York Timbers Ltd v SA Forestry Ltd (09/CAC/May01) [2001] ZACAC 3; [2001-2002] CPLR 94 (CAC) (18 September 2001)

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[2001] ZACAC 3
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York Timbers Ltd v SA Forestry Ltd (09/CAC/May01) [2001] ZACAC 3; [2001-2002] CPLR 94 (CAC) (18 September 2001)

14
IN THE
COMPETITION APPEAL COURT
OF SOUTH AFRICA
Case No: 09/CAC/MAY 01
In
the matter between:
YORK TIMBERS LIMITED Appellant
and
SOUTH AFRICAN FORESTRY LIMITED Respondent
JUDGMENT
MAILULA AJA:
1. Introduction.
1.1 The appellant instituted an application against the
respondent in terms of
section 49C
of the
Competition Act No. 98 of
1998
, as amended, (“the Act”) for a wide range of relief. To the
extent that it is relevant for the purposes of this appeal, the
critical
issue before the Competition Tribunal ( “the Tribunal”)
concerned the following prayer in the notice of motion:
“
8.1.
an
interdict in terms of
Section 58(1)(a)(i)
,
alternatively
Section 60(a)(i)
of the prior Act, restraining the respondent from
persisting in the aforesaid prohibited practices of refusing to
supply softwood
sawlogs from Witklip and Swartfontein plantations,
alternatively of threatening, to reduce the supply of sawlogs to the
Applicant
from 6675m
3
to
2222,2m
3
per month.
8.2.
an order in
terms of
section 58(1)(a)(ii)
of the Act,
alternatively
Section 60(a)(ii)
of the prior Act, ordering SAFCOL,
to supply the Applicant at least 6,675 cubic meters per month of
softwood sawlogs from Witklip
and Swartfontein plantations; or
substantially the equivalent thereof as was supplied since the
conclusion of the so-called ad
hoc arrangement dated 14 September
2000.”
1.2. The Tribunal, having dismissed the application,
the appellant now appeals against the judgment and order which the
Tribunal
delivered on 9 May 2001.
The
Appeal.
The questions which this Court has to consider on
appeal are:
2.1. Whether the Tribunal erred in:
2.1.1. finding that there was no “refusal to supply
as contemplated in
Section 8(d)(ii)
of the Act;
2.1.2. concluding that even if it could be said that
the refusal to supply has been established, that it has not been
shown that
this constitutes a prohibited practice under the
provisions of
Section 8(d)(ii)
;
0in;
line-height: 150%">
2.1.3. finding that, as the dispute was a contractual
and not a competition issue, it did not have the necessary
jurisdiction;
2.1.4. relying on a work of Areeda and Hovenkamp, which
dealt with American anti-trust law, to arrive at the conclusion that
the
appellant failed to show abuse of dominance on the part of the
respondent.
2.2. In the event of this Court finding that the
Tribunal was wrong, the next question with which the Court is
required to decide,
is whether the applicant has satisfied the
requirements of
Section 8(d)(ii)
and if so, whether the appellant
has discharged the onus borne by it in terms of
Section 49C
of the
Act.
3.1.
Section 49C
provides that:
“
(1) ...
(2) The Competition Tribunal -
(a) ...
(b) may grant an interim order if it is reasonable and
just to do so having regard to the following factors:
(i) the evidence relating to the alleged prohibited
practice;
(ii) the need to prevent serious irreparable damage to
the applicant; and
(iii) the balance of convenience.”
3.2. In short, to obtain relief in terms of
Section
49C
, the appellant must first show the existence of a prohibited
practice. Thereafter questions of irreparable harm, assessment of

the balance of convenience and absence of an alternative remedy
require examination.
3.3. The critical dispute concerning a prohibited
practice turns on the interpretation of
section 8(d)(ii)
of the Act
which provides that:
“
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
effect of its act -
(i) ...;
(ii) refusing to supply scarce goods to a competitor
when supplying those goods is economically feasible;”
4.
The Essential Facts.
Briefly, the salient facts pertaining to this
acrimonious dispute were as follows:
4.1. The Department of Water Affairs and Forestry
(“DWAF”) and the appellant entered into agreement for the sale
of softwood
sawlogs in 1986 and again in 1976.
4.2. In 1992 the South African Forestry Company Limited
(“SAFCOL”) was incorporated in terms of Section 2 of the
Management
of State Forests Act No. 128 of 1992. In 1993 it
succeeded DWAF as the seller of some of the State’s sawlogs in
South Africa,
and took over a number of the long-term contracts
between DWAF and various sawmills, including those pertaining to the
appellant.
4.3. The appellant had entered into two long-term
contracts with DWAF. SAFCOL now assumed the rights, and obligations
from DWAF
pursuant to these two long-term contracts. The contracts
entitled the appellant’s sawmill, Nicholson and Mullin, situated
about
a kilometre from Witklip, Mpumalanga, to a supply of sawlogs
from Witklip and Swartfontein plantations to the extent of a volume
2 000 000 (two million) cubic feet over five years.
4.4. When SAFCOL took over the plantation in 1993, the appellant had
a guaranteed volume of 85 000m
3
per annum from these
plantations. At that stage the appellant was involved in price
dispute with the respondent’s predecessor.
4.5. In 1994 the parties entered into an agreement of settlement in
terms of which it was agreed that the guaranteed sawlog volumes
would remain at 85 000m
3
per annum until 31 March 1997,
and that thereafter the volumes would revert to 55 000m
3
annum.
4.6. The parties entered into another settlement agreement in 1996.
They agreed on volumes of 75 100m
3
annum from Witklip and
Swartfontein. The volumes of 75100m
3
to be supplied to
the applicant from 1 April 1997 until 31 March 20002.
4.7. In 1998 SAFCOL purported to cancel the agreement
after its endeavuors to raise prices were “frustrated” by the
appellant.
The Minister was, at some stage, requested to intervene
but refused to do so. The validity of the cancellation is a subject
of
a separate dispute before the High Court.
4.8. On 14 September 2000 the parties entered into an ad hoc supply
agreement terminable on 30 days notice in terms of which the
appellant would pay for the sawlogs supplied the same price paid by
other long-term customers of SAFCOL for the year 2000. The
source
and volume of sawlogs, i.e. 6675m
3
month from Witklip
plantation, remained unchanged from the disputed long-term
contracts.
4.9. On 14 February 2001 SAFCOL notified the applicant that it was
no longer feasible to continue supplying the guaranteed volumes
from
Witklip plantation and that this would be reduced to 2222m
3
from 1 May 2001. It claimed that the reduction in volume
supplies was necessary for the long-term sustainability of the
plantation.
5.
The Finding of the Tribunal.
5.1. The Tribunal found that the respondent was
dominant in the market for sawlogs in Mpumalanga. With regard to the
case for sawn
timber, the so-called downstream market, SAFCOL “has
a relatively small market share and no evidence has been presented
suggesting
that it possesses anything akin to market power in the
market.’
5.2. Relying upon a passage from Areeda and Hovenkamp’s work
Anti-
trust Law
(1996) at 172, the Tribunal found:
“
this dispute centers around an attempt by SAFCOL to
improve the terms of its contract with York rather than an attempt
to further
its own market position by denying York supply on any
terms. The former is a contractual issue; the latter is a
competition issue.
Hence SAFCOL’s progressive exit from its
contractual relations with York and its undertaking to continue
supplying York with
logs are not necessarily inconsistent. It is the
contractual terms that SAFCOL find burdensome and from which it
desires to escape.
SAFCOL will be willing to accept York’s custom
as long as it is satisfied with the contractual terms. York may or
may not have
a solid basis in contract law for resisting SAFCOL’s
efforts to escape contractual obligations but this is not the forum
for
making that determination.”
5.3. The Tribunal then held that, even if the
respondent had refused to supply the appellant, it had failed to
establish the conditions
necessary to render the refusal an abuse of
dominance. The Tribunal reasoned as follows:
“
Following
Areeda and Hovenkamp, what is rather at issue is whether the
dominant firm, SAFCOL, has attempted to use - or ‘abuse’
- its
dominance to extend or preserve its dominant position, what US
antitrust jurisprudence refers to as ‘monopolisation’.
Where the
upstream market is concerned - that is the market for saw logs -
this is clearly not the case. SAFCOL’s dominance of
the upstream
market is unaffected by its alleged refusal to supply York - it was
dominant before the alleged refusal and this position
is not
strengthened by its alleged refusal to supply the applicant.”
5.4. With regard to the downstream market, the Tribunal
concluded:
“
...
we do not believe that the applicant has established an abuse of
dominance, that is we do not believe that the respondent has,
by its
alleged refusal to supply York, extended, preserved, created or
threatened to create power in the downstream market. This
caveat -
that, in order to find an abuse of dominance from a refusal to
supply, market power must be shown to have been extended
or created
- is crucial if we are to give expression to the requirement of the
Act to the effect that it is a refusal to supply
a ‘
competitor
’
that offends. Action against a competitor only offends when it is
anti-competitive and this will be measured by its capacity
to extend
or create market power.”
5.5. The key issues on which the appeal then turns are
whether
5.5.1. the respondent refused to supply scarce goods;
5.5.2. in circumstances where such supply was
economically feasible.
6.
Refusal to Supply Scarce Goods.
6.1. The respondent concedes that the sawlogs
constitute scarce goods but argued that the scarcity is
self-created; in particular,
that the appellant chose the respondent
as its main supplier, that it insisted over the period on the
delivery of volumes in excess
of the sustainable yield of the
plantation, knew that the volumes would inevitably be reduced, but
failed to make timeous arrangements.
It was further contended by the
respondent that the goods were not so scarce that they were
unattainable, that is other sources
of supply were available. In
this regard there was further evidence contained, for example, in an
affidavit deposed to by Mr Andries
Swart previously employed by the
respondent and now a consultant who provided figures to show that
the appellant was in a position
to obtain sawlogs from other
suppliers.
6.2. For the purposes of this dispute, particularly
given that other suppliers may well require far more costly
transport, I accept
that it has been established that the relevant
goods (sawlogs) are scarce as contemplated in Section 8(d)(ii) of
the Act.
6.3. The further question now arises as to ‘refusal
to supply’ such scarce goods. In dealing with this issue, it is
necessary
to examine certain salient facts of this case. There has
been a history of price dispute between the parties, consequent upon
which
the respondent purported to cancel the long-term contract.
6.4. The respondent continued in terms of the respective settlement
agreements to supply the appellant with the guaranteed volumes.
In
1993 the volume was 85 000m
3
. It was agreed that this
would reduce to 55 000m
3
per annum; but in 1996 the
parties agreed to the volume of 75 100m
3
per annum until
31 March 2002. It undertook in terms of the ad hoc arrangement of 14
September 2000 to supply the appellant with
the same volume of 6
675m
3
per month.
Approximately five months later, the respondent advised the
appellant that with effect from 1 May 2001 it would reduce the
volume
from 6 675m
3
to 2 222m
3
per month. The
reasons advanced by the respondent were that these volumes could no
longer be supplied on a sustainable basis and
that it would
otherwise lead to overfelling. According to the respondent this
would infringe the provisions of the National Forests
Act No.84 of
1998.
6.5. Mr Bowman, who appeared together with Mr Fasser on behalf of
the appellant, attacked the construction which the Tribunal had
placed upon Section 8 of the Act. His initial argument was directed
to the
per se
nature of the prohibition against abuse of
dominance. In this regard he referred to subsections 8(a) and (b) of
the Act which provide:
“
It is prohibited for a dominant firm to -
(a) charge an excessive price to the detriment of
consumers;
(b) refuse to give a competitor access to an essential facility when
it is economically feasible to do so;
When Section 8(d) was compared to Sections 8(a) and (b), the only
difference between these provisions was that Section 8(d) recognised
a technological or efficiency defence. Save for that possibility, Mr
Bowman contended that all three sub-sections constituted a
per
se
prohibition of the defined activity; hence the respondent’s
motive was irrelevant as was the consequences of its actions.
6.6. By relying on a passage by Areeda & Hovenkamp,
the Tribunal misconstrued the meaning of the section. The relevant
passage
reads:
“
An
‘arbitrary’ refusal to deal by a monopolist cannot be unlawful
unless
extends,
preserves, creates, or threatens to create significant market power
in some market, which could be either the primary market
in which
the monopoly firm sells or a vertically related or even collateral
market. Refusals that do not accomplish at least one
of these
results do not violate Section 2 (of the Sherman Act), no matter how
much they might harm the person or class of persons
declined
service. Nor are such refusals an ‘abuse’ of monopoly power in
the sense of using power in one market as ‘leverage’
to increase
one’s advantage in another market.”
6.7. According to Mr Bowman this passage, which interprets US law
cannot be employed to introduce a new meaning to the wording
of a
different piece of legislation, namely the Act. By relying on this
passage which is part of a commentary on the US Sherman
Act, the
Tribunal had introduced a new set of requirements into Section 8(d);
in other words it had converted a
per se
in which the test
was purely a factual enquiry into an examination as to whether the
respondent refused to so supply into an inquiry
into the
consequences of such a refusal.
6.8. Mr Bowman is of course correct to caution against comparative
borrowing which is then wrenched from its legitimate structure
and
legal roots to provide support for a particular interpretation of
the Act. It is this Act which this Court must interpret.
As Mr Du
Plessis, who appeared on behalf of the respondent, contended Section
8(d) must be interpreted with the aid of the definition
section of
the Act. Thus the term “exclusionary act” which is critical to
Section 8(d) is defined as an act “that impedes
or prevents a firm
from entering into, or expanding within, a market”.
6.9. The golden rule in construction of any statutory provision is
to determine the intention of the Legislature. The whole Act
must be
looked at and the words must be understood in their everyday
meaning unless such meaning is in conflict with the clear
intention
of the Legislature. As stated in
KBI v Van Rooyen v Execom Mining
and Exploration (Pty) Ltd,
(1) SA 50 (NC), and I respectfully
agree, the correct approach is that the provisions of the Act in
question, in whole, have to
be looked at and the Court or the
relevant tribunal must also have regard to its (the Act’s) scope
and object. (See also
Savage v CIR
,
1951 (4) SA 400
(A) and
Bolo v Royal Insurance Company of SA Ltd,
(3) SA 105 (E).
As there could conceivably be many
acts by competitors occurring in a market, which could amount to
normal acts of competition but
which could have the effect of
impeding or preventing a firm from entering into or expanding within
a market, the definition of
“exclusionary act”, as employed in
Section 8(d) could not have been intended to impart into the
definition of “exclusionary
act” the anti-competitive effect
thereof. In other words, the definition of “exclusionary act”
does not imply that an act
which falls within the definition is
automatically labelled as anti-competitive.
6.10. The wording of the Section 8(d) defence refers to ‘the
competitive effect of its act’. Thus the enquiry mandated by the
legislature must turn on an examination of the consequences of the
act rather than focus exclusively on the act of refusal to supply
per se.
6.11. There are clear differences between Sections 8(a) and (b) on
the one hand and Sections 8(c) and (d) on the other. Whereas
Sections 8(a) and (b) concern exploitative abuses, Sections 8(c) and
(d) deal with competitive abuses. There is also a clear difference
between Sections 8(c) and 8(d). Whereas in Section 8(c) the
complainant firm must tip the scale by virtue of the
onus
,
the converse applies in Section 8(d).
6.12. In my view the Tribunal was correct to enquire
into the effect of the act of refusal and, to this limited extent,
the passage
in Areeda and Hovenkamp’s work served to illustrate
the nature of the enquiry mandated by the section. To this extent
such comparative
borrowing can prove useful.
6.13. This construction of Section 8(d) necessitates an
enquiry into the nature and effect of the act performed by the
respondent
and which the appellant alleges constitutes ‘a refusal
to supply’. Mr Du Plessis submitted that the respondent ‘merely
reduced
[the appellant’s] contractual volume from one of several
... plantations’. The Tribunal concluded that this did not amount

to a refusal to supply. Mr Du Plessis contended that the respondent
indicated its willingness to supply the appellant, not on a
guaranteed basis but on an equal footing with other purchasers,
without long term agreements, for the uncommitted volumes from
the
respondent’s other plantations.
6.14. Mr Bowman submitted that there were undertakings by the
respondent as late as September 2000 to supply the guaranteed
volumes;
that it was, in the circumstances suspect that the
respondent claimed to be unable to maintain this supply but seven
months later.
He submitted further that, if that be the case, this
would reflect on the
bona fides
of the respondent. In my view,
this line of argument reinforces the conclusion that the entire
dispute has far less to do with competition
law and far more to do
with a dispute about the nature of a contract seen to be
advantageous to one party and disadvantageous to
the other.
6.15. Significantly, the nature of the relief sought is
couched in the form of a prayer for a specific performance. In
essence,
what the appellant seeks is for the respondent to honour
its obligations and to continue supplying the particular volumes in
terms
of the agreement. I agree with the Tribunal that the correct
forum to resolve this dispute is the civil courts and not the
competition
fora established for specific purposes under the Act.
7. Feasibility of supply
.
7.1. There is a dispute of fact as to the economic feasibility of
supplying the appellant with sawlogs from the Witklip plantation.
According to the respondent the plantation is depleted. Hence the
reduction of the volume to 2222m
3
in order to avoid
overfelling. It is submitted that it cannot produce the “guaranteed”
volumes, but that the appellant can compete
with other purchasers
for the uncommitted volumes, amounting to 125 000m
3
, from
the other plantations in Mpumalanga.
7.2. It was submitted on behalf of the appellant that
the argument by the respondent relates to long term sustainability
and disregards
the fact that the relief sought is for a limited
period only. In my view of the conclusion to which I have come
regarding the refusal
to supply, this aspect of the dispute does not
merit further consideration.
8. Conclusion.
8.1. The facts of this case reveal that the dispute
turned upon a refusal by the respondent to continue with appellants’
guaranteed
supply on the same terms and conditions. At the root of
this litigation, there is a battle between the parties as to whether
the
appellant can demand a continued supply while simultaneously
being entitled to resist an upward adjustment in the price of the

supply.
8.2. The respondent has given an undertaking to
continue supplying the appellant from its uncommitted volumes from
other SAFCOL
plantations, on the same basis and terms as other
customers without long term contracts. The appellant would thus have
to compete
with these other customers.
8.3. On the interpretation that Section 8(d) does not constitute a
per se
prohibition as contended for by Mr Bowman, the question
arises as to the existence of proof of an anti-competitive effect of
a kind
that can be distinguished from the consequences of a
contractual dispute. In the context of a competition dispute based
upon the
provisions of the Act, the refusal to supply must be
examined within the context of the concept of a prohibited practice.
In this
case the appellant cannot simply claim that the actions of
the respondent constituted a
per se
prohibition without
providing proper evidence which showed that the requirements of the
section had been met. For this reason, the
Tribunal was correct in
its finding that the act complained of has not been shown to extend
the market power of the respondent
qua
competition with the
appellant and that the actions complained of had not been shown to
fulfil the requirements of a prohibited
practice.
8.4. In the light of the conclusion to which I have
arrived, that the appellant had failed to show that a ‘refusal to
supply’
scarce goods produced anti-competitive consequences, the
appellant cannot succeed in obtaining the relief sought. Simply put,
it
has failed to show that the respondent was engaged in a
prohibited practice.
9. Irreparable Harm.
The appellant has not met the first requirement for the
relief sought, being proof of a prohibited practice. It is not
necessary
to make any finding about the other requirements needed to
justify the relief sought . Suffice it to make the following
observations.
It was argued on behalf of the appellant that in effect
failure to supply the ‘guaranteed volumes’ or an equivalent
thereto
would have disastrous effect on York’s survival in the
market.
Although not strictly necessary for my finding, I agree
with the view expressed by the Tribunal that there is “no doubt
that the
impact on the business of York of a reduction in the supply
of raw material of this magnitude would be significant”. But the

appellant can procure an equivalent of the “guaranteed volumes”
from other SAFCOL plantations, by competing with other customers
without long term contracts. Further, there is evidence to show that
it could obtain some supplies from other plantations.
ORDER.
For the reasons set out above the appeal is dismissed
with costs.
___________________________
MAILULA AJA
I
agree.
___________________________
DAVIS JP
I agree.
___________________________
JALI AJA