COMPETITION TRIBUNAL
(REPUBLIC OF SOUTH AFRICA)
Case No. 18/IR/December '99
In the matter between
Cancum Trading No. 24 CC First Applicant
Henlin Trust Second Applicant
H & M Lindeque Trust Third Applicant
Maltea Trading CC Fourth Applicant
Rietvlei Trading CC Fifth Applicant
Rosa Trading CC Sixth Applicant
Prism Merchandise Enterprises CC Seventh Applicant
Ritima CC Eighth Applicant
Cancum Trading No. 26 CC Ninth Applicant
Rogai Trading CC Tenth Applicant
Wahda CC Eleventh Applicant
Eloff Anderson Pederson Twelfth Applicant
Ruiker Trading CC Thirteenth Applicant
and
Seven Eleven Corporation SA (Pty) Ltd Respondent
__________________________________________________________________
DISSENTING DECISION ON APPLICATION FOR INTERIM RELIEF IN TERMS
OF SECTION 59 OF THE COMPETITION ACT, 89/1998
__________________________________________________________________
INTRODUCTION
1. I agree with the majority decision of the Panel insofar as it relates to:
1.1 The application for nonjoinder by Respondent
1.2 The Applicants' claim under Section 8(d)(i) and/or 8(c)
2. I disagree with the majority decision that:
2.1 evidence has been placed before the Tribunal to make a finding that
the Respondent has engaged in the practice of minimum resale price
maintenance in violation of section 5(2).
2.2 the requirements of section 59(1)(b)(i)or (ii) have been met.
3. My reasons are set out below:
Interim Relief
4. The Act makes provision for the granting of interim relief in terms of section
59(1).
5. The type of the interim orders that the Tribunal may grant where it is satisfied
that the requirements of section 59(1) have been met, are enumerated in
section 60(1) of the Act.
6. Requirements for obtaining an interim order under Section 59(1) are similar
to those at common law for obtaining an interdict with two exceptions:
6.1 whereas the standard of proof in the High Court is prima facie, in the
case of s 59(1) it is on a balance of probabilities. S ection 68 of the
Act requires that the standard of proof in any proceedings in terms of
Chapter 3 of the Act (Merger Control) and Chapter 6 (Remedies and
Enforcement) be on a balance of probabilities.
6.2 the alternative in Section 59(1)(b)(ii) is not found at common law.
7. The requirements of Section 59(1) are therefore considerably more difficult
to meet. An applicant has to overcome all four hurdles and satisfy the
Tribunal of all four requirements before the Tribunal can exercise its
discretion to award an interim order.
8. At common law, urgent interdicts are very sparingly granted by the High
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Court.
9. A survey of European, American and Australian competition case law shows
that courts and competition authorities are equally frugal with such orders.
Minimum Resale Price Maintenance
10. The only prohibited practice that this decision relates to is that of minimum
resale price maintenance. In order to succeed under 59(i), the Applicants
have to overcome the first hurdle and place before the Tribunal evidence to
show on a balance of probabilities that the Respondent has engaged in
minimum resale price maintenance.
11. The Applicants placed before the Tribunal the provisions of clause 9.1 of the
Franchise Agreement which reads as follows:
9.1 In order to ensure uniform profitability and uniformity in specification
compliance and control, the LICENSEE agrees to handle, promote
and/or sell only those items approved by the LICENSOR purchased
only from the LICENSOR and/or such wholesalers and/or suppliers
as are approved by the LICENSOR. The LICENSEE shall sell all its
products only at prices approved by the LICENSOR from time to
time.
12. In paragraph 13 of the Founding Affidavit of the First Applicant under the
heading Fixed Selling Price, the First Applicant makes the following
allegation:
13. From time to time Respondent supplies the First Applicant with a
retail price list, and compels the First Applicant to sell its merchandise
at the prices specified by the Respondent. I annex hereto an
example of the latest predetermined price list as received from the
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Respondent (" PG 3" ). I do not include the total price list, this
would entail a very voluminous document which would unnecessarily
burden these papers. Respondent can and does oblige First
Applicant to sell products at a price which results in a loss to the
Respondent [sic] as turnover, rather than profitability, of a Franchisee
is the basis on which Respondents return is calculated.
14. In the same paragraph the Applicant then gives an example of how the fixing
of prices by the Respondent disadvantages it. It states that in November
1999 it was obliged to purchase a 1.5 litre bottle of CocaCola from the
nominated supplier for an amount of R3,79 and was obliged to resell it for
R3,99 after having to pay the Respondent 2,5% royalty on turnover plus a
further 5% in respect of rent for the premises. The First Applicant suffered a
loss of R0,10 on each 1.5 litre bottle of Coke it sold.
15. First Applicant makes a number of examples in paragraph 14 of the
Founding Affidavit of instances where it was forced by the Respondent to
purchase goods from suppliers at higher prices than they could get at
alternative suppliers. At paragraph 14.3 the First Applicant indicates that a
general increase in cigarette prices by suppliers and wholesalers could not
be passed on by it to customers as the Respondent insisted that the
cigarettes be sold at the old (lower) retail prices thereby lowering his gross
profits.
16. In response to the allegation relating to the CocaCola, the Respondent in its
Answering Affidavit at paragraph 16.3 indicated that the Coke was at a
special price which was supplied by the supplier at a 10% discount and was
sold at a very special price. It also stated that this was not an ordinary price
and it cannot be seen to characterise the whole of the Respondent's pricing
and it cannot be seen to characterise the whole of the Respondent's pricing
policies and in any case the First Applicant made a profit of 1% per bottle
sold at the special price and in fact bought 180 cases at the discounted
price while selling it at the normal price resulting in quite a big profit. In its
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Replying Affidavit the First Applicant did not specifically deny this but
indicated in paragraph 21 that the Respondent does not pass on discounts
and rebates except to promise to pay Applicant at the end of this financial
year modest rebates in respect of cigarettes, bread flour, CocaCola etc.
17. In its Replying Affidavit the First Applicant refers to what it considers an
example of the Respondent's behaviour with regard to setting prices at
paragraph 55:
Moreover, the Respondent not infrequently allows stores owned by
the Respondent itself to charge lower prices for standard
merchandise. One example is the Respondent's own store in
Sandbaai near Hermanus which, since the Franchisee went out of
business approximately a year ago, has been charging prices
significantly below that dictated by the Respondent to other
Franchisees. At a meeting with Mr Hadjidakis on 25 August 1999, at
which I was present, the attorney for the Association of Seven Eleven
Franchisees challenged him about this. Mr Hadjidakis' response was
that the Sandbaai store needed to generate turnover and for that
reason prices had been dropped. The Applicants ask no more than
the freedom to set their own prices in the interest of generating
turnover and providing customers with a competitive price.
18. In paragraph 56 the Applicants mention a further incident in the case of the
Seven Eleven franchise in Monte Vista where the Respondent also permitted
a Franchise owned by a "close associate" Andrew Tucker to charge prices
on certain staples well below that of another Franchise in the same road
which is referred to as Mrs Solberg. No supporting affidavit by Mrs Solberg
is annexed to support this allegation though an affidavit by her is attached
regarding a separate High Court action by the Respondent against her but
regarding a separate High Court action by the Respondent against her but
no specific reference is made to lower prices. It is not certain why this
affidavit was annexed.
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19. The facts set out in paragraphs 13 19 constitute the sum total of evidence
placed before the Tribunal to show that the Respondent engaged in
minimum resale price maintenance.
Clause 9.1 of the Franchise Agreement
20. The last sentence in this clause contain the important words, "the Licensee
shall sell all its products only at prices approved by the Licensor from time to
time". As was pointed out in the majority decision, unlike in the European
Union where vertical price fixing is per se illegal, in the context of franchising,
in South Africa and very recently the US, 1 resale price maintenance is not
prohibited per se, only minimum resale price maintenance. Maximum resale
price maintenance would be judged by the rule of reason i.e. it could be
justified provided any technological, efficiency or other procompetitive results
from the agreement could be shown to outweigh the anticompetitive
effects.
21. All clause 9.1 provides for is that the Franchisor shall determine the prices at
which the Franchisees can sell products to the consumers. The prices that
the Respondent therefore set could amount to either minimum or maximum
resale price maintenance. Evidence was led by the First Applicant of
maximum resale price maintenance when he alleged that he was forced to
sell a 1.5 litre bottle of Coke and toothpaste at a lower price than he wanted
to. While the First Applicant alleged that this reduced his profit margin and in
the first instance in fact caused a loss of 10 cents per bottle of Coke, the
consumers gained by getting lower prices for those particular items.
22. On its own the clause allows the Respondent to engage in the practice of
1 State Oil Company v Khan (1997) 139 L Ed 2d 199
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either minimum or maximum resale price maintenance. To my mind it
does no more than this. On its own it cannot constitute evidence of
minimum resale price maintenance.
23. It would be an entirely different matter if the clause had provided that the
Franchisee shall sell all its products at a price not lower than that determined
by the Franchisor and the Franchisee was trading on the basis of such an
agreement. Such a clause would be capable of only one interpretation
namely minimum resale price maintenance.
24. In section 5(2), it is the practice of minimum resale price maintenance which
is prohibited. A clause such as clause 9.1 cannot on its own constitute
evidence of a practice. An agreement regulates the relationship between to
parties. The terms of that agreement merely enable each party to do certain
things. The terms of the agreement do not constitute acts which could
amount to a practice as required by s5(ii). Evidence will have to be
produced by the Applicants to show that such a practice has occurred. It is
not sufficient to show that it could occur. That would be tantamount to
arguing: I can therefore I have!
25. Nowhere in the Affidavits of the Applicants have they shown that minimum
resale price maintenance has occurred. The paragraphs I have quoted from
only refer to the setting of prices and in the other instances they refer to
vague allegations which amount to not much more than hearsay. It is not
sufficient to say that in Hermanus one Franchisee was allowed to lower its
prices and the other was not. An affidavit from the Franchisee who was
refused permission to charge lower prices should have been filed. Mrs
Solberg who appears to be an exFranchisee could also have attached an
Affidavit to the effect that she wanted to charge x price for certain items and
Affidavit to the effect that she wanted to charge x price for certain items and
the Franchisor refused to allow her to do so. Such evidence would have
been more useful than the numerous references by Applicants to Mr
Hadjidarkis' tone and volume of voice at meetings. If such evidence was
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contained on the papers, I would have had no difficulty (with or without
clause 9.1) to find that the requirement of Section 59(1)(a) had been met.
26. Counsel for the Respondent in a response to a question asked by the
presiding member of the Panel, conceded that the Franchisees could not
charge lower prices if they wanted. This however was his submission not
evidence.
27. The Applicants have therefore failed to satisfy the first requirement in section
59(1)(a) and are not entitled to the relief sought in paragraph 2(b) and 2(c) of
the Notice of Motion insofar as it relates s 5(2).
28. Even if I had found that the Applicants had satisfied the first requirement in s
59(1)(a), I do not believe that they are entitled to an interim order.
Serious Irreparable Damage
29. The Applicants have argued that the order is necessary to prevent serious
irreparable damage and further to prevent the purposes of the Act being
frustrated. The majority decision implicitly rejects the Applicants' reliance on
S 59(1)(b)(i) and instead find that the Applicants have shown that an order is
necessary to prevent frustration of the purposes of the Act.
30. The 13 Applicants lodged a complaint with the Competition Commission on
13 December 1999. The Respondent submitted that there are altogether
124 SevenEleven Franchisees in the Western Cape. What is apparent from
the Affidavits and Supporting Documents filed is that almost all of the
Applicants are involved in disputes with the Respondent. Several of them
stated that they fear that the Respondent may take legal action against
them. All of them are experiencing financial difficulties and face claims by
the Respondent, some of which they deny. The Respondent has launched
an application in the High Court in Cape Town for the liquidation of the 9th
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Applicant. The matter was to have been heard in March 2000.
31. The Applicants all allege that their financial difficulties arise from the alleged
restrictive practices of the Respondent. In view of the finding that the
Applicants have not established a contravention of section 8(d)(i) and/or
section 8 (c) or section 5(1), the Applicants would have to establish that it is
the practice of minimum resale price maintenance by the Respondent that
caused the financial difficulties that they now face. The Applicants have
attempted to use their financial difficulties and possible imminent legal action
to be taken by the Respondent to meet the requirement of s 59(b)(i). The
First Applicant in paragraph 24 of his Founding Affidavit alleges that he is
suffering irreparable damage on an ongoing basis by being obliged to
purchase stock from only those suppliers approved by the Respondent and
at fixed costs prices and by selling the product at fixed prices. He alleges
that with every sale from the First Applicants store which could have been
purchased by First Applicant at a lower cost price, it is sustaining a loss.
32. The Second Applicant cites as his reason for urgency that the prime
business season of the stores situated in Saldanha, Vredenburg and
Langabaan is over Christmas and New Year and summer holidays and it
was crucial for these stores to maximise turnover and profitability over this
period to ensure the viability of the stores. They argued that if they were
allowed to purchase their merchandise freely in the market whilst adhering to
the terms of the Franchise Agreement they would be able to render a more
competitive product to their customers by being in a more efficiently run
business. They argue that the opportunity for rendering an efficient and
competitive service over the prime holiday season would be lost if the interim
order was not granted on an urgent basis. The Sixth Applicant also cited the
Christmas holiday season as the reason for urgency.
33. No satisfactory link has been established between the financial difficulties
experienced by the Applicants and the commercial disputes that are
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currently raging between the Respondent and the Applicant on the one
hand and the alleged practice of minimum resale price maintenance. It is
possible that if the Franchisees could choose their own suppliers and charge
their own prices as well as compete with each other, their profit margins may
improve or they may avoid the difficulties they are in now. It is also entirely
possible that the financial difficulties may be due to reasons other than the
terms of the Franchise Agreement.
34. What we have before the Tribunal are allegations that businesses are failing.
How such failures or the application for liquidation relates to the alleged
minimum resale price maintenance is not detailed. Counsel for the
Respondent rightly points out that proper evidence in such an instance
would be financial records to provide proof of such a link. It may well be that
the Competition Commission finds the necessary link due to a more detailed
investigation. On the papers before us it is impossible to do this.
35. All the Applicants seem to a lesser or greater extent to be involved in
contractual disputes with the Respondent involving amounts of money
claimed and disputed. In these disputes both parties are legally
represented. These appear to be in the nature of contractual disputes which
do not fall within the ambit of the Tribunal and should be settled in the civil
courts or by negotiation between the parties.
36. To avail oneself of section 59(1)(b)(i) it has to be shown there is the
likelihood of not only damage but damage which is substantial and is of such
a nature that it cannot be remedied by damages at a later stage. 2 On the
evidence placed before the Tribunal, I'm not at all convinced that the facts of
the present case was that which was in the contemplation of the drafters of
section 59(1)(b)(i).
section 59(1)(b)(i).
Frustration of the Purposes of the Act
2 La Cinq SA v E C Commission [1992] ECR 111 and TYTEL (Pty) Ltd and others v
Telecommunication Commission (67 ALR 433)
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37. This alternative to s 59(1)(b)(i) is substantially more difficult to define as the
legislators left it rather vague.
38. A survey of other competition jurisdictions show that there is no identical
provision in competition legislation. In the United States and in Britain there
is a public interest requirement which is broader but analogous to the
requirement in section 59(1)(b)(ii). In the U.S the Clayton Act contains a
formulation of the requirements for the granting of preliminary injunctions
and though it varies across different circuits there are common factors that
the courts have regard to in granting a Plaintiff an interim injunction. One
such requirement is that the granting of such an injunction is in the public
interest.
39. In the United Kingdom the Competition Act 1998 came into effect on 1 March
2000. Section 35 of that Act provides that where the Director General of Fair
Trade has a reasonable suspicion that a prohibited practice has occurred
while an investigation into the matter is ongoing, he/she can make certain
directions. Section 35(b) reads as follows:
35(b). If the Director considers that it is necessary for him to act
under this section as a matter urgency for the purposes
i. of preventing serious, irreparable damage to a particular
person or category of person, or
ii. of protecting the public interest,
he may give such direction as he considers appropriate for that
purpose.
40. One of the most important rules of statutory interpretation is that every word
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or expression must be given its ordinary meaning. 3 The word frustrate
generally refers to action that makes something ineffective or prevent
achievement of a particular purpose. In the context of the Act it would then
mean that prevention of the achievement of any or all of the purposes of the
Act. This is fairly clear. What does present a problem is that this
requirement is placed as an alternative in a section that essentially deals
with interim orders which by their very nature, are urgent and cannot wait for
the normal processes of litigation or in this instance for a investigation taking
place at the Competition Commission
41. There is a clear separation in s 35(b) of the prevention of serious, irreparable
damage to a particular person and protecting the public interest. If an
Applicant is not able to show that it is likely to suffer serious harm it can in
the alternative show that it is in the public interest that an interim direction be
made.
42. This seems to me a clearer formulation than Section 59(1)(b)(ii). The aim of
the latter section is the same. Where an Applicant cannot show serious
irreparable damage to itself it can show that any or all of the purposes of the
Act are being frustrated. A clear statement of which purposes and in what
manner they are being frustrated with corroborating evidence is necessary.
43. In the present case neither in the founding papers of the Applicants or in
their Heads of Argument did they show precisely in what manner the
purposes of the Act would be frustrated if the interim order would not be
granted. In the paragraph 28 of the founding affidavit of Peter John Gibbons
he says : "I further submit that the very purpose of the Competition Act of
1998 would be frustrated should the interim relief not be granted, as the
Seven Eleven customers would be deprived of the benefits of a competitive
Seven Eleven customers would be deprived of the benefits of a competitive
convenient store market. These customers would also be unable to recoup
their losses from any party". This is far to general.
3 Fundtrust (Pty) Ltd (in liquidation) v Van Deventer 1997 (1) 710 (A) at 727A
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44. In his Heads of Argument and during the hearing, Applicants' Counsel seem
to suggest that once the restrictive practice is found to have occurred an
Applicant would be entitled to interim relief and if such interim relief is not
granted the objects of the Act would be frustrated.
45. The majority decision seems to have accepted this line of argument as they
find that the continuation of the practice of minimum resale price
maintenance frustrates the purposes of the Act. This cannot be the case.
46. The provisions of s 59(1)(b)(ii) must be read in the context of the section
itself which deals with relief which is of an extraordinary nature and urgent.
On account of this an Applicant has to overcome each of the 4 hurdles
presented in the section. It has to prove firstly that a restrictive practice has
occurred. Secondly it has to prove one of two things either that it faces
serious and irreparable harm should the order not be given or that the
purposes of the Act will be frustrated. Thirdly it has to show that a
Respondent has been given a reasonable opportunity to be heard and
fourthly it has to show that the balance of convenience favours the granting
of the order. It is only once all four hurdles have been overcome by the
Applicant that it is entitled to the relief.
47. If the argument of the Applicants are accepted, what they have effectively
done is to remove one very important hurdle. They argue that once it has
been established that a restrictive practice has occurred they need not
overcome the second hurdle in section 59(1)(b) as the very occurrence of a
restrictive practice constitutes the frustration of the purposes of the Act.
48. Minimum resale price maintenance is always harmful. It always restricts
competition. It always leads to artificially high prices being maintained and
competition. It always leads to artificially high prices being maintained and
disadvantages consumers. This is the reason that it is a per se prohibition.
Does this mean that on every occasion that it is shown to have been
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practiced the affected party is entitled to an order under section 59(1)
provided it can meet the requirements of section 59(1(c)and(d). This would
lead to an absurd result. Applicants could therefore lodge a complaint with
the Commission and simultaneously proceed with an application under
s 59(1).
49. Section 59(1)(b)(ii) requires that in addition to proving a restrictive practice,
an Applicant should also show that the interim order is necessary to prevent
the thwarting of the purposes of the Act. It is an additional requirement.
Precisely because of where the section is placed, it has to be shown that the
effect on the purposes of the Act is of such a nature that it cannot wait until
the investigation is complete. There could be for example instances where a
Respondent denies an Applicant an essential facility and as a result the
applicant may go out of business with the resultant loss of many jobs. In
such a situation the public interest element of employment would enable an
applicant to be successful under s 59(i) and to show that the matter is so
urgent that it could not wait until six months later when the Commission
investigation is completed.
50. The legislature has deemed it necessary make the standard of proof in s59
applications higher than that in the High Court. The provisions of this section
is also stricter than in other jurisdictions. This is an indication that the
legislature intended that this section should be utilised only in extraordinary
circumstances that warrant intervention and not be used by Applicants to
circumvent the normal waiting period or to use the section to settle
commercial disputes or gain a business advantage.
51. If the arguments of the Applicants are accepted, the Tribunal is likely to be
inundated with applications which should not at all be handled under this
inundated with applications which should not at all be handled under this
section. It is necessary that the Tribunal exercise great circumspection in
granting interim relief orders under s 59(1). That is the intention of the
legislature and it must be given effect to.
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52. Because the Applicants have failed to satisfy the requirements of s 59(1)(a)
as well as s 59 (1)(b) (i) or (ii), they are not entitled to the relief sought.
__________________ __________________
C. Qunta 12 April 2000
Member
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