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BEFORE THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CT CASE NO: 134/CR/DEC07
In the matter between:
COMPETITION COMMISSION Applicant
and
SOUTH AFRICAN BREWERIES LIMITED 1st Respondent
AFRICA’S BEER WHOLESALERS (PTY) LTD 2nd Respondent
BOLAND BEER DISTRIBUTORS (PTY) LTD 3rd Respondent
ERMELO BEER WHOLESALES (PTY) LTD 4th Respondent
GREYTOWN BEER DISTRIBUTORS (PTY) LTD 5th Respondent
MAKHADO BEER WHOLESALERS (PTY) LTD 6th Respondent
MIDLANDS BEER DISTRIBUTORS (PTY) LTD 7th Respondent
MKUZE BEER WHOLESALERS (PTY) LTD 8th Respondent
SOUTHERN CAPE BEER DISTRIBUTORS (PTY) LTD 9th Respondent
STEFQUO (PTY) LTD 10th Respondent
VRYHEID BEER DISTRIBUTORS (PTY) LTD 11th Respondent
MADADENI BEER WHOLESALERS (PTY) LTD 12th Respondent
WESTONARIA BEER DISTRIBUTORS (PTY) LTD 13th Respondent
THOHOYANDOU BEER DISTRIBUTORS (PTY) LTD 14th Respondent
Panel : Norman Manoim (Presiding Member), Yasmin Carrim (Tribunal
Member), and Merle Holden (Tribunal Member)
Heard on : 18 August 2010
Decided on : 20 August 2010
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Reasons issued on : 15 October 2010
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Reasons for order requiring Metcash to produce documents
The Application
1. This is an interlocutory application brought by the first respondent in this matter,
South African Breweries Limited (‘SAB’), to require a witness for the Commission to
produce documents for the purpose of cross examination.
2. The application was heard on 18 August 2010, and the order was given on 20
August 2010. This decision explains our reasons for giving that order.1
3. The background to the case is set out in an earlier interlocutory decision and need
not be repeated here.2
4. The witness in question is Mr Peter Dodson, the Chief Executive Officer of Metcash
Trading Africa (Pty) Ltd (‘Metcash’). Metcash is a firm that both distributes liquor to
other licensees and sells liquor itself at large outlets known as cash and carry
stores. It has a wide footprint comprising 120 cash and carry stores, 300 franchises
and 37 bottle stores nationwide. Importantly it possesses a national licence to
distribute liquor as well. It is thus a retailer of liquor and a wholesaler; in the latter
sense because it distributes liquor to other retail outlets.
5. Customers either purchase liquor from Metcash at its outlets on a cash and carry
basis or order liquor from it, which is then delivered to them.
6. Dodson submitted a witness statement to the Commission which was in terms of our
directions provided to the parties prior to the commencement of the hearing.
7. Subsequently on 26 July 2010, before the commencement of the hearing, SAB
served a subpoena duces tecum on Dodson requiring various documents from
1 The order is annexed hereto marked ‘A’.
2 This earlier interlocutory decision relates to an order separating issues and was decided on 9 July 2010. CT
Case No. 134/CR/Dec07.
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Metcash. Metcash disputed SAB’s entitlement to certain of these documents and
appeared on the first day of this hearing on 11 August 2010, to contest the
subpoena. It was resolved that we would hear Dodson’s evidence in chief and then
hear argument on the subpoena. After Dodson had testified in chief on 16 August
2010, SAB’s counsel indicated that as a result of his testimony they sought further
documents from him; i.e. additional to the ones required of him by the subpoena.
8. We allowed SAB to furnish an expanded list and asked it to motivate the reasons for
requiring the documents. SAB then did so on 16 August 2010. After receiving the
list, Metcash filed an affidavit from its attorney in which it outlined its response to the
request for the documents. We then heard argument from all parties including SAB
on the matter on 18 August 2010.
9. On 20 August 2010 we heard further argument but solely on the question of the
appropriateness of the appointment of the independent auditor. 3 On the same day
we issued our order.
10. The request for certain documents was not contested by either Metcash or the
Commission and for that reason we need not discuss them in any detail in these
reasons.4
The approach of the parties
11. Although SAB faces several counts in this matter – sections 4, 5(1), 5(2) and 9(1) -
it has confined the request for documents to meet the section 9(1) count. Section
9(1) prohibits price discrimination by a dominant firm in certain circumstances.
12. Essentially the Commission’s case on this count is that SAB gives its appointed
distributors (the ‘AD’s’ which are the 2nd to 14 th respondents in this case), a fee for
distribution that is not given to other firms that distribute SAB products.
13.These firms, the Commission asserts perform the same function – i.e. distributing
3 See below the section on mode of inspection where we discuss this issue further.
4 These are items 2.2.1 of the subpoena, and items 4 of Annexure A of our order.
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beer from SAB depots to retail customers. The Commission asserts that the
distribution fee given to the AD’s is a form of discount and that because it is denied
to other distributors who perform the same function, it is discriminatory. In his
witness statement Dodson states that Metcash competes with the AD’s in several
areas around the country and that notwithstanding its large distribution network his
group has not received terms that reflect this scale.5 In particular he complains that
his group has historically received no discounts for bulk purchases of beer quarts
from SAB. He surmises that the AD’s get a better deal because they can
continuously sell at or below Metcash’s cost.
14. SAB alleges that the payments to AD’s are a fee, not a discount and that the
functions the latter perform are not equivalent to those performed by non- appointed
distributors. Albeit they may be functionally equivalent, they are not economically
equivalent. One of the requirements to prove unlawful price discrimination by a
dominant firm is that the transactions compared are equivalent. 6 By way of
example, although not exhaustive of the different obligations SAB alleges that it
imposes on the AD’s by way of contract, but not independents, are a universal
service obligation in their designated area, a requirement not to carry anyone else’s
products and a set of standards for warehouse efficiencies.
15.SAB justified its request by arguing that in order to decide the issue of equivalence it
was necessary to know what the scale of an independent distributor like Metcash
was, what the effect of granting a discount would be and hence one needed to know
what margins were being earned, how efficient the undertaking was and what its
potential was.7
16. Metcash associated itself with much of what the Commission said on relevance but
also addressed the burden on itself and the manner in which the request had been
made of it.
Our approach
made of it.
Our approach
17. We refused production of the documents sought that relate to the following:
5 See witness statement paragraph 2.2 -2.3.
6 Section 9(1)(b).
7 See transcript page 588.
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171.An agreement between transport and logistics company
Imperial and Metcash. Imperial does some distribution for
Metcash;
172.Metcash’s asset register reflecting the vehicles and forklifts
dedicated to liquor distribution;
173.Metcash’s documents reflecting the vehicles dedicated to the
delivery of alcoholic beverages excluding the Imperial vehicles
and a breakdown of vehicles allocated to each store for this
purpose.
174.Various documents requested in respect of Metcash's Ermelo
store relating to:
17.4.1. Vehicle usage for alcoholic beverage delivery;
17.4.2. Volumes and revenues of SAB versus
non SAB products sold at the store and the
proportion delivered by that store. The same
information was required in relation to Brandhouse
versus SAB, specifically;
17.4.3. Store size and respective proportions
for liquor versus non liquor and SAB versus non
SAB;
175.Financial statements and strategic documentation concerning the
Metcash business.
18. The documents we ordered to be produced, relate to the margins earned and
volumes distributed of alcoholic beverages distributed by Metcash, in particular SAB
products, specific SAB products such as quarts, and documentation that would
allow for comparisons with the major rival distributor of beer, Brandhouse. We also
permitted scrutiny of contracts Metcash has with Brandhouse and another major
liquor company Distell, which may relate to distribution, service levels trading terms,
discounts and rebates.
19.These documents appear to have high probative value to the issue of equivalence in
order to see what terms Metcash has with major alcohol distributors whose products
it also distributes and whose products it is seemingly distributing increasingly at the
expense of SAB products to see if they afford relevance to the debate over
equivalence and the effects of the differential treatment of AD’s and independents.8
equivalence and the effects of the differential treatment of AD’s and independents.8
8 However we have denied a widening of the request to non alcoholic beverages, as again this raises a
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20. The same cannot be said of the other documents requested most of which were
requested not at the time of the original subpoena but as a reaction to Dodson’s
testimony.
21.SAB argues that this evidence is relevant to determine the relative efficiencies of
Metcash versus those of its own AD’s. The Commission argues that efficiencies are
not relevant to a determination of section 9 (1) as it does not, unlike section 8,
permit an efficiency defence.9 Counsel for the Commission argued that the issue is
not about comparative efficiencies, but whether the independents can compete for
the sale of SAB products with the AD’s if they (the independents) are denied a
discount equivalent to the distribution fee paid to the AD’s, and whether this has
adverse consequences for their customers and consumers. SAB’s counter
argument is that evidence of efficiencies was led by the Commission in the course
of Dodson’s evidence and that some passages in the Commission’s expert report
speak to the issue of efficiencies when dealing with price discrimination.
22. We are reluctant to determine this issue solely on relevance. We are mindful of the
fact that our case law on price discrimination and particularly on what equivalence
means is not well developed presently. Such a debate may be better resolved at the
end of the case than in its earliest stages. To take a decision prematurely on the
ambit of equivalence without the benefit of final argument and a record would be
short-sighted.
23. We therefore have approached the issue by asking what would be the probative
value of such evidence in the totality of the case and would it open up a number of
collateral disputes not capable of resolution by us. We are also mindful of the fact
that we need to balance SAB’s need to defend itself against the rights to business
privacy of Metcash which is only a witness and not a party to these proceedings.
24. We were not persuaded that documents relating to Metcash’s distribution
24. We were not persuaded that documents relating to Metcash’s distribution
infrastructure would either produce meaningful information or probative information
collateral issue of tenuous relevance in the overall scheme of the case. The Commission’s case is premised on
the distribution of alcohol of which beer is the major product category. Whilst Metcash distributes other products
to customers, including groceries, SAB concedes that it cannot request all this information from it, and hence,
despite the fact that it may distribute other non- beverage products to customers it restricts itself. However, SAB
does not, despite having conceded that there must be some limitation on information provided, justify sufficiently
why non-alcoholic beverages should be taken into account as well. Again this is information at best tangential to
the main issues, but highly invasive of the business of a non-party to the proceedings.
9 See transcript page 560. As counsel for the Commission put it, the debate is not about whose fleet is bigger.
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in the context of the whole case which is not limited to the AD’s operations being
compared to those of Metcash. Indeed as we understand the evidence Metcash is
but one independent distributor albeit it may be a significant one. Thus it is hard to
see how asset registers reflecting forklift use dedicated to liquor distribution, as
opposed to any other usage, will answer issues in this case. It is far easier to see
how this information, even if it is even collated in such an articulate fashion as to
show this distinction in usage, which in itself is an assumption on which nothing we
have been told is based, could lead to collateral disputes of an indeterminate nature.
Was the forklift only used for non liquor purposes and could such usage be altered,
how many forklifts does a branch that distributes X many cases require – how long
should forklift drivers work, - and so on?
25.Nor will an inspection of Metcash’s financial statements lead to anything but
disputes over their interpretation and significance – for instance the firm is a large
wholesaler and retailer of many goods, not just liquor, whilst on the other hand being
highly invasive of the firm’s privacy.10 This information is not in the public domain as
Metcash is not listed. The same can be said for requests of its strategic information.
It is not clear that such documents deal with future liquor distribution strategy or if
they do so, in any manner, that will be useful to determining the issues in dispute in
this case. On balance we exercise our discretion in favour of refusing to order their
production.
26. Comparisons between Metcash’s distribution outlet in Ermelo and those of its AD
counterpart, also give rise to collateral issues of doubtful resolution. Indeed the case
is a national one – no basis is argued as to why Ermelo should be a candidate for
such microscopic examination. We are not even comparing the Ermelo AD to all
such microscopic examination. We are not even comparing the Ermelo AD to all
other independents in its area through this exercise, only one – Metcash. It appears
that the Ermelo requests arose as a response to the evidence of Dodson. 11 They
did not figure in the original subpoena and hence could not previously been
considered as an issue of importance. The information requested is thus of low
probative value and is also not such as to be determinative of comparative
efficiencies between the two neighbouring outlets. Nor are we clear that such a
comparison itself would be highly probative.
10 The requests for the financial statements owed their genesis to an attempt to find out about margins in
respect of Metcash’s sales. It was pointed out by Metcash in its affidavit that this information did not figure in its
financial statements, yet SAB persisted in requesting them and now justifies this on the basis that they go to the
financial viability of Metcash. It says one of the issues is how the business will fund growth and that requires
looking at their financial statements.
11 The basis for claiming them is based on an assertion in Dodson’s evidence that his distribution system is
superior to that of an AD in the Ermelo area.
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Mode of inspection
27. In response to the affidavit from Metcash complaining about the burden of
accumulating all the documents sought, SAB proposed that it appoint at its expense
an independent auditor who would be given access to the Metcash documents and
IT infrastructure to assess what documents were required. As such SAB argued the
firm was spared the burden.
28. Metcash vigorously opposed this suggestion, saying giving a third party access to
its business information was highly invasive of its business secrets. It also argued
that as the person would need constant help in accessing the information, this would
not in reality relieve it of the burden. Metcash tendered then to furnish any
documents the Tribunal required it to produce, provided that it was compensated for
the expense of copying.
29. SAB maintained its insistence on the appointment of an independent auditor
although now it seems the purpose was for someone to reduce its burden of what
documents it should view as it argued that the auditor could get a representative
sample and not all the material.
30. We agree that appointing an auditor against the wishes of the firm concerned would
be too invasive of its business and that once it tendered to supply the documents
ordered that sufficed. Accordingly we did not make the appointment of an
independent auditor part of our order.
31.In respect of certain contracts, because they involved the confidential information of
other third parties who are rivals of SAB – an added layer of protection was
introduced to require that these contracts be inspected at the premises of Metcash
or its appointed representatives by prior arrangement and on the furnishing of
appropriate confidentiality undertakings.12
______________________ 15 October 2010
Norman Manoim Date
Concurring: Yasmin Carrim and Merle Holden
Concurring: Yasmin Carrim and Merle Holden
12 See par 1.2 of the Tribunal’s order in relation to the subpoena. Note that at least one of these firms
concerned Brandhouse, which indicated in a letter attached to the Metcash affidavit, its concerns in this regard.
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Tribunal Researcher: Londiwe Senona
For Metcash Trading Africa (Pty)Ltd : R Bhana (SC) instructed by Fluxmans Inc.
For the First Respondent : D Unterhalter (SC) instructed by Bowman
Gilfillan
For the Second to Fourteenth Respondents : J Wilson instructed by Deneys Reitz
For the Commission : A Gotz instructed by Mkhabela Huntley
Adekeye Attorneys
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