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[2014] ZACT 80
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Altech Netstar (Pty) Ltd v Lekoa Fitment Centre, In Re: Lekoa Fitment Centre v Altech Netstar (Pty) Ltd (019331) [2014] ZACT 80 (20 November 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019331
In the matter
between:
Altech Netstar
(Pty)
Ltd
...........................................................................................
Applicant
/ Excipient
And
Lekoa Fitment
Centre
..........................................................................................................
1
st
Respondent
In re
The Complaint
referral between:
Lekoa Fitment
Centre
...........................................................................................................
Complainant
And
Altech Netstar
(Pty)
Ltd
..........................................................................................................
Respondent
Panel: Vasmin Carrim
(Presiding Member),
Norman Manoim
(Tribunal Member)
Medi Mokuena
(Tribunal Member)
Heard on: 21 October
2014
Reasons issued on :
20 November 2014
Reasons for
Decision and Order
Introduction
[1] On 21 October
2014 the Competition Tribunal (“Tribunal”) was called on
to determine whether an exception raised
by the excipient, Altech
Netstar (“Netstar”), that a complaint brought against it
by Lekoa Fitment Centre (“Lekoa”)
discloses no cause of
action was to succeed. As something of a subsidiary issue we were
required to determine whether certain amendments
which Lekoa sought
to bring to remedy the allegedly defective complaint referral were
validly made in terms of Competition Tribunal
Rule 18.
Background
[2] We consider it
necessary to briefly explain the relationship between Netstar and
Lekoa, and their respective positions in the
market at hand.
[3] Netstar is the
pioneer of vehicle recovery services in South Africa and has been
operative in that business since the mid-1990s.
Lekoa operated a
fitment centre and performed certain work for Netstar in terms of an
agreement, “the Fitment Centre Agreement",
the material
terms of which were as follows:
•
Lekoa
would perform the
"installing,
registering, re-registering and servicing of Altech Netstar Products"
to
a particular quality standard; and
•
Netstar
would pay Lekoa a pre-determined fee for each time it performed that
“
installing,
registering, re-registering and servicing of Altech Netstar Products.
”
[4] The relationship
between the parties reached breaking point during the course of 2013,
resulting from alleged non-compliance
by Lekoa with certain technical
and other performance standards provided for in the agreement. Lekoa,
on the other hand, alleges
its grievance stems from monies owed to
it. The contractual relationship ended in early 2014 when Netstar
terminated for alleged
material breach by Lekoa.
The Complaint and
Referral:
[5]
On 16 June 2013, Lekoa filed a complaint with the Competition
Commission (“Commission”), in the prescribed form,
alleging that Netstar had engaged in “
unfair
practices, unpaid resources, unpaid work, unfair pricing,
differential treatment, unstandardized quality system, abuse of
power, restraint of trade, and unfair termination of contract.
The
relief sought by Lekoa was
“
an
alternative approach, resolution for a mutually beneficial model,
“rescind the termination of the contract’, “rescind
the restraint of trade”,
and
“
redress
for inherent losses”.
The
specific section of the Competition Act
1
(“the Act”) allegedly contravened was section 2(e), i.e.
the section dealing with one of the purposes of the Act viz.
the
opportunity for small businesses to participate equitably in the
economy.
[6] The Commission
investigated the complaint and on 11
th
June 2014 issued a
Notice of Non-referral in terms of section 50 of the Act.
[7]
Dissatisfied with the Commission’s decision to non-refer, Lekoa
referred the complaint directly to the Tribunal (“Referral”)
in terms of section 51 of the Act. In response thereto, Netstar
raised an exception on the basis that Lekoa failed to comply with
Tribunal Rule 15(2)
2
in that it neglected to make out a cause of complaint necessary to
sustain a complaint referral. Netstar also informed Lekoa that
section 2 of the Act does not set out what is prohibited.
[8] Presumably in an
attempt to cure the alleged “defects” to which Netstar
referred, Lekoa sought to make three amendments
to the Referral (“the
Amendments”). The material change brought about by the
amendments was that Lekoa now alleged
that Netstar had contravened
sections 5(1), 8(c) and 9(1) of the Act. In addition to bringing the
Referral within the prohibited
sections, Lekoa still persisted with
its allegation that Netstar had contravened section 2(e) of the Act.
[9]
Netstar then alleged that the Amendments failed to comply with
Competition Tribunal Rule 18.
3
Netstar neglected, however, to specify the basis upon which the
amendments were non-compliant and when clarity regarding the alleged
non-compliance was sought at the hearing of the matter on 21
st
October 2014, Netstar elected, correctly so in our view, to not
pursue this argument with any real conviction.
[10] Having
essentially abandoned the Rule 18 non-compliance argument, Netstar’s
principal submission then became that notwithstanding
the Amendments,
assuming they were procedurally valid, the Referral would remain
materially defective and thus excipiable for the
reasons set out
hereunder. In other words, what we were ultimately called on to
determine was whether the Referral as amended,
contained the
necessary allegations to sustain a complaint referral.
[11] When read
together with the sought amendments, the Referral appears to be
founded on sections 5(1), 8(c) and 9(1),as well as
persisting with
section 2(e), each of which will be considered in turn hereunder.
[12] The hearing of
this matter was held on 21
st
October 2014. Netstar was
represented by Advocate Mooki on the instruction of Webber Wentzel
Attorneys while Lekoa was represented
by its owner Mr Sibanda,
assisted by his spouse Mrs Sibanda.
Respondent’s
Section 2(e) Allegations
[13] Prior to
amendment the Referral relied solely on an alleged contravention of
section 2(e).
[14]
Section 2 of the Act sets out the purpose of the Act and provides, in
part, that the Act seeks to “
promote
and maintain competition in the Republic in order to ensure that
small and medium-sized enterprises have an equitable opportunity
to
participate in the economy
.
4
[15] As correctly
argued by Netstar, a purpose clause is not a prohibition clause and a
firm cannot be found to have contravened
the Act on the basis that
its conduct was in breach of one of its purposes. Purpose provisions
are aspirational and they seek to
animate the objects of the Act as a
whole. They certainly do not impose obligations on firms. To
determine what is prohibited requires
one rather to consider Chapter
2 of the Act, where the forms of proscribed conduct are set out in
sections 4-9.
[16] The exception
in respect of section 2(e) is therefore well-founded as it relates to
a material error of legal understanding
on behalf of Lekoa.
[17] The ghost of
section 2(e) was still relied on by Lekoa at the hearing although in
oral argument it was presented as relevant
to the proper
interpretation of section 5(1), as we go on to consider below.
[18]
Section 5(1), at its simplest, prohibits an agreement between firms
in a
vertical
relationship
5
if
it has the effect of substantially and adversely affecting
competition in a defined market.
[19] When one
considers the relief sought by Lekoa, even cursorily, it becomes
immediately evident that certain aspects thereof,
particularly in
respect of the section 5(1) allegation, are inherently contradictory.
Lekoa alleged that the Fitness Centre Agreement
contravened section
5(1) of the Act yet it sought a declaration that Netstar’s
termination of that very same agreement be
rescinded. If the
agreement was in fact unlawful for running afoul of section 5(1), the
Tribunal is certainly not competent to
rescind the termination
thereof. Alternatively, if the contract does not contravene section
5(1), we are not competent to declare
it a vertical anti-competitive
agreement.
[20]
At the hearing of this matter, the Tribunal enquired from Lekoa
whether it understood the difficulty with the relief sought
in
respect of its 5(1) allegation and Mr Sibanda indicated, rather
unequivocally, 7
perfectly
understand that.
6
[21] Notwithstanding
the inherent difficulty in the relief sought by Lekoa, the Tribunal
sought to enquire whether the alleged vertical
arrangement between
Lekoa and Altech warranted cause for concern.
[22]
Lekoa alleged that the terms of the agreement “imposed”
upon it by Netstar prevented it from dealing with any products
or
services of Netstar’s competitors. This, so it argued,
contravened section 2(e) of the Act in that it “
retarded
the development of small businessesf.
While
section 2(e) sets out one of the objectives for which competition in
the economy must be promoted, and while it is something
to which we
have regard when dispensing our functions in general, it is
undoubtedly not the appropriate test to employ when determining
whether a particular agreement runs afoul of a specific provision of
the Act.
[23] In the
interaction between Mr Sibanda and the panel members, it became
evident that Lekoa, other than making repeated reference
to its own
plight as a small business, could in no way refer the Tribunal to
some lessening of competition in any relevant market,
let alone in
its own area of operation.
[24]
Netstar explained that the agreement was an exclusive arrangement,
which was not
per
se
unlawful
under the Competition Act. There were clear pro-competitive
justification grounds for the exclusive arrangement. It had
invested
in the development of Lekoa as an exclusive Netstar agent. The
agreement precluded Lekoa from dealing with competitors’
products because the technology it would, and did, become acquainted
with was proprietary to Netstar and competitively sensitive.
It would
be concerned about information about its technology becoming
available to technicians and/or agents of competitors. Moreover,
there would be concerns about the security of vehicles and the safety
of passengers, if sensitive information about its technology
and
know-how
7
fell into the wrong hands. Fitment centres in a position similar to
that of Lekoa had increased their turnover and margins by
selling/installing a host of other products and services such as car
radios, Bluetooth products, tyres, speakers, etc. Lekoa was
not
precluded from increasing its turnover and/or margins through
achieving economies of scope in its business.
[25] However Lekoa
was never concerned about the exclusivity clauses prior to the
hearing. Evidenced by the lengthy record of correspondence
which
appears in the record, Lekoa’s complaint has been about
defending itself against allegations of deficient service.
It has
never in its papers, even once amended, alleged that it is harmed by
the exclusivity clause(s) in the agreement; nor is
its relief
premised on excising them from the contract. This allegation appears
for the first time in its heads of argument and
appears to be
something of an afterthought introduced in an attempt to avoid the
exception.
[26] Furthermore,
the exclusivity clause has become irrelevant for three reasons. The
contract has been terminated; the grounds
for terminating did not
relate to Lekoa alleging breach of the exclusivity clause but rather
the quality of its service, and the
post-contract restraint of trade
relating to the performance of work for Netstar’s competitors
has, as we explain below,
been waived.
Lekoa's Abuse of
Dominance Allegations
[27] In addition to
the section 5(1) allegation, Lekoa alleged that Netstar was in
contravention of sections 8(c) and 9(1), i.e.
general exclusionary
conduct and price discrimination respectively. It is trite law that
the delineation of a relevant market and
the establishment of
dominance within that market, howsoever defined, are fundamental to
the pursuit of a section 8 or 9 case.
[28]
The Referral however, neglects to make mention of any relevant market
for competition purposes. Netstar informed Lekoa that
its papers in
respect of market definition were, at best, incomplete
8
and Lekoa’s response thereto was wholly unsatisfactory. Lekoa
merely stated that there exists a market and that Netstar enjoys
dominance in that market.
9
[29] At the hearing,
the panel members once again engaged with Mr Sibanda whether there in
fact was a relevant market that he might
have identified, albeit in
lay terms, in order to found a section 8 or 9 contravention. Mr
Sibanda merely reasserted his previous
submission that Netstar was
dominant in the vehicle recovery services market yet made no mention
of market shares or section 7
whatsoever.
[30]
Lekoa’s mere assertion that Netstar is dominant does not make
it so. Further, Netstar asserts that its current market
share of
between 18% and 25% in the market for stolen vehicle recovery and
fleet management services, assuming for the sake of
argument that
this is the relevant market, falls well below the dominance
thresholds set out in section 7 of the Act.
10
We have had no evidence placed before us to cause us to think
otherwise
11
.
Conclusion
[31] While we are
sympathetic to the difficulties faced by Lekoa and the fact that it
has invested substantial amounts of money
into establishing this
business, Lekoa has been unable to demonstrate that the vertical
arrangement between the parties resulted
in a substantial lessening
or prevention of competition or that there was some exclusionary
effect under section 8 or 9(1).
[32] In respect of
the section 5(1) complaint, this appears, increasingly so, to be a
contractual dispute as opposed to a competition
law contravention.
Lekoa was rather insistent that the matter belongs in this forum but
when asked to unpack the actual competition
harm being occasioned by
Netstar, he was unable to do so. The closest Lekoa came to
articulating a possible competition contravention
was in relation to
the exclusivity clauses in the contract which prevented it from
working for a competitor. However this relief
is now academic as
noted earlier. The contract has been terminated and although the
restraint on working with a competitor still
operates
posttermination, Netstar has indicated in its answering affidavit
that it waived this right. Since this may have been
the only relief
Lekoa might have been entitled to, even on the most favourable
reading of the papers as amended, the waiver means
that it has
effectively prevailed on this aspect. Insofar as it still seeks to
enforce the contract, the relief sought in this
respect is
incompetent and we need not say much more thereon.
[33] Regarding the
section 8 and 9 allegations, it is trite that delineating a relevant
market and establishing dominance therein
are fundamental yet Lekoa
at no point defines a relevant market in the competition sense. Nor
was Mr Sibanda able to do so at the
hearing during an inquisitorial
exchange between him and the Tribunal members on the panel. The
failure to adequately address relevant
market and dominance is fatal
to Lekoa’s abuse of dominance submissions. With that in mind,
and the aforesaid decision of
Netstar to not pursue the Rule 18
argument, we deem it unnecessary to make a finding on whether the
Amendments in fact comply with
Tribunal Rule 18. That is because,
even if the Amendments were declared to form part of the Referral,
the exception would succeed.
[34] In sum then we
find that Lekoa has failed, notwithstanding the Amendments, to
adequately lay the foundation for a competition
law case before us.
The glaring defects in its submissions have not been cured by the
Amendments and the exception thus succeeds.
Moreover, it was evident
from our engagement with Mr Sibanda at the hearing, that the failure
to disclose a cause of action in
the Referral is unlikely to be cured
by us granting Lekoa yet further opportunity to amend its
submissions. We are also mindful
of the burden which would be placed
on Netstar if it were required to answer a constantly changing case.
For the reasons set out
above, we find in Netstar’s favour and
the exception application succeeds.
Costs
[35] While in the
ordinary course, costs follow a successful exception, we consider the
matter before us as warranting a departure
therefrom. As aforesaid,
Netstar's submission regarding the Amendments’ non-compliance
with Tribunal Rule 18 failed to articulate
the respect in which the
amendments were non-compliant. This placed Lekoa in the unenviable
position of being uncertain of how
to remedy such alleged defect.
[36] We have also
had regard to the fact that Lekoa was a small business and was
represented by its owner, a layman Although he
was misguided as to
the nature of the dispute, Mr Sibanda’s conduct suggested that
he did not approach this Tribunal in bad
faith. Netstar, on the other
hand, has been represented by a firm of attorneys and experienced
counsel and has, as a result of
the outcome of this application,
avoided a lengthy trial. On balance we find that both fairness and
the interests of justice require
that we do not award costs against
either party in this matter.
Accordingly the
following order is made -
1. The exception
application is granted
2. The Referral is
dismissed
3. There is no order
as to costs
20 November
2014
DATE
Ms Yasmin Carrim
Mr
Norman Manoim
and
Ms Medi Mokuena
concurring.
Tribunal Researcher:
Shannon Quinn
For
Netstar/Excipient: Adv. O Mooki instructed by Webber Wentzel
For
Lekoa/Respondent: Mr Gombera Sibanda
1
Act
No. 89 of 1998, as amended
2
Tribunal
Rule 15(2) provides that a complaint referral must contain a concise
statement of the grounds of the complaint, and the
material facts and
points of law relied upon.
3
Tribunal
Rule 18 merely provides that
‘
The
person who filed a Complaint Referral may apply to the Tribunal by
way of Notice of Motion in Form CT6 at any time prior to
the end of
the hearing of that complaint for an order authorising them to amend
their Form CT 1(1), CT 1(2) or CT 1(3), as the
case may be, as
filed."
4
Section
2(e) of the Act.
5
Vertical
relationship means the relationship between a firm and its suppliers,
its customers or both.
6
Page
29 of the transcript.
7
For
example where and how tracking units are installed into a motor
vehicle.
8
Inter
alia
paras
30.3 and 30.4 in the Founding Affidavit in the Exception Application
9
See
paras 37, 38 and 154 in the Answering Affidavit in the Exception
Application
10
Para
30.3 of the Founding Affidavit in the Exception Application.
11
Lekoa’s
response to Netstar’s assertion regarding dominance, appearing
at para 154 of the Answering Affidavit in the
Exception Application,
evidences its misunderstanding of “dominance” in the
competition sense.