Glaxo Wellcome (Pty) Ltd and Others v National Association of Pharmaceutical Wholesalers and Others (15/CAC/Feb02) [2002] ZACAC 3 (21 October 2002)

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[2002] ZACAC 3
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Glaxo Wellcome (Pty) Ltd and Others v National Association of Pharmaceutical Wholesalers and Others (15/CAC/Feb02) [2002] ZACAC 3 (21 October 2002)

IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CASE NO: 15/CAC/Feb02
In the matter between:
GLAXO WELLCOME (PTY) LIMITED
First Appellant
PFIZER LABORATORIES
(PTY) LIMITED
Second Appellant
PHARMACARE
LIMITED
Third Appellant
SMITHKLINE BEECHAM
PHARMACEUTICALS (PTY) LIMITED
Fourth Appellant
WARNER LAMBERT SA
(PTY) LIMITED
Fifth Appellant
SYNERGISTIC ALLIANCE
INVESTMENTS (PTY) LIMITED
Seventh Appellant
DRUGGIST
DISTRIBUTORS (PTY) LIMITED
Eighth Appellant
and
NATIONAL
ASSOCIATION OF PHARMACEUTICAL
WHOLESALERS
First
Respondent
NATAL
WHOLESALE CHEMIST (PTY) LIMITED
t/a
ALPHA PHARM DURBAN
Second Respondent
MIDLANDS
WHOLESALE CHEMISTS (PTY) LTD
t/a
ALPHA PHARM PIETERMARITZBURG
Third Respondent
EAST
CAPE PHARMACEUTICALS LIMITED
t/a
ALPHA PHARM EASTERN CAPE
Fourth Respondent
FREE STATE BUYING ASSOCIATION LIMITED
t/a
ALPHA PHARM BLOEMFONTEIN (KEMCO)
Fifth Respondent
PHARMED
PHARMACEUTICALS LIMITED
Sixth Respondent
L’ETANGS
WHOLE CHEMISTS CC
t/a
L’ETANGS
Seventh Respondent
RESEPKOR
(PTY) LIMITED t/a RESKOR
PHARMACEUTICALS
WHOLESALERS
Eighth Respondent
MAINSTREET
2 (PTY) LIMITED t/a NEW UNITED
PHARMACEUTICAL
DISTRIBUTORS
Ninth Respondent
_______________________________________________________________________
J U
D G M E N T
______________________________________________________________________
HUSSAIN, JA
:
Introduction
[1] This is an appeal and cross-appeal against a decision of the
Competition Tribunal (“
the Tribunal
”) handed down on 14
January 2002.
The background
[2] The appellants before this Court are respondents in a complaint
referral brought by the respondents before this Court to the
Tribunal. In this judgment, in relation to both the appeal and
cross-appeal, I shall refer to the respondents as “
the
complainants
” and the appellants as “
the respondents
”.
[3] The
complainants are pharmaceutical wholesalers and distributors while
the first to seventh respondents are manufacturers of
pharmaceutical
products a substantial volume of which are sold and distributed by
the complainants. The respondents and the complainants
are thus in
a vertical relationship whereby the complainants procure products
from the respondents which they market and distribute
as
wholesalers.
[4] The appellants’ complaint to the Competition Commission (“
the
Commission
”) related to the conversion by the respondents of,
8
th
respondent, Druggists Distributors (Pty) Ltd (“
DD
”),
from a wholesaler into a distribution agent, and the performance by
this agent of distribution services on behalf of the respondent.

Before the conversion of DD, the respondents sold a significant
amount of their private sector products to wholesalers, such as
the
complainants. The complainants purchased products from the
respondents at a standard discount of 17,5% off the list prices.

These products were then sold by the complainants to the retail
market made up mainly of chemists/pharmacists and dispensing

doctors. The respondents continue to supply the complainants large
volumes of their respective products except that the respondents
stopped offering the complainants the 17,5% discount. The
complainants objected to the respondents’ decision to set up a
distribution
agent.
[5] The complainants sought relief against the respondents through
the provisions of the Competition Act No 89 of 1998 (“
the Act
”)
alleging that the latter have engaged in conduct prohibited by
sections 4, 5, 8 and 9 of the Act.
On 7 June 2000 the complainants lodged a complaint with the
Commission (“
the complaint
”). The Commission
investigated the complaint and decided to refer the complaint to the
Tribunal in terms of the Act. The referral
however was filed
outside of the statutory period prescribed by the Act and the
Commission was deemed to have issued a certificate
of non-referral.
[6] On 19 June 2001 the complainants, in terms of section 51(1) of
the Act referred the complaint to the Tribunal (“
the
referral
”). Thereafter the respondents were required to file
their answer within the prescribed time period. The respondents
applied
to the Tribunal for an extension of the date for the filing
of their answering affidavit to the complaint referral. During the
course of this application the complainants expressed some
reservations about the possibility that the respondents might raise
certain technical points thereby causing delay. The Tribunal allowed
the respondents the extension that was sought and at the same
time
placed the latter on terms for the raising of any technical points.
Thus the respondents were asked to raise any technical
points
in
limine
on or before 20 August 2001.
[7] On 17 August 2001, and before filing their
answering affidavit, the respondents on notice of motion (Form CT6),
applied to the
Tribunal for the striking out of various paragraphs
and prayers contained in the complaint referral.
[8] The
respondents’ notice of motion claims the following relief:
“
1. striking out:
1.1 prayers 3 and 7(b) of Annex C and paragraphs
19.4 to 19.9 of Mr Kevin Vyvyan-Day’s affidavit;
1.2 prayer 7(a) of Annex C and paragraph 19.3 of
Vyvyan-Day’s affidavit;
1.3 prayer 7(d) of Annex C;
1.4 prayer 7(e) of Annex C;
1.5 prayer 6 of Annex C;
1.6 prayer 8 of Annex C;
1.7 prayers 11 and 12 of Annex C
1.8 prayers 1, 4 and 5 of Annex C;
2. condoning the shortening of the time periods prescribed by
the Rules of Proceedings before the Competition Tribunal on account
of the urgency of this application;
”
After
hearing the application the Tribunal granted an order in the
following terms:
“
100. We make the following order in respect of the striking
out application :
1. Prayers 1.2; 1.4 and 2 of the Notice of Motion
are granted.
2.
Prayer 1.1, insofar as it is partly based on an objection to
jurisdiction is dismissed. Insofar as it is partly based on
allegations
that the Complaint referral discloses no cause of action
it is postponed in accordance with paragraph 3 of this order.
3.
Consideration of the remaining prayers is postponed until after
close of pleadings or at the hearing of the matter, in accordance
with any ruling of the Tribunal.
4. Costs are reserved.
”
[9] The
respondents appeal against the second order and the complainants
cross appeal against the first order.
The
relevant prayers in the complaint referral read as follow:
Prayer 3
“
Ordering the Principals to provide direct access to their
products on terms determined by the Tribunal to be reasonably
required
where essential resources like the Principals products are
concerned;
”
Prayer 7(b
)
“
the refusal by the Principals to give the Complaints direct
access to their products when it is economically feasible to do so;
”
Prayer 7(a
)
“
Declaring the following conduct of the Respondents, past or
present, to be prohibited practices in terms of section 8 of the
Act,
for purposes of section 65:
the charging of excessive prices by the Principals to the
detriment of consumers;
”
Prayer 7(e
)
“
selling the Principals’ products, through their exclusive
distribution channel, at below their marginal or average variable
cost;
”
[10] Thus the complainants, in the referral, alleged conduct, on the
part of the respondents, which,
inter alia
, amounted to:
(a) denial of access to an essential facility;
(b) the charging of excessive prices and
(c) predatory pricing.
[11] The respondents’ application to strike out was
based on the absence of jurisdiction on the part of the Tribunal to
hear the
complaint based on the above conduct. The respondents
submitted that the complainants, in the referral, were attempting to
rely
on conduct not alleged in the complaint.
[12] The
complainants opposed the application for striking out principally on
the basis that:
(a) the Tribunal, at this stage, ought not to hear
such an application and
(b) if the Tribunal did hear the application, then the
application must fail because, in all the circumstances, the
Tribunal did
have jurisdiction to consider the complaint referral
based on the offending conduct as alleged by the complainants.
The
Tribunal ruled that they could properly hear the application for
striking out and made the aforesaid order.
Complaint procedures
[13] For a proper understanding of the issues in this
appeal and cross-appeal a brief consideration of the complaint
procedures
in Part C of the Act is essential.
[14] Section 49B provides for the initiating of a
complaint. This may be done in any manner or form or in the
prescribed form.
The wording of section 49B is worth noting in that
it is not prescriptive as to how a complaint may be initiated. This
theme runs
throughout the complaint procedures, the object being to
enable complaints to be lodged without the need for procedures that
are
too technical and/or formalistic.
Section
49B provides as follows:
“
49B. Initiating a complaint
(1) The Commissioner may initiate a complaint
against an alleged prohibited practice.
(2) Any person may –
(a) submit information concerning an alleged
prohibited practice to the Competition Commission, in any manner or
form; or
(b) submit a complaint against an alleged
prohibited practice to the Competition Commission in the prescribed
form.
(3) Upon initiating or receiving a complaint in
terms of this section, the Commissioner must direct an inspector to
investigate
the complaint as quickly as practicable.
(4) At any time during an investigation, the Commissioner may
designate one or more persons to assist the inspector.
”
[15] Section 49B focuses on a “
prohibited practice
” and
does not require a complainant to identify prohibited conduct with
reference to various sections of the Act. A complainant
is not
required to pigeonhole the conduct complained of with reference to
particular sections of the Act. What is required is
a statement or
description of prohibited conduct. In this regard Form CC1,
prescribed in terms of sections 21(4) and 49B of the
Act, is
instructive. The form requires a complainant to “
provide a
concise statement of the conduct
” that is the subject of a
complaint. A complainant need only identify the
conduct
of
which it complained.
[16] Clearly it is intended that once the complaint is initiated the
Commission will investigate the matter and it is the Commission
which is enjoined to find that the conduct complained of amounts to
prohibited conduct in terms of one or more sections of the
Act.
While the complaint need not be drafted with precision or even a
reference to the Act, the allegations or the conduct in
the
complaint must be cognisably linked to particular prohibited conduct
or practices. There must be a rational or recognisable
link between
the conduct referred to in a complaint and the prohibitions in the
Act, otherwise it will not be possible to say what
the complaint is
about and what should be investigated. Note that section 49B
provides that, once a complaint is initiated, the
Commission
must
investigate the complaint.
[17]
Sections 50 and 51 of the Act regulate how matters may be referred
to the Tribunal. These sections provide as follows:
“
50. Outcome of complaint
(1) At any time after initiating a complaint, the
Competition Commission may refer the complaint to the Competition
Tribunal.
(2) Within one year after a complaint was submitted
to it, the Commissioner must –
(a) subject to subsection (3), refer the complaint
to the Competition Tribunal, if it determines that a prohibited
practice has
been established; or
(b) in any other case, issue a notice of
non-referral to the complainant in the prescribed form.
(3) When the Competition Commission refers a
complaint to the Competition Tribunal in terms of subsection (2)(a),
it –
(a) may –
(i) refer all the particulars of the complaint as
submitted by the complainant;
(ii) refer only some of the particulars of the
complaint as submitted by the complainant; or
(iii) add particulars to the complaint as submitted
by the complainant; and
(b) must issue a notice of non-referral as
contemplated in subsection (2)(b) in respect of any particulars of
the complaint not
referred to the Competition Tribunal.
(4) In a particular case –
(a) the Competition Commission and the complainant
may agree to extend the period allowed in subsection (2); or
(b) on application by the Competition Commission
made before the end of the period contemplated in paragraph (a), the
Competition
Tribunal may extend that period.
(5) If the Competition Commission has not referred
a complaint to the Competition Tribunal, or issued a notice of
non-referral,
within the time contemplated in subsection (2), or the
extended period contemplated in subsection (4), the Commission must
be regarded
as having issued a notice of non-referral on the expiry
of the relevant period.
51. Referral to Competition Tribunal
(1) If the Competition Commission issues a notice
of non-referral in response to a complaint, the complainant may
refer the complaint
directly to the Competition Tribunal, subject to
its rules of procedure.
(2) A referral to the Competition Tribunal, whether
by the Competition Commission in terms of section 50(1), or by a
complainant
in terms of subsection (1), must be in the prescribed
form.
(3) The Chairperson of the Competition Tribunal
must, by notice in the Gazette, publish each referral made to the
Tribunal.
(4) The notice published in terms of subsection (3)
must include –
(a) the name of the respondent; and
(b) the nature of the conduct that is the subject of the
referral.
”
[18] The particular wording of sections 50 and 51 is noteworthy.
The sections consistently refer to “
a
complaint
”
followed by what the Commission may do with “
the
complaint
”. What is intended is that the Commission consider
and investigate the particular conduct complained of by the
complainant.
The Commission may then determine that such conduct
amounts to a prohibited practice in terms of a section or sections
of the Act.
[19] When a complaint is referred to the Tribunal in terms of the
Act, section 50(3), consistently provides that what must be referred
are particulars of the complaint “
as submitted by the
complainant
”. Again a clear reference to the conduct
referred to by the complainant and which amount to the
facta
probanda
necessary to establish a prohibited practice.
[20] Section 50(3)(a) of the Act provides that the Commission may
refer all, or only some, of the particulars of the conduct to
the
Tribunal. In respect of any particulars which are not referred to
the Tribunal the Commission
must
issue a notice of
non-referral.
[21] The
legislature intended that the Commission would issue a notice of
non-referral in response to a complaint:
(a) when, after completing its investigation, the
Commission determines that no prohibited practice was established
and decides
not to refer the complaint in its entirety (section
50(2)(b)) and
(b) when the Commission does refer the complaint to
the Tribunal but decides not to refer all of the particulars of the
complaint.
[22] What is intended is that if a complainant believes that those
particulars of its complaint that are not referred to the Tribunal
may establish a prohibited practice, then the complainant will not
be prejudiced by the Commission’s refusal to refer. Again
it must
be noted that section 50 was carefully crafted and what was
contemplated, in the event of non-referral by the Commission,
was
that the complainant may itself refer to “
the complaint
”
or particulars of “
the
” complaint to the Tribunal.
It was not intended that in the event of a non-referral by the
Commission that the complainant is
given carte blanche in its
referral and may thereby introduce a new complaint or particulars of
a complaint not mentioned in the
conduct which formed the subject of
the complaint in terms of section 49B.
[23] Section 51(1) provides that if the Commission issues a notice
of non-referral in response to “
a
” complaint, the
complainant may refer “
the
” complaint directly to
the Tribunal. Note that a complainant is expected to refer “
the
complaint
”, not
any
complaint, a clear reference to the
conduct that was the subject of the complaint in terms of section
49B.
[24]
Section 51 cannot be interpreted to allow, where the Commission
decides not to refer a complaint in its entirety, a complainant
to
add to the referral particulars of conduct which were not complained
of or referred to the Commission in terms of section 49B
of the Act.
The jurisdictional requirement
[25] The
initiating of a complaint requires a referral of allegedly
prohibited conduct to the Commission. There is no provision
in the
Act for a referral directly to the Tribunal. The purpose of the
Commission’s investigation is to consider the conduct
described by
a complainant and to determine whether or not a prohibited practice
has been established. On completion of its enquiry,
and having
found a prohibited practice, the Commission must refer the matter to
the Tribunal.
American Natural Soda Ash Corporation and Another v Botswana Ash
(Pty) Ltd
a decision of the Competition Tribunal Case No
49/CR/APR00, 27/3/2001.
[26] The Commission is thus the legislature’s “
plaintiff of
first choice
”. Only if the Commission decides not to refer or
fails to refer a complaint of a prohibited practice can a
complainant refer
that
complaint “
directly
” to the
Tribunal.
[27] The
Commission represents both the public interest and the particular
interest of a complainant. The Tribunal has recognised
the status of
the Commission as the primary party in prosecuting complaints before
it in the public interest.
American Natural Soda Ash Corporation v Botswana Ash (Pty) Ltd
49/CR/AJUL000.
National Association of Pharmaceutical Wholesalers v Glaxo
Wellcome (Pty) Ltd
45/CR/JUL01.
[28] The
process of investigation by the Commission of a complaint is a
necessary prerequisite to any referral because it is for
the
Commission to protect the public interest if it considers a
prohibited practice to have been established. The Act does not
allow
for a complainant to bypass these investigative procedures by
adducing or adding ad hoc complaints in a referral.
[29] The submission of particulars of a complaint to
the Commission is the jurisdictional fact or precondition which
must be satisfied
before the Tribunal can exercise its powers over a
respondent.
See
S A Defence and Aid Fund and Another v Minister of
Justice
1967 1 SA 31
(C) at 34-35 where it was held:
“
Upon a proper construction of the legislation concerned, a
jurisdictional fact may fall into one or other of two broad
categories.
It may consist of a fact, or state of affairs, which,
objectively speaking, must have existed before the statutory power
could
validly be exercised. In such a case, the objective existence
of the jurisdictional fact as a prelude to the exercise of that
power
in a particular case is justiciable in a Court of law. If the
Court finds that objectively the fact did not exist, it may then
declare invalid the purported exercise of the power (see e.g.
Kellerman v Minister of Interior,
1945 T.P.D. 179
; Tefu v Minister
of Justice and Another,
1953 (2) SA 61
(T)). On the other hand, it
may fall into the category comprised by instances where the statute
itself has entrusted to the repository
of the power the sole and
exclusive function of determining whether in its opinion the
pre-requisite fact, or state of affairs,
existed prior to the
exercise of the power. In that event, the jurisdictional fact is,
in truth, not whether the prescribed fact,
or state of affairs,
existed in an objective sense but whether, subjectively speaking,
the repository of the power had decided
that it did. In cases
falling into this category the objective existence of the fact, or
state of affairs, is not justiciable
in a Court of law.
”
[30] Thus in the present matter, a complaint to the
Commission by the complainants that the respondents have engaged in
conduct
amounting to predation or the charging of excessive prices,
is a jurisdictional fact falling into the first category. In the

absence of a submission of particulars relating to such conduct to
the Commission, any exercise of power by the Tribunal in relation
to
such prohibited practice will be invalid. The Tribunal may only
entertain a referral properly referred to it and in terms of
the
Act. The Tribunal’s wide inquisitorial powers cannot be extended
to circumvent the clearly defined complaint procedures
set out in
the Act. If the Tribunal does not have jurisdiction to consider
allegations of a prohibited practice, it cannot use
its
inquisitorial powers to empower it to determine whether or not a
respondent has committed that prohibited practice.
[31] The
dispute resolution mechanism in the
Labour Relations Act 1995
are
analogous. For instance the Commission for Conciliation, Mediation
and Arbitration does not have jurisdiction to arbitrate
a dispute
which has not first been the subject of conciliation by the parties.
National Union of Metalworkers of SA and Others v Cementation
Africa Contacts (Pty) Ltd
19 ILJ 1208 (LC) at 1214H-1215A.
[32] The role of the Commission is key to the complaint procedures
as set out in the Act. In the matter before us, we are told
from the
Bar that the Commission filed the referral out of time due to
“
administrative errors
”. Whilst the Commission was not
before us in order to explain their omissions it appears,
prima
facie
, that it failed in its duty. The Commission’s role is
pivotal and “
administrative
” or other failures serve to
undermine the complaint procedures prescribed by the Act. Surely the
Commission must take all steps
and institute procedures to avoid
such lapses in carrying out its statutory duties.
[33] The Tribunal’s approach to the jurisdictional
question is set out in its decision as follows:
“
88. Thus in approaching a jurisdiction problem of the kind
raised by the respondent we examine the conduct alleged in the
complaint
and compare it with that alleged in the subsequent
Complaint Referral. We ignore the fact that in the CC 1 the
complainant may
have alleged that certain sections of the Act have
been contravened by the respondent inconsistent with the subsequent
contraventions
alleged in the referral. We then examine the conduct
alleged in the CC1 and see if it is substantially the same as that
alleged
in the referral. If it is, the complainant has standing.
If not the complainant does not and its remedy is to lodge a new
complaint
with the Commission containing those allegations. If the
new complaint is closely linked to the pending referral the
complainant
would then have to persuade the Commission to refer or
non-refer the additional counts on an urgent basis so that the
subsequent
Complaint Referral at whosever’s behest could be
consolidated with the pending referral.
”
“
91. We now go on to examine the complaint as supplemented by
the interim relief application annexed, to see whether it contains
any factual allegations that amounts to conduct substantially the
same as those alleged in relation to the excessive pricing,

predatory pricing and access to essential facility counts contained
in the Complaint Referral
.”
In
principle I can find no fault with this approach.
The
proper approach is to determine first what conduct is alleged in the
complaint and what prohibited practices such conduct may
be said to
invoke or be rationally connected to. Then, consideration is given
to the referral to see whether the conduct there
alleged is
substantially the same.
[34] Having examined the complaint the Tribunal
correctly concluded that there was no reference to, or particulars
of complaint
which amounted to, the prohibited conduct of excessive
pricing and predatory pricing. In fact it is common cause between
the parties
that the complainants made no allegations of predatory
pricing and excessive pricing in the complaint. In my opinion the
Tribunal
cannot be faulted for finding that the complainants were
not entitled to include allegations of this conduct in the referral.
[35]
Having made such a finding it must follow that the respondents’
application to strike out must succeed, insofar as it relates
to the
conduct of excessive pricing and predatory pricing. The
complainants cannot rely on any of the Tribunal’s powers, as
wide
as they may be, to suggest that the Tribunal may nevertheless
consider such allegations in the referral. The Tribunal simply
does
not have the jurisdiction to do so. Nor does it assist the
complainant to argue that the striking out, at this stage when
the
respondents have yet to file their answering affidavit, will be
premature. Filing of further papers will not cure the
jurisdictional
difficulty.
[36] If
the Tribunal lacks jurisdiction then it makes no sense to put the
respondents to the extent of filing answers to the alleged
conduct
only to have the allegations struck out at a later stage i.e. at a
pre-hearing or the hearing itself.
[37] The respondents submitted that instead of
entertaining an application to strike at this stage the Tribunal
ought to have waited
for at least a pre-hearing at which it could
use its extensive powers to inquire into whether or not the
Commission did investigate
the conduct in question. I can find no
merit in this as the test is not whether the Commission in fact
investigated the matter
but whether the complainants ever submitted
that complaint or particulars of the complaint to the Commission.
[38] No
injustice results from this interpretation of the Act. If the
complainants never submitted particulars of a complaint regarding
predatory pricing or the charging of excessive prices to the
Commission it is still open for them to do so by way of a fresh
complaint.
Nor will this necessarily result in excessive delay.
The complainants have already formulated their complaint and merely
have
to submit that in the prescribed manner to the Commission.
There is no basis for the complainants to speculate that the
Commission
will delay in investigating the complaint and making a
referral to the Tribunal.
Essential facilities doctrine
[39] I
now turn to the respondents’ alleged conduct of refusing access to
an essential facility when it is economically feasible
to do so.
Again the
respondents objected in respect of this charge on the basis that no
particulars of such conduct appears in the complaint.
The Tribunal
found as follows:
“
96. Whilst in the complaint
the conduct complained of is made in the context of a refusal to
deal the factual allegations are substantially
the same. Refusals
to deal and denial of access to an essential facility are often two
sides of the same coin. In American jurisprudence
‘refusal to
deal cases under the Sherman Act have been analyzed under ... the
intent test and essential facilities test. These
two lines of cases
are “conceptually similar” and “no bright line can be drawn”
between them. Indeed, cases are sometimes
analyzed under both
tests’. Some American commentators have even argued that the
doctrine of essential facilities is unnecessary
because it is
embodied in the doctrine of a refusal to deal. In Bellamy &
Child, a leading textbook on European Competition
Law, the essential
facilities doctrine is dealt with as a species of conduct falling
within the category of refusals to deal.
97. We find that the prohibited practice relating to access to
an essential facility has been substantially alleged in the
complaint
to the Commission. The objection in respect of this
charge on jurisdictional grounds is rejected.
”
I cannot
agree with this finding. In my opinion the Tribunal misdirected
itself in two respects:
(a) It miscast the comparative law and
(b) Its interpretation of the clear provisions of the
Act was flawed.
[40]
Whilst I have no quarrel with finding reference to conduct, in the
complaint, which amounts to refusal to deal, this cannot
be declared
to be conceptually similar to the denial of access to essential
facilities as provided for in the Act.
I will
first make reference to the comparative law then turn to the
specific provisions in the Act.
[41] Neither article 82 of the EC Treaty, nor the Sherman Anti-Trust
Act makes any express reference to the expression “
essential
facility
”. What one finds are provisions relating to the
general prohibition of abuse of a dominant position. The essential
facility doctrine
in both the US law and EC law is the result of
judicial application of widely-framed norms directed at conduct
amounting to the
abuse of a dominant position. However, as will
appear in this judgment, the doctrine as developed by the Courts is
specific and
has distinct requirements. The doctrine is not applied
merely as a species of conduct falling within the category of
refusals
to deal.
[42] The term “
essential facility
” originated in the
United States. In the case of
United States v Terminal Railroad
Association of St Louis
,
[1912] USSC 117
;
224 US 383
(1912) the US Supreme Court
dealt with the refusal to give reasonable access to the only railway
terminal in St Louis. The Court
found that it was a violation of
the Sherman Act to deny competitors access to the terminal, on
reasonable terms, as such access
was essential to their ability to
compete. Note that the case dealt with the infrastructural facility
of a terminal, the duplication
of which facility, by a competitor,
was not economically viable.
[43] The doctrine was developed in other earlier cases. See
Gamco
Incorporated v Providence Fruit and Produce Building
233 US 817
(1952) and
Otter Tail Power Company v US
[1973] USSC 65
;
410 US 366
(1973).
The former case dealt with access to a building which as a result of
its peculiar position was attractive for the purpose
of conducting
business with wholesalers and retailers for the supply of bulk fresh
produce. The latter case dealt with the provision
of wholesale
power supply from the power company’s established grid to
municipalities which chose to own their own retail distribution
system. Again both these cases dealt with infrastructural
facilities that are not easily duplicated and are essential to
competitors’
entry into the market.
[44] Reference to the term “
essential facility doctrine
”
was used in the case of
Hecht v Pro-Football Inc
436 US 956
(1978). The Court formulated the doctrine in the following terms:
“
The essential facility doctrine, also called the ‘bottleneck
principle’, states that ‘where facilities cannot practically be
duplicated by would-be competitors, those in possession of them must
allow them to be shared on fair terms. It is an illegal restraint
of trade to foreclose the scarce facility ... when the restrictive
covenant covers an essential facility ... all possible competition
is by definition excluded and the restraint is thus unreasonable per
se – provided that the facility can be shared practically.
”
The case
involved access to a football stadium by a professional football
team.
[45] The case of
MCI Communications Corporation and MCI
Telecommunications v American Telephone and Telegraph Company
708
F.2d 1081
(1983) is instructive. In that case AT&T denied MCI, a
competitor, interconnections to its switched network. The United
States
Court of Appeals, Seventh Circuit, found that it was
technically feasible for AT&T to provide the requested
interconnections
and that its refusal to do so breached US antitrust
laws. The US Court of Appeals found that the case law sets forth
four elements
necessary to establish liability under the essential
facility doctrine:
“
(1) control of the essential facility by a monopolist;
(2) a competitor’s inability practically or
reasonably to duplicate the essential facility;
(3) the denial of the use of the facility to a
competitor; and
(4) the feasibility of providing the facility
.”
(at pages 1132-1133)
What was emphasised in the
AT&T
case is that in US law a
complaint under the essential facility doctrine requires specific
allegations.
[46]
Similarly the EC Treaty does not contain an explicit prohibition
against refusing access to an essential facility. The law
was
developed in a number of article 86 cases involving abuses by firms
of their dominant positions.
[47] Access to an essential facility was dealt with by the European
Commission in the matter of
Sea Containers v Stena Sealink
case
IV/34.689 (Official Journal L317, 47, 1988/11/24). The Commission
found that denial of access to a port by Stena Sealink to
Sea
Containers amounted to an abuse of Stena Sealink’s dominant
position in the provision of such an essential facility. Having
fully considered the infrastructural nature of the port and having
considered the use of the port by the operators of the ferry
service, the Commission concluded that the capacity of the harbour
was sufficient to permit a third operator without undue
inconvenience.
Again the facility in question was infrastructural
and will require enormous capital investment to duplicate, if indeed
duplication
was possible.
[48] In
La Poste/SWIFT + GUF
case IV/36.120 (Official Journal
C335, 1997/11/06) a complaint was filed by the French Post Office,
La Poste, against the Society
for Worldwide International Financial
Telecommunications (SWIFT) and GUF. SWIFT is engaged in the
international transfer of payment
messages. La Poste applied to
become a member of SWIFT and was refused on the basis that it did
not meet SWIFT’s membership
criteria. The European Commission
noted that SWIFT was an essential facility for transmitting
electronic payment messages. SWIFT
was the only network providing
connections to banks located worldwide. To deny membership would in
effect be to exclude a competitor
from the international transfer
market. Clearly it was not possible for a competitor to duplicate
SWIFT’s worldwide network.
[49] The essential facilities doctrine was considered in the recent
case of
Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs-und
Zeitschriftenverlag GmbH & Co KG and Others
case C-7/97
[1999] 4 CMLR 112
, a decision of the Court of Justice of the
European community (Sixth Chamber). This case concerned the refusal
of a large media
company which held a substantial share of the daily
newspaper market in Austria and which operated the only nationwide
home-delivery
scheme, to allow a rival publisher with a small
circulation access to the home-delivery scheme. The Court found that
for refusal
to grant access to be an abuse:
1. the refusal had to be likely to eliminate all
competition from the person requesting the service;
2. the refusal must be incapable of being objectively
justified; and
3. access had to be indispensable to the carrying on
of the person’s business, inasmuch as there was no actual or
potential substitute
for the facility.
On the
facts the Court found that the refusal of access to the
home-delivery scheme did not meet these criteria. Other methods
of
delivery existed to which there were no material economic or
technical barriers. It is not impossible or unreasonably difficult
for the rival publisher to establish its own delivery scheme.
[50] Thus
the comparative law, consulted by the Tribunal, in fact establishes
a distinctive doctrine relating to a refusal of access
to an
essential facility, with specific requirements that do not collapse
into a general complaint of a refusal to deal by a dominant
firm.
I now
turn to the specific formulation of the Act.
[51] Part
B of the Act deals with the abuse of a dominant position. Section 8
provides as follows:
“
8. Abuse of dominance prohibited
It is prohibited for a dominant firm to –
(a) charge an excessive price to the detriment of
consumers;
(b) refuse to give a competitor access to an
essential facility when it is economically feasible to do so;
(c) engage in an exclusionary act, other than an
act listed in paragraph (d), if the anti-competitive effect of that
act outweighs
its technological, efficiency or other pro-competitive
gain; or
(d) engage in any of the following exclusionary
acts, unless the firm concerned can show technological, efficiency
or other pro-competitive
gains which outweigh the anti-competitive
effect of its act –
(i) requiring or inducing a supplier or customer to
not deal with a competitor;
(ii) refusing to supply scarce goods to a
competitor when supplying those goods is economically feasible;
(iii) selling goods or services on condition that
the buyer purchases separate goods or services unrelated to the
object of a contract,
or forcing a buyer to accept a condition
unrelated to the object of a contract;
(iv) selling goods or services below their marginal
or average variable cost; or
(v) buying-up a scarce supply of intermediate goods or resources
required by a competitor
.”
“
Essential facility
” is defined in section 1(viii) as
follows:
“
means an infrastructure or resource that cannot reasonably be
duplicated, and without access to which competitors cannot
reasonably
provide goods or services to their customers
”
At the
outset one must not lose sight of the architecture of the Act and in
particular section 8. I note the following:
1. Sections 8(a) and 8(b) are
per se
prohibitions which allow
for no justification.
2. Sections 8(c) and 8(d) are not
per se
prohibitions and
firms accused of engaging in exclusionary acts may raise the defence
that the technological efficiency or other
pro-competitive gains
which flow outweigh its anti-competitive effect.
3. A dominant firm’s refusal to supply scarce goods
to a competitor when supplying these goods is economically feasible
is dealt
with in section 8(d)(ii). It was intended that a firm
accused of this conduct be allowed to raise a defence.
4. The legislature could not have intended that the
refusal to supply scarce goods to a competitor, when it is
economically feasible
to do so, to be considered as a refusal to
give a competitor access to an essential facility under section
8(b).
5. “
Essential facility
” is defined in the Act. Such a
facility is a resource or infrastructure that cannot reasonably be
duplicated. Essential facility
is certainly not the supply of
scarce goods to a competitor.
6. The Act provides a statutory codification of the
distinctive abuse of refusing to give a competitor access to an
essential facility
when it is economically feasible to do so.
7. Section 8(b) was clearly intended to be a
prohibition, separate and distinct.
[52] Thus there exists no language in the Act that supports the
Tribunal’s approach that refusals to deal and denial of access
to
an essential facility “
are often two sides of the same coin
”.
On the Tribunal’s reasoning, an exclusionary act under section
8(d)(ii) could be justified but precisely the same conduct
under
section 8(b) could not be defensible. An absurd result which could
not have been intended by the legislature.
[53] I
cannot find any particulars of conduct amounting to a denial of
access to an essential facility in the complaint. The complainants
in the referral allege as follows:
“
19.7 The Principals’ products constitute resources that
cannot be reasonably duplicated because of the protection afforded
by
patents and licenses.
19.8 The Complainants must have reasonable access
to the Principals’ products in order to compete with the
Respondents in both
the product and distribution markets.
19.9 The Principals refuse to provide the Complainants with
competitive access to their products and will only deal with them on
a basis that is not economically viable. The Principals extend
their monopoly and market power in the product market to the
downstream
market by refusing to provide reasonable access to the
product resources that they own or control in terms of patents
and/or licensing
agreements.
”
This is a possible attempt by the complainants, for the first time
in their referral, to allege conduct prohibited in terms of
section
8(b). Key to the complainants’ approach is their interpretation
of “
resource
” within the meaning of section 8(b) read
with section 1(viii) of the Act. According to the complainants the
respondents’ product
constitute resources that cannot be
reasonably duplicated. In my opinion the clear provisions of the
Act do not support such an
interpretation. For reasons already
stated “
resource
” was not meant to be interpreted as
products, goods or services. I cannot agree with the complainants
that pharmaceutical products
qualify as essential facilities and
resources for anti-trust purposes.
[54] The approach of the Tribunal as well as the interpretation
relied upon by the complainants effectively gives section 8(b)
a
wide meaning. In my opinion this broadens the scope of section 8(b)
well beyond what was intended by the legislature. The legislature
intended, from the clear architecture of the Act, that there should
be limits to the essential facilities doctrine. To demand
that a
dominant firm should grant access to its facilities is a substantial
intervention on the part of a competition authority.
The widening
of the application and scope of the essential facilities doctrine
can have harmful economic effects such as discouraging
investment in
infrastructure. An investor might be reluctant to invest for fear
of a third party demanding a “
free ride
” on the fruits of
such investment.
See Competition Law Richard Whish 4
th
edition page 617.
Certainly, from a reference to decided cases, judicial application
does not appear to favour a wide interpretation and application
of
the doctrine. As stated by Whish “
the essential facilities
doctrine must be applied with caution
”.
[55] For purposes of this judgment I consider it unnecessary to deal
in any detail with the law relating to the interpretation
of
statutes. Suffice it to say that I was guided by the principles set
out in
Bhyat v Commissioner for Immigration
1932 AD 125
at
129;
Ebrahim v Minister of Interior
1977 1 SA 665
(A) at 673;
Standard Bank Investment Corporation v Competition Commission
[2000] ZASCA 20
;
2000
2 SA 797
(SCA);
F A Raisins (Pty) Ltd v SAD Holdings Ltd
[2000] ZASCA 147
;
2001
2 SA 877
(SCA).
[56] Thus, whilst it is unnecessary, for purposes of this judgment,
to define the ambit of section 8(b), I find that section 8(b)
does
not prohibit the conduct of refusing to supply scarce goods to a
competitor. For reasons already stated “
refuse to give a
competitor access to an essential facility
” does not mean
“
refusing to supply scarce goods to a competitor
”. Nor
is section 8(b) a species of some more general refusal to deal.
[57]
Accordingly, to allege a contravention of section 8(b) a complainant
will have to aver, in its complaint that:
1. the dominant firm concerned refuses to give the
complainant access to an infrastructure or a resource;
2. the complainant and the dominant firm are
competitors;
3. the infrastructure or resource concerned cannot
reasonably be duplicated;
4. the complainant cannot reasonably provide goods or
services to its competitors without access to the infrastructure or
resource;
and
5. it is economically feasible for the dominant firm
to provide its competitors with access to the infrastructure or
resource.
This the
complainants failed to do in their complaint. Nor did they, for
what it is worth, make such averments in their referral.
I now
turn to the procedure followed by the Tribunal in the application
for striking out.
[58] Allegations of excessive pricing, predatory
pricing and denial of access to an essential facility, if properly
placed before
the Tribunal in terms of the Act, are serious
allegations of prohibited conduct that call for a response from the
respondent.
Unlike pleadings in the High Court, the response must
be in the form of an affidavit wherein it will not suffice merely
for the
respondent to admit, deny or confess and avoid. A
comprehensive response involving lengthy and involved research and
consultation
is called for. The consequence, by the very nature of
the disputes, can result in the filing of voluminous papers at
enormous costs.
It makes no sense for a respondent to be put to
such trouble and expense in responding to allegations not properly
before the
Tribunal. The Tribunal correctly concluded that it will
not be premature to entertain an application to strike out before an
answering
affidavit is filed by the respondents. The Tribunal’s
application and interpretation of the rules of the Tribunal read
with
the Uniform Rules of the High Court cannot be faulted. Save
for this, I find it unnecessary, for purposes of this judgment, to
launch into extensive commentary on the various provisions of the
Tribunal’s Rules read with the Uniform Rules.
The
Tribunal has a general discretion under the Act to regulate its own
proceedings. It may determine any matter of procedure for
a
hearing, with due regard to the circumstances of the case, provided
only that, in doing so, it observes the requirements of section
52(2) namely expedition, informality and the principles of natural
justice. See section 55 of the Act.
[59] Thus
I find that:
1. The Tribunal acted correctly in finding that it
could hear an application for striking out before the respondents
filed their
answering affidavit.
2. The Tribunal correctly struck out references to the
prohibited practices of excessive pricing and predatory pricing from
the
referral.
3. The Tribunal erred in not striking out reference to
the denial of access to an essential facility from the referral.
In the
result I make the following order:
1. The appeal is upheld and the decision of the
Tribunal is amended as follows:
1.1 Prayer 1.1 of the respondents’ notice of motion
in its application to strike out certain parts of the complainants’
complaint
referral is granted.
2. The complainants are ordered to pay the costs of
the appeal including the costs of two counsel.
3. The cross-appeal is dismissed with costs which
costs include the cost of two counsel.
_________________________
I HUSSAIN JA
I agree:
_________________________
S
SELIKOWITZ JA
I agree:
_________________________
M L MAILULA AJA