Brief Summary

Competition — Market allocation — Allegation of contravention of section 4(1)(b)(ii) of the Competition Act — Competition Commission alleged that Ster-Kinekor and Nu Metro agreed to divide film genres at the V&A Waterfront, limiting competition — Ster-Kinekor contended that the settlement agreement was a vertical arrangement and did not contravene the Act — Tribunal found that the agreement constituted a horizontal market allocation, thus contravening section 4(1)(b)(ii) of the Competition Act.

Comprehensive Summary

Summary of Judgment

Introduction

This decision of the Competition Tribunal of South Africa concerned a complaint referral by the Competition Commission alleging a contravention of the cartel prohibition in section 4(1)(b)(ii) of the Competition Act 89 of 1998. The proceedings were adjudicative in nature and arose from the Commission’s investigation into arrangements regulating film exhibition at the Victoria & Alfred Waterfront shopping complex in Cape Town.

The Competition Commission was the applicant. The first respondent was Primedia Limited (treated in the reasons as the corporate owner of the Ster-Kinekor cinema exhibition business at the relevant time), and the second respondent was Avusa Limited (associated with the Nu Metro cinema business). Although the Commission alleged that the arrangement implicated both Ster-Kinekor and Nu Metro, it sought no relief against Nu Metro because the Commission had granted Nu Metro conditional immunity under the Corporate Leniency Policy following a leniency application.

The matter had a substantial procedural history preceding the competition proceedings. The relevant arrangement originated in 1998 as a settlement agreement resolving High Court litigation between Nu Metro and the V&A’s landlord, with Ster-Kinekor cited as an interested party. That settlement was made an order of the High Court on 29 September 1998, which was before section 4 of the Competition Act came into force on 1 September 1999. The Commission initiated a complaint in May 2009, granted Nu Metro conditional immunity, and ultimately referred the complaint to the Tribunal on 14 March 2012.

The general subject-matter of the dispute was whether a 1998 arrangement, which delineated which cinema operator would exhibit “art films” and which would exhibit “commercial films” at the V&A, amounted to a horizontal market allocation (division of markets by film genre) prohibited by section 4(1)(b)(ii), and—critically—whether there was sufficient evidence of implementation or consensual conduct after the Competition Act came into operation.

Material Facts

During April 1992, Nu Metro began operating cinemas at the V&A under a long-term lease. In 1997, Nu Metro learned that the landlord was negotiating with Ster-Kinekor for premises at the V&A to operate an “art cinema complex”. Nu Metro objected, asserting an oral right of first refusal in respect of additional theatres, and instituted High Court proceedings in October 1997 against the landlord (with Ster-Kinekor cited as an interested party, but with no relief sought against it).

On 11 May 1998, the High Court dispute was settled. The settlement’s operative commercial effect, as recorded by the Tribunal, was that Ster-Kinekor would exhibit only “art films” at the V&A and Nu Metro would exhibit only “commercial films” at the V&A. The settlement included mechanisms and criteria for distinguishing art/non-commercial films from commercial films, including reference to subtitled foreign-language films, limited release English/Afrikaans films, and films classified by Movieline Magazine as “art films”. The settlement further contemplated that the landlord, Ster-Kinekor, and Nu Metro would give effect to the arrangement through their respective lease agreements. The settlement was made an order of the High Court on 29 September 1998.

A material undisputed contextual fact was that section 4 of the Competition Act commenced on 1 September 1999, after the settlement agreement and court order had been concluded and made.

The Tribunal recorded corporate restructuring and succession facts relevant to the respondents’ identity and potential liability. The Ster-Kinekor business changed corporate ownership within the Primedia group over time. It was common cause that Primedia purchased the assets and liabilities of the Ster-Kinekor business in September 2007, and that on 21 January 2011, Primedia, Ster-Kinekor and the landlord concluded an agreement in terms of which Primedia succeeded to the old Ster-Kinekor’s rights and obligations under the lease with the landlord.

The key post-Act factual dispute (and the one on which the Tribunal ultimately decided the case) was whether Ster-Kinekor and Nu Metro implemented the 1998 settlement arrangement after the Competition Act came into operation. The Commission’s case depended on showing continuing conduct directed at giving effect to the settlement after 1 September 1999. Ster-Kinekor’s evidence and argument, by contrast, was that the settlement was not implemented after the Act commenced, and that Ster-Kinekor’s programming at the V&A was driven by its own “art nouveau” business model rather than by any collusive arrangement.

In relation to implementation, the Tribunal placed weight on evidence that when Nu Metro sought to raise the settlement’s restrictions in December 2008 (in relation to specified film titles), relevant employees at Ster-Kinekor Distribution indicated they had no knowledge of any such settlement agreement. The Tribunal also noted evidence that Ster-Kinekor screened numerous “cross-over” or overlapping titles at the V&A over time in a manner inconsistent with strict adherence to the settlement’s restrictions, including instances where the same films were screened by both cinema houses at the V&A.

Legal Issues

The central legal question was whether the Commission proved a contravention of section 4(1)(b)(ii), which prohibits agreements or concerted practices between competitors involving market division, including division by allocating customers, suppliers, territories, or (as alleged here) by genre of film to be exhibited at a particular location.

Because the settlement agreement pre-dated the commencement of section 4, a further decisive legal issue was whether, after 1 September 1999, there were actions or discussions between the parties directed at implementing the arrangement such that an “agreement” (as contemplated by section 4) could be established in the post-commencement period. This issue involved a mixed enquiry of application of law to fact: the Tribunal had to apply the legal meaning of “agreement” in section 4 to the evidentiary record concerning the parties’ subsequent conduct.

Additional issues were raised by Ster-Kinekor but were not determined because they became unnecessary in light of the Tribunal’s dispositive finding on implementation. These included whether the settlement should properly be characterised as a settlement of disputes in two vertical relationships (tenant–landlord lease arrangements) rather than a horizontal agreement between competitors; whether the Tribunal could grant relief against the “new” Primedia as opposed to predecessors (including issues framed as economic successor liability); and whether the arrangement was insufficiently “egregious” to fall within section 4(1)(b). The Tribunal expressly treated these as moot once it concluded the Commission failed on implementation.

Court’s Reasoning

The Tribunal’s reasoning proceeded from the temporal point that the settlement agreement and High Court order were concluded before section 4 of the Competition Act came into force. On that basis, the Tribunal held that a contravention of section 4(1)(b)(ii) could only be established if the evidence showed post-commencement consensual conduct—described as “actions or discussions” directed at implementing the settlement after the Act’s commencement. In articulating this approach, the Tribunal referred to authority on the meaning of “agreement” in section 4, specifically relying on Netstar (Pty) v Competition Commission (97/CAC/May10).

Against that legal yardstick, the Tribunal assessed the evidence led on implementation. It considered the Commission’s witnesses, particularly evidence that the settlement negotiations in early 1998 involved Nu Metro and Ster-Kinekor representatives (without landlord representatives present) and that, according to a former Nu Metro executive, Ster-Kinekor “fully complied” up to 2001. However, the Tribunal treated the probative value of that testimony as limited because the witness conceded under cross-examination that he did not personally monitor compliance and therefore lacked personal knowledge of whether Ster-Kinekor adhered to the settlement’s restrictions.

The Tribunal attached significance to the fact that Ster-Kinekor’s exhibition of “art films” at the V&A could be explained by Ster-Kinekor’s independent business strategy, described as an “art nouveau” model, rather than by compliance with a collusive settlement. It reasoned that the mere circumstance that Ster-Kinekor screened art films was not, without more, proof of implementation of a restrictive agreement. The Tribunal illustrated this evidentiary point by drawing on an analogy previously used in appellate authority to caution against drawing strong inferences from conduct that can be explained consistently with lawful behaviour.

The Tribunal also examined evidence from Nu Metro’s content and marketing executive (who testified that he was responsible for monitoring implementation and that he had enforced the settlement “multiple occasions”). The Tribunal accepted that, under cross-examination, this witness conceded that Nu Metro had tried to invoke the settlement only once, namely in December 2008, which the Tribunal characterised as an important contradiction of the earlier claim of repeated enforcement. This concession undermined the Commission’s theory of sustained monitoring and compliance over many years.

A further element of the Tribunal’s evaluation concerned the testimony of Ster-Kinekor Distribution personnel, including the CEO of distribution and a sales executive, who stated they were unaware of the settlement agreement until it was raised by Nu Metro in December 2008. The Tribunal treated their evidence as corroborated by contemporaneous email correspondence in which Ster-Kinekor personnel requested a copy of the agreement because they did not know of it. On the Tribunal’s account, when the settlement was raised, Ster-Kinekor allowed Nu Metro to screen certain films at the V&A, but also allowed Ster-Kinekor to screen those same films at the V&A, conduct which was inconsistent with strict implementation of the settlement’s restrictions.

The Tribunal considered, and was not persuaded by, the Commission’s submission that the instances of non-compliance were merely “cheating” of the kind common in cartel conduct. It reasoned that this characterisation was difficult to sustain given the number and nature of apparent breaches that went unchallenged and the weakness in the evidence that Nu Metro consistently monitored and enforced compliance. The Tribunal accordingly concluded that the factual record did not support a finding of continuing post-Act conduct implementing the 1998 market-division arrangement.

Having found insufficient evidence of post-commencement implementation, the Tribunal concluded that the Commission failed to prove a contravention of section 4(1)(b)(ii). It expressly held that, in light of that finding, it would be academic to decide whether section 4(1)(b)(ii) was legally applicable on the Commission’s preferred characterisation, and it was similarly unnecessary to decide the other defences (including the competence to grant relief against the “new” Primedia).

Outcome and Relief

The Tribunal dismissed the Commission’s complaint referral under case number CR191Mar12.

No administrative penalty or declaratory relief was granted. The Tribunal made no order as to costs.

Cases Cited

Competition Commission v South African Breweries (Case No. 129/CAC/Apr14).

Netstar (Pty) v Competition Commission (97/CAC/May10).

Afrisure CC and Another v Watson NO and Another 2009 (2) SA 127 (SCA).

Lawson & Kirk v South African Discount and Acceptance Corporation (Pty) Ltd 1938 CPD 273.

Hoechst v Commission (T-161/05) [2009] E.C.R.

Enichem v Commission (T-6/89) [1991] E.C.R. II-1694.

Competition Commission v Delatoy Investments (Pty) Ltd and Others (CR212Feb15).

Legislation Cited

Competition Act 89 of 1998, section 4(1)(b)(ii).

Competition Act 89 of 1998, section 65(1).

Rules of Court Cited

No rules of court were cited in the Tribunal’s reasons.

Held

The Tribunal held that because the relevant settlement agreement and High Court order were concluded before section 4 of the Competition Act came into force, a contravention of section 4(1)(b)(ii) could only be established if the Commission proved post-commencement conduct amounting to actions or discussions directed at implementing the arrangement after 1 September 1999.

On the evidence, the Tribunal found that the Commission did not prove such implementation. The evidence suggested that Ster-Kinekor’s film programming at the V&A could be explained by its independent “art nouveau” business model, that Nu Metro invoked the settlement restrictions only once (in December 2008), and that relevant Ster-Kinekor personnel were unaware of the agreement until that time. Accordingly, the Tribunal found insufficient evidence of a prohibited agreement or its implementation in the post-commencement period and dismissed the complaint referral.

LEGAL PRINCIPLES

An agreement concluded before the commencement of section 4 of the Competition Act does not, without more, establish a contravention of section 4(1)(b)(ii) after commencement; the Commission must prove post-commencement conduct evidencing an “agreement” in the statutory sense, including conduct directed at implementing the restrictive arrangement after the Act came into force.

In determining whether an “agreement” exists for purposes of section 4, the Tribunal applied the approach reflected in Netstar (Pty) v Competition Commission (97/CAC/May10), treating the existence of an agreement as requiring proof grounded in subsequent conduct or communications consistent with a meeting of minds, rather than inference from behaviour that can be explained by independent commercial strategy.

Where conduct relied upon to infer implementation is equally consistent with a firm’s unilateral business model or strategy, that conduct does not, on its own, justify an inference that the firm implemented a prohibited market-allocation agreement; the evidentiary burden remains on the Commission to prove implementation (or continuing consensus) after the Competition Act became operative.

Competition Commission v Primedia Limited and Another (CR191Mar12) [2018] ZACT 11; [2018] 1 CPLR 144 (CT) (5 February 2018)