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[2014] ZACT 31
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Normandien Farms (Pty) Ltd v Komatiland Forests (Pty) Ltd (018507) [2014] ZACT 31; [2014] 1 CPLR 328 (CT) (4 June 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case No: 018507
In the matter between:
NORMANDIEN FARMS (PTY)
LTD
Applicant
And
KOMATILAND FORESTS
(PTY) LTD
Respondent
Panel
: DrTakalani Madima (Presiding Member)
:
Prof Imraan Valodia (Tribunal Member)
:
Anton Roskam (Tribunal Member)
Heard
on
:15 April 2014
Order issued
on
:16 April 2014
Reasons issued
on
:04 June 2014
Reasons
Introduction
[1]
The applicant brought an application for interim relief in
terms of
section 49C
of the
Competition Act 89 of 1998
as amended
(“the Act”). The respondent filed its notice of intention
to oppose but failed to file its answering affidavit
timeously. The
applicant then filed for default judgment and the respondent applied
for condonation.
[2]
On 16 April 2014 the Competition Tribunal (“the
Tribunal”) granted the condonation application and dismissed
the applications
for default judgment and for interim relief. The
reasons for the aforesaid follow hereunder.
Background
[3]
The applicant is Normandien Farms (Pty) Ltd (“Normandien”).
Normandien is a sawmill owner in Mpumalanga province involved
in the
business of processing and selling structural timber.
[4]
The respondent is Komatiland Forests (Pty) Ltd (“Komatiland”).
Komatiland is a timber plantation owner.
[5]
On or about 21 April 2012 the applicant and respondent
concluded a long term supply agreement (“the Supply Agreement”)
in terms of which the respondent would supply the applicant with 50
000m
3
of sawlog per annum at a price ascertainable by
reference to the “open market price” as at 1 April each
year.
[6]
The ‘open market price’ is essentially arrived at
through an auction structured as follows: the respondent stipulates
a
price at which it plans to sell its sawlogs from each particular
pool. Prospective buyers then place bids stipulating the quantity
they wish to subscribe for at the price specified. If a pool is
oversubscribed (demand exceeds supply) the respondent increases
the
price whereas if a pool is undersubscribed (supply exceeds demand),
the price may be reduced. At this revised price, a second
round of
bidding is then held. This process of adjusting prices in accordance
with demand may occur numerous times until demand
and supply are
roughly in equilibrium. The figure ultimately arrived at (i.e. the
price which the respondent finally elects to
sell at) is referred to
as the open market price.
[7]
The relationship between applicant and respondent then is a
fairly simple one; the respondent supplies the applicant with a
specified
amount of sawlog in return for payment of an ascertainable
price.
[8]
It is necessary to note here that in addition to the 50 000m
3
of sawlog the applicant sources in terms of the Supply Agreement, it
requires additional sawlog for its mills to operate at capacity.
The
applicant purchases this
additional sawlog on the
open market from both the respondent and other plantation owners.
The alleged price
manipulation:
[9]
During the 2013 open market bidding process the applicant
placed a bid for a certain amount of sawlog from a pool belonging to
the
respondent, namely Pool 2. The respondent informed the applicant
that Pool 2 was oversubscribed and that, in accordance with general
practice, the price would be increased in round two. In light of this
price increase, the applicant, along with certain other round
one
bidders, elected not to bid in round two. Further, so the respondent
alleges, an unexpected fire caused additional sawlog from
Pool 2 to
be felled and become available. This additional sawlog coupled with
the reduced demand subsequent to the price increase
resulted in Pool
2 being undersubscribed and the respondent was left with a surplus of
Pool 2 sawlog.
[10]
At roughly the same time as the bidding for Pool 2 was
occurring, the applicant successfully bid for sawlog from Pool 6 (a
pool
in which the sawlog was significantly cheaper than in Pool 2).
In light of the aforementioned Pool 2 surplus, instead of reducing
the price and holding a third round of bidding, the respondent
elected to satisfy some of the applicant’s Pool 6 bid with
sawlog from Pool 2. Doing so was expressly permitted in terms of the
Supply Agreement.
[11]
The applicant disputes that Poo! 2 was ever oversubscribed and
submits that the respondent merely stated this to artificially
inflate
the price. The applicant terms this conduct “price
manipulation” and alleges that numerous competition law
contraventions
flow from this.
[12]
The respondent is further alleged to have unilaterally varied
a term of the Supply Agreement relating to the rebates the applicant
receives depending on its Broad Based Black Economic Empowerment
(“BBBEE”) credentials.
The relief sought
[13]
The applicant seeks an order that the respondent be:
12.1
interdicted from effecting any price increases on the price it
charges the applicant;
13.2
interdicted from manipulating prices through the unilateral
variation of certain terms of the Supply Agreement;
13.3
interdicted from discriminating against the applicant in terms
of the price the applicant has been charged for goods;
13.4
ordered to supply and deliver to the applicant the applicant’s
contractual volume at 2012/2013 prices;
13.5
ordered to reinstate the applicant certain rebates provided
for in the Supply Agreement relating to BBBEE credentials;
13.6
ordered to desist from any further anti-competitive vertical
practices; and
13.7
ordered to desist from unilaterally exerting certain
conditions in relation to the Supply Agreement on the applicant.
[14]
Following an attempt to bring the applicant’s
submissions in line with specific provisions of the Act, it appears
that the
applicant alleges contraventions of
sections 8(a)
,
8
(c) and
9
(1 )(c). In addition, the respondent is alleged to have
“unilaterally varied” a contractual provision; however,
it is
unclear under which section of the Act the applicant wishes
this to be assessed. The applicant also alleged a contravention of
section 8(b)
, but it appears to have elected not to pursue this point
further during the course of these proceedings. Broadly then, the
applicant
alleges excessive pricing, general exclusionary conduct,
price discrimination and breach of contract. Each of these alleged
contraventions
shall be discussed in turn below, bearing in mind the
centrality of
section 49C
in light of the fact that this is an
interim relief application.
Section 49C
Requirements
[15]
Section 49C(2)(b)
of the Act provides that the Tribunal may
grant interim relief if doing so is “reasonable and just”
having regard to:
L the evidence relating
to the alleged prohibited practice;
ii.
the need to prevent serious or irreparable damage to the
applicant; and
iii.
the balance of convenience.
[16]
The
standard of proof in
section 49C
proceedings is the same as in High
Court interim relief applications
[1]
and this was so held in the case of York Timbers v South African
Forestry Company Ltd
[2]
to mean the test of a prima facie right.
Evidence of the
alleged prohibited practice
[17]
When applying this prima facie test to
section 49C
proceedings, the Tribunal has established the following approach:
“
...we must first
establish if there is evidence of a prohibited practice, which is the
Act’s analogue of a prima facie right.
We do this by taking the
facts alleged by the applicant, together with the facts alleged by
the respondent that the applicant cannot
dispute and consider
whether, having regard to the inherent probabilities, the applicant
should on those facts establish the existence
of a prohibited
practice.
If the applicant has
succeeded in doing so we then consider the ‘doubt’ leg of
the enquiry. The doubt leg comprises
asking whether the facts set out
by the respondent in contradiction of the applicant’s case
raise serious doubts or do they
constitute mere contradiction or an
unconvincing explanation. If they do raise serious doubt, the
applicant cannot succeed.”
[3]
i.
The unilateral variation of contractual provisions
[18]
The applicant contends that the respondent “unilaterally
varied” certain terms of the Supply Agreement relating to the
BBBEE rebates payable to the applicant. It was submitted further that
this somehow constituted a competition law contravention.
It serves
to address this allegation prior to the others since it demands only
cursory consideration.
[19]
While
certain conduct can conceivably constitute both a breach of contract
and a prohibited practice in terms of the Act, they are
certainly not
dependent on one another. One cannot assume that a breach of contract
necessarily constitutes a competition law contravention
and vice
versa. The Tribunal has previously held that this nexus between
competition and contract has to be proven.
[4]
[20]
The
conduct of the respondent may amount to breach of contract, it may
even amount to fraud but what the Tribunal requires is that
it
amounts to a contravention of the Act.
[5]
The Tribunal is not competent to pronounce on an issue which smacks
of a contractual dispute in the absence of the applicant having
done
more to bring its case within the ambit of the Act. We find that the
allegation in relation to the unilateral variation of
the BBBEE
rebates falls well outside the scope of the jurisdiction of the
competition authorities; it follows that it must necessarily
fail and
it is hereby dismissed.
ii.
Section 8(a)
[21]
Section 8(a)
prohibits a dominant firm charging an excessive
price to the detriment of consumers. The respondent allegedly
contravened
section 8(a)
in that it manipulated the open market sales
process when determining the 2013 prices under the Supply Agreement.
[22]
“Excessive price” is defined in
section 1
of the
Act as “a price for a good or service which bears no reasonable
relation to the economic value of that good or serviceEven
a cursory
glance at this definition reveals that determining the economic value
of the product in question is critical to any excessive
pricing
allegation.
[23]
Counsel for the respondent submitted that the applicant
attempts to equate the economic value of sawlog from Pool 2 with that
of
Pool 6. We are uncertain as to whether in fact the applicant made
this submission but if it did, doing so was wholly incorrect.
This
approach is flawed since each pool of sawlog is subject to different
dynamics, ail of which affect economic value. Factors
such as supply
and demand, quality and proximity to sawmills are directly relevant
to economic value and the applicant in its heads
of argument appears
acutely aware of this fact.
[24]
Alternatively,
if the applicant has failed to adduce any evidence as to the economic
value of the good in question, this too falls
well short of the test
for excessive pricing laid down in Mittal Steel South Africa v
Harmony Gold Mining Co Ltd.
[6]
[25]
For the applicant’s failure to even attempt to determine
the economic value of the good or service in question and its blatant
disregard for the Mittal test, the excessive pricing allegation falls
at the first hurdle and is dismissed.
iii.
Section 8(c)
[26]
Section 8(c)
provides
that
“it is prohibited for a dominant firm to engage in
an exclusionary act
,
other
than an act listed in paragraph (d)...”
Exclusionary
act is defined in the Act to mean “
an act that impedes
or prevents a firm entering into
,
or
expanding within, a market.”
[27]
On this definition then, for us to find against the respondent
on
section 8(c)
, the applicant was required, at a minimum, to depict
the way in which it was being impeded or prevented from entering into
or expanding
within the market (however that market was to be
defined).
[28]
It
is of assistance here to refer to the case of York Timbers
[7]
in which this tribunal established a useful test in determining
whether dominance (once established) has in fact been abused. This
tribunal elected to follow Areeda and Hovenkamp and found that “the
question is whether the dominant firm has attempted to
use or abuse
its dominant position to extend or preserve that position.”
[8]
[29]
In
the case of Competition Commission v South African Airways
[9]
we remarked that an exclusionary act is “conduct which excludes
or impedes the growth of rivals in a marketThe applicant
has however
not even sought to establish that the respondent is impeding their
ability to expand at all.
[30]
Viewed in the best possible light, the applicant has depicted
that a single player in a market may have been negatively affected
(for example by having to pay a higher price). It does not follow
necessarily that this translates into a substantial prevention
or
lessening of competition in the market as a whole. For such a finding
to be reached, (leaving market definition aside for the
moment), it
would have to be found that because of the negative effect on the
applicant and the applicant’s size/relevance
in the defined
market, there has in fact been a substantial prevention or lessening
of competition in the market as a whole. This
has certainly not been
shown and the
section 8(c)
allegation is accordingly dismissed.
[31]
It is necessary to note further that the relief sought by the
applicant in respect of the
section 8(c)
allegation may in fact have
been final relief and thus incompetent in interim relief proceedings.
However, the fact that the
section 8(c)
case is dismissed on its
failure to depict a substantial prevention or lessening of
competition in the market as a whole renders
a determination on the
competency of the reiief sought unnecessary.
iv.
Section 9
[32]
Section 9
of the Act prohibits price discrimination by a
dominant firm. It is trite that at an absolute minimum, the party
alleging price
discrimination is required to show the existence of a
price differential. In other words, it must be shown that the
respondent
is charging the applicant more than it charges others
operating in the same market (however that market might be defined).
[33]
Further, the applicant was required to depict that the
transactions to which it refers in its
section 9
allegation are
“equivalent”.
[34]
Firstly, the applicant has not referred the Tribunal to any
evidence depicting that it is paying more for the product in question
than its competitors. The applicant in fact concedes that it is
unable to adduce such evidence since the respondent considers such
information to be confidential. This is the first flaw in the
section
9
allegation.
[35]
Secondly, it appears as if the applicant founds its price
discrimination case on the basis that the respondent sells sawlogs to
a sawmill named Ringkink Sawmills CC (“Ringkink”) on
terms which favour it over the applicant. However, on the evidence
before us, the respondent does not in fact sell to
Ringkink, it merely pays
Ringkink a fee for processing the sawlog which remains, throughout
this process, the property of the respondent.
[36]
As aforesaid, the applicant was required to depict that the
transactions (i.e. the alleged sale from the respondent to Ringkink
and the sale from the respondent to the applicant) were “equivalent”.
These transactions are not even alleged to be
equivalent, let alone
proven to be so. These transactions are certainly not equivalent
since the respondent in fact retains ownership
of the sawlog at all
times and there is thus no sale at all to Rinkgkink.
[37]
Assuming
for the argument that the applicant had established that it was
paying more than its competitors and that the transactions
were in
fact equivalent (neither of which we believe are established on the
papers) we may find then that the applicant is being
prejudiced.
However, a finding of prejudice alone is greatly insufficient for a
positive finding on price discrimination. Counsel
for the respondent
referred us to the case of Sasol Oil (Pty) Ltd v Nationwide Poles
CC
[10]
in which the Court assessed what was required to satisfy the
“substantially prevent or lessen competition” factor in
section 9
and it was held that “evidence which goes no further
than suggesting one competitor may be prejudiced is insufficient to
bring the impugned conduct within the scope of
section 9.
” The
court also remarked that “competition law does not protect the
competitor, it protects competition” We find
this to be just
such a case.
[38]
As aforesaid, all that is required by the respondent in
response to the applicant’s allegations in an interim relief
application
is to raise serious doubt (and avoid mere contradiction).
Each allegation by the applicant has been dealt with in turn above
and
our serious doubt in relation to each allegation has been set
out. The facts set out by the respondent in fact go well beyond
raising
serious doubt about the applicant’s case.
[39]
Assuming both that the conduct of the respondent was
contemplated in the Act, and that the applicant had depicted a prima
facie
prohibited practice, the enquiry then turns to determine
whether in the absence of interim relief, serious or irreparable
damage
will be suffered by the applicant.
Serious or
Irreparable Damage and Balance of Convenience
[40]
“
Serious
or irreparable damage” was interpreted in the case of
National
Association of Pharmaceutical Wholesalers v Glaxo Wellcome (Pty)
Ltd
[11]
to
mean the
“evidence
must demonstrate that, on the face of it, absent the granting of
interim relief, the ability of the applicants to
remain viable
competitors within the market is seriously or irreparably
threatened.”
[41]
The applicant however states that the harm it suffers as a
result of the allegedly anticompetitive conduct of the respondent is
that, in essence, it is required to pay more than it wishes for a
certain product. At no point does the applicant seriously allege
that
the conduct of the respondent threatens its continued existence or
calls into question its viability. Rather, what the applicant
complains of is commercial harm and, as aforesaid, that is entirely
insufficient. On the most favourable reading of the applicant’s
case, the harm it suffers is paying more than it might otherwise pay.
In light thereof, the balance of convenience favours the
respondent.
Conclusion
[42]
Throughout this application the applicant has failed to
adequately substantiate the wide-ranging anti-competitive allegations
it
levelled against the respondent. It has failed to depict why an
apparently, contractual issue deserves determination by a competition
authority and it appears to assume that having to pay more for a
product than it would like to axiomatically constitutes a competition
law contravention.
[43]
For the above reasons, I conclude that the applicant has
failed to make out a case for interim relief and the application is
accordingly
dismissed.
Costs
[44]
The applicant is awarded the costs incurred both in relation
to the default application it brought and the wasted costs occasioned
by the postponement of the matter on 26 March 2014. However, costs
ordinarily follow the outcome of a case, and the applicant is
thus
liable for the respondent’s costs in relation to the interim
relief application on a party-and-party scale, including
the costs of
one counsel.
04 June 2014
DATE
Dr Takaiani Madima
Mr
Anton Roskam and Prof imraan Valodia concurring
Tribunal Researcher:
Shannon Quinn
For
the Applicant:
Adv C Hattingh
instructed by Vinnicombe and Associates
Tribunal
Researcher:
Adv J Wilson, Adv L Sisilana and Adv
N.L Dandadzi Dyirakumunda
instructed by Roestoff and Kruse Attorneys
[1]
Section 49C(3)
of the Act
[2]
Case No: 15/IR/FebOl at para 62
[3]
York
Timbers, supra
at
para 64- 65
[4]
York
Timbers supro
at
footnote 25
[5]
Nyobo
Moses Malefo & Others v Street Pole Ads (SA) (Pty) Ltd,
Case
No: 35/1R/May05 at para 35
[6]
Case No: 70/CAC/Apr07 at para 32
[7]
York
Timbers supra
at
para 95
[8]
P. E. Areeda and H. Herbert- Antitrust Law- Vol IIIA (Little, Brown
and Company) 1996 at 172
[9]
18/CR/Mar01
[10]
Case No: 49/CAC/April05 at page 40
[11]
Case No: 68/IR/JUNOO at para 147