American Soda Ash Corporation CHC Global (Pty) Ltd and Another v Competition Commission of South Africa and Others [2003] ZACAC 11; [2003] ZACAC 6 (30 October 2003)

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[2003] ZACAC 11
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American Soda Ash Corporation CHC Global (Pty) Ltd and Another v Competition Commission of South Africa and Others [2003] ZACAC 11; [2003] ZACAC 6 (30 October 2003)
J241002
In the Competition Appeal Court of South Africa
Case 12/CAC/DEC01
In the
matter between
American
Soda Ash Corporation First Appellant
CHC Global
(Pty) Ltd Second Appellant
and
Competition
Commission of South Africa First Respondent
Botswana
Ash (Pty) Limited Second Respondent
Chemserve
Technical Products (Pty) Ltd Third Respondent
Judgment
Malan
AJA
:
[1]
This is an appeal from a decision of the Competition Tribunal
dated 30 November 2001 holding that jurisdiction under s 3(1) of the
Competition Act, 1998 (the “Act”) can be based on any effect
within South Africa, whether non-competitive or pro-competitive,
and
from an inter-related decision dated 27 March 2001 holding that any
agreement among firms having any provision setting prices
is per se
unlawful under s 4(1)(b) of the Act regardless whether the provision
is ancillary to the creation of a joint venture and
regardless of the
nature of the entity setting the prices, the nature of its activities
and any resulting pro-competitive efficiencies.
The history
of the litigation between the parties is set out comprehensively in
the decision of the Tribunal of 30 November 2001 and
need not be
repeated. The issues to be resolved will be dealt with under the
headings referred to hereunder.
A
Standing of intervening parties
[2]
One
of the issues in this appeal is whether the intervening parties have
the required standing to seek an order against Ansac interdicting
the
continued performance in South Africa of an agreement concluded
abroad in the absence of an allegation that they suffer harm
in
consequence of such performance. It seems logical to deal with this
matter first since a negative finding could very well dispose
of the
matter altogether. The relief sought by Botash is the following:
an
order declaring that [Ansac] is a party to an agreement,
alternatively an arrangement, further alternatively, a decision to

fix selling prices, trading conditions and to divide the market,
according to customers and territory, for the export of soda ash
in
South Africa contrary to section 4(1)(b)(1) and (ii) … (“the
prohibited practices”);
an
order that Ansac desist from engaging in the prohibited practices;
an
order that [CHC Global] shall not act as the agent of [Ansac] whilst
[Ansac] engages in the prohibited practices;
in
the alternative to (b) above, an order that [Ansac] cease the supply
of soda ash, directly or indirectly, to the South African
market and
desist from soliciting orders for soda ash in the South African
market;
in
the alternative to (c) above, that CHC Global shall not act as the
agent of the first respondent to supply soda ash or solicit
orders
on behalf of the first respondent in the South African market …
Botash is the complainant in this matter (s
49B(2)(b)) and enjoys standing as an intervening party. This was
formalized by the Tribunal
on 7 September 2000.
[3]
The pleadings filed by Botash do not contain an allegation that they
are or were adversely affected by Ansac’s conduct. The exception
is
based on the premise that an applicant at common law seeking an
interdict for the breach of a statutory duty must allege and prove
special damages where the duty was imposed in the public benefit
unless he or she falls within the class of persons for whose benefit

the statutory duty was enacted (
Patz v Greene and Another
1907
TS 427
and subsequent cases). Basing its decision inter alia on
Tribunal Rule 46(1) and ss 49B(2) and 53(1) of the Act, the Tribunal
held
that there is no requirement in the Act impeding an intervening
party to from seeking relief or requiring it to show that it has
suffered special damages and dismissed Ansac’s exception to
Botash’s standing to apply for the relief sought with costs
(Decision
of 30 November 2001).
Ansac’s
submissions do not entail a repudiation of the agreement between the
parties in which they consented to the participation
of the
intervening parties to the proceedings and they accept the binding
effect of the Tribunal’s consent order made. However,
Ansac
contends that the intervening parties cannot claim relief to which
they are not entitled to in law.
[4]
The Act, in regulating participation in the proceedings of the
Commission and Tribunal identifies various participants. Section
49B(2)
identifies a “complainant” as a person (a) who submits a
complaint concerning an alleged prohibited practice to the Commission
in the prescribed form (s 1(1) (iv)). A complainant may apply to the
Tribunal for an interim order in respect of the alleged practice
(s
49C(1)) and has, to succeed, show serious or irreparable damage to
him or herself (s 49C(2)(b)(ii)). The onus of proof in such
an
application would rest on the applicant for the interim relief (s
49C(3)).
No specific
requirements are, however, set for complainants in general. Their
rights to participate in the hearing are set out in
s 53(1). The
preamble to the subsection reads as follows: “The following persons
may participate in a hearing, in person or through
a representative,
and may put questions to witnesses and inspect any books, documents
or items presented at the hearing …”. It
seems that “participate”
indicates general involvement in the hearing as a party to the
proceedings and that the rights to put
questions and inspect books or
items are illustrations of this right to participate. It follows that
“to participate” also includes
the right to address the Tribunal,
make representations to it and to formulate and claim relief: the
right to participate would be
meaningless unless relief can be
claimed.
However, the
relief that may be claimed is not the interim order provided for by s
49C(1) but relief of a public nature and not specific
to the person
or particulars of the applicant or claimant. The Tribunal is
empowered, as is provided for in s 27, to adjudicate
on the conduct
prohibited in chapter 2 and to provide a remedy provided for in the
Act; adjudicate any other matter that may be considered
and make a
corresponding order; hear appeals from the Commission and make any
other incidental ruling or order (s 27 as amended by
s 11 of the
Second
Competition Amendment Act, 2000
). The Tribunal is not
empowered to make orders for the payment of damages to any particular
person
(s 62(5)
and see
s 65(5)).
These remedies do not depend on the
applicant’s having suffered harm or a likelihood of harm, but
rather on the specific provisions
of the Act, and are limited in
scope. Essentially, as I have said, they are orders of a limited kind
to be made in the public interest.
They do not seek to vindicate
private rights. Hence there is no need for a participant at any
hearing to show that he or she has
suffered damages or that they may
be exposed to them.
[5]
It
follows that the intervening parties need not show that any specific
right has been infringed or that they require protection
to prevent
“serious or irreparable damage” so as to entitle them to an
interim order (s 49C(2)(b)(ii)). They do not seek to vindicate
a
personal right. That they have the standing to do so hardly admits of
any doubt: Botash has the right to participate in the hearing
under s
53 (as well as under Rule 46) and, consequently, also the right to
claim specific relief in accordance with the Act: it is
both a
“complainant” and a person falling under s 53(1)(a)(iv).
[6]
It
follows that the appeal based on the Botash’s lack of standing
should fail.
B
Section 3(1)
[7]
The first substantive issue on appeal
concerns the construction of s 3(1) of the Act. Section 3 deals with
the application of the
Act and provides as follows:
This
Act applies to all economic activity within, or having an effect
within, the Republic, except –
collective
bargaining within the meaning of section 23 of the Constitution,
and the Labour Relations act, 1995 (Act No 66 of 1995);
a
collective agreement, as defined in
section 213
of the
Labour
Relations Act, 1995
;
…
(e)
concerted conduct designed to achieve a non-commercial socio-economic
objective or similar purpose.
The formulation of
s 3(1)
is
simple and uncomplicated. The Act applies to “all economic activity
within, or having an effect within, the Republic”. The
appeal
concerns the meaning of the words “an effect within, the Republic”.
This apparently straightforward expression disguises
the true issue
involved, viz that of the extra-territorial operation of the Act.
[8]
The “economic
activity” in this case includes the conclusion of the Ansac
agreement, admittedly in the United States of America.
Exception was
taken by Ansac on the basis that, since neither the Commission nor
Botash made the allegation of deleterious or negative
effects within
the Republic in their pleadings, the pleadings are excipiable. The
wording of the exception is as follows: “Upon
a proper construction
of the Act, in order for economic activity occurring outside South
Africa to have an ‘effect’ within South
Africa for purposes of s
3, it must be alleged and proved that such activity has had [a]
negative or … deleterious effect on competition
within South
Africa”. In the heads of argument “deleterious” is equated
with “anti-competitive” so that the question before
the Tribunal
was whether the section should be construed so as to mean that only
“economic activity having an anti-competitive
effect within the
Republic” was included.
[9]
The Tribunal
rejected the contentions presented on behalf of Ansac in their
decision of 30 November 2001 holding as follows:
“
Not
only is there no basis in international law to support Ansac’s
reading, but also there is no practical foundation for it either.
In
effect it leads to a double inquiry. First, one will have to inquire
into whether the Tribunal has jurisdiction. This entails
a net
balancing of pro- and anti-competitive effects. Then if a net harm is
shown one proceeds with the substantive enquiry, which
might in a
rule of reason case involve extensive duplication of the evidence. In
a per se contravention it would mean the leading
of evidence in the
jurisdiction enquiry, which is then inadmissible in the substantive
enquiry …” (pages 29-30).
“
The
word ‘effect’ is used in our legislation in conjunction with the
words ‘economic activity’. This language is itself neutral
and
indicated that what the legislature sought to distinguish by the
distinction between activity within and effects within was the
distinction between conduct of an economic nature that took place
within the Republic and conduct that took place outside the Republic
and which has an ‘effect’ within the Republic such as a boycott”
(page 30).
The Tribunal found:
“
We
find that on an ordinary interpretation the word effect in section
3(1) is not limited to adverse effects. Whilst the language
may
require some qualification it is not a qualification related to the
nature of the ‘effects’ but their extent. What that extent
should
be we do not need to decide in this case save to suggest they should
not be trivial.
“
We
further find that the interpretation contended for by Ansac is not
predicated upon a sound policy approach and that even if we
felt
inclined to interpret the statute purposively that purpose contended
for subverts rather than enhances the legislative intent.
“
We
further find, that in any event, that Ansac has failed to establish a
rule of customary law that [it] supports its contentions
as a matter
of ‘constant and uniform usage’” (at pages 30-1).
[10]
Ansac’s
argument calling for a restrictive or limited interpretation of s
3(1) is based on two grounds: one, a presumption against
the
curtailment of the jurisdiction of the courts (cf
Special
Investigating Unit v Nadasen
2002 1 SA 605
(SCA) 610AC); and two,
s 1(2) which calls for a purposive interpretation of the Act.
[11]
”Ouster
clauses”, says Baxter
Administrative Law
(1984) at 727,
“have no absolute meaning: they must be construed within the
context of the legislation in which they are enacted,
as must the
acts to which they refer”. The Act contains provisions limiting the
jurisdiction of the ordinary courts or reserving
exclusive
jurisdiction to the Tribunal and the Competition Appeal Court (ss 62
and 65) . However, before the presumption calling
for a strict
construction can be relied upon the context of the legislation must
be considered. This was done in
Seagram Africa (Pty) Ltd v
Stellenbosch Farmers’ Winery Group Ltd and Others
2001 2 SA
1129
(C) where at 1138F- 11341E the following was said:
“
[T]he
jurisdiction conferred upon the tribunal and the Court is clear and
unambiguous. Whatever kind of approach one adopts in interpreting
a
statute, one must bear in mind that the actual language of the
statute cannot be ignored …
…
I
am mindful of the fact that there is a strong presumption against the
ouster or curtailment of the jurisdiction of the High Court
… .
However, although such presumption applies, it is in every case
necessary to consider all the circumstances and then determine
whether a necessary implication arises that the Court’s
jurisdiction is either wholly excluded or at least deferred until
the
domestic or extra-judicial remedies have been exhausted…
…
The
subject-matter of the Act is actually or potentially monopolistic or
anti-competitive agreements, practices or acts which are
grouped
under the headings restrictive horizontal practices, restrictive
vertical practices, abuse of dominant position and mergers
… .
Furthermore, if one considers the scope and language of the Act,
it is apparent that the intention of the Legislature was that
competition
matters should be administered by structures other than
courts of law. To that end ‘independent institutions’ were
established
to ‘monitor economic competition’
(own italics)”.
Given the purpose of the
Act or the “intention” of the legislature referred to, and
mindful of the statutory command calling for
a purposive
interpretation (s1(2)(a)), the scope for the application of the
presumption against the curtailment of the jurisdiction
of the courts
is very limited. It is not a matter of the Competition Tribunal
“trespassing” on the sphere of the ordinary courts
of the land.
Rather, the Tribunal is given exclusive jurisdiction to adjudicate on
any conduct prohibited in terms of Chapter 2 of
the Act (ss 62(1)(b)
read with 27(1)). Section 65(2) requires a civil court, when a party
raises an issue concerning conduct prohibited
by the Act, to decline
from considering it and to refer it to the relevant competition
authority. A hierarchy of institutions or
fora
, including the
Competition Appeal Court is provided to administer and adjudicate
upon the subject matter of the Act (see
Seagram
1141F –
1142C). Effect must be given to this clear expression of the
intention of the legislature. Whatever theory of interpretation
is
used, the words of the legislation cannot be ignored and is the
starting point for any construction (
S v Zuma and Others
[1995] ZACC 1
;
1995
2 SA 642
(CC) 652H – 653A). The word “effect” is not ambiguous
and its ordinary, grammatical meaning is in accordance with the
purposes
of the Act.
[12]
The Act itself
contains some guidelines for its interpretation. Its purpose is ”to
promote and maintain competition in the Republic”
in order inter
alia “(a) to promote the efficiency, adaptability and development
of the economy”; “(b) to provide consumers
with competitive
prices and product choices”; (d) “to expand opportunities for
South African participation in world markets and
recognize the role
of foreign competition in the Republic” (s 2). Section 1(2)
requires the Act to be interpreted “(a) in a manner
that is
consistent with the Constitution and gives effect to the purposes set
out in section 2; and (b) in compliance with the international
law
obligations of the Republic”.
[13]
To return to the
word “effect” used. The appellants have argued that only
“anti-competitive economic activity” should be
comprehended
within it so that the word “effect’ should be read as meaning “an
anti-competitive effect” within the Republic.
This interpretation
is unsustainable. Not only does the clear wording of s 3 not support
it but the following sections explicitly
require an assessment
whether the agreement or conduct complained of has the effect of
substantially preventing or lessening competition.
For example, s
4(1)(a) contains a prohibition against anti-competitive agreements
between parties, ie competitors, in a horizontal
relationship. Any
agreement between them which has the effect of substantially
preventing or lessening competition in a market will
be prohibited
unless a party can show some technological, efficiency or other
pro-competitive gain, resulting from the agreement,
that outweighs
its anti-competitive effect. A firm may, therefore, on the
appellant’s argument,
justify
an agreement and avoid the
prohibition, by showing that some pro-competitive benefit
in the
Republic
flows from the agreement and that this benefit outweighs
the anti-competitive effects of the agreement. The same reasoning
applies
to s 5(1) dealing with restrictive vertical practices. In
other sections the word “effect” is used neutrally with the
addition
of the words “anti-competitive” (s 8(c) and (d)) or “of
substantially preventing or lessening competition” (eg ss 9(1)(a),
s 4(1)(a) and 12A(1)(a)(i)). This tends to show that “effect” is
used in s 3(1) in the same neutral sense. This conclusion is
strengthened when chapter 3 of the Act is considered. The Commission
would have to consider whether a foreign merger has an
anti-competitive
effect in South Africa in order to establish whether
the Act is applicable and before it could consider its
anti-competitive effect
under s 12A. It is highly unlikely that the
legislature intended to adopt so uncertain a criterion for
jurisdiction.
My conclusion is that the
word “effect” in s 3(1) should be given its ordinary,
grammatical, meaning. To import the words “anti-competitive”
into
the section is not justified by the wording of the Act.
[14]
Sections 1(2)(a)
and (b) require the Act to be interpreted in a manner that is
consistent with the Constitution and gives effect
to the purposes
set out in s 2 as well as being in compliance with the international
law obligations of the Republic. Submitting
that a purposive approach
be followed, the appellants argue that s 3(1) should be interpreted
in such a way that only anti-competitive
economic activity is brought
within its purview. This would then permit an examination of the
effect of the Ansac agreement and its
by-laws in South Africa.
In
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) where the same s 3(1) had to be
construed (as it read before its amendment by The
Competition Second
Amendment Act, 2000
). Schutz JA said at 811H – 812A:
“
[21]
Having regard to the authority and persuasiveness of what has gone
before, I think the submission in Standard Bank’s heads
of argument
that the ‘semantic or literalist approach enjoys ever less support
in modern legal theory’ is cast rather high. However,
as I have
endeavoured to show, our law is an enthusiastic supporter of
‘purposive construction’ in the sense stated by Smalberger
JA in
Public Carriers Association and
Others v Toll Road Concessionaries (Pty) Ltd and Others
1 SA
925(A)
at 943G-H:
‘
Mindful
of the fact that the primary aim of statutory interpretation is to
arrive at the intention of the Legislature, the purpose
of the
statutory provision can provide a reliable pointer to such intention
where there is an ambiguity.’”
In
South African Raisins
(Pty) Ltd and Another v SAD Holdings Ltd and Another
[2000] ZASCA 147
;
2001 2 SA
877
(SCA) at 886BC Melunsky AJA paraphrased the approach adopted by
Schutz JA thus: “That it is permissible to give effect to the
policy or object or purpose of the legislation, where there is an
ambiguity, is clear… “.
The meaning of the word
“effect” is that of “something caused or produced; a result or
consequence” (
The Oxford Universal Dictionary
). There is no
ambiguity in its use in
s 3(1).
Nor is there any reason why it should
not be given its ordinary, unqualified meaning in
s 3(1).
As Harms JA
said in
Abrahamse v East London Municipality and Another; East
London Municipality v Abrahamse
1997 4 SA 613
(SCA) at 632GH:
“Interpretation concerns the meaning of words used by the
Legislature and it therefore useful to approach the task
by referring
to the words used, and to leave extraneous considerations for later”
(cited by Schutz JA in
Standard Bank Investment Corporation Ltd v
Competition Commission and Others; Liberty Life Association of Africa
Ltd v Competition
Commission and Others
supra
at 811H and
see the other authorities referred to at 810-2).
[15]
The appellants
made a further attack on
s 3(1)
by invoking
s 1(3)
which allows a
person interpreting or applying the Act to consider appropriate
foreign and international law. Moreover, the provisions
of s 1(2)(a)
which calls for an interpretation in a manner that is consistent with
the Constitution, refer to the provisions of s
232 of the
Constitution:
“
Customary
international law is the law in the Republic unless it is
inconsistent with the Constitution or an Act of Parliament.”
This provision enshrines the
common-law position that international law forms part of the
municipal law. Dugard
International Law. A South African
Perspective
(1964) at 46-7 observed:
“
Since
customary international law is a species of common law, it must give
way to legislation in the case of conflict. However, where
there is
an ambiguity as to whether or not there is a conflict, an attempt
should be made to reconcile the statute with the customary
rule,
since there is a statutory presumption that the legislature does not
intend to violate international law.”
See
Azapo and Others v
Truth and Reconciliation Commission and Others
1996 4 SA 562
(CPD) 574BC;
Alexander v Pfau
1902 TS 155
159 and 164.
Moreover, s 233 of the Constitution provides that
“
[w]hen
interpreting any legislation, every court must prefer any reasonable
interpretation of the legislation that is consistent with
international law over any alternative interpretation that is
inconsistent with international law.”
See
Dawood and Another
v Minister of Home Affairs and Others
2000 1 SA 997
(C) 1033H –
1034A;
Azanian Peoples Organisation & others v President of
the Republic of South Africa & Others
1996 4 671 (CC) 688-9
and s 1(2)(b).
[16]
In most cases the
exercise of the functions of a state by legislation, executive and
enforcement action and judicial decrees is
limited to the territory
of the state. However, as Dugard 116 explained, “[i]nternational
trade, migration, travel, and crime ensure
that states will have an
interest in extending their jurisdiction beyond their territorial
limits to cover persons and property in
other countries”. The
extra-territorial application of domestic competition laws is one of
the ways to combat the operation of
international cartels (see Klein
“The War against International Cartels: Lessons from the
Battlefront” paper presented at the
Fordham Corporate Law Institute
14 October 1999 at page 9-10).
In the United States the
“effects doctrine” was developed to deal with practices outside
the country but having “effects”
within it. The “effects
doctrine” was first applied in the context of the extra-territorial
violation of the Sherman Act of
1890 (15 USC §§ 1-7) in the case
of
United States v Aluminum Company of America (Alcoa)
148 F
2d 416
(2d Cir 1945) where Judge Hand asserted jurisdiction over
cartel arrangements made abroad by foreign companies and held them to
be
unlawful because “they were intended to affect imports and did
affect them” and because “any State may impose liabilities even
upon persons not within its allegiance, for conduct outside its
borders that has consequences within its borders which the State
reprehends” (at 443 cited by Cartoon “The Westinghouse Case:
Collective Response to the Extra-territorial Enforcement of United
States Antitrust Laws”
(1983) 100
SALJ
731
at 733).
The wording of article 81 of
the EC Treaty specifically prohibits agreements, decisions or
concerted practices “which have as their
object or effect the
prevention, restriction or distortion of competition within the
common market”.
[17]
The appellants
have to show that an interpretation giving the words “an effect”
their ordinary grammatical meaning violates international
customary
law. It is not disputed that the
Competition Act has
extra-territorial application and it is not disputed that a state
may, in certain cases, extend its jurisdiction beyond its territorial
borders. In
The Lotus Case
(1927) PCIJ Reports Series A, No
110 it was said that
“
[t]he
first and foremost restriction imposed by international law upon a
State is that – failing the existence of a permissive rule
to the
contrary – it may not exercise its power in any form in the
territory of another State. In this sense jurisdiction is certainly
territorial; it cannot be exercised by a State outside its territory
except by virtue of a permissive rule derived from international
custom or from a convention.
“
It does not,
however, follow that international law prohibits a State from
exercising jurisdiction in its own territory, in respect
of any case
which relates to acts which have taken place abroad, and in which it
cannot rely on a permissive rule of international
law. … Far from
laying down a general prohibition to the effect that States may not
extend the application of their laws and the
jurisdiction of their
courts to persons, property and acts outside their territory, it
leaves them in this respect a wide measure
of discretion ….
“
[I]t is
certain that the courts of many countries, even of countries which
have given their criminal legislation a strictly territorial
character, interpret criminal law in the sense that offences, the
authors of which at the moment of commission are in the territory
of
another State, are nevertheless to be regarded as having been
committed in the national territory, if one of the constituent
elements
of the offence, and more especially its effects, have taken
place there.”
And in
Barcelona Traction, Light and Power Company Limited Case
1970
ICJ 3
(February 5, 1970) it was said in § 70 :
“
It
is true that, under present conditions, international law does not
impose hard and fast rules on States delimiting spheres of
national
jurisdiction in such matters (and there are of course others-for
instance in the fields of shipping, 'anti-trust' legislation,
etc.),
but leaves to States a wide discretion in the matter. It does
however (a) postulate the existence of limits-though in any
given
case it may be for the tribunal to indicate what these are for the
purposes of that case; and (b) involve for every State
an obligation
to exercise moderation and restraint as to the extent of the
jurisdiction assumed by its courts in cases having a foreign
element,
and to avoid undue encroachment on a jurisdiction more properly
appertaining to, or more appropriately exercisable by, another
State.”
See
Dugard 117-8 and
Oppenheim’s International Law
9ed (1996)
§140 at 478-9. In a sense territoriality also underlies the kind of
case, such as the present, where foreign conduct
has an effect at
home (Oppenheim §137 at 460 and see
Barcelona Traction
1970 ICJ
65
at 105). International law thus permits states to exercise
their jurisdiction to promulgate rules, whether it be legislation or
administrative
decrees, prohibiting conduct elsewhere having an
“effect” within the state.
[18]
In relying on
United States cases the appellants have argued that jurisdiction
required that there be an intended and substantial
anti-competitive
effect in South Africa. I have not been persuaded that this is
correct. The appellants rely on the
Restatement (Third) of the
Foreign Relations Law of the United States
(1987) where the basic
principles of extra-territorial jurisdiction are set out:
“
(1)
The conduct and its effect must be generally recognized as
constituent elements of a crime or tort under the laws of states with
reasonably developed legal systems (objective territoriality); or
(2) The
consequences within the territory must be substantial and occur as a
direct and foreseeable result of conduct outside the
territory; and
(3) The law
proscribing the effect must not be inconsistent with the principles
of justice generally recognized by states with reasonably
developed
legal systems.”
The question is not whether
the consequences of the conduct is criminal or, for that matter,
anti-competitive, but whether the conduct
complained of has “direct
and foreseeable” substantial consequences within the regulating
country. In other words, the “effects”
in the present case must
be such that they fall within the regulatory framework of the Act,
whether they are anti-competitive or
not. This seems to be expressed
by Oppenheim 468 where it is said that “[i]t is a matter for
determination in each case to whether
a direct and substantial
connection exists which is sufficient to justify a state treating as
criminal the conduct of aliens taking
place within the area of
another state’s sovereign authority”. In
Hartford Fire
Insurance Company v California
[1993] USSC 100
;
509 US 764
(1993) the court held
that “[i]t is well established by now that the Sherman Act applies
to foreign conduct that was meant to produce
some substantial effect
on the United States”.
This inquiry does not involve
a consideration of the positive or negative effects on competition in
the regulating country but merely
whether there are sufficient
jurisdictional links between the conduct and the consequences. The
appellants have relied on numerous
cases, inter alia,
American
Banana Co v United Fruit Co
[1909] USSC 106
;
213 US 347
(1909);
United States v
Aluminum Company of America (Alcoa)
148 F 2d 416
(2d Cir 1945);
Timberlane Lumber Company v Bank of America
[1977] USCA9 255
;
549 F 2d 597
(9
th
Cir 1976);
Mannington Mills Inc v Congoleum Corp
595 F 2d
1287
(3d Cir 1979);
Hartford Fire Insurance Company v California
[1993] USSC 100
;
509 US 764
(1993);
Matsushita v Zenith Radio
475 US 574
(1986);
Continental Co v Union Carbide
[1962] USSC 114
;
370 US 690
(1962);
Metro Industries Inc v Sammi Corporation
82 F 3d 893
(9
th
Cir 1996). I am not convinced that they support the contention that
only anti-competitive or deleterious effects would suffice to
bring
the conduct complained of within the jurisdiction of the regulating
state. The question is rather one relating to the ambit
of the
legislation: the Act in the matter under consideration, its
regulatory “net”, concerns not only anti-competitive conduct
but
also conduct the import of which still has to be determined.
[19]
Nor do I think
will any of the principles of international comity will be infringed
by the rejection of the interpretation contended
for by the
appellants. This elusive concept, “more an aspiration than a fixed
rule, more a matter of grace than a matter of obligation”
(
United
States v Nippon Paper Industries Co Limited
109 F 3d 1
(1997)),
takes the matter no further. Ulrik Huber, writing on conflict of
laws, based his system on three pillars of public international
law:
the first
“
dat
de wetten van yder vry Landschap kracht moeten hebben binnen de palen
des selven Landts, ende verbinden alle de onderdanen desselfs,
sonder
wijders”; secondly, “dat voor onderdanenen moeten gehouden alle
Persoonen die in dat Landtschap worden bevonden, soo lange
hun aldaer
onthouden, het sy voor een tijdt of voor altoos”; and, thirdly, “de
Hooge machten van yder Landt bieden elkander de
handt, ten einde , de
Rechten van yder, op elk zijn onderdanen, schoon elders zynde, zoo
verre gelden, als het niet is strydig met
de Macht of het Recht des
anderen in syn bedryf” (cited by Van Rooyen
Die
Kontrak in die Suid-Afrikaanse Internasionale Privaatreg
(1972)
19).
No concerns of comity or of
the untoward assumption of jurisdiction over foreign territory arises
in this case. The issue is simply
one of “an effect within the
Republic”. There can be no question of comity defeating the
exercise of jurisdiction since no conflict
between US and South
African law has been demonstrated. Ansac does not operate in the
United States for it prohibited from doing
so by s 1 of the Sherman
Act. It may, however, operate outside of the United States under the
Webb-Pomerene Act
15 USC 61-65
which provides a limited anti-trust
exemption for the formation and operation of competitors for the
purposes of engaging in collective
export sales.
[20]
The Webb-Pomerene
Act, according to the
Anti-trust Enforcement Guidelines for
International Operations
issued by the US Department of Justice
and Federal Trade Commission, “does not apply to conduct that has
an anti-competitive effect
in the United States, or that injures
domestic competitors of the members of the export association. Nor
does it provide any immunity
from prosecution under foreign
anti-trust laws.” It follows that no consideration of comity
precludes South African competition
authorities from exercising their
jurisdiction in terms of the Act. The symbolic, “de Hooge machten
van yder Landt bieden elkander
de handt”, allowing for the
operation of foreign law in a country, does not exclude the exercise
over the effects of foreign conduct
within its own territory of its
own laws which, in any event, are not forbidden by the foreign state
(see further the reasoning in
Ahlstrom Osakeyhtio and others v
Commission of the European Communities
[1988] CMLR 901
(ECJ) (the
Wood Pulp Case
) par 19 and 20).
[21]
Article 81 of the
European Community Treaty prohibits those agreements, decisions and
concerted practices “which may affect trade
between Member States
and which have as their object or effect the prevention, restriction
or distortion of competition within the
common market”. The reason
for this formula is explained in the
Wood Pulp Case
: “If the
applicability of prohibitions laid down under competition law were
made to depend on the place where the agreement, decision
or
concerted practice was formed, the result would obviously be to give
undertakings an easy means of evading those prohibitions”
(par 16).
The “implementation test” does not involve a consideration of the
positive and negative consequences of the agreement,
decision or
practice.
Gencor v Commission of the European Communities
Case T-102/96, 25 March is summarized as follows: “Application of
Regulation No 4064/89 is justified under public international
law
when it is foreseeable that a proposed concentration between
undertakings established outside the community will have an immediate
and substantial effect within the Community” (par 3 and par 90ff of
the judgment). The decisions of the European Court of Justice
do not
support the contentions of the appellants.
C Condonation and Section
4(1)(b)
[22]
The appellants
seek to appeal against the decision of the Tribunal dated 27 March
2001 relating to the interpretation of s 4(1)(b).
Various grounds of
appeal are set out in the notice of appeal. Essentially, the ruling
of the Tribunal is that “evidence concerning
any technological,
efficiency, or other pro-competitive gain that might be admissible in
terms of section 4(1)(a) is inadmissible
in terms of section
4(1)(b)”. The question is whether this ruling, which is
interlocutory, may be appealed against.
Section 61 grants a right of
appeal against a “decision by the Competition Tribunal” if, in
terms of s 37, the Court has jurisdiction
the appeal or review in the
matter. Section 37 empowers the Competition Appeal Court to (a)
review any decision of the Tribunal;
or (b) consider an appeal
arising from the Tribunal in respect of (i) any of its final
decisions … or (b) any of its interim or
interlocutory decisions
that may, in terms of the Act, be taken on appeal. The question then
is whether the decision referred to
have a
final
effect. In
Van Streepen & Germs v Transvaal Provincial Administration
1987 4 SA 569
(AD) Corbett JA, as he then was, said that an
interlocutory order which has final and definitive effect on the main
action must be
viewed as an appealable judgment or order (at 583 HJ).
He continued that, where
“
the
decision relates to a question of law or fact, which if decided in a
particular way would be decisive of the case as a whole or
of a
substantial portion of the relief claimed, then a somewhat different
position arises, and indeed in that event the advantages
of expense
and convenience may favour a final determination of the question on
appeal even though the proceedings in the Court a
quo may not have
been concluded.”
In a sense the answer has
been given by the Tribunal itself (compare
Steytler NO v
Fitzgerald
1911 AD 295
at 313;
Beinart v Wixley
[1997] ZASCA 32
;
1997 3 SA
721
(SCA 729H-730A)): in motivating its decision the Tribunal said
that its
“
finding
on the nature of Section 4(1)(b) will, like the other points in issue
here, have an important bearing on the nature of the
future hearings
in this matter. A finding in favour of the Commission and the
interveners presupposes that if, indeed, we conclude
that their
opponents have engaged in the conduct specified in 4(1)(b) – that
is, if they have fixed prices or any other trading
condition, divided
markets or tendered collusively – then the contravention is
established and evidence concerned to demonstrate
any pro-competitive
gains said to accrue as a result of the transgression will not be
relevant. If, on the other hand, we accept
the view contended for by
ANSAC, then, even in the event that we find a price fixing and/or
market sharing arrangement as alleged
by the Commission and BOTASH,
ANSAC will still be entitled to put up evidence purporting to show
that the consequences of the anti-competitive
practice are
countervailed by efficiency gains for which it is responsible.”
In the circumstances the
appeal against the decision of the tribunal of 27 March 2001 on this
issue should now be entertained.
D Section 4(1)(b)
[23]
The appellants
appeal against that part of the decision of the Tribunal of 27 March
2001 relating to the interpretation of s 4(1)(b)
of the Act. The
grounds of appeal involve four aspects: holding that any setting of a
resale price or assignment of responsibility
to supply material is
contrary to s 4(1)(b); holding that a per se rule ought to be applied
in applying s 4(1)(b); holding that a
contravention of s 4(1)(b) does
not pre-suppose anti-competitive conduct; and holding that evidence
may not be adduced to show that
the appellants’ alleged conduct
resulted in efficiencies, cost savings, increased or more effective
competition or was not anti-competitive.
[24]
Section 4 as it
was then operative reads as follows:
“
(1) An
agreement between, or concerted practice by, firms, or a decision by
an association of firms, is prohibited if
it is
between parties in a horizontal relationship and it has the effect
of substantially preventing or lessening competition in
a market,
unless a party to the agreement, concerted practice, or decision can
prove that any technological efficiency or other
pro-competitive,
gain resulting from it outweighs that effect; or
it
involves any of the following restrictive horizontal practices:
directly
or indirectly fixing a purchase or selling price or any other
trading condition;
dividing
markets by allocating customers, suppliers, territories, or
specific types of goods or services; or
collusive
tendering.”
Section 4 has been amended
to add to s 4(1) after the words “is prohibited if”, the
following: “it is between parties in a horizontal
relationship and
if” so as to make it clear that both subclauses (a) and (b) refer
to agreements between parties in a horizontal
relationship. If the
structure of the Act before its amendment is considered, particularly
ss 4 and 5, it is clear that there was
an ambiguity in the
legislation: s 4 deals with agreements between parties in a
“horizontal relationship” and s 5 with agreements
between parties
in a “vertical relationship”. The omission to qualify the word
“it” with words such as “is between parties
in a horizontal
relationship” was rectified by the amendment and must necessarily
be implied in the legislation as it stood before
the amendment.
However, it not necessary to
decide this issue since s 4(1)(b) refers to a “restrictive
horizontal practice”. This is defined
as any practice listed in s
4. Although “horizontal practice” is not defined, a “horizontal
relationship” is intended to
mean a “relationship between
competitors” (s 1(xiii)). The implication seems clear that “it”
in s 4(1)(b), as it then read,
refers the
agreement, concerted
practice or decision
between
competitors
. “Competitors”
are not defined but firms will be regarded as competitors if they
compete in the same market in respect of the
same or interchangeable
or substitutable goods or services. Compare
JD Group Ltd v
Ellerine Holdings Ltd
(78/lm/ju100) par 4.2.
[25]
Ansac is an association of America soda ash producers that operates
under the United States Export Trade Act 1918 (the “Webb-Pomerene
Act”). The purpose of the Act is to exclude the operation of the
Sherman Act to United States associations engaged solely in export
trade (“solely trade or commerce in goods, wares, or merchandise
exported, or in the course of being exported from the United States
or any territory thereof to any foreign nation”) and whose
activities do not restrain trade within the United States. In
United
States v Concentrated Phosphate Export Association Inc et al
[1968] USSC 212
;
393
US 199
Mr Justice Marshall said at 206: “The Webb-Pomerene Act was
passed to ‘aid and encourage our manufacturers and producers to
extend
our foreign trade’ … Congress felt that American firms
needed the power to form joint export associations in order to
compete
with foreign cartels. But while Congress was willing to
create an exemption from the anti-trust laws to serve this narrow
purpose,
the exemption created was carefully hedged in to avoid
substantial injury to domestic interests. Congress evidently made the
economic
judgment that joint export associations could increase
American foreign trade without depriving American consumers of the
main advantages
of competition.”
During the
debates before passing the Act Senator Pomerene said bluntly: “[W]e
have not reached that high plane of business morals
which will permit
us to extend the same privileges to the people of the earth outside
of the United States that we extend to those
within the United
States.” Congressman Webb declared: “I would be willing that
there should be a combination between anybody
or anything for the
purpose of capturing the trade of the world, if they do not punish
the people of the United States in doing it”
(see at 207-8).
[26]
Ansac is an export cartel that avoids anti-trust liability in the
United States by complying with the requirements of the Webb-Pomerene
Act. The
Current Membership Agreement
provides that the
Agreement relates to export sales only:
“
The
purpose of ANSAC is to promote Export Sales and to improve the
competitive position of United States-produced Soda Ash in foreign
markets by creating a corporation for the sole and exclusive purpose
of engaging in export trade and making Export Sales in strict
conformity with the policy and provisions of the Webb-Pomerene Act.
the goals of ANSAC will be to promote Export Sales, to strengthen
its
position in negotiations for Export Sales to foreign and governmental
buyers, to provide for efficient shipment of its export
sales, to
contribute to an improved US balance of payments and, where possible,
to increase the tonnage of United States-produced
Soda Ash sold for
export as provided herein. The members agree with the aforesaid
purposes and each Member agrees to abide by the
provisions of this
Membership Agreement and to work with ANSAC to further these goals”
(
Second: Scope, Purposes and
Goals
).
“
The
Member agrees that all Export Sales by the Member and any subsidiary
or Affiliated Company will be made as provided herein …“
(
Third:
Sales Nominations and Procedures (a) Exclusive Export Vehicle
).
The Board
of Directors are obliged to establish such procedures as will provide
“
that
each Member is entitled to a fair share of the total tonnage shipped
by ANSAC” (
Third: Sales
Nominations and Procedures (b) Supply Procedures
).
“
Marketing
policy and pricing policy with respect to Export Sales shall be set
the Board of Directors by affirmative vote of directors
representing
a majority of members… .the Board of Directors shall further
establish by the affirmative vote of directors representing
all of
the members provisions for equitable price averaging or other
adjustment among Members as the Board shall determine” (
Third:
Sales Nominations and Procedures (c) Prices)
.
“
The
Member agrees that it will fulfill its tonnage supply commitments as
determined pursuant to the procedures adopted by the Board
of
Directors …” (
Third: Sales
Nominations and Procedures (e): Member Commitment).
It is
therefore no surprise that Ansac’s activities attracted the
attention of the European authorities (
OJL
152 at 54).
[27]
In the present
case the appellants seek to place evidence before the Tribunal to
show that Ansac is a legitimate joint venture whose
purpose it is to
pool costs and resources so as to make it possible for them to trade
competitively within exports markets where
there are barriers to
entry and significant risks. They seek to demonstrate that by virtue
of pooling costs and resources Ansac has
been able to appoint
independent sales and distribution staff dedicated solely to sales
and services of customers, has been able
to negotiate and obtain
decreased freight and stevedoring charges and has entered into a
variety of cost–reducing overseas warehousing
and distribution
agreements. The result of this is that Ansac has achieved reductions
in marketing and distribution costs and can
undertake competitive
sales to new countries and overseas markets including those with high
logistical and political risks and offer
customers world wide the
enhanced reliability and efficiency made possible by increased
volumes and the back-up supply commitments
of US soda ash producers.
In respect of South Africa,
the appellants intend to lead evidence that these efficiencies will
lead to competitive prices and product
choices. It was argued that
the Ansac agreement could not be examined in isolation as one setting
prices while its context and beneficial
aspects were ignored.
Recourse to evidence is thus necessary to determine whether the
agreement contains a naked restraint and, if
not, whether it is a
legitimate means of establishing a joint venture for entering the
market to trade on a competitive basis.
The issues thus are, as the
tribunal defined them, whether, if a transgression of s 4(1)(b) is
established, Ansac may raise an efficiency
defence to show “in the
phrase ubiquitously present in the statute, that the offending
agreement produces ‘technological, efficiency,
or other
pro-competitive gain resulting from it that outweighs that effect’”.
[28]
The Tribunal
distinguished between the two classes of agreement prohibited by s 4:
the first (s 4(1)(a) is concerned with the effect
of the agreement,
the second (s 4(1)(b) contains a direct prohibition:
“
Section
4(1)(a), on the other hand, specifically details the very content of
the agreements that it seeks to proscribe these being
agreements to
fix price or any other trading condition, agreements to divide
markets, and collusive tendering. But this is all that
is specified.
In plain contrast with the requirements of Section 4(1)(a), those who
set themselves the task of impugning agreements
thus described in
Section 4(1)(a) do not have to establish any deleterious impact on
competition. All that has to be established
is the existence of an
agreement embodying the features detailed in Section
4(1)(b)(i)-(iii). Quite plainly the Act requires no showing
other
than that the agreement in question conforms to the content specified
in Section 4(1)(b)(i)-(iii).
In other words,
sections 4(1)(a) and 4(1)(b) are distinguishable from one another by
the requirement contained in the former to undertake
an assessment of
the balance between the anti- and pro-competitive consequences of the
agreement. By arguing that s 4(1)9b) allows
an efficiency defence –
which of course implies a requirement to show the anti-competitive
consequences without the which there
would be nothing against which
to balance the pro-competitive gains – Ansac effectively argues for
obliterating the distinction
between the two sections of the Act. …
Section 4(1)(b)
unambiguously purports to prohibit, without recourse to further
investigation, three categories of horizontal agreement.
All other
species of horizontal agreement only fall to be prohibited on a
showing by the complainant that the agreement in question
lessens or
prevents competition and, then, only provide that the parties to the
agreement cannot produce evidence of pro-competitive
gains that
outweigh the demonstrated diminution of competition. There is no
ambiguity and, whether or not we deem this wise police,
it is not
within our power to remake the law.”
[29]
Sections 4(1)(a)
and (b) therefore accord with a well known distinction in competitive
jurisprudence between a “rule of reason”
justification and a per
se prohibition. The prohibitions contained in s 4(1)(a) are made
subject to a “rule of reason” justification
being any
technological efficiency or other competitive gain that outweighs the
anti-competitive effect. Section 4(1)(b) imposes
a prohibition that
cannot be avoided or validated by a justification. See Brassey et al
Competition Law
(2002) at 139-140.
[30]
Following the
same principles of interpretation referred to above it must be
remarked that s 4(1)(b) contains no ambiguity. The section
makes it
clear that the practices specified are “restrictive horizontal
practices” and that they are prohibited. There is no
ambiguity and
therefore no room for the argument that, if the clear meaning is
given to the words, the purposes of the Act would
be subverted. The
subsection contains a per se prohibition that formally defines the
conduct prohibited.
South African law is not
alone in its prohibition of the horizontal practices referred to.
Whish
Competition Law
(1993) at 415-6 said:
“
Horizontal
agreements between independent undertakings to fix prices, divide
markets and to restrict output are perhaps the most obvious
target
for any system of competition law and they are prohibited by both EC
and UK law. So too are horizontal agreements which are
designed to
foreclose competition from other firms in order to protect the
privileged position of cartel members. … However if
competition law
is about one thing, it is surely about the condemnation of horizontal
price fixing, market sharing and analogous
practices: on both a moral
and practical level, there is not a great deal of difference between
price fixing and theft …”.
Articles 81 and 83 of the EC
Treaty deal with horizontal agreements or cartels and contain a
similar provision. Although article 81(1)
prohibits agreements that
“have as their object or effect, the prevention, restriction or
distortion of competition and in particular
those which (a) directly
or indirectly fix purchase or selling prices or any other trading
conditions”, article 81(3) sets out
the grounds of exemption, inter
alia, where the agreement has pro-competitive effects. Section
4(1)(b) contains no such provision
but s 10 of the Act provides for a
firm to apply for an exemption ”from the application of this
chapter” of an agreement or practice
that meets the requirements of
subsection (3). Arguably, the requirements of subsection (3) are too
limited but that is not a matter
we are called to decide upon.
[31]
Section
4(1)(b) uses the words “directly or indirectly fixing a … price”;
“dividing markets” and “collusive” tendering.
It may well be
necessary, in so far as the words may be ambiguous and capable of
different constructions, to interpret them so as
to give them a
meaning consistent with the context and purposes of the Act. This,
however, is a matter of construction and not of
evidence. Specific
conduct is prohibited, to use the words, per se; not its
consequences. The evidence the appellants seek to present
is neither
required nor permissible in order to arrive at the meaning of the
words used.
In an able and instructive
argument Mr Brassey, who appeared with Mr McNally and Mr Wilson on
behalf of the appellants, have sought
to persuade me to follow the
approach of some United States courts to embark on a process of
characterization or categorization to
determine the conduct that has
to be condemned outright. Reference has, for example, been made to
Hovenkamp
Federal Antitrust Policy
(1999) 253 who said:
“
Once
a court has properly characterized a practice as price fixing, it is
per se illegal. However, determining when a practice has
to be so
characterized can be difficult, and may involve a fair amount of
sophisticated economic enquiry.”
See eg
Broadcast Music Inc
v CBS Inc
441 US 1
(1979) 8-9;
Appalachian Coals Inc v US
[1933] USSC 44
;
288
US 344
(1933);
NCAA v University of Oklahoma
468 US 85
(1984).
Attractive as it may seem,
this approach is excluded by the very terms of s 4(1)(b) which
condemns the conduct defined per se. The
attempt to use comparative
law to interpret an unambiguous provision of the Act reveals the
caution that must be exercised in the
employment of comparative law.
Thus, Kahn–Freund “On Uses and Misuses of Comparative Law”
(1974)
Modern Law Review
1
at 27 warned that the comparative
method requires “a knowledge not only of the foreign law, but also
of its social, and above all
its political context.” It is not
sufficient to compare the texts of legislation; one should look for
the customs and practices
of countries to determine how laws are
applied and how the law enforcing authorities function in practice.
There are, thus, limits
to comparative law. The differences between
the South African Act and the EC Treaty provisions have been referred
to. The differences
between the approach of United States case law
and my interpretation of s 4(1)(b) is clear: there is no basis for
importing a “rule
of reason’ analysis in construing s 4(1)(b).
The words of the legislature are clear and unambiguous.
This does not mean the end of
joint ventures: they will only be prohibited if the partners are
competitors
“directly or indirectly fixing a purchase or
selling price or any other trading condition; … dividing markets by
allocating customers,
suppliers, territories, or specific types of
goods or services”. Joint ventures do not necessarily involve any
of these practices.
Those that do may be exempted under the
provisions of s 10 or chapter 3.
E Costs
[32]
The
appellants appeal against the Tribunal’s award of costs on the
basis that s 57 requires each party, in the circumstances set
out in
the rule, to pay its own costs. Section 57(1), however, provides that
“[s]ubject to subsection (2), and the Competition
Tribunal’s
rules of procedure, each party participating in a hearing must bear
its own costs”. The Tribunal’s rules make it
clear that the costs
order in this case is permissible. Rule 58(1) allows the Tribunal to
make an order for costs in proceedings
under Part 4. The decision of
the Tribunal is clearly an order made under Part 4 of the Tribunal’s
rules.
F Order
[33]
The appeal is
therefore dismissed with costs including the costs of two counsel.
Malan AJA
Davis JP and Jali JA
concurred.