Brief Summary

Competition — Interim relief — Abuse of dominance in waste removal market — Applicant, Dumpit Waste Removal (Pty) Ltd, alleges that the City of Johannesburg and Pikitup Johannesburg (Pty) Ltd are engaging in exclusionary acts by inducing its customers not to deal with it — Respondents argue that waste removal is regulated by statute and that the applicant lacks the necessary permits to operate — Court finds that the applicant has not met the requirements for interim relief under section 49C(2)(b) of the Competition Act, and the application is dismissed.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were an application for interim relief brought in terms of section 49C of the Competition Act 89 of 1998 (as amended) before the Competition Tribunal. The applicant, Dumpit Waste Removal (Pty) Ltd (“Dumpit”), sought interim orders premised on allegations of abuse of dominance and the commission of exclusionary acts in contravention of sections 8(c) and 8(d)(i) of the Competition Act.

The respondents were the City of Johannesburg (“COJ”), a metropolitan municipality, and Pikitup Johannesburg (Pty) Ltd (“Pikitup”), a corporate entity wholly owned by the COJ and established as a municipal entity to provide waste management services in Johannesburg. Dumpit alleged that the respondents were excluding it from the relevant market by refusing permits and by conduct said to intimidate or induce Dumpit’s customers not to deal with it.

Procedurally, Dumpit filed its interim relief application on 30 April 2003. After the respondents complained that the founding papers were vague and non-compliant with Tribunal Rule 26, Dumpit delivered a supplementary affidavit during May 2003. The respondents filed an answering affidavit on 27 June 2003, raising points in limine and objections. Dumpit then applied to amend its papers; that amendment application was heard on 1 October 2003, at which hearing the respondents withdrew their opposition. Costs of the amendment application were reserved for determination with the interim relief application. The interim relief hearing was set down for 20 November 2003, and the Tribunal delivered reasons dated 5 January 2004.

The general subject-matter of the dispute concerned the intersection between municipal regulation of waste removal (including permitting and exclusivity arrangements under a service delivery model) and the application of the Competition Act to alleged exclusionary conduct in the provision of waste removal services.

Material Facts

Dumpit had operated as an independent provider of commercial and domestic waste removal services since 1997. It held permits issued by three predecessor local councils (Northern, Southern, and Eastern Metropolitan Local Councils) authorising it to remove certain categories of waste, including industrial refuse, builders’ rubble, special industrial refuse, and recyclable refuse. These permits expired between 30 September 2000 and 30 June 2001.

During September 2000, the COJ metropolitan municipality was established through the amalgamation of several predecessor councils. Under the by-laws of those predecessor councils, waste removal was a regulated activity: waste removers required permits, and the owners/occupiers generating waste also had to apply for permission before using private waste contractors. After amalgamation, the COJ did not issue new permits for a period, and the COJ explained that administering disparate predecessor by-laws became unworkable, particularly after personnel were transferred to Pikitup. The COJ decided to stop renewing or issuing permits until it could promulgate new uniform by-laws; it did not prosecute independent operators who continued operating without permits, acknowledging they played an important role.

A significant, undisputed component of the regulatory framework was constitutional and statutory. The Tribunal recorded that under section 156 of the Constitution of the Republic of South Africa, 1996, municipalities have executive authority over local government matters listed in relevant schedules, including refuse removal, refuse dumps, and solid waste disposal. The Tribunal also referred to the Local Government: Municipal Systems Act 32 of 2000 (“Systems Act”), particularly the provisions empowering municipalities to provide municipal services through internal mechanisms or external mechanisms, including via a municipal entity, and the requirement to conclude a Service Delivery Agreement where services are provided externally.

In line with this framework, the COJ converted its waste management division into a separate municipal entity, Pikitup, and concluded a Service Delivery Agreement (“SDA”) with it. Under clause 8 of the SDA, Pikitup was entitled to provide specified “council services” in the service area to the exclusion of other service providers. The reserved “council services” included (as set out in the SDA and reflected in the record) the collection and disposal of domestic waste, business waste (defined as up to 1999 litres of non-hazardous waste generated weekly by an end-user on commercial premises), putrescible waste, and certain cleansing and public-waste functions (street cleaning, litter bins, illegal dumping removal, and carcass removal).

On 11 April 2003, the Executive Director of the Johannesburg Contract Management Unit informed Dumpit that its previously held permits had been renewed, but only for services previously performed by Dumpit and excluding the categories of services that would henceforth be provided exclusively by Pikitup under the reserved “council services”. Dumpit was also informed that its application to operate in the Western Metropolitan Local Council area was refused because it was treated as a new application rather than a renewal.

Dumpit’s allegations of exclusionary conduct were twofold. First, it alleged that Pikitup was threatening or intimidating Dumpit’s customers and potential customers to dissuade them from contracting with Dumpit. Second, it alleged that the COJ was refusing to grant Dumpit and/or its customers or potential customers permits, thereby preventing Dumpit from providing services.

As to the evidence relied upon in support of the alleged inducement, Dumpit placed before the Tribunal three letters (two from existing customers and one from a potential customer). The Tribunal noted that these letters were general and did not clearly specify whether the waste services concerned business waste above or below the 1999-litre threshold. On a close reading of the potential customer’s letter, the Tribunal recorded an indication that the request concerned “weekly removal of ten 85-litre bins”, which suggested a quantity that could fall within the category of business waste reserved for Pikitup (i.e., less than 1999 litres weekly). Pikitup admitted that its officials had from time to time informed customers that Dumpit did not have a permit to perform certain commercial waste management services, but stated this related to business waste under 1999 litres, which Dumpit was not permitted to remove.

Legal Issues

The central legal question was whether the Tribunal had jurisdiction under the Competition Act to grant interim relief premised on alleged abuse of dominance and exclusionary conduct in circumstances where the provision of the relevant waste services was constitutionally and statutorily regulated, and where Pikitup’s exclusivity over “council services” arose from municipal decision-making and a service delivery agreement rather than market processes.

Closely linked to jurisdiction was whether Dumpit could establish, as required for interim relief under section 49C, the existence of an alleged prohibited practice. The Tribunal treated this as a threshold inquiry: interim relief was understood to be predicated on the applicant making out at least an allegation of a prohibited practice within the scope of the Act.

A further issue (if jurisdictional hurdles were overcome) was whether, on the evidence, Pikitup’s interactions with customers constituted an attempt to induce customers not to deal with Dumpit in a manner contemplated by section 8(d)(i), and whether such conduct occurred in the portion of waste services where Dumpit was permitted to operate.

These issues involved questions of law (the scope of the Competition Act in the face of a statutory/constitutional municipal service scheme), and the application of law to fact (whether the evidence supported an alleged prohibited practice and inducement/exclusionary conduct in a relevant competitive sphere).

Court’s Reasoning

The Tribunal approached the matter by first addressing the respondents’ jurisdictional objection, stating that it was of limited utility to analyse the detailed case under the Competition Act until jurisdiction was decided. It accepted that the Constitution clearly assigns municipalities executive authority in respect of waste management services and authorises them to make and administer by-laws for the effective administration of those matters. It further accepted that the Systems Act provides the scheme through which municipalities may structure service delivery, including by establishing municipal entities and entering service delivery agreements.

On the facts presented, the Tribunal considered that the COJ had acted in apparent conformity with the Systems Act by establishing Pikitup as a municipal entity and concluding an SDA with it. It emphasised that, under the statutory scheme described, waste services could only be performed by an entity licensed by the COJ and then only within the licence’s ambit. This, in the Tribunal’s reasoning, meant that the COJ possessed licensing power that allowed it to determine whether and to what extent waste removal services would be subject to market forces.

In respect of services designated as “council services”, the Tribunal accepted that the COJ had elected to utilise its own municipal entity as sole provider, and thereby elected not to create a market for those services. It then reasoned that absent a market, there can be no market power; Pikitup’s monopoly in those areas was attributed to administrative fiat rather than market power. From this, the Tribunal concluded that without market power there could be no abuse of dominance and thus no prohibited practice in respect of those reserved services. Because interim relief under section 49C was predicated on the existence of an alleged prohibited practice, the Tribunal held that failure to establish that threshold requirement meant the application had to fail.

The Tribunal acknowledged that observers concerned with competition policy might wish the COJ to define boundaries more clearly between monopolised and competitive areas, and might prefer more scope for market functioning. It also noted that Dumpit might have grounds to contend that the respondents had failed to meet requirements of fairness found in the Constitution and administrative law. However, it stated that such policy concerns and potential fairness claims had to yield to the constitutional and statutory provisions governing municipal services, and that any administrative-law or constitutional fairness disputes were to be adjudicated in another forum, not under the Competition Act.

Turning to Dumpit’s second allegation—conduct by Pikitup’s employees aimed at discouraging customers from dealing with Dumpit—the Tribunal evaluated the evidence placed before it. Pikitup admitted that its officials had informed customers that Dumpit lacked a permit for certain commercial waste services, but explained that this communication concerned business waste below 1999 litres, which Dumpit was not authorised to remove. The Tribunal considered the letters produced by Dumpit and found them insufficiently specific to demonstrate that Pikitup attempted to induce customers to refrain from dealing with Dumpit in the area where Dumpit was permitted to operate. In particular, the Tribunal identified an indication in one letter that the volumes involved could fall within the reserved “business waste” category. On this evidentiary basis, it held that it could not conclude that a restrictive practice contemplated in section 8(d)(i) had occurred.

Outcome and Relief

The Tribunal dismissed the application for interim relief.

As to costs, the Tribunal made two distinct awards. It awarded Dumpit costs relating to its prior amendment application (on a party-and-party scale, including the costs of two legal representatives). It awarded the respondents costs of the interim relief application itself (also on a party-and-party scale, including the costs of two legal representatives).

Cases Cited

No reported cases were cited in the text of the judgment.

Legislation Cited

Competition Act 89 of 1998 (as amended)

Constitution of the Republic of South Africa, 1996, section 156 and Schedule 5 Part B

Local Government: Municipal Systems Act 32 of 2000, including sections 73, 76, and 80, and the definition of “municipal entity”

Rules of Court Cited

Competition Tribunal Rule 26

Held

The Tribunal held that where the municipality, acting within a constitutional and statutory framework, reserved specified waste services for exclusive performance by its municipal entity, there was no market for those services and therefore no market power capable of grounding an abuse of dominance claim under the Competition Act. On that basis, the application failed to establish an alleged prohibited practice required for interim relief.

The Tribunal further held that, on the evidence presented, it could not conclude that Pikitup attempted to induce Dumpit’s customers or potential customers not to deal with Dumpit in the area of waste removal in which Dumpit was permitted to operate, and thus a restrictive or exclusionary practice contemplated by section 8(d)(i) was not shown on the papers before it.

LEGAL PRINCIPLES

The judgment applied the principle that the Competition Act’s abuse of dominance provisions presuppose the existence of market power in a market. Where exclusivity arises from a statutory or administrative allocation of functions in a manner that does not create a market for the relevant services, the Tribunal treated dominance analysis as inapplicable because the monopoly is not the product of market power.

In the context of interim relief under section 49C, the Tribunal applied the requirement that interim relief depends on demonstrating, at a threshold level, an alleged prohibited practice. If the facts and applicable legal framework do not support the existence of a prohibited practice under the Competition Act, interim relief cannot be granted.

Finally, the Tribunal applied an evidentiary principle appropriate to interim proceedings on affidavit: where allegations of inducement or exclusionary conduct are made, the material placed before the Tribunal must be sufficiently specific to show the alleged conduct occurred within the scope of the applicant’s lawful competitive activity. Where the evidence is general and compatible with lawful communications about regulatory requirements, the Tribunal will not infer a prohibited inducement.

Dumpit Waste Removal (Pty) Ltd and City of Johannesburg / Pikitup Johannesburg (Pty) Ltd (21/IR/Apr02) [2004] ZACT 1; [2004] 1 CPLR 189 (CT) (5 January 2004)