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[2002] ZACAC 5
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American Soda Ash Corporation and Another v Competition Commission of South Africa and Others (12/CAC/DEC01) [2002] ZACAC 5; [2005] 1 CPLR 18 (CAC); 2003 (5) SA 633 (CAC) (24 October 2002)
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:
(a) 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");
(b) an order that
Ansac desist from engaging in the prohibited practices;
(c) an order that
[CHC Global] shall not act as the agent of [Ansac] whilst [Ansac]
engages in the prohibited practices;
(d) 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;
(e) 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:
(1) This Act
applies to all economic activity within, or having an effect within,
the Republic, except -
(a) collective
bargaining within the meaning of section 23 of the Constitution, and
the Labour Relations act, 1995 (Act No 66
of 1995);
(b) a collective
agreement, as defined in
section 213
of the
Labour Relations Act,
1995
;
…
..............
(e) concerted
conduct designed to achieve a non-commercial socioeconomic
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 extraterritorial
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
anticompetitive 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
"anticompetitive" 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
1990
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 extraterritorial 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
Case1970
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 ofAmerica
[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
anticompetitive.
[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
(a) 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
(b) it involves any
of the following restrictive horizontal practices:
(i) directly or
indirectly fixing a purchase or selling price or any
other
trading condition;
(ii) dividing
markets by allocating customers, suppliers,
territories, or
specific types of goods or services; or
(iii) 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.