COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 02/CR/Jan01
25/CR/May01
In the consolidated matters between:
Avalon Group (Pty) Ltd First Complainant
Videovision Entertainment (Pty) Ltd Second Complainant
and
Old Mutual Properties First Respondent
Old Mutual Life Assurance CO
South Africa Ltd Second Respondent
Primedia Ltd Third Respondent
SterKinekor Films (Pty) Ltd Fourth Respondent
_______________________________________________________________
Reasons for decisions made at prehearing conference held on 24
June2002
_______________________________________________________________
PART A
Discovery application
At a prehearing conference in this matter held on 24 June 2002 I was asked to
rule on two applications to compel further and better discovery brought by the
First and Second complainants.
BACKGROUND
In this matter the Tribunal has consolidated two claims brought by the
Complainants in respect of the Gateway shopping Centre in Durban. The first
and second respondents, whom for convenience I will refer to as Old Mutual,
respectively own and manage the Gateway shopping Centre. In 1998 Old Mutual
asked firms in the film exhibition industry to tender for the cinema rights at the
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shopping centre. The complainants and the third respondents, inter alia,
submitted bids. Old Mutual decided in 1998 to award the tender to the third
respondent. On 14 March 2000 it entered into a lease (the ‘March lease’) with the
third respondent in respect of Gateway. A further lease agreement (the
‘November lease’) was entered into on 14 March 2001.
On 24 November 1999 Videovision filed a complaint with the Competition
Commission against the respondents. Avalon filed a complaint with the
Commission on the 18 February 2000. Both complainants received notices of
nonreferral from the Commission and proceeded to refer the complaints to the
Tribunal directly. As both complaints covered similar factual and legal issues all
parties agreed to the complaints being consolidated.
In essence the complaint referrals make the following allegations:
1. That the lease entered into the between the second and third respondent
constitutes a vertical restrictive practice in contravention of section 5(1) of
the Competition Act (the ‘Act’);
2. As per Avalon, that it should have been given access to the Gateway
Cinema complex pursuant to its tender as an essential facility on terms
reasonably required and that those terms should be no more onerous than
those granted to SterKinekor Films Proprietary Limited.
3. That the award of the Gateway cinema complex to Ster Kinekor or
alternatively its denial to the complainant constitutes an exclusionary act
as contemplated by section 8(c) of the Act.
Although the Tribunal rules make provision for discovery there are no procedural
rules to regulate the process. Rule 22(c)(v) merely provides that at a prehearing
conference the assigned member may give directions in respect of the
production of documents whether ‘formal or informal’ . However in terms of Rule
production of documents whether ‘formal or informal’ . However in terms of Rule
55 of the Tribunal Rules, the Tribunal is entitled to have regard to the procedures
of the High Court where there is a lacuna in its own rules. Accordingly, at the pre
hearing conference held on 8 April 2002, I directed that discovery should be
made in accordance with the Rules of the High Court. 1 All the parties have since
filed discovery affidavits. The complainants have, as they are entitled to in terms
of my April ruling, filed applications to compel further and better discovery.
I have not heard complete argument in relation to all the outstanding discovery
issues, but I have been asked to make a ruling on the parts of the application that
I have heard thus far.
1 See paragraph 7 of the Record of proceedings of the prehearing conference.
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Items in respect of which further and better discovery is sought
Avalon and Videovision seek in respect of Old Mutual and / or Ster –Kinekor:
1. Discovery of the November lease agreement. ( Item 10 of Annexure
A to Legh’s affidavit in Videovision’s application for further and
better discovery dated 22 May 2002)
Videovision seeks in respect of Old Mutual:
2. Old Mutual Marketing plans – (item 14 of Annexure A to Robert
Legh’s affidavit dated22 May 2002.)
3. Source documents in respect of:
a) Item 197 of Ian Watt’s discovery affidavit, First part of first
Schedule, dated 7 May 2002 (Item 15 of Annexure “A” of
Robert Legh’s affidavit dated 22 May 2002.)
b) Item 198 Ian Watt’s discovery affidavit, First part of First
Schedule, dated 7 May 2002 (Item 16 of Annexure “A” of
Robert Legh’s affidavit, dated 22 May 2002.)
c) Item 264 Ian Watts discovery affidavit, First part of First
Schedule, dated 8 May 2002 (Item 17 of Annexure “A” of
Robert Legh’s affidavit dated 22 May 2002.)
4. Old Mutual documentation on research that formed the basis of the
leasing policy and tenant mix strategy of the Gateway Shopping
Mall (Item 18 of Annexure “A” of Robert Legh’s affidavit, dated 22
May 2002.)
Videovision seeks in respect of SterKinekor:
5. All SterKinekor documents relating to marketing and market
research in respect of its cinemas in KwaZulu Natal (item 14 of
Annexure “C “of Robert Legh’s affidavit, dated 22 May 2002)
I will now deal with the requests seriatim. Where possible I have tried to deal with
the issues thematically.
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1. Discovery of a lease agreement concluded on 14 November
2001 ( Item 10 of Annexure “A” to Robert Legh’s affidavit of 22
May 2002)
Both Complainants seek the November lease in respect of both the commercial
and art cinemas at the Gateway complex. (See Affidavit of Legh paragraph 4.10
and item 10 of annexure A thereto).
In its first discovery affidavit Old Mutual discovered the March lease agreement
between OMLACSA and SterKinekor. However according to Watt (See Old
Mutual’s answering affidavit paragraph 15) a further agreement between the
parties was concluded on 14 November 2001. Watt says he has not discovered
this agreement because it had no bearing on the decision to choose SterKinekor
as the preferred bidder for the cinema component of Gateway, nor on the
decision to conclude the March lease. Watt justifies not discovering the
November lease, after having discovered the March lease, because the
November lease arose from different circumstances, which occurred subsequent
to those that prevailed in the period 19982000. Furthermore the November
agreement postdates any of the complaints or the complaint referrals in this
matter. Watt then goes on to tender the agreement to the Tribunal under a claim
for confidentiality. I understand this to mean that only the Tribunal but not the
claimants would have sight of this. It appears further from Watt’s affidavit that Old
Mutual is concerned that the lease could if its contents became known
disadvantage Old Mutual in its negotiations with future tenants of either Gateway
or its other centres.
In reply Videovision argues that the November lease is relevant to the question of
whether the SterKinekor bid was objectively more favourable than the others. If
in the November lease it had procured easier terms it might cast the bidding
contest in a different light. Avalon, which has premised its dominance case on a
single economic entity theory, argues that the November lease is relevant to
single economic entity theory, argues that the November lease is relevant to
establishing the nature of this relationship.
I indicated to the parties that I would at this stage decide the relevance of the
document only and leave the aspect of its confidential status and who should
have access to it to a full panel. I have with everyone’s consent proceeded in this
manner.2
Central to both complainants’ prayers for relief in terms of section 5 of the Act is
the voiding of the lease agreement. It seems to me that it is highly relevant to the
adjudication of such relief to have the present version of the lease before us. It
therefore is not relevant that the terms of the lease have evolved since the laying
2 I have followed the same approach in respect of the remaining documents to be discovered.
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of the complaint or the lodging of the complaint referrals. To adjudicate only in
respect of the March lease, which is now historical, in whole or in part, is farcical.
Assuming we were to decide to accept the complainant’s remedies it would mean
us voiding an agreement that we had never seen.
I am also in agreement with the complainants that the November lease is
relevant to establish the nature of the respondents relationship and secondly
whether it casts a different light on the credibility of the tender process.
The November lease and any subsequent amendment must be discovered
subject to the determination of any confidentiality claims.
2. Old Mutual Marketing plans – (item 14 of Annexure “A” to
Robert Legh’s affidavit of 22 May 2002.
This item according to Videovision is relevant because it relates to the
dominance of Old Mutual in the market for the provision of suitable space to
exhibit movies in the Durban North Region. Old Mutual denies this and criticizes
the request for inter alia, failing to specify any document, its unlimited nature as
to time and the fact that it does not enable Old Mutual to establish which
documents are being sought. 3 Old Mutual points out that the request refers not
only to the cinema complex but also to other aspects of the Gateway shopping
mall and includes rental rate comparisons with other shopping centres in the
area.
In its complaint referral Videovision alleges that Old Mutual is dominant in the
whole of the RSA in the market for the letting of space for the operation of
cinemas and makes the same allegation in respect of the market for the greater
Durban area and Durban North.
It is difficult to see how the information requested is relevant to the issue Old
Mutual’s alleged domination in this market.
Evidence that a firm is dominant for the purpose of section 7 of the Act can be
Evidence that a firm is dominant for the purpose of section 7 of the Act can be
established in two ways; either by demonstrating that the respondent firm has a
certain percentage of the market (sections 7(a) and (b)) or that it has market
power (section 7(b) in the alternative and section 7(c)). Market power is defined
in the Act as:
3 See Old Mutual’s answering papers to Videovision’s application for further and better discovery
affidavit of Ian Watt paragraph 20
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“the power of a firm to control prices, or to exclude competition or to
behave to an appreciable extent independently of its competitors,
customers or suppliers.”
It is not clear to me how the evidence sought here will establish either. Mere
mouthing that discovery is required to establish proof of dominance is not a
licence to embark on a wide ranging, speculative demand for the respondent’s
documents. Even if one assumes that for the benefit of Videovision that they
seek evidence of Old Mutual’s power in this market by obtaining evidence of its
“ability to raise prices or to behave appreciably differently to its competitors”,
there is insufficient motivation as to why this documentation would be pertinent to
achieve that 4. Old Mutual points out that it has already discovered documents
that are pertinent to the issues of its marketing strategy, screen capacities and
locations, including spreadsheets reflecting cinema attendances (item 447) an
analytical report on demographics and market share (item 264), a table of
shopping centres in Durban and surrounding areas with cinemas (item 256) the
capacities of all SterKinekor’s cinemas (item 230) and Old Mutual’s marketing
strategy (item 198).
The onus is on the party seeking to go behind the discovery affidavit to establish
the basis for relevance. 5 In this case in the face of Old Mutual’s denial of the
documents relevance, we have from Videovision a generalised assertion which
then forms the basis for the demand for a vaguely described and seemingly
boundless class of documents.
Whist it may be trite that an applicant in discovery proceedings can compel the
discovery of a genus of documents there are limits to which an applicant may go.
As Joffe J observed in the Swissborough case: 6
“Although inspection may be obtained of documents described as a
genus, the description of the documents in the present application is so
genus, the description of the documents in the present application is so
wide and inclusive that it would not be possible to determine objectively
what is or is not included therein.”
This aptly describes the request made for discovery under this heading. I am
accordingly not satisfied that a basis to have this class of documents discovered
as it is presently formulated and motivated has been made.
The request for this item of discovery is denied.
4 See definition of market power in the Act.
5 See Swissborough Diamond Mines (Pty ) Ltd and others v Government of the Republic of
South Africa and others 1999(2) SA 279 @ 320 E – G.
6 See Swissborough supra @ 326 CD
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3. Source documents in respect of –
a) Item 197 of Ian Watt’s discovery affidavit (Item 15 of
Annexure “A” of Robert Legh’s affidavit) Source
documents/research used in the preparation of the
document entitled “Old Mutual Properties, Detailed
Report” with special reference, but not limited to the
proposed cinema complexes.
b) Item 198 Ian Watt’s discovery affidavit (Item 16 of
Annexure “A” of Robert Legh’s affidavit) Source
documents/research used in the preparation of the
document entitled “Gateway Marketing Strategy” with
special reference, but not limited to the proposed
cinema complexes.
c) Item 264 Ian Watt’s discovery affidavit (Item 17 of
Annexure “A” of Robert Legh’s affidavit) Source
documents/research used in the preparation of the
document entitled “Gateway Analytical Report” with
special reference, but not limited to the proposed
cinema complexes.
4. Old Mutual documentation or research that formed the basis of
the leasing policy and tenant mix strategy of the Gateway
Shopping Mall, including, but not limited to cinemas and other
entertainmentrelated tenants . (Item 18 of Annexure “A” of
Robert Legh’s affidavit)
As Videovision did the motivation for the discovery of these four source
documents thematically I will adopt the same approach. Videovision argue that
Old Mutual has discovered certain documents items 197, 198, and 264, but not
the source material from which the documents are constituted. In response to
Old Mutual’s contention that no basis has been laid for their discovery,
Videovision argues that it is entitled to the information itself in order to test the
process of “distillation” and “encapsulation”. In argument at the hearing counsel
process of “distillation” and “encapsulation”. In argument at the hearing counsel
for Videovision likened the request for source material to cases where the
working papers for an audit opinion or a medical opinion are requested to supply
the foundational documents on which they based their conclusions in order to
test their veracity.
Yet it is not suggested why the documents already discovered constitute opinions
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on Old Mutual’s alleged market power which needs to be tested. There is no
attempt to peruse these documents, all of which are wide ranging in terms of the
issues they cover, to identify information relevant to Old Mutual’s market power
that express an opinion whose foundations can or indeed need to be tested. It is
difficult on an admittedly superficial examination to see any. It is easy however to
see how this sweeping claim could lead to the requirement to discover the most
peripheral of documents unconnected and unrelated to this dispute. The same
point can be made in respect of the documents referred to in item 18 in Schedule
A of Legh’s affidavit which as I understand Videovision is again sought as source
documentation to distil and evaluate the other documents that were discovered.
(See par. 10 in Legh’s replying affidavit, dated 21 June 2002, where he deals
with item 18 together with the other four ‘source’ documents.) Even if it was
intended as a selfstanding request it still suffers from being overbroad.
Absent a more focussed and better motivated request I am not persuaded that
the complaint is entitled to this class of material. Indeed it is not even certain that
these further documents exist. I agree with the respondent that the request is so
sweeping that it cannot be accepted as reasonable.
The request for discovery of these items is denied.
5. All SterKinekor documents relating to marketing and market
research in respect of its cinemas in KwaZulu Natal (item
14 of Annexure “C” of Robert Legh’s affidavit of 22 May 2002.)
Videovision alleges that this item is relevant because it relates to the dominance
of both Old Mutual in the market for the provision of suitable space to exhibit
movies in the KwaZulu Natal region and the dominance of SterKinekor in the
market for the exhibition of movies in that region. This request is made of Ster
Kinekor who resist it and echoing the approach of Old Mutual accuse Videovision
Kinekor who resist it and echoing the approach of Old Mutual accuse Videovision
of embarking on a fishing trip saying the documents are unconnected to the
reasons for which they are sought. During argument counsel for SterKinekor
pointed out that the request is confined to documentation concerning the
KwaZuluNatal market whilst in its papers Videovision has made out a case for a
South African market. In its replying affidavit Videovision does not take the matter
any further beyond refuting the allegation that the request amounts to a fishing
expedition.
SterKinekor goes further to assert that the documents “ to the extent that they
exist, are entirely irrelevant to the relief (if any) against SterKinekor.”
I cannot agree with this latter contention. SterKinekor has an interest in the relief
sought in respect of section 5 for which Videovision seeks an order to void the
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lease between Old Mutual and SterKinekor in respect of the Gateway Cinema
complex. One of the allegations made by Videovision in respect of its section 5
claim is that the lease entrenches SterKinekor’s dominance of the relevant
market
“ on whatever geographic basis is determined, because the third
respondent is overwhelmingly the biggest owner of screens in SA and the
third respondent is the biggest owner of screens in the Durban area. The
third respondent is the only owner of screens in the Durban North/
Umhlanga area, at the La Lucia Mall, and its total dominance of this area
will be perpetuated through the further award of the cinemas in the
Gateway complex.” (See founding affidavit of Sudhir Pragjee paragraph
22.3.2)
It is thus relevant to the relief sought against the third respondent as well. It
remains to consider whether the marketing information is again wide off the mark
in terms of its relevance to the allegations made in the Pragjee’s affidavit. In my
view they may well be pertinent. Marketing information may well contain
information about the firm’s perceptions of its own market position and that of its
rivals. Although the request is made for a class of documents, it is specific in its
nature. It is not clear of course from Dominguez’s affidavit if any of these
documents are in existence because he has not denied this. Accordingly
Videovison is entitled to further and better discovery on this point.
COSTS
As the remainder of this application is still to be heard it would be premature to
make an assessment of the respective parties success and failure and
accordingly the costs are reserved.
ORDER
Old Mutual and /or SterKinekor must make discovery of the following items
subject to any claim for confidentiality:
1. Item 10 – in Annexure “A”– to Legh’s affidavit
SterKinekor must make discovery of the following items subject to any claim for
confidentiality:
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2. Item 14 in Annexure “C” to Legh’s affidavit.
Videovision’s application for further and better discovery in respect of the
following items is refused:
3. Items 14, and 15 –18 of Annexure ” A” to Legh’s affidavit.
PART B
Postponement of argument on points in limine
I have also been asked to give reasons for my decision not to grant the request
of Old Mutual to have the prehearing conference adjourned to allow certain
points of law to be argued first, by way of in limine points. 7
The application was supported by SterKinekor, but was opposed by Avalon and
Videovision.
Old Mutual in motivating its request argues that they can be resolved as
exceptions i.e. on the basis of assuming the correctness of the complainant’s
case and thus there would be no need for any further evidence.
I agree with Old Mutual that I have a discretion in terms of Rule 21(2) of the
Tribunal Rules as to whether to set down a point of law to be determined if it is
practical to resolve that before proceeding with the prehearing conference. That
also accords with the past practice of the Tribunal where we have taken such an
approach. It is obvious that if a point of law can be argued on the papers, that if
decided in the applicants favour would obviate the necessity to go to trial on the
issue or part of the trial, that it should be resolved upfront. The question for me to
decide is whether Old Mutual has made a persuasive case for this approach.
Old Mutual classified its objections in three groups.
Two relate to the respective dominance cases and as they are similar I will deal
7 This is not the first occasion that Old Mutual has sought to have us determine certain initial
legal points. At the previous prehearing on the 8 April I refused an application which raised
similar although not identical concerns. Although counsel for Videovision considered that the
Tribunal was functus officio in relation to this application, I have not taken that approach and
consider that I have a discretion to consider interlocutory points when it is convenient to do so.
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with them together 8.
Avalon’s first claim is based on section 8(b) which states that it is “prohibited for
a dominant firm to give a competitor access to an essential facility when it is
economically feasible to do so.” Old Mutual contends that according to Avalon’s
papers it is dominant in the market for the letting of retail shopping. Avalon,
however, competes in the market known as the day and date cinema exhibition
market. There is no allegation that Old Mutual competes in this market. For this
reason Avalon have relied on the allegation that Old Mutual has effectively made
itself part of one economic unit with SterKinekor in relation to the operation and
occupation of cinema premises in prestigious shopping centres developed by it.
According to Old Mutual what Avalon seek to argue is that they constitute one
firm by virtue of the alleged closeness of their relationship. For the purpose of
determining what a dominant firm means we must have regard to the definition of
‘firm’ in the Act, which states “a firm includes a person, partnership or trust.”
However say Old Mutual in terms of this definition separate juristic persons
cannot constitute a ‘firm’ for the purpose of the Act even if they have some form
of vertical relationship or the one has an interest in the other.
Avalon argued that we should not decide this point without hearing further
evidence about the relationship between SterKinekor and Old Mutual, which will
emerge both through the discovery process and at the trial itself. To argue this
point on the papers now would prejudice it in arguing the law point raised, as on
a complete record, more may be revealed about the nature of this relationship,
which may lead to factual and hence legal conclusions that differ from those than
that can be made on the present record. Avalon argues that the initial discovery
has already yielded documents that are in point and throw a different light on the
has already yielded documents that are in point and throw a different light on the
relationship between the respondents. I understand Avalon to be arguing that Old
Mutual’s financial relationship with SterKinekor and thus its role in the exhibition
market may be more extensive than the present papers suggest and hence we
should be wary of deciding prematurely what constitutes a firm for the purpose of
the Act. On the definition of firm counsel for Avalon makes the point that the
definition is an inclusive rather than an exhaustive one.
I am of the view that it would be undesirable to decide a point of law that goes to
the exact nature of the economic relationship between two firms without giving
the complainant the opportunity to fully develop the record before the point is
argued. To do so would be seriously prejudicial to Avalon.
The second and related point of law effects Avalon and Videovision’s dominance
8 Avalon’s claims relate to alleged infringements by Old Mutual of sections 8(b) and 8(c) , whilst
Videovision confine themselves to 8(c).
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claim in terms of section 8(c).
Section 8(c) provides that a dominant firm may not engage in exclusionary acts
in certain circumstances. An exclusionary act is defined in the Act as “an act that
impedes or prevents a firm entering into, or expanding within, a market”. Old
Mutual’s argument is that the market referred to must mean the market in which
the dominant firm itself operates. Since on both Avalon and Videovision's papers
Old Mutual does not operate in the market where the exclusionary act is being
perpetrated, viz. the cinema exhibition market, it cannot be dominant in that
market and a fortiori it cannot be liable in terms of section 8(c). Avalon again
make the same point that they do in relation to 8(b) that the factual record needs
to be developed in order to understand Old Mutual ‘s relationship to the exhibition
market before we can decide the point of law. I am again persuaded by this
argument that it would be unwise to determine this point of law prematurely.
The final point of law relates to Videovision’s claim that the lease in respect of
Gateway constitutes a restrictive vertical practice in terms of section 5(1). Old
Mutual argues that as the complaint was lodged with the Commission on 24
November 1999 and the lease was concluded only in March 2000, the complaint
preceded and therefore could not relate to the agreement. Videovision points out
that the concept of agreement for the purposes of section 5(1) is broader than its
notion in common law. 9 Again we would need evidence to establish what
agreement is contemplated; is it the mere signing of the March lease or a
process of events that led up to it. Do we not need to hear evidence of the factual
context which led to the complaint preceding the signing of the lease.
However, even if this point of law is good one as against Videovison, I am not
persuaded that it can have any practical effect on curtailing proceedings,as
persuaded that it can have any practical effect on curtailing proceedings,as
Avalon will still be before us with their section 5(1) claim to which there has been
no objection.
This remaining section 5(1) claim of Avalon is also in another reason why I am
not persuaded that the disposal of the two dominance claims by way of the points
in limine would meaningfully curtail proceedings. In a section 5(1) claim by
Avalon, which is all we would be left with if all the three points of law were
resolved in favour of Old Mutual, there would still need to be evidence that there
has been a substantial lessening of competition or ‘foreclosure’ of the market to
use the jargon of competition lawyers. Typically that evidence would relate to the
market positions of the respective parties to the agreement – evidence not
dissimilar to that which would be led in a dominance case. I am thus not
persuaded of the practicality of Old Mutual ‘s proposal and indeed mindful of the
9 Agreement is defined term in the Act which ”.. includes a contract, arrangement or
understanding, whether or not legally enforceable.”
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prejudice it may give to the complainants.
Counsel for Videovision cautions against us deciding a novel law point by way of
exception at this early stage of our jurisprudence. I agree with this approach and
indeed it informed our approach in the Botash matter where although we heard
certain argument on exceptions we decided not to rule upon them at that stage.
10
The application for the pretrial hearing to be postponed in order to set down the
first and second respondents points of law for determination is refused. The costs
of the application are reserved for later argument.
N. Manoim Date 8July 02
Presiding Member
10 See Competition Commission and others v Ansac and another 49/CR/Apr00 decision dated 27
April 2001.
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