant number of its customers.
A
small but significant increase of five to ten per cent by Appellant
for the services it renders to its members would not, in my
opinion,
result in a significant number of members transporting their
products out of the GRV.
Accordingly,
the market for the provision of packing and marketing of citrus
fruit in the GRV is a market worth monopolising.
Appellant
asserts that the relevant geographic market is the international
market for the sale of citrus products.
Appellant’s premise is an incorrect assumption
that a sale of goods must take place in order for a market to exist
and a failure
to recognise that there can be markets within markets.
Indeed, the processing and handling chain which Appellant contends
ends
with the sale of the fruit on the international market would
appear,
prima facie
,
to involve a number of markets which can be “relevant markets”
for the enforcement of competition law . Possible markets include
a
market for the provision of market agency services. Appellant is
itself a customer in that market. It appoints three marketing
agents
each year from the available market which comprises in excess of two
hundred competitors. There would also appear to be
a market,
perhaps even, separate markets, for the transport of the citrus
fruit by road, by sea and by air.
In the premises, the Tribunal correctly held that
the Gamtoos River Valley constitutes the geographic area of the
relevant market
and that the relevant market is the “
market
for the packing and marketing of citrus fruit in the Gamtoos River
Valley”
.
A Single Economic Entity
The concept of a “single economic entity” seems to
have found its way into the matter in an affidavit filed by
Appellant and
deposed to by one, Calvyn Michael Du Toit who
describes himself as “a part-time Professor of Business Economics,
lecturing to
and guiding students in their post graduates studies on
a free-lance basis at various higher education institutions.”
In the heads of argument filed on behalf of
Appellant , it is submitted that Professor Du Toit is correct when
he says “
that the Articles of
Association of the Respondent essentially constitute a voluntary
agreement between farmers or producers of
citrus to jointly pack and
market their fruit through the Respondent as a vehicle in order to
manage the packing and marketing
facilities on a more economical
basis. The members accordingly form a single economic entity
insofar as the packing and marketing
of their fruit are
concerned. The members of the
Respondent are not competitors in respect of the packing and
marketing of their fruit. They are
in effect partners.
”
The
issue of Appellant and its members constituting a single economic
entity is introduced into the Tribunals reasons for its decision
where it discusses the relevant market definition. Noting that
there is a “yawning gap” between the definitions advanced by
the
respective parties, the Tribunal continues:
“
... The respondent does not merely argue that the ‘market
for the packing and marketing of citrus products of the GRV’ is
not
the relevant market. Its attack on the Commission’s contention
goes significantly deeper than this – it insists that there is
no
such market at all, or, at least, that the respondent and its
members do not participate in this market. The respondent avers
that
it, Patensie, is simply the sum of its members who are citrus fruit
producers of the GRV, and that accordingly it cannot enter
into a
market exchange with itself, much less inflict ‘abuse’ upon
itself in the conduct of that exchange. On this version
the
provision of packing services by the respondent to its members is in
the nature of a transaction internal to a firm. It is,
to be sure,
an activity that adds value to the product – the fruit – when it
ultimately enters the market but it is no more
a market transaction
than would be the rendering of services by the IT department of a
bank to, let us say, the Human Resources
department of the self-same
institution. On this version the charge levied by the respondent on
‘its’ farmers/owners for rendering
a packing service reflects
nothing more than the cost of providing the service, an internal
bookkeeping charge, useful
for
costing and budgeting purposes but not indicative of the existence
of a
market.
In order then to test the validity of these contending views we
have first to decide whether the relationship between the individual
farmers and the respondent is, indeed, in the nature of a
non-market, internal exchange. Expressed otherwise, do the
respondent
and the farmers who are its members constitute a single
economic entity by virtue of the latters’ shareholding in the
former?”
In its grounds of appeal, Appellant contends that:
“
The Tribunal in any event erred in its evaluation of the
"single economic entity," argument and in ignoring the
clear
evidence that it is wholly artificial, for packing and
marketing purposes, to distinguish between the Respondent and its
members/shareholders”
The
characterisation of Appellant’s relationship with its farmer
members as a single economic entity is problematic. The concept
of
a single economic entity is only to be found in Section 4 of the
Act, the section dealing with horizontal restrictive practices.
Section 4(5) provides:
The provisions of subsection (1) do not apply to an agreement
between, or concerted practice engaged in by,-
a company, its wholly owned subsidiary as
contemplated in Section 1(5) of the Companies Act, 1973, a wholly
owned subsidiary
of that subsidiary, or any combination of them;
or
the constituent firms within a single economic
entity similar in structure to those referred to in paragraph
(a).
The
Tribunal states further that:
“
Sub-section 4(5) ensures that agreements between firms that
are related to each other in the fashion described will not be hit
by
the prohibition of the horizontal agreements described in
sub-section 4(1). Implicit in the reasoning underlying Section 4(5)

is the notion that firms cannot conspire with ‘themselves’. In
insisting that the respondent and its members do not have a separate
existence, the respondent is effectively proposing that we import
the reasoning underlying Sub-section 4(5) to a consideration
under
Section 8 – it employs this section in order to argue that a firm
cannot abuse ‘itself’ and, hence, if related to the
target of
its alleged abuse in the manner described in Sub-section 4(5), its
conduct will fall outside of the provisions of Section
8. We note,
and we will imminently return to this, the only matter in which the
‘single economic entity’ concept has thus far
been considered by
the Tribunal was in respect of a claim that a merger of two firms,
allegedly part of a single economic entity,
was not subject to the
scrutiny of the Act – in other words, the Tribunal on that
occasion permitted the ‘importation’ of
the concept underlying
Section 4(5) into a procedure under Section 12. In our view this
concept is equally pertinent for enquiries
under Sections 5 or 8 –
just as a party cannot merge with itself or conspire with itself, so
can it not abuse itself or conclude
a vertical agreement with
itself.”
The Tribunal rejected the argument that Appellant
could, on the facts, claim to be in a single economic entity
relationship with
its members. I agree with that finding and it is
accordingly unnecessary to consider whether the “importation” of
the concept
“single economic entity” into a case to be decided
in terms of section 8 is either appropriate or permissible by law.
I am, however, of the
prima facie
opinion that the concept of
a “single economic entity” may well be, inappropriate here. As
I understand the evidence and the
arguments Appellant appears to,
more accurately, be claiming to be a joint venture of citrus farmers
who chose to carry on their
joint venture through the medium of a
public company. I make no finding on this characterisation.
There is considerable and conflicting learning in the field of joint
ventures in foreign jurisdictions. The concept arises in
respect of
prohibited practices particularly prohibited horizontal practices,
more particularly intra-enterprise conspiracy.
(See for e.g
indices
sub
“joint venture” in:
Competition Law
-
Brassey et al (2002);
Competition Law
4
th
ed 2001 -
Richard Wish;
Competition Law of the United Kingdom and European
Community
, M Furse (1999);
Bellamy & Child, European
Community Law of Competition
, 5
th
ed P M Roth (ed)).
It has also been embraced by the Tribunal in South Africa to the
analysis of control issues in merger proceedings.
(See:
Bulmer SA
(Pty) Ltd and Distillers Corporation SA Ltd, SWF Group (Pty) Ltd
,
94/FN/Nov00).
It is necessary to record that our competition law is to be sought
in the Act. The policies, reach and regulatory method applicable
in
South Africa are defined by the Act. The Act must be interpreted in
a manner consistent with the Constitution and give effect
to the
express purposes set out in Chapter 2. Interpretation should also
be in compliance with the international law obligations
of the
Republic. Whenever foreign law is considered in interpreting or
applying the provisions of the Act it is essential to ensure
that
the foreign law is appropriate before adopting the foreign
methodology or solutions. There is no warrant in the Act for the
institutions entrusted with the task of enforcing its provisions to
amend or extend the policy and reach which is set out therein.
That
is the sole domain of the legislature. Care must be taken not to
impose solutions which are not founded upon a proper interpretation
of the Act. Where a
lacuna
may be detected, it cannot simply
be filled by having regard to imported solutions; no matter how
attractive and suitable such solutions
may appear to be.
For present purposes I note that the Tribunal assumed (in
Appellant’s favour) that “a section 8 charge cannot be sustained
if the farmers -
qua
victims of the abuse - and [Appellant]
are related in a manner described in section 4(5)” of the Act. The
assumption does appear
to me to confuse the question of whether
section 8 is intended to protect a victim or to prevent
anti-competitive activities whether
or not there is an identified
victim.
As I
understand the law it is competition itself which is the victim.
Indeed, that very distinction may be a decisive factor in
deciding
whether the concept of a “single economic entity” or of a “joint
venture” can properly be transposed to section
8 charges without
legislative intervention.
We were
not referred to any authority - foreign or local - for the
proposition that a joint venture which is organised and operates
in
the manner in which Appellant is organised and operates, and which
undertakes “prohibited practices” - such as abuse of
dominance -
is exempt from the reach of the Act.
The
tribunal went on to reject the notion that Appellant and its members
were, on the facts, properly regarded as a “single economic
entity”.
Appellant
relied upon its history, its ‘not for profit’ character and its
structure and “ownership” to support its claim
to be a single
economic entity with its members.
I agree
with the Tribunal that Appellant’s history takes its claim no
further. Whatever the historic position may have been it
is now
subject to scrutiny in terms of the Act. The farming, packing and
marketing of citrus fruit has changed considerably over
time. I
have earlier noted some of the changes. Having chosen to
incorporate, the Appellant is now to be viewed for what it is,
a
public company whose shares are held by farmers and their heirs.
The ‘not for profit’ practice does not establish
that a single economic entity exists. Profit does not determine the
reach
of competition law. Profit is not a necessary factor in
determining anti-competitive behaviour. Nor does the idea that the
supplier
does not recoup more that its costs from its customers
indicate that the supplier and customer constitute to a single
economic
entity.
The
ownership and control factors is advanced on the basis that the
members are all citrus farmers; that Appellant’s Board of
Directors are all farmer-members and that there is close contact
between Appellant’s management and its members.
Adopting the approach advocated in the
United States in
Copperweld Corporation v Independent Tube Corporation
,
467 US
752
(1984) and in
Fishman v Estate of Wirtz
F. 2d 520
(Seventh Circuit - 1986), the Tribunal sought in vain for evidence
of a an individual or small group which exercised
control over the
parties to the single economic entity‘ independently of the wishes
of investors. The lack of a ‘complete
unity of action’
militates against a positive finding in favour of a single economic
entity.
Here the
farmer-members are independent farmers who each owns his or her farm
and operates it without any participation from Appellant
or from any
of his co-shareholders. Pointing out that each farmer-member owns a
relatively insignificant share in Appellant -
individual members
hold between one and six per cent - the Tribunal were unable to find
a basis upon which to conclude that there
was a ‘complete unity of
action’ between all the entities. They have nothing in common
except their participation in Appellant.
While the members’
control over their farms as economic entities is absolute, they have
no significant control over Appellant.
I agree
with the reasoning of the Tribunal and with its rejection of the
concept of a single economic entity between Appellant and
its
members.
It is of interest to note,
en passant
, that the result of
upholding Appellant’s contention would be to allow a company such
as Appellant which is clearly dominant
to evade the reach of the Act
without seeking or obtaining an exemption nor reliant upon any other
discernable statutory basis
for avoiding prohibitions in section 8
of the Act. It would effectively afford,
inter alia,
the
agricultural sector the benefits of special treatment for which in
other jurisdictions there has had to be legislative approval.
Our
Act evidences no such special regime.
Dominance
Section
7(a) of the Act provides that:
“
A firm is dominant in a market if-
it has at least 45% of that market;
(b) it has at least 35%, but less than 45%, of that
market, unless it can show that it does not have market power, or
it has less than 35% of that market, but has market
power.”
At least
seventy per cent of the citrus fruit grown in the GRV is packed by
and marketed through the Appellant.
Section 7
of the Act distinguishes between various market share thresholds for
the purposes of establishing the dominance of a firm.
Appellant’s
market share in the relevant market exceeds the highest threshold of
45% and is at least double the threshold of
35% at which a firm can
show that it does not have market power.
Appellant
is irrebutably presumed to be a dominant firm.
Prohibited Practice in terms of section 8(d)(i)
Section
8(d)(i) of the Act provides that:
“
Abuse of Dominance Prohibited
It is prohibited for a dominant firm to:
(a) ...
(b) ...
(c) ...
(d) engage in any of the following exclusionary acts, unless the
firm concerned can show technological, efficiency or other
pro-competitive
gains which outweigh the anti-competitive effects of
its act –
(i) requiring or inducing a supplier or customer to not deal with
a competitor;”
The question to be decided is whether or not the provisions in
Appellant’s Articles of Association have the effect of “
requiring
or inducing a supplier or customer to not deal with a competitor
”
in contravention of section 8(d)(i) of the Act. If the answer is in
the affirmative, Appellant can avoid the prohibition by
showing
“
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 is
an exclusionary act which is defined in section 1(1)
of the Act as
follows:
“
'
exclusionary
act
' means an act that impedes or prevents a firm from
entering into, or expanding within, a market.”
Are Appellant’s members who are the farmers who utilise
Appellant’s packaging and marketing services also its customers?

The
Concise Oxford Dictionary
defines “
customer
”
as:
“
customer n.
a person who buys goods or services from a shop or business.
a person one has to deal with”
Applying the ordinary meaning of the word “
customer
” to
the facts of the instant case, it is clear that the members both
“
deal with
” and for all intents and purposes “
buy
”
packing and marketing “
services
” from Appellant.
The Tribunal was correct when it found that “
the products
exchanged are services for the packing and marketing of citrus fruit
- the [Appellant] is the seller of these services
and the farmers
are the purchasers
”
Appellant’s conduct that is complained of amounts to what is know
as “
an exclusivity agreement
”. It is an agreement
awarding Appellant the exclusive right to pack and market the citrus
crop of its members. Exclusivity
agreements are an abuse because
they distort competition between producers by depriving customers of
the undertaking in a dominant
position of the opportunity to choose
their source of supply. In the instant case Appellant’s Articles
have the effect of depriving
members from choosing the source of
supply of the packaging and marketing services they require. The
abuse is reinforced by the
provisions which permit Appellant’s
Board of Directors to impose sanctions and by the barriers to
exiting membership.
It appears from the Articles of Association and from the
viva
voce
evidence given by Appellant’s secretary before the
Tribunal that there are significant exit barriers, not least,
because termination
of membership is very costly.
Appellant‘s conduct that is complained of is in clear violation of
Section 8(d)(i). Appellant’s Articles of Association -

specifically Article 112 - clearly provide that the members of
Appellant, who are farmers, are obliged to deliver their entire

output or such portion as Appellant’s Board of Directors decides
upon, to Appellant for the purposes of packing and marketing
should
the respondent exercise its ‘
eerste reg en opsie
’.
Expressed in the language of Section 8(d)(i), Appellant requires its
customers - who are also its members - to deal exclusively
with it,
or, conversely, ‘
to not deal with a competitor
’.”
Appreciating the distinction between members
qua
and
qua
farmers who produce citrus fruit, the Tribunal correctly
approached its analysis by focussing upon the
nexus
which
Appellant’s Articles of Association creates between the respective
functions of the farmers and their duties as shareholders.
Consequently
the Tribunal did:
“
... not take issue with the
restrictions imposed on the alienation of shares in the respondent.
Nor do we oppose the view that insists
that,
having guaranteed the respondent’s capital liability, it is the
duty of the guarantor, and one by no means inconsistent with
competition
law, to honour that commitment. These are contractual
matters between the individual shareholders and the respondent and,
as such,
are not the concern of the Competition Act. However, we do
not accept the form in which this particular guarantee is
effectively
cast – this does constitute a violation of the
Competition Act. It is, in effect, what US anti-trust jurisprudence
would refer
to as a ‘
naked restraint of trade
’.
It is certainly in flagrant violation of Section 8(d)(i)’s
injunction against a dominant firm ‘requiring or inducing a
supplier or customer to not deal with a competitor’ and, a such
constitutes a prohibited ‘exclusionary act’, and act that,
in
the words of the statute, ‘impedes or prevents a firm entering
into, or expanding within, a market’”.
The
concept of abuse is an objective one and it is therefore irrelevant
whether or not the members agreed or even requested the
exclusivity
provisions in Appellant’s Articles of Association. The abuse is
outlawed because it hinders the maintenance of the
competition that
exists in the market or the growth of that competition.
As was stated in
Hoffmann-La Roche and Co AG v Commission of the
European Communities
, case 85/76
[1979] ECR 461
- para 89:
“
An undertaking which is in a dominant position on a market and
ties purchasers - even if it does so at their request - by an
obligation
or promise on their part to obtain all or most of their
requirements exclusively from the said undertaking abuses its
dominant
position within the meaning of Article [82] of the Treaty,
whether the obligation in question is stipulated without further
qualification
or whether it is undertaken in consideration of the
grant of a rebate.”
In paragraph 91 the court held that:
“
The concept of abuse is an objective concept relating to the
behaviour of an undertaking in a dominant position which is such as
to influence the structure of the market where, as a result of the
very presence of the undertaking in question, the degree of
competition is weakened and which, through methods different from
those which condition normal competition in products or services
on
the basis of the transactions of commercial operators, has the
effect of hindering the maintenance of the degree of competition
still existing in the market or the growth of that competition.”
There can
be no doubt that the restraint provisions, with or without the
reinforcement by the penalty provisions in Appellant’s
Articles of
Association enable Appellant to prevent all its members from
offering their produce to other packing houses indefinitely
and for
so long as they are members of the Respondent. Conversely, the
members are deprived of the opportunity to select a competitor
to
pack and market their citrus fruit. Furthermore by tying more than
70 per cent of the farmers to the exclusivity agreement,
other
potential competitors who may wish to compete in the relevant market
are effectively excluded. The effect of the offending
Articles of
Association is to hinder the maintenance of the degree of
competition which exists and to hinder the growth of competition.
The
Tribunals finding that Appellant’s “conduct that is complained
of is in clear violation of section 8(d)(i)” is, in my
view
unassailable.
The Efficiency Defence
Section 8(d) entitles a dominant firm to “
show technological,
efficiency or other pro-competitive gains which outweigh the
anti-competitive effect of its act
”. The efficiency defence
requires Appellant to show that the efficiencies relied upon are
directly related to and dependant
upon its “act” that has been
found to be the practice which is prohibited. In other words that
the anti-competitive behaviour
is a
sine qua non
of the
efficiencies and that the gains could not be otherwise achieved..
Appellant has raised a number of factors which it submits serve to
show “pro-competitive gains ”
flowing from its Articles of
Association”
.
Appellant points out that “
the whole purpose of the conversion
from a co-operative to a company to become more competitive and
efficient in an increasingly
competitive citrus industry ...
”
In the appeal, Appellant submitted that the Tribunal “
erred in
ignoring the fact that the said requirement was inserted in the
Articles for precisely the reason that members of the Appellant
were
desirous of achieving a fairer system of recovering the capital
debts incurred by them via the Appellant.
”
Appellant
also relied upon the following alleged technological, efficiency and
other pro-competitive gains and advantages :
a significant cost saving to its members;
enabling present farmers and, perhaps even more
importantly in the light of the objects of the Act, potential new
farmers, to
enjoy facilities which they could not normally afford;
achieving huge discounts because of the ability of the
Appellant to engage in bulk buying of packing materials;
the volume of fruit handled by the Appellant's
packshed enables it to contract on better terms with overseas
distributors and
agents;
the Appellant’s packshed has technologically very
advanced equipment and processes, especially with regard to the
handling and
packing of soft citrus;
the efficiency of the Appellant’s packshed is
superior, to the benefit of all its members;
the aforesaid relationship between the Appellant and
its members, as well as the aforesaid technically superior
processes and
equipment, increase its global competitiveness and
avoid the weakness inherent in a fragmented supply by numerous
small marketers
of citrus fruit;
the Appellant, as the largest employer in the Gamtoos
River Valley, contributes actively to the socio-economic upliftment
of numerous
people, including formerly disadvantaged persons, in
the Gamtoos River Valley, thus satisfying one of the aims of the
Act.
Appellant
focusses upon benefits to its members and fails to establish that
the Articles which are prohibited are necessary to achieve
the
alleged efficiencies or that they outweigh the anti-competitive
effect of its acts. Indeed, the efficiencies are, except,
in the
case of the two last mentioned, solely and directly beneficial to
the members themselves.
Appellant
also submits that the Tribunal ignored the fact that the requirement
that members of the Appellant deliver their fruit
to the packshed,
had been voluntarily agreed to by its members. As noted above, this
is irrelevant.
The
Tribunal also examined and rejected Appellant’s contentions that
the exclusivity provisions were necessary for the raising
of
capital. The Tribunal found that the method and financial model
employed by Appellant to procure finance and to secure its
loans has
unacceptable anti-competitive effects and that alternatives exist
which do not infringe our competition law.
I am not
persuaded that the Tribunal erred in rejecting the efficiency
defence, it was, in my view, the correct decision.
Application to strike out
On the
date of the complaint referral hearing Appellant applied to the
Tribunal for an order striking out certain passages from
affidavits
filed by the Commission and deposed to by Jan Daniel Du Preez - the
Third Respondent, Volschenk Bernard Verwey a farmer
from Patensie
and Jakobus Johannes Petrus Bezuidenhout, Second Respondent as also
the expert report compiled by Geoff Parr, Head
of Policy and
Projects at the Commission. The report was filed as an independent
document, not confirmed under oath nor attached
to any affidavit .
Appellant’s application was not upheld. In its
decision the Tribunal stated:
“
We are reluctant to grant the application to strike out.
Section 55 of the Act explicitly takes an expansive view of the
admissibility
of evidence in proceedings before the Tribunal and
this, in our view, dictates that an application to strike out will
only be granted
in rare circumstances. We are however prepared to
accord a relatively low weighting to evidence that is hearsay and,
in particular,
to evidence which the respondent has not had to
opportunity to rebut. In this particular case, we are comforted by
the fact that,
albeit inconvenienced by the timing and character of
certain of the submissions of the Commission, [Appellant] has, for
the most
part, taken the trouble to respond. Indeed certain of the
allegations made in the belated expert’s report are pre-emptively
dealt
with in earlier submissions by [Appellant].”
In a
footnote to the decision the Tribunal noted that:
“
We do not in any event need to decide the striking out
application since, as will be seen later, on [Appellant’s] own
evidence,
transport costs still exceed the SSNIP test. Nor do we
need to decide this striking out application in respect of the
affidavits
of Du Preez, Verwey and Bezuidenhout, since we have not
relied on the material sought to be struck out in our decision.”
In its
Notice of Appeal, Appellant appeals against:
“
The Order relating to the Appellant's application to strike
out certain portions of and annexures to the affidavits filed on
behalf
of the [Commission]”
In
setting out the detailed grounds of appeal Appellant contends that:
“
The Tribunal should have allowed the Appellant's application
for the striking out of certain portions of affidavits and annexures
to affidavits filed at a late stage by the [Commission] on the basis
that such evidence was inadmissible and highly prejudicial
to the
Appellant's case and that allowing such evidence constituted both
procedural and substantial unfairness vis-à-vis the Appellant.”
It bears
emphasis that Appellant has not given notice of an appeal against
the Tribunal’s decision not to strike out the passages
from Parr’s
expert report. The Respondent’s Notice of Appeal and grounds for
appeal deal only with the Tribunal’s decision
not to strike out
“certain portions of and annexures to the affidavits filed on
behalf of the Commission”.
Even though the terms of the Notice of Appeal could
per se
held
to be decisive, the parties argued the refusal of the application to
strike out Mr Parr’s expert opinion and it will, in
the interests
of justice, be considered.
Section
55(3) of the Act provides that:
The Tribunal may-
accept as evidence any relevant oral testimony,
document or other thing, whether or not -
( i) it is given or proven under oath or affirmation; or
(ii) would be admissible as evidence in court; but
(b) refuse to accept any oral testimony, document or
other thing that is unduly repetitious.
Pursuant to section 52(1)(b) of the Act the Tribunal to “
may
conduct its hearings informally or in an inquisitorial manner
”.
Our Courts have repeatedly stated that where proceedings are
conducted informally or in an inquisitorial manner the decision
maker
is placed in an active role to get at the truth and that the
ordinary rules of evidence do not apply. Subject at all times to

the requirements of fairness, the Tribunal is not precluded from
having regard to hearsay evidence. (See:
Smit v Seleka
,
1989
(4) SA 157
(O) at 164;
Benjamin v Sobac South African Building
And Construction (Pty) Ltd
,
1989 (4) SA 940
(C) at 964-5;
Ross
v South Peninsula Municipality
,
2000 (1) SA 589
(C) at 595)
Indeed,
it seems to me that expert evidence in disciplines such as economics
and socially related sciences will inevitably be based
upon hearsay
evidence. Given that the expert has to rely upon reported
statistics, surveys and other factors and can hardly be
expected to
glean every basic fact personally, the value of the expert testimony
and the conclusions drawn will always be dependant
upon the
reliability of the raw data. The sources upon which such experts
rely are often themselves a product of hearsay data.
An obvious
example being the statistical data issued by official State
departments of statistics.
Applications to strike out are not granted where the applicant will
suffer no prejudice were the alleged offensive material remain
on
the record. (See:
Beinash v Wixley
,
[1997] ZASCA 32
;
1997 (3) SA 721
(SCA) at
733-4;
Steyn v Schabort en Andere NNO,
1979 (1) SA 694
(O);
The Free Press of Namibia (Pty) Ltd v Cabinet for the Interim
Government of South West Africa,
1987 (1) SA 614
(SWA) at
621F--G;
Vaatz v Law Society of Namibia,
1991 (3) SA 563
(Nm)
at 566B;);
Inkatha Freedom Party And Another v Truth And
Reconciliation Commission And Others,
2000 (3) SA 119
(C) at 126)
Appellant
has not suffered any prejudice as a result of the Tribunal’s
decision not to strike out the passages from the affidavits
filed by
Du Preez, Verwey, and Bezuidenhout because, in reaching its
decision, the Tribunal did not rely on the material sought
to be
struck out.
Similarly,
no reliance was placed on the expert report of Mr Parr. I am unable
to find support for Appellant’s submission that
Parr’s evidence
was - despite the Tribunal’s disavowal, nonetheless, relied upon.
At the hearing of the appeal, the Commission
expressly abandoned
reliance upon Parr’s evidence. The evidence which the Tribunal
relied upon to analyse the transport costs
for the purpose of
defining the relevant market is all to be found in the affidavits
filed by Appellant.
Fair hearing and procedural fairness
In
addition to attacking the Tribunal’s refusal to strike out the
alleged offending evidence on the grounds of hearsay, Appellant
also
contends “that allowing such evidence constituted both procedural
and substantial unfairness vis-à-vis the Appellant.”
The parties have a Constitutional right to have their dispute
decided in a fair public hearing before the Tribunal. Section 33(1)
of the Constitution provides that “
everyone has the right to
administrative action that is lawful, reasonable and procedurally
fair
."
Section
34 of the Constitution states that:
"Everyone has the right to have any dispute that can be
resolved by the application of law decided in a fair public hearing
before a court or, where appropriate, another independent and
impartial tribunal or forum."
The Constitutional right is given effect to by the
Promotion of
Administrative Justice Act
, No. 3 of 2000.
Section
3(1) of that Act provides that:
"Administrative action which materially and adversely
affects the rights or legitimate expectations of any person must be
procedurally
fair." In terms of section 3(2)(b)(b) the right
to procedurally fair administrative action includes "a
reasonable opportunity
to make representations".
The
decisions of the Tribunal are administrative decisions and fall
within the definition of 'administrative action' in the Promotion
of
Administrative Justice Act.
In
Janse Van Rensburg NO And Another v Minister Of Trade And
Industry And Another NNO,
(1) SA 29 (CC), paragraph [24],
Goldstone J stated:
“
These
features must be weighed against the requirements of administrative
justice. In doing so it must be appreciated that one of
the enduring
characteristics of procedural fairness is its flexibility. The
application of procedural fairness must be considered
with regard to
the facts and circumstances of each case.
.
. .
”
(See also:
Permanent Secretary, Department Of Education And
Welfare, Eastern Cape, And Another v Ed-U-College (PE) (Section 21)
Inc
,
2001 (2) SA 1
(CC), para [19];
Minister Of Public Works
And Others v Kyalami Ridge Environmental Association And Another
(Mukhwevho Intervening)
,
2001 (3) SA 1151
(CC), paragraph
[101]);
Bel Porto School Governing Body And Others v Premier,
Western Cape, And Another
,
[2002] ZACC 2
;
2002 (3) SA 265
(CC)
Relevant facts and circumstances of this case
An examination of the facts and circumstances of this
case reveals that the Tribunal issued directions at a pre-hearing
conference
held with the parties on 13 December 2001. The following
specific provision was made for the filing of expert and discovery
documents:
“
The Commission will file:
a. A summary of the nature of the expert evidence it will bring
by 15 January 2002;
Its expert summaries before 25 January 2002 ;
Its witnesses affidavits by 25 January 2002;
Its discovery affidavit by 15 January 2001.
The [Appellant] will file:
Its reply, if any, to the Commission's expert
witnesses by 13 February 2002;
Affidavits of any further witnesses it intends to
bring by 13 February 2001;
Its discovery affidavit by 15 January 2002.
On 30
January 2002 and at a further pre-hearing conference was attended by
the parties. The timetable for the filing of documents
was revised
as follows:
4(c) The Commission will file its expert affidavit by Monday 4
February 2002 at 10h00
4(d) The [Appellant] will file its reply, if any, to the
Commission's expert witnesses by 20 February 2002, as well as the
affidavits
of any further witnesses it intends to bring also by this
date. The [Appellant] will approach the Tribunal should it have a
difficulty
with this date.”
Paragraph 4(c) of the direction was part of what was described as
“
the revised timetable
” and the use of the phrase “
expert
affidavit
” must be considered to have been a drafting error.
The stated intention was to revise the timetable not to alter the
format
of the expert report.
The Tribunal also directed that witnesses who had filed affidavits
should be available throughout the hearing for questioning “
in
the event that either the opposing party or the Tribunal wishes to
question them
”.
A summary of the expert economic opinion of Mr Geoff
Parr, was filed his on 15 January 2002 and his economic opinion was
filed on
4 February 2002.
Appellant
filed a lengthy reply to the affidavits of the further witnesses
that had been filed during the last week of January 2002
and the
report of Mr Parr. The reply was deposed to by deposed to by
Appellant’s secretary and was filed on 21 February 2002.
On the
following day, Appellant filed a supplementary expert affidavit
deposed to by its managing director in which he too responded
to Mr
Parr’s expert opinion.
Appellant
did not avail itself of the opportunity, expressly reserved to it by
the Tribunal on 30 January 2002, to approach the
Tribunal should it
require further time within which to respond to the expert opinion
and the further affidavits filed on behalf
of the Commission in
accordance with the revised timetable.
At the
commencement of the referral hearing Appellant filed a formal notice
of its application to strike out the evidence that it
had already
responded to.
At no
stage did the Respondent apply for more time or for a postponement
of the hearing in order to deal further with any particular
aspect
of the Commission’s expert report or further affidavits. Nor did
Appellant apply at the referral hearing for Mr Parr
to be called to
testify and be cross-examined.
Considering
all the circumstances I am satisfied that the appeal against the
refusal to strike out portions of the affidavits and
Mr Parr’s
expert opinion cannot succeed and that the Tribunal afforded
Appellant a hearing that was both procedurally and substantially
fair.
Costs
In its
grounds of appeal, Appellant contends that:
“
In all the circumstances of the case, the Tribunal erred in
not awarding costs against all the Respondents, particularly having

regard to the numerous instances of objectionable, unreasonable and
mala fide conduct by them.”
In Appellant’s heads of argument criticism is levelled against the
Commission for the manner in which it conducted its enquiry
in this
matter. That issue was not argued before us. Suffice it to record
that the judgment of the
Supreme Court of Appeal in Simelane NO
and others v Seven-Eleven Corporation SA (Pty) Ltd and
another
,
[2003] 1 All SA 82
(SCA) which analysed the role of the
Commission and the ambit of its enquiry would appear to deal
adequately with and answer the
complaints raised.
Appellant
submitted that the Tribunal ought to have awarded costs against
Second and Third Respondents who lodged the original complaints
against Appellant.
As regards the alleged “objectionable, unreasonable and
mala
fide” conduct
the original complainants there appears to be no
doubt that vacillated in their attitude and their analysis of the
issues. However,
when regard is had to the history of the dispute
it is apparent that the issues gave all the parties and the
Commission considerable
difficulty. For example, questions as to
the legal nature of the transactions between the members and
Appellant were complicated
by the use of the word “
koop
”
in the Articles of Association. In addition, the very divergent
views taken by the respective parties in relation to the relevant
market considerably expanded the scope of the dispute. There was
also the Appellant’s focus upon the benefits that its structure
afforded its members to enable them to compete in the international
citrus market, an approach that failed to appreciate that the
true
enquiry related to competition in the market for the services
offered by Appellant itself. Given all these facts and
circumstances
I cannot fault the Tribunal for exercising its
discretion against making any order as to costs.
Section
57 of the Act provides that:
“
(1) subject to subsection (2) and the Competition Tribunal's
rules of procedure, each party participating in a hearing must bear
its own costs.
the Competition Tribunal -
has not made a finding against a respondent, the
Tribunal member presiding at a hearing may award costs to the
respondent, and
against a complainant who referred the complaint in
terms of section 51 (1); or
has made a finding against a respondent, the
Tribunal member presiding at a hearing may award costs against
the respondent,
and to a complainant who referred the complaint
in terms of section 51(1).”
The
Tribunal decided to make no order as to costs. In the light of
section 57 and the finding made by the Tribunal against Appellant
there is no basis upon which we can set aside the Tribunal’s order
and replace it with an order of costs in Appellant’s favour.
In these
proceedings Appellant asks for an order for costs against all three
Respondents. Second and Third Respondents did not
participate as
parties to the appeal though both deposed to affidavits filed on the
record.
As for
the costs of appeal there is no reason why they should not follow
the result. Appellant will be ordered to pay the costs
of appeal.
The Result
For the
reasons stated the appeal is dismissed and Appellant is to pay the
costs of the appeal.
........................................
SELIKOWITZ JA
Concur:
Hussain JA
Malan
AJA